30757 VOL. 1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Minist6re Tunisien du DL&veloppement et de la Coop6ration Internationale

The World Bank mPoPMI I~ E REPUBLIC OF

MINISTRY OF DEVELOPMENT AND INTERNATIONAL COOPERATION

AND THE WORLD BANK

AND THE PROGRAMME ON PRIVATE PARTICIPATION IN MEDITERRANEAN INFRASTRUCTURE (PPMI)

STUDY ON PRIVATE PARTICIPATION IN INFRASTRUCTURE INTUNISIA

VOLUME I

WITH THE SUPPORT OF THE PUBLIC-PRIVATE INFRASTRUCTURE ADVISORY FACILITY (PPIAF)

Table of Contents

Preface ...... ix

Foreword ...... xi

Abbreviations and Acronyms ...... xiv

1. Introduction to a Strategy for Private Participation in Infrastructure in Tunisia ...... 1 Objectives of Private Participation in Infrastructure ...... 1 Tunisian Infrastructure Assets ...... 2 Objectives of the 10th Development Plan and Current PPI Strategy ...... 2 Proposals for Complementing the Current Strategy ...... 3 Proposed Action Plan - Horizontal Aspects ...... 9

2. Foundations and Principles of Private Participation in Infrastructure ...... 11 International PPI Trends ...... 11 Advantages and Risks of PPI ...... 14 The Importance of Introducing Fair Competition ...... 16 A Range of Options for the Participation of the Private Sector ...... 18 Subsidies and Private Participation ...... 19 The Regulation of Infrastructure Services ...... 20

3. The Context of Private Participation in Infrastructure in Tunisia ...... 27 The Macroeconomic Context, the Business Environment and the Privatisation Programme ...... 27 The 101h Development Plan ...... 28 The Experience of Tunisia with PPI ...... 29 Involvement of the Tunisian Private Sector in the Provision of Infrastructure Services ...... 32 Employment Issues ...... 32 Equity and Infrastructure Services in Tunisia ...... 33 Regional Integration and Infrastructure Sector Reforms ...... 35 The Legal Aspects of PPI ...... 37 PPI Financing by the Tunisian Financial Sector ...... 44 Simulating the Economic Effects of the Liberalisation of Infrastructure Services ...... 46

4. Sectoral Aspects of Private Participation in Infrastructure .51 Telecommunications .51 Transport .56 Electricity and Gas .65 Water .69 Sanitation .71 Solid Waste .76

Suggested Reading .8 Boxes Box 1: The Risks of Fiscally Constrained Governments ...... 16 Box 2: Subsidies as Incentives for Better Performance ...... 20 Box 3: The Value For Money Test - An Innovative Approach ...... 23 Box 4: Examples of Infrastructure Regulatory Agencies in the World ...... 25 Box 5: International Experience with Laws on Public-Private Partnerships ...... 39

Figure Figure 1: Range of Privatization Techniques ...... 18

Graphs Graph 1: Countries with PPI in At Least One Sector ...... 12 Graph 2: Total Private Participation in Infrastructure in Developing Countries, 1990 to 2001 (US$ Billions) ...... 13 Graph 3: Total Investment in PPI projects, 1990-2001 ...... 14 Graph 4: Value for Money Cost Comparison ...... 23 Graph 5: The Macroeconomic Gains of Alternative Scenarios for the Liberalisation of Services in Tunisia ...... 49

Tables Table 1: Benefits of PPI and Prior Conditions for their Realisation ...... 15 Table 2: Risks of PPI and Measures for Reducing Them ...... 15 Table 3: Competitive and Non-Competitive Infrastructure Sectors ...... 17 Table 4: Models for Private Participation in Infrastructure ...... 18

Table 5: Key Macro-Economic Indicators of the 9 th and 1 0 th Plan ...... 28 Table 6: PPI Transactions concluded in Tunisia ...... 29 Table 7: Investments In Infrastructure Sectors ...... 31 Table 8: Coverage Rates of Water, Sanitation and Electricity in Tunisia, Algeria and Morocco ...... 34 Table 9: Relevance of Regional Integration for Infrastructure sectors and vice versa ...... 36 Table 10: Private Participation and Tunisian Law per Sector of Activity - Strengths and Weaknesses ...... 43 Table 11: Summary of the Telecommunications Sector Diagnostic ...... 52 Table 12: Proposed Action Plan for the Telecommunications Sector ...... 55 Table 13: Summary of the Air Transport Diagnostic ...... 57 Table 14: Proposed Action Plan for Air Transport ...... 58 Table 15: Summary of the Maritime Transport Diagnostic ...... 58 Table 16: Proposed Action Plan for Maritime Transport ...... 60 Table 17: Summary of the Road Transport Diagnostic ...... 61 Table 18: Proposed Action Plan for Road Transport ...... 61 Table 19: Summary of the Urban Transport Diagnostic ...... 62 Table 20: Proposed Action Plan for Urban Transport ...... 62 Table 21: Summary of the Rail Transport Diagnostic ...... 63 Table 22: Proposed Action Plan for Rail Transport ...... 64 Table 23: Proposed Action Plan for Multimodal And Postal Transport ...... 64 Table 24: Summary of the Electricity and Gas Diagnostic ...... 66 Table 25: Proposed Action Plan for Electricity And Gas ...... 68 Table 26: Summary of the Water Sector Diagnostic ...... 70 Table 27: Summary of the Sanitation Diagnostic ...... 72 Table 28: Proposed Action Plan for Water Supply and Sanitation ...... 74 Table 29: Summary of the Solid Waste Management Diagnostic ...... 77 Table 30: Proposed Action Plan for Solid Waste Management ...... 79

Preface

Tunisia has changed considerably over the last few years and has achieved substantial gains with regard to economic and social development. Statistics on the incidence of poverty, income per capita (which currently exceeds USD 2,500), and life expectancy at birth (which is 72.1 years), as well as the coverage and quality of the majority of its infrastructure services, show the substantial progress this country has made. These achievements were made possible by the desire of the Tunisian authorities to lay the foundations of a modem competitive economy that is open to the outside world and better integrated in its environment.

While these achievements confirm the ability of the Tunisian economy to adapt to new requirements, it also underlines the challenges that the country still has to face in the future. The recent emergence of new economic competitors on the international scene and the coming free trade zone with the European Union have increased the competitive pressure on Tunisian industry and emphasise the importance of continuing and intensifying reforms in the infrastructure sector. The aim of these reforms is to make the production structures more effective and efficient and to increase the competitiveness of the Tunisian economy in general. The recommended strategy today consists of promoting private initiative and consolidating the place of the private sector as a means of development action, while continuing the policy of liberalising the economy and opening up new sectors to competition.

The Tunisian government attaches particular importance to infrastructure sectors as an instrument to improve the competitiveness of the economy and companies, and to support exports, and also as a lever to attract more foreign investment and thus alleviate tax burdens. The modemisation of infrastructures, their upgrading, and the intensification of private participation in infrastructure are priorities of the 10th Development Plan (which covers the period 2002-2006). The private sector has shown itself able, on many occasions, to usefully support the actions of the public sector. The general objective is to go beyond the idea of coexistence between these two sectors and consider a new form of relationship: the partnership.

International experience shows that private sector participation and the organisation of competition are essential for the provision of quality infrastructure services. The economic benefits of regulatory reforms and increased competition are at least as important as those gained from private investment. An exhaustive strategy for private participation in infrastructure is now needed in order to achieve the recommended objectives in this field. To this end, the Tunisian government has asked the World Bank and the PPMI Programme to study private participation in infrastructure in Tunisia (PPI study).

This study provides a detailed analysis of the experience already gained in Tunisia regarding private participation in key infrastructure sectors and deals with the legal and financial frameworks and their impact on PPI. These detailed diagnoses and the analysis of international PPI experience enabled a set of recommendations and actions to be put forward. The main aim of the PPI study was thus to enable the government to develop a strategy for private participation in infrastructure and an Action Plan for the medium to long-term. The recommendations of the study were presented and discussed in a workshop held in in December 2003 which attracted a large audience (more than 160 participants) consisting of representatives from the public and private sector, academic circles, Tunisian banks, international financial institutions and Tunisian civil society.

This study highlights the progress already made by the country and the current issues regarding PPI. It also places emphasis on the sectors that require more research and debate. However, it seems to be clear that greater private sector participation in infrastructure is required today in Tunisia - in new forms if necessary - and the Tunisian government has to be prepared to forge ahead in this respect, in particular by implementing various large infrastructure projects through concessions.

The World Bank and other sponsors, in particular the European Commission, are ready to continue and intensify their support and backing for Tunisia in the application of its own PPI Strategy and Action Plan, and thus help the country further improve its infrastructure services to the benefit of consumers, economic growth and employment.

Fran,oise Clottes Mounir Boumessouer Manager, Finance, Private Sector and Director-General of Infrastructure Infrastructure Ministry of Development and Middle East and North Region International Cooperation The World Bank Tunisia Foreword

This study originated from the Tunisian government's wish to evaluate the potential contribution of the private sector to the realisation of the objectives of the 1 0 th Development Plan (2002-2006) and to help develop a strategy for private participation in infrastructure (PPI) in Tunisia'.

A coherent strategy for private participation in infrastructure should increase the quality and coverage of infrastructure services at effective costs by introducing competition and improving regulation in accordance with recognised international practices. Other objectives that could be achieved through a strategy for increased PPI would be the mobilisation of private investment and foreign direct investment (FDI) in infrastructure services and the facilitation of economic integration in the Euro-Mediterranean free trade zone with the European Union (EU), with neighbouring countries, and more generally with the world markets.

The PPI study is mainly intended for the Tunisian government and the Tunisian private sector. The World Bank, sponsors, in particular the European Union, and the private sector are a secondary audience. The study was started by the World Bank further to the request in September 2001 by the Ministry of Development and International Cooperation (MDCI) 2 relating to the third programme to support economic competitiveness . The study was closely coordinated with the European Commission (EC) and took advantage of effective cooperation between the EU, Tunisia and the World Bank. The study was carried out with the assistance of the Programme for Private Participation in Mediterranean Infrastructure (PPMI), a joint programme between the EU and the World Bank.

The preparations for the study took around two years. The study was done in two stages: (i) a diagnostic stage at the sectoral level, and (ii) a second stage that covered the horizontal aspects of PPI and prepared a proposal for a PPI Strategy and Action Plan for the country. The PPI Strategy takes a long-term view with a horizon of ten years or more, comprising an Action Plan that covers a shorter time span. A final version of the diagnostic report was submitted to Tunisia in March 2003 which incorporated the comments of the government. In the second stage of the study, started in September 2002, the horizontal aspects were analysed and a proposed Action Plan was developed. The pre-definitive version of the studies completed in the second stage was sent to the Tunisian authorities in November 2003. While preparing the study, the PPMI Programme also organised a dissemination seminar on PPI for Tunisian senior civil servants which was held in Brussels and Paris in May 2003. The seminar report and all the related documents were distributed within the ministries concerned and are available on the PPMI Internet site (www.ppmi.org). The results of the study were presented in the dissemination workshop held in Tunis on 16 and 17 December 2003.

' See Chapter 2 and Volume III for the definition of PPI and related concepts.

2 The "Programme to support economic competitiveness/Structural adjustment facility" is financed jointly by the World Bank, the European Commission and the African Development Bank. The activities of the second stage of the study, in particular the reports on the legal aspects and the local financing of infrastructure, and the dissemination workshop, were co-financed by a grant from the "Public-Private Infrastructure Advisory Facility" (PPIAF).

The MDCI was the Tunisian counterpart in the study. The Directorate-General of Infrastructure (DGI) and the Directorate-General of Evaluation and Monitoring (DGE) were responsible for monitoring the study at different stages and played a very active role in the preparatory process. In order to coordinate with the other departments concerned, the MDCI set up a steering committee for the study consisting of representatives of the following ministries and organisations: (i) the Office of the Prime Minister, (ii) the Finance Ministry, (iii) the Ministry of Communications Technology and Transport, (iv) the Ministry of Equipment, Housing and Town and Country Planning, (v) the Ministry of Industry and Energy, and (vi) the Ministry of Agriculture, the Environment and Water Resources, and (vii) the Central Bank of Tunisia. The committee met on several occasions,.making detailed comments and suggestions on the diagnostic report, the proposed strategy and the PPI Action Plan. This committee also involved the relevant state organisations in its work, i.e. the Societe Tunisienne de l'Electricite et du Gaz (STEG), the Societe Nationale d'Exploitation et de Distribution des Eaux (SONEDE), the Office National de l'Assainissement (ONAS), the Office de la Marine Marchande et des Ports (OMMP), the Office des Aeroports et de l'Aviation Civile (OACA), as well as the Institut d'Economie Quantitative (IEQ) who made an important contribution to the realisation of the study.

The study was produced by a team led by Manuel Schiffler, Chief Economist, and Elisabetta Capannelli, PPMI Programme Manager, who are also the authors of the two main volumes of the study3 . The study team also included: Ahmed Benghazi, Consultant, Noureddine Ferchiou, Consultant, Jean-Pierre Florentin, Consultant, Fadhel Ghariani, Consultant, Michel Loir, Lead Transport Economist, Henriette Mampuya, Programme Assistant, Rene Mendonca, Sr. Power Engineer and Carlo Rossotto, Regulatory Economist. In the second stage, Paloma An6s Casero, Economist, Manuela Chiapparino, Research Analyst, Zakia Chummum, Programme Assistant, Jer6me Leyvigne, Infrastructure Specialist, and Tjaarda Storm van Leeuwen, Lead Financial Analyst, also formed part of the team. In the diagnostic stage of the study, Laila Mokaddem, Consultant, and Daniel Mtiller-Jentsch, Consultant, made important contributions.

During the internal revision of the report within the Bank, important comments were received from Pedro Alba, Sherif Arif, Francoise Bentchikou, Antonio Estache, Ines Fraile, Samia Melhem, Paul Noumba Um, Dirk Sommer and Aristomene Varoudakis. Theodore Ahlers, Fran,oise Clottes, Christian Delvoie and Emmanuel Forestier monitored the study on behalf of the World Bank.

The Tunisian team was led by Mounir Boumessouer, Director-General of Infrastructure at the MDCI. Important contributions were also made by: Mabrouk Mejri, Director-General of Evaluation and Monitoring, Abdelhamid Triki, Director-General of Forecasting, Nejib Bousselmi, Director at the Institut d'Economie Quantitative, Youssef Bouhlel, Director at the DGI, Riadh Hadj Taieb, Director at the DGI, Bechir Achour, Director at the DGI, Chaker Ben Aiche, Director at the DGE, Moncef Miled at the DGI, and Karim Bououni, Head of Department at the DGI.

3The authors would like to thank all those who directly or indirectly contributed to the realisation of this study, as well as all the managers and executives of the Tunisian public and private sector organisations and the sponsors. This final report of the study has incorporated the observations of the Tunisian authorities and is divided into three parts: (i) Volume I summarises the reports of the diagnostic stage and presents proposals for the strategy and PPI Action Plan, (ii) Volume II contains the report of the dissemination workshop for the PPI study held in Tunis on 16 and 17 December 2003, and (iii) Volume III contains all the technical appendices of the study relating to the legal, financial and sectoral parts discussed in the two stages of the study. Abbreviations and Acronyms

AFD - Agence Francaise de Developpement (French Development Agency) ANF - Agence Nationale des Frequences (National Frequency Agency) ANPE - Agence Nationale de Protection de l'Environnement (National Environmental Protection Agency) BEI - Banque Europeenne d'Investissement (European Investment Bank) BOT - Build-Operate-Transfer CMR - Conseil Ministeriel Restreint (Select Council of Ministers) CREE - Conseil des Regulateurs Europeens de l'Energie (Council of European Energy Regulators) CTN - Compagnie Tunisienne de Navigation (Tunisian Sailing Company) DBO - Design-Build-Operate TD - Tunisian Dinar GTZ - Agence Allemande de Cooperation Technique (German Technical Cooperation Agency) GSM - Global System for Mobile Telecommunication IACE - Institut Arabe des Chefs d'Entreprises (Arab Institute of Business Managers) ICT - Information and Communication Technology IDE - Investissement Direct Etranger (Foreign Direct Investment) INT - Instance Nationale de Regulation des Telecommunications (National Telecommunications Regulatory Authority) IPP - Independent Power Producer ISP - Internet Service Providers METAP - Technical assistance programmes for environmental protection in the Mediterranean area MDCI - Minist&re du Developpement et de la Cooperation Internationale (Ministry of Development and International Cooperation) MW - Megawatt OACA - Office de l'Aviation Civile et des Aeroports (Civil Aviation and Airport Authority) ONE - Observatoire National de l'Energie (National Energy Observatory) OMMP - Office de la Marine Marchande et des Ports (Merchant Marine and Harbours Authority) ONAS - Office National de l'Assainissement (National Sanitation Authority) PAP - Projet d'Appui a la Privatisation (Privatisation Support Project) PPIAF - Public-Private Infrastructure Advisory Facility PPI - Private Participation in Infrastructure PPMI - Private Participation in Mediterranean Infrastructure PPP - Public-Private Partnership PSP - Private Sector Participation SNTRI - Societe Nationale des Transports Inter-Gouvemorats (State Company for Inter-governorship Transport) SONEDE - Societe Nationale d'Exploitation et de Distribution des Eaux (State Company for Water Management and Distribution) STAM - Societe Tunisienne d'Acconage et de Manutention (Tunisian Stevedoring and Handling Company) STEG - Societe Tunisienne de l'Electricite et du Gaz (Tunisian Electricity and Gas Company) TA - Tunisie Autoroute (Tunisian Motorways) EU - European Union UTICA - Union Tunisienne de l'Industrie, du Commerce et de I'Artisanat (Tunisian Organisation for Industry, Commerce and Crafts) WTO - World Trade Organisation Exchange rate (January 2004)

Currency = Tunisian Dinar 1 dinar = USD 0.728 1 dollar = TD 1.372

The three volumes of this study were produced by a team led by Manuel Schiffler and Elisabetta Capannelli. The team included Ahmed Benghazi (financial sector), Noureddine Ferchiou (legal aspects), Jean-Pierre Florentin (PPI), Fadhel Ghariani (water/sanitation and solid waste), Michel Loir (transport), Rene Mendonca and Tjaarda Storm van Leeuwen (electricity and gas), Carlo Rossotto (telecommunications). Volume II was largely produced by Manuela Chiapparino (Research Analyst) and Jer6me Leyvigne (Infrastructure Specialist). Finally, Paloma An6s Casero (Economist), Laila Mokaddem (Consultant) and Daniel Muiller-Jentsch (Consultant) also made important contributions.

All the documents relating to the PPI study are available on the PPMI programme's Internet site at (http://www.ppmi.org).

The PPI study was co-financed by the Public-Private Infrastructure Advisory Facility (PPIAF).

-xvi- 1. Introduction to a Strategy for Private Participation in Infrastructure in Tunisia

Objectives of Private Participation in Infrastructure

1. Private participation in infrastructure (PPI) consists of involving the private sector in the implementation and/or the provision of services or infrastructure. It may take on many forms, from simple contracting to the full transfer of public assets. PPI thus goes well beyond simply financing and realising infrastructure and extends more widely to the idea of the provision of services4.4

2. PPI is clearly not an objective in itself. It is sought by local and central governments as it can significantly contribute to the realisation of precise objectives. The objectives that could be achieved through PPI are generally as follows:

- Improvement of the quality and cost control of public services. - Acceleration of the construction of infrastructure to maintain growth and employment. - Improvement of fiscal equilibrium. - Transfer of expertise in the management of technological innovations. - Stimulation of capital markets and private industries in the infrastructure sector on a national scale.

3. For Tunisia, it could also be added that greater private participation and foreign direct investment in the country in general, and in infrastructure in particular, could facilitate the regional and international integration of Tunisia under the Association Agreement with the European Union and the negotiations with the World Trade Organisation.

4. It should also be mentioned that the realisation of these objectives does not automatically follow from greater participation of the private sector in infrastructure. It will also depend on the way in which the PPI is designed and managed: the quality of services will only improve if different forms of competition are introduced as much as possible, if the terms of reference are well prepared, and if the necessary regulatory mechanisms for supervising contract performance are effective. It should also be remembered that such an improvement in service quality could generate additional costs. All said and done, it is for the authority responsible for designing the PPI to balance these different objectives in order to obtain the equilibrium desired by the political authority. It is important to be clear that PPI is not synonymous with privatisation or foreign direct investment.

4See Chapter 2 and Volume III for the definition of PPI and related concepts.

-Page 1 - Study on pnivate participation in infrastructure in Tunisia

Tunisian InfrastructureAssets

5. Tunisia has considerable infrastructure assets. The country has achieved a good level of coverage and quality for most infrastructure services at a reasonable cost, compared to other developing countries. These assets are clearly shown by the diagnostic report of the World Bank in the framework of this study (see Volume III). The coverage levels for fixed telecommunications, electricity, water and sanitation are high, including in rural zones. The management quality of this infrastructure is also noteworthy. This is shown in particular by the low loss rates for water and electricity, by the service continuity, and by the high level of cost recovery on a regional scale. Considerable efforts have been made in the fields of mobile telecommunications (in particular by recently introducing competition) and Internet services. The assets in the transport sector, where important reforms have been made or are currently being completed, are also clear. Finally, direct subsidies are limited and do not have a significant presence in any sector, and the recovery of costs is clearly better than in many other countries in the region and in other developing countries.

6. This positive picture should not conceal the limits of the current situation and the predominant participation of the public sector. Improvements in the management of public companies and their limits do not form part of the objectives of this study. Nevertheless, the following general limits can be noted. First, the investment capacity of the public sector is decreasing. This is due to the desire to reduce public deficits, the expected reduction of resources outside concessions over time, and the deterioration of the balance sheet structure of certain public companies. Second, the management of public companies through programme contracts, as practiced in Tunisia, has clear limits in terms of improving productivity. The potential for improving productivity is slowed down by cumbersome public contracting procedures, for example the lack of an objective basis for compensation for certain public service obligations, and implicit obligations with regard to employment in particular. Private companies who are not subject to these constraints, or who are compensated on an objective basis for public service obligations, would thus be in a better position to improve their productivity.

Objectives of the 10th Development Plan and Current PPI Strategy

7. The targets of the 10th five-year Development Plan (2002-2006) are ambitious with regard to growth (5.5% per year), job creation (322,000 against 280,000 under the 9th Plan, with the emphasis on highly skilled jobs), and investment (increase of 55% with respect to the 9th Plan, with the emphasis on private sector investment). The first two years of the 10 th Plan coincided with a particularly difficult economic climate. They were characterised by a long drought, a slowdown in growth, and international instability further to the events of 11 September 2001, which markedly tempered GDP growth and made the objectives of the Plan even more ambitious. In particular the objectives of the Plan assume average added-value growth in the services sector of 7.5% per year, mainly through the expansion of the telecommunications and information technology sector. Tunisia is also facing up to the challenge of opening up its economy in the framework of the Association Agreement with the European Union, the new neighbouring country policy for an enlarged European Union, and the national undertakings towards the World Trade Organisation involving increasing competitive pressure, especially in the manufacturing sector. The tourism sector, an essential link in the Tunisian economy, is also in a difficult position, partly due to a change in the demand structure. It is clear that quality, modern and effective infrastructure services are

n-- Introduction to a PPI strategy for Tunisia essential to meet these challenges, especially in the field of telecommunications and transport.

8. The Tunisian experience with PPI transactions remains relatively limited to date. The two largest projects have been the concession for the Rades II power plant signed in 1996 and the second GSM licence, which was awarded in 2002. In the sanitation and solid waste management sectors, modest attempts at PPI have been made in recent years. In other sectors such as the supply of water, there has been no notable example of private sector participation to date.

