Document of The World Bank
FOR OFFICIAL USE ONLY Public Disclosure Authorized Report No: 33397-TN
PROJECT APPRAISAL DOCUMENT
ON A
PROPOSED LOAN Public Disclosure Authorized IN THE AMOUNT OF EUR 3 1.O MILLION (US38.03 MILLION EQUIVALENT)
TO THE
SOCIbTE NATIONALE D’EXPLOITATION ET DE DISTRIBUTIONDES EAUX (NATIONAL PUBLIC WATER SUPPLY UTILITY) WITH THE GUARANTEE OF THE REPUBLIC OF TUNISIA
FOR AN
Public Disclosure Authorized URBAN WATER SUPPLY PROJECT
October 13,2005
FINANCE, PRIVATE SECTOR AND INFRASTRUCTUREGROUP (MNSIF) MIDDLE EAST AND NORTH AFRICA (MNA)
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 authorization. Public Disclosure Authorized Bank 11
CURRENCY EQUIVALENTS
(Exchange Rate Effective May 11,2005)
Currency Unit = Tunisian Dinar (TND) 1.258 TND = US$ 1 US$O.795 = TND 1 1 US$ = EUR 0.8 106 (Aug 3 1,2005)
FISCAL YEAR January 1 - December 31
ABBREVIATIONS AND ACRONYMS DGRE Direction GknCrale des Ressources en Eaux (Water Resources Department) DSCR Debt Service Coverage Ratio EMP Environmental Management Plan ERP Entreprise Resource Planning GEG Ghdir El Gollah (location ofTunis water treatment plant) GIS Geographic Information System GOT Government ofTunisia IRR Internal Rate ofReturn LLCR Long Term Liability Coverage Ratio MAWR Ministry ofAgriculture and Water Resources MDG Millenium Development Goals MDT Millions ofTunisian Dinars MENA Middle East and North Africa MESD Ministry ofEnvironment and Sustainable Development NPV Net Present Value O&M Operation and Maintenance ONAS Office National d’ Assainissement (National Sewerage Board) PCN Project concept note PIU Project Implementation Unit PSP Private Sector Participation SIL Specific Investment Loan SONEDE SociCtk Nationale d’Exploitation et Distribution des Eaux (National Public Water Supply Utility) ST4 Water treatment unit 4, expansion ofGhdir el Gollah WTP) ssw State Secretary ofWater (attached to MAWR) TND Tunisian dinar WS&S Water supply and sanitation WTP Water treatment plant WHO World Health Organisation
Vice President: Christiaan J. Poortman Country ManagerDirector: Teodore 0. Ahlers Sector Manager: Jonathan Walters Task Team Leader: Pier Francesco Mantovani TUNISIA TN-URBAN WATER SUPPLY PROJECT APPRAISAL DOCUMENT FOR OFFICIAL USE ONLY CONTENTS
Page
A . STRATEGIC CONTEXT AND RATIONALE ...... 3 1. Country and sector issues...... 3 2 . Rationale for Bank involvement ...... 4 3 . Higher level objectives to which the project contributes ...... 5
B. PROJECT DESCRIPTION ...... 5 1. Lending instrument ...... 5 2 . Project development objective and key indicators...... 6 3 . Project components ...... 6 4 . Lessons learned and reflected in the project design...... 9 5 . Altematives considered and reasons for rejection ...... 9 C. IMPLEMENTATION ...... 10 1. Institutional and implementation arrangements...... 10 2 . Monitoring and evaluation ofoutcomeshesults ...... 11 ... 3 . Sustainablllty ...... 11 4 . Critical risks and possible controversial aspects ...... 11 5 . Loadcredit conditions and covenants ...... 12
D . APPRAISAL SUMMARY ...... 13 1. Economic and financial analyses ...... 13 2 . Technical ...... 19 3 . Fiduciary ...... 19 4 . Social...... 20 5 . Environment ...... 20 6 . Safeguard policies ...... 22 7 . Policy Exceptions and Readiness...... 23 Annex 1: Country and Sector Program Background...... 24 Annex 2: Major Related Projects Financed by the Bank andor other Agencies ...... 28
This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not be otherwise disclosed !without World Bank authorization. 1v
Annex 3: Results Framework and Monitoring ...... 29 Annex 4: Detailed Project Description...... 32 Annex 5: Project Costs ...... 39 Annex 6: Implementation Arrangements ...... 43 Annex 7: Financial Management and Disbursement Arrangements ...... 47 Annex 8: Procurement Arrangements ...... 50 Annex 9: Economic and Financial Analysis ...... 63 Annex 10: Safeguard Policy Issues...... 92 Annex 11: Project Preparation and Supervision ...... 111 Annex 12: Documents in the Project File ...... 112 Annex 13: Statement of Loans and Credits ...... 113 Annex 14: Country at a Glance ...... 114 Annex 15: Map: IBRD 34059 ...... 116 Tunisia 1 Project Appraisal Document Urban Water Supply Project October 2005
TUNISIA
TN-URBAN WATER SUPPLY
PROJECT APPRAISAL DOCUMENT
MIDDLE EAST AND NORTH AFRICA
MNSIF
I Date: October 6,2005 Team Leader: Pier Francesco Mantovani Country Director: Theodore 0.Ahlers Sectors: Water supply (90%);Central Sector ManagerDirector: Jonathan D. Walters government administration (10%) Themes: Regulation and competition policy (P);Water resource management (S);Pollution management and environmental health (S) Project ID: PO64836 Environmental screening category: Partial Assessment Lending Instrument: Specific Investment Loan Safeguard screening category: B
For Loans/Credits/Others:
Borrower: Societe Nationale d'Exploitation et de Distribution des Eaux (SONEDE) Av. Slimane Ben Slimane Manar I1 2092 Tunis Tunisia Tel: (216) 71-887-000Fax: (216) 71-871-000 [email protected] www.sonede. com. tn Guarantor: Government of Tunisia
Project implementation period: Start Jan 2006 End: Jun 2011 Expected effectiveness date: January 2006 Expected closing date: December 201 1 Tunisia 2 Project Appraisal Document Urban Water Supply Project October 2005
Does the project depart from the CAS in content or other significant respects? [ ]Yes [XINo Re$ PAD A.3 Does the project require any exceptions from Bank policies? Re$ PAD D. 7 [ ]Yes [XINO Have these been approved by Bank management? [ ]Yes [XINO Is approval for any policy exception sought from the Board? [ ]Yes [XINO Does the project include any critical risks rated “substantial” or “high”? [ ]Yes [XINO Re$ PAD C.5 Does the project meet the Regional criteria for readiness for implementation? [XIYes [ ]No Re$ PAD D. 7 Project development objective Re$ PAD B.2, Technical Annex 3 The Project development objectives are to: 0 Sustain the reliability and quality ofwater service in Greater Tunis and selected urban centers, through augmentation, upgrade and renewal ofwater supply infrastructure. 0 Enhance the competitiveness and sustainability of SONEDE operations, through modernization ofmanagement practices and information systems, for better cost control, enhanced revenue and more responsive customer service. Project description Re$ PAD B.3.a, Technical Annex 4 The project combines infrastructure and capacity building components: 0 Infrastructure components (Components 1 and 2) are excerpted from SONEDEs capital improvement program, itself encompassed by GOTs 10th and 1lth Economic Development Plans. They represent priority needs to avoid service deficits as early as 2010, and to meet 2025 demands, in Greater Tunis, Northern and Central Tunisia. 0 Capacity building tasks (Component 3) include the development ofstudies and decision- making tools and training, as well as the modernization ofinformation systems, to enable higher performance in utility management, planning, cost control and customer service. Which safeguard policies are triggered, if any? Re$ PAD D. 6, Technical Annex 10 0 Environmental Assessment (OP/BP/GP 4.01) 0 Land acquisition & Involuntary Resettlement (OP/BP 4.12) Significant, non-standard conditions, if any, for: Re$ PAD C. 7 N/A Board presentation: No conditions subsist towards board presentation. Loadcredit effectiveness: No conditions subsist towards effectiveness, subject to legal opinion as per General Conditions. Covenants applicable to project implementation: Financial covenants in the loan agreement commit SONEDE to: 0 Maintaining a minimum ratio ofinternal cash generation against capital expenditure needs of 30%, towards greater self-financing autonomy. 0 Maintaining an operating ratio ofover 100% for strict cost recovery. 0 Maintaining a debt service coverage ratio of 1.3 or better. 0 Satisfying standard auditing and reporting requirements. Tunisia 3 Project Appraisal Document Urban Water Supply Project October 2005
A. STRATEGIC CONTEXT AND RATIONALE
1. Country and sector issues
Countrv context
In the four decades between 1961 and 2001 Tunisia experienced sustained economic growth, averaging over 5% per year. Hallmarks of Tunisia’s centrally planned development approach include widespread access to education and health care, affirmative gender policies, and continued investment in manufacturing and basic infrastructure. Since the early 1990’~~ structural reforms, prudent macro-economic policies and better trade integration with the global economy were embraced to maintain economic and social development momentum. Poverty continued to be reduced, from 8% of the population in 1995 to about 4% in 2000. After a drought-related slump in 2002, the economy resumed growing at 5.5% per year in 2003’.
Under its Tenth Economic Development Plan (2002-2006) Tunisia nevertheless faces significant challenges to reduce unemployment from the current level of 15%’ to improve the efficiency of its social programs, and to convert its investment in education into a knowledge economy. Since 2004, Tunisia’s economic and social development plans are tested by the escalating cost of oil imports.
Water sector context and issues
Through sound infrastructure policy, Tunisia has achieved the highest access rates to water supply and sanitation services among middle-income MENA countries. By the end of the Tenth Plan in 2006, access to safe drinking water will be close to universal, i.e. 100% in urban areas and 90% in rural areas (96% on average). Similarly, 96% ofurban dwellers, and 52% ofthe rural population already have access to improved sanitation (80% on average). Two national autonomous public utilities, Socie‘tk Nationale d ’Exploitation et Distribution des Eaux (SONEDE), and Office National d ’Assainissement (ONAS), are respectively responsible for drinking water supply and sewerage across urban areas and all but the most dispersed rural areas. As a result ofwell-funded policies, good capacity planning and a culture ofoperating excellence, these utilities have long ranked among the most solid public operators in the region. Low rates of non-revenue water losses in distribution systems, estimated at 18% on average, are indicative of the high standard of SONEDE’s operations, as well as ofthe national policy priority assigned to demand management and conservation of scarce water resources. Just as appreciable is the fact that ONAS treats over 90% of collected sewage flows, often to secondary quality standards compatible with agricultural reuse. Purposeful management and reliable tariff increases, had also, until the late ~O’S,resulted in good cost-recovery Performance in both agencies.
As of 2005, SONEDE’s operational and financial performance remains sound2. In recent years however, the outlook of Tunisia’s successful utility model has evolved. As maturing agencies, about to substantially complete their expansion across rural areas, both SONEDE and ONAS
I See Country at a Glance, Annex 14. See SONEDE’s 2004 Fact sheet in Annex 1. Tunisia 4 Project Appraisal Document Urban Water Supply Project October 2005 face new structural and institutional challenges that bring into focus the opportunity for increased management performance and cost control. Both operators are impacted by creeping cost increases linked to rural service, rigid labor structures, mounting maintenance and renewal needs, and low-retum new activities3. In addition, after decades of expansion, SONEDE, and especially ONAS, must deal with changed macro-economic conditions which limit the Government’s ability to continue granting dependable biennial tariff increases. They witness, by the same token, a reduction in institutional and management autonomy, including for capital program and labor management decision-making. The financial degradation is most alarming at ONAS, where extended tariff freezes have made operations increasingly dependent on subsidies originally intended for investment. By comparison to ONAS, SONEDE’s financial situation is strong, but vulnerable nevertheless due to cost increase trends which outpace recent tariffs adjustments.
Looking ahead, the water supply sub-sector faces specific challenges, including: 0 Raising the level and the quality of service, despite aging infrastructure and increasingly scarce water resources. This implies optimal investment strategies for resource security (North-South transfer works, desalination, new technologies) for renewing and maintaining infrastructure, and for improving treated water quality. 0 Establishing a more efficient and responsive organization, through a combination of decentralization, non-core business outsourcing, customer focus, and strategic management ofhuman resources and technology. 0 Modernizing management practices and systems to promote efficiency and cost reduction. This spans performance management, financial forecasting, and information systems, including customer service, asset management and project management applications. It also entails strengthening the cost-efficiency culture ofSONEDE. 0 Adapting sector policies to improve SONEDE’s and ONAS’s competitiveness and sustainability, including in areas of tariff regulation, management autonomy, private sector role, and selected integration ofwater supply and sanitation operations.
2. Rationale for Bank involvement
The World Bank, GOT, SONEDE and ONAS share a long and successful partnership. Through eight projects dedicated to potable water infrastructure development and capacity building, the Bank has helped extend coverage across urban and rural Tunisia since SONEDE’s inception in 1968. Similarly, the Bank has supported the development of ONAS since its creation in 1974 and implemented six, largely satisfactory projects. The Bank has come to expect strong technical execution from the two utilities, and selective policy dialogue from GOT. Renewed Bank involvement with SONEDE is based on the premise that utility’s contribution to Tunisia’s economic and social development will increasingly be measured in terms of competitiveness: SONEDE is not only expected to supply water, but to provide higher quality service at a lower cost to the economy. In that regard, SONEDE’s technical and operational capacities are already strong, and tailored capacity building may focus on management performance and development strategies.
Besides rural service, this includes desalination in coastal areas for SONEDE and flood response for ONAS. Continued support to Tunisia’s water sector is thus justified to: 0 Strengthen, renew and modernize infrastructure systems; 0 Enhance the competitiveness ofservice and the autonomy ofoperations; 0 Promote the efficiency ofsector policies and strategies, spanning the water supply and sanitation subsectors.
The new project will invest in SONEDE’s infrastructure and quality of service, as well as in SONEDE’s management capacity, for improved competitiveness and autonomy. The project will not seek to directly influence sector policies at the governmental level. Other dedicated sector dialogue channels are justified to that effect, towards more effective tariff and performance regulation, tariff structure efficiency, improved integration of water and sewerage service for customers, and increased private sector role in the sector. All the while, as SONEDE’s operational and financial performance remains strong, the need for introducing comprehensive private sector participations in the sector may be limited in the short term.
3. Higher level objectives to which the project contributes
Ensuring reliable water supply to domestic and industrial consumers ranks high in the development agenda ofthe Government. These services have brought about economic and public health benefits, and improved living standards, contributing among other things to decrease the infant mortality ratio and eradicate epidemics since the mid-1980’s. The project will help Tunisia achieve key environmental and health MDGs by financing expansion of good quality potable water supply services. In particular, it supports Tunisia’s goals for the water supply sector and a slice of corresponding investments set up in its loth Economic Development Plan which encompasses an increase in the level of sector investments. A portion of project activities will also span over the period ofthe 1lth Plan, currently under preparation. Furthermore, the project contributes to two ofthe three key objectives ofthe Bank’s 2004 Country Assistance Strategy for Tunisia, namely (i)to improve the competitiveness of the Tunisian economy and its private sector; and (ii)improve the quality of social services, through improved delivery and efficiency of an essential infrastructure service, water supply; and enhanced efficiency of public expenditure in that sector.
B. PROJECT DESCRIPTION
1. Lending instrument
The project will use a Specific Investment Loan (SIL) to SONEDE, with a guarantee by GOT, to implement priority components of SONEDE’s capital improvement program. The proposed loan is a Fixed Spread Loan in Euros with a capitalized fi-ont-end fee. Tunisia 6 Project Appraisal Document Urban Water Supply Project October 2005
2. Project development objective and key indicators
The Project development objectives are to: 0 Sustaining the reliability and quality of water service in Greater Tunis and selected urban centers, through augmentation, upgrade and renewal of water supply infrastructure. 0 Enhance the competitiveness and sustainability of SONEDE operations, through modernization of management practices and information systems, for better cost control, enhanced revenue and more responsive customer service.
Indicators will track improvements in service and management performance. Service indicators will measure gains in new connections, water sales, and avoided unplanned supply disruptions. Improved service quality may further be monitored through periodic customer satisfaction surveys under consideration by SONEDE. Capacity building activities will be monitored through indicators measuring i)the implementation and ii) selected outcomes of tasks. Some of these indicators will be updated at midterm review, as specific studies and system installations are completed. (See Annex 3). For continuity, a set of financial indicators tracked during the Water Supply and Sanitation Project (Loan 3782-TUN) will also be monitored.
3. Project components
To achieve these objectives, the project combines infrastructure and capacity building components:
0 Infrastructure project components (Components 1 and 2) were excerpted from SONEDE’s capital improvement program, itself encompassed by Tunisia’s loth and 1 lth Economic Development Plans (the latter in preparation). . They represent priority needs towards avoiding service deficits as early as 2010, and meeting demands through 2025. Such components are distributed in SONEDE’s Greater Tunis, North and Central operating regions.
0 Less substantial, but strategic and integrated, the capacity building tasks (Component 3) include the development of studies and decision-making tools, as well as the modemization of key information systems, to enable higher performance in utility management, planning, cost control and customer service.
Component 1: Improvements to the Greater Tunis water supply system. Under this component, the project will implement treatment, transmission and distribution infrastructure, to strengthen water supply capacity in the Greater Tunis area. Key elements include the expansion of treatment and storage capacity at Tunis’s Ghdir-el-Gollah (GEG) water treatment plant (WTP) site, the rehabilitation of a crucial transmission line from GEG WTP to Ras Tabia storage tank, and selected augmentation of storage, pumping and distribution capacities in peripheral subsystems, including growth areas ofMomag, Bir-el-Kassa, LaGazelle, and Borj Touil.
These improvements will benefit all population served in Greater Tunis (approx. 2.2 million), and allow an added 147,800 household connections by 2025. The project will install sludge Tunisia 7 Project Appraisal Document Urban Water Supply Project October 2005 treatment for GEG WTP.in its entirety, thus stopping the current practice of unpermitted discharge to a stream.
Component 2: Improvements to water supply systems in urban centers. This component addresses water production, storage, transmission and distribution upgrades in SONEDE’s northern and central operating regions to meet demand growth. In the northern region, upgrades to the Kin Draham; Ghardimaou, and Rouhia-Jedliane-Sbiba systems will benefit an estimated 69,000 people and allow for 5,000 new households connections. In the central region, upgrades to the Jammel, Kalaa Kbira, Nasrallah and Ouerdanine systems will benefit around 151,000 people and allow to serve an additional 11,000 households.
Component 3: Management capacity building. This component will include studies, decision-making tools, information systems and training to enhance SONEDE’S management and planning performance, including the following key tasks:
Task 3a. Corporate plan and organizational audit. This task consists oftwo main steps: A Corporate Plan will be developed with SONEDE management’s facilitated participation, to develop awareness of trends and future challenges in SONEDE’s market and environment, and to identify medium to long-range plans to adjust to them. A second more actionable step will consist ofan audit of SONEDE’s organization and human resources management. An action plan will also be formulated towards implementation ofmanagement accounting by activity.
Task 3b. Financial model. This task will equip SONEDE with a professional financial simulation model aimed at optimizing investment programs and borrowing, developing stronger tariff adjustment rationales, and setting performance and cost control goals.
Task 3c. Customer service information system. This urgently needed renewal task entails the purchase, integration and installation of a state-of-the-art customer service software and associated servers. Although operated by SONEDE, ONAS will participate in the oversight ofthe development ofthis new system to manage customer relations and billing for both utilities, towards more efficient collections and more responsive customer care.
Task 3d. Human resources management information system. Under this task, an obsolete payroll system will be replaced with an integrated4 human resource management and payroll system, towards introducing efficient management of labor resources and costs. While integral to the Project, Task 3d component may be wholly funded by SONEDE.
Compatible with existing core Enterprise Resource Planning (Em) applications. Tunisia 8 Project Appraisal Document Urban Water Supply Project October 2005
Summary of Project Cost
Local Foreign Total Cost By Component (USD) costs costs costs US$ million US$ million US$ million
1 : Greater Tunis Infrastructure 15.02 10.84 25.86 2 : Urban Centers Infrastructure 5.99 3.12 9.1 1 Infrastructure subtotal 21.01 13.96 34.96
: Management Capacity Building I~~~ 3 ~ a. Corporate plan and organizational audit 0 0.48 0.48 b. Financial model 0 0.22 0.22 c. Customer Service information svstem 0.88 1.76 2.64 d. Human Resources management system * 0.53 0 0.53 Management Capacity Building subtotal 1.41 2.46 3.87
Total Baseline Cost 22.41 16.42 38.83 Phvsical Continnencies 2.16 1.60 3.76
I Total Project Costs' 28.00 19.16 47.15
are US$m 6.97, and totalproject cost, net of taxes, is US$m 40.18. Share ofproject cost net of taxes is 85%.
Local Foreign Total Cost By Component (TND) costs costs costs TND million TND million TND million
1 : Greater Tunis Infrastructure 18.77 13.55 32.32 2 : Urban Centers Infrastructure 7.49 3.90 11.38 Infrastructure subtotal 26.26 17.45 43.70
3 : Management Capacity Building a. Corporate plan and organizational audit 0 0.61 0.61 b. Financial model 0 0.28 0.28 c. Customer Service information system 1.10 2.20 3.30
Physical Contingencies 2.70 1.99 4.70 Financial Contingencies 4.27 1.42 5.70 Total Project Costs' 34.99 23.94 58.94 Tunisia 9 Project Appraisal Document Urban Water Supply Project October 2005
4. Lessons learned and reflected in the project design
Project design accounts for past project experience, including a project completed in 2003 with SONEDE and ONAS’ and a current one with ONAS and the Ministry ofAgriculture6.
0 SONEDE will be the single borrowing agency accountable for execution to simplify implementation and supervision arrangements. 0 The new project will strengthen SONEDE use of outsourcing of non-core tasks, in particular for infrastructure design and works control. Past projects have allowed SONEDE to self-implement all capital improvement program tasks. Limited use of subcontracting may have reduced SONEDE’s exposure to technology and cost- optimization techniques. The new project may alter that by calling for: o “Design-build” procurement for the GEG WTP expansion (largest subproject). o Competitively-bid diagnostic, design and works control for the rehabilitation or renewal ofthe GEG - Ras Tabia transmission line (2nd largest subproject). o Oversight ofEnvironmental Management Plan (EMP) by specialist consultants.
0 Advance design and procurement will be maximized to limit procurement lead times and potential delays associated with National Tender Board approval processes. 0 A material inventory system will be implemented for the goods acquired under the project, with separate accounting for the connections implemented under the project. 0 A Project Implementation Unit (PIU) will be created to coordinate project implementation, including oversight ofprocurement plan and project reporting. 0 Project perfonnance ratings and financial covenants will be based on indicators over which SONEDE has control. Past experience shows that tariff increase covenants are awkward to enforce, as GOT claims they pertain to sovereign policy, and they fail to encourage improved utility performance.
5. Alternatives considered and reasons for rejection
Successive project configurations were assessed through identification and preparation:
0 The original project concept encompassed infrastructure needs in Greater Tunis and 44 other urban centers, substantial purchases of supplies for water savings programs, and a “sector review” across water supply and sanitation sub-sectors. Comprehensive cost assessment demonstrated that such scope vastly exceeded SONEDE’s and GOT initial borrowing prospect ofTND 90 million. 0 In the interest of budget, eventually capped at TND 50 million before tax, all but top priority infrastructure projects were retained, and water savings supplies were dropped. The sector review was also excluded from the loan, due to reluctance to justify a distinct loan for Ministry of Agriculture, and risk seeing policy dialogue objectives become performance criteria for the project. Investment in infrastructure was further optimized
Water Supply and Sewerage Project, loans 3782/3783-TUN Greater Tunis Sewerage and Water Reuse Project, Loans No. 4174/4175-TUN Tunisia 10 Project Appraisal Document Urban Water Supply Project October 2005
by fine-tuning the ST4 treatment capacity expansion to 2 m3/sec, and postponing further expansion to 3 m3/sec. 0 A 100% infrastructure scenario, without institutional component, was discarded as inadequate to address SONEDE’s cost-reduction, efficiency and autonomy challenges. 0 A “no action” scenario was dismissed as leading to unacceptable service deficits, and related economic impacts, in Greater Tunis and other urban centers as early as 2010. 0 The original list of capacity building needs (water savings, master plans, corporate plan, tariff study) was narrowed, with focus sought on management performance gains.
