Document of The World Bank
FOR OFFICIAL USE ONLY
Public Disclosure Authorized Report No: 49332 - MA
PROJECT APPRAISAL DOCUMENT
ON A
PROPOSED LOAN Public Disclosure Authorized IN THE AMOUNT OF EUROS 25.9 MILLION AND US$8.6 MILLION (US$43 MILLION EQUIVALENT)
TO THE
OFFICE NATIONAL DE L’EAU POTABLE (ONEP) (NATIONAL POTABLE WATER AUTHORITY)
WITH THE GUARANTEE OF THE Public Disclosure Authorized
KINGDOM OF MOROCCO
FOR THE
OUM ER RBIA SANITATION PROJECT
May 20, 2010
Sustainable Development Department Middle East and North Africa Region Public Disclosure Authorized
This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS (Exchange Rate Effective March 28, 2010)
Currency Unit = Moroccan Dirham (MAD) MAD 8.312 = US$ 1 US$ 0.120 = MAD 1
FISCAL YEAR January 1 – December 31
ABBREVIATIONS AND ACRONYMS
BOD Biological Oxygen Demand CAS Country Assistance Strategy CDM Clean Development Mechanism CPS Country Partnership Strategy CR Rural Municipality/Commune Rurale DAE Department for Sanitation and Environment (ONEP)/Direction de l’Assainissement et de l’Environnement DAM Department for Procurement (ONEP)/ Direction Approvisionnement et Marchés DPL Development Policy Loan EA Environmental Assessment EMP Environmental Management Plan ESW Economic and Sector Work GEP Program for Access to Potable Water/Programme de Généralisation de l’Eau Potable GOM Government of Morocco HC House Connection IBRD International Bank for Reconstruction and Development INDH National Human Development Initiative /Initiative Nationale de Développement Humain () MDG Millenium Development Goals MEMEE Ministry of Energy, Mines, Water and Environment MENA Middle East and North Africa MIC Middle-Income Country O&M Operation and Maintenance ONEP National Office for Potable Water/Office National de l’Eau Potable PAGER Water Supply Program for Rural Populations/Programme d’Approvisionnement Groupé en Eau Potable des Populations Rurales PDO Project Development Objective PNA National Sanitation Plan/Plan National d’Assainissement RWS Rural Water Supply RWSS Rural Water Supply and Sanitation SEEE State Bureau for Water and Environment/Secrétariat d’ Etat chargé de l’Eau et de l’Environnement SDR Safeguard Diagnostic Review SIL Specific Investment Loan SMT Social Mobilization Team WSS Water Supply and Sanitation WUA Water Users Association
Vice President: Shamshad Akhtar Acting Country Director: Francoise Clottes Sector Director Laszlo Lovei Sector Manager: Francis Ato Brown Task Team Leader: Alexander E. Bakalian KINGDOM OF MOROCCO - OUM ER RBIA SANITATION PROJECT
TABLE OF CONTENTS
Page
I. STRATEGIC CONTEXT AND RATIONALE ...... 1 A. Country and sector issues...... 1 B. Rationale for Bank involvement ...... 2 C. Higher level objectives to which the project contributes ...... 3
II. PROJECT DESCRIPTION ...... 4 A. Lending instrument ...... 4 B. Project development objective and key indicators ...... 4 C. Project components ...... 4 D. Lessons learned and reflected in the project design ...... 5 E. Alternatives considered and reasons for rejection ...... 6
III. IMPLEMENTATION ...... 7 A. Institutional and implementation arrangements ...... 7 B. Monitoring and evaluation of outcomes/results ...... 8 C. Sustainability...... 8 D. Critical risks and possible controversial aspects ...... 9 E. Loan/credit conditions and covenants ...... 11
IV. APPRAISAL SUMMARY ...... 13 A. Economic and financial analyses ...... 13 B. Technical ...... 15 C. Fiduciary ...... 16 D. Procurement ...... 16 E. Social...... 17 F. Environment ...... 18 G. Safeguard policies ...... 19 H. Policy Exceptions and Readiness...... 20
Annex 1: Country and Sector or Program Background ...... 21
Annex 2: Major Related Projects Financed by the Bank and/or other Agencies ...... 24 Annex 3: Results Framework and Monitoring ...... 26
Annex 4: Detailed Project Description ...... 30
Annex 5: Project Costs ...... 33
Annex 6: Implementation Arrangements ...... 35
Annex 7: Financial Management and Disbursement Arrangements ...... 38
Annex 8: Procurement Arrangements ...... 45
Annex 9: Economic and Financial Analysis ...... 51
Annex 10 - Social Assessment ...... 65
Annex 11: Safeguard Policy Issues ...... 71
Annex 12: Project Preparation and Supervision ...... 78
Annex 13: Documents in the Project File ...... 79
Annex 14: Statement of Loans and Credits ...... 80
Annex 15: Country at a Glance ...... 81
Annex 16: Map IBRD 37425 ...... 84
KINGDOM OF MOROCCO
MOROCCO OUM ER RBIA SANITATION
PROJECT APPRAISAL DOCUMENT
MIDDLE EAST AND NORTH AFRICA
MNSSD
Date: May 20, 2010 Team Leader: Alexander E. Bakalian Acting Country Director: Francoise Clottes Sectors: Sanitation (100%); Sector Manager/Director: Francis Ato Brown/ Themes: Access to urban services and housing Laszlo Lovei (67%); Pollution management and environmental health (33%) Project ID: P098459 Environmental category: B Lending Instrument: Specific Investment Loan Joint IFC: Joint Level:
Project Financing Data [X] Loan [ ] Credit [ ] Grant [ ] Guarantee [ ] Other:
For Loans/Credits/Others:
Total Bank financing: EUR 25.9 million and US$ 8.6 million (equivalent US$43 million) Proposed terms: Euro and dollar denominated commitment -linked IBRD flexible loan with a variable spread and a final maturity of 30 years including a 5-year grace period.
Financing Plan (US$m) Source Local Foreign Total Borrower 32.1 0.00 32.10 International Bank for Reconstruction and 43.0 0.00 43.00 Development Total: 75.1 0.00 75.10
Borrower: ONEP - Morocco
Responsible Agency: Office National de l'Eau Potable (ONEP) Station de Traitement Akrach Avenue Mohamed Belhassan El Ouazzani Rabat, Morocco Tel: (212-537) 650-695 Fax: (212-537) 759-106
Estimated disbursements (Bank FY/US$m) FY 11 12 13 14 15 16 Annual 5.00 8.00 10.00 10.00 5.00 5.00 Cumulative 5.00 13.00 23.00 33.00 38.00 43.00 Project implementation period: Start May 1, 2010 End: September 30, 2015 Expected effectiveness date: August 1, 2010 Expected closing date: December 31, 2015
Does the project depart from the CAS in content or other significant respects? [ ]Yes [X] No Ref. PAD I.C. Does the project require any exceptions from Bank policies? Ref. PAD IV.G. [ ]Yes [ X] No Have these been approved by Bank management? [ ]Yes [ ] No Is approval for any policy exception sought from the Board? [ ]Yes [ ] No Does the project include any critical risks rated “substantial” or “high”? [ X ]Yes [ ] No Ref. PAD III.E. Does the project meet the Regional criteria for readiness for implementation? [ X]Yes [ ] No Ref. PAD IV.G.
Project development objective Ref. PAD II.C., Technical Annex 3
The objectives of the Project are to: (i) increase access to sewerage services and reduce wastewater-related pollution in selected towns in the Project provinces of Azilal, Benimellal, Khourigba, Safi, Yousoufia and Settat; and (ii) pilot non-conventional technologies for wastewater systems in selected locations.
Project description [one-sentence summary of each component] Ref. PAD II.D., Technical Annex 4
The proposed project will consist of 2 main components:
Component 1: Wastewater Collection and Treatment. Rehabilitation and expansion of existing sewerage systems, including collection networks and treatment plants, and provision of equipment for the maintenance and operation of systems for about eleven selected small and medium towns in the Project Provinces.
Component 2: Piloting of Wastewater Technologies and Implementation Support.
a) the strengthening of the capacity of ONEP to pilot non-conventional and low-cost technologies to deliver wastewater services in small towns, through twining arrangements, and dissemination of know-how; b) the piloting of odor-control and methane-capture technology in two selected treatment plants; and c) the provision of implementation support, including support for: construction supervision; project management, monitoring and reporting; monitoring of environmental management plans; community awareness raising campaigns; promotion of wastewater reuse projects; and development of an operational strategic plan for sanitation activities.
ii
Which safeguard policies are triggered, if any? Ref. PAD IV.F., Technical Annex 11
The project will be piloting the use of country systems for two safeguard policies that are triggered: Environmental Assessment and Involuntary Resettlement. A Safeguard Diagnostic Review report has been drafted to cover these two policies. Public consultation on the report was done on March 22, 2010, in Rabat. Gap filling measures have been identified and are listed in the Technical Annex 11. Significant, non-standard conditions, if any, for: Ref. PAD III - E.
Board presentation: None
Loan/credit effectiveness: As condition of effectiveness, the Manual of Operations, satisfactory to the Bank, has been adopted by the Borrower.
Covenants applicable to project implementation: Financial covenant For each fiscal year throughout the implementation of the Project, it is agreed that the Borrower undertakes that its estimated Net Revenues1 shall be at least 1.2 times the estimated Principal Debt Service Requirements2 on its Debt3 . Whenever f it is necessary to value, in terms of the currency of the Guarantor, the Debt payable in another currency, this valuation will be made on the basis of the prevailing lawful rate of exchange at which such other currency is, at the time of such valuation, obtainable for the purposes of servicing such Debt; or, in the absence of such rate, on the basis of a rate of exchange acceptable to the Bank. In the event that the Borrower does not maintain the above 1.2 ratio, the Borrower, after consultation with the Bank, shall take all necessary measures agreed upon with the Guarantor to maintain such ratio.
Agreements with Municipalities Prior to implementing any contract for works or goods related to the sewerage system for any of
1 “Net Revenues” means the difference between: (i) the sum of revenues from all sources related to operations and Net Non-Operating Income, but excluding operations carried out on behalf of the Guarantor, internal works to be depreciated and bad debts to be written off; and (ii) the sum of all expenses related to operations including administration, adequate maintenance, taxes and payments in lieu of taxes, but excluding provision for depreciation, other non-cash operating charges and interest and other charges on Debt. “Net Non-Operating Income” means the difference between: (i) revenues from all sources other than those related to operations such as revenues from financial placements; and (ii) expenses, including taxes and payments in lieu of taxes, incurred in the generation of revenues in (i) above and financial investments. 2 “Principal Debt Service Requirements” means the aggregate amount of repayments (including sinking fund payments, if any) of, and interest and other charges on, Debt. 3 “Debt” means any indebtedness of the Borrower (i) maturing by its terms more than one year after the date on which it is originally incurred, and (ii) being deemed to be incurred under a loan contractor agreement or other instrument providing for such debtor for the modification of its terms of payment on the date of such contract, agreement or instrument. iii
the selected towns in any of the Project Provinces, the Borrower shall ensure that: (a) a written agreement has been executed with the relevant Municipality transferring to the Borrower the management of sanitation services in that town, specifying the role and responsibility of each party in the wastewater collection and treatment service provision; and (b) the Municipality has provided evidence acceptable to the Borrower and to the Bank that all necessary procedures for the acquisition and financial compensation for land necessary for the treatment plant for said town, as set forth in the Safeguard Diagnostic Review (SDR), have been complied with in a manner satisfactory to the Borrower and to the Bank.
Financing agreements under the National Sanitation Program Each year throughout the period of implementation of the Project, the Borrower shall provide evidence satisfactory to the Bank that a financing agreement under the National Sanitation Program has been executed between the Borrower, the Ministry of Interior, the State Secretariat for Water and Environment and the Ministry of Economy and Finance, for the contribution from state funds to the financing of eligible wastewater projects under the Project.
Anti-corruption The Borrower shall ensure that the Project is carried out in accordance with the provisions of the Anti-Corruption Guidelines.
Safeguards In order to ensure the proper implementation of the Project in an environmentally sound manner, and subject to the provisions of the following paragraphs, the Borrower shall carry out the Project in accordance with the Environmental Legislation and the Land Acquisition Legislation and shall take the following actions in consultation with the Bank: (a) the Borrower shall adopt by no later than October 15, 2010, and further implement the Terms of Reference for activities to be carried out under the Project; (b) the Borrower shall disclose on its website all EAs that will be prepared for purpose of the Project; (c) the Borrower shall cause any Municipality where a Project activity is to be implemented to acquire any land needed for the purpose of said activity in accordance with the Land Acquisition Legislation and the measures described in paragraphs 127-131 of the SDR; (d) the Borrower shall undertake, one (1) year after the Effective Date or at such later date as agreed between the Borrower and the Bank, an independent review of the land acquisition processes implemented by each of the Municipalities where Project activities are carried out, including any ongoing grievance process; (e) if at any time the Environmental Legislation and/or the Land Acquisition Legislation is proposed to be modified, the Borrower shall, prior to such modification, inform the Bank of, and consult with it on, such proposal; and if in the opinion of the Bank the application of any aspect of such proposal would result in adverse environmental impacts or adverse impacts on owners or users of land to be acquired under the Project, the Borrower shall continue to carry out the Project in accordance with such other environmental guidelines as shall have been determined in consultation between the Borrower and the Bank to be necessary to ensure the proper implementation of the Project in a sound and sustainable manner from an environmental and land acquisition standpoint; and (f) the Borrower shall ensure that adequate information on the implementation of the environmental management plans and/or environmental iv mitigation measures and on land acquisition is suitably included in the progress reports.
Reporting The Borrower shall: (a) prepare, under terms of reference agreed with the Bank, and furnish to the Bank, about twenty eight (28) months after the Effective Date, a report on the progress achieved in the carrying out of the Project during the period preceding the date of that report and setting out the measures recommended to ensure the efficient implementation of the Project and the achievement of the objectives thereof during the period following such date; and (b) review with the Bank, about thirty (30) months after the Effective Date, this progress report and take all measures required to ensure the efficient completion of the Project and the achievement of its objectives.
v
I. STRATEGIC CONTEXT AND RATIONALE
A. Country and sector issues
1. With 700m3/capita/yr, of which 70 percent of withdrawals are from surface water and 30 percent from groundwater, Morocco has a relatively high water potential in the Maghreb. However, the water is unevenly distributed between different parts of the country and highly variable within and between years. Droughts are relatively common. Ninety percent of economically accessible surface resources are already dammed, leaving few options for additional surface water storage. Population and economic growth have increased demand even as supply has fallen. The country has seen a 30 percent drop in average precipitation since 1970, increasingly accepted as a sign of climate change. In recent years, the amount of surface water stored in dams has repeatedly fallen short of the amount expected. As a result, restrictions for irrigation water have been common. Wherever they can, farmers have been partially making up the shortfall in surface water by tapping into groundwater, and aquifer depletion is becoming more and more serious. The allocations for urban and municipal water are around 15 percent of the total water abstracted in Morocco. Urban growth and further declines in average precipitation associated with climate change make it almost sure that the amount of water available for irrigation will decline over the next few decades in most basins of Morocco.
2. Strategic shifts in Morocco’s water sector. Morocco’s water policies have long focused on securing scarce and unevenly distributed resources for urban and agricultural needs, through the development of dams, large scale irrigation perimeters, and urban water supply systems. While creating infrastructure and institutions, this supply-driven focus also led to delayed investments for water conservation, sanitation and pollution control, and rural water supply. Since the late 90s, the Government of Morocco (GOM) has taken steps to bring about better resource management and protection, as well as better access and efficiency in infrastructure service, with growing awareness of the need to advance demand management policies. The Bank and GOM elected water as a sectoral entry point for the 2005-2009 Country Assistance Strategy (CAS) objectives, and developed a CAS “water pillar” aimed at “improving water management and access to water and sanitation services”. This water partnership has been underpinned by substantial analytical work, policy dialogue, and innovation, and was recently articulated around a programmatic Water Sector Development Policy Loan (2007- 2009) supporting reform in sector governance, water resources management, irrigation, and water supply and sanitation. The new Country Partnership Strategy 2010-2013 (discussed at Board in January 2010) also highlights the need for continued efforts to increased service provision especially in wastewater collection and treatment.
3. Prioritizing Sanitation: The National Sanitation Program. Sanitation is substantially less developed than potable water which is quasi-universal in all urban areas in Morocco. The rate of connection to sewerage is estimated to be around 76% in large cities with a population of more than 100,000 and less than 40% for small and medium cities. Urban sanitation infrastructures are generally poorly maintained due to the limited capacity of the municipal governments in charge of the maintenance when this responsibility has not been delegated to a dedicated operator such as the National Office for Potable Water (Office National de l’Eau Potable, ONEP), a local public utility (Régie) or a private company operating under a concession contract (Délégataire). As a consequence, many systems are degraded and in need for rehabilitation. Sewer overflowing is
1 commonplace during the rainy season. An extensive study1 showed negative impacts on public health, environment and economy due to poor sanitation and lack of adequate pollution control. Installed wastewater treatment capacity covers about 8% of the volume of sewage collected and the reuse of wastewater is often practiced in an uncontrolled manner. The National Sanitation Program (Plan National d’Assainissement, PNA) which was prepared in 2006 (and reviewed by a joint World Bank-KfW team2) upon the request of the Inter-ministerial Commission on Water provides a policy framework for investments to address the lagging coverage in sanitation (especially in small towns), pollution control, and highlighting the wastewater reuse potential in Morocco. The objective of the PNA by 2020 is to increase the overall rate of access to sanitation to 80%, and wastewater treatment to 60%. The National Sanitation Program targets 260 towns covering about 10 million people. The estimated costs of the program were put at 43 billion Dirhams (about US$5 billion).
B. Rationale for Bank involvement
4. The Bank is well positioned to support the project due to: (i) its long-standing partnership with ONEP; (ii) its continued efforts to support the GOM efforts on sectoral reforms under the 2005-2009 CAS and the recent Country Partnership Strategy (January 2010), building on its recent involvement in a programmatic Water Sector DPL; and (iii) its added value as a knowledge and innovation broker to support ONEP in its relatively new mandate of sanitation under the PNA. It is also worth noting that this sanitation project belongs to a package of integrated operations supported by the Bank in the Oum Er Rbia river basin, including the Oum Er Rbia Irrigated Agriculture Modernization project (FY10), and grant-funded activities to build up the capacity of the Oum Er Rbia River Basin Agency to adapt to climate change. Specifically the rationale for World Bank involvement includes:
5. Supporting a long-standing partnership with a key national operator. ONEP is the most important water supply operator in Morocco, responsible for serving over 500 medium to small towns, or about 35% of the urban population3. Countrywide, ONEP is in charge of potable water production and transmission for bulk sale to distributors (“municipal régies” and private operators), and of rural water supply development. Since 2004 ONEP’s mandate has been expanded to install, upgrade and operate sanitation systems in the towns where it distributes water. Under the new National Sanitation Program, ONEP’s role is essential in the expansion of sanitation coverage in Morocco, particularly in small towns. This proposed operation will help ONEP fulfill its new mandate to increase the overall rate of access to sanitation and wastewater treatment, and thus narrow the service gap between large and small towns. ONEP has been supported by the Bank since its inception in 1972 and has requested the World Bank to assist in the implementation of the PNA to assist in fulfilling ONEP’s role in sanitation.
1 Banque Mondiale: Royaume du Maroc, Evaluation du Cout de la Dégradation de l’Environnement, Rapport 25992- MOR, Juin 2003 2 Revue Strategique du Programme National d’Assainissement”, Partenariat Banque Mondiale – KFW ; Rapport No. 40298-MA” May 2008: 3 Other operators include municipal régies, serving 13 large cities (31% of urban users), and 4 private concessionnaires (in Casablanca, Rabat, Tangiers and Tetouan, 34% of the urban market).
2 6. Pursuing the water partnership with the GOM under the CPS. The Bank and GOM elected water as a sectoral entry point for the 2005-2009 Country Assistance Strategy, and developed a CAS “water pillar” aimed at “improving water management and access to water and sanitation services”. This water partnership is continued under the new CPS and is built on substantial analytical work, policy dialogue, and innovation4. The Bank is financing in parallel an irrigation project in the same river basin (Oum Er Rbia Irrigated Agriculture Modernization Project, P093719) along with a technical assistance program to the basin agency to strengthen its oversight and planning capabilities (Strenghtening Capacity to Adapt to Climate Change Impacts on Water Management in the Oum Er Rbia Basin Project, TF092827). It is expected that the coordinated efforts in the basin will lead to a model that could be replicable elsewhere.
7. Serving as a knowledge and innovation broker in sanitation. The Bank is not only providing financing to a long-established partner, but also brings into play its extensive knowledge on best practices from other countries especially on appropriate and cost effective technologies. The Bank has recently organized a study tour in Brazil for Moroccan sector professionals to exchange experiences on innovative wastewater management practices. It is expected that significant cost reductions (in the range of 30-40%) can be achieved through some well-tested technologies such as the upflow anaerobic sludge blanket (UASB) treatment units and the “condominial sewers”, as used in Brazil. Furthermore, the experiences in other countries on using waste-generated biogas for domestic uses can prove beneficial in expanding the benefits of the project to poor households. These social and environmental considerations will also contribute to increase project sustainability. These practices together with sound social, economic, and environmental approaches, once proven successful, can be later scaled-up by ONEP to other areas within the framework of the PNA.