9. In view of the limited scope of PPI efforts in Tunisia to date, and in order to realise these very ambitious investments, Tunisia asked the World Bank to help develop a proposal for a coherent strategy for private participation in infrastructure. This strategy should enable the impact of these investments on GDP growth and employment to be maximised, while limiting the impact on prices.

10. The past and current strategy can be characterised as follows:

- Orientation of private investment towards new projects (BOT type). - Promotion of foreign direct investment in niches open to the private sector. - Maintenance of the public companies operating in different infrastructure domains (decision not to privatise), with the capital being opened to the financial markets in some cases. - Gradual introduction of competition to sectors (essentially in the telecommunications and transport sectors). - Implementation of a limited regulatory structure for the telecommunications sector.

11. The main new private investments planned for infrastructure are the new Centre-East airport (estimated at 585 MTD), satellite communications (400 MTD), a deep water port (500 MTD), concessions for existing ports (around 200 MTD, half of which for a container terminal in Rades), a concession for a Rapid Railway Network (RFR) in Greater Tunis, as well as a new sewage treatment works for Greater Tunis. These projects are at various stages of progress in the preparatory phases. For certain investments, the decision on the financing method (entirely private or mixed) has not been finalised. Almost all the private investments are thus expected in telecommunications and transport.

Proposals for Complementing the Current Strategy

12. It should be remembered that there is no standardised approach for private participation in infrastructure. The approach has to vary according to the specific nature of each country, and it must be adapted to the context of each sector.

13. International experience with PPI varies widely. The difficulties or even failures in certain cases have sometimes led to a disproportionate response in the media. Certainly, some contracts have encountered problems. It is not rare for contracts to be drawn up and signed in a hurry on the basis of limited information. Repetitive negotiations and persistent tensions have often been the result. In certain cases, the public authorities have refused to honour their contractual obligations, while in other cases the effect of renegotiations has been disadvantageous to the public sector. The difficulties have often been the result of macroeconomic shocks and massive devaluations (Latin America, East Asia). Such a Study on private participation in infrastructure in Tunisia situation is not foreseeable in the Tunisian context. In other cases, the expectations of the public authorities vis-a-vis the private sector were exaggerated. It was hoped that the private sector could solve insurmountable problems against a background of very low prices and service levels, but this does not correspond to the situation in Tunisia.

14. Given this, it is important to emphasise that the majority of more than 2000 public- private partnerships in infrastructure over the last fifteen years, all sectors combined, continue to be applied to the satisfaction of the partners concerned. In view of the favourable macroeconomic context of Tunisia, the good quality of the majority of public services and the high recovery of costs, the Tunisian context is very favourable to a PPI that will effectively serve the objectives of the public authorities and satisfy the interests of the private sector.

15. During the realisation of the study, simulations were done using two macroeconomic models to estimate the economic effects of liberalising telecommunications and transport services in Tunisia. The results clearly vary according to the hypotheses. Nevertheless, the simulations show a positive effect of liberalisation on growth and employment in the long- term. The scale of these effects depends on the scale and pace of the reforms. In a scenario of deep and rapid reforms in the telecommunications sector, the impact on growth is estimated to be of the order of 4.4% over a period of 15 to 20 years. The effect on employment is difficult to quantify, but a considerable positive effect is expected on the basis of international experience, in particular in services whose development requires the best telecommunications services, such as developed countries contracting back-office services out to developing countries, services linked directly to telecommunications (call centres), and information technology services. The effects of liberalising transport services are also considerable, although they are difficult to quantify appropriately on the basis of existing models. According to certain simulations done for the World Bank study (2002) on "Information technologies and communications - Contribution to growth and job creation", the effect of liberalising transport and telecommunications services is of the order of 2 to 3% in the long-term. The gain in employment from liberalising telecommunications would be half of this in a scenario of slow reform and liberalisation of the telecommunications sector.

16. With regard to Tunisia, the following items are proposed for the PPI strategy in order to meet the ambitious objectives that the government set out in the 10 th Development Plan.

*. Government declarationwith a long-term perspective

17. The success of the reforms for private participation in infrastructure requires a strong political will and a firm undertaking to respect certain key principles. In order to realise the benefits of private participation in infrastructure, a long-term strategy is required beyond the horizons of the five-year plans. A purely sectoral approach that is too slow would jeopardise the expected benefits. A coordinated approach based on clear principles, especially with regard to the regulation and financing of infrastructure, is required. A government declaration on the strategy for private participation in infrastructure could give a positive signal to investors. It would also give the ministries concerned and public companies a clear perspective.

* Introduction of competition

18. Real competition is needed to guarantee the effectiveness of public services. However, competition cannot be envisaged in all market sectors. In the market segments Introduction to a PPI strategy for Tunisia where it is possible, the effect of competition must be guaranteed by allocating an increasing number of licenses to avoid de facto cartels, and possibly by strengthening the authorities of the Competition Board. In natural monopolies (water, sanitation, electricity distribution, certain segments of the transport sector) competition should be encouraged by allocating leases or concessions through calls for tenders. For these same natural monopolies, comparative competition should play a role based on an objective comparison of the performance of regional companies, whether private or public. Important first steps towards such a system of comparative competition would be the establishment of a system of management accounting, subsidiaries within public companies, and a strengthening of the monitoring capabilities of the supervisory ministries.

*. Strengtheningof regulation

19. The aim of the economic regulation of infrastructure services is to promote the quality and coverage of these services at effective and affordable prices while guaranteeing a balance between the interests of the users, investors and the public. It acts as the interface between government policy and the provision of services. Infrastructure services need to be regulated, irrespective of the market structure (competitive or non-competitive) and the status of the service providers (public or private). Depending on the case, the institutions responsible for regulation can be ministerial departments, sectoral or multi-sectoral regulatory agencies with a certain degree of autonomy, other institutions with a certain degree of autonomy (for example, the Competition Board, the Higher Market Commission) and the legal system.

20. The main roles of an economic regulatory system are as follows:

- To precisely determine (by producing high quality terms of reference) the obligations of concessionaires and the assigning authority with regard to the provision of services and remuneration, as well as the rules for adjustment in the event of unforeseeable events. - To monitor the performance of concessionaires through a detailed, objective and reliable information system covering the costs and quality of the services. This system should reduce the often considerable information asymmetries that exist between the concessionaires and the assigning authority. - To formally request concessionaires or the assigning authority to comply with the terms of reference in the event of non-observance. - To interpret the terms of reference to enable a firm and objective decision. - To enable legal appeal against the decisions taken, thus encouraging greater delegation of responsibilities. - To ensure implementation of the decisions.

21. There is no single template for the distribution of these roles. In certain countries, infrastructure is mainly regulated by supervisory ministries. The number of countries that have chosen to introduce one or more regulatory agencies is constantly increasing. While few countries have a long tradition of autonomous regulatory agencies for infrastructure, international experience suggests that the creation of regulatory agencies often improves the business environment. To avoid being both the judge and the accused, it is of paramount importance that no institution is both regulator and service provider. Study on private participation in infrastructure in Tunisia

22. The Tunisian experience of the economic regulation of infrastructure is limited. In many sectors, a department of the supervisory ministry is responsible for regulation. These departments often have little information and do not have enough employees (often inadequately qualified and trained in the required specialities). In addition, they have unsuitable tools (programme contract) without effective sanctions in the event of non- observance. In the single sector where there is a true regulatory agency (telecommunications), the role and autonomy of this agency are limited, despite recent improvements. Where certain regulatory functions have been given to Offices (air and maritime transport) or Agencies (solid waste), they have both regulatory and commercial roles.

23. A complete regulatory system is not created overnight. Intermediate stages could thus be anticipated. The regulatory capacities of the ministries could be strengthened through a training programme. Information systems and sectoral and horizontal monitoring could be created. Monitoring systems based on a good knowledge of costs (management accounting) would help reduce the information advantage of public companies. In time, new regulatory agencies could be established, without actually multiplying the number of agencies, in view of the limited size of the Tunisian market.

*. Maintenance of the cost recovery policy and rationalisationof subsidies

24. The recovery of costs is an essential component in a PPI strategy. In the case of Tunisia, where cost recovery is high, the implementation of this principle does not present major difficulties. Nevertheless, it would be worth examining existing direct and indirect subsidies, as well as cross-subsidies between categories of users - important in several sectors - more closely in terms of their impact. In general, subsidies and cross-subsidies should be limited and clearly justified by social objectives or other public service obligations. In time, all direct or indirect subsidies should be replaced by contributions whose level would depend on objective criteria linked to well-defined public service obligations.

25. A process of equitable price adjustment is essential to maintain a good level of cost recovery in a context of constantly changing prices. For the moment, changes to the majority of public service prices are decided by the government, generally on the request of public companies, without being based on financial or economic models which would enable the costs of the provision of an effective service to be estimated on the basis of international comparators. Price controls are maintained after the introduction of private participation (as with mobile phones), but the system for determining prices is generally changed. For example, the wholesale price of electricity from the Rades station is partially index-linked to the price of fuel oil. With greater participation of the private sector, partial indexing systems could become more common, while taking account of the productivity improvement coefficients. Powerful regulatory systems will be needed to create and interpret appropriate indexing systems. The simple index-linking of prices to the general price index should be avoided, however, because it could be a source of inflation.

*. Introductionof new PPImethods and a possible extension of theirfield of application

26. For the moment, Tunisia is limited to certain PPI methods, especially the BOT. In the future it could be worthwhile studying the possibility of setting up other types of contract, such as Design Build Operate / Finance (DBO/DBF) contracts and leases. DBO/DBF contracts offer the same advantages as BOT contracts in terms of gains in effectiveness, but they also enable access to public financing, in particular through soft loans from sponsors. Introduction to a PPI strategy for Tunisia

These mechanisms are well suited to countries such as Tunisia who enjoy large volumes of credit subsidised by bilateral and multilateral sponsors to develop their infrastructure.

27. On the other hand, these contracts do not help improve fiscal equilibrium. There are also hybrid contracts with mixed public-private financing that have been developed over the last few years, especially in the environmental sectors (water, sanitation, sold waste). Leases separate the operating and maintenance functions from the investment and financing functions. They thus also enable access to public financing. There are hybrid contracts with partial financing obligations for the private sector. Unlike BOT or DBO/DBF, leases are mainly used for existing infrastructure, in particular for the distribution role in network infrastructures. Opening these functions to the private sector could enable productivity to be increased in these segments, with a view to maintaining the price level. Regional pilot operations could be a step in this direction.

*: A Billfor public-privatepartnerships in infrastructure

28. Further to the enactment of a new law on public contracts, which excluded concessions from its field of application, the government created a commission to prepare a law on public-private partnerships in infrastructure. The publication of such a law could constitute a positive signal, especially if it was accompanied by a government declaration on a PPI strategy. This law could be limited to citing general principles - transparency, competition and equality - while enabling considerable flexibility with regard to the types of contract and forms of regulation according to specific sectoral aspects. The law could also stipulate tax and accounting requirements, in particular with regard to management accounting which is essential for an economic regulation system.

*: Projectfinancing

29. As previously indicated, public financing does not exclude the participation of the private sector. The desire of investors to get involved in emerging countries has been considerably reduced over the last few years. It would thus seem opportune to use private financing to finance a good part of the gap between the availability of funds for concessions and the investment requirements, as well as for financing investment in sectors that do not have the support of sponsors, such as telecommunications.

30. Where the private financing of infrastructure is envisaged, the management of exchange-rate risks deserves special attention. Since the local financial sector avoids exchange-rate risks, financing by the local financial sector, where possible, is in general less expensive. The government objective to maximise the flow of foreign currencies has contributed to the almost complete absence of local financing in infrastructure projects. For example, the local financial sector did not participate in the first large PPI project in Tunisia, the Rades II electricity generating station. This local financial sector is believed to be capable of contributing to the private financing of investment in infrastructure, if the government policy to favour foreign currency financing is relaxed and if instruments to improve the credit rating are used. Finally, investment in infrastructure could be an important aspect of diversification and development for the local financial sector.

31. With regard to the optimum balance between private and public financing, the improvement in fiscal equilibrium obtained by private financing should be assessed in the context of any contingent liabilities incurred by the state. Private investors often require Study on private participation in infrastructure in Tunisia

guarantees - express or implied - from the state to cover certain key risks, such as exchange- rate risk, the risk of insolvency of a public company using the services of the project - and thus the debtor of the project, and sometimes even part of the commercial risk. These guarantees, which are one of the main instruments for improving the credit rating, constitute contingent liabilities. The state will have to prudently manage the emergence of any contingent liabilities linked to private participation in infrastructure.

*. Creation of a monitoring structure within the government

32. It would be opportune to create a monitoring structure within the government to ensure the implementation of the PPI strategy and the Action Plan described below. This structure would clearly not be a substitute for the sectoral ministries and regulatory agencies, whose role in their respective sectors is of paramount importance. The monitoring structure would act as a support body for the sectoral ministries and would complement their efforts concerning the horizontal aspects. The best location for such a monitoring structure within the government still has to be determined.

*. ProposedAction Plan

33. This study includes a proposed Action Plan to put the strategy chosen by the government into practice with regard to the development of private participation in infrastructure in Tunisia. The Action Plan is made up of short-term actions and medium and long-term actions, as well as a horizontal and sectoral section. The horizontal section of the proposed Action Plan given below shows the main outlines of the PPI strategy and includes the strategic directions, the proposed strategic studies, training measures, measures for improving financing by the local finance sector, legal and communication measures.

34. The different parts of the sectoral section of the Action Plan are presented in the sectoral chapters of this Volume and in the sectoral Diagnostic Report of Volume III. Introduction to a PPI strategy for Tunisia

Proposed Action Plan - Horizontal Aspects

Strategic - Government declaration on the - Evaluation of the implementation of directions PPI strategy the strategy and PPI action plan - Implementation of a monitoring structure Financial sector - Lift the constraints imposed by - Possibly the introduction of certain the Central Bank (to enable the partial guarantees by the Tunisian inclusion of local finance in government, whose methods project financing, both debt and remain to be determined. by equity, even partially) keeping any debts of the state to a - Encourage banks to syndicate strict minimum with foreign and local banks - Greater adoption of financing techniques with limited recourse, and measures to improve the credit rating and management of risks

Legal sector - Enactment of a law on public-private partnerships in infrastructure to complement the specialised sectoral legislation in this respect - Reforms to the legal framework to facilitate mobility of employment between the public and private sector - Relaxation of the procedures for contracts of employment for foreigners in PPI, by assimilating them to the procedures for 100% export companies - Exclude project companies in PPI contracts from the currency exchange restrictions imposed on investors and sponsors by the Currency Exchange Code Study on private participation in infrastructure in Tunisia

Proposed Action Plan - Horizontal Aspects (continued)

Training - Establishment of a training Creation or strengthening of public or programme for economic private institutions for training in regulation areas linked to PPI and economic - Participation of Tunisian regulation, in particular with regard to executives and other management accounting in professionals in training infrastructure programmes at an international level and in the international networks of regulators

Communication - Establishment of a communication strategy for PPI by using modern means of communication centred on consumers. the international and local private sector, and the international and local financial sector

Strategic studies Study of the economic regulation - Study on the recovery of costs for the (horizontal and of infrastructure services management of solid waste through sectoral)5 - Study of the institutional structure instruments not linked to taxation and regulalion and of Ihe airporl - Study on a pilot regional lease in market water and sanitation to strengthen - Study of the electricity sector on comparative competition the financial and economic impact of different markel models - Development of an assessment and plan for reforming the current structure of the water and sanitation sectors on the basis of past successes This is to be done in order to eliminate constraints to future developmenl. to increase effectiveness and lo inlroduce competition in time - Sludies of the telecommunicalions sector (e.g on PPI and the universal service obligations) - Study on PPI in the postal sector

5 Important studies have already been completed in several important sectors (telecommunications, electricity generation, solid waste, transport) by the government, and also with the support of the World Bank. 2. Foundations and Principles of Private Participation in Infrastructure

35. The participation of the prvate sector in infrastructure is not a new concept. Private participation may take on a number of formos. Beyond the design and realisation of infrastructure, certain countries have used the private sector to exploit, maintain and - in certain cases - finance infrastructure. At the current point in time, 132 developing countries, and almost all developed countries, have entrusted part of their infrastructure to the private sector as operators. The results are often positive, sometimes negative, and in many cases they are mixed. Far from being a panacea, the participation of the private sector only provides the expected benefits if certain conditions are satisfied. These conditions will be analysed in this chapter.

36. The chapter starts with a description of international PPI trends, including the implications of the recent reduction of private sector involvement in emerging countries. It continues with an analysis of the benefits and risks of PPI from the point of view of consumers and the public authorities, including measures to mitigate these risks. The importance of introducing competition is underlined. Then the chapter briefly presents different contractual options for private sector participation, including options that maintain public ownership of assets, public financing and the integration of subsidies in PPI plans. The chapter includes a discussion of the regulatory options for infrastructure services, placing the emphasis on the fact that regulation may provide important benefits, both in the cases where services are provided by the public sector and where they are provided by the private sector. It concludes by sketching out how the introduction of competition, improvements in the management of public companies, the choice of contractual options for private sector participation and regulation can be integrated into a coherent infrastructure policy and strategy for the participation of the private sector.

International PPI Trends

37. Private participation in infrastructure is not a completely new concept. In fact, in the 19mlh century a good proportion of infrastructure services in and the United States were provided by private companies, often in the form of concessions which had been introduced in . Certain companies were subsequently nationalised, while others have remained private, such as telecommunications companies in the United States and the majority of the water and samtation sector in France. At the end of the 1a970s and during the 1980s, a new wave of private participation was announced further to the privatisation programme in the United Kingdom. This wave spread to developing countries, in particular the emerging countries of East Asia and Latin America. The telecommunications and energy sectors have seen by far the greatest activity with regard to private participation in infrastructure (see graph 3). Investment slowed after the financial crisis in East Asia in 1997, but remained at a high level. The financial crises in Latin America and the slowdown in the intenational economic climate brought back new involvement to the 1995 level. All the same, new

-Page 11 - Study on private participation in infrastructure in Tunisia

investments were of the order of US$ 57 billion in 2002, and the vast majority of 2500 private infrastructure projects concluded in developing countries continue to operate.

38. In the current international context, international companies and merchant banks are less prepared to take risks and are concentrating their involvement in countries with a stable macroeconomic context, clear PPI strategies and sectoral policies, and a favourable regulatory framework. This presents an advantage for countries who have pursued reasonable fiscal and monetary policies, but it also underlines the need to complement a favourable macroeconomic mechanism with a PPI strategy and appropriate institutional and legal reforms.

Graph 1: Countries with PPI in at Least One Sector

140 130 _ .- 120 Ij m

~100 19

0 90__ _ 70 _ m mE 60 m .050 E 40 z 30 _ 20-m m*mmm 10 m m m m

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

39. The private sector undertook the operating or construction risk of more than 2500 projects in developing countries during 1990 and 2002, for a total investment of US$ 750 billion. 132 developing countries have some private activity in infrastructure. But only around 20 developing countries have private activity in all four main infrastructure sectors - telecommunications, transport, energy and water. Latin America and East Asia have dominated investment in PPI. Only US$ 15 billion were invested by the private sector in infrastructure in the MENA region.

)- -4', Foundations and principles of private participation in infrastructure

Graph 2: Total Private Participation in Infrastructure in Developing Countries, 1990 to 2001 (US$ Billions)

140

120 ------

80 ------

60 ------

20 ----

20

Year 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

40. From the perspective of the private sector, it seems that the vast majority of PPI projects concluded since the early 1990s have been successful and have achieved their objectives so far. Among the 2500 PPI projects in the World Bank's PPI database, only a few dozen have openly failed. The projects that have failed are concentrated in specific countries and sectors, specifically in toll roads in Mexico, an ill-conceived operation, and in the electricity sector in Indonesia following the East Asian financial crisis. Other projects have encountered difficulties and mixed results. Some of them have led to international arbitration procedures, including claims for compensation for contract severance in the framework of bilateral investment agreements. The failures of PPI projects consistently point towards weaknesses in the regulatory framework or in the design of contracts, which could be avoided by countries that take account of these experiences when devising their PPI strategy. Study on private participation ininfrastructure in Tunisia

Graph 3: Total Investment in PPI projects, 1990-2001 (by sub-sector) Water 5%

Railways \ 4%

Airrort

2%% Telecoms 2%

28%

Advantages and Risks of PPI

41. As indicated above, the participation of the private sector is not a panacea or an end in itself. It is only beneficial when certain conditions are satisfied and respected. The objective of a PPI strategy should be to improve quality, extend coverage and reduce the price of infrastructure services. What is important for users is not the physical infrastructure, but the availability of reliable services at a competitive price.

42. In view of the perspective of consumers and the state, private participation in infrastructure may lead to many benefits. However, certain conditions have to be satisfied to ensure that these benefits are realised. The potential benefits and some prior conditions are summarised below. Foundations and principles of private participation in infrastructure

Table 1: Benefits of PPI and Prior Conditions for their Realisation

Increase in effectiveness Existing potential to increase effectiveness Reduction in the cost of services Competition, effective regulation, maintenance of subsidies on a rational basis Improvement in service quality Existing potential to increase quality. Competition, effective regulation Reduced tax burden Choice of appropriate PPI methods (concessions, BOTs). Limitation of guarantees leading to possible debts Greater probability of project completion on time For concessions and BOTs and within budget once the contract has been signed Transfer of management expertise and Long-term contracts with specific contractual technological innovations objectives on the transfer of know-how Stimulation of the development of local capital Absence of regulatory obstacles to the local markets financing of private infrastructure Opportunities for providers of local infrastructure Limitation of the size of contracts or partnership services obligations Facilitation of integration into regional and PPI in the cross-border telecommunications and international markets transport sectors, leading to improvements in service quality and a reduction of costs

43. The risks associated with private participation include the following. The measures for reducing these risks are also given:

Table 2: Risks of PPI and Measures for Reducing Them

Exchange rate depreciation leading to an Sound macroeconomic policy. Increase the share of increase in costs and prices local currency financing. Definition of clear and equitable rules for passing on cost increases to prices. Regulation. Possibility of an increase in prices not linked to a Competition, regulation depreciation of the exchange rate Exaggerated expectations concerning the Define realistic objectives based on international capacity of the private sector experience Negative effects on employment Focus PPI on new investments. Appropriate compensation for redundancies, if redundancies turn out to be necessary. Focus PPI on sectors with a substantial positive indirect impact on employment. Weariness of investors Coherent sectoral and horizontal PPI strategies focused on the long-term by avoiding arbitrary interventions. Creation of an appropriate legal framework. Good preparation of calls for tenders. Respect contracts. Creation of possible debts by guarantees Keep any debts to the strict minimum necessary. granted to private investors Delays in the preparation of contracts Creation of an appropriate legal framework. Good preparation of calls for tenders. Use international expertise. Study on private participation in infrastructure in Tunisia

44. A clear and credible long-term strategy should contain all the mitigating items mentioned above. Often when defining a strategy, not all objectives can be realised and choices have to be made. Box 1 explains a fundamental choice to be made - between fiscal objectives and the objective of avoiding service price increases. These conflicts will be discussed towards the end of the chapter after having looked at certain key elements of a PPI strategy in greater detail.

Box 1: The Risks of Fiscally Constrained Governments Finance for investment is, correctly, of major concern to reforming governments. Fiscal problems have been at the root of many reforms introducing some form of private participation into infrastructure. But here also lies a major danger. Many fiscally constrained governments try to induce the private sector to fund investments At the same time they are reluctant to raise consumer prices to create the cash flow that would ultimately be required to service private capital costs. The simple matter is that private investors do not pay, they only finance. Only taxpayers or consumers pay. If the government has no funds to invest and is reluctant to raise consumer prices to cost-covering levels (including the cost of capital), PPI schemes will be unsustainable Some governments may paper over the problem for a while by issuing guarantees to hopeful or gullible investors, but in the absence of eventual basic policy reform, problems are likely to arise. <...> The key to sustainable private finance is sound policy reform that establishes clarity for investors, establishes adequate incentives through adequate risk-sharing arrangements, and sets consumer prices at cost-covering or, preferably, market levels. Once these conditions are fulfilled, private finance is likely to follow An ostensible lack of private finance is typically an expression of incomplete reform or lack of credibility, which in turn is usually due to inadequate reform. Source: World Bank PSD Strategy, 2001.