C. IMPLEMENTATION
1. Institutional and implementation arrangements
As borrower and executing agency of the project, SONEDE operates under the tutelage of the Ministry of Agriculture and Hydraulic Resources (MAW). SONEDE features strong institutional and technical capacity, and is a veteran of eight Bank-financed projects. As in the past, GOT will guarantee the loan.
As stated earlier, a new Project Implementation Unit (PIU) will be set up, led by a senior manager with direct report to SONEDE’s CEO, to coordinate project activities. Several departments of SONEDE will be involved in the project implementation and operations, including:
0 Planning and General Studies 0 Operations 0 Engineering Studies 0 Finance and Accounting 0 Purchasing 0 Information Technology 0 Construction 0 Organization 0 Production 0 Human Resources
Implementation schedule
The project will be implemented over a period of six years (2005-201 1) as shown below,. With regard to the infrastructure components, some of the engineering studies have been carried out by SONEDE since late 2004.
ID ITaskName I I
-__- - - - __. Component 1 : Improvements to the Great Tunis water supply system Component 2 : Improvements of water supply systems in urban centers 1 Component 3 : Management Capacity building Task 3 a : Corporate plan and organizational audit Task 3 b : Financial Model 63 Task 3 c : Customer Management IT System Task 3 d : HR IT System- -- -___ __ Tunisia 11 Project Appraisal Document Urban Water Supply Project October 2005
Financial Aspects and Disbursements
Based on currently available information and on past project experience, in particular the recently completed water supply and sewerage project (Ln No. 3782 & 3783-TN), it is expected that financial and disbursement aspects ofthe new loan will be efficiently handled by Directorate for Finance and Accounting, as per Bank procedures.
SONEDE’s accounting and financial systems and resources are well known to the Bank. Systems include accounting, finance, purchasing/warehousing applications integrated as ERP core (J.D.Edwards). SONEDE is audited yearly by a private external auditor, and the Bank has had access to its audited statements for more than a decade.
2. Monitoring and evaluation of outcomes/results
The Project Implementation Unit, in collaboration with the Directorate for Planning and General Studies, will centralize project data and reporting, including performance indicators, and will track variance from project targets and project implementation plan. A result monitoring framework is included in Annex 3.
Bank supervision will be more intensive during the first two years of implementation (Le,, 12 to 16 staff-weeks per year) to support SONEDE launch critical project activities, in particular for the management capacity building component.
3. Sustainability
With SONEDE’s track record of institutional capacity, good operating practices and high cost- recovery performance, and barring an aggravation of institutional and economic constraints, the sustainability of project outputs and outcomes is highly likely. Better intemal cash generation brought about by the project should also enable improved asset management.
SONEDE’s sustainability outlook as an agency is developed in the financial analysis sections (D.1). Key management parameters towards maintaining a prudent debt ratio include: (i)labor costs and productivity, (ii)water tariffs and sales, and (iii)optimization ofinvestment strategies.
4. Critical risks and possible controversial aspects
Risk Rating Comments and/or Mitigation Measure
Risk of delays due to procurement approval Mitigation of this risk exceeds the scope of the processes by National Tender Board,(NTB). High project. Project will maximize advance NTB’s processing capacity may have procurement, and grouping of tasks to stagnated in recent years. minimize NTB’s review impacts. As part of procurement policy dialogue, opportunities may emerge to test (i)higher thresholds, (ii) increase of post-reviews, and (iii) delegation of atmroval Dower to detached NTB staff. Tunisia 12 Project Appraisal Document Urban Water Supply Project October 2005
~ Risk of limited GOT progress in enacting The project opts to strengthen SONEDE’s sector policy and institutional reforms. High iutonomy, and not to frontally leverage the loan for policy reform. Policy dialogue with SOT, combining water supply and sanitation interests, is needed in parallel. Risk of GOT inability to grant SONEDE 3ven SONEDE’s good financial situation, necessary tariff adjustments. Medium and the 5% tariff increase granted in 2005, loan covenants may avoid specifically mandating tariff increases but rather aim to sustain SONEDE’s financial situation. Risk of institutional delays to act on The project will focus on developing performance management and Medium management capacity to continuously improve organizational efficiency recommendations. the performance and cash generation, within The organizational audit may recommend the reach of SONEDE’s initiative. GOT action towards modernizing SONEDE’s representatives will be involved in any structures and functions, and clarifying significant organizational arbitrage. institutional relationships.
Management culture at SONEDE may limit Medium Installing new IT systems does not transform the effectiveness of management capacity the culture and slulls of utility managers. building components. SONEDE’s management team will nevertheless be empowered to implement performance enhancements and monitoring, at first basic, and gradually more complex. While specific needs for training and/or TA have not been assessed, unallocated funds allow to address them during the project cycle. InsufJicient SONEDEIONAS consultation. Medium ONAS’s input in the definition of SONEDE’s Limited experience of collaborating on new customer service IT system matters strategic projects may prevent the new towards identifying operational efficiencies. customer service IT system from bringing SONEDE has officially invited ONAS to about its full efficiency potential. actively participate in and appoint a representative for the Steering Committee which will follow up the development of the new system. Project may not speciJcally target poverty. Medium Target areas are selected based of highest service deficit in 2010 and 2025. Introduction ofpoverty criteria, if possible, is not consistent with current SONEDE planning methodology. Target areas however often coincide with towns or neighborhoods of reported poverty. Quality of engineering studies sey- Low SONEDE’s designs may not be most performed by SONEDE may impact project. innovative or optimized, but are conservatively solid, timely. and confined to standard submoiects.
5. Loadcredit conditions and covenants
Conditions for negotiation were met and included: Tunisia 13 Project Appraisal Document Urban Water Supply Project October 2005
0 Early establishment ofProject Implementation Unit capacity to advance procurement of main tasks. 0 Completion ofa Manual ofProcedures for project implementation.
0 Letter or Memorandum of Understanding between SONEDE and ONAS, towards ONAS’s participation in SONEDE’s commission for the development of specifications for the new customer service system. No conditions subsisted towards board presentation or loan effectiveness, subject to legal opinion as required under the General Conditions.
Financial covenants in the loan agreement commit SONEDE to: 0 Maintaining a minimum ratio ofinternal cash generation against capital expenditure needs of30%, towards greater self-financing autonomy. 0 Maintaining an operating ratio ofover 100% for strict cost recovery 0 Maintaining a debt service coverage ratio of 1.3 or better. 0 Satisfying standard auditing and reporting requirements.
D. APPRAISAL SUMMARY
1. Economic and financial analyses Economic Analysis
Project benefits
The infrastructure components of the project will provide safe and affordable drinking water to the growing population oftargeted areas. Planned investments are required to meet the needs of future additional population, by strengthening, expanding or rehabilitating parts of existing distribution systems. Through this project SONEDE will be able to secure water supply to accompany the urban development in its Greater Tunis, Northern and Central operating regions, where the population is expected to increase by 750,000 from 2010 to 2025, with Greater Tunis region accounting for 87% of the population growth. It is estimated that the increased supply capacity afforded by the project will allow about 164,000 new connections.
The benefits of the infi-astructure components would at least be equal to the cost of the alternative means that would be used to meet water needs without the project. In this hypothetical situation, households and other users would rely essentially on the purchase of water from water vendors at high prices and on investment in private wells and storage capacity. For quantitative purposes, the avoidance of such costs is assumed to be the main benefit of the project. In addition, given the superior convenience of house connections over buying and storing water, or pumping it, the project will allow households to consume a larger volume of water than under the alternative, which will increase their welfare. Finally, SONEDE delivers water of much better quality than potential alternative vendors or sources, which reduces health hazards. All these benefits will grow as population growth materializes.
The management capacity building component will enhance the efficiency and the competitiveness of SONEDE in terms of strategic planning, organizational effectiveness, Tunisia 14 Project Appraisal Document Urban Water Supply Project October 2005 financial planning and perfomance management, customer service, and human resources management. Benefits of this component will take the form of cost savings, revenue enhancements’ and increased investment capacity. Some of the improvements will also directly benefit SONEDE’s, as well as ONAS’s clients, including faster processing of customer requests and claims (request for connection, bill payment, claims.. .), reduced billing errors, and overall more responsive service. While theses benefits aim to be substantial, they remain difficult to quantify, and are therefore not accounted for in the economic NPV and IRR analysis.
Methodology and results summary
Using the cost-benefit approach, the economic benefits of the infrastructure components are calculated based on the opportunity costs of alternative water supply. For lack any water vending services in Tunisia, the analysis used the cost of water supply in rural areas which is 17.4 TND/m3 as a proxy for the cost of alternative water supply, as derived from previous water supply project with SONEDE8.
Moreover, financial costs are converted into economic costs by deducting taxes and using a conversion factor of 0.8 to adjust for the costs of unskilled labor and custom duties. The conversion factor is considered to be conservative and has a negative impact on the project economic return. Tables (2) to (4) in Annex 9 show the details of the projections of the benefits and costs for each infrastructure component, covering the Project’s period, 2005-2009, as well as later planning periods up to the year 2025. The analysis is based on benefits and costs forecasts until 2030. The costs and benefits are assumed to be constant after 2025.
Estimates of economic NPV and IRR for the infrastructure components are summarized in the table below. Even if benefits are limited to the opportunity costs of alternative water supply, the project is largely justified, yielding an IRR of43%.
Sensitivity analysis shows that the overall IRR drops to 37.9% only, when benefits are reduced by as much as 5% annually and costs rise by 5% a year compared to the base scenario. Moreover all infrastructure components appear sustainable under all the scenarios. Taking into account benefits such as increased availability and safety ofsupply, in addition to the high cost conversion factor applied to the analysis, the project yields even higher returns.
Basic Scenario : Without increase 5% Annual Increase in 5% Annual Increase in in costs or decrease in benefits Economic Costs Economic Costs and 5% Scenarios : Annual decrease in Benefits IRR NPV IRR NPV IRR NPV All Infrastructure components 43.3% TND 277,543,002 43.0% TND 268,470,336 37.9% TND 129,328,100 Great Tunis component 47.1% TND 275,387,059 46.8% TND 269,807,385 41.9% TND 149,521,043 Center Region Component 32.7% TND 19,941,031 32.2% TND 19,017,322 26.7% TND 9,160,017 INorth Region component 23.9% TND 8,964,451 23.1% TND 8,044,150 16.9% TND 2,659,526
Tariff policy
’Including through the development of more defensible tariff adjustment rationales Water Supply and Sanitation Project (loans 3782/3783-TUN) Tunisia 15 Project Appraisal Document Urban Water Supply Project October 2005
Tunisia’s water tariff policy can be evaluated with respect to three issues: (i)the sustainability of tariff adjustments rules; (ii)the effectiveness of the current average tariff to achieve full costs recovery; and (iii)the efficacy ofthe tariff structure in targeting the poor in terms of subsidizing their necessary level of consumption while in the same time maintaining incentives for an efficient consumption.
The tariff structure is proposed by SONEDE and approved by GOT and is applied to the whole country, spanning urban and rural service. Provisional analysis suggests that the tariff-adjustment rules work reasonably well in many respects. SONEDE’s healthy financial situation is largely due to relatively frequent tariff revisions during the last decade, and attests to GOT commitment to the sustainability of the national provider. However, our analysis suggests that improvements are possible through further strengthening of the technical capability of GOT agencies that provide advice or participate in decisions about tariff adjustment.
SONEDE tariff structure has two components: A fixed component and a variable component which is proportional to consumption. In addition to water tariffs, revenues are also derived from connection rights which contribute on average to 15% of SONEDE annual revenues. During the last decade SONEDE was able to maintain a positive net income while expanding service to less profitable rural areas. This resulted from (i)an adequate level of average tariff with relatively frequent tariffs revisionsg; (ii)stable revenues from new connections; and (iii)an annual government subsidy for rural systems investment (around TND 8 million). The chart below shows that while SONEDE operating ratio” was high by regional standards during last decade, it remained consistently below 100% during the last three years despite the 2003 tariff revision. This finding triggers some concerns on the sustainability of SONEDE financial performance.
106%
104% ..._.._...... _.__
102%
100%
98 %
96%
Evolution of SONEDE OperatingRatio.
SONEDE’s tariff structure exhibits a high level of cross-subsidies among customers. The chart below shows that over 80% of SONEDE’s revenue originates from less than 10% ofits customer base, which suggests a high level of cross-subsidy of small consumers by large consumers. This clearly shows that the current tariff structure does not specifically target subsidies to the poor.
Recent tariff adjustment steps include: 9.2% in 1996, 5% in 1999,7% in 2001, and 5,7% in 2003. loOperating ratio : Ratio of operating revenues over operating expenses (including depreciation). Tunisia 16 Project Appraisal Document Urban Water Supply Project October 2005
.. . . . -. . % % 'O% 1 rota/ Customers of Consumption I_ 0 % OfSONEDE Revenues
0-20 2140 41-70 71-150 > 151
Distribution of SONEDE customers, revenues and volumes sold per level of tariff.
The unbalance ofthe actual tariff structure represents a risk for SONEDE and ONAS to see their large consumers switch to alternative water supplies i.e. self-provision. Disconnection risks will be exacerbated if future tariff adjustments further increase the burden on large consumers. Financial Analysis
The infrastructure components of the project will generate financial benefits for SONEDE from several sources, including: (i)increased water sales made possible through the investments undertaken under the project; and (ii)income from connection fees made possible from the new water connections due to the project.
The financial analysis of the infrastructure components of the project has been conducted in current terms based on net cash flows generated by each component ofthe project over a 20-year period. The result of the financial and the subsequent sensitivity analysis are summarized in the table below. The analysis shows that the envisaged investment activities are financially viable with a financial rate of return of 9.67% based on the operating cash-flow minus investments realized by SONEDE. The financial viability of the proposed overall investmefit program was estimated taking into account the cost offinancing and the leverage specific to the project.
Financial Analysis : WACC = 4.2% I I I I Basic Scenario 1 Constant Average Tarrif I
TND 30 901 958 TND 48 587 990 TND 3 501 308
The financial benefits for institutional tasks remain difficult to quantify; however, a preliminary analysis presented below gives some insights about the strong profitability ofthe two main tasks in this component: Tunisia 17 Project Appraisal Document Urban Water Supply Project October 2005
0 The renewal of SONEDE’s obsolete customer service IT system should enable SONEDE to limit the risk of system failure”, and to shorten its bill collection cycle which is estimated at 120 days. Given the cost of the new system, around TND 3.7 million, SONEDE should be able to recover the new system cost in the first year after implementation by decreasing its collection cycle by just 7 days. It is thus reasonable to assume that this sub-component will yield a very high IRR and NPV. 0 The introduction of a modem Human Resources IT system should improve SONEDE’s efficiency in managing staff resources and programs, and in controlling overall labor costs. The cost of this sub-component, TND 740,000, represents less than 0.8% of SONEDE labor cost in 2004. Given that SONEDE labor costs have grown by more than 8% annually in nominal terms in the last four years, it is plausible that SONEDE will be able to recover the new HR system cost through better control ofits labor costs. The remaining two tasks represent relatively low investment costs which SONEDE should be able to recover through the efficiency gains it will achieve once all capacity building tasks are implemented.
Financial Assessment of SONEDE
An overall financial assessment of SONEDE was carried out to analyze the company’s (i) financial structure, (ii)operational efficiency, (iii)long-term viability, and (iv) capacity to assume the proposed loan. Also assessed were the main risk factors which could affect the performance and viability of SONEDE. The results of the analysis were used to (i)make recommendations to improve the company’s financial structure and operational performance, (ii) define performance targets and financial covenants, and (iii)develop project activities supporting improvements in SONEDE’s budgeting and planning processes.
The financial assessment and the subsequent sensitivity analysis show that SONEDE credit risk and its ability to implement its investment program is highly dependent on (i)regular tariff adjustments and (ii)management’s ability to implement more reliable financial planning practices and cost control strategies.
The analysis was conducted via the development of a comprehensive spreadsheet model presenting two years of historical results and twenty years of pro-forma projections in details. The latter were prepared on the basis ofdetailed physical, commercial, operational and financial assumptions discussed with SONEDE.
The main assumptions consisted of population and demand forecasts, investment programs, operating costs, and financing assumptions. Six projection scenarios were built: (i)a “base case scenario” with SONEDE’s most likely evolution; and (ii)five sensitivity scenarios targeted at estimating the robustness of SONEDE financial projections against critical parameters. For each scenario, performance was assessed on the basis ofthe following mainindicators:
Operational Indicators:
l1Current software and hardware are no longer supported by vendors. SONEDE is finding the emergency migration ofthe customer database and application onto a new server, prior to software modernization under Bank-financed project. Tunisia 18 Project Appraisal Document Urban Water Supply Project October 2005
(i) Operational margin and net income margin; (ii) Cost to income ratio (including and excluding depreciation charges); (iii) Personnel productivity (employees per 1,000 connections); (iv) Structure by staff categories and evolution of average salaries; (v) Percentage ofinvestments financed from own resources; (vi) Yearly capital expenditures; (vii) Net present value (NPV) and intemal rate ofretum (IRR) offree cash flows from operations.
Financial Indicators (i) Long-term debt to equity ratio; (ii) Total debt to equity ratio; (iii) Debt service coverage ratio; (iv) Loan life Coverage Ratio; (v) Current ratio.
The analysis confirms that SONEDE is financially viable, and is able to assume the proposed loan as long as modest improvements in performance are achieved as expected. Our analysis took into account a slowdown in additional future investments from 2008 to 2012, amounting to TND 354 million (USD 590 million) for a total of real TND 1560 million (USD 2.59 billion) over a period covering 2010-2025.
Nevertheless, sources of inefficiency and imbalances could hurt SONEDE’s financial situation. The major inefficiencies stem from (i)revenue uncertainties due to the lack of tariff forecast capacity, the questionable forecast of domestic consumption and the weak monitoring of large consumers, (ii)staffing and cost strategies, (iii)a level of indebtedness will reach its limits, and (iv) weak long-term investment planning. Appropriate indicators to monitor these factors include: (9 Tariff increase levels and frequency; (ii) Evolution ofdomestic consumption; (iii) Evolution ofwater consumption for each tariff bracket; (iv) Staffing levels per labor category; (4 Number ofemployees per 1,000 connections; (vi> Ratio ofstaff costs out of overall operating costs; (vii) SONEDE indebtedness and debt service ratios; (viii) Yearly investments and related funding. (ix) Operating ratio (operating expenses / operating revenues).
Sensitivity analyses show that a substantial improvement in performance and large cash savings could result from better monitoring and control of labor costs. The analysis also shows that, if SONEDE is unable to improve its performance and control labor costs as planned, it could face serious difficulties in the future in raising additional debt to finance required investments. The project addresses each of these weaknesses either directly through capacity building or indirectly via strategic long-term investments. The capacity building component will more specifically ensure: (i)improved revenue management through the customer service component; (ii)better management of staff resources, benefit programs, productivity and advancement, and overall labor costs through a new human resources software; (iii)strengthening SONEDE’s Tunisia 19 Project Appraisal Document Urban Water SUD~VProiect October 2005 planning process; and (iv) improving SONEDE financial planning through a new financial modeling and simulation tool.
These conclusions highlight the necessity for SONEDE to devote more attention to long-term investment and financial planning, and to monitor its overall operating performance. As a first step toward enhanced financial management, SONEDE has received the financial model developed for this analysis, and may use it as budgeting and medium-termplanning tool.
Fiscal Impact:
The project contributes positively on Government finances. Indeed, closer monitoring of performance, as well as optimal investments, and more predictable revenue adjustments, will increase SONEDE taxable income and reduce any potential future need for subsidies12. The base case assumptions include stopping rural extension capital program subsidies in 2010, once the service coverage is fully satisfactory. The net fiscal impact of SONEDE activities is positive and estimated at about USD 3.6 million over the next 20 years
2. Technical
Infrastructure components are originally derived from SONEDE’s master plans, which are of adequate quality. Independent reviews suggest that SONEDE master plans and engineering studies are based on conservative assumptions and technical designs. Priority subprojects were ranked based on the estimated severity of water supply deficit in 2010. Subsequent design and implementation of subprojects carry little technical risks, as they rely on proven technology and require available or accessible construction capacities and operating skills. While a number of design packages will be provided by SONEDE for secondary infrastructure subprojects (tanks, pumping stations, mains,..), design for the most complex components (ST4 water treatment plant expansion, renewal of 1190” transmission pipeline from GEG to Ras Tabia) will be procured through competitive selection of international design firms. The only new unit-operation introduced by the project is the processing of water treatment sludge, based on dewatering technology that is well within reach of SONEDE’s operational capacity.
The capacity-building tasks, and in particular the renewal ofinformation systems, are intended to introduce state-of-the-art management tools to SONEDE. While the applications sought are relatively standard, their smooth integration and roll-out at SONEDE’s will require good planning and training. While the technical ability of SONEDE’s managers to master and utilize these tools is not in question, emphasis must be placed on the need for management leadership to use them most productively.
3. Fiduciary
Experience from past Bank-financed projects with SONEDE shows willingness and a great capacity in implementing projects according to Bank guidelines.
______~ ~ l2Subsidies will be needed in the hture if SONEDE’s management is not improved. Tunisia 20 Project Appraisal Document Urban Water Supply Project October 2005
Procurement for the proposed project will be carried out in accordance with the World Bank's "Guidelines: Procurement under IBRD Loans and IDA Credits" and "Guidelines: Selection and Employment of Consultants by World Bank Borrowers", both dated May 2004.
A financial management capacity assessment of SONEDE was conducted using a standard questionnaire, suggesting that SONEDE has adequate accounting and financial practices and capacities, which are audited on a yearly basis. Its financial management systems are furthermore well known to the Bank13. Accordingly, it can be expected that SONEDE's Accounting and Finance Directorate will efficiently perform by Bank standards on the financial management and disbursement tasks ofthe project.
4. Social
The project will bring social and economic benefits to existing residents and businesses in Greater Tunis and in targeted cities in the northern & central regions ofTunisia, as well as to the population growth estimated at 750,000 by 202514. Minor social impacts may arise from permanent or temporary land acquisition required by the rehabilitation and construction of storage tanks, wells, pipelines, and water treatment facilities.
The largest land requirements are anticipated for the construction of the fourth module of the water treatment plant (ST4) and for the construction of a treated water storage tank in GEG. Both sites are already the property ofSONEDE.
Other more limited land acquisitions from public or private owners are also expected. A limited number of people will be affected and no acquisition is expected to require relocation. Assets affected include small agricultural lands, trees and crops with no significant impact on population livelihood. Tested SONEDE land acquisition procedures will apply in ensuring due process ofcompensation.
Stakeholder participation. The project will use standard approaches for investment in urban areas (where services and tariffs already exist and demand is proven), and extensive stakeholder participation is not required.
5. Environment
The project will extendrehabilitate water networks, implement potable water wells, and construct storage tanks and treatment facilities to increase water supply coverage and to provide good quality water on a continuous basis in Greater Tunis and in seven urban centers in northern and central Tunisia.
According to the Environmental Assessment (EA) carried out during the preparation stage, the project is expected to bring significant environmental, socio-economic and public health benefits through better quality and availability oftreated water, and improvements in the sustainability of
l3JD Edwards accounting and financial software procured under previous project (Lns No. 3782 & 3783TN). l4Theses estimates do not account for the demographic growth slowdown identified in 2004 census results published in 2005. Tunisia 21 Project Appraisal Document Urban Water Sutltllv Proiect October 2005 raw water sources through reductions in losses and wastage. Only limited and temporally negative impacts are expected during construction phase while some adverse impacts may result from the operation of water treatment facilities and potable water wells in case of defective design, implementation and operation.