C. Higher level objectives to which the project contributes
8. The proposed project will contribute to achieving the Government of Morocco’s objective of increasing the overall rate of sanitation access and the reduction of pollution in the natural environment5 and in doing so it will improve the living and health conditions of the beneficiaries. In this context, the proposed project will support and contribute directly to the 2010-2013 CPS objectives under its Pillar 3 “Sustainable Development in Changing Climate” of increased access to water supply and sewerage services and increased wastewater treatment (as stated in “CPS outcomes” under the water management program area). As in most wastewater improvement projects, this project will contribute to the promotion of the social and economic development of these small towns. It is important to indicate that the piloting of non- conventional lower cost technologies will provide a potential for significant cost reduction in the overall scaling up of the sanitation program in Morocco. Moreover, the piloting of the use of country systems (UCS) for safeguards in this project will open the possibility for ONEP to streamline project preparation in the future by using its own methods and procedures for
4 Evaluation on-going for 3 GPOBA-funded pilots in Casablanca, Tangiers and Meknés 5 The objective of the National Sanitation Program by 2020 is to increase the overall rate of sanitation access to 80%, and wastewater treatment to 60%. The current connection rate to a sewer network is estimated at about 76% for large cities 9more than 100,000 inhabitants), 67% for cities with 20,000 and 100,000 inhabitants and about 40% for towns with less than 20,000 inhabitants. The overall connection rate is estimated at 70%. The National Sanitation Program targets 260 towns covering about 10 million people.
3 environmental and social impact assessments in all its projects, including externally-funded projects.
II. PROJECT DESCRIPTION
A. Lending instrument
9. The project proposes to use the instrument of a Specific Investment Loan (SIL) to support ONEP’s efforts of increasing the overall rate of sanitation access, and wastewater treatment in the Oum Er Rbia basin.
B. Project development objective and key indicators
10. The project development objectives are (i) to increase access to sewerage services and reduce wastewater-related pollution in selected towns in the six provinces of Azilal, Beni Mellal, Khourigba, Safi, Settat and Youssoufia; and (ii) pilot non-conventional technologies for wastewater systems in selected locations.
The achievement of the PDO will be monitored through the following performance indicators:
- Number of new sewage connections provided under the project; - Number of treatment plants constructed under the project complying with national standards; - Volume (mass) of Biological Oxygen Demand (BOD) pollution loads removed by treatment plants financed under the project; - Number of non-conventional technologies piloted.
C. Project components
11. The proposed project will consist of 2 main components which are detailed below:
Component 1: Wastewater collection and treatment - Estimated Cost: US$64.1 million: This component will finance the rehabilitation, and expansion of existing sewerage systems (collection networks and treatment plants) and the purchase of O&M equipment for eleven medium and small centers (Afourer, Beni Ayat, Boujniba, Boulanouar, Chemaia, Demnate, El Brouj, El Ksiba, Hattane, Ouaouizeght, and Youssoufia) covering six provinces in the Oum Er Rbia river basin (Azilal, Benimellal, Khourigba, Safi, Settat, and Youssoufia); These 11 towns were selected on a multi-criteria basis taking into consideration: a) the size of the population, b) the current impact of raw wastewater discharges on the population and the natural environment, c) the availability of feasibility studies, d) ONEP’s current provision of water in these towns and the interest shown by the municipal authorities to also delegate the sanitation responsibility to ONEP. It is expected that around 13,000 new households will be connected to the new network and the wastewater collected from about 240,400 inhabitants will be treated.
4 Component 2. Piloting of Wastewater Technologies and Implementation Support – Estimated Cost: US$ 5.7 million: This component is divided into 3 sub-components:
o Sub-Component 2A - Twinning arrangement for piloting low-cost technologies (US$ 0.4 million). This will finance the services to be provided by a twinning partner that can help ONEP introduce and test the applicability of non-conventional low-cost sewerage technologies.6 Such partner is expected to be a utility that has developed substantial experience in non-conventional and low-cost technologies for delivering wastewater services in small towns. This long-term South-South partnership and cooperation will provide ONEP with the needed expertise to expand services to small towns in an affordable manner. Under this sub-component, ONEP will also disseminate this know- how to the local consulting industry through workshops and conferences.
o Sub-Component 2B - Odor control pilots in 2 treatment plants (US$ 1.8 million. This will finance the covering of anaerobic ponds in two pilot cities as a measure to reduce odor and capture the methane for potential productive uses. A feasibility study performed for the State Secretary of Water and Environment (Secretariat d’ Etat pour l’Eau et l’Environnement, SEEE) by Italian consultants identified the geomembrane floating cover as the best technical-economical option. This sub-component will finance the covering of the anaerobic lagoons in two locations to be selected. The wastewater treatment plants in M’rirt and Kalaat M’Gouna have been initially identified as potential sites for this activity.
o Sub-Component 2C - Support to Project Implementation (US$ 3.5 million). It will finance consulting services for construction supervision, project management, monitoring and reporting activities including monitoring of the environmental management plans. It will also finance specialized inputs to ONEP a) in its communications campaign to raise awareness of project benefits among beneficiary communities and enhance community involvement in implementation b) to act as the catalyst for developing reuse projects – where feasible – with the interested parties (Ministry of Agriculture, basin agencies, farmers associations, etc.), and c) to prepare an operational strategic plan for its sanitation activities.
D. Lessons learned and reflected in the project design
12. The project has been designed based on lessons learned from different sources, particularly analytical work, ongoing and completed operations, as well as international best practices.
13. At the operational level, this sanitation project will address the slow pace of household connections to the future sanitation services - the problems encountered by earlier sanitation projects. In the case of an earlier project (the EIB-funded Sebou River Basin Sanitation Project), there was an overestimation of the rate of household connection before the project. Once the
6 During the Project’s preparation period, the Bank team has organized study tour for Moroccan officials to Brazil to familiarize themselves with a number of non –conventional options.
5 project was completed, less than 40% households were ready to pay for the service. Specific mitigation measures have been now considered to address the problems, to include: i) needs assessments of end users, and reasons of non-willingness to pay for the connection; ii) communication campaigns about the benefits of the sanitation services which involved clients, local parliamentarians, as well as local governments; iii) the need to shorten the period between the completion of the infrastructure construction and fee collection (extensive delays in the past had sent the message that the service would be provided for free); and iv) improved coordination and communication between ONEP and the beneficiary communities.
14. At the technical level, the project aims to pilot and promote appropriate, practical, and low cost technologies for wastewater collection and treatment to ensure that the cost to the beneficiaries are affordable and remain sustainable from the operational perspective. Collection systems – such as the “condominial” system in use in some cities in Brazil and decentralized wastewater treatment are already being considered as practical and of low cost. The ONEP experts who participated in a recent study tour on wastewater collection and treatment technologies in Brazil have found many of the innovations to be of relevance to the Moroccan context and are interested in applying them on a pilot basis to learn lessons and replicate them in the future. The Project will support follow-up activities including the organization of international workshops in Morocco, the initiation of a twinning partnership between ONEP and an innovative utility abroad, and the provision of technical training programs.
E. Alternatives considered and reasons for rejection
15. Integrated water management Project for the Oum Er Rbia basin: At identification stage, support to the sanitation sector in the Oum Er Rbia Basin was envisaged as a component of an integrated support program to the water sector in the Oum Er Rbia basin, including support to the irrigation and water resources sectors as well as capacity building for the Oum Er Rbia River Basin Agency. Due to the lack of institutional integration between the relevant authorities (ONEP, Ministry of Agriculture, Secretariat of Water Resources, and River Basin Agency), the choice has been made to prepare different projects for the various sectors so as to clarify and simplify the institutional responsibilities for each project. However, the Oum Er Rbia Basin agency is charged with monitoring and coordinating the impacts of the different interventions in the basin and, as such, will ensure maximizing synergies between all interventions.
16. Inclusion of wastewater reuse investments: Wastewater reuse has become a political priority for the water sector in Morocco and well planned wastewater reuse would allow optimizing the economic benefits of extending wastewater collection and treatment in urban centers. However, the additional investments required for wastewater reuse do not fall under the responsibility of ONEP. ONEP, as an operator is tasked for treating the wastewater to the level of acceptable discharge levels in the natural environment. However, the Project will focus on supporting ONEP’s effort to include the consideration of wastewater reuse options in its technical studies, and to carry out proper consultation and coordination so as to ensure the optimization of its investments taking into account the potential downstream reuse of treated wastewater.
6 17. Size of the loan. The current project will cover 11 small and medium towns in the Oum Er Rbia basin and is considered a relatively small project – equivalent to addressing the sanitation problems in about 5 percent of the population in the basin (Note: the total population in the basin is estimated at 4.5 million). While this project will help address the sanitation problems in these towns, it is expected that the piloting of non-conventional technologies and the use of country systems for safeguards in the context of this project will provide a platform for learning and a solid basis for larger scale replication of sanitation interventions in the future.
III. IMPLEMENTATION
A. Institutional and implementation arrangements
18. The Borrower is ONEP that has already extensive experience with Bank-financed projects. ONEP will implement the project with the support of two of its regional departments. Implementation will be the responsibility of the existing ONEP structures and the TA component will further strengthen relevant institutional and technical capacity for ONEP to implement this and potentially other similar projects.
19. The Department of Environment and Sanitation (Direction Assainissement et Environnement, DAE) will be responsible for overall project implementation. A project manager will be nominated within the DAE for overall coordination. ONEP’s regional departments No. 2 (Tensift) and No. 3 (Centre), with the support of the central departments, will oversee the technical aspects of the sub-projects, the community mobilization efforts, and the construction and supervision of works carried out by contractors and consulting firms. The regional Departments will also be responsible for issuing the call for bids and issuing contracts (for the smaller towns whose technical studies they are responsible for) while the central procurement department (DAM) will manage the procurement packages of the larger towns prepared by DAE. This organization can be revised in agreement between ONEP and the Bank. Technical assistance and training for ONEP under project Component 3 will also support project coordination and reporting.
20. The communes under the Ministry of Interior are responsible for water supply and sanitation in towns and villages under their jurisdiction. In the 11 towns under this project, the communes have already delegated the responsibility for water supply to ONEP. An in-principle agreement has also been reached by all municipal councils covered by the project on the delegation of the management of sanitation services as well to ONEP. Formal delegated management conventions (convention de gestion déléguée) will have to be signed between the commune and ONEP prior to the beginning of the works in each town. Through financial support from the Government (the PNA program financed by the SEEE and the Ministry of Interior), the communes will participate in financing 50% of the collection, treatment and maintenance equipment costs.
21. Morocco has passed a Law (Law 05-54), in February 2006, to define the conditions for municipalities to delegate the management of public services to a public or private operator through an open tender process. This law was reportedly designed for the delegation by urban
7 municipalities of substantial service contracts, and its mandatory tendering requirement is clearly unpractical for low-capacity CRs seeking to outsource small operating contracts in the absence of a local provider market. The law is even less practical in the case of sanitation services, whose financial returns are lower than water supply services. CRs are however not explicitly exempt from the scope of the Law, a fact recognized by all stakeholders as a benign legislative “bug”, causing no known material prejudice to any party, and calling for an amendment. While no calendar is set for such amendment, the continued common outsourcing practice by GOM and CRs is to sign standardized Management Contracts with ONEP on a negotiated sole-source basis. The perceived legal inconsistency is not expected to affect project implementation and future operation of the systems, as further discussed in the “risks” section below.
B. Monitoring and evaluation of outcomes/results
22. ONEP – through its financial department (DFI) - will submit a semi-annual report to the Bank covering the status of implementation, outputs, outcomes, financial statements, procurement plans, environmental and social issues, and actions taken to ensure satisfactory project implementation. The financial, technical and procurement data will be provided by the relevant ONEP departments, in close collaboration with the project coordinator. A mid-term review and final evaluation will be conducted. Particular attention will be paid to the results and impact of the pilots. The semi-annual reports will be shared among ONEP managers and policy makers to facilitate effective project management, reformulation of project strategy if needed, and lesson-sharing.
C. Sustainability
23. Project sustainability can be assessed through: (i) the Government commitment towards Project goals, (ii) the Project beneficiaries' willingness to connect to the network and make their financial contributions, and (iii) ONEP’s capacity to maintain the sewerage infrastructure.
24. Government commitment to the project goals can be assessed by the close fit of the project with broader strategic goals of the government stated in the National Sanitation Program (Programme National d’Assainissement, PNA). The project implements the PNA and provides the platform to introduce innovative lower cost technologies through a South –South twinning arrangement with an experienced wastewater utility from abroad. The Government (with the communes) will provide subsidies at the level of 50% for all investments that ONEP will make in wastewater. ONEP will borrow and finance the other 50% and will recover its costs through tariffs. The Government’s political will to address sanitation deficit has been reflected in the goals set up in the PNA which is to increase the overall rate of sanitation access to 80%, and pollution reduction by 60% by 2020.
25. Beneficiaries' involvement is considered essential to the success of the project. The project ensures their involvement at two stages. First, the feasibility studies identified the concerns of the potential beneficiaries in terms of sanitation services and reflected their needs into the project design with the goal of facilitating household connections to future sanitation
8 services. Second, the project has been working on a very proactive communication strategy to help promote the project benefits and thus increase the connection rate and financial contributions from the communities. Through this awareness raising and mobilization campaign, ONEP is expected to better meet end-users needs, particularly women’s needs as major users of household sanitation service.
26. The operation and maintenance of the new infrastructure can be ensured by ONEP - which is overall a high-capacity agency, ranking among the best performing public operators in the region (and even nowadays competing on sub-Saharan public-private partnership markets). Moreover, ONEP can be expected to improve its O&M practices from the proposed South-South twinning cooperation under this project. It is also worth noting that ONEP receives virtually no government subsidies for operations, achieving adequate cost recovery and infrastructure financing through tariffs and connection fees, urban/rural, production/distribution and water/sewerage cross-subsidy flows, and operational efficiency gains.
D. Critical risks and possible controversial aspects
27. At identification, the review of available designs, site visits, and knowledge of the Borrower, led the team to assess the proposed operation as featuring low levels of risk – after considering the envisaged mitigation measures. Specific factor towards such assessment include:
The relative low complexity of the technical components; ONEP’s strong technical and institutional capacity, high operational standards and compliance record For the pilot components, the project will work in a few towns to test the feasibility of the approaches and use the lessons for scaling up later – and will be supported by an experienced partner-utility (twinning arrangement).
However, some risks remain and are listed below with preliminary mitigation measures:
Risk Risk Rating Risk Mitigation Measure Risk Rating with Mitigation
To Project Development Objectives
Acceptability by the ONEP Moderate A study tour and exchange of Low technical staff of new information between appropriate and low cost practitioners in Brazil who technologies for sanitation have implemented new and wastewater treatment technologies and ONEP has systems shown that the technologies and can be applicable in Morocco (Feb. 2010).
9 To component Results
Lack of demand of house Substantial Adequate social assessment Moderate connections by potential and willingness to connect beneficiaries who assess and pay will be carried out; their current systems as and a well designed adequate and communication and are unwilling to incur marketing strategy has been additional costs for developed and implemented sanitation systems during project preparation and implementation.
Sustainability of the Substantial Agreement is needed on a Moderate operation and maintenance programmatic adjustment of the treatment plants due over the whole project life to failure to properly adjust period – systematic increases tariffs are better tolerated by beneficiaries than sudden increases. A communications strategy will also be put in place to address the issue.
Lack of interest from Substantial Social assessment and Moderate farmers and funding surveys during preparation requirement for additional indicate the need to work treatment and on farm with local farmers distribution of treated associations, the local wastewater may hamper representative of the reuse options Ministry of Agriculture and local elected officials. ONEP will act as the facilitator initially and provide the required technical information. Funding from other agencies (e.g. SEEE) is increasingly being made available by the Government to promote reuse.
Potential inconsistency Moderate Inconsistency is considered Low between the sole-sourcing benign by all stakeholders, of sewerage service without prejudice to any delegation by CRs to party, and is not expected to ONEP and competitive jeopardize the establishment bidding provisions of of service by ONEP Service Delegation law 05-54
10 Reputational Risk
Timeliness and follow-up Moderate Initial indication from the Negligible on gap-filling measures acceptability assessment is following the Use of that the gap filling measures Country Systems (UCS) are acceptable to ONEP procedure for which sees the UCS as environmental assessment beneficial to its image and land acquisition safeguards Overall risk rating Moderate
E. Loan/credit conditions and covenants
The project will include the following condition and covenants:
Operation Manual 28. As the condition of effectiveness of the loan, the Manual of Operations, satisfactory to the Bank, has been adopted by the Borrower.
Financial covenant 29. For each fiscal year throughout the implementation of the Project, it is agreed that the Borrower undertakes that its estimated Net Revenues7 shall be at least 1.2 times the estimated Principal Debt Service Requirements8 on its Debt9 . Whenever if it is necessary to value, in terms of the currency of the Guarantor, the Debt payable in another currency, this valuation will be made on the basis of the prevailing lawful rate of exchange at which such other currency is, at the time of such valuation, obtainable for the purposes of servicing such Debt; or, in the absence of such rate, on the basis of a rate of exchange acceptable to the Bank. In the event that the Borrower does not maintain the above 1.2 ratio, the Borrower, after consultation with the Bank, shall take all necessary measures agreed upon with the Guarantor to maintain such ratio.
7 “Net Revenues” means the difference between: (i) the sum of revenues from all sources related to operations and Net Non-Operating Income, but excluding operations carried out on behalf of the Guarantor, internal works to be depreciated and bad debts to be written off; and (ii) the sum of all expenses related to operations including administration, adequate maintenance, taxes and payments in lieu of taxes, but excluding provision for depreciation, other non-cash operating charges and interest and other charges on Debt. “Net Non-Operating Income” means the difference between: (i) revenues from all sources other than those related to operations such as revenues from financial placements; and (ii) expenses, including taxes and payments in lieu of taxes, incurred in the generation of revenues in (i) above and financial investments. 8 “Principal Debt Service Requirements” means the aggregate amount of repayments (including sinking fund payments, if any) of, and interest and other charges on, Debt. 9 “Debt” means any indebtedness of the Borrower (i) maturing by its terms more than one year after the date on which it is originally incurred, and (ii) being deemed to be incurred under a loan contractor agreement or other instrument providing for such debtor for the modification of its terms of payment on the date of such contract, agreement or instrument.
11
Agreements with Municipalities 30. Prior to implementing any contract for works or goods related to the sewerage system for any of the selected towns in any of the Project Provinces, the Borrower shall ensure that: (a) a written agreement has been executed with the relevant Municipality transferring to the Borrower the management of sanitation services in that town, specifying the role and responsibility of each party in the wastewater collection and treatment service provision; and (b) the Municipality has provided evidence acceptable to the Borrower and to the Bank that all necessary procedures for the acquisition and financial compensation for land necessary for the treatment plant for said town, as set forth in the Safeguard Diagnostic Review (SDR), have been complied with in a manner satisfactory to the Borrower and to the Bank.
Financing agreements under the National Sanitation Program 31. Each year throughout the period of implementation of the Project, the Borrower shall provide evidence satisfactory to the Bank that a financing agreement under the National Sanitation Program has been executed between the Borrower, the Ministry of Interior, the State Secretariat for Water and Environment and the Ministry of Economy and Finance, for the contribution from state funds to the financing of eligible wastewater projects under the Project.
Anti-corruption 32. The Borrower shall ensure that the Project is carried out in accordance with the provisions of the Anti-Corruption Guidelines.
Safeguards 33. In order to ensure the proper implementation of the Project in an environmentally sound manner, and subject to the provisions of the following paragraphs, the Borrower shall carry out the Project in accordance with the Environmental Legislation and the Land Acquisition Legislation and shall take the following actions in consultation with the Bank: (a) the Borrower shall adopt by no later than October 15, 2010, and further implement the Terms of Reference for activities to be carried out under the Project; (b) the Borrower shall disclose on its website all EAs that will be prepared for purpose of the Project; (c) the Borrower shall cause any Municipality where a Project activity is to be implemented to acquire any land needed for the purpose of said activity in accordance with the Land Acquisition Legislation and the measures described in paragraphs 127-131 of the SDR; (d) the Borrower shall undertake, one (1) year after the Effective Date or at such later date as agreed between the Borrower and the Bank, an independent review of the land acquisition processes implemented by each of the Municipalities where Project activities are carried out, including any ongoing grievance process; (e) if at any time the Environmental Legislation and/or the Land Acquisition Legislation is proposed to be modified, the Borrower shall, prior to such modification, inform the Bank of, and consult with it on, such proposal; and if in the opinion of the Bank the application of any aspect of such proposal would result in adverse environmental impacts or adverse impacts on owners or users of land to be acquired under the Project, the Borrower shall continue to carry out the Project in
12 accordance with such other environmental guidelines as shall have been determined in consultation between the Borrower and the Bank to be necessary to ensure the proper implementation of the Project in a sound and sustainable manner from an environmental and land acquisition standpoint; and (f) the Borrower shall ensure that adequate information on the implementation of the environmental management plans and/or environmental mitigation measures and on land acquisition is suitably included in the progress reports.
Reporting 34. The Borrower shall: (a) prepare, under terms of reference agreed with the Bank, and furnish to the Bank, about twenty eight (28) months after the Effective Date, a report on the progress achieved in the carrying out of the Project during the period preceding the date of that report and setting out the measures recommended to ensure the efficient implementation of the Project and the achievement of the objectives thereof during the period following such date; and (b) review with the Bank, about thirty (30) months after the Effective Date, this progress report and take all measures required to ensure the efficient completion of the Project and the achievement of its objectives.
IV. APPRAISAL SUMMARY
A. Economic and financial analyses
Economic Analysis
35. An economic analysis has been carried out for the ten subprojects. Economic Rates of Return (ERR) and Net Present Values (NPVs) have been evaluated based on available or assumed costs of investment and operation, and on estimates of private and public benefits derived from the provision of sewerage services and the treatment of wastewater.