The Importance of Introducing Fair Competition

45. In discussing PPI, it is important to distinguish between competitive sectors, hybrid sectors and natural monopolies. Generally, the potential benefits of PPI are larger in competitive sectors. In the case of natural monopolies, careful regulation is necessary to realise the benefits of private participation.

46. In many cases the problem of natural monopolies or "near-natural monopolies" is being aggravated by exclusivity rights, regulatory barriers to market entry, or state-owned monopolies. Therefore some "natural monopolies" are actually rather "man-made monopolies". In the case of true natural monopolies where competition in the market is not feasible, competition for the market can be introduced by awarding concessions, leases or management contracts under competitive bidding. Obviously the regulation of prices and service standards is a necessity in the case of natural monopolies. Table 3 gives an overview of the scope of competition in various infrastructure sectors and sub-sectors.

47. The scope for competition is higher in telecommunications, air and maritime transport, certain types of port and airport services, and in electricity generation. It is lower for airport and port infrastructure, gas production, railway services and solid waste management. Finally, competition in the market is virtually absent in the case of natural monopolies, such as water and sanitation where the cost of distribution and collection is substantial compared to production and disposal costs, electricity and gas distribution, where the construction of separate networks would lead to excessive costs, and certain transport services (such as air traffic control) where the benefits of monopolistic supply is self-evident. Sector policies and reforms have to be tailored to these specific contexts and especially to the extent to which the introduction of competition in the market is possible. Foundations and principles of private participation in infrastructure

Table 3: Competitive and Non-Competitive Infrastructure Sectors

Sector Competitive Hybrid Natural

Competition Competition in the Market forthe Market Telecommunications = ._ . .., .

Air and Maritime Transport _ -_:_-: Airports and Ports Airport and port services Railway Services Railway Tracks Highways Electricity and Gas

Transmission and Distribution ______- Electricity Production Gas Production Water and Sanitation Solid Waste Collection

Solid Waste Disposal ._---______:. _

Legend:

|Dominant Sector Characteristic _ |Dominant Sector Characteristicll

Source: Compilation by the authors.

48. In order to guarantee effective competition, certain prior conditions have to be satisfied. For example, competition between a public company and a private company risks being distorted, either in the favour of the private company or in the favour of the public company. A public company may be given public service obligations for which it is inadequately compensated or subsidies or benefits resulting from certain government decisions to favour public companies. Guaranteeing fair competition is the foremost responsibility of the public authorities. International experience suggests that fair competition is easier to guarantee when the rules of the market - including access to financing and public service obligations - are fully or largely determined by autonomous sectoral regulators and by autonomous competition regulators. In addition, the disengagement of the state from public companies who compete with the private sector helps put these competing companies on an equal footing. Study on pnvate participation in infrastructure in Tunisia

A Range of Options for the Participation of the Private Sector 49. Private involvement in infrastructure can take many forms, ranging from simple contracting out to the complete sale of public assets. PPI is thus not identical to privatization. In most forms of PPI the public sector retains important responsibilities that can include ownership of assets and financing of investments. In all cases, the public sector determines the rules for private sector participation according to its own objectives and principles.

50. The options for the participation of the private sector may be characterised by a spectrum. At one end of the spectrum are the options in which the government has full responsibility for operations, maintenance, investment, financing, and for taking the commercial risk, while at the other end are options in which the private sector takes on many of these responsibilities. Figure 1 and table 4 below show the different options available for the introduction of private participation in relation to the sharing of risks between the public and private sectors.

Figure 1: Range of Privatization Techniques

Service Management DBX lease Concession! Asset contract contract BOT or BOO transfer /

Public 4 Division of risks (Operations, l Private Investments, Financing, etc.)

Table 4: Models for Private Participation in Infrastructure

Service or Management Full transfer of Contract Lease Concession DBO BOT assets (sub- (Privatisation) contracting) Ownership of Public Public Public Public Public Private assets Capitam Public Shared Private Public Private Private

Operational Limited Yes Yes Yes Yes Yes efficiency New services No No Yes Yes Yes Yes Billing users No Yes Yes No No Yes

Typical 1 to 5 8 to 15 25 to 30 15 to 30 1 uto lndefinite duration years years years years years by licence

Legend: BOT: Build, Operate, Transfer. DBO: Design, Build, Operate. The French term "delegated management" covers all these models, except the full transfer of assets.

51. The different forms of private sector participation in infrastructure are described in more detail in Volume III. Foundations and principles of private participation ininfrastructure

Subsidies and Private Participation

52. Private financing is sometimes perceived as excluding access to subsidies, and more particularly to assistance from sponsors. However, that is not necessarily the case. For example, investments in the water and sanitation sector at a municipal level in France or the United States are largely financed by public loans or donations, even if the realisation of the investments, their operation and maintenance are delegated to the private sector. This is the case for leases in France and Design, Build and Operate (DBO) contracts in the United States.

53. There are many examples of financing public-private partnership contracts by sponsors in the form of soft loans or even donations. For example, the World Bank fully finances a management contract (cost of the service of the private sector, and accompanying investments) in the Gaza Strip through a soft loan. A substantial part of the payments are linked to the completion of well-defined contractual objectives and evaluated on an annual basis by independent auditors. With a lease, the share of sponsors in the financing of the investment fund available to the private operator may be decreased in order to stimulate improvements in the recovery of costs. Subsidised financing may also be integrated in BOT contracts. For example, the Al-Samra water treatment plant in Jordan has a donation from the United States equivalent to half of the estimated investment costs. This sum will be made available to the operator for the construction of the plant. In all these cases, the subsidies are defined in the terms of reference, such that the price offered by the lowest bidder reflects the level of this subsidy.

54. The assistance of sponsors has been traditionally focused on financing inputs. The results were sometimes disappointing. For example, in many countries, the effluent from water treatment plants did not respect the set environmental standards. Consequently, the question is how can financial assistance stimulate better performance in infrastructure services?

55. The World Bank recently introduced a new concept aimed at providing these very types of incentive: the concept of "Output-Based Aid" (OBA), or aid based on results. OBA is aimed at improving the provision of services financed by the users. In general, it is preferable to finance these services through user fees without public financing. In this case, well-prepared concession contracts offer the same incentives as those covered by the OBA. Yet in certain cases, public financing is justified in order to complement or replace user fees: if users are unable to afford prices that cover all of the costs, if there are positive external effects, if it is impossible to impose direct user fees, and in certain cases to facilitate the transition to prices that cover all of the costs. In all these cases, the OBA may play a role by making the financial aid conditional on the results obtained by the private operator, and this through clear contractual means.

56. The OBA concept continues to be applied more widely to projects financed by the World Bank or by other sponsors. A good example of its application is the financing of the water treatment network in Brazil. The sponsors do not participate in the financing of this programme, but lessons may nevertheless be learned. The principle remains the same, even if the players change: the funds can come from sponsors or internal budgetary resources, the service providers may be private or public companies, the methods used may be concessions, BOTs, leases or management contracts, and the OBA principle can be applied to any infrastructure sector. Study on private participation in infrastructure in Tunisia

Box 2: Subsidies as Incentives for Better Performance: The Brazilian PRODES Programme in the Sanitation Sector

In Brazil, the 25 states that make up the Brazilian federation are mainly responsible for sanitation through public companies. In some cases, the states have delegated these services to private companies. The federal government makes donations to public or private companies to cover part of the investment for water treatment plants. In the past, these subsidies were financed on inputs. This did not resolve the problem of insufficient maintenance of the plant and the lack of improvement in the water quality. In order to deal with this situation, the federal government introduced a new system named PRODES. The system is administered by a sectoral regulator at the federal level, the National Water Agency, created in 2000.

Public sanitation companies or private companies under concession initially have to finance all the investment from their own resources. Half of the estimated investment will be reimbursed by the federal government over five to seven years in quarterly instalments but only if certain quality parameters are met for the treated water. The quality of the treated water is measured and reports have to be submitted to the Nalional Water Agency, who has a right to audit. The quarterly payments are only made if the treated water complies with the standards If the standards are not respected, on the first occasion a warning is given and the quarterly payment is suspended. If the standards are not respected for a second time, the quarterly payment is cancelled. If the standards are not respected three times in a row, the company is removed from the programme and does not receive any further payments. This gives a strong incentive for Ihe good operation and maintenance of the plant, helps improve water quality, and has a positive impact on the environment. In brief, the programme does not finance promises but results.

The Regulation of Infrastructure Services

57. The aim of the economic regulation6 of infrastructure services is to promote the quality and coverage of these services at effective and affordable prices while guaranteeing a balance between the interests of the users and investors. It acts as an interface between government policy and the provision of services. The regulation of infrastructure services is needed irrespective of the market structure (competitive or non-competitive) and the status of the service providers (public or private). Depending on the case, the institutions responsible for regulation may be ministerial departments, sectoral or multi-sectoral regulatory agencies with a certain degree of autonomy, other institutions with a certain degree of autonomy (for example the Competition Board, the Higher Market Commission) or the legal system.

58. The main roles of an economic regulatory system are as follows:

- Precisely determine (by producing high quality terms of reference) the obligations of concessionaires and the assigning authority with regard to the provision of services and remuneration, as well as the rules for adjustment in the event of unforeseeable events. - Monitor the performance of the concessionaires through a detailed, objective and reliable information system on the costs and quality of the services. This system should reduce the often considerable information asymmetries that exist between the concessionaires and the assigning authority. - Formally request concessionaires or the assigning authority to comply with the terms of reference in the event of non-observance. - Interpret the terms of reference to enable a firm and objective decision.

6 Environmental, health and safety regulation is not generally affected by introducing private sector participation. Existing regulations remain in place or they can be tightened for reasons not linked to the participation of the private sector. Foundations and principles of private participation in infrastructure

- Enable legal appeal against the decisions taken, thus encouraging greater delegation of responsibilities. - Ensure implementation of the decisions.

59. There is no single template for the distribution of these roles. In certain countries, infrastructure is mainly regulated by supervisory ministries. The number of countries that have chosen to introduce one or more regulatory agencies is constantly increasing. While few countries have a long tradition of autonomous regulatory agencies for infrastructure, international experience suggests that the creation of regulatory agencies often improves the business environment. To avoid being the judge and the accused, it is of paramount importance that no institution is both regulator and service provider.

60. The introduction of private participation generally starts a public debate on the level of the service and the prices. Private participation thus tends to uncover questions that do not receive a lot of attention when the services are provided by public monopolies. This debate can be very fruitful, and a system of economic regulation can help to shape it in a rational way. It may in particular provide a framework for the collection of data on the costs and service quality levels in order to compare the performance of service providers with respect to a well-established reference. They may also improve transparency by disseminating this information publicly in a form that can be understood by users.

61. Legislation on the establishment of a regulatory system must be carefully designed to give assurances to:

- Investors that discretionary power will be exercised in a way to protect their legitimate interests, and will not be subject to political influence. - Consumers that the regulatory power will be exercised in a way to protect their legitimate interests, and will not be subject to undue influence from the regulated industry. - All stakeholders that sufficient skills, expertise and resources will be devoted to what is often a difficult regulatory task on a technical level - Politicians that the institutions responsible for regulation will respect their mandate and will be responsible for their own performance.

62. A good regulatory system is a key ingredient to protect users and reduce the risks facing investors. Good international practice indicates that to operate well, a regulatory system must respect certain principles:

- The objective of the regulation and the roles of the various participants are well defined. - The regulatory system guarantees a high level of transparency. - There is appeal against decisions (in general by appeal to the courts). - Key roles are delegated to regulatory agencies who enjoy a certain degree of autonomy.

These four principles are explained in greater detail below.

63. The roles of the supervisory ministries and regulatory agencies vary strongly from country to country and from sector to sector. In certain countries, the regulatory agencies have the authority to take certain decisions themselves without consulting the supervisory ministries. However, in some countries the regulatory agencies advise the ministers, who in Study on private participation in infrastructure in Tunisia

many cases have the decision-making power. This advice can relate to price increases, the allocation and renegotiation of PPI contracts, the production of terms of reference, their interpretation, and mediation in the event of disputes. In order to improve the business environment, the procedures of the agencies must be transparent, for example through the publication of provisional advice for comment before being finalised, or the obligation to justify and divulge decisions. The roles also vary from one sector to the next. For example, telecommunications regulators supervise interconnection systems, advise ministries on the issue of licenses, the allocation of frequencies, as well as technical issues such as the numbering system. They can also have roles in regulating competition and in mediating between operators. Regulators in the water sector or electricity distribution and transmission set price ceilings (according to precise economic calculation methods) for the private concessionaires and monitor service quality by using clearly defined performance indicators.

64. As indicated above, the regulation of infrastructure services is needed irrespective of the market structure (competitive or non-competitive) and the status of the service providers concerned (public or private). For example, regulation can take on the form of programme contracts between a ministry and a public company, as is the case in Tunisia. This form of regulation has clear limits in terms of improving productivity. The potential for improving productivity is slowed down by cumbersome public contracting procedures, for example, the lack of an objective basis for compensating certain public service obligations and implicit obligations with regard to employment in particular. With a partial transition from public service provision to private service provision and - in certain cases - the change of the market structure, the attention paid to costs and service quality generally increase considerably, incentives for better performance also increase, the public service obligations are reduced or have to be compensated, and the regulatory work changes and becomes more complex. These changes in economic regulation vary, depending on whether the industry concerned operates in a market open to competition or in a natural monopoly.

- In competitive markets, equal opportunities for public and private operators have to be guaranteed, and the emergence of monopolistic structures has to be prevented, just as in the commercial sectors. - In natural monopolies, the regulation of prices, the service quality and the maintenance of a level of access affordable to the poor are of paramount importance.

65. Financial and economic modelling play an important role in the regulation of infrastructure. Without a powerful model and a system for monitoring the corresponding costs, regulation risks being ineffective. The 'value for money test' used in Japan and the United Kingdom is an example of an interesting approach for analysing the fiscal effects of private participation. The approach is summarised below. The World Bank has developed a theoretical and practical introduction to the financial modelling of regulatory policies, which could help the regulatory bodies or the supervisory ministries to develop their financial regulation capabilities. Sectoral financial equilibrium models determine the effective costs of services, and thus the appropriate price levels. These models are very different to the macroeconomic models - such as general equilibrium models - that are used to determine the impact of sectoral reform scenarios on economic aggregates such as investment, growth and employment. The fiscal effects of private participation are complex and are often not modelled by sectoral financial equilibrium models or macroeconomic impact models. The existence of any debts to guarantee the viability of public companies, or arising from express or implied guarantees (letters of comfort), to private investors make modelling the fiscal impact particularly difficult. In addition, they should also take account of the impact of Foundations and principles of private participation in infrastructure reducing the budget deficit through private participation on the public debt rating by international financial markets. On the other hand, the costs of mobilising private sector capital to finance projects with limited recourse are higher, and the guarantees granted by the state to private developers are contingent liabilities that could offset the positive effects of a better debt rating.

Box 3: The Value For Money Test - An Innovative Approach

An interesting cross-sectoral approach towards PPI has been introduced in 1992 in the United Kingdom as part of the government's Private Finance Initiative (PFI). Under the PFI public investments are subjected to a Value For Money Test to assess whether a certain infrastruclure project should be financed and operated by the public or the private sector. Since many infrastructure services are already provided by the private seclor, the test is applied mainly to the transport, health and education sectors. In Japan, where a larger share of infrastructure services is provided by the public sector, a similar Private Finance Initiative has been undertaken using the Value For Money Test.

The Japanese comparator model is illustrated below. The model shows that construction and operating costs are typically lower under private sector provision, while financing costs are higher and profits and taxes have to be added. However, a Risk Adjustment factor is added to the public sector provision cost, taking into account that cost overruns and inefficiencies are more likely under a public sector arrangement. In addition, the Risk Adjustment factor allows for tax neutrality (while taxes are a cost to the project - Government ends up receiving the taxes), the ability to transfer construction risk, and the private sector operators ability to generate additional revenues. The existence and the level of the risk adjustment factor have been the source of some controversy and public debate. It is thus crucial that it is being determined on an objective basis. In the Japanese case, for example, the Risk Adjustment Factor is determined by a panel of prvate sector businessman and academics.

Graph 4: Value for Money Cost Comparison

120

100 O Risk adjustment 80 - __- . *Taxes e Dividends

o 6 0 ----. 0 60 ------_ ------~~~~~~~~~~~~0Finances M Operation 40 3 Construction

20 _ __

Public sector Private Finance comparator Initiative

66. The transparency of regulatory decisions is essential. Two principal means enable a high degree of transparency to be obtained. Firstly, all draft decisions and recommendations, as well as the methodologies justifying these decisions and recommendations, must be made public before being finalised. The observations made by the parties concerned must be taken into consideration before the decision is made. The regulatory decisions are then accompanied by an explanation of the underlying reasoning. These transparency principles are followed, with some variations, by all infrastructure service regulatory agencies in developed countries and by the majority of agencies in developing countries. Study on private participation in infrastructure in Tunisia

67. The delegation of responsibility strengthens the credibility of the regulatory system and increases public confidence. "Autonomous" regulatory bodies must be accountable to the public through the appointment of their managers by the executive or legislative branch of the state, with the retention of certain key decision-making powers by ministers and the possibility to appeal against the decisions in the courts. The possibility to dismiss one or more members of a regulatory committee should be limited to clear cases of abuse of power. In order to ensure the delegation of responsibility to the regulatory agencies and to increase the degree of transparency of their decisions, they can also be asked to produce an annual report that will be examined by the Cabinet or Parliament.

68. Good international practice shows that it is better for regulation to be done by one or more regulatory agencies that have a certain degree of autonomy with respect to the government. Regulation done (almost) exclusively by ministries leads to risks that could result in reduced competition or higher prices, as some investors will decide not to respond to calls for tenders and others will add a risk premium to their price. According to the perspective of the private sector, regulation solely by a ministry can mean that the decisions will be subject to political considerations, such as the desire to maintain low prices in monopolistic sectors. In competitive sectors where public and private service providers compete with one another, there is a risk that the ministries will distort competition and favour the public operators.

69. Finally, ministries may have difficulties in paying salaries high enough to attract and retain the highly specialised people needed to do complex regulatory jobs. If one or more of these conditions are satisfied, it is better for regulation to be done by agencies with a certain degree of autonomy rather than by the ministries alone. The regulatory agencies must be protected against undue influence from the regulated companies (for example by preventing employees having financial interests in the industries they supervise) and from the political authorities (for example by granting an independent budget to the regulatory body). One way of ensuring the autonomy of regulators, and preventing them from being influenced by arbitrary political interference, is to appoint a regulatory committee instead of a single manager at the head of the regulatory body. The members of the regulatory committee would be appointed for a fixed period and could not be dismissed by a single minister, but only by the Cabinet or Parliament. Such a decision could only be taken for limited reasons that have to be clearly specified in law such as embezzlement or gross incompetence. The appointments of the committee members would staggered to ensure a certain level of continuity and stability. The number of members of the committee could be three or five, an odd number to avoid a tie in votes. Legislation could define the minimum competence - technical, economic, financial and legal - of the members. The regulatory committees should be assisted by a small technical secretariat consisting of highly qualified personnel whose salaries could be set at a higher level than the public service salaries. There are regulatory committees based on the above principles in many developed countries, such as the United States for the multi-sectoral regulatory committees in each state, and in continental Europe in the telecommunications sector. Foundations and principles of private participation in infrastructure

70. Multi-sectoral regulators have the advantage of combining expertise from various sectors and offer greater protection against political interference, while also ensuring that the objectives determined on a political level, as stipulated by legislation, are respected. The public service committees that exist in each state of the United States are an example of multi-sectoral regulators (see box 4). Such a model has advantages, compared to the creation of a multitude of sectoral regulatory agencies. In small countries, where specialised administrative capacity is limited in each sector, the creation of regulatory agencies to cover several sectors at a time has certain advantages.

Box 4: Examples of Infrastructure Regulatory Agencies in the World

In the United States and Canada, local infrastructure services - water, sanitation, solid waste, electricity distribution, local telecommunications, urban transport - are subject to economic regulation by multi-sectoral regulatory agencies called "Public Utility Commissions" or Public Service Commissions" that exist in each state of the United States and each Province of Canada. These committees determine the prices of services, issue licences, follow up complaints from consumers and are able to impose penalties on public and private operators. The commission members are usually appointed by the state Governor and have to be confirmed by the state Parliament. The economic regulation of services of a national character - electricity production and transport, national and international telecommunications, air transport - in the United States is given to sectoral commissions whose members are appointed by the President and must be confirmed by Congress. The state and federal regulators have considerable autonomy with respect to the state executive and have their own sources of financing. Regulatory commissions in the United States have a long tradition, the majority having been created in the first half of the last century. The member states of the European Union recenily created national economic regulators for telecommunications and, in the majority of countries, for the electricity sector. While the United Kingdom has also created regulators for the transport, water, and sanitation sectors, economic regulatory agencies for these sectors do not exist in the majority of other EU countries. Where regulators do exist they have considerable autonomy, their power to set prices (interconnection prices in the majority of cases) is considerable, and they have their own financial resources. In particular, the United Kingdom has set up regulators according to the same basic principles and structure for each sector. One of the problems facing economic regulation is the difficulty of reliably estimating the costs of companies, which makes it difficult to determine the price level for the appropriate remuneration of the capital.

In Argentina, the government committed itself to a wide-ranging privatization program in 1989, mainly for fiscal reasons. In the infrastructure sectors, services were unbundled wherever possible and regulators were created for each sector, but following differeni approaches in each sector. The experience with the electricity and gas regulators has been positive, while the telecom and water regulators have been more problematic because of staffing problems, insufficient information to assess costs and concerns with the lack of transparency of the decision making process. In all sectors, there have been concerns that the responsibilities between regulators and their sector Ministries have been blurred.

In Bolivia, a comprehensive effort at harmonization of PPI policy was undertaken in the mid-1990s. The government introduced sector regulators for telecommunications, electricity, railways, air traffic and water supply simultaneously. These sector regulators are under the umbrella of a cross-sectoral regulatory body that provides technical assistance to sector regulators and acts as an appeal instance in case of disputes.

In Africa, many French-speaking countries with a legal tradition similar to that of Tunisia recently introduced multi-sectoral regulatory agencies. For example, Niger has just adopted a law to create a regulatory agency covering all important infrastructure sectors. In Mauritania, the role of the telecommunications regulatory agency has been widened to also cover the electricity sector. The role of the new National Regulation Board could be widened to other sectors depending on the pace of the reforms.

3. The Context of Private Participation in Infrastructure in Tunisia

71. A number of aspects determine the PPI context in Tunisia: macroeconomic conditions, the business environment and the privatisation strategy outside infrastructure, the objectives set by the 1 t Development Plan, past experience with private sector participation in infrastructure, employment considerations, equity considerations, the potential of the Tunisian private sector as a provider of infrastructure services, the planned intensification of regional integration, and finally the economic effects of introducing PPI as examined in macroeconomic simulations.

The Macroeconomic Context, the Business Environment and the PrivatisationProgramme

72. Since its independence in 1956, Tunisia has conducted a policy that has led to a continual and impressive improvement in economic health indicators. In particular, it has multiplied real income per capita by more than 2.5 and considerably increased access to infrastructure services. Thanks to these undeniable results, Tunisia is the leader in the region for socio-economic development.