Typical construction impacts are those of dust, noise, traffic congestion, and disturbance to the residents in the project area. The proposed mitigation measures developed in the Environmental Management Plan (EMP) would mitigate most ofthese temporary impacts to acceptable levels.
During the operation phase, potential negative impacts could arise through (i)disposal of water treatment residualsMudge (sediments, minerals and other precipitates from the water source and chemical pollutants from treatment process); (ii)unsustainable pumping of groundwater (affecting water quality and quantity); (iii)poor drinking water quality management; and (iv) lack of adequate wastewater services. Theses issues are addressed in the EA study and relevant recommendations for addressing the actual risks are as follow:
Sludge and waste management: A specific environmental assessment will be prepared for the ST4 subproject during the implementation phase. The implementation of ST4 will include, among others, the development and implementation of sludge/waste management system that will address relevant issues for the whole Ghdir el Golla treatment complex (the existing water treatment facilities in Greater Tunis). Solid waste and sludge producedtreated will be managed to comply with Tunisian solid waste management law (Law n"96-4 1) requirements.
The impact on groundwater is expected to be minimal since the administration in charge (DGRE) is capably monitoring aquifers, and only permits additional wells to be installed where aquifers are not being depleted. In order to qualify for financing under the Project, each new borehole must have its need confirmed by DGRE, along with information on current level ofthe aquifer involved and its evolution.
Drinking water quality: Treated water quality will keep on meeting drinking water standards set by the Tunisian Government and should also meet WHO standards. Among the parameters of concern are bacteriological contamination, nitrates, nitrites, and heavy metals. In order to safeguard public health, it is imperative that raw and treated water at the treatment plant, storage tanks and in the network continue to be regularly tested to ensure that potable water limits are not exceeded.
The potential water qualitv and health risks of additional water SU-P-P~V causing overloading of sewerage, treatment and disposal systems were reviewed. It is expected to be minimal since most of the planned subprojects will have limited implications for increased wastewater production. Nevertheless, the linkage between water supply and wastewater production calls for special attention to adequately address concerns about existing capacity to manage wastewater. Thus, the EMP includes provisions for a rapid EA screening/appraisal for some urban centers in order to identify appropriate mitigation measures.
In general, the developed EMP specifies the appropriate environmental management and supervision mechanisms, mitigation measures, environmental monitoring plans, training plans and budget allocation necessary to implement the mitigation measures and strengthen the Tunisia 22 Project Appraisal Document Urban Water Supply Project October 2005
Borrower’s capacity. The EMP will be closely monitored during supervision missions, and will be presented as part ofthe progress report to be submitted by the Government.
6. Safeguard policies
The project is determined to be an environmental screening category B and will not involve involuntary resettlement. No major safeguards issues are expected to arise from the implementation of this project. The EA study camed out during project preparation confirmed that EA safeguard policies (OP 4.01) are triggered by limited impacts that are technically and institutionally manageable. Land acquisition and involuntary resettlement safeguards (OP.4.12) are also triggered by limited land requirements.
Safeguard Policies Triggered by the Project Yes No Environmental Assessment (OP/BP/GP 4.01) [XI
Natural Habitats (OP/BP 4.04) rx1LA Forests (OP/BP 4.36) [XI Pest Management (OP 4.09) [XI Cultural Property (OPN 11.03) [XI Indigenous Peoples (OD 4.20) [XI Land acquisition & Involuntary Resettlement (OP/BP 4.12) [XI Safety ofDams (OPBP 4.37) [XI Projects on International Waterways (OP/BP 7.50) [XI Projects in Disputed Areas (OP/BP 7.60) [XI
Environmental assessment (OP 4.01): During the project preparation, an Environmental Assessment (EA) ofthe project activities has been conducted by SONEDE and an EMP has been prepared to address potential environmental impacts and to design mitigation and monitoring measures.
For the sub-projects identified as having potential environmental impacts i.e., construction ofthe water treatment plant (ST4) and the rehabilitation ofGEG-Ras Tabia pipeline, a specific EA will be carried out during project implementation. In addition the extension of water distributiodtransmission networks and the construction of boreholes for some urban centres might require a rapid EA screening/appraisal according to the Tunisian EIE regulations and procedures. Generic TORS for the preparation of specific EA and DS were prepared and provided in annexes I1 and I11 of the report. The sub-projects requiring rapid EA screening/appraisal are listed in the EA report. SONEDE will manage environment safeguards compliance for the project, with approvals by Agence Nationale de Protection de I’Environnement (ANEP) and monitored by the Bank
Land acquisition & involuntary resettlement (OP 4.12): As stated previously (section C.4 Social) land acquisition with minor impact and no resettlements will occur during the project in compliance with SONEDE procedures which are known to the Bank and deemed satisfactory. Tunisia 23 Project Appraisal Document Urban Water Supply Project October 2005
Borrower’s capacitv to im-dement the safeguard measures: Tunisia has a strong Environmental Protection Agency (ANPE) capable of reviewing the adequacy of environmental and social assessments, and monitoring the implementation of consequent recommendations and plans. An Integrated Safeguards Consultant will be hired by SONEDE in order to assist the Project Management in preparing, implementing and supervising all identified safeguards measures. Training activities will be provided under the project in order to strengthen the capacity of SONEDE’s national and regional staff to fulfil their environmental responsibilities.
EIA disclosure and consultation: The Borrower held initial consultations with local government agencies and municipalities about route altematives and potential impacts. No objections were made to the project or environmental and social concems were raised during this process. The French version of the Environmental Assessment Report including the EMP was disclosed on the World Bank Infoshop website on June 1, 2005.
7. Policy Exceptions and Readiness
No policy exception is being considered. Tunisia 24 Project Appraisal Document Urban Water Supply Project October 2005 Annex 1
Annex 1: Country and Sector or Program Background
1. Water resources assessment: Tunisia has very limited renewable water resources, and as of 2000, only about 408 m3/capita were available for mobilization. The scarcity of the resource is exacerbated by an irregular annual precipitation pattem. Normal precipitation can range from 600 mdyear in the Northern regions to less than 150 mdyear in the South. In a drought year, it can be half that amount. With these constraints, Tunisia's water resource management is among the most efficient in the region.
2. Sector organization: Two ministries oversee the water and sanitation sectors. The Ministry of Agriculture and Water Resources (MAWR, or Ministry of Agriculture), through a State Secretariat of Water (SSW), formulates water sector policies and strategies, and coordinates investment planning and the allocation of the resources. The Ministry of Environment and Sustainable Development (MESD), created in December 2004, sets policies and investment priorities for the sanitation sector.
MAWR oversees several public entities involved in the sector, i.e. (i)Socie'te' Nationale d 'Exploitation et de Distribution des Eaux (SONEDE), the autonomous national public water supply utility responsible since 1968 for delivering potable water in Tunisia, including construction, operation and maintenance of infrastructure. While its mandate traditionally focused on urban and peri-urban areas, in recent years SONEDE has been rapidly expanding its operations in rural areas as well; (ii)the Direction Ge'ne'rale des Grands Travaux Hydrauliques (DGGTH), responsible for the construction of large dams and irrigation infrastructure, and (iii)the Direction Ge'ne'rale du Ge'nie Rural et de 1 'Exploitation des Eaux (DGREE) responsible for water resources management, irrigation supply, as well as of drinking water supply and sanitation in dispersed rural areas not covered by SONEDE or ONAS. In December 2004, the MESD gained oversight of the sanitation sub sector, including Office National de 1 'Assainissement (ONAS). ONAS was established in 1974 as an autonomous national public sewerage utility responsible for sewerage collection, treatment, and disposal in about 150 urban agglomerations, industrial and tourist zones.
3. Sector regulation: The Water Code is the main legislative text ruling the water sector in Tunisia. It was promulgated in 1975. It aims at preserving and managing efficiently the water resources. The code also provides for: (a) water protection and efficiency of the usage, (b) a comprehensive framework for integrated water resource management and protection against floods, (c) establishment of users associations; (d) penalties for violations of the Law. Several amendments have been made to the code since 1975. Theses updates were related to the introduction of collective management of irrigation networks, the development ofnew water resources and water pricing reforms.
Autonomous agencies such as SONEDE and ONAS are committed through Contrat- Programme to achieve specific service and infrastructure goals, to be reflected in the next Economic Development Plan, and subject to planning arbitrage by Ministry of Development and International Cooperation. Their tariffs are revised periodically but not systematically, on an as-needed basis. Tariff adjustment requests are submitted to the Tunisia 25 Project Appraisal Document Urban Water Supply Project October 2005 Annex 1
oversight ministry, which has the option to transmit it for evaluation and decision by a Comite‘ Ministe‘riel headed by the Prime Minister. Such decision does not always respect prior formal commitments to adjust tariffs.
4. Constraints on water services: One of the main constraints on water supply in Tunisia is the remoteness of water resources from consumption centers, which results in heavy water transfer infrastructure investments and added costs. Another constraint is related to the quality ofwater resources, with high salinity exacerbating the cost ofwater treatment. Despites these constraints, the Tunisian “model” for water supply and sewerage has long been successful, and the financial and technical performance of its two public utilities have been relatively strong, as reflected by many performance indicators. A substantial loss in cost-recovery and self-financing capacity has nevertheless been measured at ONAS in recent years, in response to deferred tariff adjustments and ambitious capital program for rural service expansion.
5.
Access to safe Access to Households Households drinking improved with water with sewerage water sanitation connection connection Urban 100% 96% 98% 83% Rural 82% 52% 35% n/a Overall 91% 80% n/a n/a
Similarly, as of 2003, sewerage service was well developed compared to countries of similar income level. It is thus estimated that about 80% ofthe population has access to improved sanitation, ,of which 96% in urban areas and 52% in rural areas. ONAS sewerage service areas span 144 cities and towns, equipped with 66 wastewater treatment plants in good working order, treating, where more than 90% of the sewage collected. While SONEDE and ONAS have entirely distinct operations, ONAS relies on SONEDE for billing.
6. Water tariffs in Tunisia: Water and sanitation tariff structures are applied uniformly across the nation. They include a fixed part and a variable part which increases proportionally with the level of consumption. The chart below presents the distribution of SONEDE customers, revenues and volumes sold per category of tariff. It illustrates a high level of cross-subsidies among customers. In addition to water sales, SONEDE collects revenue from the installation ofnew connections. Affordability ofwater service
l5Coverage is on track to reach 96% in 2006 by end of Tenth Economic Development Plan (urban: loo%, rural 90%). Tunisia 26 Project Appraisal Document Urban Water Supply Project October 2005 Annex 1
does not appear to be a critical issue, given that in 2001 the level of water expenses for the first 20 liter per day represented 0.033% of the level of GDP/capita. Since its creation SONEDE was able to obtain tariff increases on regular basis in order to cope with increasing operating costs and an ambitious investment program. Over the past ten years, increases have taken place in 1996 (+9.2%), 1999 (+5%), 2001 (7%) and 2003 (5.7%). In July 2005 SONEDE benefited from a 5% tariff increase and was allowed to apply a revised tariff structure.
40%
30%
20%
10%
0% I 0-20 2140 41-70 71-150 > 151 Distribution of SONEDE customers, revenues and volumes sold per level of tarijj?
7. Operators performance: As suggested by key parameters listed in the fact-sheet below, SONEDE features enviable operational and financial performance as of 2004. In particular, with the exception ofan annual GOT contribution ofTND 8 million for capital investments in rural areas, SONEDE hlly recovers its operating and capital expenditures through tariffs, and has a debt coverage ratio of 3.03. SONEDE also claims an unaccounted-for-water ratio of approximately 18% in distribution systems. Opportunities exist for improved performance, such as in particular through higher productivity (4.1 employee per thousand clients), better labor cost management (currently adding up to 48% of operating budget) and through more widespread use of outsourcing and technology (all designs self-performed, very limited outsourcing, obsolete information systems, limited remote control and automation). Similarly, ONAS can be characterized as not highly productive (5.4 employees per thousand customers), although already practicing outsourcing. Due to inadequate tariff adjustments and accelerated investment programs, ONAS cost recovery, asset management and operational performance have deteriorated in recent years..
8. Water operators’ challenges: The deterioration ofONAS’s financial situation shows that the Tunisian model is under strain, and suggests that SONEDE itself may not be immune from a drop in cost recovery and further losses of management autonomy. There are medium terms risks to SONEDE’s healthy financial position due to (i)the burden of expansion into low return market segments (non-agglomerated rural areas) and in high- cost technology (desalination), (ii)unreliable tariff adjustments, and (iii)a limited potential for rapid and substantial operating and investment efficiency gains due to labor rigidities and heaviness ofits monopolistic position. Tunisia 27 Project Appraisal Document Urban Water Supply Project October 2005 Annex 1
9. Increasedprivate sector role: The Government has become aware that further and faster reforms may be required to increase water sector efficiency, including a larger role for the private sector, towards reducing costs and introducing competitive emulation. Opportunities for PSPs are being considered and advanced for “greenfield” facilities, such as ONAS’s El Attar WWTP and El Allef WWTP BTOs in Greater Tunis, and a desalination BTO in Djerba. More comprehensive PSPs, such as service delegation in areas or functions currently served by SONEDE and ONAS, are not being considered in the short term. Comprehensive PSPs are in particular not readily justified in the case of SONEDE, as the utility, while not very productive, continues to post strong operational and financial performance.
SONEDE 2004 Fact sheet (source: non-audite 2004 statements) Total Water Production : 396 Mm31 Year Surface Water : 54.4 % 1968 Founding Date: Ground Water : 42 % Desalination : 3.6 % Number of employees : 6 948 Average Consumption : 111 LiterPerson Population Served : 8 010 000 Average bill : 7.3 TNDMonth Number of customers : 1 876 000 Average Water Tariff 0.513 TND1 m3 Domestic : 69 % Tariff Structure : Hotels : 5% 0-20 m3 : TND 0.1351 m3 Industries : 10% 21-40 m3 : TND 0.2151 m3 Collective : 14% 41-70 m3 : TND 0.4301 m3 Stand post: 1 % 71-150 m3 : TND 0.650/ m3 Other : 1% > 151 m3 : TND 0.790/ m3 Length of distribution network : 36 000 Km Unaccounted For Water: 18.2 ‘YO
Bill Collection Ratio : 99.36% Total revenues : TND 195.2 millions Total Operating Costs : TND 185.4 millions Water Sales : TND 164.3 millions Labor costs : TND 84.84 millions Connections : TND 16.1 millions Energy : TND 13.66 millions Others: TND 14.8 millions. Consumables : TND 26.8 millions Depreciations : TND 50.34 millions Annual revenue growth for last decade : 6.2 % Others : TND 20 millions Annual growth of costs for last decade : 7.2 %
Leverage ratio (DebtsDIquity): 42.5% Capital Expenditure : TND 111 millions Total Long Term Debt : TND 2 18.5 m Renewal : TND 11 millions Network Extensions: TND 100 millions Investment Internal Financing ratio : 49% Working ratio : 76.7% Debt Service Coverage Ratio : 4.17 Quick Ratio : 9.94 Tunisia 28 Project Appraisal Document Urban Water Supply Project October 2005 Annex 2
Annex 2: Major Related Projects Financed by the Bank and/or other Agencies
Recent Bank lending to Tunisia in this sector includes:
(0 The Water Supply and Sewerage Project (closed in June 2003) implemented with SONEDE and ONAS to enhance urban and rural water supply service, demand management and protection of water resources, as well as to promote utility financial performance and institutional reform. Project performance was deemed satisfactory.
(ii) The Greater Tunis Sewerage and Water Reuse project (to close in December 2005), implemented with ONAS and Ministry of Agriculture, to expand the sewerage network and increase sewage treatment capacity in the capital area, including preparation of a BOT operation for a new sewage treatment plant and increase the volume and range of effluent reuse applications. In spite of its unsatisfactory rating for about one year, and a restructuring in 2003, project performance is deemed satisfactory. A one-year extension was granted.
(iii) The Water Sector Investment Project to support water resource conservation and protection in agriculture, as well as water supply and sanitation in highly dispersed rural areas (to close in December 2006). This project is performing satisfactorily.
The water sector in Tunisia benefits also from the support of several European Development agencies: EIB, AfD and KFW. Their main projects in SONEDE’s water supply sector for each agency are summarized in the following table.
Agency Project Type ofproject Target issue
AFD 0 Rural Water supply Lending Increase water access in (Project 11) rural areas (French Development
Agency) for a total of 58 0 Sahel Sfax Water Supply Lending Reliability and quality of million ofeuros. water service
EIB (European Investment Upgrading ofdrinking Lending Reliability and quality of Bank) for a total of 95 water supply to the water service. million euros. eastem coastal regions of Sahel and Sfax
KFW 0 Water infrastructure in the Lending Reliability and quality of South water service for a total amount of 25millions euros Tunisia 29 Project Appraisal Document Urban Water Supply Project October 2005 Annex 3
Annex 3: Results Framework and Monitoring
Results Framework
Outcome Indicators Use of Outcome Information
1. Insuring the reliability and the Volume ofwater sold in target Annual Monitoring and Evaluation sustainability of water service in areas. Report. Greater Tunis and selected urban New connections in the areas center, through augmentation, upgrade targeted by the project. Consumers studies and renewal of water supply Water shortage events (unmet Planning for future investment needs infrastructure. demands, after 2009) in the water sector. I
Building up on experience on environmental impacts to prepare more environmentally friendly water supply projects. Client satisfaction rates, as 2. Enhance the competitiveness and measured through periodic surveys sustainability of SONEDE operations, Planning for future financial resources Duration ofbill collection cycle. through modemization ofmanagement needs and assessing different scenarios practices and information systems, for Ratio of“labor costs/ sales” for tariff revisions. better cost control, enhanced revenue
Results Indicators for Each Use of Results Monitoring Component Component One: Component One: Component One: Greater Tunis; Increase in the 0 Number ofnew connections Monitoring and evaluation capacity and the reliability of Volume ofwater sold Planning offhre water demand production, transmission and and investment needs distribution systems.
Component Two : Component Two : Component Two : Urban centers in northern and 0 Number ofnew connections 0 Monitoring and evaluation central regions; Increase in water Volume ofwater sold 0 Planning of future water demand storage and distribution capacity in and investment needs systems targeted.
Component Three: Component Three: Component Three: Management capacity building. Implementation of studies, tools, 0 Monitoring and evaluation and systems Action plans targeting potential Setting ofmanagement performance areas of efficiency improvement I objectives 0 Better financial and investment Indicators will be defined at mid- planning; better substantiated tarifj term. revision requests. 0 Cost control goal setting. 0 0 0N g % E: e e c .e d 2 5 .e+ e C 00 In Q\N E Q\ +v 2 rr
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I Tunisia 32 Project Appraisal Document Urban Water Supply Project October 2005 Annex 4
Annex 4: Detailed Project Description
This annex offers a description of the contents of each of the seven project components, along with summarized rationales for including it in the project.
Infrastructure Components:
Infrastructure components to be financed in the project represent only a portion of SONEDE’s total capital program. All the subcomponents were selected based on the inability of existing infrastructure to fulfill the water needs by 2025, and hrther screened based estimated deficits as early as 2010.
Component 1: Improvements to the Greater Tunis water supply system (US$24,76m). This component includes investments in water production, storage, transmission and distribution systems: - Ghdir El Golla (GEG) water treatment plant expansion : A fourth water treatment unit, also referred to as “ST4”, will be added to the existing Ghdir El Golla WTP adding a 2m3/sec treatment capacity; sludge treatment (dewatering) capacity will also be installed for the new and the existing water treatment units; These facilities will be implemented through a design-build contract. Modular design of ST4 will allow later integration of an additional 1m3/sec treatment module, when water demand will require it (ca. 2024). GEG storage : A storage tank for treated water with a capacity of de 10 000 m3 will be added to the Ghdir El Golla WTP site ; - Ghdir El Golla-Ras Tabia transmission line: Rehabilitation and/or renewal of 10 km of 119Omm pipeline. Depending on the outcome of the rehabilitation diagnostic, this “central artery” of the Greater Tunis system, will undergo a combination of renewal, rehabilitation and relining work. The line will also be realigned in certain areas where unzoned settlements were established over the pipeline. - Mornag : 5 km of polyethylene mains less than 315 mm in diameter, and a pumping station of 15 kW with electromechanical equipment. - Borj Touil : 15 km of polyethylene mains with a diameter less than 200 mm, a pumping station of 14 kW with electromechanical equipment and a 2,500m3 storage tank. - La Gazelle : 500m3 storage tank. - Ghdir El Golla & Bir El Kassa 72-meter pressure stage: Two water storage tanks of 5 000 m3.
The Greater Tunis component is justified by both the expansion of consumption and the need to make water supply more reliable. These objectives require the increase of treatment, storage, transmission and distribution capacities. Thus, the project aims to treat an additional volume of water of 2m3/s and to allow this new production capacity to be transported and distributed. The demand forecast was calculated applying a historic growth rate of the consumption to the future. Tunisia 33 Project Appraisal Document Urban Water Supply Project October 2005 Annex 4
This growth rate is 1.5%/year and the additional volume needed in 2010 is about 1.6 million m3/yearand will be of28.9 million m3/year in 2025. 100% ofthe population is connected, and it is expected to remain so in the future. The local level of non-revenue water is 16%. Several works are planned based on the master plan conducted by Safege in 2001. All the area is supplied by the GEG WTP.
The existing 5.4 m3/s capacity of the GEG WTP (ST1, ST2 and ST3) is insufficient to face a power shortage of 3 hours or peak daily demands in the near future. However, the capacity ofthe treatment plant project ST4 was reduced from 3 m3 (to satisfy year 2032 demand) to 2m3 (to satisfy the demand forecasted for 2022) due to the importance of investments costs; Demand for the first additional cubic meter is foreseen in 2010.
The technical studies conducted by SONEDE on GEG storage capacity-concluded to the need for reserves to cover accidental bursts or power shortage but also to deal with the existing deficit of storage capacity to meet demand on peak summer days.
The existing 1190” GEG-Ras Tabia transmission pipeline was built in 1950. It is a “central artery”of the Greater Tunis water system, but is by now very fragile and unable to resist high pressures. Moreover, unzoned settlements have been built on some of its path, generating a major operational constraint, as well as a potential threat for the population in case ofburst. It is estimated that in the best of cases, SONEDE needs 48 hours to repair a break on such pipeline. Meanwhile, this will provoke water shortages in a third part of Tunis, and, among other consequences, an important loss of revenue for the SONEDE. Therefore, renewal of this line to secure water supply and to transport the increasing volume of water produced by ST4, is a priority for SONEDE. A specialized diagnostic ofthe pipe will lead to defining a solution based on a combination of renewal, rehabilitation and relining work. Extemal expertise is also expected to minimize project costs by optimizing choices of pipe materials and diameters. Finally, the line will also be realigned to avoid any undermining ofhabitat settlements.
Borj Touil, bordering the North East of Tunis, is located on the coast. The city is attracting new inhabitants and has an annual growth rate of 5.7%. The existing system is insufficient to resist to higher pressures and to stock an increasing volume of water or to respond to peak summer consumption levels. The level ofnon-revenue water, now at 25%, is being reduced. Meanwhile, SONEDE wants to raise the proportion of connected households from 70% in 2005 to 100% in 2025. The level of consumption is also expected to rise due to the construction of a new commercial area. The construction of a new storage tank and an adduction network were planned towards this end. The additional volumes of water will allow the city to sustain the incoming economic growth.
Component 2: Improvements to water supply systems in urban centers (US$8.91 m) This component includes investments in production, storage, transmission and distribution in seven urban areas (subprojects), across five administrative governorates in SONEDE’s northern and central operating regions. Tunisia 34 Project Appraisal Document Urban Water Supply Project October 2005 Annex 4
Town specific subcomponents typically address improvements to water supply systems spanning several municipalities, in addition to linking surrounding villages. For instance, the Rouhia subcomponent spans in fact three small cities (Rouhia, Jedliane and Sbiba).