36. The main assumptions are described below:
(a) Benefits and costs have been projected over a 40-year horizon. (b) The opportunity cost of capital is assumed to be 10%, and alternative Net Present Values (NPVs) have also been estimated for discount rates of 8 and 12 %. (c) All transfers including taxes and subsidies are excluded from the analysis. (d) Conservative assumptions have been made on future water consumptions and wastewater production. Per capita daily production of wastewater is estimated at 60 liters per capita per day (lpcd). (e) Average population growth in the towns is assumed to be 1.3% between 2010 and 2020.
13 (f) Private economic benefits derived from access to sewerage services are evaluated as the sum of revenues from sewerage bills and estimates of consumer surplus reflected in the increase in property value. (g) Economic benefits derived from the treatment of wastewater are estimated based on the assumption of an average economic benefit of 0.5 DH per cubic meter of wastewater treated.
37. The global Economic Rate of Return is 11%. The total Net Present Value (NPV) is estimated at US$ 4 million with a discount rate of 10%. The total NPV varies from US$ 14.5 million with a discount rate of 8% to US$ -3.2 million with a discount rate of 12%. The Economic Rates of Return of the subprojects range from 6.86% to 16.53%. The low ERR in specific subprojects underscores the need for the introduction of non-conventional technologies to reduce the cost of provision of sanitation services in these small towns.
Financial analysis
Overall Financial Viability 38. Since 2004, ONEP has been able to deliver on its new mandates in rural water supply and sanitation, which have brought ONEP’s annual capital expenditure (CAPEX) to levels higher than its annual turnover. The self-financing ratio of investments decreased steadily from 25 percent to the current 16 percent, which is still in line with the target set in the Financing Agreement of Ln. 7351-MA. The commercial performances (billing and collection) are improving, particularly for the water distribution activities. For the time being, the operational deficits generated by rural water and sanitation activities are limited. Their major impact results from the financing of investment expenditures, for which ONEP has to contribute substantially (70 percent for rural water and at least 50 percent for sanitation).
39. ONEP’s financial model (see Appendix 1 to Annex 9) shows that the investment program contemplated until 2017 is feasible if ONEP maintains current trends of staff productivity and commercial performance and if the projected tariff increases and subsidies timely materialize. In addition, it is essential that the current fiscal issues related to VAT, which may jeopardize ONEP’s potential of cash generation are rapidly settled.
Cost Recovery and Viability of Sanitation Services 40. Cost recovery rules applicable to urban sanitation services were assessed in the Strategic Review of the National Sanitation Program (PNA), which was carried out jointly by the Bank, KfW and ONEP in 2007-2008. The review recommended, inter alia, (i) to increase the contribution of municipalities to sanitation investments from 30 to 50 percent; (ii) to harmonize the various tariff schedules applicable in ONEP-managed centers; and (iii) to annually revise tariffs to reach a target of DH 5.30/m3 in 2020.
14 41. Consistently with some of these recommendations, the 2008-2010 Framework Agreement between ONEP and the Government includes, among other provisions, an increase of sewerage tariffs of 0.1 DH/m3 every year. In accordance with this provision, an increase of ONEP’s sewerage tariffs by 0.3 DH/m3 has been approved by the Inter-ministerial Committee on Prices in 2010.
42. As sanitation services cannot achieve full cost recovery through the tariffs, the financial viability of ONEP’s sanitation program is contingent over the capacity of the core water activities (bulk sales) to cross-subsidize the services, as demonstrated by the financial model. It was therefore agreed at negotiations that ONEP shall maintain a ratio of net revenues (defined as the annual operating revenues plus the net non operating income (excluding bad debts to be written off) minus cash operating expenditures (excluding interest charges)) to the annual debt service requirements) higher than 1.2.
Financial Impact of Project Activities 43. As expected, the financial internal rate of return (FIRR) of the project components substantially differs from the results of the economic analysis, which captures land values accruing to beneficiaries and external benefits resulting from the reduction of pollution. The overall FIRR is negative and only one project center, Youssoufia, exhibits a positive FIRR (5.7 percent). The overall NPV of the project is estimated at - US$9.0 million, using an 8 percent discount rate.
44. The accumulated cash deficits generated by project activities over 2011-2020 amount to about DH 70 M, i.e. 3.0 percent of the overall deficit generated by ONEP’s sanitation activities over the same period. This outcome should not jeopardize ONEP’s financial viability, as it is lower than the share of the project costs in the overall sanitation program of ONEP (10.5 percent).
45. Sensitivity Analysis. The FIRR of the project as a whole would become equal to zero (financial equilibrium over the life of the project) if tariffs were increased by 30 percent or if the contribution of the communes were increased to 57 percent of the investment costs. In addition, an optimization of investments through the extensive utilization of adapted technologies (e.g. Upwar Flow Anaerobic Sludge Blanket – UASB – for wastewater treatment) would allow increasing the project’s NPV by about US$ 2.7 M.
B. Technical
46. The design studies are on-going and presently are at different levels of progress (Ksiba, El Brouj, Ouaouizaght, Afourer-Beni Ayat and Hattane are at detailed design stage, Youssoufia is at preliminary design stage). Consultants for the 4 remaining studies are being recruited and should be in place before the end of 2010. In most of the cases, ONEP favors pseudo-separate wastewater collection networks (only limited rain water – from roofs of houses - is allowed) with effluent treatment by ponds or trickling filters depending on land availability. Design criteria
15 have been checked and assessed to be in line with international standards within similar socio- economic contexts.
47. After the Brazil study tour, some of the ONEP experts have indicated the need to quickly request the review of some of terms of reference of the yet-to-be-designed projects to allow introduction of non-conventional low-cost technologies such as those used in Brazil. A twinning arrangement is planned under the project to help ONEP pilot those new approaches.
C. Fiduciary
48. ONEP will be responsible for managing the project funds and all related financial transactions. ONEP is a state-owned commercial and industrial enterprise with financial and administrative autonomy (Etablissement public à caractère industriel et commercial). Accordingly, it operates as a private sector entity and the systems in place are based on the principles and procedures of the commercial law of the Kingdom of Morocco. ONEP has a Managing Director, a permanent technical committee, and a Board composed of various ministries and a representative of the Prime Minister. ONEP issues year-end financial statements that are audited by external independent auditors with the required qualifications and experience. The accounting is centralized at Headquarters. ONEP’s Financial Department is well structured, and it has an adequate staff complement with proven experience in donor-financed projects. ONEP has already had experience managing several Bank-financed projects.
49. During project preparation, a financial management capacity assessment of ONEP was carried out. This assessment reviewed the financial management capacity, internal control procedures, financial reporting and ex-post reviews. It confirmed the robustness of the entity’s financial management system and concluded that the project risk from a financial management perspective is considered low (annex 7) as ONEP is a very experienced entity which has in place procedures and systems to prevent financial irregularities.
D. Procurement
50. ONEP has good experience in implementing Bank financed projects and thus in carrying out procurement activities. Basically procurement will be carried out at the central and regional levels. At central level, the Department of Supply and Contracts (Direction des Achats et des Marchés, Division Achats, Projets Assainissement, DAM) and the DPA will handle procurement activities in relation with the Departement of Environnement and Sanitation (Direction Assainissement et Environnement). At regional level, the Regional Departments will be in charge of procurement activities. Assessment of ONEP’s capacities in procurement has been carried out during preparation of Bank financed Rural Water Supply and Sanitation project which is currently underway. It concluded that the procurement system is solid and operates in a structured and reliable control environment and does not present major fiduciary risk. ONEP follows its own procurement rules which are fundamentally based on the national procurement rules (Décret sur les conditions et formes de passation des marchés de l’Etat, du 5 février 2007),
16 which is generally in line with the Bank’s guidelines, with some exceptions as outlined above. However, despite the fact that procurement capacity was found to be satisfactory at the central level (DAM), at the Regional level (DR) capacities need to be improved. Procurement under the Project will be carried out in accordance with Bank Guidelines: Procurement under IBRD Loans and IDA Credits published by the Bank in May 2004 and revised in October 2006.
51. The overall risk is assessed to be low. However this risk could lead to some minor non- compliance and delays during the project implementation and need to be mitigated by the following set of actions:
(a) Agreed standard bidding documents for Works, Supply and Installation and Goods under NCB will be prepared and submitted to the Bank for approval; (b) A detailed procurement plan will be established and used during project implementation; (c) Training in Bank procurement procedures will be provided after the negotiations to DR procurement staff; and (d) Finally, the implementation design includes regular ex-post reviews.
E. Social
52. A Social Assessment survey (SA) was conducted to establish baseline social conditions in the towns targeted by the project. The SA found that baseline conditions justify the intervention. The absence of adequate sanitation infrastructure has profound negative impacts on households’ economic and health conditions. Property prices for both land and real estate and rental prices are depressed due to lack of sanitation, and economic activities are inhibited due local environmental conditions. In all towns, households close to the waste water discharges complain of a high incidence of eye diseases and diarrhea, in addition to higher than normal concentration of pests, insects and rodents. Lack of sanitation infrastructure induces self-imposed limits to the use of water by households, as household members reduce consumption in order to limit potential waste waters spillages from cesspits.
53. The lack of sanitation infrastructure has particularly pernicious effects on the condition of women within the household and at community level. Women are usually involved in the manual evacuation of wastewater through buckets and plastic bags, a task often carried out at night. Lack of sanitation has an impact on women’s condition and on their capacity to get involved in income generating activities. Thirty four percent of interviewed households expect a general amelioration of women’s hygiene conditions following the installation of sanitation infrastructure. Thirty one percent of surveyed households highlight the benefits derived from the elimination of the chore of wastewater evacuation. Women also highlight the benefits in terms of an amelioration of personal status and acquisition of time for other tasks.
54. Addressing social considerations can vastly improve the expected benefits of the deployment of sanitation infrastructure. Based on the recommendation of the SA, project design includes a TA component aimed at supporting ONEP in encouraging community demand, the
17 targeting of poorest households through both payment facilitations and network design, and in enhancing institutional coordination with the communes throughout project implementation (See Annex 9).
F. Environment
55. The team proposed an Environmental category “B” for this project. The Bank team reviewed the draft environmental impact studies prepared for the three sub-projects which are in advanced preparation stage (Ksiba, El Brouj and Ouaouizeght). The documents are well prepared and identified in detail the positive and negative impacts of each of the sub-projects.
56. The positive impacts which are identified include:
Reduction of the organic load that would be discharged into the natural environment;
Eliminating the proximity of wastes (by eliminating the currently used cesspits) from households and reducing the need for frequent emptying of the pits.
Reduction of the risk of reuse in irrigation with raw wastewater
Minimizing the contamination of ground water sources – where the water table is high
Creation of local jobs and impact
57. The negative impacts that the project could include:
During construction: the impacts are linked to the activities carried out by the contractors such as potential risks of discharge of hazardous materials into the soil and groundwater as well improper disposal of construction debris, work and traffic accidents, excessive noise, vibration and dust from construction activities.
During operation: the project could present negative impacts on the quality of receiving water if the operation of the plants is not adequate; moreover, the risk of odors may be present.
18 G. Safeguard policies
6. Safeguard Policies Triggered (please explain why) Yes No OP/BP 4.00 Use of Country Systems X Environmental Assessment (OP/BP 4.01) X Natural Habitats (OP/BP 4.04) Forests (OP/BP 4.36) Pest Management (OP 4.09) Physical Cultural Resources (OP/BP 4.11) Indigenous Peoples (OP/BP 4.10) Involuntary Resettlement (OP/BP 4.12) X Safety of Dams (OP/BP 4.37) Projects on International Waterways (OP/BP 7.50) not eligible for piloting under OP 4.00 Projects in Disputed Areas (OP/BP 7.60) not eligible for piloting under OP 4.00
58. The project has adopted the piloting of the Use of Country Systems (UCS) for the environmental and social safeguards aspects. These two safeguards are triggered because the project activities will a) include land acquisition by the municipal authorities for the construction of the wastewater treatment plants and b) are expected to have environmental impacts during and after construction. Considering the advances made by Morocco’s environmental protection legislation and EIA regulations, and recognizing ONEP’s capacity and compliance track record, the use of country systems and procedures for the environmental assessment and land acquisition aspects of this project should present relatively low risk. The assessment of the country systems (equivalency and acceptability analysis) has been completed and public consultations on the draft “Safeguard Diagnostic Review” (SDR) report were organized by ONEP on March 22nd, 2010 in Rabat in the presence of the Bank team. The SDR identifies a few gap-filling measures (see annex 11) which have been discussed with ONEP and found to be manageable at project level. ONEP has already submitted the environmental impact study for the Ksiba sub-project to the national committee for environmental reviews, which has approved it in February 2, 2010. The environmental impact study for the second sub-project (El Brouj) is currently under review. The Bank team has also reviewed the draft terms of reference for environmental impact assesment which ONEP will implement for its future projects and provided comments which ONEP included in the SDR as an Annex. The gaps identified concerning the policy for land acquisition were discussed and measures defined by ONEP and agreed upon by the Bank as described in the SDR.
19 H. Policy Exceptions and Readiness
59. No policy exceptions are required. The project readiness is acceptable with three sub- projects ready for implementation (with detailed designs and bidding documents in draft forms). The other sub-projects are at different levels of preparation and the schedule of completion has been reviewed and found to be acceptable. The terms of reference for supervision consultants have been submitted for Bank review.
20 Annex 1: Country and Sector or Program Background
KINGDOM OF MOROCCO - OUM ER RBIA SANITATION PROJECT
Rural Poverty and Government Strategy
1. The Government has made poverty reduction one of its top priorities. In 2007, about 9% of Morocco’s population was considered to be below the poverty line. More than two-thirds of them are living in rural areas, though the share in urban areas is rising. The Government of Morocco’s (GOM) 2020 Rural Development Strategy is to improve conditions in rural areas by increasing access to basic infrastructure and social services. This includes reducing provincial disparities related to access. In addition, the National Initiative for Human Development (l’Initiative Nationale pour le Développement Humain, INDH), launched in May 2005, aims at reducing poverty by targeting poor rural and peri-urban areas and vulnerable people.
Organization and needs of the sanitation sector in Morocco
2. In urban as well as rural areas, improved sanitation coverage is lagging behind water supply coverage. The following table summarizes the respective access rates to improved water and sanitation as well as connection rates to individual piped water supply and sewerage. Figures suggest that 3% of the urban population and 57% of the rural population do not have access to improved sanitation.
Access to water and sanitation in Morocco (2006)
Urban Rural Connection to individual piped water supply 83% 18% Access to improved water supply 100% 61% Connection to sewerage 70% 2% Access to improved sanitation 97% 43% Source : Revue Strategique du Programme National d’Assainissement”, World Bank – KFW ; Report No. 40298-MA” May 2008
3. The 70% coverage of the urban population with sewerage represents a significant asset for Morocco, with approximately 11000km of sewer lines installed10. However, these assets have usually been poorly maintained and are often saturated. The operation of sewerage system represents a challenge, especially for middle-sized municipalities who lack the human and managerial resources needed to maintain the infrastructure.
4. Wastewater treatment represents the most obvious challenge for the Moroccan sanitation sector, with only 8% of the collected wastewater being treated before discharge. Around 69 Sewage Treatment Plants (STPs) have been installed in the country, of which around 40 are operated by ONEP. Many of the remaining STPs whose operation falls under the direct responsibility of the municipalities are out of operation.
10 PNA, 2007
21 5. In February 2005, the Inter-ministerial Water Commission (Commission Inter-ministérielle de l’Eau, CIE) called for a plan to catch-up with the needs in the sanitation sector similar to the catch up program that had been successfully implemented for the rural water sector during the previous decade (Programme d’Approvisionnement Groupé en Eau Potable des Populations Rurales, PAGER). This decision led to the preparation of the National Sanitation Plan (Programme National d’Assainissement Liquide, de Traitement et de Reutilisation des Eaux Usees, PNA) which was approved by the GoM in June 2006 and incorporated in the National Finance Law of 2007. The objective of the PNA by 2020 is to increase the overall rate of access to sanitation to 80% and treatment of collected wastewater to 60%. The global cost of the PNA was estimated at 43 billion DH (about US$ 5 billion) of which 70 % was initially financed by the operators and the remaining 30% by municipalities supported by subventions from the National Government. The respective contributions of the operators and the municipalities has been recently revised to be 50% each.
6. Since 2004, ONEP’s mandate has been expanded to install, upgrade, and operate sanitation systems in the towns where it is in charge of water supply. It is therefore a key operator within the PNA framework.
The Framework Agreement between GOM and ONEP for 2008-2010
7. In accordance with its plan to contractualize the relations between the State and the public enterprises, the GOM and ONEP signed a Framework Agreement (Contrat de Programme) organized around the following objectives:
The reinforcement and extension of existing production and transmission infrastructures in order to secure the supply of the cities and urban centers; The completion of the projects related to the universal access to potable water for the rural population in order to reach an average access rate of 91% throughout the Kingdom; The implementation of a sewerage investment program in 121 towns and urban centers and the progressive taking over of the sewerage collection service in all towns and centers where ONEP is operating the potable water distribution system; The implementation of the provisions of Law 69-00 related to the financial control of public enterprises by the State.
8. The achievement of these objectives requires from ONEP a very important investment program in the range of MDH 13 billion (US$ 1.5 billion) for the three-year period, as shown in the table below. For ONEP to implement these investments without damaging its financial equilibrium, the GOM has committed to allow for:
An increase of the potable water tariff of 5% per year, beginning in 2009; A subsidy for the development of the rural water supply of MDH 150 million per year; An increase of the tax for wastewater collection of 0.2 DH/m3 in 2009 and 0.1 DH/m3 in 2010.
22
ONEP’s Investment Program for 2008-2010 (in millions MDH)
Activity 2008 2009 2010 Total
A. Investments in urban water supply Distribution by régies and concessionaires 532.0 440.2 377.4 1,349.6 Distribution by ONEP (present and future) 883.3 1,039.0 953,4 2,875.7 Common measures 672.9 472.0 461.0 1,605.9 Total urban water supply 2,088.2 1,951.2 1,791.8 5,831.2 B. Investments in rural water supply Small rural centers 144.9 144.4 108.5 397.8 Villages (GEP) 1,254.7 1,217.7 1,165.6 3,638.0 Total rural water supply 1,399.6 1,362.1 1,274.1 4,035.8 C. Investments in sewerage 983.0 914.0 1,052.0 2,949.0 D. Acquisition of stocks 36.0 14.0 18.0 69.0 General Total 4,506.8 4,241.3 4,135.9 12,884.0
9. The funding of the above investment plan assumes also a contribution from the municipalities in the range of:
15% for villages supplied through public stand pipes; 30% for centers supplied through individual connections; 50% for new wastewater schemes.
10. ONEP has also committed to engage several deep organizational reforms, in particular:
(a) The decentralization of its non-corporate functions towards the regions; (b) The reinforcement of its internal control system; (c) The development of a Quality Management System including “Security” and “Environment” related components.
23 Annex 2: Major Related Projects Financed by the Bank and/or other Agencies
KINGDOM OF MOROCCO - OUM ER RBIA SANITATION PROJECT
The following is a list of the relevant water and sanitation Bank-financed projects in Morocco:
Sector/Issue Project Ratings
Water Supply and First Water Sector Development Policy Loan IP : S Sanitation (P095840 – Approved 10/16/2006) DO : S Rural development and National Initiative for Human Development Support IP : MS infrastructure Project (P100026 – Approved 12/12/2006) DO : S Water Supply and Rural Water Supply and Sanitation Project IP : S Sanitation (P086877 – Approved 12/15/2005)) DO : S Rural development and Irrigation based Community Development Project IP : S infrastructure (P056978 – Approved 05/31/2001) DO : S Water Supply and Morocco Urban WS&S Access Pilots IP : MS Sanitation (P102527 – Approved 01/29/2007) DO : S
The following is a list of sanitation projects that are financed by other development agencies:
Sector/Issue Project Agency
Sanitation Rural Water supply and sewerage small urban centers Local commercial (3 phases approved in 2005,2007 and 2008 – total Banks amount of DH 2,7 billion)
Sanitation Small towns sanitation – third program (Approved KfW 7/21/2006, € 17.5 million)
Sanitation Small towns sanitation – third program - Phase II (Approved 12/22/2008, € 8.8 million)
Water supply 9th Program - Water supply and sewerage in urban and African and sanitation rural centers (€ 54 millions) Development Bank
Urban sanitation ONEP 8 – Greater Nador Sanitation AFD (Approved 7/28/2006, € 38 million)
Water supply ONEP 7 – Access to water and sanitation AFD and sanitation (Approved 7/27/2006, € 10 million)
Water supply ONEP 6 – Small towns water supply and sanitation AFD infrastructure rehabilitation and extension
24 and sanitation (Approved 2/20/2004, € 13.92 million)
Sanitation Sebou River Basin Sanitation (Approved 12/13/2006, € European 40 million) Investment Bank
Urban Sanitation Sanitation in Khemisset, Tiflet, Sidi Kacem JICA (Approved 11/30/2005, ¥ 4.2 billion)
Urban Sanitation Sanitation in Kella Sraghnas, Benguerir, Ait Ourir, JICA Amizmiz (Approved 3/30/2007, ¥ 5.05 billion)
Sanitation National Sanitation Program (under preparation – € 87 KfW- AFD - BEI million – to cover some 50 centers)
25 Annex 3: Results Framework and Monitoring
KINGDOM OF MOROCCO - OUM ER RBIA SANITATION PROJECT
Results Framework
PDO Project Outcome Indicators Use of Project Outcome Information
- Increase access to sewerage - Number of new sewage connections - Evaluate success or failure of services and reduce wastewater provided under the project the project related pollution in 11 towns of the Oum Er Rbia basin. - Number of wastewater treatment - Learn lessons from pilot plants constructed under the project projects to develop them at a complying with national standards (3 greater scale. - Pilot non-conventional out 4 samples per year compliant) technologies for wastewater systems. - Volume (mass) of BOD pollution loads removed by treatment plant outlets financed under the project
- Number of non-conventional systems constructed
Intermediate Outcomes Intermediate Outcome Use of Intermediate Indicators Outcome Monitoring Increase access to sewerage services and reduce pollution:
EIA studies completed and approved - number of EIA studies approved by - Monitor progress for corrective by the relevant committees the relevant committees measure if required.