73. Tunisia has now entered a new stage in its development. This stage is characterised by regional integration, intensification of competition and the desire to attract foreign direct investment, as well as to stimulate local private participation in all sectors of the economy. The country is consequently facing new challenges. In particular, it has to modernise the legal and institutional framework linked to privatisation and the participation of the private sector in infrastructure. Moreover, it must develop and implement sectoral strategies to obtain the necessary reforms and additional private investment. Without it, the country could find it difficult to achieve the objective of reducing the public finance deficit stated in the recently approved 1 0 h Plan. In addition, the competitiveness of Tunisia would risk being eroded: the quality of the main infrastructure services (in the transport and telecommunications sectors in particular) could lead to a serious fall in competitiveness with respect to certain competing countries.

74. The business environment in Tunisia is relatively favourable. It is characterised by political, macroeconomic, regulatory and legal stability. However, the business environment is more favourable to foreign (offshore) companies who produce to export, and who benefit from various administrative and tax incentives. As the "Private Sector Assessment Update" of 2000 emphasised, onshore companies, such as those in infrastructure, do not enjoy the same incentives. The business environment for onshore companies seems relatively less favourable for small and medium-sized companies, some of which provide infrastructure services and sometimes encounter difficulties with regard to tax administration and access to credit facilities.7 The business environment specific to the infrastructure sector is influenced

7 These issues have been addressed in the World Bank's Private Sector Assessment Update for Tunisia of December 2000 and are the objective of other studies and projects. They will therefore not be analyzed here in

-Page 27 - Study on private participation ininfrastructure in Tunisia by the worldwide environment, and also to a large extent by the sectoral regulatory framework.

75. Tunisia's privatization program, conducted since 1987, has so far focused on productive sectors and selected privatizations in the financial and insurance sectors. It has been guided by the overriding principles of ensuring sustainability of companies through restructuring prior to privatization, attracting additional funding, competitive bidding, and preservation of employment. These considerations, rather than maximization of the privatization proceeds, have played the dominant role in privatization decisions. In many respect, this policy has succeeded in building a national consensus and avoiding negative social impacts. These principles have also played a role in all private sector participation in infrastructure.

The le Development Plan

76. The Tunisian government has just put the finishing touches to its 10th Development Plan.8 It covers the period 2002-2006. This Plan sets ambitious objectives for the growth of employment, GDP, investments, and the private sector share of these investments. Relatively high levels of external public debt and the public financing deficit limit the public financing of investments in infrastructure. The government wants to reduce these two aspects during the period of the Plan. Table 5 below presents the main indicators of the 1 0th Plan with respect to the 9th.

Table 5: Key Macro-Economic Indicators of the gth and 10 h Plan

Average of the 9 th Plan Objective for the end of (1997-2001) the 10th Plan (2006) GDP Growth 5.3% per year 5.5% per year Fiscal Deficit (share of 2.9% 2.0% GDP) Public debt 52.3% (2001) 42.3% Private Investment/Total 55.5% (2001) 58.5% Investment Investment/GDP 25.5% 25.7% Growth in Employment 320,000 380,000

detail. Some issues related to the business environment are also covered by a recently initiated study on the incentive system for private investment and conducted by the IFC's Foreign Investment Advisory Service (FIAS).

8 The full version of the French translation of Volume 11 (sectoral content) was not available at the time of drafting the final version of this report. The Diagnostic Report thus only takes account of Volume I (general content) of the 10t Plan. The context of private participation ininfrastructure in Tunisia

77. The gth Plan provided important private investment in the field of infrastructure, of the order of 340 MTD in the communications sector, as well as concessions in the electricity transport and production sectors.9 Except for electricity production, these private investments have remained below expectations. The weakness of private investment in infrastructure contributed to the private investment/total investment objective of the 9th Plan not being achieved. 10

The Experience of Tunisia with PPI

78. The Tunisian experience with PPI transactions remains limited (see Table 6). The two only concession/BOO contracts concluded so far are the Rades II power plant signed in 1997 and the second GSM license, which was awarded in May 2002 1. There have also been a series of management contracts in the water, sanitation and solid waste sectors.

Table 6: PPI Transactions concluded in Tunisia

Telecommunications licenc Licence Orascom Egypt 2002

Consortium led by Electricity Rades ll BOO PSEG/Marubeni/Sithe 1997 (USA/Japan) Sanitation El McSOMEDEN Menzah MC (France/Tunisia) 1997 Sanitation Tunis MC SOBATAM Nord (Tunisia) El Sanitation andMur MC (Tunisia) 2002 others Solid Waste Disposal Grand MC SOMAGED Tunis (Tunisia) 2000 SolltionW e Currently Various, mostly since 1997 SolideWaste 36 small Mc Tunisian sne19 Collection ~~contracts

MC: Management Contract - BOO: Build, Own and Operate.

79. The 10h Plan (2002-2006) contains a certain number of large infrastructure projects that will be financed and managed by the private sector. It also stipulates that information and communication technologies (ICT) will play a key role in the creation of jobs and growth.

9 The 9h Development Plan (1997-2001), Volume II, sectoral content, pp. 64, 78 and I 16. 10 The average objective in the period of the 9"' Plan was 56%, while only a coefficient of 53.9% was realised. " Two other concessions have been awarded for the Office National des Peches and for a Duty-Free Shop (Freeshop), but these concessions cannot be regarded as infrastructure concessions per se. Study on private participation in infrastructure in Tunisia

80. In particular, the plan includes:

- "The upgrading of airports, ports and improvements in services that are of a nature to provide greater competition in the sector, strengthen investment, develop multimodal transport and develop public transport services (...) in the framework of concessions." - "The opening of new prospects for private initiative through the state withdrawing from the construction or direct management of certain public services, and this through concessions, contracting, or limiting the intervention of the public sector. In particular it involves the construction and operation of the central airport, electricity generation, the construction and operation of ports, quays and activities linked to them, the construction and operation of motorways and sewage treatment works." - "A change to the legal status of certain large public companies that have a monopoly in the market and their conversion, in the first stage, to commercial companies, and opening up their capital through public offerings or by looking for partners, in the second stage."' 2

81. Table 7 presents the infrastructure investments realised in the 9th Plan and those planned for the 1 Oth Plan, and this for each sector and source of financing (private or public). This table shows that the bulk of the private sector investment is planned for telecommunications, air and maritime transport infrastructure.

82. Aside from the positive experience regarding the deadlines for awarding the concession for the Rades II electricity generating station, it seems that the confidence of the private sector has been eroded in certain cases because of delays in fmalisation, or changes to the transactions in progress. For example, several delays have been observed in the procedure for awarding the BOT contract for the sewage treatment works in Greater Tunis. In the telecommunications sector, the first call for tenders for the second mobile telephone licence was declared unsuccessful because the bids were judged to be too low. The amount of the tender selected in the second call for tenders exceeded the previous tender by US$ 73 million. However, this gain has to be set against the opportunity lost regarding the gain in effectiveness that could have been obtained for the economy if the licence had been granted earlier. 13

12 The I0b Development Plan 2002-2006, Volume 1, General Content, pp. 105 and 113. '3 Private investments for the irrigation and management of natural resources are not considered here. It is in fact believed that they are small-scale investments realised by farmers on their own land. They are thus not of the same nature as the infrastructure investments covered by this study. Moreover, the sectoral policies indicate that private investments are planned in the electricity and sanitation sectors, although the figures of the 10t Plan do not show private investment in these sectors. The context of private participation in infrastructure in Tunisia

Table 7: Investments In Infrastructure Sectors (In Million Td, Current Prices)

1. Communications 1,3946 1,286.6 108 2,839.5 1,739.5 1,100 Telecommunications 1,064 1,064 2,600 1,500 1,100 Others 3306 222.6 108 239.5 239.5 2. Transport 2,491.5 2,491.5 4,845.4 3,505.4 1,340 Roads 1,891.5 1,891.5 2,795 2,795 Maritime 130 130 942.3 187.3 755'4 Rail 290 290 375.4 375.4 Air 180 180 732.7 147.7 58515 3. Water 2,099 2,099 n.a. 2,551 1,901 650 SONEDE 285 285 498.5 498.5 Water resources16 1,602 1,602 n.a. 1,905 1,255 65017 Others 212 212 147.5 147.5 4. Sanitation 592.5 518.5 74 748.8 658.8 90 ONAS 397 397 524.9 524.9 Others 195.5 121 74 223.9 133.9 90 5. Environment 438.7 438.7 613.3 613.3 Solid waste management 28.5 28.5 95.7 95.7 Industrial pollution control 141.7 141.7 239.6 239.6 Coastal and sea protection 116.1 116.1 128.1 128.1 Floods control 57.6 57.6 105 105 Others 152.4 152.4 149.9 149.9 6. Electricity and Gas 1,698 1,698 n.a. 2,524 2,524 Electricity18 1,611 1,611 2,092 2,092 Gas 87 87 432 432 7. Others 1,639 1,639 n.a. 1,908.6 1,693.6 215 Natural resources management other than 779 779 n.a. 1,020 805 21520 water Municipal and urban 860 860 888.6 888.6 Infrastructure Total21 10,410.9 n.a. 16,135.6 12,740.6 3,395 100% 100% 73.4% 26.6%

Note: These figures have been taken from the different chapters of the 10t Plan. A comparison of the private investment of the th 9 and 1OthPlans is not possible due to a lack of data. n.a. = not available

14 Includes 500 for the new port. 15 New Centre-East Airport. 16 The allocation of the IX'h plan figures into private and public is missing. 17 Irrigation modernization. 18 It is not clear why the investment in the Rades II BOO (US$ 260m) is not included in the private electricity investments for the 9th Plan which are shown as zero. 19 The allocation of the IX'h plan figures into private and public is missing. 20 Agriculture related. 21 See notes about the allocation of the IXt" plan figures into private and public. Study on private participation in infrastructure in Tunisia

Involvement of the Tunisian Private Sector in the Provision of Infrastructure Services

83. To date, the Tunisian private sector has participated in the provision of infrastructure services to a low extent, and its contribution to infrastructure financing has been almost zero. The Tunisian private sector is essentially involved in the provision of services in the sectors of ports, solid waste and sanitation (operating the drain networks). In all cases, this involvement is limited to the implementation of management contracts with minimal investment obligations. They are mainly investments in vehicles and equipment. In certain cases, Tunisian companies operating alone have won contracts. In other cases, Tunisian companies and foreign companies joined forces (led by the foreign company).

84. At the start of 2002, a small survey was done among Tunisian operators in the sectors mentioned above on the initiative of the World Bank and in cooperation with the MDCI. This survey is not statistically representative but it does highlight some interesting points. In particular it shows that the slowness in awarding new contracts and the short duration of contracts have disappointed some operators. The law restricts contracts to five years, which discourages private operators from making investments and improving their technology. Some of them noted that there was no government privatisation strategy in their sector. Others cited the fact that the terms of reference were too detailed and contained unrealistic obligations, while the public authority was inflexible with regard to the supervision of contracts. The operators noted the difficulty of gaining access to infrastructure credit, in particular because banks were not accustomed to lending to companies in this sector. Certain companies also complained about the tax and other advantages granted to their competitors in the public sector. Finally, certain Tunisian companies fear being relegated to the simple role of local intermediary for international companies. The Tunisian private sector in particular requested clarification of the private participation strategies for their respective sector, legislative reforms to enable longer-term contracts, as well as a more realistic and more flexible approach to the design and application of these contracts.

Employment Issues

85. The introduction of PPI affects the job market on a number of levels. It leads to: (i) the creation of jobs through new entrants; (ii) the indirect creation of jobs due to the GDP growth caused by the fall in costs and increase in performance further to the sectoral reforms; and finally (iii) redundancies in public companies because of restructuring, commercialisation and the introduction of new technologies and modern management techniques.

86. The indirect effects of infrastructure sector reforms on jobs have been evaluated for the information and communication technology sector (ICT). The ICT study of the World Bank of March 2002 estimated that up to 20,000 new jobs will be created between 2002 and 2006 in the sector itself, and that 65,000 additional jobs will be created indirectly in other sectors, if an ambitious reform programme is respected. These gains in employment will largely exceed the job losses with existing operators. On the other hand, if the reforms remain modest, the direct and indirect gain in employment over the same period will be of the order of 25,000 jobs. The context of private participation in infrastructure in Tunisia

87. Other sizeable indirect effects are also expected on employment further to improvements in the performance of the transport sector, in particular with regard to multimodal transport, airports and ports.

88. With regard to the mobility of employees between the public and private sector, current legislation does not enable the provision of civil servants for jobs in the private sector. In certain cases, private service providers prefer to hire and train their own staff without recruiting people from public companies. However, even if a private operator wants to take on the public company employees, and these people want to be transferred to the private sector, legal obstacles get in the way of such a transfer. When employees have to choose between leaving the public sector for good, and thus losing their job security and pension rights, and staying in the public sector, the majority of them choose to stay. Moreover, the salaries levels in certain Tunisian public companies are relatively favourable. However, if job offers come from private employers with long-term concessions, long-term employment in the private sector may be of greater interest to public sector workers. Increasing the flexibility of existing employment legislation could thus benefit workers and new companies coming onto the market.

89. It is difficult to estimate the extent of potential job losses in public companies that provide infrastructure services without having a precise idea of the extent and pace of the reforms in each sector. However, it seems that the number of public service employees per connection in Tunisia is lower than in certain other countries of the MENA zone, which seems to indicate that any job losses could be avoided or limited. Moreover, growth in the provision of infrastructure services generates a need for additional jobs. In other words, the possible surplus jobs could be absorbed to certain extent by reallocating employees within the company. It would also be a possible to reduce the workforce through retirements and early- retirements. If it turned out necessary to make decisions that result in job losses, compensation mechanisms should be used such as the FREP (fund responsible for compensating employees of public companies). Setting up procedures for redeploying redundant employees or helping them create small service companies would be very positive measures that would qualitatively complement their severance pay.

Equity and Infrastructure Services in Tunisia

90. National solidarity has been an integral part of the socio-economic policy of the Tunisian government since independence. Infrastructure does not escape this essential link in government policy.

91. The analysis of equity, poverty and their links to infrastructure is a complex subject. This study does not claim to cover the full complexity of these aspects, as they do not form part of the objectives of the study. Nevertheless, it is clear that social aspects are an essential component of infrastructure policy in Tunisia, and that a strategy to promote private participation in infrastructure should include measures to ensure that the considerable achievements of Tunisia in this respect are preserved.

92. The social aspects are of special importance in the water and sanitation sector, in view of the essential character of the supply of water and its drainage according to appropriate sanitary standards. Through five-year programme contracts, the government has for a long time encouraged SONEDE and ONAS to increase their coverage in urban regions and in densely populated rural zones. A special effort has also been made to supply thinly populated Study on private participation ininfrastructure in Tunisia rural zones with water and sanitation through the Directorate of Rural Engineering of the Ministry of Agriculture. In the electrical sector, STEG has also been encouraged to increase coverage by increasing the connection rates to the network. The government has also conducted a policy to encourage electrification of thinly populated rural zones, in particular through photovoltaic systems. The desire not to marginalise rural zones has also been clear in the telecommunications sector, where the creation of public telephone centres (publitels/taxiphones) and the Internet (publinets) has been encouraged across the national territory. These centres are set up with a public subsidy and their operation is contracted to small local operators.

93. The results of this policy are given in table 8, which compares the rates of coverage in Tunisia to those of other countries of the MENA region:

Table 8: Coverage Rates of Water, Sanitation and Electricity in Tunisia, Algeria and Morocco

Water Urban 100% 90% 98% Rural 82% 47% 57% Sanitation Urban 96% 90% 90% Rural 62% 47% 39% Electricity Total 97% 98% 55%

Source: Diagnostic report for Tunisia; WHO/UNICEF for water and sanitation in Algeria and Morocco, Association Internationalede I 'Energie en Algerie et au Maroc.

94. The high coverage has also been accomplished under a system where all of the costs are recovered (or at least a major part for sanitation) and the durability of the systems has been proven through effective public companies, and the participation of users through interest groups in rural regions. Improving coverage in the urban environment has also been aided by a rehabilitation policy for spontaneous habitation, which enabled districts whose residents are often among the poorest to be connected to water, sewerage and electricity.

95. The pricing policy has also contributed to equity through (i) connection credits, (ii) a realignment between user categories, and (ii) an implicit realignment through progressive price scales. Connection credits are granted to households who are unable to pay for the connection costs in one go, enabling them to reimburse these costs over several years with interest by applying an average surcharge on the water bill. For example, in rural regions covered by SONEDE the reimbursement is done over a period of eight years with an interest rate of 8.25%. The realignment between groups of users is done by applying a higher average price for tourists and industrial users, which enables more modest prices to be offered to households. Finally, progressive pricing for households means an implicit realignment between high volume users and low volume users, who are often those with lower income. The pricing details are given in the diagnostic report (Appendix 1).

96. In the electrical sector, the realignment between categories of users is apparently less pronounced than in the water sector, as industrial prices are lower than domestic prices, which reflects the cost structure. The available data are insufficient to indicate whether there is nonetheless a realignment and to estimate its size. The context of private participation in infrastructure in Tunisia

97. The national solidarity policy in the field of infrastructure in Tunisia shows impressive results. The health indicators are better than in the countries of the region with comparable income. For example, the infant mortality rate is 26 per 1000 in Tunisia, against an average of 43 per 1000 for the MENA region. The incidence of poverty is relatively low, with a poverty incidence of around 7%.

98. The introduction of private participation in infrastructure in Tunisia does not mean that these achievements would be threatened. On the contrary, the civil service, as the awarding authority for PPI contracts, could and should require public operators to continue applying the national solidarity policy by continuing to apply the same principles of pricing and coverage growth as those imposed on public companies under the programme contracts. The role of the private sector will be to find more effective ways of achieving the same social objectives, thereby limiting price increases and subsidy requirements.

Regional Integration and Infrastructure Sector Reforms

99. Another key determinant for the Tunisian approach to PPI is regional integration. Infrastructure reforms both promote regional integration and are shaped by it. Telecommunication services are vital for international business contacts and are an important determinant for investment decisions of multinational companies, just as efficient multi- modal transport networks (maritime, air, rail, road) are critical for trade and tourism. The interconnection of electricity and gas networks can significantly increase the efficiency of these sectors, especially in small countries. Particularly in three sectors - telecommunications, transport and electricity and gas - improved infrastructure services promote regional integration and are at same time shaped by it. Consequently, benefits can be derived from aligning the sectoral regulatory framework with that of key trading partners.

100. Interestingly, many of the regulatory reforms needed for regional integration in services - such as the abolition of exclusivity rights or rules on market access and interconnection - are also needed for comprehensive sector reforms. The European Union (EU) has an elaborate policy framework in most of the infrastructure sectors. Most of its laws, regulations, and institutions are in line with international best practice. At the same time, beyond certain key rules and principles, they allow for a considerable level of diversity among member countries, as well as among sectors. A harmonization with certain EU key rules, while maintaining Tunisian specificities, could not only reduce regulatory barriers vis- a-vis the EU Single Market, but could also send a positive signal to investors that Tunisia is planning to gradually deepen its economic integration with the EU. The impact of regional good practice on infrastructure sector reforms, as well as the impact of infrastructure on regional integration vary by sector, as shown in Table 9. Study on private participation ininfrastructure in Tunisia

Table 9: Relevance of Regional Integration for Infrastructure sectors and vice versa

Sector Regional Sector performance Integration effects effects regional sector integration Telecommunications WAter and anitaim T o Airports and Ports Railways Highways Electricity and Gas :- Water and Sanitation Solid Waste Management

Legend:

Key role < = Limited role l No significant role

Source: Compilation by the authors

101. Concerning both the Euro-Mediterranean integration and the dialogue at the level of the WTO, the sooner Tunisia starts preparing and implementing infrastructure sector reforms domestically, the sooner it will be able to reach agreements with its trading partners on trade in services. In fact, the General Agreement on Trade in Services (GATS) schedules or service-related amendments to the Association Agreement with the EU would allow the Tunisian government to anchor reforms through international agreements and thus send a strong signal to the investor community. The sectors in which Tunisia is going to make commitments under the GATS have to be chosen prudently, as these commitments are difficult to reverse. It is thus preferable for Tunisia to make liberalisation commitments in sectors where a return to management by the public sector is definitively ruled out.

102. Tunisia was the first Mediterranean country to sign a bilateral Association Agreement with the EU, effective since March 1997. The Association Agreement is part of the effort to establish a Euro-Mediterranean Free Trade Area by 2010. Trade in Services - including telecommunications, transport and electricity - is likely to play an important role in both the bilateral and the multilateral tracks of Tunisia's dialogue with the EU. On the bilateral track, under Title III (Right of Establishment and Services) the Association Agreement states that "the parties agree to widen the scope of the Agreement to cover the right of establishment [...] and liberalization of the provision of services" and that "the Association Council will make a first assessment of the achievement in this objective no later than five years after the Agreement enters into force"22 . Additional impetus for the liberalization of trade in services is coming from the new round of multilateral negotiations that was agreed at the November 2001 WTO meeting in Qatar in November 2001. The liberalization of trade in services under the framework of the General Agreement on Trade in Services (GATS) will be one of the key

22 On the multilateral track, the process of regional integration is expected to move beyond the liberalization of trade in goods in the course of the coming decade. During a meeting of Euro-Mediterranean Ministers of Trade in May 2001, a working group was established to explore this issue at the regional level. The context of private participation in infrastructure in Tunisia priorities of this new round - including transport, telecommunications, and energy services. Any liberalization of trade in infrastructure services will require comprehensive regulatory reforms and which the Tunisian government could address as part of its PPI strategy.

The Legal Aspects of PPI

103. A detailed report on the legal aspects is given in Volume III of the study. It is summarised by the following legal aspects.

- The appropriateness of a law on public-private partnerships in infrastructure (law on concessions) and a Higher Concession Committee. - The strengths and weaknesses of the sectoral legislation in force in Tunisia concerning the delegated management of public services. - Other legal aspects of a horizontal nature that affect the business environment related to private participation in infrastructure.

* Law on concessions

104. Except for specific legislation relating to the private electricity production concession, the system of concessions for all other sectors open to private participation results from ad hoc texts inserted into specific legislation governing the said sectors.

105. This leads us to ask about the appropriateness of adopting a Concession Code that would define the concept of concessions, and which would establish the legal system for concessions in Tunisia.

106. For a country such as Tunisia, it would be preferable to have a specific law on concessions. Tunisian law is more of a written law than a common law. It tends to be founded on clear, precise written regulations rather than on customs or well-established case law. Moreover, the new law on public contracts expressly excluded concessions from its field of application, so the need for a law on concessions is even more pressing.

107. Such a law, whose purpose is not to substitute for the different sectoral laws, would be limited to setting up basic principles and the rules to be respected for concluding concession contracts.

108. It is this law that would first have to establish the fundamental principles on which any process for granting a concession would be based.

These principles would be:

- Equality of candidates - Competitive processes and the exceptional cases where mutual agreement would be allowed - Transparency of procedures

109. Such a law could also establish the content of a concession contract and the associated terms of reference. It could also define the concept of concession and related concepts, such as leases, management contracts and contracted services, and could determine the applicable legal system for each of these concepts. It could also stipulate the deadlines and shorter procedures for awarding concessions in order to avoid the economic conditions that

DAA7 Study on private participation in infrastructure in Tunisia determined the granting of a concession changing by the time it is awarded. This law would also have to establish the principle and the duration of the concession, taking account of the time needed to depreciate the investment made by the concessionaire.

110. The enactment of a law on concessions could also be an opportunity to define the concept of public service. In fact, and contrary to other countries, in Tunisia there is no clear and express case law on the concept of public service.

111. Recourse to administrative courts is not one of the well-established practices and customs in Tunisia and existing Tunisian administrative case law is inadequate to act as a basis for defining such an important concept.