Northern region subprojects:
Operating Region Governorates Urban centers (subcomponents)
Jendouba Ain Draham North Jendouba Ghardimaou Siliana Rouhia
The planned infrastructure improvements are as follows:
Ai'n Draham : 1,000 m3storage tank Ghardimaou : 1, 000 m3storage tank, drilling of 1 new borehole, rehabilitation of existing borehole, two borehole protection structures; electromechanical equipment (40 kW), and 12km ofcast iron and olyethylene mains. - Rouhia :Two 500 m3storage tanks, two 250 mP storage tanks, 21 km ofcast iron transmission pipelines 300-400 mm in diameter; a 200m-deep borehole; two pumping stations (14kW and 55 kW)
Ghardimaou is a poor area and its habitants are migrating to the capital. To reduce the level of migration, basic needs need to be better addressed. The population increase was 1.2% from 1984 and 2004 and this rate is not expected to increase in the future. The levels of consumption remains low (47.2 Vdcap) mainly due to the high level oftariffs, and its growth rate is 0.2%. The incremental volume needed to supply the additional population will rise from 57,191 m3 in 2010 to 482,562 m3 in 2025. The economy of the area will benefit from such higher coverage. The existing water resources will be sufficient until 2010, but to reach the project targets, the volume ofwater supply will have to rise at an annual rate of3.6%.
The Rouhia subcomponent was selected because of its already existing deficit in water supply. The demand forecast was calculated based on past water consumptions, the future growth of the population and the economy estimated for the area, the rate of non-revenue water and the proportion ofhouseholds connected. The growth rate of the population is 3.9% and it is expected to decrease to 2.3% by 2025. The additional demand for water supply to satisfy will be 294,426 m3in 2010 and will reach 806,440 m3by 2025. An industrial zone is being developed in the area. Besides the need to increase water resources supply, there is an urgent need to replace part ofthe supply networks as the existing ones are very old and can only bear a very low level of pressure. A technical analysis oftwo different water sources is under way. The less expensive (including a well and an adduction) ofthe two will be tested, if the well produces enough water, the problem will be solved. Otherwise, the second alternative, including another pumping system for the existing well and a second adduction will be built. Tunisia 35 Project Appraisal Document Urban Water Supply Project October 2005 Annex 4
The region of Ain Draham is mountainous and networks are subject to frequent breaks. The infrastructure of production and distribution is old and leaking and needs to be replaced. The tourism industry is increasing, due to the proximity and the economical growth ofthe coastal city ofTabarka and to the political will to reduce the migration of the population to bigger cities. The population increases by 2.3% per year. Deficits in water supplies will appear in 2010. The volume of water needed by then is estimated to be 79,990 m3and reach 95 1,186 m3 in 2025. The proportion of population connected to the network will be increased from 85% in the area to 100% in 2020 by the project according to SONEDE's development plan.
Central Region subprojects
Operating Region Governorates Urban centers (subcomponents)
Kairouan Nasrallah Sousse Kalaa Kbira Center Monastir Jammel Monastir Ouerdanine
Itemized infrastructure improvements are as follows:
- Nasrallah : One 500 m3 storage tank, 6.9 km of 200" cast iron pipeline; retrofit of existing borehole with new power supply and 35kW electro- mechanical systems. - Kalaa Kbira : 7.5 km of cast iron and polyethylene pipelines for transmission and distribution purposes; - Jammel: One 25kW pumping station including power supply and electromechanical equipment; 15 km of various transmission and distribution pipelines (various diameters and materials: cast iron, concrete, polyethylene). Ouerdanine :One 2500 m3 storage tank; one pressure regulation tank.
The Nasrallah subcomponent was designed to increment water production. The demand forecast, based on the history of consumption, the level of non revenue water and the hourly and daily peak consumptions, is expected to increase by 2.5% from 2006 to 2010 and by 4% from 2010 and 2025. If nothing is done, there will be a deficit of water in 2010, the additional volume needed is 15,100 m3/year and will reach 359,300 m3/year in 2025. The existing well which is supplying all the water is functioning more than 22 hours per day during the summer, and withdrawals cannot be increased any hrther. The level of salt of the water is 1.8g/l and rising. An additional source to supply water is thus necessary; Both water quality and capacity are thus expected to improve.
In Kalaa Kbira the whole production and distribution system has to be renewed, as it is old and largely built with asbestos-cement piping. The history ofthe demand measurements is very short; and shows an average increase of water consumption of 4.5% from 1999 to 2003. The level of Tunisia 36 Project Appraisal Document Urban Water Supply Project October 2005 Annex 4 non-revenue water is low (approx. 13.5%) and therefore the consumption growth is not linked to a reduction in water leakage reduction. The additional new population will raise overall consumption by 71,985 m3/yearin 2010, volume that will reach 1,3 million m3/year by 2025. To that end the needs have been calculated with an average growth yearly rate of 2%. Part of the project aims to supply a new neighborhood located uphill with higher pressure levels.
In Ouerdanine, the demand forecast is based on the population growth plus an additional volume due to the improvement of living standards. Water consumption grew at an average annual rate of4.9% from 1999 to 2003 and there are already deficits ofwater supply. The non-revenue water loss in the distribution system is slightly below 15%. The additional volume needed to satisfy the population demand will be 23,271 m3/year in 2012 and will reach 459,404 m3/year in 2025. The growth rate is expected to decrease from 2% in 2003 to 1.3% in 2025. Parts of the distribution network were built with asbestos-cement pipes, which are now old, fragile and frequently breaking. The existing storage tank is leaking. Demand estimates for the project are thus realistic.
The city ofJammel, located in the Sahel area, has no water resources ofgood quality. The annual average consumption grew by 4.5% from 1998 to 2003 and is expected to decrease by 0.5% every five years from 2005 and reach 2.5% in 2025. The existing infrastructure for water supply is sufficient until 2015; however, difficulties are rising due to the development ofthe settlements in upper parts of the city. Non-revenue water represents 16% of the water produced and efforts are being made to further reduce it. The area will benefit from both an increase of the coverage and water ofbetter quality.
Component 3: Management capacity building
The capacity building contents ofthe project is focused for greater impact on achieving gains in management performance. Starting with a strategic planning exercise and an organizational audit (task 3a), the project will provide SONEDE with new tools and systems to improve its performance in three ofits most strategic domains, i.e.: 0 investment strategies and debt control (task 3b), 0 customer service and revenue optimization (task 3c), and 0 human resources management, including labor cost control (task 3d). This component may include additional training, study and planning activities, not currently identified.
Training costs may include training fees, tuition and registration costs, travel, lodging and parodies, and seminar organization logistic costs.
Task 3a : Corporate Plan and Organizational Audit (US$480 000) This task consists of two steps: A Corporate Plan will be developed by a consultant, with SONEDE management’s facilitated participation, to develop a common understanding of trends and hture challenges in SONEDE’s market and environment, and to identify medium-to-long range plans to adjust to them. This activity should enable SONEDE to identify and plan for Tunisia 37 Project Appraisal Document Urban Water Supply Project October 2005 Annex 4 necessary transformations in order to maintain competitiveness in the coming 15 to 20 years. Potential focus topics may include: 0 Growth in water demands and servicing rural areas; 0 Responsiveness to the needs ofdifferent categories ofcustomers; 0 The willingness and the ability to pay of customers, and the social orientation of SONEDE commercial strategy; 0 The institutional framework and potential development ofprivate sector participation ; 0 Optimization of water resources management through the introduction of new technologies; Evaluation ofthe regionalization process and identification ofpotential improvements; Long term human resources strategy; Asset management policy; The deliverable report will include selected priority action plans.
A second more actionable step, will consist of an audit of SONEDE’s organization and human resources management. It will assess how SONEDE fulfills its various functions, how information is processed, and how certain functions can be outsourced. It will also review opportunities to streamline and optimize job descriptions towards higher staff productivity. An important corollary outcome of this component will be an action plan toward codifying SONEDE activities for full implementation ofmanagement accounting capabilities.
Task 3b : Financial model (US$220 000) This task will equip SONEDE with a professional financial simulation model aimed at optimizing investment programs and borrowing, developing stronger tariff adjustment rationales, and setting performance management goals. Without the project, SONEDE’s investment path may decrease due to foreseen financial difficulties. Besides, the project aims to address and improve SONEDE’s financial situation. Forecasting investment capacities and revenues will help reduce costs and adapt the evolution oftariffs. This will also serve to develop business plans and scenarios which may substantiate negotiations for tariff increases with GOT.
Task 3c: Customer service information system (US$ 2.7m): This urgently needed renewal entails the purchase, integration and installation of a state-of-the-art customer service software and associated servers. Although operated by SONEDE, the application is to be jointly defined by SONEDE and ONAS, to manage customer relations and billing for both utilities, towards more efficient collections and more responsive customer care.
The project will renew the commercial system to improve the quality ofservice ofthe SONEDE, and boost efficiencies while improving service. The existing commercial system consists of an old billing system that cannot be improved due to obsolete software and hardware. If this system collapses SONEDE and ONAS may lose several months ofrevenues. Clients will benefit from a better and faster service, billing and communication in case of claim, etc. SONEDE will be able to reduce billing errors, collection cycles and revenue losses, by ensuring a better follow up ofits clients’ situation and consumptions. Tunisia 38 Project Appraisal Document Urban Water Supply Project October 2005 Annex 4
The system will be competitively bid, among intemational suppliers of commercial software, based on terms of reference designed by a joint SONEDE-ONAS taskforce, supported by consultants. Suppliers may preferably rely on Tunisian integrators to adapt and implement the system at SONEDE headquarters and in its operating regions.
Task 3d: Human resources management information system (US$ 530,000). This task will allow the replacement of an obsolete payroll system, with an integrated, ERA-compatible HWpayroll system, towards introducing efficient management of labor resources and costs at SONEDE. This component,will be financed by SONEDE but managed and monitored as an integral part ofthe project. Tunisia 39 Project Appraisal Document Urban Water Supply Project October 2005 Annex 5
Annex 5: Project Costs
Local Foreign Total Cost By Component (TND) costs costs costs TND million TND million TND million
2 : Urban Centers Infrastructure 7.49 3.90 11.38 Infrastructure subtotal 26.26 17.45 43.70
3 : Management Capacity Building a. Corporate plan and organizational audit 0 0.61 0.6 1 b. Financial model 0 0.28 0.28 c. Customer Service information system 1.10 2.20 3.30 d. Human Resources management system * 0.66 0 0.66 Management Capacity Building subtotal 1.76 3.08 4.84
~ Total Baseline Cost 28.02 20.53 48.54 Physical Contingencies 2.70 1.99 4.70 Financial Contingencies 4.27 1.42 5.70 I Total Project Costs' 34.99 23.94 58.94
Local Foreign Total Cost By Component (USD) costs costs costs US%million US$ million US%million
1 : Greater Tunis Infrastructure 15.02 10.84 25.86 2 : Urban Centers Infrastructure 5.99 3.12 9.1 1 Infrastructure subtotal 21.01 13.96 34.96
I 3 : Management Capacity Building a. Corporate plan and organizational audit 0 0.48 0.48 b. Financial model 0 0.22 0.22 c. Customer Service information system 0.88 1.76 2.64 d. Human Resources management system * 0.53 0 0.53 Management Capacity Building subtotal I 1.41 2.46 3.87
Total Baseline Cost 22.41 16.42 38.83 Physical Contingencies 2.16 1.60 3.76 Financial Contingencies 3.42 1.14 4.56 Total Project Costs' 28.00 19.16 47.15
Tunisia 43 Project Appraisal Document Urban Water Supply Project October 2005 Annex 6
Annex 6: Implementation Arrangements
Project Management Responsibilities
SONEDE will be responsible for the management and implementation ofthe project and for subsequent operation and maintenance ofthe facilities and systems installed. The responsibility ofimplementing the various project components is assigned to competent divisions ofSONEDE. In particular:
0 The Directorate for Engineering Studies will be responsible for preparing or supervising the preparation of design documents for infrastructure projects (components 1 and 2). 0 The Directorate for Construction, and its regional representations, will implement the infiastructure component (components 1 and 2) 0 Management capacity building studies and technical assistance (component 3) will be implemented by private consultants, under the responsibility of the relevant hnctional unit, i.e.: o The corporate plan study and organizational audit (task 3a) will be supervised by the Planning and General Studies directorate. o The Financial Model (task 3b) will be supervised by the Directorate for Finance and Accounting, o The Customer Service system (task 3c) will be supervised by the Directorate of Operations, in conjunction with Directorate of Information Systems. Their counterparts at ONAS are expected to participate in both conception and implementation. o The Human Resources management system (task 3d) will be supervised by the Directorate of Human Resources, and the Directorate of Information Systems.
A dedicated Project Implementation Unit (PIU) will be established to guarantee the coherence, quality and timeliness ofproject activities. The PIU will be headed by a duly qualified senior SONEDE manager, albeit part-time. He will be supported full-time by two junior engineers and an administrative staff. The PIU will: Steer the Project, and supervise component implementation by relevant directorates, towards ensuring the coherence, quality and timeliness of project activities. The PIU should be entrusted with sufficient authority for effective supervision offunctional directorates and management ofProject schedule. Monitor and document progress and compliance ofall Project activities, including procurement, implementation, and disbursement activities. Monitor Project impacts, in particular through the routine gathering of performance indicators. Manage communications with the Bank, and with other institutions and administrations involved in the Project. The PIU will be responsible for timely preparation, consolidation and transmission of required reports (quarterly, progress reports, annual reports, audit reports, . . .). Tunisia 44 Project Appraisal Document Urban Water Supply Project October 2005 Annex 6
Due to the volume of studies and procurement activities scheduled in advance of Project effectiveness, PIU capacity is required to be established prior to negotiations.
Project Monitoring and Supervision
Fulfillment ofthe key performance indicators will be monitored along with the execution of the project and the PIU is expected to play a major role in both monitoring and supervising the project. Bank supervision will also be needed, which will require significant resources, particularly in the first two years of implementation. In addition, the launch of management capacity building components will require attentive PIU and Bank supervision, for TOR finalization, implementation and follow-up. On average, three supervision missions per year will be needed with approximately 25 staff weeks for each year, i.e. 125 staff weeks for the whole project implementation period
Project Implementation and Schedule
SONEDE will use its own resources for engineering design and construction supervision ofroutine works, but will rely on foreign expertise for complex works such as ST4 water treatment plant design, and for the rehabilitation ofthe GEG-Ras Tabia transmission line.
At appraisal, first year procurement packages of the project are partly completed, or at final design stage and expected to be completed by the fourth quarter of2005. Substantial advance procurement, potentially conducive to retroactive financing is in fact planned prior to loan effectiveness, and is assumed in project implementation schedule. Satisfactory Project implementation thus requires that: (i)SONEDE establishes a competent PIU capacity as soon as possible; and (ii)SONEDE provides counterpart hnding on a timely basis.
A detailed implementation schedule has been developed for the project by SONEDE, which is summarized in the following pages. It reflects that some project-related activities, including engineering studies, are underway since 2004. Advanced procurement is expected to selectively begin as early as June 2005. Activation of consulting, supply, and construction contracts is expected in January 2006. ~.. ~~~ ......
* 0 W '? E: PI
- 1 1
I i ! i I i i !
i i :.f! Ji Ei Yi:I V. $: 2 E'C rb 'I . .. Tunisia 47 Project Appraisal Document Urban Water Supply Project October 2005 Annex 7
Annex 7: Financial Management and Disbursement Arrangements TUNISIA: TN-URBAN WATER SUPPLY
Disbursement Arrangements.
The Loan will be disbursed during Project implementation over a period of six years. Managing the project funds and all related financial transactions, including preparation and submission of disbursement applications with summary sheets, and/or statements of expenditure (SOE) and supporting documentation will be the responsibility of SONEDE. However, payments made for expenditures prior to the Loan signature date but after July 9, 2005 in an aggregate amount not to exceed the equivalent of Euros 4 million, will be reimbursed to SONEDE upon presentation of a withdrawal application. The allocation of Loan proceeds by expenditure category is summarized in the table below:
Table C: Allocation of Loan Proceeds in Millions
- I
I Amount Of the % of Expenditures to be Financed ~ Category i' Loan Allocated i' i 1 (equivat;;)million 1 I i 1
~ (1) Treatment Works (Tumkey, design-build) ~ i I i 11.22 80% i
l(3) Goods and Equipment j 100% of foreign expenditures, and 80% of I j 12..29 ~I local expenditures i I 8 Consulting services and training (4) i 2.38 i I 96% I I i C i i....______I__..___ ~ (5) Front End fee 'Amount due under Section 2.04 ofthe I, i 0.1 i i _--______+-- -- !Loan Agreement @jPremia for interest rate caps and interest rate , ]Amount due under Section 2.09 (c) ofthe I ~ collars i 0 I Loan Agreement
The proceeds of the loan would be disbursed in accordance with the traditional Disbursement procedures of the Bank and will be used to finance project activities through the disbursement procedures currently in use : i.e. withdrawal applications for direct payment, for special commitments and/or reimbursement accompanied by appropriate supporting documentation or using Statement of Expenditures (SOEs) in accordance with the procedures described in the Disbursement Letter and the Bank's "Disbursement Manual ". Under existing disbursement procedures , the PIU will be also permitted to submit withdrawal applications for direct payment accompanied by supporting documentation. As projected by Bank's standard disbursement profiles, disbursements would be completed four months after closure . Tunisia 48 Project Appraisal Document Urban Water Supply Project October 2005 Annex 7
Special Account (SA): SONEDE has opted not to use a Special Account.
Use of Statement of Expenditure (SOEs): All applications to withdraw proceeds from the loan will be fully documented, except for : (i)expenditures of contracts with an estimated value equivalent to US$ 1,500,000 or less for goods; (ii)US$ 1,500,000 or less for works and Turnkey installations; (iii)US$ 100,000 equivalent or less for consulting firms, and (iv) US$ 50,000 or less for individual consultants and training expenditures which may be claimed on the basis of certified Statements of Expenditures (SOEs) . Documentation supporting expenditures claimed against SOEs will be retained by SONEDE and will be available for review when requested 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.
Financial Management
SONEDE will .be responsible for managing the project funds and all related financial transactions. SONEDE operates as an autonomous public entity and the systems in place are based on the principles and procedures of the business law of The Republic of Tunisia. It issues year-end financial statements that are audited by external independent auditors. The financial management capacity assessment conducted between project pre-appraisal and appraisal confirmed that the financial risk for this ninth Bank-financed project to be implemented by SONEDE is low. The only relevant activity required prior to declaring the project effective is the finalization ofa Manual ofProcedures, encompassing disbursements and financial management.
Project reports
Biannuallv: SONEDE will generate the progress reports relating to the project and submit them to the Bank comprising :
Financial Report: to include a cash flow statement, beginning and ending project cash balances and an expenditure report comparing actual and planned expenditures in addition to, if applicable, Special Account reconciliation statements. Also, a narrative report explaining all variances that exceed 15% when compared to plan and proposed corrective actions should be included as annex to the financial reports.
Physical Progress Report: to include narrative information and output indicators linking financial information with physical progress.
Procurement Report: providing information on the procurement of the goods, works, services, training and selection of consultants showing procurement performance against plan, including information on all authorized contract variations.
These reports should be remitted to the Bank within 45 days from the end of the period. The proposed reports format and presentation will be discussed and agreed upon with the Borrower.
Updated table excerpts of this information will be made available upon request by the Bank, including upon supervision missions.
Annuallv:
1) Audited Project Financial Statements (PFS) will be submitted to the Bank. The PFS will include: Tunisia 49 Project Appraisal Document Urban Water Supply Project October 2005 Annex 7
(i)Statement of sources and utilization of funds, indicating funds received from various sources, and project expenditures. (ii)Appropriate schedules classifying project expenditures by component and activity, showing yearly and cumulative balances.
2) Audited Entity Financial Statements (EFS) will be submitted to the Bank too. EFS will include the respective: (i)Income Statement, (ii)Balance Sheet, (iii)Cash Flow Statement and (iv) Attached notes.
Auditing Arrangements
SONEDE will issue an audit report no later than six months after the end of each year. The external audit report shall encompass all project related activities and shall be in accordance with internationally accepted auditing standards e.g., International Standards on Auditing (ISA). The annual audit report of the project accounts shall include an opinion on the project financial statements. Also, the audit report shall include a separate opinion on the different Special Account transactions reconciling opening and year-end balances. In addition to the audit reports, the auditor will prepare a "management letter" identifying any observations, comments and deficiencies, in the system and controls, that the auditor considers pertinent, and shall provide recommendations for their improvements. The external independent auditor should be acceptable to the Bank and his Terms of Reference will be prepared and submitted for the Bank's no objection, at least nine months prior to the end ofthe project fiscal year. Moreover, SONEDE will remit to the Bank no later than six months after the end ofeach year, its entity audit.
Bank Supervision
The project will be supervised every four months for the first eighteen months, then every six months thereafter. Bank supervision missions will consist of visits to SONEDE to review financial management practices, procurement methods, payment procedures and documentation, in addition to field visits to the project sites and other agencies concerned.
Risk Assessment
Country Risks. The Country Financial Accountability Assessment (CFAA) dated June 2004 concludes that the overall Public Finance Management (PFM) risk in Tunisia is low, though there are some concerns regarding the absence of legal framework for budget preparation and accounting. Heavy reliance on applied practices could, in the long run, make it difficult for decision makers to operates because procedures are not clearly stated. It is more ofa system risk. This particular PFM risk does not affect the project since SONEDE operates as an autonomous entity from the Government public finance system. SONEDE presents the capactiy to manage in an efficient manner the funds received from the Bank.
Project Risks. The project risk from a financial management perspective is considered low as SONEDE is a very experienced entity which has in place procedures and systems to prevent financial irregularities. Tunisia 50 Project Appraisal Document Urban Water Supply Project October 2005 Annex 8
Annex 8: Procurement Arrangements
General
Procurement for the proposed project will be carried out in accordance with the World Bank "Guidelines: Procurement under IBRD Loans and IDA Credits" May 2004, and "Guidelines: Selection and Employment of Consultants by World Bank Borrowers", May 2004, and the provisions stipulated in the loan Agreement.
National Competitive Bidding (NCB) will be carried out with procedures acceptable to IBRD which allow: (a) an explicit statement to bidders of the evaluation and award criteria; (b) national advertising with public bid opening; (c) sufficient time for bidders to submit bids (a minimum of thirty days); (d) no preference margin to domestic contractors; (e) foreign bidders to participate in NCB if they so wish; and (0 contract award to be made to the qualified bidder whose offer is substantially responsive and lowest evaluated. The methods to be used for the procurement . under this project, and the estimated amounts for each method, are summarized in Table A. The threshold contract values for the use ofeach method are set in Table B.
Overall, the Tunisian procurement legislation for goods and works is in line with the Bank's guidelines for procurement and the country has adequate control organizations. However, substantial divergences exist in the procedures for the selection and employment of consultants which, following local legislation, are based on open competitive bidding. Under the project, Tunisian implementing agencies would apply the Bank's procedures.
NCB Provisions and Conditionalities
Except in the cases provided for below, goods and works shall be procured under contracts awarded on the basis of paragraphs 3.3 and 3.4 of the guidelines and paragraphs below. Contracts of goods and works procured under the National Competitive Bidding procedure shall comply with the following:
(9 any prospective bidder from a country eligible under the Guidelines who proposes to provide goods produced in or services supplied from any such country shall be eligible to bid for such contracts;
(ii) Tenders will be advertised with no less than twenty-eight (28) days for bid preparation;
(iii) Government-owned enterprises in the Beneficiary's country may participate only if they can establish that they (i)are legally and financially autonomous, and (ii) operate under commercial law. No dependent administrative agency ofthe Beneficiary or sub-Beneficiary shall be permitted to bid or submit a proposal for the procurement of goods or works under the Project;
(iv> Bidders will be allowed to deliver their bid by hand or by mail; Tunisia 51 Project Appraisal Document Urban Water Supply Project October 2005 Annex 8
(v> Bids shall be opened in public; that is, bidders or their representatives shall be allowed to be present. The time for the bid opening shall be the same as for the deadline for receipt ofbids or promptly thereafter; and shall be announced, together with the place for bid opening, in the invitation to bid;
(vi) Prospective bidders shall be allowed to submit two envelopes provided the two envelopes are opened at the same time;
(vii) Bids shall be evaluated based on price and on other criteria disclosed in the bid documents and quantified in monetary terms, and no provision for preferential treatment for national companies shall be applied;
(viii) The contract shall be awarded to the bidder having submitted the lowest evaluated responsive bid, and no negotiation shall take place; and
(ix) The procedures shall include publication ofevaluation results and the award ofcontract and provisions for bidders to protest. These provisions will also specified in Schedule 4 ofthe loan Agreement.