Delegated management contracts - number of signed delegated signed by the relevant municipalities management conventions
Consultation meetings with local -Number of sub-projects where stakeholders were carried out awareness campaign has been completed
Treatment plants constructed -number of treatment plants constructed
O&M equipment purchased and - Number of ONEP’s operation teams delivered to ONEP’s operational equipped with adequate O&M teams equipment Pilot non-conventional wastewater systems
Twinning contract in place - Twinning contract signed and Track progress of Component implemented as per schedule and take corrective actions if required. Odor Control in existing plants - Number of plants where odors problems were addressed
26 Arrangements for results monitoring
ONEP will submit a semi-annual report to the Bank covering the status of implementation, outputs, outcomes, financial statements, procurement plans, environmental and social issues, and actions taken to ensure satisfactory project implementation. Financial, technical and procurement data will be collected by the relevant ONEP departments, in collaboration as needed with the project coordinator. A mid-term review and final evaluation will be conducted. Semi-annual reports will be shared among ONEP managers and policy makers to facilitate effective project management, reformulation of project strategy if needed, and lesson-sharing.
27 Arrangements for results monitoring
Target Values Data Collection and Reporting Project Outcome Indicators Baseline YR1 YR2 YR3 YR4 YR5 Frequency Data Responsibility and Collection for Data Reports Instruments Collection - Number new sewerage connections 0 0 3000 6000 9000 13000 Every 6 Project M&E ONEP provided under the project months database
- Number of STPs complying with 0 0 0 0 5 10 Every 6 Project M&E ONEP national standards. (3 out of 4 months database samples in compliance every year)
- Volume (mass) of BOD pollution 0 0 0 440 1280 1830 Every 6 Project M&E ONEP loads removed by treatment plants months database financed under the project (tons/year)
- Number of non-conventional 0 0 0 0 2 4 Every 6 Project M&E ONEP systems piloted months database
Intermediate Outcome Indicators Access increase and pollution reduction - number of EIA studies approved by 0 3 10 10 10 10 Every 6 Project M&E ONEP the relevant committees months database
- number of signed delegated 0 3 8 10 10 10 Every 6 Project M&E ONEP management conventions months database
- Number of subprojects where 0 2 6 8 10 10 Every 6 Project M&E ONEP consultation meetings with local months database stakeholders were carried out
- number of treatment plants 0 0 0 5 10 10 Every 6 Project M&E ONEP constructed months database
- Number of ONEP’s operation teams 0 0 0 4 7 10 Every 6 Project M&E ONEP equipped with adequate O&M months database equipment
28 Pilot non-conventional wastewater systems - Twinning contract signed and 0 Partner Pilot Pilot Construction Training Every 6 Project M&E ONEP implemented as per schedule mobilized projects projects completed completed months database defined designed
- Odor Control in Existing treatment 0 Consultant Pilot Pilot 2 2 Every 6 Project M&E ONEP plants mobilized projects projects months database defined designed
29 Annex 4: Detailed Project Description
KINGDOM OF MOROCCO - OUM ER RBIA SANITATION PROJECT
1. The proposed project will consist in 2 main components which are detailed below.
Component 1: Wastewater collection and Treatment - Estimated Cost: US$64.1 million.
2. The Oum-Er-Rbia hydraulic basin spreads on a surface of 50.000 km2. The Oum Er Rbia river, with 550 km length, takes its origin in the Middle Atlas (at around 1800 m of altitude), crosses the Tadla plain and the inshore Meseta and discharges into the Atlantic ocean, 16 km north of the city of El Jadida. The population of the basin is about 4.5 million inhabitants, of which 35% are urban.
3. This component will consist in the rehabilitation and expansion of existing sewerage systems (collection networks and treatment plants) and the purchase of O&M equipment for eleven medium and small centers (Youssoufia, Chemaia, Ouaouizeght, Afourer, Beni Ayat, El Ksiba, El Brouj, Demnate, Hattane, Boulanouar and Boujniba) covering six provinces in the Oum Er Rbia basin (Azilal, Benimellal, Khourigba, Safi, Settat and Youssoufia) and connecting around 13,000 new households and treating the wastewater originating from about 240,400 inhabitants. The current connection rates in these eleven towns range from 0% in Beni Ayat to 90% in Youssoufia. However, studies carried out so far indicate that many existing sewer networks are in very poor conditions and require major rehabilitation. Most of the towns lack treatment facilities.
4. Design studies are on-going and presently at different levels of progress (Ksiba, El Brouj, Ouaouizaght, Afourer-Beni Ayat and Hattane are at detailed design stage, Youssoufia is at preliminary design stage). Consultants for the remaining studies are being recruited and should be in place before end of 2010. In most of the cases, ONEP favors the “pseudo-separative” collection networks (where only limited rain water is allowed – typically from roofs) with effluent treatment by ponds or trickling filters depending on the land availability. In cases where there is potential for water reuse (El Brouj) or where the natural receiving body is considered sensitive (e,g, Ouaouizeght where the discharge will be into a water reservoir used for irrigation and leisure activities), a tertiary treatment (maturation ponds) will be added.
5. In Youssoufia, the treatment plant (activated sludge) will be funded and operated by OCP (Office Cherifien des Phosphates) who will reuse the effluents for its own industrial use. The treatment plant is therefore not included in the project.
6. Following the study tour performed in Brazil, ONEP is interested to develop some low- cost non-conventional systems in selected pilot areas (Upflow Anaerobic Sludge Blankets (UASB)). The project will fund a twinning arrangement with a utility that has developed this kind of low-cost technology (cf Component 2). This partnership will help ONEP to define pilot projects in the municipalities where studies are yet to be launched.
7. In addition to the construction of network and treatment plants, the project will also fund the purchase of the operation and maintenance equipment required for ONEP’s team to be
30 able to properly ensure the service (US$ 2.9 million). This equipment will include hydrojets for sewer maintenance, mobile vacuum pumps, hygiene and safety equipment, vehicles and instrumentation.
8. The following table tentatively identifies the types of rehabilitation and construction works, as well as the estimated costs of works and equipments for each center.
Name Current Proposed Development Estimated Population Costs Million DH Ksiba 20,328 New treatment plant (anaerobic, facultative and 52,0 maturation ponds). Two Pumping stations. New wastewater and drainage network. Hattane 10,989 Rehabilitation of the existing treatment plant 31,7 (trickling filters) which is not currently under operation. Sludge treatment (digesters). New wastewater network. El Brouj 17,738 New treatment plant (anaerobic, facultative and 49,8 maturation ponds, pumping stations and wastewater network. Ouaouizeght 9,775 New treatment plant and wastewater network. 38,2 Study in progress. Afourer and Beni 19,172 and New treatment plant (trickling filters + odor 82,4 Ayat 6,099 treatment) and network. Study in progress. Youssoufia 68,343 Rehabilitation/expansion of the wastewater 53,3 network.11 Boujniba 21,381 Rehabilitation/expansion of the existing 52,2 treatment plant (trickling filters) which is not currently under operation. New network. Studies and design to be carried out. Boulanouar 12,464 Rehabilitation of the existing treatment plant 41,5 (trickling filters) which is not currently under operation. Rehabilitation/expansion of the network. Studies and design to be carried out. Demnate 28,011 Construction of a new treatment plant and 60,0 network. Studies and design to be carried out. Echemmaia 26,100 Construction of a new treatment plant and 67,3 network. Studies and design to be carried out. 240,400 Total (M DH) 528,4
11 Youssoufia wastewater treatment plant (activated sludge) will be funded and built by Office Cherifien des Phosphate who will reuse the treated effluent.
31 Component 2: Piloting of Wastewater Technologies and Implementation Support – Estimated Cost: US$ 5.7 million
9. This Component is divided into 3 sub-components:
10. Sub-Component 2A - Twinning arrangement for piloting low-cost technologies (US$0.4 million): this sub-component will finance the services to be provided by a twinning partner that can support and bring practical experiences to ONEP in wastewater management; such partner is expected to be a utility that has developed substantial experience in non-conventional and appropriate technologies that will help ONEP reduce the costs of delivering wastewater services in small towns. This long-term South-South partnership and cooperation will provide ONEP with the needed expertise to expand services to small towns in an affordable and sustainable manner. More specifically, the twinning partner will provide review of designs and conceptual design of new systems (collection networks and treatment plants), training of ONEP staff on new technologies (in-country and abroad), technical documentation for new project designs, inputs to operations of wastewater systems, etc. Under this sub-component, ONEP will also disseminate this know-how to the local consulting industry through workshops and conferences.
11. Sub-Component 2B – Odor control pilots in Treatment Plants (US$1.8 million): There are about 70 small treatment plants (mostly ponds) in Morocco – of which 40 are managed by ONEP. Many present odor problems. ONEP is considering the covering of the anaerobic ponds as a viable measure to reduce odor and capture the methane for possibly productive uses. A pilot is initially considered for 2 existing plants. The project will explore the possibility to provide the captured biogas to nearby beneficiaries. Biogas is proven to be a practical and low cost technology and has been used in many countries (Brazil, India, China, etc.).
12. A feasibility study performed for SEEE by Italian consultants identified the geomembrane floating cover as the most feasible (technical-economical) option. This sub-component will pilot the covering of two selected plants. In addition to the construction of the pilots, the study will also fund the work of a consultant to develop the Bidding Documents and assist ONEP in the bid evaluation process.
13. Sub-Component 2C - Support to Project Implementation (US$3.5 million): It will finance consulting services for construction supervision, project management, monitoring and reporting activities including monitoring of the environmental management plans. Due to the various stages of progress in the studies for the 10 sub-projects, two Consulting firms will be selected. The first one will support ONEP for the 5 sub-projects which are at detailed design stage (Ksiba, El Brouj, Ouaouizeght, Hattane and Afourer – Beni Ayat). The second one will help ONEP implementing the project in the 5 remaining cities. This sub-component will also finance specialized inputs to ONEP a) in its communications campaign to raise awareness of project benefits among beneficiary communities and enhance community involvement in implementation b) to act as the catalyst for developing reuse projects – where feasible – with the interested parties (Min. of Agriculture, basin agencies, farmers associations, etc.), c) to prepare an operational strategic plan for its sanitation activities
32 Annex 5: Project Costs
KINGDOM OF MOROCCO - OUM ER RBIA SANITATION PROJECT
Total cost Taxes Total cost Equivalent IBRD without (20 %) incl. taxes M USD funding tax (MDH) (MDH) without M USD contingencies Component 1 Ksiba Network 25.0 5.0 30.0 3.6 1.8 Pumping stations 5.0 1.0 6.0 0.7 0.4 Treatment Plant 11.7 2.3 14.0 1.7 0.8 O&M Equipment 1.7 0.3 2.0 0.2 0.1 Total Ksiba 43.3 8.7 52.0 6.3 3.2
El Brouj Network 25.8 5.2 31.0 3.8 1.9 Pumping stations 0.0 0.0 0.0 0.0 0.0 Treatment Plant 14.2 2.8 17.0 2.1 1.0 O&M Equipment 1.5 0.3 1.8 0.2 0.1 Total El Brouj 41.5 8.3 49.8 6.0 3.0
Ouaouizaght Network 18.1 3.6 21.7 2.6 1.3 Pumping stations 4.0 0.8 4.8 0.6 0.3 Treatment Plant 8.3 1.7 10.0 1.2 0.6 O&M Equipment 1.4 0.3 1.7 0.2 0.1 Total Ouaouizaght 31.8 6.4 38.2 4.6 2.3
Hattane Network 20.0 4.0 24.0 2.9 1.5 Pumping stations 0.0 0.0 0.0 0.0 0.0 Treatment Plant 5.0 1.0 6.0 0.7 0.4 O&M Equipment 1.4 0.3 1.7 0.2 0.1 Total Hattane 26.4 5.3 31.7 3.8 1.9
Afourer + Beni Hayat Network 45.8 9.2 55.0 6.7 3.3 Pumping stations 0.0 0.0 0.0 0.0 0.0 Treatment Plant 20.8 4.2 25.0 3.0 1.5 O&M Equipment 2.0 0.4 2.4 0.3 0.1
33 Total Afourer + Beni Hayat 68.7 13.7 82.4 10.0 5.0 Youssoufia Network 38.3 7.7 46.0 5.6 2.8 Pumping stations 3.3 0.7 4.0 0.5 0.2 Treatment Plant Funded by OCP 0.0 O&M Equipment 2.8 0.6 3.3 0.4 0.2 Total Youssoufia 44.4 8.9 53.3 6.5 3.2 Boujniba Network 23.3 4.7 28.0 3.4 1.7 Pumping stations 3.3 0.7 4.0 0.5 0.2 Treatment Plant 15.0 3.0 18.0 2.2 1.1 O&M Equipment 1.8 0.4 2.2 0.3 0.1 Total Boujniba 43.5 8.7 52.2 6.3 3.2 Boulanouar Network 21.0 4.2 25.2 3.1 1.5 Pumping stations 3.8 0.8 4.6 0.6 0.3 Treatment Plant 8.3 1.7 10.0 1.2 0.6 O&M Equipment 1.4 0.3 1.7 0.2 0.1 Total Boulanouar 34.5 6.9 41.5 5.0 2.5 Demnate Network 23.3 4.7 28.0 3.4 1.7 Pumping stations 3.3 0.7 4.0 0.5 0.2 Treatment Plant 21.7 4.3 26.0 3.2 1.6 O&M Equipment 1.7 0.3 2.0 0.2 0.1 Total Demnate 50.0 10.0 60.0 7.3 3.6 Echemaia Network 33.3 6.7 40.0 4.8 2.4 Pumping stations 1.7 0.3 2.0 0.2 0.1 Treatment Plant 19.2 3.8 23.0 2.8 1.4 O&M Equipment 1.9 0.4 2.3 0.3 0.1 Total Echemaia 56.1 11.2 67.3 8.2 4.1 TOTAL COMPONENT 1 440.3 88.1 528.4 64.0 32.0 COMPONENT 2 Capacity Building/Twinning 3.0 3.0 0.4 0.4 Odor Control pilot 10.0 2.0 12.0 1.8 1.8 Technical Assistance 26.0 26.0 3.5 3.5 TOTAL COMPONENT 2 39.0 2.0 41.0 5.7 5.7
UNALLOCATED (Contingencies) 5.3
TOTAL IBRD LOAN AMOUNT (M USD) 43.0
34 Annex 6: Implementation Arrangements
KINGDOM OF MOROCCO: OUM ER RBIA SANITATION Project
1. The Borrower will be the Office National de l’Eau Potable (ONEP), which will implement the project through its Department of Environment and Sanitation (Direction Assainissement et Environnement, DAE) with the support of its regional and provincial Departments, and of the relevant support departments at the central level (financial, procurement). The Kingdom of Morocco would guarantee repayment of the IBRD loan.
2. ONEP has a long experience of Bank-financed projects. Implementation would be carried out through the existing ONEP structures and available staff and there is no plan to establish a special implementation unit. Projects are prepared and managed through relevant operating departments, led in this instance by DAE, seconded and coordinated by ONEP’s Financial Department for reporting to donors. The DAE has already nominated a project coordinator who has worked on the preparation of this project and will continue to organize and follow-up the day- to-day implementation.
3. ONEP’s regional Departments, with the support of the central departments, will oversee the technical, communication campaigns, and the construction and supervision of sewerage collection and treatment facilities. The regional Department DR3 will also be responsible for issuing the call for bids and issuing contracts, with the support of the central departments – for the following sub- project: Ksiba, El Brouj, Ouaouizeght, Boujniba, Boulanouar and Hattane. The procurement activities related to the other (larger) sub-projects (Afourer-Bniayat, Demnate, Echmaia and Youssoufia) will be managed at the central level (Département des Approvisionnements et des Marchés). This organization can be revised in agreement between ONEP and the Bank. However, the current arrangement is considered appropriate due to: (i) the on-going decentralization process within ONEP; (ii) the small value of contracts in the first batch of 6 small towns; and (iii) the support that can be mobilized from the central level as needed. It is expected that most contracts will not attract foreign competition and will be processed under NCB procedures.
4. The two consulting firms that will supervise the works are expected to provide monitoring and reporting services to the project coordinator. These consultants will also monitor the environmental management plans included in the activities to be performed by the contractors. The project will also benefit from the services of a local firm (or NGO) that will conduct an extensive communication and awareness raising campaign before, during and after the works within the beneficiary communities and with the elected officials to increase project ownership.
5. ONEP will be responsible for analyzing and providing data on project outcomes and progress. It will submit to the Bank semi-annual reports indicating the status of project implementation, outputs, outcomes, financial statements, updated procurement plan, environmental and social issues, and actions taken to ensure satisfactory project implementation. A mid-term review and final evaluation will be conducted to assess progress and impacts.
6. Financial management of the Project will be the responsibility of ONEP’s Financial Department (DF).
35 7. The communes under the Ministry of Interior are responsible for water supply and sanitation in towns and villages under their jurisdiction. In all of the project towns, ONEP is already providing water supply services. In principle agreements have been reached by all municipal councils covered by the project on the delegation of the management of sanitation services to ONEP, as well. ONEP has provided copies of the deliberations of the municipal council in which the councils have agreed to delegate the responsibility of wastewater collection and treatment to ONEP. Formal delegated management conventions (conventions de gestion déléguée) will be signed between the municipality and ONEP prior to the beginning of the works in each town. ONEP has indicated that two such conventions (Ksiba and el Brouj are in advanced stage – draft copies have been provide to the Bank team and are in project files). Through their own resources and with financial support from the center, the communes will participate in financing 50% of the costs of construction of sewerage and treatment infrastructure, and the purchase of O&M equipment. They will also provide the land required for the Project.
36 Appendix 6-A. Organization Chart of ONEP
Appendix 6-B. Organizational Chart of the Direction Assainissement et Environnement (DAE)
Division Sce UGP‐Sebou DIRECTION ASSAINISSEMENT ET Sce Aménagement Epuration ENVIRONNEMENT Travaux de l’Oriental
Div. Div. Suivi Etudes Division Assistance Div. Planification Div. Environnement Etudes Décentralisées Technique Travaux
Sce. Etude Protection Sce. Etudes Sce. Sce. Planification Sce. Assistance Nord des Ressources en Eau Nord Etudes Spécifiques
Sce. Suivi Etudes Service Etude Sce. Etudes Décentralisées Nord Sce. Développement Environnement Sce. Assistance Centre Sud
Sce. Suivi Etudes Sce. Normalisation Sce. Etudes Décentralisées Sud Sce. Assistance et Méthodes Centre Sud
Sce. Topographie Assainissement
37 Annex 7: Financial Management and Disbursement Arrangements
KINGDOM OF MOROCCO: OUM ER RBIA SANITATION PROJECT
Summary of the Financial Management Assessment and Arrangements
1. The project design and the ONEP status allow the implementation of the project using main elements of the country’s system. The ONEP financial staff will be entrusted with the project accounts and generation of the project financial statements.
2. The project risk from a financial management perspective is considered low as ONEP is an experienced entity with Bank financed projects and has in place reliable procedures and systems to prevent and detect financial irregularities. However, some mains risks identified during the capacity assessments are:
Payments: To mitigate the risks of payment delays, ONEP will follow closely all the steps in this process to identify rapidly the bottlenecks and act accordingly. Nature of the project: The project will involve several participants both at central and regional level. In addition to this decentralization the project needs to follow specific procedures, directives and guidelines of the Bank. To mitigate any risk related to the implementation, ONEP will prepare a manual of operations describing the procedures, actors, flow of documents, outputs...
3. Major findings and conclusion. ONEP will be responsible for managing the project funds and all related financial transactions. ONEP is a state-owned commercial and industrial enterprise with financial and administrative autonomy (Etablissement public à caractère industriel et commercial, EPIC). Accordingly, it operates as a private sector entity and the systems in place are based on the principles and procedures of the commercial law of the Kingdom of Morocco. ONEP has a Managing Director, a Permanent technical committee, and a Board composed of various ministries and a Representative of the Prime Minister.
4. ONEP issues year-end financial statements that are audited by external independent auditors with the required qualifications and experience. The accounting is centralized at Headquarters. ONEP’s Financial Department is well structured, and it has an adequate staff complement with proven experience in donor-financed projects. ONEP has already had experience managing several Bank-financed projects. Furthermore, the financial management capacity assessment conducted confirmed the robustness of the entity’s financial management system and that the financial risk is low for this Bank-financed project to be implemented by ONEP. The only relevant activity required is for ONEP to prepare a Manual of Operations, encompassing disbursements and financial management procedures.
5. Based on the assessment’s findings and on the actions presented to mitigate the identified risks, the residual financial management risk is expected to be low.
38
2. Detailed Financial Management Assessment and Arrangements
2.1 Financial Management Assessment
National system
6. The Bank’s experience in Morocco and the main conclusions of the 2007 CFAA indicate that the Moroccan public finance system is governed by an elaborate legal and regulatory framework. It also contains strong reliability and transparency safeguards. The system is based on the principle of strict separation between authorizing officers and accounting officers. Moreover, the system includes (a) prior authorization of expenditures and supervision and (b) internal and external audits.