112. Defining the concept of public service, although it would have the drawback of freezing a concept that could be quite fluid, would have the advantage of clearly and legally establishing an important concept, both for awarding the concession and disputes relating to it. A concession could be withdrawn for the non-continuity of the public service. With regard to the definition of the concept of public service, the Code should establish the fundamental attributes of this concept, in other words the principle of the continuity of public service and the neutrality of public service, or the equality of users with regard to the public service.

113. The law on concessions should also define the concept of public domain and its attributes, such as the principles of the inalienability and imprescriptibility of the public domain. The reasons for this definition are the same as those described for the concept of public service.

114. Moreover, a law on concessions must cover public service concessions and public domain concessions, all the more so on a practical level, as public service concessions are often accompanied by public domain concessions. An electricity generation concession, for example, is often accompanied by a concession for the land on which the power station will be built. The operating concession for a commercial port is accompanied by a concession of the maritime public domain where this activity is performed, and any infrastructure on the conceded site.

115. A law on concessions clearly defining the concepts of public service and public domain would reassure foreign investors who are not familiar with Tunisian law and who would be more reassured by clear written legislation than doctrinal concepts or case law, as is currently the case in this respect in Tunisia. The context of pnvate participation in infrastructure in Tunisia

Box 5: International Experience with Laws on Public-Private Partnerships

The considerable increase in the number of privately financed infrastructure projects over the last two decades has led many developed and developing countries to adopt coherent laws suitable for public-private partnerships (PPP). These laws, which vary from one country to the next, not only reflect the legal context of each country but also its commitment to promoting public-private partnerships.

In countries with Latin traditions, concession contracts represent a relatively simple set of contractual undertakings, where contract law (for example the case law of the Council of State or the Civil Code in France) provides the necessary additional rules. In France, this system, which clearly differentiates public contracts from delegations of public service. presents a few legal difficulties for the implementation of certain new projects, in particular those based on the English model of PFI (Private Finance Initiative). In common-law countries, contrary to Latin countries, concession contracts often consist of many appendices in order to supplement the absence of a written law.

In developing countries, over the last ten years there have been considerable efforts to set up legislative frameworks for PPP. Many countries in eastem Europe (Albania, Bulgaria, Hungary, etc.), Asia (Philippines) and Latin America (Brazil, Chile, Colombia) have thus adopted a law on concessions, while other countries have chosen to enact ad hoc sectoral laws to overcome the legal inadequacies (Poland, Czech Republic, etc.) or general laws authorising private participation in infrastructure (Thailand and Vietnam). Some countries that have adopted a law on concessions (sectoral or multi-sectoral) have, however, had to amend or rewrite their laws to deal with various problems linked to their application. The cause is often the hasty "reproduction" of laws from foreign countries that are not well adapted to the local legal context. Finally, China has chosen to adopt an intermediate approach to those previously mentioned. The country has chosen to identify pilot projects that could be based on model contracts for each sector of activity.

In conclusion, it should be it remembered that, irrespective of the legal model chosen, two fundamental principles must be respected: 1) It is essential for countries to fill their legal void regarding PPP. 2) Any new law on PPP must be adapted to the local legal context.

Sources: UNCITRAL - "Intemational efforts to promote and harTnonise concession law': Ministere de l'Equipement, des Transports et de I'Equipement - "Financement des infrastructures et des services collectifs", Gide Loyrette Nouel - 'The role of concession laws in the successful implementation of Public-Private Infrastructure Projects", PPMI Article: httpf:I/www.ppmi.org/documents/newsletters,NewsletterArtjcles/Article-Newsletterl8-July-Aug-03.pdf

116. A law on concessions to supplement existing sectoral laws would have the following advantages:

- It would not require any reform of the sectoral laws in place, as they are assumed to be better adapted to the sectors concerned. - It would be a guiding line for the different sectoral organisations that grant concessions to private operators, or for the content of the concession contracts and even the associated terms of reference. - It would fill the gaps in the different sectoral laws. - It would enable concessions to be granted to sectors where there is no specific legal framework for granting concessions to private operators. At the same time, it would avoid the adoption of inadequately developed legal frameworks caused by exceptional economic opportunities that the state needs to exploit.

117. In this respect, a protocol agreement was recently announced between the Tunisian government and the oil company operating in Tunisia for the realisation of a 500 MW electricity generating station, while no legal framework currently allows this operation. The state, who does not want to lose the opportunity to exploit and develop the non-commercial gas reserves discovered by the oil company, will enact a special law to provide a legal framework for this power station. Study on private participation ininfrastructure in Tunisia

118. The law on concessions could also stipulate the creation of a Higher Concession Committee. This committee, in addition to the role it would play in awarding concessions, in line with the Higher Contracts Committee, could play the role of central regulator or supplementary regulator in areas where there is no specific regulatory body. The enactment of this law could also be an opportunity to specify the legal status of the members of the regulatory bodies.

*. Other aspects of horizontal legislation

119. It is important to note that the general legal framework in Tunisia is well suited to PPI operations since Tunisia has been able to adapt its legal arsenal to private investment in general and foreign investment in particular. Nevertheless, certain gaps or legislative barriers remain which could act as a brake to the development of private investment in infrastructure.

120. With regard to currency exchange, and despite the current convertibility of the dinar and the resulting abundance of liberal laws, certain restrictions remain in place, in particular for the exchange of salaries of foreign employees involved in PPI operations. Still with regard to currency exchange, the transfer of shares of Tunisian companies to foreign acquirers is subject to prior authorisation when the foreign holding exceeds 50% of the capital. This restriction could be an obstacle to the private investor who wants to transfer his shareholding to another private foreign investor. This measure risks hampering foreign sponsors who have secured the shareholdings of foreign investors as guarantees and who want to activate these guarantees.

121. Real-estate law also needs softening as any purchase, sale or mortgage of real-estate by an individual or company is subject to the authorisation of the local governor. This authorisation, required by a law from 1957, which was perhaps justified by the public economic order of the time, now seems to be an anachronism to the new public economic order of Tunisia who wants to be open to foreign investment. It is often an obstacle for foreign investors or foreign sponsors, given its discretionary nature and the delays in obtaining it.

122. Finally, with regard to labour law, it would be opportune to simplify the recruitment of labour for infrastructure projects. The current procedure for recruiting foreigners is slow, uncertain and considerably delays the implementation of the investment.

123. Again with regard to labour law, the recent reform enabling the transfer of civil servants to private companies is very limited as it limits this type of transfer to researchers and innovative projects.

** Recommendationsfor horizontal legislation

124. In the diagnostic stage, it transpired that some revisions were required to labour law. With regard to secondment, it would be useful for the Tunisian legislative and regulatory framework to provide bridges between the civil service and the private sector for PPIs, which is currently impossible, and this without dismissing the civil servant from the civil service. It would be wise to widen the cases of secondment from the public sector to the private sector, and to diversify the people eligible for such a secondment, in order to enable foreign companies operating on the local market in PPIs to draw on the reserve of experience and skills of senior civil servants.

-Pane 40 - The context of private participation in infrastructure in Tunisia

125. Such an enlargement of the regulatory framework could be in the form of a model contract between the originating organisations and the receiving companies that sets the terms and conditions of the secondment, whose main principles would be maintenance of the career guarantees and professional benefits, while setting up 'safeguards' to avoid a massive drain of public skills and knowledge to the private sector.

126. Employment of foreign labour. The long and uncertain procedure for obtaining a contract of employment for foreigners from the Ministry of Employment could considerably hamper a foreign investor looking for qualified labour in specific fields. While the principle of national preference is justified by the concern for jobs for young Tunisian graduates, this principle is currently an impediment to the free recruitment of foreign executives in Tunisia. Due to this, it would be opportune to stipulate (in keeping with 100% export companies) the possibility for PPIs to freely recruit a certain number of foreign executives (four for example) and for them to be given a certain flexibility during the initial stage of the conceded project, with a gradual 'Tunisification' at the end of two years for example.

127. Transfer of salaries. The current currency exchange laws mean that foreign employees can only exchange 50% of their salaries, and the rest can only be transferred at the end of their stay in Tunisia. Nevertheless, in the majority of cases the local needs of foreign employees are markedly below 50% of their salaries, and their needs abroad are often higher than 50% (paying off loans, school fees, etc.), so it would be opportune to soften currency exchange laws relating to the transfer of foreign salaries.

128. In currency exchange law, articles 21 and 21 bis of the Currency Exchange Code subject any subscription to the capital of a Tunisian company or the acquisition of such a company to: (i) the authorisation of the Banque Centrale de Tunisie if the foreign shareholding is limited to 50%, and (ii) the authorisation of the Banque Centrale de Tunisie and the CSI, if the foreign shareholding is or becomes greater than 50%.

129. In order to avoid the risk of foreign investors in a PPI feeling like prisoners to their shareholding, or sponsors feeling restricted in the exercise of guarantees relating to the shares of investors, it would be opportune to exclude from the field of application of these restrictions operations relating to the shares of companies that have a concession (the project company).

130. Notwithstanding general Tunisian legislation to encourage foreign investment, certain restrictions to participation in operations affecting the local market risk considerably hampering foreign participation in PPI operations. It would thus be opportune: (i) to include all activities stipulated by the Code, and which are liable to benefit from a government concession, in the list of activities for which foreign participation can be greater than 50%, as stipulated by the decree 94-942, and (ii) to include the unstipulated activities, which are liable to benefit from concessions, in the activities stipulated by the Investment Incentives Code.

.* Sectoral legislation

131. A study of sectoral legislation shows a disparity in the number and volume of general laws governing the different sectors, and also in those relating to private sector participation. Table 10 gives an overview of the strengths and weaknesses of sectoral legislation.

- - AlX Study on private participation in infrastructure in Tunisia

132. The telecommunications sector has detailed legislation covering the different telecommunications sectors. Only a few laws planned for the overhaul of the legislation of the sector have not yet been implemented.

133. Maritime transport is the most structured sector. The legislation governing it is very detailed, precise and coherent. It has adopted modem concepts, such as granting real rights on structures erected on public land, a concept very recently adopted in Europe.

134. With regard to air transport, certain legislative gaps should be noted. Some laws have not yet been implemented. For example, a law specifying the list of OACA services that can be conceded, or the technical conditions of organisations that qualify for airport concessions.

135. The legal framework of the electricity sector is inadequate despite the legislative efforts of the last few years. These resulted in a law on the private generation of electricity and a reform of the Hydrocarbons Code, which enables the private sector to build small 40 MW generating stations using non-commercial gas. Current legislation is not well suited to electricity generation projects using renewable energy (wind, solar power). Similarly, no legal framework currently allows the state to grant concessions for electricity generating stations using non-commercial gas with a capacity above 40 MW. Finally, there is no regulatory body for the sector, despite a clear commitment towards private participation in this sector. From a practical point of view, STEG plays this role today while it also competes with private operators.

136. The same goes for the production and distribution of water where the law authorises SONEDE to grant some of its activities solely in a restricted field, in particular non-conventional water, and this without specifying the conditions for this concession.

137. It should also be noted that for certain sectors, such as sanitation, the laws say nothing about the possibility to concede parts of this activity to private operators.

138. The same goes for legislation relating to solid waste management where the laws do not specify the conditions for granting concessions, although they do establish the possibility for municipalities to use private operators to process household refuse.

- Paae 42 - The context of private participation in infrastructure in Tunisia

Table 10: Private Participation and Tunisian Law per Sector of Activity - Strengths and Weaknesses

PPI in tne form of . The legal possibilities for private * Absence of a few laws 1 Concess,on sector participation are very well * Gaps ,n existing laws 2- Operating licence structured * No identification of the organisations Inal 3 Operating authorsation * The application o0competition is have to advise on the award and transfer .c well organised for concessions of concessions * Lack of precision with regard to the E extension of the concession Is it o automatic? Is it free or subject to fees? * * Contradictions between the laws on the operating licence In addition to being a Tunisian company does the majority of the cap,lal nave 0obe neld by Tunisians? PPI in the form of * Tne legal possibilities for pr,vale * Electricity transport and distribution are 1- Concession sector participation are very well monopolies of STEG 2 Distinct legal regimes structured * Limitation of production capaciy to 40MW depending on whether they * Tne application of competition is for hydrocarbons is dissuasive are concessions for well organisea for the * The concession duration is nol specified .ndependent electricity independent generation of by law production or with regard to electricity * For a hydrocarbon production concession the Hydrocarbons Code there is a transport problem * The role of STEG even in the absence of official prerogatives is too great and iU affects the granting of concessions * Total absence of a legal framework for renewable energy * Absence of a regulatory body PPI in tne form of * Ouite detailed ana modern Cond,lions relating to the nationality of the 1- Public domain and publiC regulation ship for a passenger transport licence except X c service concession * Ouite ahractive concession if a special dispensation Isgiven ._ r 2 Public equipment duration 130 years + 20 year concession extension E . 3- OMMP concession * Real rights on structures for the 4- Licence for maritime concessionaire passenger transport PPI in the form of * A list of OACA services Inat can be 1- Concession conceded has not yet seen the light of day t 2- Air transport operat,ng licence * The list of aviation activities tnat are free and rL r3 Authorisation for the creation of those subject to approval must be set by c airports decree which has not yel seen the light of S!! aas * The technical conditions for organisations tnal qualify for aerodrome concessions must be subleci to a decree wnich has not yet seen the light of day PPI in the form of concession * Tne concession duration is * Relevant domain of the state monopoly < the state may concede the attractive i30 years renewable by * One of the conditions of the concession for construction, operation and tacit agreement) private companies is that the state must o maintenance of a motorway to a * 2- The concession conditions are directly or indirectly hold a share of the private company relatively well detailed capital

I- PPI in the form of concession * The basic principles for tIe * Relevant domain of the state monopoly 2 Same for the use of concession are relatively well * A decree on the compulsory conditions of unconventional water detailed concessions has not yet seen the light of resources * If the concession is for providing a aay *i 3- SONEDE may partially concede pubilc service there is no * The same goes for unconventional water some of its activities payment of fees resources * The only cases of concession approval by decree relate to the use of thermal resources. * The concessionaires may be given easements. Study on pnivate participation ininfrastnucture in Tunisia

Sector Characteristics Strengths Weaknesses

The laws say nothing about private Laws silent Laws silent participation and rend to go inthe o other direction It should be noted that despite this some private sector parlicipation experiments rnave been carried out

PPI inthe form of Very modern regulation The laws are silent about the concession E~ 1- Concession conditions and contracting. The legislation in E zD 2- Contracting force is limited to allowing municipalities to use M3 3- Capital participation private companies in the form of a concession or E subcontract to process their household refuse. E

PPI Financing by the Tunisian Financial Sector

139. A detailed report on the financing of infrastructure in Tunisia, in particular its financing by the Tunisian financial sector, is given in Volume III of this study. This chapter is a summary of that report and the recommendations arising from it.

140. The Tunisian government envisages a substantial increase in investment in infrastructure under the 10th Plan. It also envisages a marked increase in the private sector share of these investments, which will be of the order of 1600 MTD 23, compared to 182 MD during the 9"' Plan. This increase is partly due to the emergence of new private operators, as is the case with the second GSM licence, and apparently also partly due to the inability to mobilise soft loans from sponsors to finance all of the infrastructure investment. Where soft loans are available, it would be advisable to fully utilise them and integrate them into PPI projects, in line with the international experience emerging in mixed public-private financing. Private financing should only be used to finance the balance that cannot by mobilised under favourable conditions. This balance should be covered by the local and foreign private financial sector.

141. Up until today, the financing of infrastructure has essentially been done through sponsors and - for the occasional PPI transactions - entirely on the basis of foreign private financing, and this for the following reasons:

- The government policy to maximise the share of foreign currency in infrastructure financing due to the high share of foreign currency in the costs of infrastructure, and the desire to mobilise resources outside the concession conditions. - The limited size of the local financial market and banks. - The limited experience in forming banking syndicates and partnerships between local and foreign banks. - The lack of experience in limited-recourse financing (project financing). - The absence of certain risk management instruments, such as a secondary market for bonds, interest-rate swaps, loan insurance and revenue bonds.

23 The 9h Plan stipulated private investment of the order of 3400 MTD. However, a large proportion of the investment started during this period will only be implemented in the next five-year period (deep water ports and a large part of the Centre-East airport), or will be financed in the framework of small projects that do not come under this strategy, such as investments in agriculture or private participation in the costs of connection to the public sewage network bome by individuals and property developers. The context of private participation in infrastructure in Tunisia

- The absence of partial state guarantees suitable for the local financing of infrastructure.

142. The result is that the local financial sector has been excluded from financing projects given to the private sector (the Rades electricity generating station and the second GSM licence, for example). However, international experience indicates that the participation of the local financial sector in private infrastructure investments is not only desirable, but also feasible, despite the long depreciation period of these investments.

143. The partial financing of infrastructure by the local financial sector offers certain advantages. According to the financial orthodoxy of matching expenditure currencies to income currencies, financing in local currency is better suited to investments in local currency (civil engineering, purchase of locally produced equipment). The exchange rate risk is one of the main concerns of foreign investors in PPI projects where the income is solely or largely in local currency. Local financing can reduce this risk considerably, thereby reducing the risk premium required by investors, and thus minimising the cost of their participation.

144. The local financing of infrastructure - through equity, bank loans or bond issues - could also help the diversification of the Tunisian financial sector, where investment is concentrated in certain sectors such as tourism and specific industries. It would also enable the creation of partnerships with foreign investors and the assimilation of techniques linked to this type of project. Finally, it would initiate the necessary learning curve for Tunisian banks and introduce investment instruments on the financial market that are particularly suitable for long-term savings. For all of these reasons, it would be desirable to promote local participation in the financing of infrastructure.

145. As a result, it would be advisable to review current policy in the sense of opening infrastructure projects to the local financial sector. A policy of encouraging the contribution of the Tunisian financial sector to infrastructure financing could be based on a categorisation of projects according to the sources of advantageous financing available in certain sectors, the size of the project, and the proportion of foreign currency in the income.

146. In certain sectors, advantageous financing by multilateral or bilateral sponsors is available for a large part of the investment requirements. This is especially the case in environmental sectors such as water (except possibly desalination), sanitation and solid waste management. Where this advantageous financing is available, it should be integrated into the financial architecture of the PPI project, for example in Design-Build-Operate (DBO) projects and aid based on results.2 4 The financial sector could take a minority share in the financing of these projects.

147. With respect to the size of the project, international investors are not generally interested in investing in projects of a certain size because of the high transaction costs. These projects could be entirely financed by the Tunisian financial sector, even if a substantial proportion of the costs are in foreign currency.

148. Finally, with major infrastructure projects in sectors where advantageous financing is not available or limited, a distinction should be made between sectors where a large proportion of the income is in foreign currency (telecommunications, air and maritime transport) and projects where the income is solely in local currency. These projects should be

24 See chapter 2 for an explanation of these mechanisms. Study on private participation in infrastructure in Tunisia subject to mixed foreign and local financing. The proportion of local financing should vary according to the size of the project, and could be propped up with reference to the share of the investment in dinars. The contribution of the local financial sector could be particularly important in sectors where all of the income is in local currency (motorways, railways, urban transport, electricity and gas). The position of the public authorities on the choice of sources of finance could be determined by seeking a balance between the objective of mobilising foreign currency financing and the objective of developing the local financial market and reducing the exchange rate risk, including any associated obligations. In any case, this position would have to leave much room for manoeuvre for the private sector in order to determine the optimum mix between local and foreign financing.

149. Finally, if attractive projects are proposed in the infrastructure sector, the local financial system in Tunisia should be capable of satisfying at least part of this demand for capital. The supply of private capital in itself does not seem to present a major constraint: if for example the share of local financing is one third of the entire private investment, it would constitute around 100 MTD per year, part of which would be financed with own funds and the remainder would constitute less than 5% of the annual banking disbursements. However, without removing the constraints mentioned above, even this relatively modest share of private investment in infrastructure could not be realised. These impediments could be removed by taking the following measures:

- Remove the constraints imposed by the Central Bank: in practice, it would enable the inclusion of local financing in project financing, both own funds and debt. - Encourage banks to syndicate with foreign and local banks. - Ensure the proliferation of limited-recourse financing techniques and measures to improve the credit quality and the management of risks. - Possibly introduce certain partial guarantees from the Tunisian government, the conditions of which would remain to be determined, while keeping any state obligations to the necessary minimum to make the transaction possible.

Simulating the Economic Effects of the Liberalisation of Infrastructure Services

150. This section examines the potential long-term gains (15-20 years), on a macroeconomic and sectoral level, from the liberalisation of trade in services. The results of the simulations given below have to be considered in detail and used with care. They vary according to the estimated scale and nature of the obstacles put in place at the start, the theoretical frameworks, the modelling techniques and the datasets. The following factors can explain the differences in the scale of the results of the simulations (and affect their reliability):

- Econometric studies that analyse the dynamic effects of liberalisation and its impact on specific sectors show greater benefits of liberalisation than simulations using a general calculable equilibrium model. This is undoubtedly due to the dynamic component of econometric studies that take account of long-term adjustments through the accumulation of capital, demographic growth and technological progress. - Greater gains in well being are observed when the mobility of capital and FDI are explicitly modelled and the existence of imperfect competition is accepted. Marked effects that affect the results of this type of model are not necessarily attributable to

-:no As - The context of private participation ininfrastructure in Tunisia

the liberalisation of trade in services in itself, but to the presumed concomitant liberalisation of market factors. - The nature of the obstacles and other restrictions at the start affect the results of the simulations. Restrictions that generate income make prices exceed costs, i.e. they create a return for the producers. Consequently, the removal of these restrictions could lead to an important transfer from suppliers to users of services, and a relatively low net gain for the economy in general. Conversely, a restriction that raises costs could lead to inefficient and expensive production methods. The lifting of restrictions that increase costs could provide an advantage to service providers and to downstream users, and thereby constitute a relatively important gain for the whole economy. The removal of this last type of restriction could thus be more beneficial. - Studies that use the rough estimates of Hoekman with regard to interventions done at the start generally indicate that the liberalisation of trade in services leads to many gains in well being. Conversely, studies that use estimates determined in relation to impact measures based on the price or quantity tend to conclude lower gains in well being, although they are not negligible.

* Internationalevidence

151. The benefits of liberalising services are greater than the liberalisation of trade in goods, and according to certain studies, they could even be up to five times greater. This is explained by gains attributable to the increased mobility of labour and capital, and by a reduction to the obstacles to competition, which are often higher with services than trade in goods2 5 .

152. Considerable gains in terms of growth and employment are attributable to the liberalisation of infrastructure services26 . Estimates vary from 1% to 50% of GDP, depending on the scale of the restrictions to competition before the reforms27 . The liberalisation of telecommunications services leads to substantial economic gains. Accompanied by a regulatory framework that fosters competition, it improves the competitiveness of services and brings about considerable gains in terms of international trade2 8. In particular, exports of electronic services take on much importance in the form of outsourced back-office services, key IT service fields, services to companies and other professional services.

153. The liberalisation of infrastructure services generally improves effectiveness and quality while reducing prices. The available empirical data on the effects of liberalisation and PPI show that liberalisation has overall benefits in terms of efficiency and the well being of consumers in the countries concerned. With the development of competition, production efficiency and service quality tend to increase and prices tend to fall29.

25 Source: World Bank, 2002 26 Source: Mattoo et al, 2001 27 Source: World Bank, 2002 28 Source: Varoudakis et al, 2003 29 Source: Gonenc et al, 2000 Study on private participation ininfrastructure in Tunisia

154. The liberalisation of infrastructure services leads to gains that not only arise from better access to the markets of foreign service providers, but above all from increased competition and local efficiency. The work currently being done under the OECD on the liberalisation of trade in services in the countries of southwest Europe show that these countries could derive benefits from opening up the fixed-line telecommunications sector to 30 foreign capital without removing the restrictions that apply to all new entries

* The case of Tunisia: results of simulations using general equilibrium models

155. Services provide a significant contribution to output in Tunisia. The service sectors contribute almost 50% of GDP and they represent one third of household consumption and 18% of intermediary consumption. The telecommunications and transport sectors represent around 6% of GDP, while the energy, water and sanitation sectors contribute around 2% of GDp3 1 .