Project Management
SONEDE would be the principal agency responsible for overall coordination of procurement under the project including the management capacity building component. SONEDE has good experience in implementing Bank-financing projects and a good number ofstaff will be involved in different steps of procurement. However because several management units are involved in the process, a central Project Implementation Unit (PIU) will oversee Project implementation.
Procurement of Works
Civil works to be financed under the project will cover mainly the design, construction and installation, and rehabilitation of water infrastructure facilities. These contracts are expected to add up to an aggregate of about US$15.1 million equivalent. In addition one contract for the design and installation of a water treatment plant, will be bided on a turnkey basis, estimated value of this contract is about 12 million US$, because of the complexity of the work it is recommended to use the “one step” approach for the bid. Civil works contracts above 5 million US$ will be awarded on the basis of International competitive bidding, contracts equal or below 5 million US$ will be awarded on the basis of National Competitive Bidding (NCB) procedures, subject to the provisions listed above, and the use of sample bidding documents acceptable to the Bank. Template NCB bidding documents have been prepared by borrower for Bank review.
Procurement of Goods
The project would finance purchase ofpipes (polyethylene, cement, cast iron), valves, gates and fittings. The total value of goods is estimated at US$ 12.4 million equivalent. NCB may be used for contracts estimated to cost less than US$ 1.5 million, while shopping based on price Tunisia 52 Project Appraisal Document Urban Water Supply Project October 2005 Annex 8 quotations obtained from a minimum ofthree suppliers can be used for small quantities of goods, provided that the value ofthe goods does not exceed US$75,000.
Selection of Consultants
Services will consist of approximately US$4.0 million equivalent of studies, and will be implemented by national and international consultants. Consultants' services with an estimated contract amount exceeding US$200,000 will be advertised in the United Nations Development Business website and in at least one national newspaper, seeking expressions of interest. For such contracts the Bank's Standard Request for Proposals (SRP) will be used, and the selection of consultants will be addressed through competition among qualified short-listed firms in which the selection will be based on Quality and Cost Based Selection (QCBS). The selection method will be based on quality and cost (QCBS) for all contracts above US$200,000 equivalent. In the case of assignments to cost less than US$200,000 equivalent, the short list of consultants may comprise entirely national consultants if a sufficient number of qualified firms are available at competitive costs. However, if foreign firms express interest, they will not be excluded.
The selection methods for contracts estimated to cost more than US$lOO,OOO, but less than US$200,000 equivalent will be either Quality Based Selection (QBS) or based on Consultants' Qualifications. Below these thresholds, and with the exception of the employment of consultants through single source for reasons critical to the project, the selection method may be on the basis of Consultants' Qualifications. Individual consultants will be selected and employed in accordance with paragraphs 5.1 to 5.4 of the Guidelines. The need for Sole Source contracts is not anticipated but, if justified, they will be awarded in accordance with the provisions of paragraphs 3.9,3.10, 3.1 1,3.12 and 3.13 ofthe Guidelines.
As agreed at appraisal, a Project Operational Manual will be prepared including procurement and financial procedures, as well as the detailed procurement plan for the first eighteen months.
Assessment of SONEDE capacity to implement procurement activities
An assessment ofthe procurement capacity of SONEDE was carried out by the Bank during pre- appraisal, and is filed in the project documents. The agency is already familiar with Bank's requirements because of their experience with eight previous projects. Our evaluation indicates that the overall procurement risk is low; however the appointment of a PIU coordination unit is desirable for a successfwl implementation ofthe project. Tunisia 53 Project Appraisal Document Urban Water Supply Project October 2005 Annex 8
Table A: Project Costs by Procurement Arrangements
Amounts in TND millions and (US$ million equivalent) Tunisia 54 Project Appraisal Document Urban Water Supply Project October 2005 Annex 8
Procurement Plan
I. GENERAL
1. Project information
Country : Tunisia Borrower : SONEDE Project Name : Urban Water Supply Project Project Number: PO64836 Project Implementing Agency: SONEDE
2. Bank’s approval Date of the procurement Plan [Original : 29/09/05 ; Revision 1:. . .]
3. Date of General Procurement Notice: posted on August 12/2005 under number 662 dated September 16 2005 4. Period covered by this procurement plan: 2 year
IL Goods and Works and non-consulting services.
Procurement Method Prior Review Threshold Comments 1. ICB and LIB (Goods) All 2. NCB (Goods) $ 1,500,000 3. ICB (Works) All 4. NCB (Works) 1,500,0000 5. ICB (Non-Consultant Services) N/A [Add other methods ifnecessa y]
2. Prequalification. Bidders for 1 contract (Water Treatment Plant ST4) shall be prequalified in accordance with the provisions of paragraphs 2.9 and 2.10 of the Guidelines.
3. Proposed Procedures for CDD Components (as per paragraph. 3.17 of the Guidelines : N/A
4. Reference to (if any) Project OperationaYProcurement Manual: Under preparation
5. Any Other Special Procurement Arrangements: 0 Advanced procurement iv)
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III.Selection of Consultants
1. Prior Review Threshold: Selection decisions subject to Prior Review by Bank as stated in Appendix 1 to the Guidelines Selection and Employment of Consultants:
Selection Method Prior Review Threshold Comments 1. Competitive Methods (Finns) 100,000 2. Single Source (Firms) 50,000
2. Short list comprising entirely of national consultants: Short list of consultants for services, estimated to cost less than $ 100,000 equivalent per contract, may comprise entirely of national consultants in accordance with the provisions of paragraph 2.7 of the Consultant Guidelines. 3. Any Other Special Selection Arrangements: 0 Advanced procurement U
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Tunisia 62 Project Appraisal Document Urban Water Supply Project October 2005 Annex 8
Table B: Thresholds for Procurement Methods and Prior Review,
Contract Value Procurement Contracts Subject to Threshold Method Prior Review (US$ thousands) (US$ millions)
$EU TTC $EU TTC Expenditure Category
1. Works and Turnkey > 5.000.000 ICB Prior review installations < 5.000.000 NCB > 1 500 000
Power supply (STEG) Single source Prior Review of sample contract PrR works = 27,702,377 2. Goods > 1.500.000 ICB Prior review < 1.500.000 NCB > 1 500 000 < 75.000 Shopping Post review
I PrR Goods = 13,487,093 3. Services a. Firms M> 100.000 QCBSIQBS Prior review M< 100.000 QBSICQ Post-review c. Individuals Consultants M> 50.000 Individuals Prior review M< 50.000 Post Review PrR Etudes = 5,022,328
I I Total prior review I Total PrP = 146,211,798
Total value of contracts subject to prior review (PrR): 46.21 1 US$ million (including taxes and contingencies)
Overall Procurement Risk Assessment: Low
Frequency of Procurement Supervision: In addition to the prior review supervision to be carried out from Bank offices, the capacity assessment of the Implementing Agency has recommended six months supervision missions to visit the field to carry out post review ofprocurement actions. Tunisia 63 Project Appraisal Document Urban Water Supply Project October 2005 Annex 9
Annex 9: Economic and Financial Analysis
A. Economic Analysis
I. Methodology
The analysis is based on the assessment ofthe economic value ofthe benefits and costs of the infrastructure components, using the cost-benefit methodology. While the institutional components are expected to have significant benefits, their accurate evaluation is elusive, and is not quantitatively accounted for in this analysis.
The economic analysis is thus confined to the three infrastructure components, (North, Center and Greater Tunis), which are assessed separately on the basis of their individual economic profitability. The analysis extends over the period 2005-2030, which coincides with the full depreciation ofsome ofthe infrastructure financed by the loan. Bothbenefits and costs are projected for the same period. Benefits and costs are assumed to be constant after 2025.
Benefits of Infrastructure components: The targeted population will derive benefits from the Project at least equal to the cost of altemative means of meeting its water needs. Without the Project a large number of households would not be connected to the water distribution system, and supply capacity would fall short of an ever expanding population. In this hypothetical situation some households would be deprived of piped water and would need to rely on alternative sources of supply. The major benefit of the Project is therefore to avoid the cost of altemative supply, in addition to the hygiene and safety superiority of piped water as opposed to water sought from other sources. The altemative to the project considered in this analysis is the purchase of water from vendors, the use of shallow domestic wells is excluded because of high water tables in those cities. The cost that would be avoided thanks to the project is the cost of water purchased from vendors to which should be added the cost of installing, operating and maintaining household storage tanks. These benefits are estimated for the additional population that would be deprived from pipe water if the Project is not implemented. It is important to stress that they should be considered as a minimum value of the true benefits since they omit the quality and commodity advantages of direct access to drinking pipe water. An additional benefit is that households will generally consume much larger quantities of water under the Project, given the greater accessibility and lower cost of pipe water as opposed to vendors’ water.
Cost of the Project: The Lnfrastructure components of the project give rise to two cost components, investment and O&M. These outlays are adjusted so as to reflect economic as opposed to commercial values. Investment financial costs are converted into economic costs by deducting taxes and using a conversion factor of 0.8 to adjust for the costs of unskilled labor and custom duties. The conversion factor is considered to be conservative and does have a negative impact on the projects economic return. Regarding O&M cost, they are considered to represent 10% ofeconomic investment costs. Tunisia 64 Project Appraisal Document Urban Water Supply Project October 2005 Annex 9
Estimating the IRRs of the Project Infrastructure components: The different steps and results obtained by applying this methodology are shown in tables (2), (3), and (4) ofthis annex respectively for the Great Tunis, Center and North. Most of the background information used is provided in the feasibility studies that have been carried out for each infrastructure component. A summary of the main justifications developed in the feasibility study are also presented in this annex.
Row (1): The connected population after the completion ofthe project is the staring point for estimating the benefits ofthe project.
Rows (2) and (3): Annual cumulative increase in water consumption with and without the Project: The quantity in the situation without the Project represents the total quantity of water that new households would have to purchase from water vendors. This quantity will grow each period as the number ofhouseholds that would be denied the benefits of pipe water will increase. Obviously, per capita consumption will in this case be lower than if these households had access to SONEDE water. The present analysis makes the assumption that they would buy only 30 liter per habitant per day which represents less than 30% oftheir potential consumption with the project.
Row (4): Cost of altemative source of water without the project: expenses on purchases ofwater from water vendors account for a major share ofthis cost. Information collected from rural areas estimated the economic cost of altemative water supply at 17.4 TND/Cubic meter. For the purpose of this analysis, this estimation is used to asses the economic benefits ofthis project.
Rows (5) and (6): Adjusted costs of the Project: First Costs are estimated at constant 2005 values. In the basic scenario they don’t include any adjustment for inflation. Inflation is introduced in the sensitivity analysis. As previously stated, a conversion factor of 0.8 is used to adjust before taxes financial costs and to estimate the economic costs.
11. Results Summary
Estimates of economic NPV and IRR for the Infrastructure components are summarized in table 1. Even ifbenefits are limited to the opportunity costs of altemative water supply the project is largely justified, yielding an TRR of43%.
Sensitivity analysis shows that the overall IRR remain high; varying between 43% and 37.9%, even if benefits are reduced by as much as 5% annually and cost rose simultaneously by 5% each year compared to the base scenario. Moreover all the infkastructure components are self sustainable under all the scenarios Taking into account other types ofbenefits, such as larger volumes ofwater and safer and more hygienic supply, in addition to the high costs conversion factor applied to the analysis the project would yield even higher retums. Tunisia 65 Project Appraisal Document Urban Water Supply Project October 2005 Annex 9
Basic Scenario : Without increase 5% Annual lncrease in 5% Annual lncrease in in costs or decrease in benefits Economic Costs Economic Costs and 5% Scenarios : Annual decrease in Benefits IRR NPV IRR NPV IRR NPV All Infrastructure com onents 43.3% TND 277,543,002 43.0% TND 268,470,336 37.9% TND 129,328,100 Great Tunis com onent 47.1% TND 275,387,059 46.8-1 TND 269,807,385 41.g~ol TND 149,521,043 Center Re ion Com onent 32.71 TND 19,941,031 I 32.2% TND 19,017,322 1 26.7% TND 9,160,017 -1 I-1 North Region component I 23.9%1 TND 8,964,451 I 23.1%1 TND 8,044,150 I 16.9%[ TND 2,659,526 m I m7 md x
r. I m
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I a N
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T- co or 7 N Tunisia 68 Project Appraisal Document Urban Water Supply Project October 2005 Annex 9
Tariff Policy Tunisia's water tariff policy can be evaluated with respect to three issues: (i)the sustainability oftariff adjustments rules, (ii)the effectiveness ofthe current average tariff in supporting SONEDE to achieve full costs recovery and (iii)the efficacy of the tariff structure in targeting the poor by subsidizing their necessary level of consumption while maintaining incentives for efficient consumption.
The tariff structure is proposed by SONEDE and approved by GOT and is applied to the whole country, spanning urban and rural service. Provisional analysis suggests that the tariff-adjustment rules work reasonably well in many respects. SONEDE healthy financial situation mainly due to a relatively frequent tariff revision during the last decade is a testimony to the Government commitment to the sustainability of the national provider (See charts below). However, our analysis suggests also that improvements are possible through further strengthening of the technical capability of the government agencies that provide advice or participate in decisions about tariff adjustment. Moreover, recent delays in tariff revisions trigger some concern about the reliability of current adjustment rules.
SONEDE tariff structure has two components; a fixed component based on the size ofthe connection and a variable component which is proportional to the volume of consumption. The variable component consists offive increasing blocks-tariffs. The minimum fixed fee, or the subscription fee, is about 3.3TND per three months ($ 2.6 US). The average volumetric tariff for domestic uses in the country stood at about 0.510 TND in 2004. The chart below illustrates the evolution of the level ofthe five blocks and how the government less reluctant in increasing the level of prices for the three highest blocks.
Revenues are also accounted for from connection rights which in average contribute to 15% of SONEDE annual revenues. Users can get a credit to pay their new connection during eight years. Connection fees are also set and revised on a periodic basis by the GOT. I 900 ...... I 800 1...... +Block 1 700 -Block 2 600 -A- Block 3 500 ...... +Block 4 +Block 5 400 ...... 1 300 +..A...... I 200 ...... * _.______.... .wA?.-.E7.7*.:?-- e/m----y-A * ...... ~ ("-- - =I : : lo' ' " ' ' " ' ' " '
Evolution Of SONEDE Tariff Structure in Tunisian Millimes (1/1000 TND) Tunisia 69 Project Appraisal Document Urban Water Supply Project October 2005 Annex 9
During the last decade SONEDE was able to maintain a positive net income while expanding its services to less profitable rural areas. This was a result of (i)adequate level of average tariff with relatively frequent tariffs revisions, (ii)stable revenues from new connections and (iii)annual government subsidy for rural systems investments (around TND 8 millions, less than 10% of SONEDE investment program). The chart below shows that while SONEDE operating ratio16 was high by regional standards during last decade, it remained consistently below 100% during the last three beside 2003 tariff revision. This last element triggers some concerns with regard to the sustainability of SONEDE financial performance.
110%
108%
106%
104%
102%
100%
98%
96%
I Evolution of SONEDE Operating ratio
SONEDE tariff structure exhibits a high level of cross subsidies among customers due to the increasing blocks feature. The chart below shows that more than 80% of SONEDE consumers are subsidized. In fact given that SONEDE 2004 average cost was around 0.47 TND/Cubic meter (excluding the cost ofnew connections and depreciations), all the consumers in at least the first three blocks ofthe tariff structure are paying less than the average cost. This clearly shows that the actual tariff structure is not very efficient in targeting the poor and in conveying the true value ofwater to a large share of SONEDE customers.
16 Operating ratio : Operating revenues/Operating expenses including depreciations. Tunisia 70 Project Appraisal Document Urban Water Supply Project October 2005 Annex 9
I 7nv ......
60% --- ‘”’” t ...... -r ......
30%
20%
lo??
PA I I 0-20 2140 41-70 71-150 > 151 Distribution of SONEDE customers, revenues and volumes sold per level of tariff.
B. Financial Situation and Sustainability I. Project Financial Cost-Benefit Analysis The financial analysis compares the project costs with the project benefits. All costs and benefits are expressed in current terms and are incremental in nature, valued as the difference between the costshenefits “with the project” and “without the project”. The analysis was carried out over the period ofthe average expected life ofthe investments of 25 years. The estimation ofthe WACC is based on the assumption that the project will be 90% financed by the bank loan for which the interest rate have been considered constant at 7%. The detailed financial analysis in this Annex presents the present values (PVs) of the financial flows and the NPVs and FRR for all the infrastructure components For the financial benefits from the Infrastructure components, SONEDE will have the increased sales revenue due to the ability to meet increased demand in addition to the revenues generated from connections fees. On the cost side, SONEDE will have the outlays for the project’s capital cost and capital investments beyond the project period estimated in the feasibility studies. The infrastructure components costs include the increase in maintenance and operating spending as estimated in the financial forecast. The table below summarizes the results of the financial costs-benefits analysis for the infrastructure components. The analysis shows that the return on the north region component is low but still higher than the WACC under the basic scenario. However, the sensitivity analysis shows that all the returns are dependent on the frequency of the increase in tariffs. A more detailed risk analysis of SONEDE is presented in this annex. Financial Analysis : WACC = 4.2% I I I I Basic Scenario I Constant Average Tarrif I TND 30 901 958 TND 48 587 990 TND 3 501 308 (TND 269 147) Tunisia 71 Project Appraisal Document Urban Water Supply Project October 2005 Annex 9
The financial benefits of the capacity building component are difficult to estimate, however the preliminary analysis presented below gives some insights about the strong benefits and the profitability ofthe main tasks in this category: The renewal of customer management IT system should enable SONEDE to shorten its bills collection cycle which is estimated at 120 days. Given the cost of the new system, around TND 3.7 Millions, SONEDE should be able to recover the new system cost in the first year after implementation by decreasing the bills collection cycle just by 7 days. Therefore, it is reasonable to assume that this task will yield a very high IRR and NPV. The renewal of Human Resources IT system should improve SONEDE efficiency in managing its human resources and in better monitoring its labor costs. The cost ofthis task, TND 740,000, represents less than 0.8% of SONEDE labor cost during 2004. Given that SONEDE labor costs has grown by more than 8% annually during the last decade, it is reasonable to assume that SONEDE will be able to recover the cost of this task through a better monitoring of the evolution ofits labor costs. The two remaining management capacity building tasks (Corporate plan and organizational audit; Financial model) represent relatively low investment costs which SONEDE should be able to vastly recover through efficiency gains it will achieve once all the institutional components are implemented.
11. Financial Assessment of SONEDE
Objectives A general financial assessment of SONEDE was carried out to analyze the company's financial structure, operational efficiency, long-term viability, and capacity to assume the proposed loan. The assessment was carried out on the basis of audited historical and pro- forma financial statements, using commercial, operational and financial ratio analyses, measured in absolute terms and against relevant industry standards. The main risk factors which could affect the performance and viability of SONEDE were also analyzed. The results of the analysis were used to: (i)propose recommendations to improve the company's financial structure and operational performance; (ii)define performance indicators and financial covenants; and (iii)identify activities to improve SONEDE's budgeting and planning process. In addition, SONEDE has been sent the financial model developed for the purpose ofthis analysis as one oftheir key budgeting and medium-term planning tools.
Conclusion
The financial assessment and the subsequent sensitivity analysis show that SONEDE credit risk and its ability to implement its investment program is highly dependent on the Tunisia 72 Project Appraisal Document Urban Water Supply Project October 2005 Annex 9 promptness of tariff adjustments and (ii)the ability of the management to implement more reliable financial planning practices and cost control strategies.
Methodolom The World Bank project team in coordination with SONEDE’s financial and accounting department developed a comprehensive spreadsheet model presenting in detail two years of historical results and twenty year projections. The model is coherent with the presentation and accounting rules employed by SONEDE in the preparation of its accounting statements with three exceptions:
0 the reintegration ofthe provisions for bad debts were made in SONEDE balance sheet but not taken into account in the revenues of SONEDE;
0 the tax effect of subsidies (which cannot be depreciated for tax purposes) were taken into account in the tax calculation and but not as additional artificial revenues; the advance billing of new clients connected to the network were regarded as long-term debt and not integrated in the revenues, but in the cashflow. These three exceptions tend to show more conservative results than SONEDE’s, although the financial robustness ofthe forecast is still proven. The model was prepared based on detailed commercial, operational and financial assumptions discussed with SONEDE. The main assumptions consisted in consumption forecasts, investment programs, operating costs and financing estimates. It is to be noted that fhreinvestments - not yet planned by SONEDE - were assumed for the long-term operation of the company in order to assess the evolution if its borrowing and investing capacity and to better reflect reality: additional investments totaling USD 2.59 billion (real TND 1.56 billion), were therefore scheduled on the period 2010-2025. Six projection scenarios were built: (i)a “base case scenario” with SONEDE’s most likely evolution; and (ii)five sensitivity scenarios targeted at estimating the robustness of SONEDE financial projections to critical parameters. For each scenario, the performance ofthe company was assessed on the basis ofthe following main indicators: Operational Indicators i)Operational margin and net income margin; ii)Cost to income ratio (including and excluding depreciation charges); iii)Personal productivity (employees per 1000 connections); iv) Structure ofstaffing and evolution ofaverage salaries; v) Percentage ofinvestments financed from own resources; vi) Yearly capital expenditures; vii) Net present value (NPV) and internal rate ofreturn (IRR) of free cash flows from operations. Finan cia1 Indicators i)Long-term debt to equity ratio; ii)Total debt to equity ratio; Tunisia 73 Project Appraisal Document Urban Water Supply Project October 2005 Annex 9
iii)Debt Service Coverage Ratio; iv) Loan Life Coverage Ratio; v) Current ratio.
Assumptions
Estimate of Weighted average cost of capital
Table 1 Estimated Weighted Average Cost of Capital for Tunisia in local currency On the basis of SONEDE average leverage and IBRD cost of debt, the weighted cost of debt for SONEDE is approximately 1.8%. The weighted average rate (TMP) of bonds equivalent to Treasury bonds (B,T,A) for the last adjudications (in YOper year) of 10- and 12-year bonds were used to approximate the Tunisian risk-free rate, which is around 8%. These assumptions lead to a WACC of 7% in TND and 6% in USD equivalent (with a cost of debt of5.5%, a risk free rate of 3.5% and an ERP of 10%).