7. The reform of the public sector financial control was initiated under Law 69-00 of 11 November 2003 modifying Dahir of April 14, 1960, modified in 1962. The reform intended to enhance the management of public institutions.
8. The financial management risk of the Moroccan public finance system is considered low. Moreover, the particular PFM risks raised by the CFAA do not affect the project since ONEP operates as an autonomous entity from the Government public finance system.
Experience in the sector
9. The ongoing rural water supply and sanitation project provided the Bank with previous experience working with ONEP. The current project is largely inspired by the on-going one and will benefit from the same arrangements. ONEP benefited also from several projects funded by the Bank and other donors, gaining significant experience in donor-funded project management.
2.2 Financial Management Arrangements
Financial management system
10. General framework. ONEP’s financial management system is based on principles and procedures defined by the legal framework applicable to the public sector enterprises, more precisely, to the principles applicable to government institutions and public agencies.
11. The State financial oversight now deeply modernized and called “Performance Control” (controle d’accompagnement) to which ONEP is subject according to provisions of law 69-00 of November 11, 2003, guarantees the separation of the functions through several levels of independent controls. In addition, the internal audit function is performed by the audit and organization department, directly attached to the general manager’s office.
12. ONEP is also subject to controls by Ministry of Finance General Inspection (IGF) as well as to the external audit by the Court of Auditors. ONEPS’s accounts are also subject to an annual external financial and accounting audit.
39 Staffing
13. The existing human resource capacity is adequate to carry out the financial management tasks of the project. At this stage, therefore there is no need for change in quantity and quality of the existing staff to meet Bank and ONEP financial reporting requirements. It is, however expected that the staffing will be monitored closely so as to anticipate any capacity gap which could occur and agree with ONEP on a capacity-building program in a timely manner. For this project, ONEP has designated an internal dedicated staff to take charge of the project financial management aspects.
Accounting System, Accounting Policy and Procedures
14. ONEP’s accounting system is governed by rules applicable to autonomous public state owned agencies (Decree of 10 November 1989). Moreover, ONEP maintains an accounting system in line with corporate and commercial law. Project statements will be issued based on ONEP’s accounting system.
15. ONEP already has a comprehensive accounting system with an adequate chart of accounts which is in compliance with the existing laws and regulations of Morocco. Donor- financed projects are integrated into ONEP systems’s. The current accounting system is being upgraded, and will be comprehensive and consolidated with the necessary features to sort out all necessary information related to specific externally funded projects. A cursory review of ONEP’s internal control system indicated satisfactory levels of segregation of duties. Reporting is adequate and timely.
16. The project’s general accounting principles are as follows:
Project accounting will cover all the project sources and uses of funds, including payments made and expenditures incurred. The project transactions and activities will be clearly identified from the rest of ONEPs’ other activities. Financial statements summing up project commitments, receipts and expenditures will be prepared semi-annually, using appropriate procedures. The project chart of accounts will be compliant with the expenditure classification and sources of funds indicated in project documents and in the general budget breakdown. The chart of accounts should allow data entry in order to facilitate the financial monitoring of project expenditures by component and sub-component, expenditures allocation and category of disbursement.
Books of Registry
17. In addition to any information system installed, and the books needed to maintain an accurate and complete record of transactions, ONEP will maintain a set of additional books of registry, either within their systems or outside them, for control purposes. These books will include and not be limited to:
40 Fixed assets register at Headquarters and in the Regions Contracts register
Budgeting
18. ONEP has a reliable information system integrated called SAP. This system is installed both at the central level and at the regional level. It makes possible to follow expenditure from its budgeting to the payment to supplier, and it blocks any not budgeted expenditure.
19. The project annual budget process will follow the ONEP budget cycle which is mainly as follows:
May-June: Letter of Orientation issued by the Finance Director to all Departments September: Budget and Controller consolidate data and prepare financing plan September – December: Internal negotiations and validation December: After Board approval, budget sent to Minister of Finance January: Minister of Finance approves and budget is implemented.
Project Reporting System
20. The Financing Division (division des financements) mapped with the Financial Direction will be responsible for the preparation of the periodic Financial reports.
ONEP will prepare interim unaudited financial reports for the Project and submit them to the Bank as part of the project progress report, or separately. These reports will consist of: (i) statement on sources and uses of funds for the reporting period and with cumulative figures, including a statement on project balances of accounts; (ii) a statement of use of funds by component and expenditure type; and (iii) a variance analysis indicating budgeted amounts versus actual and explanation of variances. . (iv) Listing of all signed contracts reflecting amounts paid under each.
21. These interim unaudited financial reports should be remitted to the Bank within 45 days from the end of each calendar semester. The format and content of the unaudited financial reports were discussed during the appraisal mission.
Project Financial Statements
22. In addition to the semi-annual financial reports related to project activities, ONEP will produce its customary annual financial statements. These project annual financial statements will be composed of:
. A Statement of Sources and Applications of Funds reflecting the year expenditures plus cumulative amounts disbursed to date; . A use of funds by project categories/activities reflecting the year expenditures plus cumulative amounts disbursed to date; . An SOE withdrawal schedule, listing individual withdrawal applications relating to disbursement through the SOE, by reference number, date and amount;
41 . Notes on significant accounting policies and accounting standards adopted for the preparation of the accounts; and any supplementary information or explanation that may be deemed appropriate by Management to enhance understanding of the financial situation of the project.
Internal controls
23. The internal control system set within ONEP is in line with existing country internal control framework. It is considered satisfactory by the Bank. Actually, an adequate system of internal control is in place. It makes it possible to guarantee the segregation of duties through three levels of control: (a) the control ex ante of the expenditure at the stage of their engagement; (b) the centralization of the payments on the level of the Financial Direction; and (c) the second ex ante control at the stage of their effective payment by the agency of control (ACO) according to the system of the double signature.
24. Thus, pursuant to 2003 Law Nr. 69-00 related to Government financial control of public agencies and other institutions, ONEP expenditure control is ensured with the presence of a State controller (commitments) seconded by the Directorate of Public Enterprises and Privatization (DEPP). Regarding its capacity and performance, ONEP is benefiting from a performance control system (controle d’accompagement).
25. ONEP has a manual of procedures describing all management rules applicable to all major processes.
Audit Arrangements
26. Internal Audit. There is a full-fledged Department of Audit and Organization at ONEP, headed by a senior staff reporting directly to the Managing Director. The Audit Department is composed of four (4) divisions, namely, Organization, Audit, Total Quality, and Post-evaluation. The Department has a well established statement of mission objectives which includes, inter-alia, assurance that procedures set forth in the Financial Management Manual of Procedures are enforced, conducting internal audit missions, and reinforcement of coordination among the various operating aspects of ONEP.
27. External Audit. ONEPs' financial statements have been audited for several fiscal years by independent external auditors. The last financial statements (2008) were certified, with a qualification due to uncertainty to recover the credit of VAT witch amounts on December 31, 2008 to MAD 875 million.
28. During project’s implementation, ONEP will submit its financial statements annual audit, conducted by an external independent auditor, to the Bank after its approval by ONEP’s Board of Directors (Conseil d’Administration). Each submission shall include financial audits as well as management letter.
29. The records and accounts of the project will also be separately audited annually, in accordance with international audit standards, by the same independent auditor. The audit would include a comprehensive review of all statements of expenses (SOEs). In addition to the audit
42 report, the auditor will issue a management letter regarding the project controls and will recommend enhancements if any weaknesses are identified. The audit report shall be submitted to the Bank no later than 6 months after the closing of each fiscal year.
Flow of funds
30. The expenditure related to the project is dealt with on the system by the various technical directions at the decentralized level. The technical directions establish calculations (décomptes) on the basis of the progress of work. The calculations are sent to the Financial Direction where those are controlled, checked compared to their eligibility and in comparison with the procedures. Before payment the agency of control (ACO) carries out the last control before validation of the payment.
Disbursement Arrangements
31. The proceeds of the loan will be disbursed in accordance with the Bank’s disbursement guidelines and as outlined in the disbursement letter. Transaction-based disbursements will be used under this project. Withdrawal applications will be submitted for the reimbursements of expenditures pre-financed by ONEP, direct payments or the issuance of Special Commitments. All requests for payment from the loan account will include appropriate supporting documentation including detailed Statement of Expenditures (SOEs). On the basis of the Bank’s standard disbursement profiles, disbursements would be completed four months after project closure
32. Use of Statements of Expenditures (SOEs). All applications to withdraw proceeds from the Loan will be fully documented, except for: (a) expenditures of contracts with an estimated value of US$10,000,000 or less for works; (b) US$5,000,000 or less for goods; (c) US$200,000 or less for consulting firms; and (d) US$50,000 or less for individual consultants which may be claimed on the basis of SOEs. Documentation supporting expenditures will be available for review by Bank supervision missions and project auditors. All disbursements will be subject to the conditions of the Loan Agreement and the procedures defined in the Disbursement Letter. ONEP can
Supervision Planning
33. Supervision activities will include, inter-alia, review of Semi-annual interim financial reports, review of annual audited financial statements and management letters as well as timely follow up on issues which have arisen, and participation in Bank project supervision missions, as appropriate. There will be about two financial management supervision missions each year. Bank supervision missions will consist of visits to ONEP and its decentralized offices to review financial management practices, procurement methods, payment procedures, and documentation.
43 Appendix 7-A. Summary of flow of funds diagram
Stage Action
control of attachments 1 ONEP/DAE (if project central)
Approval
ONEP/DAM
Control of attachments and or issuance of décomptes DR if project at regional level (in this case there is no stage 1)
2
Approval
Booking and preparation of payment order ONEP/DFI
Payment of Direct Payement World Bank supplier by ONEP request
3
Application to withdraw proceeds from loan
44 Annex 8: Procurement Arrangements
KINGDOM OF MOROCCO: OUM ER RBIA Sanitation Project
Guidelines and Standard Bidding Documents
1. Procurement under the Morocco Oum Er Rbia Sanitation Project would be carried out in accordance with the World Bank’s Guidelines On Preventing and Combating Fraud and Corruption in Projects Financed by IBRD Loans and IDA Credits and Grants’ known as the ‘2006 Anti-Corruption Guidelines’, the ‘Guidelines: Procurement under IBRD Loans and IDA Credits’ published by the Bank in May 2004 and revised in October 2006 and the ‘Guidelines: Selection and Employment of Consultants by World Bank Borrowers,’ dated May 2004 and revised October 2006, and the accompanying standard bidding documents for any new procurement and the provisions stipulated in the Loan Agreement. The various items under different expenditure categories are described in general below. For each contract to be financed by the loan, the different procurement methods or consultant selection methods, the need for pre-qualification, estimated costs, prior review requirements, and time frame are agreed between the Borrower and the Bank in the Procurement Plan. The procurement procedures and Standard Bidding Documents (SBD) that will be used by the borrower will be well defined in the Operational Manual, which will include specific and detailed sections regarding Procurement.
2. National Competitive Bidding (NCB) procedures adapted as indicated below will be used for Goods contracts estimated to cost less than the equivalent of five millions US dollars (USD 5,000,000) and for works, Supply and installation contracts estimated to cost less than the equivalent of ten millions US dollars (USD 10,000,000).
3. Necessary adaptations to the National Competitive Bidding procedures: To ensure broad consistency with the Procurement Guidelines, the following provisions will apply when using NCB under this project. Said procedures shall ensure that, inter alia:
a) The bidding documents include explicitly the bid evaluation method, award criteria and bidder qualification criteria; b) Technical, administrative and financial envelopes are opened immediately after the bid opening session has started and prices are read aloud; c) The bids are evaluated on the basis of the price and any other criteria expressed either in pass/fail terms or in monetary terms;; d) Contracts are awarded to the qualified bidder who has submitted the least-cost evaluated and substantially responsive bid as stipulated in the bidding document.; and e) Standard bidding documents and bid evaluation reports found acceptable by the Bank are used.
4. Moreover, it has been agreed with the borrower that each contract financed from the proceeds of this loan shall provide that suppliers, contractors and subcontractors shall permit the Bank, at its request, to inspect their accounts and records relating to the bid submission and performance of the contract and to have said accounts and records audited by auditors appointed by the Bank. The deliberate and material violation by the supplier, contractor or subcontractor of such provision may amount to “obstructive practice”.
45 5. Prior to issuing the first call for bids, a draft standard bidding document to be used under National Competitive Bidding procurement must be submitted to and found acceptable by the Bank.
6. Advertisement, Publication of Results and Debriefing: In addition to advertising pertaining to each contract, a General Procurement Notice (GPN) will be published in DG-Market, in United Nations Development Business, and in at least two national newspapers. The GPN will be published after project is approved by the Bank and prior to Effectiveness. The GPN will provide a description of the project and information on related procurement.
7. Online (DG Market, UN Development Business, and /or Client Connection) publication of contract awards would be required for all ICB, Direct Contracting, and the Selection of Consultants for contracts exceeding a value of US$200,000. In addition, where prequalification has taken place, the list of prequalified bidders will be published. With regard to ICB and large-value consulting contracts, the Borrower would be required to assure publication of contract awards as soon as the bank has issued its “no objection” notice to the recommended award in UN Development Business (UNDB) online and dgMarket. All consultants competing for an assignment involving the submission of separate technical and financial proposals, irrespective of its estimated contract value, should be informed of the result of the technical evaluation (number of points that each firm received) before the opening of the financial proposals. The borrower would be required to offer debriefings to unsuccessful bidders and consultants should the individual firms request such a debriefing.
8. Procurement of Works and Supply and Installation: Works or Supply and Installation procured under this project would include mainly the rehabilitation, construction and installation of wastewater infrastructure facilities including collection networks and treatment plants, in medium and small towns. These contracts are expected to add up to an aggregate of about US$64million equivalent. The procurement will be done using the Bank’s Standard Bidding Documents (SBD) for all ICB and National SBD agreed with and satisfactory to the Bank.
International Competitive Bidding (ICB): Contracts for civil works and Supply and Installation estimated to cost the equivalent of US$10,000,000 or more per contract shall be procured on the basis of the International Competitive Bidding (ICB) procurement method, using the applicable World Bank Standard Bidding Documents. National Competitive Bidding -. Each package of civil works and Supply and Installation estimated to cost less than the equivalent of US$10,000,000 may be procured on the basis of National Competitive Bidding procedures as found acceptable by the Bank. Standard Bidding Documents acceptable to the World Bank will be used.
9. Procurement of Goods: Goods procured under this project would include equipment for sanitation systems including collection networks and treatment plants. The procurement will be done using the Bank’s SBD for all ICB and National SBD agreed with and satisfactory to the Bank.
46 International Competitive Bidding (ICB): Goods contracts estimated to cost the equivalent of US$5,000,000 or more per contract shall be procured on the basis of International Competitive Bidding (ICB). Applicable Bank Standard Bidding Documents shall be used. National Competitive Bidding (NCB): Each package estimated to cost less than the equivalent of US$5,000,000 may be procured on the basis of NCB procedures as found acceptable by the Bank. Bidding documents acceptable to the Bank will be used.
10. Shopping: Goods and works estimated to cost US$50,000 or less may be procured using Shopping procedures.
11. Direct Contracting: Under circumstances which meet the requirements of paragraph 3.6 of the Procurement Guidelines, goods and works may be procured using the Direct Contracting procurement method. Provisions of paragraph 3.7 of Procurement Guidelines regarding award publication should be followed.
12. Selection of Consultants: Consultants services comprise mostly technical studies, capacity building activities, Support to Project Implementation (construction supervision, project management, monitoring and reporting activities …) Communications and Community mobilization support as well as Promotion of Reuse Potential. The following Bank methods and corresponding standard documents will be used:
Quality & Cost Based Selection (QCBS) for technical assistance and capacity building as well as contracts for consultants services above US$200,000 equivalent per contract. Standard Bank procedures and documents will be used. Quality-based Selection (QBS). Services for assignments which meet the requirements set forth in section 3.2 of the Consultant Guidelines may be procured using the Quality-based Selection method in accordance with the provisions of paragraphs 3.1 through 3.4 of the Consultant Guidelines. Least-cost Selection. Services for assignments which meet the requirements of paragraph 3.6 of the Consultant Guidelines may be procured using the Least-cost Selection method in accordance with the provision of paragraphs 3.1 and 3.6 of the Consultant Guidelines. Selection Based on Consultant’s Qualifications (CQS). Services estimated to cost less than US$100,000 equivalent per contract may be procured in accordance with the provisions of paragraphs 3.1, 3.7 and 3.8 of the Consultant Guidelines. Single Source Selection. Under circumstances which meet the requirements of paragraph 3.10 of the Consultant Guidelines for Single Source Selection, consultant services may be procured in accordance with the provisions of paragraph 3.9 through 3.13 of the Consultant Guidelines, with the Bank’s prior agreement. Individual Consultants (IC). Services for assignments that meet the requirements set forth in the paragraph 5.1 of the Consultant Guidelines may be procured under contracts awarded to individual consultants in accordance with the provision of
47 paragraph 5.2 and 5.3 of the Consultant Guidelines. Under the circumstances described in paragraph 5.4 of the Consultant Guidelines, such contracts may be awarded to individual consultants on a sole-source basis.
13. Short lists may be composed entirely of national consultants for contracts of less than US$200,000 equivalent per contract in accordance with the provisions of paragraph 2.7 of the Consultant Guidelines, complying with the remarks mentioned above.
14. Fraud, Coercion, and Corruption: All procuring entities, as well as bidders, suppliers, and contractors shall observe the highest standard of ethics during the procurement and execution of contracts financed under the project in accordance with paragraphs 1.14 & 1.15 of the Procurement Guidelines and paragraphs 1.22 & 1.23 of the Consultants Guidelines.
B. Assessment of the agency’s capacity to implement procurement
15. ONEP has good experience in implementing Bank financed projects and thus in carrying out procurement activities. Basically procurement will be carried out at the central and regional levels. At central level, the Department of Supply and Contracts (Direction des Achats et des Marchés, Division Achats, Projets Assainissement, DAM) will handle procurement activities in relation with the Department of Environment and Sanitation (Direction Assainissement et Environnement). At regional level, the regional Departments will be in charge of procurement activities. Assessment of ONEP’s capacities in procurement has been carried out during preparation of Bank financed Rural Water Supply and Sanitation project which is currently underway. It concluded that the procurement system is solid and operates in a structured and reliable control environment and does not present major fiduciary risk. ONEP follows its own procurement rules which are fundamentally based on the national procurement rules (Décret sur les conditions et formes de passation des marchés de l’Etat, du 5 février 2007)”, which is generally in line with the Bank’s guidelines, with some exceptions as outlined above. However, despite the fact that procurement capacity was found to be satisfactory at the central level (DAM), at the Regional level (DR) capacities need to be improved.
16. The overall risk is assessed to be low. However this risk could lead to some minor non- compliance and delays during the project implementation and need to be mitigated by the following set of actions:
(a) Agreed standard bidding documents for Works, Supply and Installation and Goods under NCB will be prepared and submitted to the Bank for approval; (b) A detailed procurement plan will be established and used during project implementation; (c) Training in Bank procurement procedures will be provided after the negotiations to DR procurement staff; and (d) Finally, the implementation design includes regular ex-post reviews.
48 C. Procurement Plan
17. A Project Procurement Plan in a format acceptable to the Bank will be prepared and updated at least once a year. The procurement plan for the first eighteen (18) month period has been prepared and submitted to the Bank before the negotiations, for its approval. The procurement plan shall indicate which contracts shall be subject to the Bank’s prior review. All other contracts shall be subject to Post Review by the lenders. The Procurement Plan will be updated at least annually or as required to reflect the actual project implementation needs and improvements in institutional capacity. The procurement plan will be available in the project’s database and in the Bank’s external website.
D. Frequency of Procurement Supervision
17. Supervision of Procurement by the World Bank is an integral part of Project supervision and implementation monitoring. The evaluation of existing procurement systems considers the overall risk assessment of procurement implementation for this project to be low. On that basis, most of the procurement review will be carried out ex-post and will concern about five percent (5%) of contracts. This percentage will be adjusted during Project implementation as a function of the performance of the implementing agencies and the results of reviews.
Thresholds for Procurement Methods
18. The following contracts will be subject to Bank prior-review:
Contract Value Expenditure Threshold Procurement Method Contracts Subject to Prior Review Category (US$) 1. Works & Sand I >= 10,000,000 ICB All contracts <10,000,000 NCB None, except first three contracts under NCB Direct contracting All
2. Goods, S & I >= 5,000,000 ICB All contracts <5,000,000 NCB None, except first three contracts under NCB Direct contracting All
3. Services Firms >= 200,000 QCBS All contracts < 200,000 Autres Terms of Reference and Shortlists of all contracts Single Source
All contracts 4. Individuals >50,000 Single source All
49 19. Consultancy services estimated to cost above 200,000 US$ per contract for firm, 50,000 US$ per contract for individual and single source selection of consultants (firms and individual) will be subject to prior review by the Bank.
20. Short lists composed entirely of national consultants: Short lists of consultants for services estimated to cost less than 200,000 US$ equivalent per contract, may be composed entirely of national consultants in accordance with the provisions of paragraph 2.7 of the Consultant Guidelines.
50 Annex 9: Economic and Financial Analysis
KINGDOM OF MOROCCO - OUM ER RBIA SANITATION PROJECT
Economic Analysis
Summary of benefits and costs
1. An economic analysis has been carried out for the ten subprojects to be financed under component 1 of the project, based on available or assumed costs of investment and operation, as well as average estimates of the economic benefits streams derived from the Project.