156. The liberalisation of infrastructure services in Tunisia would in the long-term lead to substantial economic gains. Recent studies have developed a series of commercial policy scenarios to evaluate the combined effect of the joint liberalisation of goods and services in Tunisia32. They are 'high-case' scenarios, i.e. they are based on two principal hypotheses: a) the economy will absorb all the benefits of liberalising the respective sectors, and b) a suitable regulatory framework and business environment are put in place.

157. Impact on wealth and growth. The impact of the liberalisation of services on output could be considerable. The results of simulations vary according to the chosen methodology, the theoretical framework and the available data. According to recent simulations, the combination of the European Union Association Agreement (EUAA) and the liberalisation of services in the wide sense could lead to GDP growth of 11.4% in 15 to 20 years. In this scenario, the liberalisation of services would increase GDP by 5% above the level of output solely from the Association Agreement with the European Union33 . These benefits are mainly attributable to gains in competitiveness and effectiveness arising from foreign direct investment in the service sectors. The greatest benefits come from the liberalisation of transport and telecommunications services, not including financial services.

158. In an optimistic scenario (high-case), the development of ICT - from the introduction of competition on the telecommunications market - exports of software, and ICT services, could increase GDP by 4.4% over a period of 15 to 20 years. Considering the current modest state of ICT, it could grow even more quickly than telecommunications. In particular, software development, related services and back-office services would realise substantial economic gains34 . It should be noted that the high-case scenario assumes total absorption of the benefits from developing ICT by the Tunisian economy, as well as the implementation of a regulatory framework and business environment that foster competition. On the other hand, in a more pessimistic scenario (base case) the benefits of liberalising telecommunications

30 Source: OECD 2003 31 Source: Konan and Maskus, 2003, on the 1998 INS database 32 Sources: Konan and Maskus, 2003; Konan and Kim, 2003; Konan and Maskus, 2000 33 Source: Konan and Kim, 2003

34 Source: World Bank, 2002 The context of private participation in infrastructure in Tunisia

services would be almost negligible, reflecting the lack of progress relating to the current restrictions on the development of ICT35.

159. In the case of the transport sector, the Institut d'Economie Quantitative (IEQ) in Tunisia is currently carrying out an impact study on the introduction of competition by applying a general equilibrium model. The study considers the current situation of imperfect competition in Tunisia and shows significant economic gains.

160. Impact on the allocation of resources. In the event of the liberalisation of services, the gains in total income from labour are 4% above the benefits from the EUAA. And the gains are even more significant for income from capital (eight percent higher than the gains arising from the EUAA). The impact of liberalising services on the distribution of income from production factors thus tends to foster returns on capital.

Graph 5: The Macroeconomic Gains of Alternative Scenarios for the Liberalisation of Services in Tunisia

The macroeconomic gains of alternative scenarios for the liberalisation of services in Tunisia (Variation in %) 20 ...... 15 10 5

Production (P11) Wage bill Return on capital Source: Konan and Kim (2003)

iE 'Association agreement with European Union (1) * Liberalisation of goods (AAEU and rest of world)(2) o Liberalisation of services (AAEU and rest of world) (3) o Liberalisation of goods and services (AAEU and rest of world) (4)

161. Impact on employment. The potential benefits of the liberalisation of infrastructure services on employment are facilitated by the implementation of a suitable regulatory framework and business environment. A recent comparative study on the liberalisation of telecommunications services shows that 26 Asian and Latin American countries who opened up the sector to competition saw employment levels increase significantly in the sector 36. In Tunisia, in the scenario of the joint liberalisation of services and the EUAA, the potential costs of adjustments are negligible: around 3% of the active population would change sector. On the other hand, in the scenario of the EUAA without the liberalisation of services, the adjustment costs are estimated to be around 7%. The more beneficial impact of the joint liberalisation of services and goods (EUAA) on the job market is explained by the fact that the liberalisation of services leads to a growth in foreign direct investment. In this case,

35 Source: World Bank, 2002 36 Source: Lovelock, 1996 Study on private participation in infrastructure in Tunisia workers change employers but remain in the same sector of activity37 . Recent simulations have explored the individual impact on employment of the liberalisation of telecommunications and transport services. In a high-case scenario, the development of ICT - arising from the opening of the telecommunications markets to competition - and software exports, and ICT services, could increase employment by 2.6%38. The IEQ study estimates that the introduction of competition in the transport and telecommunications sector could increase employment by 3.2%39.

37 Source: Konan and Maskus, 2000 38 Source: World Bank, 2002 39 Source: IEQ, 2003 4. Sectoral Aspects of Private Participation in Infrastructure

162. This chapter covers telecommunications, transport, electricity and gas, water and sanitation and solid waste management. Each chapter contains a summary of the sectoral diagnosis (the complete diagnosis is given in Volume 3 of the study) as well as a proposed action plan.

Telecommunications

163. The telecommunications sector in Tunisia has long been characterised by a monopoly structure, with Tunisie Telecom being the sole telecommunications service provider in the country. While the performance of Tunisie Telecom in fixed-line services was good compared to operators in similar countries, Tunisia fell behind in the fields of mobile telecommunications, data services and the Internet. In fact, in these last three fields, many developing countries have rapidly moved away from the traditional model of a monopoly, in particular since the middle of the 1990s. At the same time, the slowness of the reform of the sector in Tunisia has let the gap widen between it and countries that have undertaken a rapid reforms, as the data on Internet users and hosts clearly indicate, with each category showing a wide and dangerous gap (see the table on effectiveness on the next page). The government responded to this gap by developing a new strategy for the ICT sector, published in 2002. This strategy was based on the development of the private sector and its participation in the telecommunications sector. The first step was to grant a GSM license to a private sector operator, Tunisiana. The decision of the government will pay off. The total number of mobile phone subscribers reached 1,864,000 at the end of 2003 (498,000 for the new entrant, Tunisiana, and 1,396,000 for the traditional operator Tunisie Telecom). Growth between 2002 and 2003 exceeded 1,330,000 subscribers, i.e. a growth rate of 242%.

164. In the field of data communications, the govermment strategy was to first open up the VSAT segment to competition. A VSAT licence covering telecommunications and data was recently granted to a consortium (Divona) consisting of Monaco Telecom and Planete Tunisie. Moreover, the government has expressed its intention to grant a data licence. The selection of a consultant to help the government prepare the terms of reference and select an operator is in progress. The government plans to grant the licence by the end of 2004.

165. The introduction of competition in the VSAT and data segment will more than likely lead to consumer benefits, in particular through the downward pressure on prices. At the moment, the prices of leased lines and international communications are several times higher than in countries where effective competition has been introduced to these services.

166. The "gradual approach" adopted by Tunisia has certainly enabled important steps to be accomplished in regulatory reform, such as the enactment of the new law allowing competition, the separation between regulation and management of resources, and the creation of a regulatory agency, the Instance Nationale des Telecommunications (INT), and resource management bodies (ANF- ANCE). However, progress in the regulatory field has always been slowed down by obstacles in the regulatory sector, such as institutional fragmentation (the ministry and four different regulatory agencies, INT, ANF, ATI and ANCE have regulatory authorities in the sector). In addition, ATI combines regulatory and commercial functions as an Internet service provider (ISP) for the government. These roles must be separated to ensure fair competition on the ISP market. INT, however, is independent on an administrative, legal and regulatory level, as it is not under the supervision of the ministry responsible for ICT and consists of judges and independent people. It is also financially independent and has its own resources. In 2003, it even produced a financial surplus. Study on private participation in infrastructure in Tunisia

Table 11: Summary of the Telecommunications Sector Diagnostic.

The current situation

gth Plan (1997-2001)

Annual - Investment Financial Annual Sub-sector Jobs Annual requirements sitation subd turnover - Private share (%)situation subsidies

- Amount Figures not No Fixed available telephone 748 MTD in - 1.390 MTD (benefits 12,500 jobs 748 1 -8% private realised)______Mobile - 100 MTD Ditto No Internet No

Effectiveness t'!'s'i:. Coverage Service continuity, Price level Major problems

Good development: 11.83% (19% for MNA) Low fault rate / MNA High Lack of competition Fixed The geographic coverage of Fail rate of 0 29 intemational in network telephone the network is well balanced FailSublear) prices and rates networ . between urban and rural (Dg/SubNear) and leased lines management. zones Rapid development and Continuity and Price in line with Need to maintain fair Mobile growth: quality clearly international condeitionsoth 17% at the end of 2003 improving thanks to benchmarks condibons on the (against 23.5% for MNA) competition submarket - Lack of competition Limited development: between network - 0. 1 Internet hosts / 10000 Inadequate quality High Internet operators Internet people (90.63 for MNA) and speeds prices and rates - Constraint - 476 users / 10000 people regarding the (871 for MNA) development of local content

Issues

th Plan 2002- Expected Ability of the Qualitative 1 0 2006) Main participation of local private !IShYzj* objectives of Investment investments the private sector to th lth p.a netetpandscoi participate in the Plan ~requirements planedsetorent Investment oeigpossible openings - Increase the connection Fixed rates 39% private ii.e. telephone - Improve the 1,100 MTD Moderate supply of data 2,840 MTD services Increase the Mobile connection 50 to 60% private Moderate rate to 30% Internet 90% private Strong Sectoral Aspects of Private Participation in Infrastructure

Status of PPI

- Development of contracting out - Liberalisation of the - Conversion of Tunisie commercialisation of equipment Telecom into a company Desire to bring about Fixed - Implementation of 7,100 Publitels and open 10% of its the liberalisation telephone - Call centres as of 1998 capital to the private process sector - Opening of segments of the fixed network to competition

Grantignew obile - Size of the market Mobile 1 private operator ORASCOM: Glrnting new mobile - Uncertainty about licence granted in March 2002 generation technological developments - Privatisation of SOTETEL. (Capital Structure: Restrictions to the Internet/ . Tunisie Tc1icom: 35% Preparation for granting a development and Data . ~~Siemens IC: 10% Prenepartionadtforpgrantingr hosting of web sites and Data~~~0Various carriers: 48% liec oadt prtr the development of the a Laceramic: 7%) digital content - Granting of five ISP licenses

167. The main problem with telecommunications in Tunisia is the fact that competition is a novelty in this sector, and certain segments are even closed to competition. The government has focused on granting a new digital cellular licence. The licence was finally granted to Orascom in May 2002. Competition was finally introduced in data communications through the entry of a new data operator. The number of private Internet service providers, even though it has recently increased, could easily increase more.

168. Moreover, the development of data services is hampered by a weak industry regarding the content and by excessively detailed regulation of the provision of services. Investment in the sector was 1.39 billion TD in the period of the 9th Plan, and it is anticipated that it will exceed 2.84 billion TD during the 10 Plan, i.e. an increase of more than 100 percent4 . In the same period, the share of the private sector in telecommunications investment is estimated to increase from 8% to 39%. It goes without saying that these ambitious estimates could only be realised if reforms are implemented without delay.

169. The Tunisian government has adopted a programme to introduce competition to the telecommunications sector in the period 2003 to 2006, by continuing its undertakings to the WTO (given in 1998) and to the European Union. This liberalisation programme would lead to limited competition in each sector of the market in 2006. This strategy is conducted in an international context characterised by a reduction in the appetite of private investors. Nevertheless, the gradual introduction of competition remains an essential pillar of the sectoral strategy.

170. Improvements to sectoral regulation are all the more important as the interest of foreign investors has decreased. The liberalisation programme is thus worth being accompanied by an overhaul of the regulatory system, in particular by granting functions to the INT that currently come under other institutions such as the Agence Nationale des Frequences and the Agence Tunisienne de l'Internet. This

40 Tunisia - IOth Plan 2002-2006, chapter V, "Telecommunications technologies" Study on private participation in infrastructure in Tunisia programme should be accelerated and should also include an analysis of the methods for rationalising the institutional framework, and for reducing the current fragmentation of the regulatory authorities.

171. The introduction of effective competition with a high level of private sector participation should enable an inexpensive and high-quality liberalised information infrastructure to be developed.

172. The introduction of competition (including the liberalisation of infrastructure) should produce the following gains:

- Presence of specialised data service operators, who can better target the demands of companies. - Private sector investment in the modernisation of existing communications infrastructure. - No harm to the profitability of Tunisie Telecom, as the majority of its income comes from voice services, and also because Tunisie Telecom would benefit from high interconnection revenues from competing operators.

173. An example liberalisation programme, able to bring the income from the sector to the levels sought by the government, could be as follows:

- Allocation of several international licenses (voice and data). - Allocation of local and long distance licenses (voice and data). - Complete liberalisation (no restrictions to the number of service providers) by a date planned in the medium-term. - Allocation of a third mobile licence.

174. An alternative approach would consist of granting one or more technologically neutral licenses covering all segments of the telecommunications industry in the short-term. This approach could be consistent with the recent regulatory reform trends in the world. It could also enable a softer transition to full liberalisation.

175. Specifically, with regard to the data segment crucial for the general development of ITC, private companies should have four roles:

- Network operator, providing physical connections, basic telephony and transmission. - Access provider, transporting Internet traffic and data. - Service operator, providing basic services and added-value services. - Content supplier, providing the content requested by the user.

176. In conclusion, the "gradual approach" to telecommunications reform should be accelerated. For the telecommunications sector, a faster liberalisation programme would be an opportunity to attract substantial FDI flows in a period characterised by the desire of international operators to invest in developing countries. The successful examples of the GSM licence and the VSAT licence should encourage the government to continue its policy of introducing private participation in the sector. For Tunisian companies, it is vital to introduce modern, reliable, and low-cost private mobile and data service providers which would substantially improve their international competitiveness. Sectoral Aspects of Private Participation in Infrastructure

Table 12: Proposed Action Plan for the Telecommunications Sector

Continue improving the independencei - Introduction of a licence-type sbeom of the regulator. |- Introduction of licences that are neutral| -Include a date for the complete with regard to the technology used (for| liberalisation of telecommunications in example, introduce licenses to become the sectoral liberalisation programme, a telecommunications operator without including the international market specifying the market segments to be segment, by eliminating barriers to served or the technologies to be used). entry in all market segments. - Liberalisation of voice services and - In the liberalisation programme, include networks. the confirmation (in accordance with - Do not exclude the sale of Tunisie WTO obligations) that the following Telecom to a strategic investor. market segments will be immediately opened to competition: 1) radio messaging, 2) Int. telex4 '. - Liberalisation (introduction of competition without restriction to the number of players) of data services and networks. - Enable current and new operators to provide these services. - Continue opening up the capital of Tunisie Telecom. - Local loon & ISP: Amend the programme in order to announce the introduction of competition on the local fixed-lines market. - Grant licenses for the local loop. - Authorise ISPs to develop their infrastructure, to reach customers, or to lease telecommunications infrastructure from operators other than Tunisie Telecom. - Allocation of data licenses (services and networks). - Amend the programme announcing the liberalisation schedule of the government in order to include the granting of one or more effective GSM/GPRS licenses at the end of the duopoly. These licenses could be granted together with UMTS licenses.

41 It is acknowledged that these services were replaced by new services. However, liberalisation of these services is required in order to respect WTO obligations. The radio messaging sector is currently open to competition at the duopoly stage. Study on private participation in infrastructure in Tunisia

Transport

177. Thanks to an intensification of investment and several years of sectoral reforms, Tunisia currently has relatively good infrastructure and transport services, which are among the best in the sub- region. But if Tunisia wants to maintain a high rate of growth and successfully integrate into the world economy, its transport system still has to be modernised in order to meet the most demanding logistical standards. There is still excessive room in the transport chains, which domestic and international trade depend on, for excess costs due to the lack of competition, transhipments, and all kinds of delays.

178. Transport investment is planned to go from 2.49 billion TD in the 9th Plan to 4.85 billion TD in the 10th Plan (+95%), representing 30% of anticipated investment in infrastructure. While almost all of these investments in the 9 th Plan were financed by the public sector, it is anticipated that the private sector will finance them to the tune of 27% (1.34 billion TD) in the 10th Plan. The projects to be realised in the form of concessions include the Centre-East airport (585 MTD), a transhipment port (500 MTD), a container terminal in Rades (100 MTD) and a cruise-ship port in . These private investments will only be possible by offering private investors an appropriate incentive framework.

179. The government transport sector reform strategy is clear. Based on an integrated vision of transport infrastructure and services, it is aimed at gradually increasing competition in the sub-sectors that best lend themselves to this, and to perfect the methods for private sector participation according to each sub-sector. The strategy addresses new reforms, but it is essentially about completing those already in progress.

180. In air transport, the coverage of the country (more than 100 lines operated), as well as the level of services offered to customers, is good while the landing fees are average for the Mediterranean basin. Tunis Air, the national company, suffered losses close to 100 million TD between 2000 and 2001 due to structural causes (overstaffing and public service obligations not compensated for), recently aggravated by economic causes linked to international terrorism (fall in tourism). Substantial restructuring of the company is in progress. The Tunisian private sector has entered the air transport market with mitigated success. The results of Mediterranean Air Service have been disappointing (its niche, air freight, is still stagnant despite large potential demand from companies using just-in-time methods), while Airlines, created in 2002 with a cooperation agreement with Tunis Air, seems to have had more success. The Office des Aeroports et de l'Aviation Civile (OACA) combines regulatory and commercial functions. Making substantial profits, it is able to self-finance a good part of its investment programme, as well as a realignment between the domestic airports and the international airports of Monastir, Jerba and Carthage. Monastir Airport is saturated and, like Carthage Airport, is in an urban zone which prevents its expansion and leads to noise pollution and the risk of a disaster in the event of an air crash. The government thus plans the construction of a new airport in the Centre-East in Enfidha, close to the tourist centre of Hammamet-Sud. In time, this airport would substitute for Monastir and Carthage airports. In the interim, it will relieve them for an indefinite transitional period. The government envisages realising this airport through a concession. The technical design was done by ADPi, the engineering subsidiary of Aeroports de Paris (ADP). The financial viability of the airport was evaluated by a merchant bank. Sectoral Aspects of Private Participation in Infrastructure

Table 13: Summary of the Air Transport Diagnostic

Jobs - Tunisair: 7,000 jobs (with Tuninter branch) - Nouvel Air (Charter): 530 jobs - Carthago (Charter) - OACA: around 2,500 jobs Turnover - 693 MTD for Tunis Air in 2001 - OACA: 158 MTD in 2001 Financial situation Tunis Air: cumulative losses of 100 MTD (2000 and 2001) Annual subsidies No

Investment planned for 729 MTD the Oh"Plan (2002-2006) Private investment 585 MTD (Centre-East Airport) planned for the 101h Plan

Experience already - Opening of the capital of Tunisair realised - Opening of freight and charters to local private competition - Considering opening a few regular lines to local private competition Actions in progress - Continuation and completion of the restructuring of Tunisair Obstacles - Constraints on regular flights - The OACA combines commercial and regulatory functions - Incomplete legal framework

181. The priorities for action and the options are at several levels. The legal framework for international air traffic should be gradually liberalised on a reciprocal basis. While the charter market is largely open to competition, the market for scheduled flights is still subject to constraints that have no reason for existing. Action is perhaps even more necessary on the freight market. Opportunities for attracting transhipment traffic could also be explored, to make existing platforms more profitable, some of which are under utilised, and to offer local companies a wider range of services and network than is the case today. With regard to Tunis Air, the intention of the state to postpone its privatisation to the medium-term will be coupled with a rationalisation of the company management, starting with a limitation of the public service obligations, and full financial compensation for those it is still responsible for. Finally, the airport management system, which combines commercial functions with regulatory responsibilities, should be reviewed as in itself it carries seeds of conflicts of interest. Consequently, the state is preparing to entrust the construction of Enfidha airport to a private concessionaire. This would be a de facto competitor of the OACA, both in its role of developing airports and as an operator of existing airports. A risk of discriminatory treatment will be perceived by potential private investors, a risk that they would not want to take, or would want to cover by increasing the project price. This potential problem must be dealt with beforehand and it raises several important questions. Should Monastir be included in this concession? What initial capacity should be created, and what dimensions and schedules for realising the following modules? Does the airport financing system have to be changed, in particular the pricing and existing realignment? Does the legal framework for airports have to be changed? Considering these questions and their complexity, it is not certain that Enfidha Airport could start during the Plan, and questions remain concerning the share of private investment. Logically, an exhaustive study of the potential of developing private airport concessions in Tunisia should first be carried out (identification of viable projects, financial equilibrium of the sector, regulatory options and the role to be played by the OACA, etc.), but the state may want to forge ahead with the Enfidha dossier and only make the minimum adjustments to make it Study on private participation in infrastructure in Tunisia more attractive to private investors. Even if this is the case, the airport study will still be useful, its purpose being to guide the policy to develop and rebalance the sector by taking the private concession as an established fact.

Table 14: Proposed Action Plan for Air Transport

SI0 !0.zU 1 I S! -1.J - Complement legislation (Civil Aviation - Independent regulatory agency distinct from Code) the OACA - Accelerate the restructuring of Tunisair - Separation of the functions of operator and - Liberalisation of the ground support market regulator of the OACA - Study on the concession of current and future airports and equipment - Finalisation of the Enfidha dossier - Start a call for tenders for the construction of Enfidha

182. Maritime transport has been liberalised for a certain number of years and the good coverage of the country rests on an active market of scheduled lines and ad hoc services. The opening of the lines market to private Tunisian firms and the dismantling of the conference system have still not had the expected effect, and private involvement essentially remains restricted to the ad hoc market as the few existing companies do not have the financial muscle to increase their fleet and enter the scheduled lines market. The objective today could be to strengthen national involvement and restructure the Compagnie Tunisienne de Navigation (CTN), in particular the separation and privatisation of its freight branch. Port management has also been reformed and it should bear fruit as soon as difficult social problems have been settled, caused by the effective removal of the dockers's monopoly and the reduction of overstaffing in the Societe Tunisienne d'Acconage et de Manutention (STAM), i.e. very soon. Dock work will then have to be reorganised and the restructuring of STAM will open up opportunities for the expansion and regrouping of existing private companies, which will foster economic effectiveness. Finally, the Office de la Marine Marchande et des Ports (OMMP) has been organised around the "Port-Owner" model and has to supervise the service activities entrusted to the private sector. The logic of the system is for the OMMP to completely disengage from the consignment of merchandise and to transfer crane, tug and pilot services to the private sector. The "Port-Owner" management model corresponds to good international practice, but the fact that the OMMP is both operator and regulatory authority at a national level (in particular for policing the ports) departs from generally accepted principles and creates doubt regarding the equality of treatment between commercial activities carried out by the public sector (including the OMMP) and by the private sector. Not only may the OMMP be tempted to grant financial benefits or other advantages to STAM, but also the commercial interests of its concessionaires cannot always coincide with the optimum profitability of non-conceded infrastructure and equipment. More widely, the interests of the port sector may diverge from those of the OMMP, notwithstanding the legal framework putting the system in place.