Base Case Scenario Assumptions The assumptions used in the model were aimed at constructing a realistic base case scenario, from which sensitivity analyses could be carried out to assess the effect ofmore extreme assumptions. The main assumptions were therefore based on the existing performance of SONEDE and the efficiency gains the company plans to achieve. The impact ofless radical cost-saving or revenue-increasing measures was assessed separately (see sensitivity analyses). Assumptions for 2003 were defined on the basis of SONEDE’s audited results. Assumptions for the years 2004 were prepared on the basis of SONEDE’s audited results with approximation regarding the accounting adjustments; and the medium-term investment planning is based on a five-year business plan. Assumptions for later years were prepared from discussions with SONEDE’s financial specialists and cross-checked with relevant people in the company. The base case consumption and tariff forecast assumptions are presented in Table 2, cost assumptions in Table 3, accounting and financial assumptions in Table 4 and macro-economic assumptions in Table 5. Tunisia 74 Project Appraisal Document Urban Water Supply Project October 2005 Annex 9
1. Assumutions related to consumution
Domestic Water Consumption Annual Increase in number of customers 65 000 Number of consumers per household Consumption Ildaylinhabitant Tourism activities Increase in the number of rooms
Consumption Ildayloccupied room
Increase in the number of Industrial consumers Consumption Cubic Meter/day/lndustrial Consumer Administration Increase in number of public entities Consumption Cubic Meterldaylpublic entities
Increase in the number of Municipalities Consumption Cubic MeterldaylMunicipaiity Commercial Activities Increase in the number of commercial customers Consumption m3ldaylcommercial customer
Tarif de la premiere annee mill TDNlm3 Tarif de laseconde annee mill TDN/m3 Periodicit6 de I'augmentation an@) Montant de I'augmentation du tarif moyen Table 2 - Mainbase case Tariff and consumption forecast assumntions
2. Hwothbses relatives aux charaes Strateaie RH - details Achat d'eau brute /volume produit par SONEDE Taux d'accroissement annuel des achats d'eau brute en YO Gains de productivitb 2% Stabilisation de i'achat d'eau brute par SONEDE a Avantages en nature / Masse salariale Taux d'accroissement annuel des salaires Prix moyen d'un branchement (TND) Transfert annuel des effectifs occasionnels jusqu'er Coot des fournitures d'un branchement (TND) Baisse annuelle des effectifs occasionnels Nombre de branchement entretenus (2003) Salaire agent occasionnel (TND, base 2003) Prix du ml d'extension Salaire moyen statutaire (TND, base 2003) Coot unitaire achat d'eau brute par m3 eau produite Coot unitaire produits chimiques par mJ eau produite Coirt unitaire Bnergie par m3 eau produite
Table 3 - Main base case Costs assumptions Tunisia 75 Project Appraisal Document Urban Water Supply Project October 2005 Annex 9
4. Hypotheses comptables et diverses
Taux effectif d'imp6t sur les benefices
Augmentation annuelle des "Produits financiers" Augmentation annuelle du solde des "Gains et pertes ordinaire Provisions clients et autres risques YO Revenus Variations des stocks Delai de recouvrement des creances clients Delai de reglement du credit fournisseurs Dettes ONAS / Ventes d'eau et redevance fixe Clients crediteurs & Compte d'attente (% Clients debiteurs) Autres passifs courants (% Charges du personnel) Accroissement des immobilisations financieres nettes Autres actifs courants (hors exploitation) Provisions pour risques et autres passifs non courants Produits accessoires en YO (ventes eau et redevance fixe) Part des produits accessoires indexee sur ventes eau
Table 4 - Mainbase case accounting: and financial assumptions
3. Macro Economic Assumptions
Inflation Annual appreciation rate of koweitian Dinar Annual appreciation rate of US dollar Annual appreciation rate of Euro Annual appreciation rate of Swedish Krona Annual aooreciation rate of Islamic Dinar
Table 5 - Main base case macro-economic assumptions
IV. Results of the Financial Assessment
Base Case Scenario Based on the assumptions used in the base case scenario, SONEDE appears financially viable and able to assume the proposed loan. Nevertheless, SONEDE's indebtedness needs to be closely monitored from the beginning of the reimbursement period - starting 201 1. Indeed. a serious pressure is put on key financial ratios for the years to come, such as the operating ratio and the current ratio. SONEDE high investment phase is coming to an end, especially between 2008 and 2012. The new strategic investments that have been identified will be completed over the next five years. In the meantime SONEDE has to prepare for a new phase focusing almost exclusively on maintenance and increased operating performance. SONEDE's ability to shift from one phase to the next will be key to the financial viability ofthe company.
SONEDE is experiencing a phase of high investments - whether to increase water production and transportation capacity or to modemize its operations. SONEDE needs to prepare a new phase of investment consolidation and performance improvement as oftoday. The components ofthis project related to business management Tunisia 76 Project Appraisal Document Urban Water Supply Project October 2005 Annex 9 will help SONEDE in this transition and are of paramount importance for the envisaged investments (components 4 and 5 of the envisaged project). On the long run, SONEDE will need sufficient investment capacity to invest in maintenance and operational performance. Additional investments for this purpose could start to be implemented from 2015 on, as shown in Table 7.
Endettement I Passif
Table 6 - SONEDE indebtedness over total liabilities
Investments in real TND
160.0
140.0
120.0
g 100.0 I- - 80.0 e! 0 'E 60.0
40.0
20.0
0.0
Table 7 - Total annual investments planned bv SONEDE Tunisia 77 Project Appraisal Document Urban Water Supply Project October 2005 Annex 9
Our base case assumptions, based on SONEDE's operating targets, imply some improvement in SONEDE's operating efficiency related to staff costs but leave substantial room for further progress (see Sensitivity analyses in section V below for an impact of further improvement in each of these parameters on key results). It is to be noted that the tariff increase assumptions 5% every two-year - or 37 TND millime every two-year - have a significant impact on the volatility ofthese key ratios.
Operational margin 22 5% 21 9% 24 6% 23 5% 22 2% 21 6% 24 4% Net income margin 3 4% 0 8% 3 4% 18% 0 5% -1 3% 12% Cost to income (wio depreciation) 77 5% 78 1% 75 4% 76 5% 77 8% 78 4% 75 6% Cost to income (with depreciation) 94 9% 96 9% 94 7% 96 2% 97 6% 98 8% 95 4% Employees I 1000 connections 33 33 33 33 32 31 31 % of investment financed by own resources wio contributions 32% 24% 48% 36% 72% 57% 51% % of investment financed by own resources with contributions 58% 42% 60% 50% 89% 76% 7 1%
2010 2021 2012 2013 2014 2015 201 6 Operational margin 23 9% 26 5% 19 4% 15 9% 15 7% 18 7% 18 5% Net income marsin 0.8% 2.9% -0.4% -3.3% -3.9% -0.1% -0.4% Cost to income (w/o depreciation) 76.1 % 73.5% 80.6% 84.1% 84.3% 81.3% 81.5% Cost to income (with depreciation) 96.3% 92.7% 99.0% 102.0% 102.4% 98.5% 98.8% Employees / 1000 connections 3.0 2.9 2.9 2.8 2.8 2.7 2.7 % of investment financed by own resources wlo contributions 61% 42% 41% 33% 27% 48% 52% % of investment financed by own resources with contributions 80% 59% 57% 48% 42% 63% 67% TABLE 8: SONEDE'S KEY OPERATIONAL RATIOS, BASE CASE 2005-2016
However, it is to be noted that additional amount of debt is required to finance on-going investments; we have taken into consideration three future loans of respectively TND 110,150 and 150 million in 2012,2016 and 2020.
Long-term debt / liabilities 16.0% 19.4% 23.1% 26.3% 28.6% 28.2% 27.3% Debt / Liabilities 29.9% 32.7% 35.8% 38.1% 41 .O% 40.9% 40.3% Leverage 42.6% 48.6% 55.7% 61.6% 69.5% 69.3% 67.6% Current ratio 1.3 1.3 1.2 1.3 1.4 1.3 1.3 DSCR w/o contributions 4.86 2.36 3.38 1.96 2.71 1.68 1.44 DSCR with contributions 5 16 3.69 4.02 2.48 3.23 2.04 1.73 LLCR 5.16 4.04 3.22 2.61 2.30 2.36 2.52
2010 201 I 201 2 2013 2014 2015 2016 Long-term debt / liabilities 25.7% 23.9% 23.3% 24.0% 25.2% 25 0% 26.3% Debt / Liabilities 39.6% 38.1% 38.2% 39.8% 41 .O% 41.4% 42.8% Leverage 65.7% 61.6% 61 7% 66.0% 69.5% 70.6% 74.8% Current ratio 1.1 1.o 1.o 0.9 0.8 0.8 0.8 DSCR w/o contributions 1.62 1.36 1.47 1.39 127 1.70 1.78 DSCR with contributions 1.89 1.62 1.75 1.67 1.57 2.01 2.08 LLCR 2.78 3.19 3 39 3.33 3.20 3.39 3.18 TABLE 9: SONEDE'S KEY FINANCIAL RATIOS, BASE CASE 2005-2016
These ratios highlight the pressure on SONEDE's debt service ratio which results from its large debt necessary to finance on-going and forecast investments. Tunisia 78 Project Appraisal Document Urban Water Supply Project October 2005 Annex 9
As a result, the Project will address directly or indirectly each of the identified weaknesses and impose to SONEDE monitoring indicators and targets beyond what it plans to achieve: (i)manage operational expenses - especially wages; (ii)optimize investment planning; (iii) improve revenue management; (iv) increase financial management capacity; and (v) an improved overall business organization to improve the company’s performance and monitor the quality ofthe service. These targets are used as Project monitoring indicators. The revenue structure of SONEDE also indicates a strong reliance on (i)the number of annual new connections; (ii)a stable level of other revenues and (iii)maintaining low bad debts in domestic revenue consumption.
mio TND I 2003 2004 2005 2006 2007 2008 2009 Revenues from water sales 157.6 164.2 182.5 189.2 208.8 215.8 236.8 New connections and works 16.9 16.7 16.4 16.7 16.9 17.2 17.5 Capitalized expenses I works 0.0 0.4 1.2 1.2 1.2 1.2 1.2 Other revenues 5.9 4.8 5.3 5.4 5.9 6.1 6.6 Total revenues 180.4 186.2 205.4 212.4 232.8 240.3 262.0
mio TND 2010 2011 2012 2013 2014 2015 2016
Revenues from water sales 244.3 266.5 274 5 298.0 306.4 331.3 340.1 New connections and works 17 7 18.0 18 2 18.5 18.8 19.1 19.4 Capitalized expenses /works 1.2 1.3 1.3 1.3 1.3 1.3 1.4 Other revenues 6.7 7.3 7.5 8.0 8.2 8.8 9.0 Total revenues 270.0 293.1 301.5 325.9 334.8 360.6 369.9 TABLE 10: SONEDE’S REVENUE STRUCTURE, BASE CASE
Management category (%) 14 5% 14 3% 15 0% 15 3% 15 3% 15 3% 15 4% Technical staff (%) 16 0% 15 8% 16 3% 164% 16 5% 16 7% 16 8% Unskilled workers (%) 69 4% 699% 687% 683% 682% 680% 678% Management category 654 854 937 978 995 1,011 1,026 Technical staff 942 945 1,014 1,049 1,074 1,099 1,123 Unskilled workers 4.077 4,177 4,277 4,377 4,430 4,478 4,522 Non-statutory staff 1,123 1,023 923 823 773 723 673 Total staff costs (incl. benefits) 84.84 89.05 95.83 101.21 105.62 110.09 114.66
2010 2011 2012 2013 2014 2015 2016 Management category (%) 15 4% 15 4% 15 5% 15 5% 15 6% 15 6% 15 6% Technical staff (%) 17 0% 17 1% 173% 174% 17 6% 17 7% 17 9% Unskilled workers (%) 67 6% 674% 672% 670% 669% 667% 665%
Management category 1,040 1,053 1,066 1,077 1,088 1,099 1,108 Technical staff 1,146 1,168 1,190 1,210 1,231 1,250 1,269 Unskilled workers 4,561 4,596 4,627 4,654 4.678 4,698 4,715 Non-statutory staff 623 573 523 473 423 373 323 Total staff costs (incl. benefits) 119.28 124.00 128.78 133.65 138.60 143.63 148.74 TABLE 11: SONEDE’S HR ASSUMPTIONS, BASE CASE
The targets proposed for each monitoring indicator listed above are as follows: Tunisia 79 Project Appraisal Document Urban Water Supply Project October 2005 Annex 9
SONEDE ‘s revenue structure and level ofrevenues indicate that a close monitoring of (i)the number ofnew connections per year (domestic new connections 65,000 and overall new connections 70,000) and of(ii) high-consumption customers is needed; The level ofreceivables shhould be reduced; Distribution network efficiency should be maintained at a level of 85% (current overall efficiency); The number of SONEDE employees per staff category is limited to Table 11; ideally management staff category should trend towards 15% for executives and 18% for first-line supervisors in stead of20% in the long-term; Indebtedness ratio (debthabilities) should not exceed 40% at any time; Forecast DSCR including contribution payments for works (subvention des tiers) should not fall below 1.3 at any time during the loan life in the base case scenario, as updated from time to time; Investment plan not to exceed th’e levels indicated in Table 7. SONEDE financial statements are detailed in at the end ofthis Annex.
V. Sensitivity and Risk Analyses
Two types of sensitivity analyses were conducted to assess the resp ctive impact of changes in (i)SONEDE’s operational performance and (ii) SONEDE’s market environment. A Monte Carlo analysis on the most sensitive parameters was performed as well. As shown in Table 12 below, the performance of SONEDE over the last ten years have been improving and sets positive operational trends, although it is likely that the increase in consumption will progressively slow down.
Information Source : DPEG 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 Number of Customers (Thousands) 1,118 1,187 1,250 1,305 1,361 1,419 1,477 1,548 1,623 1,706 Population served (Thousands) 6,365 6,560 6,718 6,876 7,030 7,201 7,338 7,480 7,630 7,760 Total Number of Employees 7,356 7,744 7,507 7,301 7,395 7,350 7,244 7,119 7,110 7,038 Permanents 5,195 5,360 5,420 5,405 5,738 5,804 5,786 5,773 5,825 5,865 Temporary 2,161 2,384 2,087 1,896 1,657 1,546 1,458 1,346 1,285 1,173 Number of emplyees / 1000 connections 6.6 6.5 6.0 5.6 5.4 5.2 4.9 4.6 4.4 4.1 Water Produced (Millions of m3) 305.8 322.3 310.5 307.8 319.1 327.2 338.6 350.3 373.4 373.4 Water Sold (Millions of m3) 223.2 237.5 230.4 229.3 245.4 255.4 255.8 271.6 285.1 301.0 UFW (%) 27.0% 26.3% 25.8% 25.5% 23.1% 21.9% 24.5% 22.5% 23.6% 19.4%
Changes in Operating Performance As explained above, the base case scenario strongly relies on the ability of SONEDE to monitor its operational costs. The sensitivity analyses below will show that the monitoring of (i)staff costs; (ii)investment planning, (iii)bad debts are of particular Tunisia 80 Project Appraisal Document Urban Water Supply Project October 2005 Annex 9 importance for SONEDE future financial viability; and SONEDE’s financial situation could become fairly tense if expected performance improvements were not achieved. For each sensitivity analysis, we measured the impact on results over the next 20 years. A summary of the sensitivity analyses that were conducted is attached in Table 5 of the attachment.
Staff costs. The productivity of SONEDE’s staff has improved over the last four years (see Table 12 above). However, if the underlying assumption that SONEDE is going to further improve its productivity (at a rythm of 2% per year) in years to come is not fulfilled, significant cash savings and performance improvement will be jeopardized as shown in Table 13 below. Due to the increasing leverage ofthe company, negative trends regarding the monitoring of staff costs are extremely sensitive, hence the strategic importance of the human resources management component ofthe project.
Scenario de base
TABLE 13: SENSITIVITY ON STAFF COSTS
Network performance. SONEDE has achieved excellent levels of network performance. If these levels were to decrease the financial ratios would decline, but not drastically, as illustrated below. However, long-term sustainability of the company’s technical and financial performance would be impacted.
TABLE 14: SENSITIVITY ON NETWORK PERFORMANCE Tunisia 81 Project Appraisal Document Urban Water Supply Project October 2005 Annex 9
Changes in Market Environment In order to assess the sensitivity of SONEDE’s financial health to unexpected changes in its environment, the following sensitivity analyses were conducted:
0 Lower tariff increases; 0 Lower number of new connections; 0 Deeper depreciation ofthe Tunisian Dinar against the USD$ and the Euro.
Lower tariff increases. The scenario that most weakens the financial robustness of SONEDE is the lower tariff increase sensitivity. All assumptions and factors being equal, the decrease in tariff augmentations from 5% every two-year to 3% every two-year results in serious financial stress for SONEDE, as illustrated in Table 15.
Scenario de base
TABLE 15: SENSITIVITY TO DECREASE IN REVENUES DUE TO SLOWER TARIFF INCREASES
In such a case, SONEDE would hardly be able to face the reimbursement of its debt in 2014, or would have to cut on maintenance and operating costs to do so. This highlights the extreme dependency of SONEDE on the tariff increase decisions and the paramount importance of SONEDE delivering a high-quality and cost-efficient service to justify such increases.
Lower number of new connections. Our base case scenario assumes that 70,000 new ‘ connections are established every year, among which 65,000 domestic connections. If this forecast happened to be reduced by 46% to 35,000 new domestic connections yearly, SONEDE would be fairly affected as indicated in Table 16 below. This highlights the need for SONEDE to carry out detailed demand studies as without such analysis, one crucial assumption of its medium-term forecasts cannot be established with sufficient certainty. Tunisia 82 Project Appraisal Document Urban Water Supply Project October 2005 Annex 9
Scenario de base
enannee2014 enannee2014 Min. DSCR wlo 1.27 subvention tiers 0.91 enannee2014 enannee2014
TABLE 16: SENSITIVITY TO DECREASE IN REVENUES DUE TO LOWER DEMAND
Depreciation of the Tunisian Dinar. The base case scenario assumes a 1% annual depreciation of the TND against the USD and the Euro. This level is conservative regarding the recent weakening of the dollar both against the Euro and the TND, but lower than previous experience. Our sensitivity analyses indicate that sustainable future TND erosion (see Table 17) could jeopardize SONEDE finances. In fact, its revenues and costs are more robust to depreciation when it is associated with inflation. In such circumstances, higher tariff adjustments would be necessary to keep servicing SONEDE financial commitments. Obviously, SONEDE could hedge this risk by borrowing in the least volatile currency relatively to the TND.
Scenario de base
I I I I enannee2014 I Min. LLCR I 2.30 0.56
TABLE 17: SENSITIVITY TO MACRO-ECONOMIC PARAMETERS
These sensitivities show that SONEDE is quite vulnerable to external shocks. This result confirms the importance for SONEDE to improve performance to provide a more comfortable financial cushion with which to resist shocks and to conduct regular demand studies and large consumers follow-up that will allow reducing uncertainty on fbture demand levels.
Risk An alvsis A Crystal Ball analysis was conducted to analyze the risk that key results and ratios are much lower than our base case indicated. We defined probabilistic distributions for the following key variables (in accordance with distributions used in the economic analysis): . Personal productivity: lognormal distribution (p=2%, a=2%); Tunisia 83 Project Appraisal Document Urban Water Supply Project October 2005 Annex 9
. Tariff increase: uniform distribution between 3% and 6%; . Increase in water demand: lognormal distribution (1Oth percentile=30,000 and 90th percentile = 73,400, truncated); . Exchange rate and inflation: lognormal distribution.
A Monte Carlo simulation then allowed us to estimate a statistical mean, median and a percentile distribution of likely values for the following key variables: . Minimum DSCR and LLCR; . Maximum operating ratio.
TABLE 18: RESULTS OF MONTE-CARLO ANALYSIS
The results ofthe analysis (see Table 18) indicate that the risk that any of these indicators fall below an acceptable threshold is fairly minimum with regard to the minimum LLCR, and minimum DSCR including the contributions, as: There is a 91% chance that LLCR stays above acceptable levels (1.3) and 96% above the critical threshold of 1.O;
0 There is a 46% chance that DSCR stays above acceptable levels (1.3) without restructuring and 87% above 1.O. Tunisia 84 Project Appraisal Document Urban Water Supply Project October 2005 Annex 9
However, the maximum operating ratio level becomes critical (Le. above 100%) in 97% of the cases. This means that there is a good chance that SONEDE will need to face a situation of temporary financial distress. However, SONEDE disposes of several key variables that are able to substantially mitigate this risk:
0 Use ofadvance consumption revenues;
0 Smoothing the planned amounts ofinvestments when needed;
0 A significant potential to reduce operational Performance volatility given the organizational components ofthe proposed project. If such considerations are used in the above scenarios, the probability to default on debt is substantially reduced to 4%. This explains why we believe SONEDE is capable of assuming the proposed loan even if,in the above analysis, its mean key financial ratios appear tense.
Finally, the analysis confirms the importance for SONEDE of controlling its operational performance in order to be able to finance planned investments, as otherwise the additional debt requires is very likely to become above SONEDE's capacity to borrow.