2. The main benefits expected from the project are:
Individual benefits : - Reduction of the impact of water borne diseases; - Improvement in comfort through the elimination of foul smells due to uncontrolled wastewater rejections in the urban environment; - Increased water consumption allowed by the availability of sewerage; - Avoided expenses on the operation of septic tanks and other individual sanitation solutions; Water ressources protection : - Reduction of health risks related to water bodies pollution by untreated wastewater; - Enhancement of the recreational value of water bodies; Increased water availability for irrigation : - Decrease in the risk of contamination due to irrigation with untreated wastewater; - Increase in the volumes available locally for irrigation;
3. The costs taken into account in the economic analysis are:
Investment costs : - Networks and collectors - Pumping stations and pumping equipment - Sewage Treatment Plants (STPs) Operation and maintenance costs : - General operation and maintenance expenses assumed to be equivalent 1% of the investments every year; - Opportunity cost of land used to install the sewerage treatment plants; - Wages; - Energy cost for the operation of pumping station and STPs.
51 Methodology and main assumptions
4. The main assumptions are described below:
(a) Benefits and costs have been projected over a 40-year horizon. (b) The opportunity cost of capital is assumed to be 10%, and alternative Net Present Values (NPVs) have also been estimated for discount rates of 8 and 12 %. (c) All transfers including taxes and subsidies are excluded from the analysis. (d) Conservative assumptions have been made on future water consumptions and wastewater production. Per capita daily production of wastewater is estimated at 60 lpcd. Average population growth in the towns is assumed to be 1.3% between 2010 and 2020.
5. Two streams of private benefits have been estimated in the economic evaluation. The first stream of private benefits is equivalent to part of the water bill corresponding to sewerage services. The second stream of benefits is an estimation of the increase in property value derived from the extension of access to sewerage. The increase in property value is assumed to be equivalent to the net present value of the consumer surplus anticipated from access to sewerage services. The addition of sewerage bills and consumer surplus is therefore assumed to provide an estimate of the total individual benefits derived from sewerage services.
6. Current sewerage tariffs applied by ONEP are composed of a fixed part of 37 DH/month and a volumetric part with increasing block tariffs. The average tariff is currently estimated to be around 2 DH/m3. Average sewerage tariffs are expected to increase to around 2.3 DH/m3 in 2010 and increase by 0.1 DH/m3 every year, as per ONEP’s program agreement (Contrat Programme) with the GoM. Sewerage tariffs are applied based on the water consumption and the evaluation assumed a ratio of 80% between the volume of water billed and the volume of wastewater rejected in the sewers.
7. The evaluation of the increase in property value derived from the access to sewerage is based on a survey of land prices in the ten centers. Comparative estimates of equipped and non-equipped land within the urban perimeters show a typical difference of 500 DH/m2. Sewerage is assumed to account for 15% of this increase in value (along with other equipments such as water supply, roads, and electricity). The increase in land value is assumed to occur as soon as tertiary sewer lines are installed in the area. However, for purpose of this analysis, the benefit was considered to occur only when actual connections were installed. A conservative estimate of the benefit stream equivalent to the increase in land value is therefore calculated based on the assumed increase in connected populations. With a typical population density of 60 people/ha.in the constructed areas of the protect towns, an increase in land value of 500DH/m2 translates into an average economic benefit of 3000 DH for every new person connected.
52 8. In addition to the private benefits estimated though the two streams of benefits described above, the investments financed under the project are expected to provide collective benefits derived from the general environmental improvement with the towns and the treatment of wastewater.
9. The survey of data on water borne diseases in the project towns has revealed a relatively low occurrence of water borne diseases in the area. Public health benefits were therefore not taken into account in this economic evaluation. The benefits of wastewater treatment vary between the towns. In Youssoufia, a local industry (OCP) is funding the STP and is planning to reuse the treated wastewater for industrial processes. In this case, the net present value of the benefits derived from wastewater reused is assumed to be equal to or greater than the investment an operation cost of the STP. The STP has therefore been excluded from the analysis. In Boujniba, Boulanouar, Hattane and Ouaouizeght, wastewater treatment is contributing to the protection of critical water resources (an aquifer in the first three towns, and a reservoir in the case of Ouaouizeght).
10. In addition to the protection of critical water resources, the treatment of wastewater allows for the reuse of the treated wastewater in the agriculture. Recent data shows that the value of water in agriculture ranges from 1.5 to 3 DH/m3 in gravity irrigation and 4 to 8 DH/m3 in irrigation.
11. Given the difficulty in evaluating precisely the economic benefits derived from the protection of water resources and the availability of water for agricultural reuse, a conservative estimate of 0.5 DH per m3 of wastewater treated has been used for the evaluation of the economic benefits of wastewater treatment.
Summary of Results
12. The main results of the economic analysis of the infrastructure components are presented in the following table. The global ERR of the infrastructure component is 11%. The total Net Present Value (NPV) is estimated at US$ 4 million with a discount rate of 10%. The total NPV varies from US$ 14.5 million with a discount rate of 8% to US$ -3.2 million with a discount rate of 12%. The Economic Rates of Return of the subprojects range from 6.86% to 16.53%. The low ERR in the case of the Ouaouizeght subproject highlights the need for the introduction of non-conventional technologies so as to reduce the cost of provision of sanitation services.
Sub-project ERR NPV 8% NPV 10% NPV 12% Afourer 10.69% 13,537,539 2,861,580 -4,606,378 Boujniba 15.21% 28,921,568 16,830,294 8,576,120 Boulanouar 7.25% -2,433,918 -7,348,922 -10,690,168 Chemaia 7.56% -2,266,657 -10,489,805 -16,193,284 Demnate 12.20% 22,973,754 9,785,587 756,910 El Brouj 10.89% 11,123,105 2,797,466 -2,918,231 Hattane 11.55% 2,358,461 -3,241,009 -6,966,559 Ksiba 10.64% 6,080,839 1,257,612 -2,357,056
53 Ouaouizeght 6.86% -2,913,473 -6,613,335 -9,141,313 Youssoufia 16.53% 43,795,078 27,074,029 15,534,343
Sensitivity analysis
13. A sensitivity analysis has been carried out with various alternative assumptions and the results are summarized in the table below :
Assumption Global ERR +20% variation in investment cost 8.7%
-20% variation in investment costs 14.7% 500 DH/ person benefit for the population connected before the project, as an estimate of the economic benefit of sewerage 14% rehabilitation carried out under all subprojects No evolution of average sewerage tariffs and no valuation of the 8.9% economic benefits of wastewater treatment
Increase of the average benefit of water treatment to 1 DH/m3 11.8%
Increase of average sewerage tariff to 5 DH/m3 Increase of the average benefit of water treatment to 1 DH/m3 15.7%
Financial Analysis
14. The Financial Analysis aims to assess, (i) the financial viability of ONEP as a whole, on the basis of its recent financial performance and the results of the financial model, and (ii) the impact of the project’s activities on ONEP’s financial position.
Background
15. The overarching objective assigned to ONEP is to develop urban and rural water and sanitation services through cost recovery policies based on (i) full cost recovery of bulk water supplies to régies and concessionaires; (ii) cross-subsidization of water supply services to secondary urban centers by bulk sales; (iii) contributions of communes to sewerage and rural water supply investments; (iv) contributions of consumers to connection costs and network expansion (water and sewerage); and (v) limited budget contributions to RWS investments. ONEP is expected to maintain its financial equilibrium and autonomy to preserve its credibility with donors and commercial lenders.
16. Policy Assessments. The development strategy of the Moroccan water and sanitation sector at large (including water resources mobilization, irrigation and urban and rural water supply and sanitation), as well as the underpinning financing and cost
54 recovery policies, has been extensively reviewed by the Bank12. This comprehensive body of sector work, which largely inspired the First Water DPL (Ln. 7444-MA), recommended critical reforms that would guide, inter alia, the increased involvement of ONEP in sanitation and rural water supply, beyond its historical mandate in bulk water provision and water supply in medium and small urban centers. These recommendations are summarized below: To promote efficiency gains and operators’ performances through an increased contractualization; To improve the transparency of the costs of combined activities of the actors (electricity/water/sewerage for régies and concessionaires, bulk water/urban water /rural water/sanitation for ONEP); To redeploy budget support to sector investments by using a results-based expenditures framework and to explore the possibilities of fiscal exemptions and the allocation of parafiscal revenues.
17. Against this background, some progress has been registered at ONEP’s level with the signing of the 2008-2010 Framework Agreement and the adoption of budgetary procedures that allowed securing the contributions of communes to sewerage and RWS investments, particularly through the establishment of a Designated Account devoted to the implementation of the PNA (see para. 23). However, instead of increasing as expected, budget transfers became substantially negative with the termination in 2007 of the VAT exemption for ONEP’s investment expenditures13.
Past Performance
18. ONEP’s past financial performance is summarized in Table 1 below, which provides the recent evolution of the key financial data and ratios. The mandates of the company generate a very high level of capital expenditures, which are higher than the annual revenues. The investment efforts remained sustainable over the review period (2004-2008) as operations generated a steady level of cash flow, even though the more profitable activity (bulk water) was relatively stagnant, as well as rates (with the exception of one tariff revision in 2006). The increase of the global working ratio (cash expenditures/sales) in 2007-2008 is mainly attributable to energy costs.
12 The relevant sector work includes: the 2004 Water and Sanitation Sector Policy Note (Report no. 29994- MOR), the 2008 Assessment of Financial Flows of the Water Sector (Report no. 34675-MOR) and the Strategic Review of the National Sanitation Program (Report no. 40298-MOR) 13 The VAT rate applicable to water sales is 7 percent, while the rate applicable to most of ONEP’s CAPEX is 20 percent. This generates an annual tax credit of about DH 500 million, which, under the current VAT rules, ONEP may not recover and reduces accordingly ONEP’s operational cash flow.
55 Table 1: ONEP Selected Financial Data (DH Million) and Indicators 2004-2008
Year 2004 2005 2006 2007 2008 Operating revenues 2,755 2,922 3,107 3,510 3,845 o/w Sales 2,612 2,751 2,958 3,118 3,325 Cash operating expenditures 1,540 1,607 1,753 1,937 2,024 Depreciation and allowances 920 955 973 1,100 1,206 Operating income 455 360 382 473 614 Net income 130 130 134 137 92 Cash generated by operations (before interest) 1,110 1,153 1,335 1,494 1,825 Debt service 500 484 628 646 987 Working Capital Requirements 480 -644 -45 15 -350 Capital expenditures 1,868 3,012 3,109 2,352 3,876 Borrowings 990 899 1,535 1,804 1,780 Grants and contributions 713 881 513 93 1,174 Variation of cash -36 82 -309 378 13 Working ratio (%) 58.9% 58.4% 59.3% 62.1% 60.9% Debt service coverage (times) 1.3 3.7 2.2 2.3 2.2 Source: Audited financial statements (2004-2008)
19. Although audited accounts do not provide detailed information on the financial viability of the three main activities of ONEP, they have included since 2007 a specific assessment of the operating results of ONEP’s sanitation activities. Table 2 below shows that these activities generated substantial losses, which have to be compensated by the core water activities (bulk sales).
Table 2: Operating Results of the Sanitation Activities (DH Million)
Year 2007 2008 Operating revenues 90 90 Operating expenditures 181 181 Operating income (loss) (91) (91) Interest 17 52 Non-operating income (loss) (53) (71) Net income (loss) (161) (205) Source: Audited financial statements (2007-2008)
20. Billing and Collection Performances. The commercial performance is improving in water distribution and sewerage activities, with arrears amounting to around two months of sales. Bulk water customers (water distribution companies) owe on average about five to six months of billing, which could be improved and the Framework Agreement’s target is to reduce the receivables to three months.
56 Cost Recovery of Sanitation Services
21. The cost recovery rules that were agreed in 2008 after the Strategic Review of the National Sanitation Program (Programme national d’assainissement, PNA) were as follows: Additional investments in wastewater treatment and collection would be shared between ONEP and local governments (communes), which would finance 50 percent of the investment costs. The communes’ contributions are actually funded by the national budget (see para. 22). Sewerage connections are fully financed by households and land developers, which also contribute to the expansion of neighborhoods collection networks. The price of the household sewerage connection is DH 1,500 without taxes and the contribution to system expansion (participation au premier établissement, PPE) amounts to DH 1,600/household without taxes, for a total of DH 3,700 including taxes. Most households are eligible to the social connection programs, which allow for spreading the payment of the connection and the PPE over seven years with an interest rate of 5 percent (monthly payment: DH 70) In the communes where ONEP manages sanitation services, all water customers located in areas served by the sewerage network (irrespective of their actual connection to the network) pay an annual fee of DH 36 and sewerage surcharges based on their water consumption. The rates vary with the volume consumed, the type of customer and the location of the urban center (the rate schedule is provided in Appendix 2 to this annex). The average rate is estimated at DH 1.45/m3. The variable rates were expected to be aligned in a national tariff schedule applicable to all urban centers served by ONEP and annually revised to reach an average value of DH 5.30/m3 by 2020.
22. The above recommendations have been applied as follows. The communes’ contribution has been effectively increased to 50 percent in externally-financed projects, but remained close to 30 percent in other operations. In accordance with the Framework Agreement, ONEP recently submitted for final approval a request for the harmonization of tariffs and for an increase of the surcharge of DH0.30/m3 to compensate for the delayed tariff revisions, which has been endorsed by an inter-ministerial committee.
23. Until 2007, the contributions of the municipalities to sanitation investments were collected through various channels with substantial delays, which led ONEP to pre- finance construction contracts. ONEP made specific efforts in 2008 to better monitor and collect these contributions. In addition, the funding arrangements were modified with the systematic use of a designated account of the budget (Fonds d’assainissement liquide et d’épuration des eaux usées, FALEEU), which secures the budgetary appropriations to the
57 PNA14. Consequently ONEP timely receives funding and has no longer to pre-finance sanitation-related contracts.
Financial Forecasts
24. Financial Modeling. ONEP prepared a comprehensive financial model that covers the period 2010-2017 and provides financial forecasts for the three main activities (urban water, rural water and sanitation). Key financial information and indicators are summarized in Table 1 of Appendix 1 to this annex. The model assesses the viability of an investment program of DH 28.4 billion over the review period, of which 45 percent are devoted to urban water supply, 31 percent to rural water supply and 24 percent to sanitation. The main assumptions and financing options underpinning the model are as follows: productivity would increase with a constant number of staff over the period and the working ratio would decrease from 62 percent in 2009 to 47 percent in 2020; water tariffs would increase annually at a rate of 5 percent in 2010-2012 and 3 percent thereafter (vs. a 2 percent inflation rate) and the sanitation surcharge applied to water consumption in the urban centers where ONEP manages sanitation activities would increase by 0.10 DH/m3 every year; the VAT issues would be addressed by a progressive increase of VAT rates applied to water sales; the budget subsidy for rural water., which was set at DH 150 million per year in the Framework Agreement would be maintained after 2010 in the form of a operating subsidy in the same amount; the contributions of communes to sewerage investments would be paid through the FALEEU and would increase to DH 320 million per year.
The model shows that under the above assumptions ONEP may maintain its financial equilibrium until 2017 and keep a ratio of debt service coverage of about 1.2 over the duration of project implementation.
25. Financing Options. The above financing options were discussed with the Ministry of Finance. In addition its was agreed with the latter that special projects (e.g. for supplying water to new cities) would benefit from specific financing conditions that would neutralize their impact on ONEP’s financial position. Therefore, the financing options are substantially in line with the recommendations of the policy assessments as (i) the budget support to rural water supply (RWS) and sewerage is secured and increased ; and (ii) the principle of annual tariff increases is confirmed, without increasing cross-subsidization that had already reached its limits. The solution of the
14 The annual budget contributions to the PNA are deposited by the Treasury in the FALEEU account, which is managed by the Ministry of Interior. The funds deposited in this account may be kept beyond the end of the fiscal year in which they have been appropriated. The amounts scheduled in the yearly PNA agreement (signed by ONEP with the latter and the Ministry of Finance) are then transferred in a specific bank account of ONEP.
58 VAT issue would also allow reversing the unfavorable trend of net budget transfers to ONEP that have taken place since 2007. The effective implementation of the financing options remains to be checked, particularly the planned tariff revisions..
26. Sanitation Financial Forecasts. Table 2 of Appendix 1 provides key financial data and indicators for the sanitation activities of ONEP. Under the above-mentioned assumptions, the financial model shows that: the development of sanitation services would require an average cash contribution of DH 305 million per year from urban water activities; sanitation sales may cover cash operating expenditures and a minor portion (14 percent) of the debt service generated by sanitation investments; sanitation tariffs would need to be increased by 120 percent to achieve financial equilibrium.
Financial Impact of Project Activities
27. Methodology. The financial impact is measured in terms of incremental (with/without project) cash-flows generated by project activities, from ONEP’s standpoint. As ONEP will take over the delivery of sanitation services in the 11 project centers from the communes, the full amount of the sewerage surcharges and fees billed to all water customers is to be taken into account as incremental revenue for ONEP. The analysis covers all sanitation investments, i.e. 94 percent of the total project costs. Data from the economic analysis are adjusted to take into account: (i) taxes (VAT); (ii) inflation at a 2 percent annual rate for operating expenditures and renewal investments; (iii) annual increases of the sewerage surcharge, in line with the assumptions of the financial model. Investment costs will be shared on a 50-50 percent basis by the Bank loan and the communes. Renewal costs will be fully funded by ONEP.
28. Main Assumptions. The annual cash flows consist of (i) as noted above, the full amount of sewerage surcharges billed to water customers located in areas served by the networks (DH 1.75/m3 on average, taking into account the increase scheduled in 2010); (ii) cash payments of connection and PPE paid by customers that do not benefit from the social connections (30 percent of new customers); (iii) new customers’ monthly payments under the social connection programs; (iv) cash operating expenditures adjusted for inflation; (v) renewal expenditures; and (vi) annual debt service of the Bank loan.
29. FIRR and NPV. Based on the above, the financial internal rate of return (FIRR) and the net present value (NPV) of the investments subject to the analysis are provided in the table below. The table also provides estimates of the long-term marginal cost of each system.
59 Table 3: NPV and FIRR Long-term NPV@ 8% FIRR Project Center marginal cost (US$ million) (%) (DH/m3) El Ksiba -1.14 -2.6% 10.63 Afourer + Beni Hayat -1.44 -1.1% 14.73 Demnate -1.34 -2.8% 10.95 El Brouj -0.93 -1.6% 14.66 Ouaouizerht -1.22 -6.0% 19.79 Boujniba -0.94 -1.4% 13.24 Boulanouar -0.80 -2.4% 16.22 Hattan -0.49 0.0% 11.22 Echemaia -1.14 -1.0% 12.34 Youssoufia -0.26 5.7% 5.87 Overall -8.98 -1.2% 11.31
30. As expected, the overall FIRR is negative as well as the overall NPV (US$ M -8.98). The financial outcome substantially differs from the results of the economic analysis, which captures household benefits linked to increased land values and external benefits resulting from the reduction of pollution. Only one center, Youssoufia, exhibits a positive FIRR, which comes from the fact that (i) the cost of the treatment plant is funded by OCP, which will reuse the water; and (ii) 90 percent of the current population is connected to the sewerage network. The above table also shows the wide gap between the long-term marginal cost (more than DH 11/m3 on average) and the sewerage tariff. The gap is partly filled by the 50 percent investment subsidy, but the project still generates negative financial cash flows.
31. The accumulated cash deficits generated by project activities over 2011-2017 amount to about DH 70 M, i.e. 3.0 percent of the overall deficit generated by ONEP’s sanitation activities during the same period. This outcome should not jeopardize ONEP’s financial viability, as it is lower than the share of the project costs in the overall sanitation program of ONEP (10.5 percent).
32. Sensitivity Analysis. The FIRR of the project as a whole would become equal to zero (financial equilibrium over the life of the project) if tariffs were increased by 30 percent or if the contribution of the municipalities were increased to 57 percent of the investment costs. In addition, an optimization of investments through the extensive utilization of adapted technologies (e.g. UASB) would allow increasing the project’s NPV by about US$2.7 M.
Overall Assessment.
33. The above findings show that, on the whole, ONEP’s sanitation activities cannot by themselves reach financial equilibrium; the specific activities of the project are no exception. The project’s financial viability is thus contingent on ONEP’s capacity to compensate their negative financial impact through the cash flow generated by bulk sales. It was therefore agreed at negotiations that ONEP shall maintain a ratio of net revenues [defined as the annual operating revenues plus the net non operating income (excluding
60 bad debts to be written off) minus cash operating expenditures (excluding interest charges) to the annual debt service requirements] higher than 1.2.