Table 15: Summary of the Maritime Transport Diagnostic

Jobs Around 1,500 for the OMMP, 500 for STAM plus 700 dockers. Turnover - CTN: 170 MTD in 2001 - OMMP: 78 MTD in 2001 - STAM: 46 MTD in 2001 Financial situation Bloated with regard to the OMMP Annual subsidies None Sectoral Aspects of Private Participation in Infrastructure

Major problems - Low handling productivity - Combined regulatory and operating functions Investment planned 929 MTD for the 10'h Plan (2002- 2006) Private investment 755 MTD (Container terminal in Rades, Transhipment port) planned for the 10"' Plan

Experience already - Opening of the market for freight lines and a passenger line. Dismantling realised of the conferences Actions in progress - Removal of the dockers' monopoly - Reduction of STAM staff and planned privatisation - Concessions for the container terminal in Rades and the cruise passenger terminal in Goulette, and for the port installations Obstacles - Monopoly on passenger lines - Slowness of clearance through customs

183. The concession system is currently being established on a large scale: in addition to the concession for existing specialised terminals, the government launched an international consultation to recruit consultancy services to look for concessionaires for the construction and operation projects involving the container terminal and cruise ship terminal. A concession for the construction and operation of a transhipment port on a green-field site near Enfidha is also envisaged ( is an alternative site). The success of these projects will depend on the suitability of the legal and regulatory framework with regard to the objectives. The concession for the container terminal in the port of Rades, the largest port in the country near Tunis, presents the very practical problem of the equilibrium of competition between a public company - STAM - which is on the point of signing a contract with the OMMP to take responsibility for the existing installations in Rades, and a private operator, responsible for constructing the future container terminal, to its charge, on the other side of the basin. Will it be possible for the state and the OMMP not to distort the competitive relations between the two operators? This competition will be all the more intense as there will be temporary over-capacities at the start of the operation of the container terminal. Will the advantageous concession fee negotiated by STAM be re-valued in time to avoid a virtual subsidy, which would benefit this company with respect to the other? Is there not a risk of seeing the OMMP artificially divert potential customers of Rades in order to make better use of its own assets in other ports that are underutilised? These questions must be carefully studied in order to make the necessary adjustments to the legal framework for ports. The options for using the private sector have to be examined, in particular with reference to the port price levels. In fact, the private financing of investment without recourse to soft loans would have a considerable impact on the fees payable by a private developer, and one has to wonder about the appropriateness of mixed or public financing according to the DBX formula, which could reduce the financial costs. The main question remains, however, whether or not a regulatory agency outside the OMMP is needed. In the first stage, a regulatory capability could be recreated at the level of the technical supervisory ministry, and independent regulation could be considered in the longer term. The merchant banks that will soon be recruited should deal with all these questions, as they will at least partially determine the success of the concession projects.

184. The financial and economic viability of a transhipment port in Tunisia remains to be demonstrated given the strong competition prevailing in this sector. The interest in the project expressed by a foreign investor seems to confirm its financial viability, but does not exempt the state from verifying the economic interest of the project for Tunisia, or from giving substantial consideration Study on private participation in infrastructure in Tunisia to the risks and advantages inherent to any private contract with an unsolicited investor as compared to the more classical and certain method of an international call for tenders. In any case, it is doubtful that this project can be started, and thus realised, in the course of the 1 Oh Plan.

Table 16: Proposed Action Plan for Maritime Transport

l - ; 1 . 0m10 0

- Restructuring of the CTN - Strengthening of the national equipment - Take the "Port Management" role away - Creation of a regulatory agency distinct from from the OMMP (transfer of commercial the OMMP services to the private sector: cranes, tugs, - Reorganisation of the national port handling pilots, consignment) industry - Separation of the regulatory and operational functions of the OMMP - Call for tenders for the Rades terminal concession (containers) and the cruise passenger terminal at Goulette - Complete the restructuring of STAM (handling sector)

185. In road transport, the liberalisation of haulage has been an established fact since 1990 and the supply of transport has been completely private since 1995. Laws were enacted in 1997 and 1999 to reduce the small-scale nature of the profession and to organise relations between transporters and loaders. Although the creation of freight agencies was considered, it is a liberal approach that underpins state policy in this respect. In the field of infrastructure management, the transfer of regular maintenance to the private sector in 2000 reduced state-controlled work to the strict minimum and the results have been satisfactory. The space to progress private sector participation are at two main levels.

186. Long distance bus transport is a public monopoly run by the Societe Nationale de Transport Routier Interurbain (SNTRI). The introduction of competition to long distance bus transport is on the agenda: a call for tenders was launched in May 2003 for the concession of five long distance lines, representing some 7% of the current market of the SNTRI. In time, it is envisaged converting the SNTRI into a sector regulator.

187. With regard to motorway concessions, the calls for tenders have remained unsuccessful, in particular because of the low toll levels. Tunisia has thus chosen to develop its motorway network through concessions granted to a mixed, predominantly public company, Tunisie Autoroute, which has access to external loans at subsidised rates.

188. In the end, road transport presents relatively few problems insofar as competition exists, first of all between different types of road transport (coaches and "trip leases") and between road and rail transport. The objective of state policy should be to reinforce this competition (the entry of the private sector to long distance coach lines should be widened) and to clean it up (reducing informal transport and ending "trip lease" subsidies, if only for road safety considerations as it is notorious for accidents).

189. For long distance passenger transport, it would be useful to study the conditions for a successful transition from the SNTRI monopoly to the privatisation of the supply of services. How are the social costs of the withdrawal of the SNTRI minimised? How is this company converted into a regulatory agency without running the risk of excessive interference in the activities of private companies, a frequent failing when operators become regulators? In fact, the total liberalisation of passenger transport is the objective to be pursued in the long-term.

D.-^ IZn Sectoral Aspects of Private Participation in Infrastructure

Table 17: Summary of the Road Transport Diagnostic

Jobs SNTRI: 908 in 2001 Turnover SNTRI: 24 MTD TunisieAutoroute: 18 MTD in 2001 Financial situation Satisfactory Annual subsidies NoJ

Major problems Making the motorway programme profitable Investment planned for the 10 Plan (2002- 2006) Private investment planned for the 1O'h Plan

Experience already - Contracting out realised - Road maintenance - Liberalisation of haulage - Public concessions for motorways Actions in progress Launch of a call for tenders for the concession of five bus lines Obstacles Low tolls

190. In the motorway sector, the policy is rational but the objective should be the gradual disengagement of the state in order to reduce its charges. This will only be possible through the gradual revaluation of toll levels in order to tend towards a level that covers both operating and development costs. The switch to private financing will be possible and attractive, as the private initiative is more able to minimise costs than the public sector.

Table 18: Proposed Action Plan for Road Transport

Sa: = a-. .t S: Sa S - Development of a regulatory capability in the - Concession of the entire network of scheduled ministry to supervise long distance passenger lines for long distance passenger public transport transport - Study of the national long distance transport - Conversion of the SNTRI to a regulatory agency network and definition of a plan to concede all of for long distance passenger transport or the it, withdrawal of the SNTRI and the reduction of creation of an independent agency informal transport. - In the longer term, liberalisation of long distance passenger transport

191. In urban transport, the private sector is not yet present, apart from marginally so in Tunis. Public transport is still provided by public monopolies. Even if the underlying conditions have improved over the last five years, urban transport still suffers from inadequate compensation for its public service obligations and ineffectiveness linked to the management method. The supply of public transport has not followed the explosive growth in demand (especially school transport) and road congestion through private vehicles has become chronic in the large cities. It is planned to open this market to private companies under the system of concessions. Public companies will remain the managers of networks enmeshed in the urban zone, while the private sector will be allocated radial I ~~ ~ ~~ ~ ~ ~ ~ ~ ~~~~0 D PA Study on private participation ininfrastructure in Tunisia transport lines by bus between the centre and the suburbs. The terms of reference have been fmalised and the calls for tenders were sent out in 2003 for the concession of 20 private lines in Tunis and its suburbs. This operation should be widened later on, not only in Tunis but also in other large cities. The gradual approach favoured by the state is based on the idea that the success of the current call for tenders will have a demonstrative effect which will reinforce the probability of success for similar larger scale operations. The strengthening of public transport in large cities calls for other measures: Tunis has to be given a greater range of public transport. A study of summary and detailed pilot studies is in progress relating to the extension of the tram network, the creation of a rapid railway network, express bus transport in bus lanes and modal exchange centres. The formula for the concession of works and operations could have interesting applications for the country here. In any case, the institutional framework will have to be rationalised: in particular a more stable financing system and more diversified resources will have to be set up, as well as a more decentralised management system (of the "organising authority" type) if public urban transport is to be made effective and financially balanced. Without this, private transport will continue to increase to the detriment of traffic flows and air quality.

Table 19: Summary of the Urban Transport Diagnostic

Jobs SNT: 5,192 in 2001 Tumover SNT: 57 MTD Financial situation Deficit of 19 MTD in 2001 for the SNT Annual subsidies Around 75 MTD for all companies

Major problems - Insufficient and poorly targeted financing of companies - Inability of the supply of public transport to follow demand

Investment planned Around 500 MTD (not including the development of new large transport for the 0Ih Plan (2002- networks) 2006) Private investment planned for the 1Oth Plan

Experience already Marginal experience in Tunis realised Actions in progress - Creation of organising authorities for urban transport (Tunis, Sahel and ) (in preparation)

- Contracting and concessions of lines (20 lines) Obstacles Financial weakness limiting investment

Table 20: Proposed Action Plan for Urban Transport

- Creation of organising authorities for the - Concessions for new modes of public transport management of transport in large cities (express bus in bus lanes, Rapid Rail Network)

- Launch of a call for tenders for the concession of city centre - suburb bus lines in the Tunis conglomeration

- Contracting to the private sector of parts of the networks/services operated by public companies in the main cities

-s& li2- Sectoral Aspects of Private Participation in Infrastructure

192. In the rail sector, the state has set up a new institutional framework which should, in time, stimulate the management of the Societe Nationale des Chemins de Fer Tunisiens (SNCFT). It is a large-scale reform that is difficult to negotiate with the unions (always powerful in the sector). It is thus not surprising that the reform is taking a long time to take root. The rail company suffered record losses of 19 million TD in 2000, which led the state to decide on a financial restructuring plan. This plan is to better demarcate the public service obligations, to provide for their financing, and to facilitate the fall in costs (thanks in particular to the state taking on social plans which have already affected 1500 workers, and will affect 800 more between 2003 and 2006). Private sector participation in rail activities is comparatively more restricted, at least in the short and medium-term, but real opportunities which should be seized do exist. The contracted maintenance of part of the haulage equipment is already scheduled and more general action would be desirable. State controlled works involve large financial amounts and they have to be reduced to lower proportions since they always generate hidden surplus costs. The privatisation of subsidiaries is another possibility with the dual objective of stimulating their activities and reducing rail costs. Finally, the solution of delegating rail services or networks deserves special attention. On the one hand, it could be opportune to apply it in order to redress the "general goods" activity in partnership with a private company. On the other hand, the South Network is highly specialised in the phosphates industry, and it could be conceded to a private company in which the SNCFT could be a shareholder.

Table 21: Summary of the Rail Transport Diagnostic

Jobs SNCFT: 6,000 Turnover SNCFT: 99 MTD (2001) Financial situation Loss: 19 MTD Annual subsidies Yes

Major problems Overstaffed, insufficient productivity; low commercial dynamism Investment planned 375 MTD for the IO" Plan (2002- 2006) Private investment

planned for the 10 h Plan

Experience already - New institutional framework being put in place realised - Restructuring of the organisation of the SNCFT completed Actions in progress - Contracted maintenance of haulage equipment - Financial restructuring of the SNCFT - Reduction of manpower with appropriate compensation. Obstacles Risk of a deterioration of the financial situation of the SNCFT in the long- term Study on prvate participation in infrastructure in Tunisia

Table 22: Proposed Action Plan for Rail Transport

01 IU I1 *0 F.I 0! 0 - Limitation of state controlled works - Concession of the south network (Phosphates) - Study for the preparation of concessions - Partnership with a strategic investor for the management of general goods and container traffic

193. The conditions for modern logistics in Tunisia are not yet in place. In addition to the problems previously described in the various branches of transport, there are many institutional brakes. Express air transport - of primary importance for companies geared towards exports - is a monopoly of Post Rapide, whose performance does not meet the expectations of customers. Liberalisation of this sector is absolutely necessary. The obligation to take out local insurance often only increases the transaction costs, without benefit, of foreign trade. The practices of the customs inspectorate are incompatible with a rapid rotation of merchandise in the ports of entry. The documentary procedures and transmission of data may be substantially improved through the establishment of the company Tradenet - although traders still need to know how to participate in it. A professionalisation of logistical functions is required, starting with the strengthening of transit companies and third-party logistical companies. More generally, Tunisia has to comply with global standards by ratifying all conventions and treaties relating to international and multimodal transport. Local laws that depart from these conventions are factors of uncertainty in the management of transport flows and the sharing of responsibilities relating to them, thereby constituting a real handicap for Tunisia in the "global economy" (trade is curbed, foreign investors are discouraged). Finally, the Logistical Activity Zones (Zone d'Activites Logistiques - ZAL) stipulated in the lo0 Plan are of a nature to fill certain gaps (better link between dense international transport and small-scale national transport), but the strategy for their development has to be refined, in particular with regard to their number, their establishment, and the optimum association of the private sector in their construction and operation. An examination of these questions would be desirable prior to the realisations.

Table 23: Proposed Action Plan for Multimodal And Postal Transport

SJ 1 .0 . '|S S=1

- Elimination of the Poste Rapide monopoly - Creation of a multi-sectoral agency - Softening of regulations on insurance and - Realisation of the priority ZALs opening of the sector to foreign companies. - Information and training actions - Development of the number of international trade operators subscribing to the Tradenet network - Ratification of international conventions on multimodal transport - Development of a strategy to promote Logistical Activity Zones (Zones d'Activites Logistiques) - Softening of the conditions to access the multimodal transporter profession

- Pary,- A4 - Sectoral Aspects of Private Participation in Infrastructure

Electricity and Gas

194. Tunisia has achieved an excellent level of electricity coverage (100% in urban zones and 93% in rural zones in 2001) and a good level of service quality at an affordable price without direct annual subsidies. STEG has around 9,360 employees while it had more than 10,000 in 2000. This fall, despite increased coverage, shows the increase in the effectiveness of the company. These achievements are considerable.

195. The bulk of the production, transport and distribution of electricity, and the distribution of gas, are the responsibility of a vertically integrated public company, the Societe Tunisienne de l'Electricit6 et du Gaz (STEG). A 1996 law abolished the STEG monopoly on electricity production and the first independent electricity producer (IPP) started commercial production in May 2002 in Rades. This 471 MW IPP represents around 15% of the total power currently installed. Its total production is sold to STEG under a long-term energy purchase contract. A second 27 MW IPP in using non- commercial gas from the hydrocarbon reserves in El Biben was signed more recently. A third IPP with a capacity of 500 MW is envisaged for Barka in the Sfax region, using non-commercial gas from the Miskar reserve. A declaration of intent was recently signed between British Gas, the concessionaire of the reserve, and the state for the realisation and operation of the generating station.

196. Investments should go from 1,698 million TD in the 9th Plan to 2,524 million TD in the th 4 2 1 0 Plan (+49%). Historically, STEG has been financially viable, but the increase in the price of Tunisian gas, which is indexed to international price of heavy fuel oil, has led to a deterioration in its final financial performance, and in 2000 it showed a loss of 41.7 million TD. In the same year, the interest cover ratio of STEG fell to less than one, and its self-financing capacity has been considerably reduced. The deterioration in its financial position can be almost entirely attributed to its inability to pass on fuel price increases to its customers through automatic and appropriate price adjustment formulae. This situation was rectified in 2001 and 2002, years in which the net profit after taxes became positive again, reaching 52 MTD (2001) and 45 MTD (2002) respectively, thanks to adjustments in electricity prices.

197. STEG proposes price adjustments to the Ministry of Industry and Energy for examination and approval. The government has a policy of electricity and gas retail price stabilisation. The indexation of gas prices to heavy fuel oil leads to cash surpluses when the world prices of oil products are low, and deficits when the prices are high. There were adjustments to electricity prices in 2000, 2001 and 2003, reaching 4.35%, 2.45% and 5.45% respectively. However, under this policy, STEG has not been authorised to pass on gas price increases in the last few years. Electricity prices in Tunisia are low compared to those of the countries of southern Europe, and even those of certain countries in the MENA region. They are insufficient to ensure the financial equilibrium of STEG if the prices of oil products remain high. The financial viability of STEG is essential to ensure the necessary level of self- financing for the development of the electricity system.

198. The electricity sector is crucial to employment, growth and the competitiveness of the national economy, especially in industrial sectors that use large amounts of energy. In order to do so, and in order to protect consumers in a general way, it is essential to exploit all niches to improve the effectiveness of the electricity system, including comparative competition between subsidiaries on the basis of reliable management accounts, competition among electricity generating stations according to various market models that are yet to be determined, reducing the needs for reserve capacity by continuing regional integration, and recourse to the private sector for all new electricity generating projects.

42 2,092 million TD for electricity and 432 million for gas.

nA~ -C Study on private participation ininfrastructure in Tunisia

Table 24: Summary of the Electricity and Gas Diagnostic

Jobs STEG: 9,406 in 2002 (against 9,415 in 2001 and 9,360 jobs in 2000) Turnover 821 MTD in 2002 (727 MTD in 2001) 9' Plan - Investmnents 1,698 MTD realised 21% private (Radbs II) Financial situation Net positive results of 45 MTD in 2002 and 52 MTD in 2001 against a loss of 41 MTD in 2000 Annual subsidies No Coverage - 100% in urban zone - 95% in rural zone in 2003 (93% in 2001 and 91% in 2000) Continuity Continuous service, very rare blackouts Losses 12% technical losses

Major problems Prices not revised Other problems Gas and electricity in the same company (advantages and disadvantages to be studied) Investment planned 1,851 MTD for the 10' Plan (2002- (560 MTD for production, 457 MTD for transport, 492 MTD for distribution, 2006) 290 MTD for gas, and 52 MTD for others)

Private investment - Breakdown not available planned for the 9th - At least one combined cycle generating station (270 MTD) Plan -:0 I -. . S 1I. Sl : I.0R .^ii Experience already - IPP Radbs 11 (471MW) realised - IPP Zarzis (27MW)

Actions in progress - Study of the institutional options and regulation (KEMA Study) - Negotiations for the Barka project (500 MW) Obstacles - Absence of a clear and explicit sectoral policy, in particular with regard to pricing and the participation of the private sector - Potential increases in effectiveness remain to be identified and exploited

199. Given the small size of the Tunisian electricity market, a competitive wholesale market will not be created easily. The current policy, which enables private investors to invest in electricity production, thus presents certain benefits. But it can only be realised if the financial viability of STEG, threatened by high gas prices, can be re-established. In time, Tunisia could benefit from regional integration within the Maghreb and with Europe in the context of the planned Mediterranean electricity loop, which could create conditions in which a restructuring of the sector and the introduction of competition could bring greater benefits.

200. An important question regarding private participation in the electricity and gas sector is the system for signing contracts. In general, concessions should be granted competitively, through international calls for tenders for projects beyond a certain size. However, calls for tenders often cannot be realised for the commercialisation of non-commercial gas intended for electricity production. In general, the rights to non-commercial gas are included in the operating permits for commercial gas reserves. In this case, the competitive commercialisation of non-commercial gas is impossible, as the operator is entitled to commercialise or bum the gas himself. Tunisian legislation has recognised this situation with the decree on electricity produced from non-commercial gas, which permits private -PaRO66 - Sectoral Aspects of Private Participation in Infrastructure agreements, but with a limit on the capacity of generating stations (less than 40MW). The Zarzis generating station contract was granted on the basis of this decree. All electricity production concessions, except those permitted by the above-mentioned decree, must be done competitively on the basis of the 1996 law, as was the case with the first IPP in Rades. Given its large capacity, the Barka IPP (500 MW, see paragraph 2) does not come under any of these legal frameworks. Its granting is thus subject to the approval of the National Assembly. A study showed that the electricity price is lower than for the first competitive IPP due to the price of non-commercial gas being less than for commercial gas. The case for the commercialisation of non-commercial gas demonstrates that recourse to competition cannot always be systematic. A law on concessions should thus enable exceptions to the principle of competition, but by clearly limiting them and by establishing safeguards, such as approval by the National Assembly, as for the gas of the Barka project. However, a study to analyse the impact of the Barka project on the financial situation of STEG and prices still has to be carried out.

201. An Action Plan for the electricity and gas sector could hinge around two axes: sectoral policy measures and regulatory measures to be taken at a political level (supervisory ministry, Cabinet, Parliament) and reforms of the public company.

202. In terms of sectoral policy and regulation, it is essential to develop the design of the structure and the development of the electricity and gas sectors in the medium and long-term, including a sectoral strategy for the participation of the private sector, a strategy for the evolution towards a competitive system, and a pricing policy. After having defined a sectoral strategy, it could take shape in the form of a new law on electricity and gas, or an amendment to the existing law. At the same time, an economic regulatory unit should be created within the Ministry of Industry and Energy. In time, this unit could develop into a regulatory authority.

203. With regard to STEG, a model for the electricity and gas market should be chosen on the basis of the option presented in the KEMA study, after validation of the financial impact by a complementary study. The establishment of activity centres (production, transport and distribution of electricity, the transport and distribution of gas) is in progress, together with a system of management accounting. A restructuring plan could also be developed, which in time would lead to the formal separation of the activity centres within STEG, including the creation of regional distribution subsidiaries. In the long- term, the concession of distribution at a regional level could be considered. This could be done through a pilot concession in a single region in order to evaluate the performance of the private sector compared to the public distributors, and then to determine the next steps to be taken in relation to the results obtained. The concession could be done with private investment (concession in the narrow sense of the term) or even without private investment in the form of a lease. The establishment of a database is essential in order to objectively evaluate the performance of the subsidiaries and public and private operators. This database should preferably be managed by an independent regulator, although in the initial stage it could be managed by a regulatory unit within the Ministry of Industry and Energy. STEG proposes to start by establishing this database as an objective basis for any audit operation and proposed reform rather than to set it up after the event.

- Don 7 Study on private participation in infrastructure in Tunisia

Table 25: Proposed Action Plan for Electricity and Gas

- :tiS t. .I:1S : I. Policy and - Diagnosis distinguishing the aspects (i) of restructuring, (ii) - Enactment of a new law on regulation financing and (iii) the opening of the market. electricity and gas - Development of a database - Creation of a regulatory - Development of the design of the structure and development of authority (evaluate the the electricity and gas sectors in the medium and long-term possibility to integrate a gas - Analysis of the impact of the new design of the market and the and electricity subsidiary within sector on the financial viability of production, transport and a mulb-sectoral regulator) distribution - Linking of a prices policy for electricity, gas and other oil products - Implementation of a regulatory unit for prices within the Ministry of Industry and Energy - Development of an appropriate legal and regulatory framework for electricity, gas and renewable energy, including arrangements for the participation of the private sector in the new structure and with regional developments taken into account - Establishment of a legal framework to facilitate PPI in renewable energy - Preparation of a plan for the implementation of the new legal and regulatory framework - Creation of monitoring and working groups for the implementation of the reform STEG - Development of a database to enable relevant sector indicators - Formal separation of the gas to be monitored (effectiveness and impact) and electricity activities - Development of the design (market model) and mechanism of - Formal separation of the the electricity and gas market production, transport and - Development of the market organisation, including a pricing distribution activities. system - Creation of an operator of the - Simulation of the economic and financial impacts of these system proposals, and comparison with the current situation - Creation of regional - Development of a plan to implement the restructuring of STEG distribution subsidiaries - Separation of the accounts and creation of centres of activity - Opening of distribution (production, transport and distribution of electricity and gas) subsidiaries to private concessionaires

Possible Launch of a call for tenders for a PPI new IPP ()

Other Development of a database enabling relevant sector indicators to be monitored (effectiveness and impact)

-Dnsn fRR Sectoral aspects of private participation ininfrastructure

Water

204. The Societe Nationale d'Exploitation et de Distribution des Eaux (SONEDE), an autonomous national public company under the supervision of the Ministry of Agriculture, is responsible for the production and distribution of water and industrial water in urban zones and densely populated rural zones. The production and distribution of water in thinly populated rural zones is carried out by the Department of Rural Engineering, which comes under the Ministry of Agriculture. The Department of Major Hydraulic Works, which comes under the same ministry, is responsible for the construction of large dams and irrigation networks.