VI. Budget and Long-term Planning
Systematic Use of Medium-term Financial Projections The sensitivity analyses presented above indicate that the amount of cash that will be available in future years for financing investments varies greatly with SONEDE's operational performance. SONEDE is highly sensitive to the tariff increases, the percentage ofunpaid bills, its personnel productivity, the amount ofplanned investments, and the increase in water demand. A better performance than planned could lead to additional cash savings available for investments, and would help reduce SONEDE's sensitivity to market shocks and would facilitate the raising oflong-term finance to fund investments. To the contrary, a lower performance would inevitably require additional funding to be found to finance forecast investments. In that case however, SONEDE could face substantial difficulties in raising additional funding. Hence, if SONEDE did not achieve the performance target it set up for itself, part of its investment plan could well be threatened and would have to be postponed. This conclusion highlights the potential benefits of better using the medium-term financial projections which SONEDE produces as part of its current planning process for operational and investment decision making and performance monitoring, in particular to (i)assess the impact of improving some of its operational indicators on its ability to self- finance investments and (ii)monitor regularly its achieving performance targets. Longer-term Investment Projections with their Financing Sources Again, this speaks in favor of preparing long-term investment plans, with their forecast financing and an analysis ofthe impact on SONEDE's key ratios. Doing this would allow SONEDE to assess early enough its capacity to finance the investments planned and, if Tunisia 85 Project Appraisal Document Urban Water Supply Project October 2005 Annex 9 needed, to take the required corrective actions to improve its performance. It would also contribute to better manage SONEDE cash and use optimal leverage on short- and long- term finance. In view of these two conclusions, SONEDE is taking steps to strengthen its planning process and department and to devote closer attention to improving operating performance by creating an ad-hoc entity. Component 5 of the Project includes specific measures to support these efforts and efficiency targets have been added to traditional financial covenants as monitoring indicators. Tunisia 86 Project Appraisal Document Urban Water Supply Project October 2005 Annex 9
SONEDE's financial summary
Base case scenario Table I:Income statement
Montants en mi0 TND I 2003 2004 2005 2006 2007 2008 2009 20 I 187.525 187.570 207.455 214.327 231.077 238.276 256.559 Revenus (A) 175.329 180.936 195.380 202.032 218.280 225.259 242.995 Ventes d'eau et redevance fixe 158.395 164.260 178.937 185.424 201.506 208.317 225.884 -Part des guantitds achetees awes des privds 0% 0% 0% 0% 2% ~.2% ..2% - Part des quanfitds pmduites par ia Sonede 100% 100% 100% 1W% 98% 98% 98% Branchements et travaux divers 16.934 16.676 16.444 16.608 16.774 16.942 17.111 Production d'immobilisations (e) 6.299 0.440 1.153 1.176 1.187 1.199 1.211 Autres produits d'exploitation 5.896 6.195 10.921 11.120 11.610 11.818 12.353
I 177.9031 181.8061 196.4191 206.1871 225.5961 235.3341 244.7131 0.000 0.000 0.000 0.000 9.794 9.794 10.055 Achats consommes (D) 30.08296 24.623 27.452 28.438 29.224 30.274 31.361 Achats d'eau 3 743 4 19081 4.573 4.926 5.182 5.569 5.977 Achats de materiels de branchement. 11 432 3 29753 11.398 11.626 11.859 12.096 12.338 Achats de produits chimiques 4 328 3 85001 4.776 5.048 5.211 5.499 5.797 Autres achats 9 670 9 10513 6.605 6.738 6.872 7.010 7.150 Variation de stocks 0 910 4 17947 0.100 0.100 0.100 0.100 0.100 Consommation d'energie (G) 13.66 14.96 15.73 16.63 17.165 18.114 19.093 Charges de personnel (E) 84.842 89.050 95.831 101.212 105.618 110.090 114.656 Dotations aux Amortissements et aux Provisions ns 35.317 40.033 42.191 45.721 48.628 50.743 Autres charges d'exploitation (H) 16.697 17.859 17.372 17.719 18.074 18.435 18.804 dl9.621 5.764 11.036 8.140 5.481 2.941 I1.847 Produits financiers (I) 8 505 7 338 7.336 7 336 7.336 7 336 7 336 Charges financleres et pertes de change (J) 6.712 6.987 7.390 10.703 13,064 15.592 16.079 Solde des gains et pertes ordinaires (K) 2 193 1876 1976 2 076 2 176 2 276 2 376 I 13.607 7.990 12.958 6.850 1.930 -3.039 5.480 Imp6t sur les benefices (K) 7 185 5 443 5 831 3 082 0 868 0 000 2 466 Corrections comptables pour calibrage 1127
Monfants en mo TND 2015 2020 2025 I
345.564 426.449 496.899 Revenus (A) 329.326 407.783 476.110 Ventes d'eau et redevance fixe 311.162 388.693 456.046 - Part des qoantites achetees aup& des priv6s 9% 8% 7% -Part des quantites produites par la Sooede 91% 92% 93% Branchements et travaux divers 18.164 19.090 20.064 Production d'immobilisations (B) 1.286 1.351 1.420 Autres produits d'exploitation 14.952 17.315 19.369
11: Charges d'exploitation (D+E+F+G+H) I 340.341 393.402 455.1401 Achats d'eau dessalee aupres des prives 54.606 57.865 59.618 Achats consommes (D) 37.558 44.458 51.900 Achats d'eau 8.269 10.965 13.646 Achats de mat6riels de branchement. 13.894 15.341 16.937 Achats de produits chimiques 7.243 9.162 11,402 Autres achats 8.052 8.890 9.815 Variation de stocks 0.100 0.100 0.100 Consommation d'energie (G) 23.858 30.178 37.556 Charges de personnel (E) 143.635 168.997 196.989 Dotations aux Amortissements et aux Provisions n, 59.508 68.523 83.263 Autres charges d'exploitation (H) 21.176 23.380 25.814 115.222 33.048 41.759 Produits financiers (I) 7 336 7 336 7 336 Charges financieres et pertes de change (J) 16.011 17.793 15.567 Solde des gains et pertes ordinaires (K) 2 976 3 476 3 978
Imp6t sur les benefices (K) 0000 11 730 16877 Corrections comptables pour calibrage IV :Resultat net de I'exercice (IV-K) I -0.48 I 14.341 20.63 Tunisia 87 Project Appraisal Document Urban Water Supply Project October 2005 Annex 9
Base case scenario Table 2: Balance Sheet
Montanis en mio TND
Actifs non courants 886.582 962.708 1,052.028 1,113.213 1,160.879 1,180.651 1,178.31! lmmobilisations corporelies et ncorporelies brutes 1 353 980 1,463 350 1,603 503 1,717 679 1,821.866 1,901 065 1,960 27; Amortissements (y compris des subventions tiers) 511 696 533 538 594.871 648 362 705.383 765 311 827.35< lmmobiiisations corporeiles et incorporelles nettes 843 284 919812 1,008631 1,069316 1,116483 1,135755 1,13292: lmmobiiisations financieres 43 298 42896 43396 43896 44396 44896 45391 Actifs courants 197.364 200.206 193.050 201.812 237.022 227.619 238.43: Stocks 15.179 16.941 17.041 17.141 17.241 17.341 17.44' Clients et comptes rattachbs 89.134 95.617 80.293 83.027 89.704 92.572 99.86. Autres actifs courants (debiteurs divers) 16.919 17.016 17.216 17.416 17.616 17.816 18.011 Tresorerie actif 76.132 70.632 78.499 84.228 112.461 99.890 103.11! Total actifs 1,083.946 1,162.914 1,245.077 1,315.024 1,397.902 1,408.270 1,416.751
Cauitaux uroures 760.277066 782.319406 799.646446 813.613877 824.875156 832.036448 845.25048! Capital et fonds de dotations (incl. subvention pgm rural) 341.283 344.203 352.203 360.203 368.203 376.203 384.20: Reserves et primes likes au capital 93.31 1 98.830 98.830 98.830 98.830 98.830 98.83( Autres capitaux Rropres bruts (dont financement tiers) 319.262 330.317 343.817 357.317 370.817 384.317 397.81; Amortissement des subventions tiers -11.300 -22.600 -33.900 -45.200 -56.50( Autres capitaux propres nets (dont financement tiers) 319.262 330.317 332.517 334.717 336.917 339.117 341.31. Report B nouveau 6.422 8.969 16.096 19.863 20.924 17.886 20.90( Passifs non courants 172.897157 225.5316500 288.058 346.451 399.505 396.483 386.27! Emprunts et dettes assimilees 133.686 183.386 238.1 70 294.008 343.673 337.531 322.73( Avances sur consommation 29 944 31.868 33.896 35.924 37.952 39.980 42.001 Autres passifs non courants 9 641 9.922 15.630 16.163 17.462 18.021 19.44( Provisions pour risque et perte de charge -0.374 0.355 0.361 0.356 0.417 0.951 2.10. Passifs courants 150.772 155.063 157.372 154.959 173.521 179.750 185.221 Fournisseurs et comptes rattaches 36.976 37.960 49.205 43.344 43.707 38.125 33.851 ONAS 40 522 45.610 35.767 37.085 40.301 41.663 45.17' Clients crediteurs, Compte d'attente et autres passifs courant: 50.076 43.336 46.492 48.392 51.724 53.542 57.14: Dette B court terme 23,197 28.157 25.866 26.138 37.789 46.420 49.041 Total passifs 1,083.946 1,162.914 1,245.077 1,315.024 1,397.901 1,408.270 1,416.75( Tunisia 88 Project Appraisal Document Urban Water Supply Project October 2005 Annex 9
BILAN PREVISIONNEL DETAILLE I 2015 2020 2025 I 1 ACTIF Actifs non courants 1,273.479 1,352.669 1,540.958 Immobilisalionscorporelles et incorporelles brutes 2,455.803 2,912.427 3,539.390 Amortissements (y compris des subventions tiers) 1,230.720 1,610.655 2,051 827 Immox sarions corpore les er incorporel es nenes 1,225 083 1,301.772 1,487.562 ImmoSi sations financieres 48.396 50.896 53.396 Actifs courants 180.512 272.888 156.777 Stocks 18.041 18.541 19.041 Clients et comptes rattaches 135.339 167.582 195.662 Autres actifs courants (debiteurs divers) 19.216 20.216 21.216 Tresorerie actif 7.916 66.549 -79.142 Total actifs 1,453.991 1,625.557 1,697.735
Capitaux propres 852.211027 902.879026 985.144033 Capital et fonds de dotations (mcl. subventron pgm rural) 392 203 392.203 392 203 Reserves et primes liees au capital 98830 98830 98.830 Autres capitaux propres bruts (dont financement tiers) 478 817 546.317 613.817 Amortlssement des subventions tiers -124.300 -180.800 -237.300 Autres capitaux propres nets (dont financement tiers) 354.517 365.517 376.517 Reportanouveau 6.660 46.328 117.593 Passifs non courants 363.901 432.432 435.925 Emprunts et dettes assimilees 267.328 302.762 284.000 Avances sur consommation 54.176 64.316 74.456 Autres passifs non courants 26.346 32.623 38.089 Provisions pour risque et perte de charge 16.050 32.731 39.380 Passifs courants 237.879 290.245 276.666 Fournisseurs et comptes rattaches 56.022 60.628 77.644 ONAS 62.232 77.739 91.209 Clients crediteurs, Compte d'attente et autres passifs courant 75.681 92.382 107.813 Dette a court terme 43.944 59.496 0.000 Total passifs 1,453.991 1,625.556 1,697.735 Tunisia 89 Project Appraisal Document Urban Water Supply Project October 2005 Annex 9
Base case scenario Table 3: Cash flow statement
Amortissements net de reprises et de quote part subventionnee 32.967 35.317 40.033 42191 45721 48.628 50743 53.180 lmpayes provisionnes realises et imprevus -2 2 -2 24 -1.250 -1 293 -1 397 -1.442 -1.555 -1.602 Quote part des subventions reversees au resultat Variation du BfR 3.356 -4.0511 17.3332 -5.4460 11.585 3.061 -2.113 9.043 Stocks- .. . 0.9 -1.76 -0.10 -0.10 -0.10 -0.10 -0.10 -0.10 Clients et comptes rattaches -13 9 -648 15 32 -2.73 -6 68 -287 -7.29 -3.01 Autres actifs courants (debiteurs divers) 1 6 -0 10 -0.20 -0.20 -0.20 -0.20 -0.20 -0.20 Fournisseurs et comptes rattaches 00 0.98 11.25 -5 86 0 36 -5.58 -4 27 5 55 ONAS 00 5.09 -9 82 1 30 3.22 1.36 3.51 1.43 Clients crkditeurs, Compte d'attente et autres passifs courants 16 3 -6.74 3 16 1.90 3.33 1 82 3.60 1.90 Dette a court terme -1 6 496 -227 0.25 11.65 8.63 2.63 3.47
Subvention du programme centres ruraux 7387 9343 8.000 8.000 8.000 8.000 8.000 8.000 Subvention par des tiers des pgms d'extension 27716 22536 13.500 13.500 13.500 13.500 13500 13.500 Service de la dette existante Principal et int6rets capitalises -7 497 -10 682 -13.760 -15.179 -13.136 -22.731 -31.490 -34.625 Nouvelles avances de consommation 2 182 1924 2.028 2.028 2.028 2.028 2.028 2.028 lnvestissements financiers 0.000 -0500 -0.500 -0.500 -0.500 -0.500 -0.500 -0.500
.Mnnhnfc.. _. _.en. .mm, TNT). . .- -2.015 _.___2.020 -,_--2.025 I CASH-FLOW Resultat net -0.476 14.337 20.628 Productions d'immobilisation -1,2858 -1.3514 -1.4203 Amortissements net de reprises et de quote part subventionnee 59.508 68.523 83.263 Impayes provisionnes realises et imprevus -2.108 -2.610 -3.047 Quote part des subventions reversees au resultat Variation du BfR 0.618 12.312 -39.993 Stocks -0.10 -0.10 -0.10 Clients et comptes rattaches -9.40 -3.83 -12.76 Autres actifs courants (debiteurs divers) -0.20 -0.20 -0.20 Fournisseurs et comptes rattaches 1 .08 0.78 3.80 ONAS 4.54 1.83 6.17 Clients crbditeurs, Compte d'attente et autres passifs courants 4.52 2.30 6.00 Dette A court terme 0.18 11.53 -42.90
Besoin de financement -33.743 0.000 -80.570 Fonds propres 0.000 0.000 0.000 Dettes 30.627 67.821 5.531 Subvention du programme centres ruraux 0.000 0.006 0.000 Subvention par des tiers des pgms d'extension 13.500 13.500 13.500 Service de la dette existante Principal et inter& capitalises -30.486 -33.961 -27.333 Nouvelles avances de consommation 2.028 2.028 2.028 lnvestissements financiers -0.500 -0.500 -0.500
26.489 16.451 8.203 Tunisia 90 Project Appraisal.. Document Urban Water Supply Project October 2005 Annex 9
Table 4: key ratios
Operational margin 22 5% 21 9% 246% 235% 222% 21 6% 244% Net income margin 3 4% 0 8% 3 4% 18% 0 5% -1 3% 1 2% Cost to income (wlo depreciation) 77 5% 78 1% 754% 765% 778% 784% 756% Cost to income (wrth depreciation) 94 9% 96 9% 947% 962% 976% 988% 954% Employees I1000 connections 33 33 33 33 32 31 31 % of investment financed by own resources wlo contribution 32% 24% 48% 36% 72% 57% 51 % % of investment financed by own resources with contributior 58% 42% 60% 50% 89% 76% 71%
2010 2011 2012 2013 2014 2015 2016 Operational margin 23 9% 26 5% 194% 15 9% 157% 187% 185% Net income margin 0 8% 2 9% -0 4% -3 3% -3 9% -0 1% -0 4% Cost to income (wlo depreciation) 76 1% 73 5% 806% 84 1% 843% 81 3% 81 5% Cost to income (wtth depreciation) 96 3% 92 7% 990% 1020% 1024% 985% 988% Employees / 1000 connections 30 29 29 28 28 27 27 % of investment financed by own resources wlo contribution 61 % 42% 41% 33% 27% 48% 52% % of investment financed by own resources with contributior 80% 59% 57% 48% 42% 63% 67%
Long-term debt / liabilities 16 0% 19 4% 23 1% 26 3% 28 6% 282% 27 3% Debt ILiabilities 29 9% 32 7% 358% 38 1% 41 0% 409% 403% Leverage 42 6% 48 6% 557% 61 6% 695% 693% 676% Current ratio 13 13 12 13 14 13 13 DSCR wlo contributions 4 86 2 36 3 38 1 96 2 71 1 68 1 44 DSCR with contributions 5 16 3 69 4 02 2 48 3 23 2 04 1 73 LLCR 5 16 4 04 3 22 2 61 2 30 2 36 2 52
2010 2011 2012 2013 2014 2015 2016 Long-term debt Iliabilities 25 7% 23 9% 233% 240% 252% 250% 263% Debt / Liabilities 39 6% 38 1% 382% 398% 41 0% 41 4% 428% Leverage 65 7% 61 6% 61 7% 660% 695% 706% 74 8% Current ratio 11 10 10 09 08 08 08 DSCR w/o contributions 1 62 1 36 147 1 39 1 27 1 70 178 DSCR with contributions 1 89 1 62 1 75 1 67 157 2 01 2 08 LLCR 2 78 3 19 3 39 3 33 3 20 3 39 3 18
mio TND Revenues from water sales 157 6 164 3 178 9 185 4 201 5 208 3 225 9 New connections and works 16.9 16.7 16.4 16.6 16.8 16.9 17.1 Capitalized expenses / works 0.0 0.4 1.2 1.2 1.2 1.2 1.2 Other revenues 167 17 7 97 98 10 2 10 4 10 8 Total revenues 191 2 199 1 206 2 213 0 229 7 236 8 255 0
ma TND 2010 2011 2012 2013 2014 2015 2016
Revenues from water sales 233.0 252.2 259.7 280.6 288.5 311.2 319.4 New connections and works 17.3 17.5 17.6 17.8 18.0 18.2 18.3 Capitalized expenses / works 1.2 1.2 1.2 1.3 1.3 1.3 1.3 Other revenues 11.0 11.4 11.6 12.1 12.3 12.8 13.0 Total revenues 262.5 282.3 290.2 31 1.8 320.0 343.5 352.1
Management category (%) 14 5% 143% 150% 15 3% 153% 153% 154% Technical staff (%) 16.0% 15.8% 16.3% 16.4% 16.5% 16.7% 16.8% Unskilled workers (%) 69.4% 69.9% 68.7% 68.3% 68.2% 68.0% 67.8% Management category 854 854 937 978 995 1,011 1,026 Technical staff 942 945 1,014 1,049 1,074 1,099 1,123 Unskilled workers 4,077 4,177 4.277 4,377 4,430 4,478 4,522 Non-statutory staff 1,123 1,023 923 823 773 723 673 Total staff costs (incl. benefits) 84.84 89.05 95.83 101.21 105.62 110.09 114.66
2010 201t 2012 2013 2014 2015 2016 Management category (%) 15 4% 154% 155% 155% 15.6% 156% 15 6% Technical staff (%) 17 0% 171% 173% 174% 17 6% 17 7% 17 9% Unskilled workers (%) 67.6% 67.4% 67.2% 67.0% 66.9% 66.7% 66.5%
Management category 1,040 ~ 1,053 1,066 1,077 1,088 1,099 1,108 Technical staff 1,146 1,168 1,190 1,210 1,231 1,250 1,269 Unskilled workers 4,561 4,596 4,627 4,654 4.678 4,698 4,715 Non-statutory staff 623 573 523 473 423 373 323 Total staff costs (incl. benefits) 119.28 124.00 128.78 133.65 138.60 143.63 148.74
Tunisia 92 Project Appraisal Document Urban Water Supply Project October 2005 Annex 10
Annex 10: Safeguard Policy Issues
Prior to appraisal, the Borrower contracted a qualified consultant to prepare an Environmental Assessment of the Project including a review of potential environmental impacts and development of appropriate mitigation measures. The Environmental Assessment Report is available in the SONEDE’s Project files and the Bank’s Infoshop.
Environment
The project is expected to bring significant environmental, socio economic and public health benefits through better quality and availability of treated water, and improvements in the sustainability ofraw water sources through reductions in losses and wastage.
Only limited and temporally negative impacts are expected during construction phase while some adverse impacts may result from the operation of water treatment facilities and potable water wells if they are failures in their design, implementation and operation. Potential impacts during construction and operation phases involve:
(a) Impacts were surveyed on air and water quality and noise, resulting from excavation work, machinery operation, and traffic as a result ofconstruction and rehabilitation oftransmission and distribution networks, construction of storage reservoirs in urban area and the water treatment plant. These impacts will be localized, temporary and minimal, due to the EMP mitigation measures.
(b) Unsustainable use ofthe groundwater resources: Creation ofwells for potable water is among the subprojects requiring environmental screening. For each drinking water well, the Bank will require documentation (from DGRE) that demonstrates the water requirement of the project in relation to the current exploitation and renewable resource status ofthe aquifer involved.
(c) ST4, the planned water treatment plant will remove sediments, iron and minerals, and precipitates from intake waters and might produce sludge contaminated with chemicalhazardous pollutants. The contractor in charge of the design and construction of ST4 will be requested to prepare an EA including the development and implementation of a sludge management plan for the whole water treatment pole in Ghdir-el-Golla. TORSfor this specific EA will be included in ST4 biding documents.
(d) The potential water quality and health risks of additional water supply causing overloading of sewerage, treatment and disposal systems were reviewed. It is expected to be minimal since most of the planned subprojects will have limited implications for increased wastewater production. Nevertheless, the EMP includes provisions for a rapid EA screening/appraisal for some urban centres in order to identify appropriate mitigation measures.
In general, the project, through the implementation ofthe developed EMP below, is not expected to have significant negative environmental impacts and will not generate any health damage. Tunisia 93 Project Appraisal Document Urban Water Supply Project October 2005 Annex 10
Land Acquisition Plan
Under the Environmental Assessment, special attention was made for OP 4.1 2 on involuntary resettlement. It was confirmed that only a small amount of land will be needed for storage tanks and pipelines construction/operation with none involving relocation. SONEDE land acquisition procedures have been reviewed and deemed satisfactory. Detailed surveys for all known land acquisition have been completed and are summarized in the table below. The main land requirement anticipated will be for the construction of <( ST4 )) treatment plant and a storage tank in Ghdir El Golla, Greater Tunis which belongs to the SONEDE. The specifics of the project Land Acquisition Plan as submitted on June 15,2005 are summarized in the following table.
requiremei (m2) I Estimated Project Sub For Acquisition process stage component Total Equipment Pipeline Station de traitement Land owned by SONEDE ST4 Rehabilitation DN1190 Land owned by Government GEG Ras Tabia - ~ ~~~ Rtservoir eau traitke Land owned by SONEDE grand Tunis Pipelines & structures : Borj Touil 2,500 27,000 29,500 0.040 AOT” issued; purchase beeun I La gazelle I 2,500 0 2,500 1 0.013 AOT issued, purchase begun I Momag Io 15,000 +15,000 I 0.015 AOT issued Etage GEG 72 et Bir io,ooo I 0 10,000 0.050 Land owned by SONEDE TKassaa72
Pipelines & structure : AOT Rouhia-Sbiba-Jedliane 5,000 45,000 50,000 0.070 issued; acquisition initiated
Pipelines : AOT issued Ghardimaou 47,000 50,000 0.062 Structures :SONEDE land. I 33000 r AinDraham I 2,000 0 AOT issued, purchase begun I Ouerdanine I 0 10,000 AOT issued, purchase begun
Pipelines & structures : AOT Nasrallah 2,500 24,000 26,500 0.037 issued. Acquisition initiated
15,000 15,000 0.075 AOT issued I KalaaKbira Io 1 Jammal 0 50,000 50,000 I 0.050 AOT issued 233.000 260.500 I 0.561
” AOT = Avis d’occupation Temporaire, or temporary occupation notice. Tunisia 94 Project Appraisal Document Urban Water Supply Project October 2005 Annex 10
SONEDE’s tested land acquisition procedures, as established in 1978 and most recently updated in 2003 have applied to previous bank financed projects, and are provided in the appendix below.
Cultural Property
The EA report indicates that project activities would not affect any above ground artifacts with archeological, paleontological, historical, religious, or unique natural values as defined under OPN 11.03. However, most of the construction activities will involve excavation work and thus all contracts will include standard clauses which follow Tunisian law (Law no 35 of May 9, 1986) and regulations regarding chance finds during construction.
Environmental Management Plan (EMP)
The objectives of the EMP are to identify feasible, cost effective measures that may be used to mitigate any adverse environmental impacts that might occur during the construction and operation of the project. The proposed EMP will consist of three kinds of activities: (i) implementation of mitigation measures; (ii)monitoring and evaluation of mitigation measures; and (iii)strengthening the capacities of SONEDE.
Mitigation Measures
Mitigation measures have been identified to ensure that the defined objectives ofthe project are achieved whilst preventing and reducing any adverse environmental impacts. The mitigation measures are to be executed by the Construction Contractors with supervision by the SONEDE and involved governmental institutions.
During Construction Phase Construction mitigation measures will be required to minimize inconveniences to the public. Such mitigation measures are standard and widely used in construction practices properly supervised for achievement of international standards of quality. Tables A, By C et D (construction phase) in the EA report summarize the major adverse environmental impacts during construction and their mitigation measures as well as involved institutions.
Other adverse construction activities will be mitigated through the adoption of Good Environmental Practices given in Annex of the EA report. For instance noisy construction activities can be limited to normal working hours and providing muffler to minimize noise nuisance. Dust emissions can be avoided by using dust suppression measures such as periodically sprinkling water in certain areas, providing appropriate covers and removal of excess material from the site. Dangerous activities in public area’s will be controlled to reduce risk to the public, traffic and warning signs will be placed at construction sites, trenches will be provided by fences, or railings. The contract with contractors will incorporate all requirements to minimize disturbance from construction activities and will be monitored by SONEDE (assisted by a Safeguards/Environmentalist Consultant) to ensure compliance with the contract. Tunisia 95 Project Appraisal Document Urban Water Supply Project October 2005 Annex 10
The cost ofthe mitigation measures during construction will be incorporated in the contract cost of the contractor. Moreover, the Bank will review all civil works contracts to ensure that the required mitigation measures have been incorporated in the tender documents.
During Operation Phase The operation of the water networks and treatment facilities and exploitation of groundwater (wells) can create adverse impacts, which need to be avoided through the implementation of mitigation measures. Tables A,' B, C and D (operational phase) in the EA report summarizes the potential impacts and the proposed mitigation measures. Specific EA will be canied for identified subprojects (see list in the EA report) and will identify more specific safeguards measures.
Monit0 ring Plan Monitoring ofconstruction activities will have to ensure that mitigation measures ofconstruction impacts are being implemented properly, while monitoring of operation activities is to ensure that no unforeseen negative impacts are arising. During construction, the monitoring program will include dust and noise. Monitoring ofthe water supply will include biological, physical and chemical parameters as well as heavy metals and pesticides residues. Table under Section 7.3 of the EA report gives the proposed monitoring requirements during the construction and operational phases.
Institution a1 Strength en ing The institutional arrangement and capacities of the organizations in-charge with the implementation and management of the proposed project were reviewed with the intention of providing technical assistance and reinforcement. Environmental expertise will be strengthened through:
(i)the provision of an environmental expert to (i)assist the SONEDE in supervising the implementation of the EMP; (ii)the elaboration of TORSand review of EIE reports for subprojects requiring EA during the project implementation; (iii)the elaboration of EMP monitoring reports.