61 Appendix 9-A Financial Data
Table 1: Selected Financial Data (DH Million) and Indicators 2009-2020 – ONEP
Year 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Operating revenues 3,650 4,070 4,687 5,177 5,519 5,835 6,174 6,498 6,837 7,187 7,548 7,924 o/w Sales 3,365 3,751 4,305 4,733 5,024 5,304 5,602 5,896 6,206 6,535 6,881 7,244 Cash operating expenditures 2,082 2,206 2,326 2,457 2,573 2,689 2,810 2,928 3,044 3,157 3,269 3,382 Depreciation and allowances 1,068 1,105 1,184 1,294 1,413 1,528 1,616 1,698 1,778 1,859 1,925 1,996 Operating income 500 758 1,176 1,426 1,533 1,618 1,748 1,872 2,015 2,171 2,354 2,547 Net income 370 371 439 532 5,560 584 586 598 665 780 930 1,092 Cash generated by operations (before interest) 1,422 1,693 2,154 2,469 2,681 2,863 3,060 3,239 3,427 3,603 3,800 3,994 Debt service 944 1,057 1,293 1,488 1,649 1,821 2,090 2,163 2,137 2,140 2,123 2,766 Working Capital Requirements 234 264 326 362 433 521 624 789 819 676 694 775 Capital expenditures 3,081 3,346 3,641 3,960 4,142 4,178 4,063 3,590 3,122 3,091 3,060 2,861 Borrowings 1,647 1,953 2,049 2,295 2,458 2,539 2,562 2,169 1,730 1,687 1,638 1,501 Grants and contributions 1,148 1,260 1,274 1,249 1,248 1,230 755 758 791 793 795 829 Variation of cash -498 174 216 203 163 111 -399 -376 -130 177 356 -78 Working ratio (%) 61.9% 58.8% 54.0% 51.9% 51.2% 50.7% 50.2% 49.7% 49.0% 48.3% 47.5% 46.7% Debt service coverage (times) 1.3 1.4 1.4 1.4 1.4 1.3 1.2 1.1 1.2 1.4 1.5 1.2 Source: ONEP Financial Model
62 Table 2: Selected Financial Data (DH Million) and Indicators 2009-2020 – Sanitation Activities of ONEP
Year 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Sales 122 167 191 215 237 259 286 313 340 371 404 438 Operating revenues 122 167 191 215 237 259 286 313 340 371 404 438 Cash operating expenditures 138 154 171 191 211 232 253 275 298 323 348 373 Depreciation and allowances 79 101 129 159 190 220 249 279 308 338 367 397 Operating expenditures 216.6 255 300 350 401 451 502 554 607 660 715 769 Operating income -94 -88 -109 -135 -165 -192 -216 -241 -267 -290 -311 -332 Interest 53 77 99 115 121 122 141 154 169 182 194 208 Non operating income -88 -103 -122 -141 -156 -162 -159 -150 -136 -120 -101 -78 Income tax 0 0 1 1 1 1 1 1 1 1 1 1 Net income -236 -269 -331 -392 -442 -477 -517 -545 -573 -593 -607 -619 Cash generated by operations (before interest) -16 13 19 23 25 27 33 37 41 47 56 64 Debt service 105 130 160 211 256 287 336 357 390 403 396 544 Working Capital Requirements -17 -61 -63 25 12 1 12 2 -17 26 -1 -6 Sanitation investments 609 791 943 884 856 860 834 835 887 829 843 869 Financial investments 97 130 0 0 0 0 0 0 0 0 0 0 Borrowings 392 509 606 568 551 553 558 558 593 554 564 581 Contributions of customers 45 46 12 11 13 28 20 35 30 44 32 49 Contributions of communes 219 285 340 318 308 310 300 301 319 299 304 313 Variation of cash -154 -138 -65 -198 -228 -230 -272 -264 -278 -314 -284 -401 Working ratio (%)† 112.7% 91.8% 89.7% 88.9% 89.3% 89.2% 88.4% 88.0% 87.8% 87.1% 86.0% 85.1% Debt service coverage (times) -0.2 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 †Calculated as the ratio of sales to cash operating expenditures Source: ONEP Financial Model
63 Appendix 9-B Sewerage Tariffs
Tariffs as of March 2006
Water User Category Group I Group II Group III Group IV a. Domestic users Annual fee (DH/year) 36 36 36 36 Volumetric surcharge (DH/m3)
Block 1 (0-6 m3/month) 0.56 0.65 0.75 0.75 Block 2 (6-20 m3/month) 1.40 1.60 1.80 1.80 Block 1 (> 20 m3/month) 2.25 2.62 3.00 3.00 b. Public users (administrations, municipalities and public agencies) Annual fee (DH/year) 72 72 72 72 Volumetric surcharge (DH/m3) 1.40 1.95 2.50 2.50 c. Industrial and commercial users and public baths Annual fee (DH/year) 144 144 144 144 Volumetric surcharge (DH/m3) 2.25 2.62 3.00 3.00
Note: the sewerage surcharges and fees are applied to all water customers located in an area served by the sewerage network, irrespective of their actual connection to the network. Group I: Khenifra; Mouha ou Hammou Zayani; Mrirt Azilal; Nerkane; Sidi Slimane Cheraa; Zegzel; Taourirt; Tafoughalt Group II: Outat El Haj; Sidi L’Mokhtar; Rissani; Bouarfa; El Aroui; Zaio; Kalaat M’Gouna; Ben Ahmed; El Gara; Dar El Guedarri; Gueldim; Errachidia; Essaouira; Azrou; Sidi Slimane; Tiznit; Ouled Teima; Biougra; Ouarzazate; Tarmigt Group III: Bejaad; Sidi Talbi; El Ajoune Sidi Mellouk; Dakhla; Berrechid; Tafraout; Debdou; Laayoune; Oued Zem; Akka; Ben Taieb; Laayoune-Marsa; Ben Slimane; Tata; Al Hoceima; Boujdour; Bouznika; Foum El Hisen; Imzouren; Tan Tan; Khemisset; Foum Zguid; Targuist; Tarfaya; Tiflet; Ouled Berhil; Beni Bouayache; Sidi Yahia Zair Group IV: all other communes (including the project centers) l
64 Annex 10 - Social Assessment
KINGDOM OF MOROCCO - OUM ER RBIA SANITATION PROJECT
1. The Social Assessment drew on evidence collected through household surveys and key stakeholder interviews (carried out in summer 2009), as well as a review of the project documentation available. It focused particularly on capacity and availability to pay, gender aspects, and factors affecting project’s objectives. The following findings and recommendations shaped project design.
2. Property prices for both land and real estate and rental prices are relatively depressed due to lack of sanitation, and economic activities are inhibited due local environmental conditions. Particularly in Ouaouizaght and Afourer, households had to abandon their rented accommodation in the past because of sanitation problems, while some owners had to face a weakening of house foundations due to wastewater infiltration.
3. The current situation also has consequences on local health conditions. In all towns, households close to the wastewater discharges lament a high incidence of eye diseases and diarrhea, in addition to higher than normal concentration of pests, insects and rodents. Lack of sanitation infrastructure induces self-imposed limits to the use of water by households, as household members reduce consumption in order to limit potential waste waters spillages from cesspits. The situation also has clear impacts on social exclusion in the affected neighborhoods, as households report the avoidance of visits of friends and families.
Figure 1 : Ownership rates in targeted areas 4. Local populations show a clear and strong demand for the intervention, which is partly explained by the high 160 rates of house ownership in the targeted 140 areas (Figure 1). The majority of 120 households interviewed expressed 100 dissatisfaction with current sanitation 80 systems (86%) and a strong interest in 60 the project. Ninety-nine eprcent of 40 interviewed households have expressed a 20 0 strong interest in connecting, 79% Owner Tenant Number 152 2 immediately after the realization of the Percentage 99% 1% network. Table 1 lists the benefits expected by respondents by degree of importance. Other expected benefits reported during the interviews include the time and energy savings related to
65 the evacuation of waste water; the amelioration of household conditions through the possibility of purchase of equipment such as washing machines; and the reduction in conflicts with neighbors due to waste water disposal and spillages.
Table 1 : Expected project impacts Encouragement Disease and to other Degree of Body Domestic illness Property Comfort infrastructure importance Hygiene Hygiene reduction Value (smell) projects Important 75% 78% 18% 25% 73% 21% Good 25% 22% 60% 44% 18% 29% Fair 21% 27% 8% 37% Unimportant 1% 5% 1% 13%
5. Women are the main beneficiaries of this type of intervention. The lack of sanitation infrastructure has direct effect on the condition of women within the household and at community level. Thirty four percent of interviewed households expect a general amelioration of women’s hygiene conditions following the installation of sanitation infrastructure. Thirty one percent of surveyed households highlight the benefits derived from the elimination of the chore of wastewater evacuation (households have to rely on vacuum tankers for emptying their cesspits every three to six months –at significant costs to many households). Women are often involved in the manual evacuation of wastewater through buckets and plastic bags, a task often carried out at night. Women also highlight the benefits in terms of an amelioration of personal status and acquisition of time for other tasks.
6. Project design considers social inclusion measures in order to maximize impacts. These measures can be summarized in three main categories of tasks: a) network design and cost recovery; b) communication and awareness-raising; C) local stakeholders implication.
A. Network design and cost recovery.
7. All targeted villages contain Table 2: Households average monthly expenditure pockets of poverty usually concentrated in neighborhoods Town Reported average monthly situated at the periphery of each expenditures (DH) village. El Ksiba is the exception due Ouaouizaght 2124, 24 the presence of poor households Chemaia 2730,55 throughout the town, which partly El Brouj 3008,10 explains the difference in households El Ksiba 1441,83 reported expenditure between this town and the rest (Table 2).
8. Project design and implementation will consider the different capacities to access the sanitation services provided. Due attention should be given to including poor households and neighborhoods, or at least not excluding them. The concentration of poverty in certain neighborhoods will raise issues of capacity and availability to pay. Although poverty rates are
66 within limits15 (Table 3), data concerning capacity to pay utility bills shows levels of indigence across the different towns (Table 4).
Table 3: Poverty rates in targeted towns
2004 Poverty rates Province Town Type # households population 4,551 23459 10,59 DEMNATE Municipality
2,885 13950 7,77 AZILAL OUAOUIZAGHT Commune rurale
2,551 11898 8,41 AFOURER Commune rurale BENI MELLAL El KSIBA Municipality 4,412 18481 10,03 4,024 21859 13,22 Commune CHEMAÎA Rurale 12,528 64518 7,57 YOUSSOUFIA Municipality 2,916 16222 17,13 SETTAT EL BROUJ Municipality Total 33,867 170387
Table 4: Households’ reported hardships in paying utility bills
City always often sometimes never (%) (%) (%) (%) Chemaia 8 22 50 20 El Ksiba 3 34 47 16 El Brouj 0 0 12 88 Ouaouizaght 9 41 35 15
9. A proper exercise of identification, differentiation and targeting of poor households should shape both the design of the network in each village as well as the cost-recovery mechanisms facilitating access by the poorest. As the inclusion of social considerations can have important implications for the overall success of the intervention, the technical studies should benefit from the participation of sociologist/social development skills involved in the targeting, communication and community participation. The technical planning should take into consideration the poorest households in order to facilitate connection by increasing the proximity of pipes and connection boxes. Poor households could benefit from payment facilitations, for instance through options allowing for a phased payment of upfront connection costs which ONEP has already initiated..
15 El Brouj is an exception only on paper, as de facto migration remittances play a big role in financing household incomes which remain uncaptured by official statistics
67 B. Communication and awareness-raising.
10. The involvement of local communities in project design and implementation can vastly improve both process and outcomes. The potentially enormous impacts that the provision of sanitation infrastructure can have can be limited without an appropriate communication exercise. Such communication component needs to address several objectives, including availability to pay. Despite the strong interest expressed for the project, and the lack of major obstacles in terms of capacity to pay (with the important exception of El Ksiba and certain pockets of poverty within the other towns, for which dedicated solutions need to be found), the beneficiaries are likely to resist a request for financial contribution for both connection and servicing. A communication program in this sense would be welcome by the population as the majority of households’ heads seems to ignore both connection and service costs, while expressing a desire for more information. Similarly, the positive impact of sanitation infrastructure provision could be limited without an adequate program of communication and awareness-raising concerning health and hygiene. The provision of sanitation infrastructure needs to be coupled with behavioral changes regarding body and domestic hygiene practices (i.e. keeping livestock in the home) if it has to have an impact.
11. To encourage inclusion and exploit the full potential of the project, it is therefore imperative that a program of communication be implemented in order to highlight the opportunity costs of the intervention and follow up attitudes and behaviors linked to the project’s outcomes. Such communication program would need to be associated to the diagnostic of the social conditions of the neighborhoods concerned. The ONEP could play a role in communication and awareness by involving its tariff collectors (releveurs) who visit customers quarterly. If this avenue is feasible, the TA component would foresee a training program targeting the releveurs in addition to the development of a communication action plan tailored to each village. Regarding, health and hygiene issues, the project could leverage the awareness programs administered by the Ministry of Health in parallel with or immediately after the infrastructure construction. (an outline of possible actions prepared by ONEP is presented in the attached appendix 10-A)
C. Local stakeholders implication.
12. As key stakeholders in the project, the communes have a substantial role to play in making sure that social considerations are addressed. In particular the communes are key to raising awareness and mobilizing local communities, before, during and after the infrastructure works. This role is essentially one of a) ensuring the buy-in of beneficiaries; b) ensuring the respect of relevant laws and regulations (notably those related to paying for the service); c) supporting indigent households; and d) assisting with the deployment of a health and hygiene communication. The project would benefit from the early involvement and commitment of the Communes in addressing these aspects. In the framework of their relationship around project design and implementation, ONEP and the Communes need to set up institutional mechanisms aimed at collaborating around all social inclusion aspects. In principle, the relationship between the ONEP and the communes could be specified in key documents, such as the “cahier des charges pour l’exploitation du service publique d’assainissement liquide” which defines the technical assessment, as well as the conditions for infrastructure works. Both the Communes and ONEP can rely on the implication of NGOs. Three types of associations should be considered. Those with technical experience in environmental and sanitation matters, which can play a role in the
68 awareness raising phases. The ‘associations de quartier’ can play a role in both mobilizing the local population as well as in the identification of the more indigent households. Finally, farmers’ associations could organize the future beneficiaries of treated waste water.
13. In addition to lack of capacity in the Communes, ONEP currently lacks the resources to adequately address the social dimension of its sanitation program. In its TA component, the project therefore foresees a dedicated support to ONEP’s communication and marketing department. This TA will facilitate the development of a social mobilization team – through a local NGO or a specialized firm - charged with coordinating tasks A, B and C above. The activities of the team would be ‘piloted’ in the framework of the project, with a view to roll them out at national level in the context of the National Sanitation Program.
69 Appendix 10-A. Steps and actions in the proposed communication and awareness raising plan
Phases Actions Groupes Cibles Entité resp. de l’action A la signature de la convention de Présentation du plan de communication Autorités locales Directeur régional ou provincial avec le chef gestion déléguée de centre et un animateur Elus Diffusion de la plaquette institutionnelle+ . Autorités locales et élus lettre de la DG . comités de suivi et de pilotage Début travaux des projets . Services extérieurs . Correspondants presse . Diffusion de l’Affiche Grand public (le centre concerné) . Usage de banderoles ème . Diffusion d’ une 2 A ffiche . Grand public (le centre Chefs des centres . Usage de banderoles concerné) Equipe locale d’animation de la direction régionale Séance d’animation et de coordination avec les associations locales (invitation par ONG locales Au cours des Travaux contact direct ou par envoi courrier)
Campagne de sensibilisation dans les Enseignants, éducateurs, enfants Chefs des centres établissements scolaires, maisons des et jeunes Equipe locale d’animation de la Direction jeunes et foyers féminins Régionale, associations et autres partenaires éventuels (santé, Ministère de l’Education,..) . Envoi du premier mailing abonné les habitants du centre
. Réunion avec les autorités locales et élus autorités locales et élus Chefs des centres pour préparer la séance d’animation avec Equipe locale d’animation les populations . 1ère Séance d’animation avec les les habitants en général et futurs Chefs des centres populations en axant sur les futurs abonnés en particulier Equipe locale d’animation avec appui des abonnés représentants des autorités et élus et d’autres partenaires (associations, santé,…) Vers fin achèvement travaux et . 2ème séance d’animation (après évaluation futurs abonnés n’ont pas payé les Chefs des centres avant la mise en service du projet des résultats de l’animation sur plan taux coûts de branchements après la Equipe locale d’animation de collecte) 1ère séance d’animation Après mise en service des projets . Des programmes réguliers d’information Les habitants du centre chefs de centres et leurs collaborateurs (exploitation) de sensibilisation et d’implication des Avec l’appui de l’équipe d’animation populations dans la protection des régionale ouvrages et informations sur les divers aspects d’exploitation,
70 Annex 11: Safeguard Policy Issues
KINGDOM OF MOROCCO - OUM ER RBIA SANITATION PROJECT
1. This summary recalls the main findings and conclusions of the Safeguard Diagnostic Review of Morocco’s environmental assessment (EA) and Involuntary Resettlement systems in relation to the World Bank Operational Policy, OP/BP 4.00, “Piloting the Use of Borrower Systems to Address Environmental and Social Safeguard Issues in Bank-Supported Projects,” and in particular, the Objectives and Operational Principles set forth in Table A1 of OP 4.00.
2. Morocco is one of the countries being considered for piloting the use of country systems (UCS), due to the relatively modern and advanced state of its environmental assessment regulatory framework, its deeply rooted and tested legal and regulatory for land acquisition for public purpose and interest, institutional capacity and performance as indicated by previous World Bank diagnostic studies, and its ambitious agenda to further strengthen environmental management and protection. This review is applied to a prospective project to be funded by the World Bank in Morocco, the Oum Er Rbia Sanitation Project that is scheduled for appraisal in April 2010. This analysis is supported by independent comparative studies of Morocco and other EA systems in the Middle East and North Africa (MNA) Region and by Environmental Assessment Reports and Land Acquisition Framework prepared for other water-sector and infrastructure projects which were reviewed and endorsed by the World Bank and other development partners and donors.
3. The water sector was selected for processing under the Morocco country system because Morocco has a strong and well-established track record in managing water sector including in partnership with the World Bank over the last two decades.
EQUIVALENCE ANALYSIS
4. The Project triggers two of the eight safeguards that can be subject to piloting under OP 4.00. These are: (i) Environmental Assessment (EA) and (ii) Involuntary Resettlement (IR)16. This Equivalence Analysis is based on a detailed review of Morocco’s EA system as reflected in applicable Moroccan legislation, regulations, administrative orders and guidelines used by the Executing Agency ONEP which has a long history of good cooperation with the World Bank and other international financial institutions and donors on water-related projects and environmental management.
16 It is important to mention that for the purpose of the proposed Project, Involuntary Resettlement covers only the potential for land acquisition to implement public interest activities (i.e; building sanitation plants). No physical involuntary resettlement is envisioned and or will be implemented. It is a policy of the Government and the Executing Agency (ONEP) not to seek to expropriate land that is inhabited by households and to consider upfront during Project initial design to look at site that are included in the public domain (land owned by the Government) and in case of inexistence of such land to undertake to acquire land through the market, thus reserving expropriation of land for public interest under the relevant law as a last resort option.
71 5. These legal, regulatory and administrative texts and guidelines are compared to the eleven Objectives and Operational Principles for EA contained in Table A1 of OP 4.00. The legislation, regulations and administrative orders and guidelines analyzed include the totality of Morocco laws and regulations that affect EA and IR, including but not limited to the Law 11-03 (Environmental Framework Law), the 12-03(the EA law); Terms of Reference (ToR) developed by the Executing Agency, the Office National de l’Eau Potable (ONEP) for Environmental Impact Assessment (EIA) for the sanitation infrastructure (Plants); substantive legislation pertaining to the water sector; and other legislation applicable to water and sanitation-related investments in general, land acquisition and management for public purpose projects and pollution control and emissions norms and standards. A list of major pieces of legislation and regulations is attached to the Equivalence matrix Annexed to this SDR.
6. The primary statutory instruments governing the land acquisition process in Morocco are the Constitution (Article 15) and the Land Acquisition Act for Public Interest (Loi 7-81) and its implementing decrees. The objectives stated in the Constitution and the Loi 7-81 are equivalent to some but not all of the Objectives of OP 4.00 with respect to Involuntary Resettlement (IR). Under Article 15 of the Constitution, the rights of any person are protected from deprivation of property absent a compelling public interest, payment of compensation and recourse to adjudication at the highest levels. Both the Constitution and the Loi 7-81 are consistent with the objectives of avoiding or minimizing involuntary resettlement. In addition the valuation method used in Morocco qualifies as replacement cost, as required by Table A1 of OP. 4.00. It must be noted that in practice, community lands (“Terres collectives” belonging to ethnic tribes) are never acquired through expropriation but rather bought by the Government through a contractual approach consistently applied and well documented in Morocco. Finally, it is an established fact that only unoccupied lands can be targeted for acquisition for public interest projects (road, dams, sanitation plants, schools or health facilities etc.) and displacement of persons and communities are avoided as a matter of policy. The exception in the implementation of Law 7-81 suggests that displacement of persons has been limited occurred to slums removal, and was appropriately managed 17, notably under Bank-financed Land Development for Low-Income Families Project18 the ICR of which clearly stated that Government policies and laws fulfill
17 http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/EXTSDNET/0,,pagePK:64885161~contentMDK:20017974~piPK:59 29285~theSitePK:5929282,00.html
18 The ICR dated May 21, 1993 is available on the Bank Website and states that: “A resettlement expert, who joined the appraisal mission, has reviewed in detail the Government's resettlement policy and plans for resettlement (Annex 20) and approved the Government resettlement proposal for the first two sub-projects. He concluded that even though a few modalities of the Bank's OD on Involuntary Resettlement are not specifically reflected (limited squatters, participation in resettlement planning, lack of socio-economic survey), its overall goal is largely met by Moroccan housing practice. The Government's program is designed to improve the conditions of the squatters. In order to ensure that the OD's objectives are met, the project includes a socio-economic study whose primary objective is to ensure that squatters are not impoverished as a result of their resettlement (para. 3.22). Finally, it is of interest to note that the expert concluded that "the Bank would have many lessons to draw, for worldwide application, from involvement in Morocco' s programs". Cf. at http://imagebank.worldbank.org/servlet/WDSContentServer/IW3P/IB/1993/05/01/000009265_3961004071950/Rendered/INDE X/multi_page.txt
72 Bank’s operational requirements for involuntary resettlement. This was further confirmed under a Social Housing Project undertaken in 1994 and completed in 200419.