(ii)the provision oftraining programs that will be designed and implemented with the assistance ofa local or international expert and will cover the following main topics: 0 Environmental Assessment 0 Effective implementation ofmitigation measures 0 Project supervision, monitoring and evaluation
Implementing safeguard requirements
The borrower will hire a partial time safeguards/environmental consultant to assist the Project Management in overseeing and managing the following environmental activities:
0 Overall supervision and monitoring the EMP 0 Preparation ofEIA TORSfor ST4 and supervision ofrelevant consultants works Tunisia 96 Project Appraisal Document Urban Water Supply Project October 2005 Annex 10
0 Preparation of EIA TORS of pipeline GEG -Ras Tabia and supervision relevant consultants works 0 Preparation ofToRs for rapid EA screeninglappraisal and reviewing relevant consultants’ reports
The EMP implementation planning includes contracting out the preparation of EIA and DS studies, implementation ofenvironmental training activities, and EMP supervision and reporting. The project budget includes funds for the implementation of all safeguards requirements, including the following:
0 Hiring a Safeguards/environmental Consultant 0 Preparing and implementing Specific EIAs and rapid EA screeninglappraisal
0 Preparing and implementing EMPs 0 Preparing and implementing an awareness workshop on key environmental issues related to water supply projects 0 Training SONEDE staff and other involved institutions in fulfilling their responsibilities for management ofsafeguards issues.
Implementation of EMPs will be monitored by SONEDE regional engineers andor Safeguards consultant as appropriate. The Tunisian EPA will also undertake periodic inspections.
Appendix : SONEDE Land Acquisition Procedures Tunisia 97 Project Appraisal Document Urban Water Supply Project October 2005 Annex 10
119 'd Tunisia 98 Project Appraisal Document Urban Water Supply Project October 2005 Annex 10
f 'd Tunisia 99 Project Appraisal Document Urban Water Supply Project October 2005 Annex 10
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,1.46 Tunisia 107 Project Appraisal Document Urban Water Supply Project October 2005 Annex 10
'Tunis, le 10 Octobre 1978
: Occupation temporake Acquisition da Terrains. w: PENI'objet de la presente rlote est de rGgIem at la prOcQdure damupattion temporaira, dexpropriatian at dacquisi n que les l'exprapriation n'intewienna plus ii la fin dm tmvaux nt des pfopfi&aire$ $e fasse dans les mailleurs d&lais passibles. Pour =la i'an ne souriant tiop insist que les Divieians Travaux fassent respecter Is trad d'exhtion etabli rvice tamraphie lors de I'ktude parcellaim - Ce inactfa doit &re, defiinitg et doit pOUVOk donner de la maniere la plus precise possible, la superficie I occup temporatremerit et au sin de la supetrficie B acquerir ( ou le cas &h&tnt
I!
+155 deux op&?rations sa mjaignsnt dans Iplurs phase p¶toire qui est du ressart I it.$ Service Topographique - cette phase Eomprsnd : I l., l., Wde parmllaire
- La delimitsrtian de ia zone doccupattan temparairs qui entreine !a constitution du dossier d'accupatim tempofaire. I4 - La delimitation de la zone h acquerir ou 31 expropder, support du daa;sllet d'expropriatian dont se chetgelliei Betvice Juridlque. M.B. La auperficiet n8cessaire pour I'i?dlflcatim cr'un ouvrage aulre qu'une condllite dolt &tr@cfslimitQe avec la plus grande prE!
Oans une deuxh3me phase, il y aura en p Tunisia 108 Project Appraisal Document Urban Water Supply Project October 2005 Annex 10
-.Ex&cution de I'ouvrage avec &valuation des d&g&tts et dedommagements au fur et 8 mf:. -E-tabiissement do dossier d'sxpropriation par I@Service Juridique suite B un rapport ti'expertisede terrain Btabli par le Semi III - I ERE PHaSE - TRAVAUX PREPARATClkRliS. : $/ Etude P~rcelJaire: mite etude "?Me, suite a un levti topographique, B dtablir un plan parcellaire faisant tessortit le tracb de I'ouvrage et au deja de ce tract? la zone d'acCup&ion temporaire. agent du Service Chantier eront un &at comportant ires et la auperficis des prcelks B occuper temporairement. Cette bande dolt, lors de sqn Btailrlissement, faire I'objet d'une etude minutieuse et tenir compte ds taus Iss impand0rable$ (oppqsitipn d'uns minutieuse et tsnir compte de taus les impanderablas ( oppositi d'una autofit4 lowle pour 80s me;; ksains, par exemple ), afin) qu'elle Souffre d'auwne modification lors de la r&alisattionde f'auwage. La Division Travawr dait htablir pour mueparcella de terrain d aeqwir un plan parcellairs btabli sur une eella aussi grande que possible ( Ex : 1/550 ) faisant ressbrtit le5 Mites de la propri&& L traversw : I - S'il s'apit d'une parcells faisant partle d'un t&rain immatricui&II sera fait mention du num6ro du titre fonder et de la tranwpositinn de I'emprise de I'ouvrage sur une copie du plan abjjet: du titre fbncier en question dtilivri5 par l'affice de la topogrepie ot de la cartographie. S'ji s'agit d'un terrain ~QRlmmatricul6 iI sera indique les llmites de I'emprlse de la pw;~;IleB acquhrir par rapport B I'ensemble du tsrraln appartenant BUX tiers &nsi epIm nom6 des riverains. temporalre, le service Topogtaphique &Wit : - Un projet d'mW d'ocwpatfon temporaire 71 'J Tunisia 109 Project Appraisal Document Urban Water Supply Project October 2005 Annex 10 - Un avis &occupation temporaire clestln4 aux proprietalres - UR projet de note au Gouvef+ur. &cs documents ajout4s su plan parcetfaire constituent le dossier d'occupation kmpQrairm qui e& d&pas& en six exttnpleirea pour approbation aw Minist&@de A%f GdImL 42 p%usi~ndu Desskr dLOlccunationT@~I)I oraim, : Lina feis approuvh et retourne du Minist& de I'AgricuRum IC dossier doooupattion temporairs devient e*!cutoire. Ii eat alors trabmik : - Au Gouvetneur de la rbgion en deux exemplaires Ce dernier se charge d'acheminer les avis dowupation tempofaire aux pr&surn&s proprietaires pour information. I - Au servlw Chanlier en un exemplaire pour exWtion des Travaux. A la Division Travaux en un exemplaire pour Information. - , - Au Service Juridlqus en un exemplairr pour suivi at paiement des d&&it$. 5j")a '4s l'etablissement du dossier d'occupation temporake, le Servicft Topographique .;rt Prm&deri?r I'axxprtrtlse des prrains nus a acquerlr, par un expert agree aupres tJes fribunaux originairas de I? riiqion. L'mpertise cioit atre faite A Iftytarepour as ikrrAns A vocation agricole et au mdtre cesrr'r8 pour las terrains destine@ la canstruclian et situ& dans une zone municipale. I'expertiao qui racevra f'sgr8ment des deux parties donnem naissance a un &at des expcar;tih;es dias terrains nus. 1 Direction Grintkralcs les Mres de prix aux propri&wrea.Dans le asou le prapri&aire n'accepteraitpa5 lMr%qui lui,aBtB fait@,il sera invite d produire une axperkiss, &.rthlle par un expert a.q& tequis a ses fr;ais. &WYCI des deux rapports d'ex#wtlWs Brtabtie l'uri t'initiative CY@ la SONEDE, I'autre '&C'w+!ativedu proprietaaire, le f3.J peut : Sol! soumettra ia Direction bndrale une propasition de transaction entre ia 53NEDE et le propribtaire int4ressd. .- Soit prochder B unr expertts$ d'arbltraga f G?r up expert arbitfe choisi par les deux expsrts dm deux parties en littge ). RQ: 1.1 aw"pr "J Tunisia 110 Project Appraisal Document Urban Water Supply Project October 2005 PI 'd 7iJlO.L Etli-" n lieu au fur et ti mesure de I'avancemeni des Travawr. Cette Bvaluaticwr aMfmrte b~trila ddterminhtlon des d$g&ts, mat$rialis&e par un constat CO~:F,;dictaire, leurs evaluetjons proprement dite, Cslk-ci peuf se faire B I'amiable QH m cas de contestation, /&&e soumlse B la proGBdure d'expertise groupant e&jc;nwedes expenises des dQBts affirents au trawn exsCUt6. A.FRIH 81 'd Tunisia 111 Project Appraisal Document Urban Water Supply Project October 2005 Annex 11 Annex 11: Project Preparation and Supervision Planned Actual PCN review June 1,2004 Initial PID to PIC June 2004 June 2004 Initial ISDS to PIC June 2004 June 2004 Appraisal March 15,2005 June 16,2005 Negotiations July 2005 September 28,2005 BoarcURVP approval October 25,2005 November 17,2005 Planned date of effectiveness January 2,2006 Planned date ofmid-term review lStquarter 2008 Planned closing date lStquarter 201 1 Key institutions responsible for preparation of the project: SONEDE and the Ministry of Development and International Cooperation. Bank staff and consultants who worked on the project included: Name Title Unit Pier Francesco Mantovani TTL MNSIF Ines Fraile TTL MNSIF Elisabetta Capanelli Economist MNSIF Severine Dinghem Financial Officer IEF Maya Khelladi Water economist MNSIF Michael Hamaide Operations Officer MNSIF Rachid Bouhamidi JPA MNSIF Mohammed Dalil Essakalj JPA MNSIF Mohamed Benouahi Lead Financial Analyst MNSIF Georges Khoury-Haddad Procurement specialist MNACS Marie Khoury Disbursement specialist LOAG Mohamed Larbi Khrouf Sr WS&S specialist Consultant Dominique Bichara Sr Counsel LEGMS Nina Masako Eejima Sr Counsel LEGMS Hadi Abushakra Chief Counsel LEGMS Jaafar Sadok Friaa Sr Environmental Specialist Consultant Daniel Coyaud Sr WS&S specialist Consultant Louis Godinot Organization consultant Consultant Siaka Bakayako Financial Management Officer MNACS Khalid Boukantar ETTPromam Assistant MNSIF Bank funds expended to date on project preparation amount to US$211,000 ofBank resources. Estimated Approval and Supervision costs: 1. Remaining costs to approval: 2. Estimated annual supervision cost: $75,000 Tunisia 112 Project Appraisal Document Urban Water Supply Project October 2005 Annex 12 Annex 12: Documents in the Project File 1. SONEDE - Amklioration des Conditions de la Desserte en Eau dans la Localite de Borj Touil - Etude Prkliminaire; January 2005. 2. Centre de Production Plus Propre (CP3) - Rapport d’Evaluation Environnementale du Projet d’Eau Potable du Grand Tunis et des Centres Urbains ; December 2005. 3. SONEDE - Renforcement de la Capacite de Traitement - Note Prkliminaire; October 2004. 4. SONEDE - Amelioration des Conditions de la Desserte en Eau dans le Grand Tunis, Etage Tunis Haut 72 - Etude Prkliminaire; July 2004. 5. SONEDE - Renforcement des Infrastructures Hydrauliques dans le Grands Tunis; July 2004. 6. SONEDE - Jendouba, Alimentation en Eau Potable de la ville de Ain Draham - Etude Technique; July 1998. 7. SONEDE, Siliana et Kasserine - Alimentation en Eau Potable du Complexe Rouhia, Sbiba et Jedeliane - Etude Technique; Mai 1998. 8. SONEDE, Jendouba - Amelioration des Conditions de Desserte de la Ville de Ghardimaou - Etude Prkliminaire; July 2004. 9. SONEDE, Kairouan - Projet d’Alimentation en Eau Potable de Nasrallah et Menzel Mhiri - Note Technique; Septembre 2004 10. SONEDE, Monastir - Projet d’Alimentation en Eau Potable de Jammel-Zeramdine - Note Technique; Octobre 2004. 11. SONEDE, Monastir - Amklioration de 1’Alimentation en Eau Potable du Complexe de Ouaradanine - Etude PrCliminaire; July 2004. 12. SONEDE, Sousse - Amklioration de 1’Alimentation en Eau Potable de la Ville de Kalaa Kbira - Etude Prkliminaire; July 2004 13. Coyaud, Daniel - Projet d’Eau Potable Dans le Grand Tunis et des Centres Urbains - Rapport de Mission de PrCparation ; May 2004. 14. Godinot, Louis - Hoche Consultants - Mission d’assistance a la SONEDE pour la Dkfinition du Volet Renforcement des Capacitks de Gestion ; February 2005. 15. Mission aide-mkmoire January, July, October 2004, and March 2005. Tunisia 113 Project Appraisal Document Urban Water Supply Project October 2005 Annex 13 Annex 13: Statement of Loans and Credits 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 PO82999 2004 TN-Education PAQSET I1 130.34 0.00 0.00 0.00 0.00 123.56 8.69 0.00 PO74398 2003 TN-MUNICIPAL DEVELOPMENT I11 78.39 0.00 0.00 0.00 0.00 81.74 11.92 0.00 PO723 17 2003 TN-NW Mountainous and For. Areas Dev. 34.00 0.00 0.00 0.00 0.00 37.97 2.94 0.00 PO483 15 2002 TN-Protected Areas Management Project 0.00 0.00 0.00 5.33 0.00 4.78 1.66 0.00 PO05750 2001 TN-AGRIC. SUPPORT SVCS 21.33 0.00 0.00 0.00 0.00 24.85 4.64 0.00 PO64082 2001 TN-TRANSPORT SECTOR 37.60 0.00 0.00 0.00 0.00 34.06 14.15 0.00 INVESTMENT PO48825 2001 TN-CULTURAL HERITAGE 17.00 0.00 0.00 0.00 0.00 20.38 5.16 0.00 PO50945 2000 TN-Education PAQSET I 99.00 0.00 0.00 0.00 0.00 44.64 5.48 0.00 PO35707 2000 TN-WATER SECTOR INVESTMENT 103.00 0.00 0.00 0.00 0.00 72.10 10.49 0.00 PROJECT PO55814 1999 TN-EXPORT DEVELOPMENT 35.00 0.00 0.00 0.00 0.00 10.66 10.66 1.56 PO05741 1998 TN Higher Education Reform Support I 80.00 0.00 0.00 0.00 0.00 32.28 30.38 5.40 PO43700 1998 TN-TRANSPORT SECTOR INV 50.00 0.00 0.00 0.00 0.00 11.53 13.63 1.33 PO05736 1997 TN-NATURAL RESOURCE MGMT 26.50 0.00 0.00 0.00 0.00 4.41 7.43 6.64 PO05731 1997 TN-GREATER TUNIS SEWERAGE 60.00 0.00 0.00 0.00 6.95 20.39 32.00 5.78 PO05589 1995 SOLAR WATER HEATING 0.00 0.00 0.00 4.00 0.00 0.28 0.28 0.00 Total: 772.16 0.00 0.00 9.33 6.95 523.63 159.51 20.71 TUNISIA STATEMENT OF IFC’s Held and Disbursed Portfolio In Millions ofUS Dollars ~~ ~ Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic. Loan Equity Quasi Partic. 1995 Maghreb IM Bank 0.00 0.33 0.00 0.00 0.00 0.33 0.00 0.00 1986198 SITEX 0.00 0.77 0.00 0.00 0.00 0.77 0.00 0.00 1998 Tuninvest 0.00 4.29 0.00 0.00 0.00 4.29 0.00 0.00 Total portfolio: 0.00 5.39 0.00 0.00 0.00 5.39 0.00 0.00 ~ ~~ Approvals Pending Commitment FY Approval Company Loan Equity Quasi Partic. Total pending commitment: 0.00 0.00 0.00 0.00 Tunisia 114 Project Appraisal Document Urban Water Supply Project October 2005 Annex 14 Annex 14: Country at a Glance M. East Lower- POVERTY and SOCIAL & North middle- Tunisia Africa income Development diamond' 2002 Population, mid-year (millions) 9.8 306 2,411 Life expectancy GNI per capita (Atlasmethod, US$) 2,000 2,070 1390 GNI (Atlas method, US$ billions) 19.6 670 3,352 Average annual growth, 1996-02 T Population (%) 12 19 10 Labor force (%) 2.4 2.9 12 GNI per Most recent estimate (latest year available, 1996-02) capita Poverty (%of population belo wnatlo nal po veriyiine) Urban population (%of totalpopulation) 67 58 49 Life expectancyat birth (years) 73 69 69 I Infant mortaiityfper 1,OOOlive bi~hs) 24 37 30 Child malnutrition (%ofchildren under5) 4 11 Access to improved water source Access to an improved water source (%ofpopulation) 80 88 81 Illiteracy (%of population age a+) 27 35 t3 Gross primaryenrollment (%of school-age population) ll7 95 111 -Tunisia Male PO 98 111 - Lo rier-middle-inco m e group Female 115 90 10 KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1982 1992 2001 2002 Economic ratios* GDP (US$ billions) 8.1 15.5 20.0 212 Gross domestic investmentIGDP 317 34.3 27.9 25 8 Trade Exports of goods and services/GDP 36.9 39.5 47.1 44 3 Gross domestic savings/GDP 212 27.4 23.4 214 Gross national savings/GDP 22.5 26.4 23.6 22 4 Current account balance/GDP -92 -7.0 -4.3 -3 5 Domestic iInvestment Interest paymentslGDP 2.7 2.6 2.1 22 savings Total debt/GDP 46.4 55.1 54.5 57.2 Total debt servicetexports 62 20.0 0.9 154 Present value of debtlGDP 54.2 1 Present value of debtlexports D2.7 Indebtedness 1982-92 1992-02 2001 2002 2002-05 (average annual growth) -Tunisia GDP 3.8 4.7 4.9 17 4.7 GDP Dercavita 13 3.2 3.7 0.5 3.7 __ Lorier-middle-income group STRUCTURE of the ECONOMY 1982 1992 2001 2002 Growth of investment and GDP (%) (%of GDP) Agriculture 0.2 6.1 116 z) .4 2o T Industry 311 28.5 28.8 29.1 10 Manufacturing 111 6.5 18.5 18.6 Services 55.8 55.4 59.5 60.5 0 Private consumption 62.3 56.6 60.9 62.3 - 10 General government consumption 6.5 6.0 15.7 6.3 Imports of goods and services 47.4 46.5 517 48.7 - -GDI -GDP - 1982-92 1992.02 2001 2002 (average annual growth) Agriculture 5.3 19 -15 -0.3 Industry 3.6 4.8 5.7 3.4 Manufacturing 2.0 5.6 6.9 2.2 Services 3.4 5.3 6.0 3.7 Private consumption 2.7 4.6 5.4 3.4 General government consumption 3.0 4.2 5.0 4.5 Gross domestic investment 0.8 3.7 6.4 -6.2 Imports of goods and services 3.0 4.7 0.4 - 17 Tunisia 115 Project Appraisal Document Urban Water Supply Project October 2005 Annex 14 PRICES and GOVERNMENT FINANCE 1982 1992 2001 2002 Domestic prices (W change) 5T Consumer prices 5.8 19 2.8 Implicit GDP deflator 6.0 5.7 2.7 2.8 Government finance i (%of GDP, includes current grants) Current revenue 31.7 26.8 24.6 24.6 97 98 99 00 01 0 Current budget balance 6.7 4.1 5.2 4.7 ----GDPdeflator -CPI Overall surplusldeficit -2.2 -3.0 -3.5 -3.1 TRADE 1982 1992 2001 2002 Export and import levels (US$ mill.) (US$ milions) Total exports (fob) 1,980 4,014 6,606 6.857 Fuel 911 609 6D 641 Agriculture 63 46 541 489 Manufactures 965 2,432 4,981 5,272 Total imports (cif) 3,389 6,432 9,521 9,503 Food 356 430 654 653 Fuel and energy 377 449 888 886 Capital goods 1,032 1,578 2,240 2,236 96 97 98 99 00 01 02 Export price index (S95-WO) 79 251 154 Import price index (S95=WO) 89 a7 D9 exports mlworts Terms of trade (S95=WOj 89 141 141 I BALANCE of PAYMENTS 1982 1992 2001 2002 Current account balance to GDP (%) (US$ millions) Exports of goods and services 3,002 5,973 9,518 9,539 Imports of goods and services 3,859 6,978 DP23 10,431 Resource balance -856 -1,005 -905 -893 Net income -294 -654 -941 -984 Net current transfers 403 570 983 1,80 Current account balance -748 -1,089 -863 -746 Financing items (net) 776 Iff1 2118 895 Changes in net reserves -27 -82 -255 -149 Memo: Reserves including goid (US$ millions) 614 862 1999 2,301 Conversion rate (DEC, /oca//US$) 0.6 0.9 14 14 EXTERNAL DEBT and RESOURCE FLOWS 1982 1992 2001 2002 ~~ (US$ millions) Composition of 2001debt (US$ mill.) Total debt outstanding and disbursed 3,772 8,543 10,884 P,DO IBRD 376 1470 1297 1,464 G 682 A 1,297 IDA 68 56 37 35 Total debt service 563 1342 1,465 1,641 IB RD 53 267 226 233 IDA 1 2 2 2 Compositionof net resource flow F 3.638 Official grants 29 140 Official creditors 279 278 365 -90 Private creditors 29 74 229 556 Foreign direct investment 340 526 Portfolio equity 0 0 0 E 2.529 World Bank program Commitments 0 210 328 lt? A - IBRD E - Bilateral Disbursements 83 111 293 17 8-IDA D-Otkrrmltilatsal F-Private Principal repayments 27 149 148 156 C-IMF G-Short-term MAP SECTION MAY 2005 MAY To Souk Ahras Tebessa 35 36 37 To ° ° ° Tebessa Mediterranean ALGERIA 0 To Es Senam Kalaat Youssef Sidi Sakiet Kilometers ToAnnaba Ghardimaou 25 JENDOUBA EL KEF Sea KASSERINE EL KEF Fériana Tabarka Kalaâ Khasba GAFSA Thala Aïn Draham 50 JENDOUBA KASSERINE Dahmain Sbiba Bou Salem 9 9 ° ° Sbeïtla Sers Rouhia BEJA Sejnene Nefza SILIANA BEJA Makthar SIDI BOU ZID Teboursouk BIZERTE Gaâfour SILIANA SIDI BOU ZID KAIROUAN El Mezzouna El Bab Mejez Oueslatia Tebourba Nasrallah Arada Bou Mateur Pt. du Fahs Bourguiba Menzel ZAGHOUAN for detail See inset BIZERTE 10 10 ° ° Utique ARIANA Bou Hajla ARIANA KAIROUAN Ras Djebel Bir Ali Ben ZAGHOUAN Khélifa TUNIS acceptance of such boundaries. ugeto h ea ttso n ertr,or any endorsement status of any territory, judgment on the legal on this map do not imply, the part of The World Bank Group, any h onais oos eoiain n n other information shown denominations and any The boundaries, colors, This map was produced by the Map Design Unit of The World Bank. Menzel AROUS Chaker BEN SOUSSE SFAX Gulf of Tunis Ennfidha Ouerdanine N MAHDIA TUNIS Agareb Grombalia AROUS A Menzel Bou Kalaa Kbira BEN Hammamet Jammel Zelfa Hammamet SOUSSE Gulf of B MONASTIR El Jem NABEUL E El Hencha SFAX U MONASTIR Korba L 11 Jebeniana Menzel Temime ° El Haouaria Ksour-Essaf MAHDIA Kelibia Chebba Kerkenna Islands 35 37 36 ° ° ° El Golla SPAIN 40 URBAN WATER SUPPLY PROJECT 20 25 35 30 Ghdir MALI Madrid Jammel ° ° ° ° ° Ariana Es Sedjoumi TUNIS 0 ° Algiers ALGERIA Sebkhet SALT LAKES PORTS RAILROADS OTHER ROADS MAIN ROADS NEIGHBORHOODS PROJECT CITIES OR Mediterranean Borg Touil main map Area of Ras Tabia 5 5 ° ° La Gazelle Er Riana Sebkhet TUNISIA TUNISIA Arous Tunis Bahira Ben NIGER 10 10 El ° ° Mornag Sea INTERNATIONAL BOUNDARIES GOVERNORATE BOUNDARIES NATIONAL CAPITALS GOVERNORATE CAPITALS CITIES AND TOWNS INTERNATIONAL AIRPORTS Tripoli Valletta ITALY MALTA LIBYA CHAD Gulf of 0 Kilometers Tunis 20 20 GREECE ° ° Athens 5 25 35 30 ° ° ° IBRD 34059 IBRD