7. Pursuant to this Equivalence Analysis it is concluded that the totality of Moroccan laws, regulations, administrative orders and guidelines applicable to EA and IR in the water and sanitation sector are in nearly complete harmony with the Objectives and Operational Principles of OP 4.00, Table A1 and that any remaining gaps can be addressed through project-based measures without recourse to changes in Moroccan legislation and regulations. These gaps result from the fact that Moroccan legal and regulatory requirements applicable to environmental assessment are relatively new and not always tested (the Regional Committees for Environmental Impact Assessment remain in the process of being established throughout the country’s provinces) and the consultation process through the Public Inquiry is governed by a recent November 2008 Decree. Implementation of this recent decress has not reached a critical mass of cases which can be reviewed and analyzed in view of further amendment and or development. The policy dialogue undertaken as a consequence of piloting the UCS offers the opportunity to further develop the implementation and enforcement of the EA and IR systems.
8. Key gaps include:
For Environmental Assessment: a. Absence of sufficient detail in the prescribed content for Environmental Management Plans (EMPs), in particular, with respect to monitoring, institutional capacity development and training measures; b. Unclear requirement for consideration and assessment of alternatives including the “no project” alternative; c. Lack of reference to consultation of stakeholders in the EA process; and d. Unclear relationship between public consultation and disclosure requirements
For Involuntary Resettlement and Land Acquisition a. Law 7-81 does provide for payment of compensation and allocation of necessary budget to cover the cost of land to be acquired but it does not specifically provide for prompt payment of compensation in case of expropriation for public interest project; b. Law 7-81 does not ensure that acquisition can take place only after compensation has been paid, although a procedure called “prise de possession” may allow transfer of the land to the government or beneficiary agency with simultaneous payment of compensation as proposed by the government while at the same time giving the affected person a right to appeal decision the decision to get additional compensation before the court;
19 Project MA-PA 5474 http://imagebank.worldbank.org/servlet/WDSContentServer/IW3P/IB/1997/09/05/000009265_3971229181610/Rendered/PDF/m ulti0page.pdf
73 c. Although disclosure of the land acquisition decisions is fully recognized and implemented, there is no formal provision in Law 7-81 for community consultations (as opposed to one-on-one negotiations); and d. Law 7-81 does not provide for an ex-post analysis of whether resettlement has been achieved successfully.
9. The above-cited equivalence gaps can be remedied within the scope and term of the proposed Project by updating the ToRs for EIAs to be carried out for the sanitation-related investments and activities implemented under the Project. Beyond the scope and term of the Project, the sustainability of the Moroccan EA and IR systems can be enhanced by further consolidating and strengthening the existing legislation, regulations and other instruments into a more coherent and integrated structure.
ACCEPTABILITY ASSESSMENT
10. The Acceptability Assessment is based on a detailed review of the EA and IR processes, procedures and outputs and other implementation and delivery instruments in Morocco, as well as outcomes of activities undertaken by ONEP in the sanitation sector over a period of time from the 2000, when ONEP was called upon by the Government to help with sanitation activities and investments to the present. and beyond for other sectors and activities These activities include EA, EMP, Land Acquisition Plans (LAPs) and environmental monitoring and compliance processes implemented in connection with World Bank and other donors-financed projects and activities including: (i) a housing sector development project, (ii) a land development and housing project, and (iii) an analysis done by the World Bank on “Poverty and Social Impact Analysis of the national Slums Upgrading Program”. Also, the World Bank has reviewed the track record of ONEP in implementing a land acquisition plan under an agreed “Framework Land Acquisition Procedures for the Rural Water Supply and Sanitation Project” dated November 11, 200520.
11. It is important to note in this connection that the EIA Law 12-03 that serves as the basis of the Equivalence Analysis for EA was not in effect during the period when the above- mentioned projects were designed prepared and implemented while the Law 7-81 on IR was in force and served as the governing law for all Involuntary Resettlement and LAPs.
GAP FILLING AND SUSTAINABILITY MEASURES
12. In order to address gaps identified in both the Equivalence Assessment and Acceptability Analysis both the Government and ONEP agreed to implement gap-filling measures. Gap-filling measures identified were discussed during the consultation workshop on this SDR and subsequently with ONEP and the Ministry of Environment. These measures will be included as part of the overall Project design and implementation plan to be finalized by Executing Agency (ONEP). ONEP shall be responsible to ensure their implementation throughout the project
20 See footnotes 14 through 16 above
74 implementation period and shall report on regular basis within its reporting obligations under the financing and Project agreements for the Project
Equivalence
13. Environmental Assessment (EE): ONEP has submitted ToRs for EIAs to be undertaken for sub-projects to be implemented as part of the Project. These ToRs 21. were reviewed by the bank, found to be satisfactory with respect to both Moroccan legal requirements and standards and with Bank Environment, Health and Safety Guidelines and incorporated all gap-filling measures mentioned in the Equivalence Analysis Matrix attached to this SDR22. Accordingly, ONEP has agreed to adopt and apply the ToRsto all EIAs to be undertaken for subprojects as part of the Project.
14. ONEP shall develop an operational environmental and social strategy during the first year of Project implementation in view of updating overall its policies and procedures and improving its performance on the basis of relevant environmental and social indicators for all of its activities, regardless of source of funding.
15. Involuntary Resettlement (IR) and Land Acquisition : ONEP shall disclose in its website all data and information related to land acquired for the purpose of any or all the sub- projects as part of the EIE for each sub-project On year after the start of the implementation of the first sub-project, ONEP shall undertake a survey to be conducted by an independent expert to review the implementation and outcomes of all land acquisition plans including any ongoing grievance processes and shall organize a consultation with beneficiary municipalities.
Acceptability
16. Environmental Assessment (EA): ONEP and the World Bank shall continue to cooperate in order to help improve the ToRs for each of the sub-projects during implementation of the Project. ONEP shall use the ToRs for EIA23 for all sanitation sub-projects including :
a. Alternatives analysis including the “no project” alternative to all sub-projects;
b. Each sub-project document shall provide detailed mitigation measures and institutional arrangements for their implementation and monitoring and a budget for each proposed mitigation measure. Such measures to be included in bidding documents and contracts for the construction of each sub-project24 ;
c. Identification of capacity strengthening and timetable for their implementation;
21 Annex 5 of the SDR 22 Annex 1 of the SDR 23 Presented in Annex 5 of the SDR 24 These clauses shall be part of the TORs for feasibility design studies as well as of the TORs of the construction contractors.
75 d. Preparation of EIA by experts independent from the engineering and design study experts
e. Public consultation of local communities and stakeholders to be organized for each sub-project by ONEP in view of informing them about the sub-project in their area and its impacts on the environment and to collect their feedback and comments on the sub-project construction and operation. ONEP shall prepare minutes of each consultation meeting including lists of attendees. Such minutes shall be part of each EIA for each sub-project.
f. Disclosure of the final EIA report on the ONPE website.
17. Involuntary Resettlement and Land Acquisition: ONEP shall develop and implement an action plan to assist beneficiary municipalities with land acquisition processes for each sub- project.
18. ONEP shall collect from each beneficiary municipality the documentation and report on land acquisition processes undertaken by each beneficiary municipality for their respective sub- project including the land survey and map for the land to be acquired before the start of the design and EIA process for the respective sub-project. Requested documents for each land to be acquired:
g. A map and survey document, including socio-economic survey of land owners, occupiers and other users as appropriate ; and
h. the legal documentation on the land lot to be acquired which may be: (A) a contract through which the land is acquired in case it is a land owned by an individual or community under the “Melk” regime, or the “Habous” regime ; or (B) in case of use of the expropriation for public interest purpose, the minutes of the municipal council including a decision of budget allocation set aside for compensation, such decision to be confirmed by the treasury officer of the municipality; and a draft “Arrêté” or “Decret” to be approved by the Minister of Interior or the prime Minister as the case may be based on the size of the lot of land to be acquired.
19. Before the start of construction of the sub-project, ONEP shall request beneficiary municipalities to provide it with:
i. A land title in the name of the municipality in case of a contractual land acquisition, or a judge order allowing the taking of land (« prise de possession »), or agreement for land possession transfer signed by the municipality and the land owner or a court decision allowing ownership transfer in case of expropriation for public interest purpose
j. Depending on the legal status of the land lot to be acquired and/or acquired, ONEP shall request the respective beneficiary municipality to provide it with : (A) (A) an authorization from the competent authority for temporary occupation and use of the land lot to be acquired, (B) a decree granting a land lot from the
76 state private land to the municipality for the sub-project purpose, (C) an agreement from the Ministry of Interior and an agreement of the “Nouab” confirming the acquisition of a land lot with a “Guich” status.
20. ONEP to disclose all procedural acts related to the land lots acquisition and consultation of affected persons, and to disseminate through its website such information.
77 Annex 12: Project Preparation and Supervision
KINGDOM OF MOROCCO - OUM ER RBIA SANITATION PROJECT
Planned Actual PCN review 4/14/2009 4/14/2009 Initial PID to PIC 4/30/2009 4/21/2009 Initial ISDS to PIC 4/30/2009 4/21/2009 Appraisal 3/17/2010 4/09/2010 Negotiations 4/12/2010 05/05/2010 Board/RVP approval 6/15/2010 Planned date of effectiveness 9/15/2010 Planned date of mid-term review 3/15/2013 Planned closing date 12/31/2015
Key institutions responsible for preparation of the project: Office National de l’Eau Potable –ONEP.
Bank staff and consultants who worked on the project included:
Name Title Unit Alexander Bakalian Lead Water Resource Specialist MNSWA Philippe Huc Sr. Water and Sanitation Specialist MNSWA Augustin Pierre Maria Economist MNSWA Jean-Charles de Daruvar Senior Counsel LEGEM Hoi-Chan Nguyen Consultant, Lawyer LEGEM Mohammed Bekhechi Lead Counsel LEGEN Hocine Chalal Regional Safeguards Adviser MNACS Andrea Liverani Social Development Specialist MNSSO Zakia B. Chummun Language Program Assistant MNSSD Abdoulaye Keita Procurement Specialist MNAPR Anas Abou El Mikias Sr. Financial Management Specialist MNAFM Richard Verspyck Consultant, Financial Analyst MNSSD Larbi Khrouf Consultant, Reuse Specialist MNSSD Abdelmourhit Lahbabi Consultant, Environmental Specialist MNSSD
Bank funds expended to date on project preparation: 1. Bank resources: US$212,750 2. Trust funds: US$80,000 (Brazil Study tour) – Water Partnership Program 3. Total: US$292,750
Estimated Approval and Supervision costs: Remaining costs to approval: US$35,000 Estimated annual supervision cost: US$120,000
78 Annex 13: Documents in the Project File
KINGDOM OF MOROCCO - OUM ER RBIA SANITATION PROJECT
1. ONEP (2006) “Etude d’Assainissement du Centre d’El Brouj – Avant Projet Detaille (APD)” Rapport Provisoire
2. ONEP (2008) “Etude d’Assainissement du Centre d’El Brouj– Evaluation de l’Impact sur l’Environnement (EIA)” Rapport Provisoire
3. ONEP (2009) “Etude d’Assainissement du Centre de Ouaouizeght– Avant Projet Detaille (APD)” Rapport Provisoire
4. ONEP (2008) “Etude d’Assainissement du Centre de Ouaouizeght– Evaluation de l’Impact sur l’Environnement (EIA)” Rapport Provisoire
5. ONEP (2008) “Etude d’Assainissement de la ville d’El Ksiba– Avant Projet Detaille (APD)” Rapport
6. ONEP (2008) “Etude d’Assainissement des Centres d’Afourer et Bni Ayat – Avant Projet Detaille (APS)” Rapport Provisoire
7. Bourarache K., (2009) “Etude pour l’évaluation des aspects sociaux” Rapport d’étude
8. Khrouf L., (2009) “Pilotage de la réutilisation des eaux usées: ” Rapport de mission
9. Mara D., (2009) “Technical Support for the Management and Design of Wastewater Treatment Works (Waste Stabilization Ponds) ” Mission report
10. Lahbabi A., (2009) “Evaluation de l’acceptabilité du système national des études d’impact sur l’environnement” Rapport d’étude
11. ERM (2009) “Récupération de Méthane dans les Stations de Traitement d’Eaux Usées de l’ONEP – Etude de Faisabilité pour le PDD pour des projets MDP sélectionnés au Maroc” Rapport d’étude
12. ONEP- Commune El Ksiba, Convention de gestion Deleguée du Service Public d’Assainissement Liquide, draft.
79 Annex 14: Statement of Loans and Credits
KINGDOM OF MOROCCO - OUM ER RBIA SANITATION PROJECT
Difference between expected and actual Original Amount in US$ Millions disbursements Project ID FY Purpose IBRD IDA SF GEF Cancel. Undisb. Orig. Frm. Rev’d P104937 2009 MA-SOLID WASTE SECTOR DPL 132.70 0.00 0.00 0.00 0.00 132.70 0.00 0.00 P104265 2008 MA-ONE Support Project 150.00 0.00 0.00 0.00 0.00 142.91 12.81 0.00 P100026 2007 MA-National Initiative for Human Dev. 100.00 0.00 0.00 0.00 0.00 67.49 35.15 0.00 P086877 2006 MA-Rural Water Supply and Sanitation 60.00 0.00 0.00 0.00 0.00 43.18 21.59 0.00 P094007 2006 MA-Rural Roads II 60.00 0.00 0.00 0.00 0.00 10.65 -26.08 0.00 P082754 2004 MA-Rural Roads 36.86 0.00 0.00 0.00 0.00 8.04 -5.11 -5.67 P069124 2003 MA-Rainfed Agriculture Development 26.80 0.00 0.00 0.00 0.00 25.64 14.11 6.18 Total: 566.36 0.00 0.00 0.00 0.00 430.61 52.47 0.51
MOROCCO STATEMENT OF IFC’s Held and Disbursed Portfolio In Millions of US Dollars
Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic. Loan Equity Quasi Partic. 2006 FONDEP 3.45 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2000 Maghreb Inv. Mgt 0.00 0.02 0.00 0.00 0.00 0.02 0.00 0.00 2000 Maghreb Invest P 0.00 2.30 0.00 0.00 0.00 2.30 0.00 0.00 Total portfolio: 3.45 2.32 0.00 0.00 0.00 2.32 0.00 0.00
Approvals Pending Commitment FY Approval Company Loan Equity Quasi Partic. 2005 BMCE 0.00 0.03 0.00 0.00 2002 SGRI 0.00 0.00 0.00 0.00 2004 Meditel Restruct 0.00 0.00 0.00 0.00 Total pending commitment: 0.00 0.03 0.00 0.00
80 Annex 15: Country at a Glance KINGDOM OF MOROCCO - OUM ER RBIA SANITATION PROJECT
M . East Lower- POVERTY and SOCIAL & North middle- Development diamond* Morocco Africa income 2007 Population, mid-year (millions) 30.9 313 3,437 Life expectancy GNI per capita (Atlas method, US$) 2,250 2,794 1,887 GNI (Atlas method, US$ billions) 69.4 876 6,485
Average annual growth, 2001-07 Population (%) 1. 1 1. 8 1. 1 GNI Gross Labor force (%) 2.4 3.6 1.5 per primary M ost recent estimate (latest year available, 2001-07) capita enrollment Poverty (% of population below national poverty line) ...... Urban population (% of total population) 56 57 42 Life expectancy at birth (years) 71 70 69 Infant mortality (per 1,000 live births) 34 34 41 Child malnutrition (% of children under 5) 10 . . 2 5 Access to improved water source Access to an improved water source (% of population) 83 89 88 Literacy (% of population age 15+) 52 73 89 Gross primary enrollment (% of school-age population) 10 6 10 5 111 Morocco M ale 112 108 112 Lower-middle-income group Female 100 103 109
KEY ECONOM IC RATIOS and LONG-TERM TRENDS 1987 1997 2006 2007 Economic ratios* GDP (US$ billions) 18.7 33.4 65.4 73.3 Gross capital formation/GDP 21.1 20.7 31.6 31.8 Trade Exports of goods and services/GDP 23.6 28.5 33.0 33.1 Gross domestic savings/GDP 17.7 16.9 26.2 25.9 Gross national savings/GDP 22.6 20.0 34.5 33.5 Current account balance/GDP 0.9 -0.3 2.8 2.0 Domestic Capital Interest payments/GDP 3.6 3.1 0.8 .. savings formation Total debt/GDP 112.2 70.4 28.3 .. Total debt service/exports 29.5 27.1 12.2 .. Present value of debt/GDP .. .. 27.0 .. Present value of debt/exports .. .. 63.2 .. Indebtedness 1987-97 1997-07 2006 2007 2007-11 (average annual growth) GDP 2.6 4.5 8.0 2.3 4.7 Morocco GDP per capita 0.8 3.2 6.7 1.1 3.0 Lower-middle-income group Exports of goods and services 6.6 6.4 10.5 5.5 5.7
STRUCTURE of the ECONOMY
81 1987 1997 2006 2007 Growth of capital and GDP (%) (% of GDP) Agriculture 15.8 15.8 15.7 12.4 20 Industry 33.7 33.8 27.8 29.0 15 M anufacturing 18.7 18.1 16.5 19.4 10 Services 50.5 50.4 56.5 58.5 5 0 Household final consumption expenditure 66.6 65.3 55.5 58.0 02 03 04 05 06 07 General gov't final consumption expenditure 15.7 17.8 18.3 16.1 GCF GDP Imports of goods and services 27.0 32.2 38.4 39.0
1987-97 1997-07 2006 2007 Growth of exports and imports (%) (average annual growth) Agriculture -0.3 4.2 23.0 -20.0 15
Industry 3.1 3.9 4.6 4.8 10 M anufacturing 3.3 3.4 3.9 4.0 Services 3.4 4.9 4.1 7.4 5 Household final consumption expenditure 2.6 3.4 3.9 1.6 0 02 03 04 05 06 07 General gov't final consumption expenditure 3.8 3.1 3.8 1.7 -5 Gross capital formation 1.9 8.0 14.0 4.6 Exports Imports Imports of goods and services 6.2 6.5 6.7 5.9
Note: 2007 data are preliminary estimates. This table was produced from the Development Economics LDB database. * The diamonds show four key indicators in the country (in bold) compared with its income-group average. If data are missing, the diamond will be incomplete.
Morocco
PRICES and GOVERNM ENT FINANCE 1987 1997 2006 2007 Inflation (%) Domestic prices (% change) 4 Consumer prices 2.8 1.0 3.3 1.9 3 Implicit GDP deflator 3.9 2.0 1.9 2.0 2 Government finance 1 (% of GDP, includes current grants) 0 Current revenue 16.0 26.4 25.1 24.1 -1 02 03 04 05 06 07 Current budget balance -4.6 0.9 2.0 1.2 GDP deflator CPI Overall surplus/deficit -9.9 .. -2.3 -1.9
TRADE 1987 1997 2006 2007 Export and import levels (US$ mill.) (US$ millions)
Total exports (fob) 3,051 7,039 11,913 13,637 30,000 Agriculture 761 1,387 2,445 3,063 Phosphorus rock 368 435 540 624 20,000 M anufactures 1,142 3,802 7,213 7,256 Total imports (cif) 4,411 9,522 23,534 25,741 Food 476 1,072 1,718 1,910 10 , 0 0 0 Fuel and energy 738 1,296 5,104 5,352 Capital goods 881 1,939 5,136 5,867 0 01 02 03 04 05 06 07 Export price index (2000=100) 69 98 145 152 Import price index (2000=100) 90 111 136 140 Export s Imports Terms of trade (2000=100) 77 89 106 108
82
BALANCE of PAYMENTS 1987 1997 2006 2007 Current account balance to GDP (%) (US$ millions) Exports of goods and services 4,426 9,510 21,738 23,830 5 Imports of goods and services 5,254 10,627 25,776 28,102 4 Resource balance -828 -1,117 -4,038 -4,272 Net income -767 -1,175 -421 -1,066 3 Net current transfers 1,759 2,205 6,315 6,781 2
Current account balance 164 -87 1,856 1,442 1 Financing items (net) 16 640 881 3,123 0 Changes in net reserves -180 -553 -2,737 -4,565 01 02 03 04 05 06 07 Memo: Reserves including gold (US$ millions) 422 4,185 18,613 25,623 Conversion rate (DEC, local/US$) 8.4 9.5 8.8 8.2
EXTERNAL DEBT and RESOURCE FLOWS 1987 1997 2006 2007 Composition of 2006 debt (US$ mill.) (US$ millions) Total debt outstanding and disbursed 21,030 23,527 18,493 .. IBRD 2,558 3,271 2,267 2,578 A: 2,267 G: 1,797 IDA 41 31 18 17 B: 18 Total debt service 1,779 3,140 3,405 .. IBRD 345 544 418 399 IDA 1 2 1 1 Composition of net resource flows F: 4,947 D: 4,357 Official grants 77 281 421 .. Official creditors 468 -583 462 .. Private creditors 294 92 -825 .. Foreign direct investment (net inflows) 60 4 2,699 .. Portfolio equity (net inflows) 0 38 -309 .. E: 5,107 World Bank program Commitments 802 339 340 200 A - IBRD E - Bilateral Disbursements 404 141 176 418 B - IDA D - Ot her mult ilat eral F - Private Principal repayments 164 308 331 296 C - IM F G - Short-term Net flows 240 -166 -155 123 Interest payments 182 238 88 104 Net transfers 58 -405 -243 18
Note: This table was produced from the Development Economics LDB database. 9/24/08
83 Annex 16: Map KINGDOM OF MOROCCO - OUM ER RBIA SANITATION PROJECT
84