205. Around 55% of the water resources of SONEDE come from surface water, and 45% from underground sources. SONEDE purchases 40% of its resources and produces the remaining 60% itself from two dams conceded by the state to SONEDE (15%) and from all the underground sources. The performance of SONEDE is very good with respect to regional standards as it ensures the continuous supply of good quality water throughout the year and has the lowest percentage of unaccounted water in the region (around 20% in 2002). In 2002, SONEDE had around 7,038 employees, 5,865 of which were permanent and 1,173 occasional. The number of employees per connection is of the order of 4.1, constantly but slowly reducing: SONEDE can always do better in this respect, the ratio of the two water and sanitation (ONAS) services taken together is of the order of 10 employees per connection, well above international standards.

206. The investments planned by SONEDE should substantially increase, going from 285 million TD in the 9 th Plan to 499 million TD in the 10th Plan (+75%). To a large extent, this is due to relatively costly investments for the transfer of water from the north of the country and for the desalination of seawater in Jerba. Given that water prices in Tunisia are uniform for the whole country, these investments will require substantial price adjustments to conserve the financial equilibrium of SONEDE. It should be noted that the 1997-2001 programme contract (9th Plan) stipulates an annual price increase of 10.5% and a total investment of 381 million TD. The realisations were only 285 million TD, thus reflecting the fact that there were only two price increases in 1999 and 2001, and well below 10.5%. SONEDE proposes price adjustments to the Ministry of Agriculture for examination and approval. SONEDE does not receive direct subsidies from the government. However, if the requested price increases are not approved, the financial viability of SONEDE could be threatened, or its investment plan could be drastically reduced, which is not always desirable when renewal actions are required to preserve the assets and maintain the service quality level.

207. The commitment of SONEDE to supplying the densely populated rural zones has already reached its limits and new extension operations are beginning to reach sparsely populated rural zones. On the one hand, SONEDE already plans to use desalination techniques to satisfy the needs of certain regions of the country. These two directions will increase the marginal cost per cubic metre, and the extension to sparsely populated rural zones will reduce marginal income. For example, in 2001 the average sales price in the rural environment was 0.398 TD/m3 , while the cost price was 0.746 TD/m3 according to the management accounts of SONEDE. The cost of desalinating brackish water varies between 0.601 TD/m3 and 0.783 TD/m3, without including the costs of distribution, while the average sales price in the urban environment is only 0.511 TD/m3 . Study on prvate participation in infrastructure in Tunisia

208. The new Water Code opens the door to private operators for the production of water by unconventional means. Some of the large industrial or tourist consumers, who are currently charged 0.79 TD/m3, corresponding to the highest price on the price scale for households, could turn to unconventional alternative solutions, provided that the associated costs are below the SONEDE price. This is the case for the desalination of brackish water, but this is only available in sufficient quantities in certain locations. With regard to the desalination of seawater, its production cost by small units is significantly higher than the current prices of SONEDE, without taking account of any cost reductions resulting from technological progress. Given that more than 50% of the income of SONEDE comes from 3% of subscribers who represent large consumers, a trend towards self-production could harm the financial viability of SONEDE and erode the basis of the current system of cross- subsidisation.

209. There is increasing pressure on SONEDE to control costs. The current model should be adapted to these new challenges, which threaten the viability of the system and consequently the service quality. The sector will need to increase its effectiveness and all the means able to help realise this objective should be closely analysed. The participation of the private sector in water is one of these means.

210. The water sector in Tunisia has so far only seen very limited private participation. To date, private participation in the water sector is limited to a contracting programme. Despite a 1999 study on contracting, very few activities have been contracted out (security and cleaning). However, the government envisages financing the desalination plant planned for Jerba through a BOT/DBX.

Table 26: Summary of the Water Sector Diagnostic

Jobs SONEDE: 7,038 (5,865 permanent and 1,173 occasional)

Annual tumover 165 MTD in 2002 Investment requirements for the 9h' plan 295 MTD realised (initial programme contract: 382 (1997-2001) MTD, revised programme contract: 302 MTD) Private sector participation (in%) 0% private Amount Financial situation Net profit positive Annual subsidies 0 (the state is responsible for the investment programme to supply rural zones)

Coverage Good coverage: - 100% urban - 82% rural (42% provided by SONEDE) Service quality, continuity Unaccounted for Water = 20% Price level Average price 0.493 TD/m3 (2002) Major problems Low employee productivity

_ D 7n) Sectoral Aspects of Private Participation in Infrastructure

Qualitative objectives of the 10" plan

Investments planned for the 1Oth plan 499 MTD (2002-2006) Main investments planned Expected participation of the private sector 10% i.e. 50 MTD (third-party participation) in investment Ability of the local private sector to Low participate in possible openings

PPI experience already realised Actions in progress - Preparation to contract out activities - Study on the suitability of a BOT for desalination in Jerba

211. The PPI strategy has so far been limited to seeking investment in the form of BOTs for the desalination of seawater. Moreover, the decision has been made to reduce staff levels through contracting. This process should be continued, and even accelerated (but it should not be assimilated to a PPI), and it could provide solutions to the current burden of personnel management, which represents around 44% of operating costs, and thereby facilitate any later PPI.

Sanitation

212. The Office National de l'Assainissement (ONAS), a national independent public organisation supervised by the Department of the Environment, is responsible for the collection, processing and disposal of wastewater in cities, industrial and tourist zones. The mandate of the ONAS also includes protection of the environment. The Directorate of Rural Engineering is responsible for sanitation in rural zones not covered by ONAS, and the municipalities are responsible for collecting and disposing of solid waste as well as drainage systems for the flow of rainwater.

213. The technical performance of ONAS is very good with respect to regional standards, but its effectiveness could be improved, in particular given the relatively high ratio of employees per connection. The very good performance of Tunisia in sanitation is explained by the relatively high recovery of costs. The current downward trend in the recovery of costs is thus worrying. Actions and decisions will have to be taken before a vicious circle sets in. In 2002, ONAS had 5,500 employees, 4,000 of which were permanent and 1,500 occasional. The existence of 66 sewage treatment works in good working order is a remarkable and unique result for borrowers of the Bank in the region. The investments of ONAS should go from 390 million TD in the 9th Plan to 525 million TD in the 10th Plan, i.e. an increase of 32%. Compared to the SONEDE investments in the water sector, investment in the sanitation sector remains higher. This is an important point as in the majority of other developing countries sanitation is neglected with respect to water supplies. The corollary is that sanitation prices are high with respect to regional standards, showing a sustained effort in the collection of costs which is absent in almost all other developing countries. However, there was a price freeze from 1998 to 2003 while the operating costs grew on average by around 10%. Since then, ONAS has seen its financial situation deteriorate and its self-financing

D--- 74 Study on prvate participation in infrastructure in Tunisia capacity erode. The operating deficits have grown exponentially, reaching 8.4 MTD in 2002, and at least 13 MTD in 2003. In order to maintain the financial equilibrium of ONAS, annual subsidies had to be granted by the government of around 50 MTD, i.e. doubled by the year 2006. This would seem difficult to sustain. Personnel costs represent around 43% of operating costs, and the pressure is already increasing on ONAS to find financing mechanisms for certain investments planned under the 10* Plan.

214. Sanitation fees are invoiced and collected by SONEDE, which corresponds to good international practices on the one hand, but on the other it makes it impossible for ONAS itself to improve the collection of the bills from its customer accounts.

215. The participation of the private sector in sanitation is slightly more advanced than in the water sector. ONAS initiated the contracting of maintenance services for the drainage networks in 1997. Since then, three contracts have been awarded covering less than 12% of the drainage network. Another contract for the restoration and operation of three sewage treatment works had to be cancelled because of the poor performance of the operator. It is envisaged contracting out 19% of the operation of the drainage network between now and 2006. Altogether, even if the performance of the three other contractors is good, the possibilities for private participation remain limited in the absence of reforms. The operators - Tunisian companies and joint ventures with foreign companies - are disappointed by the slowness of the transactions, the bureaucratic administration of contracts, and the short duration of contracts, which are legally limited to a maximum of five years. A BOT for a new sewage treatment works in Tunis has been planned for many years, but it has been delayed several times because of changes to the site location and an inappropriate legal framework, among other reasons.

Table 27: Summary of the Sanitation Diagnostic

Jobs ONAS: 5,500 jobs Annual turnover 92 MTD in 2002 Investment in the 9h plan (1997-2001) 397 MTD envisaged and realised Private sector participation (in%) 0% private Amount 0 Financial situation Net negative result in 2002 (-8.3 MTD) Annual subsidies Yes (compensatory income and investment)

Coverage Good coverage: - Connection rate in zones covered by ONAS: 83% - Collection rate: 80% - Treatment rate: 96.5%

Service quality, continuity Good 3 Price level Average rate: 0.394 TD/m (2002) Major problems - Uncertainty about price adjustments - Low productivity of personnel

- PsnA 72 - Sectoral Aspects of Private Participation in Infrastructure

Qualitative objectives of the 10m plan

Investments required for the 10th plan (2002- 525 MTD 2006)

Main planned investments Expected participation of the private sector in 0% investment Ability of the local private sector to participate Moderate in possible openings

PPI experience already realised 3 service contracts for the sanitation networks Actions in progress Evaluation of the experience of service contracts Obstacles - Contract duration too short - Absence of legal basis for concessions/BOT

216. The PPI strategy has so far been limited to looking for investments in the form of BOTs for sewage treatment works in Tunis and contracting out drainage network maintenance activities. ONAS is currently setting up a PPI programme for operating sewage treatment works. However, without an overall vision, private sector participation risks burdening the operating charges of ONAS if it is not accompanied by a redeployment of human resources.

*:* Basic strategyfor water and sanitation

217. In the water and sanitation sector, to date there has been no clear sectoral strategy for private sector participation. The two sub-sectors are administered by two national public companies, which until September 2002 were supervised by two different ministries. These two ministries have since merged. This presents an opportunity for joint consideration by the two sub-sectors in order to satisfy and adapt the Tunisian model to future challenges. This consideration could also end up in a common strategy for the participation of the private sector in order to exploit all possible niches to improve the effectiveness of public companies.

218. Given the above pressures that the sector is facing, it would be prudent to now start a debate on the performance of the water and sanitation sector and on the reforms needed to meet and adapt the Tunisian model to future challenges. The ideas include the identification of actions to strengthen the development and implementation of sectoral policies and institutional reinforcement, at the supervisory level and in SONEDE and ONAS, without forgetting the role of the private sector. This is in a general framework that would take account of the budgetary and macroeconomic constraints as well as the strategic orientations of the government in other sectors, in particular the environment and water resource management. The strategic thinking could include:

- The development and study of options for reforming the current structure of the sector (monopolistic system with a national operator for water and another for sanitation) on the basis of past successes in order to eliminate constraints on future development, perhaps with the following objectives:

- D.- 71 Study on private participation in infrastructure in Tunisia

i. Reinforcing the separation of the development of sectoral policies and of the provision of services. ii. Improving the self-financing capacity and the mobilisation of sources of finance. iii. Increasing the effectiveness of the operators. - Linking a pricing policy and public subsidies to the budgetary constraints and to the coverage and service level objectives of the five-year Development Plans. - The rationalisation of the approval process for price adjustments (by indexing prices for example). - The development of a legal framework to facilitate the participation of the private sector in order to foster productivity gains in the water sector.

219. The development of the two sub-sectors for water and sanitation requires a more precise control of costs, in particular purchasing costs and personnel costs. One of the ways of achieving this cost control is to create competition between the different entities. In general, the possibilities for competition in the water and sanitation sector are limited, as it is a natural monopoly.43 One of the possibilities would consist of setting up a comparative evaluation and increasing the pressure for better performance (competition by comparison). There could thus be attention on the structure of the companies at a functional and geographic level while taking account of the characteristics of the country, in particular the importance of the functions of collection - conveyance. Any gains in effectiveness from the separation of the collection, conveyance and processing activities from the distribution activity should be evaluated (for SONEDE), and also from the separation of the purification activities from the collection of sewage (for ONAS), as well as any gains in effectiveness from the creation of regional entities for the distribution of water, and the maintenance and operation of sewage networks. The establishment of regional subsidiaries or companies would enable their performance to be compared to one another. Decentralisation at a regional level would also have the advantage of bringing the user decision centres closer and of preparing for greater PPI at a later stage. The trend on an international scale is towards the integration of water and sanitation services in the same company, which in the majority of countries is established on a municipal or regional scale. In addition, a more sustained effort to contract out certain services to the private sector would increase the effectiveness of the sector. Regionalisation in Tunisia should be considered jointly between SONEDE, ONAS and the supervisory authority while taking the specific Tunisian characteristics into account. If feasible, these ideas could be put into practice by pooling resources, or possibly, in time, via a private sector participation experiment in the form of leases for one of the regions.

Table 28: Proposed Action Plan for Water Supply and Sanitation

Policy and - Development of an assessment and plan - Approval of the legislative framework regulation to reform the current structure of the to facilitate the participation of the sector (monopolistic system with a private sector and the implementation national operator for water and another of structural reforms of the water and for sanitation) on the basis of past sanitation sector successes in order to eliminate - Implementation of reforms constraints to future development

43 This does not prevent competition for the market in the form of calls for tenders, but competition in the market as such, for example as in the telecommunications sector, is not possible.

- Aa 7d - Sectoral Aspects of Private Participation in Infrastructure

- Linking of a pricing policy and public - Introduction of a database to compare subsidies for coherent water and performance indicators between sanitation services to budgetary regions and publication of the data constraints and coverage and service level objectives - Rationalisation of the approval process for price adjustments (possibly a price indexation formula while taking account of a productivity improvement factor) - Development of a sectoral legal and regulatory framework to facilitate the participation of the private sector and the implementation of structural reforms for the water and sanitation sector - Creation of monitoring groups and working groups for the formulation and implementation of reforms SONEDE Consider the creation of regional distribution Depending on the results of the Reform subsidiaries, to be considered jointly with Plan (Short-term Action), possibly ONAS consider the opening of distribution subsidiaries to private concessionaires

ONAS - Consider the creation of regional Depending on the results of the Reform distribution subsidiaries, considered jointly Plan (Short-term Action), possibly with SONEDE consider the opening of distribution - Rationalisation of the organisational subsidiaries to private concessionaires structure, possibly with the assistance of experts or specialised consultancies, in order to reverse the current trend of increasing costs of personnel and equipment, and in order to satisfy the need to redeploy human resources as the plan to promote the participation of the private sector is implemented

Possible PPI Decision on the appropriateness and - Depending on the results of the conditions for a PPI for the desalination Reform Plan (Short-term Action), plant in Jerba possibly consider regional concessions/leases combining water and sanitation - Possibly grant regulatory functions to a sectoral or multi-sectoral regulatory structure - If regional concessions/leases are rejected, or if they are geographically limited, increase the contracting of the management of the sanitation network and sewage treatment works through longer-term contracts and terms of reference based on results instead of effort - In the same case, introduce contracting according to the same principles for water

D0- 7r Study on private participation in infrastructure in Tunisia

Other Accelerate the process for adopting laws relating to the compulsory conditions for concessions and unconventional water resources

Solid Waste

220. The solid waste management sector consists of three sub-sectors: the collection, transfer and disposal of solid waste. The collection of solid waste in Tunisia is the responsibility of the municipalities. In principle, its transfer and disposal are also the responsibility of the municipalities, but in 1996 the government gave the Agence Nationale de Protection de l'Environnement (ANPE) the responsibility to develop a strategy for the integrated management of solid waste. Further to this, ANPE took on the role of leader in the planning and implementation of the transfer and disposal of solid waste.

221. There are only limited data and practically no monitoring systems for measuring the performance, costs and employment linked to solid waste management in Tunisia. While the quality of the collection of solid waste seems to be reasonable, its disposal continues to contend with technical and financial problems. In many towns, there are no suitable dumps, which among other things risks contaminating groundwater. Tunisia has just built and commissioned the first modem dump in the Maghreb close to Tunis. Unfortunately, this project, which is in its initial stage of operation, is encountering persistent technical problems.

222. Investment in solid waste management should increase considerably, going from 29

million TD in the 9 th Plan to 96 million TD (+231%) in the 10th Plan, with the bulk of investments being on transfer and disposal. Given that there is no user fee for the collection of solid waste in Tunisia, the recovery of costs is a considerable issue. The municipalities cover the costs of solid waste management through taxes. They generally pay for the collection of solid waste but are unable to pay for its transfer and disposal, such that the invoices issued by ANPE to the municipalities for these services generally remain unpaid. The new municipal tax code enables the municipalities to impose charges on users for non- domestic waste, but it is doubtful that this measure alone will give the sector a sound financial base. Without a definite financial solution, the institutional efforts will generally remain unsuccessful (see above).

223. The private sector participates in the collection and disposal of solid waste in Tunisia. With regard to collection, contracting was initiated in 1997 and currently 36 municipalities use private collection services, essentially provided by Tunisian companies. The experience has been mixed and in certain cases the municipalities have gone back to providing the public service after they have been unable to meet their payment obligations towards private companies, or after the disappointing performance of private operators. With regard to the transfer and disposal of solid waste, a management contract was concluded for Tunis and others are planned for the future. However, the role of the private sector has been limited to the management of operations, without exploiting the potential of integrated planning and management. The private sector should preferably be used in long-term contracts for the design, construction and operation of integrated solid waste management systems. This is not feasible in the current legal framework which limits the duration of contracts with the private sector to five years. The role of the private sector in financing investments for solid waste

- Paoe 76 - Sectoral Aspects of Private Participation in Infrastructure installations will probably remain limited, given the considerable involvement of sponsors in this sector. However, the introduction of a cost recovery system that covers all the regular costs of collection, transfer and suitable disposal of waste will remain an urgent priority for Tunisia.

Table 29: Summary of the Solid Waste Management Diagnostic

Jobs Not available Annual turnover Not available Investment requirements of the 9th plan (1997- 29 MTD 2001)

Annual subsidies - Collection, transport: Yes - Treatment: Yes (outstanding payments of the

Coverage - Satisfactory for collection - Very unsatisfactory for treatment Price level Non-existent cost collection system Major problems Collection Transport Treatment Contamination of groundwater, surplus lixiviates

Qualitative objectives of the 9"' plan Investment requirements of the 10th plan (2002-2006) 96 MTD

Main investments planned 42.4 MTD disposal sites, sorting and transfer centres (100% EU financing). Disposal of hazardous waste (Djeradou): 2.85 MTD including 1.35 before the 10 th plan Expected participation of the private sector in Nothing for the moment for the transfer and investment disposal of waste Ability of the local private sector to participate Collection, transport: moderate to strong in possible openings Treatment: moderate

PPI experience already realised Collection, transport: out of 51 contracts concluded at the start, 29 are currently operational - Greater Tunis Disposal site (only for management) - Sorting and recycling of packaging Actions in progress Study of the Greater Tunis disposal site (METAP) Obstacles to collection and transport - No fee - Contracts limited to 5 years - Geographic limitation of contracts leading to uncertain cost effectiveness

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Obstacles to treatment - Contracts limited to 5 years - Multitude of contracts (design, construction, supervision, management) for the same disposal site, and disputes resulting from them - ANPE combines commercial and regulatory roles

224. In the solid waste management sector, there is an urgent need to establish and implement a sectoral strategy, including a strategy for private sector participation. The main problem of the sector is the absence of an appropriate cost recovery system. Despite the small amount to recover - around 10 MDT per year at the current point in time, equivalent to less than 1% of the turnover of the telecommunications and energy sectors - it seems to constitute a substantial problem. The proposals to solve the problem seem to create difficulties concerning the impact on household income, or which are of an institutional or legal nature. The proposals include the introduction of a municipal fee billed separately on a quarterly basis instead of the annual local tax, the introduction of a surcharge on the bills for other services such as water and electricity, or the reform of local taxation in order to give better incentives to improve cost collection, as well as possibly granting municipalities the right to change the local tax rates without central approval. Irrespective of the option chosen, without the introduction of a cost recovery system, the durability of the investments realised and in progress in the sector is j eopardised and the participation of the private sector risks failing.

225. Another fundamental problem is the institutional responsibility for the sector. The legislation in force clearly allocates responsibility to the municipalities, but in view of their financial weakness and weak human resources, the state has had to entrust responsibility for the transfer and disposal of solid waste to the Agence Nationale de Protection de l'Environnement (ANPE). This arrangement can only be an interim solution. In time, the commercial and regulatory functions, currently combined within the ANPE, must be separated. There are a number of ideas, including the creation of a Solid Waste Agency, and intermunicipal links to achieve economies of scale.

226. The third problem is the contractual construction for dumps. Currently, four contracts are awarded for each dump: for the design, realisation, supervision and operation. This contractual construction is difficult for ANPE to manage, and leads to conflicts between the different participants which are often not easy to solve. In addition, given the absence of a sectoral or horizontal legal framework for concessions, contracts beyond five years are not allowed, which is not suited to the nature of the services in the sector. Legal reforms enabling the realisation of dumps in the form of DBX, according to the experience of other countries such as Hong Kong, could help solve this problem.

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Table 30: Proposed Action Plan for Solid Waste Management

- Study of the options for introducing a viable cost recovery - Implementation of a cost recovery system system (on a municipal scale or by a surcharge on - Creation of a solid waste agency or water/electricity bills) transfer of the regulatory functions to a - Clarification of the roles of the municipalities and ANPE multi-sectoral regulatory structure - Separation of the regulatory and commercial activities of ANPE/the future regulator of the sector - Decision on the regulation of the sector, taking the results of the METAP study into account - Change of legislation to increase the duration of contracts (possibly to be covered by a law on concessions)

Integration of multiple contracts in a unique contractual Implementation of new dumps in the form of framework of the DB(X) type DB(X)

Strengthen the ability of the municipalities to award and Development of a database enabling the monitor contracts monitoring of the sector's relevant indicators (effectiveness and impact)

D.- 70

Suggested Reading

PRIVATE PARTICIPATION IN INFRASTRUCTURE

* Brook J. Penelope and M. Suzanne Smith (2002). "Delegation de services collectifs". Banque Mondiale. * Estache, Antonio, Vivien Foster, and Quentin Wodon (2002). "Accounting for Poverty in Infrastructure Reform - Learningfrom Latin America 's Experience". WBI Development Studies. World Bank. * Gray, Philip and Timothy Irwin (June 2003). "Public Policy for the Private Sector, Exchange Rate Risk". Note Number 262. World Bank. * Guislain, Pierre and Michel Kerf (1995). "Concessions: the way to privatise infrastructuressector monopolies", Viewpoint 59. World Bank. * Guislain, Pierre (1995). "Les privatisations: un defi strategique, juridique et institutionnel". Bruxelles. * Harris, Clive (2003). "Private Participation in Infrastructure in Developing Countries, Trends, Impacts and Policy Lessons". World Bank. * Institut de la Banque mondiale / PPIAF / Consultatores Macro Energia (2002). "Modelisation financiere des politiques de regulation. Introduction thetorique et pratique". * Kerf, Michel and others (1998). "Concessions for Infrastructure - A Guide to Their Design andAward". Technical Paper No. 399. World Bank. * Martimort, D et Rochet, J.C. (1999). "Le partage public/prive dans le financement des infrastructures",Revue Francaise d'Economie. * Martinand, C. (1998). "L'experience francaise du financement prive' des equipements publics", Ministere de l'Amenagement du Territoire, de l'Equipement et des Transports. * Perrot, Jean-Yves et Chatelus, Gautier (2001). "Financement des infrastructures et des services collectifs - Le recours au partenariatpublic-prive", Ministere de l'Equipement, des Transports et du Logement. * Public Private Infrastructure Advisory Facility / World Bank (2001). "Toolkit - A Guide for Hiring and Managing Advisors or Private Participation in Infrastructure". (www.ppiaforg). * "Rapport sur le developpement dans le monde 2004. mettre les services de base a la portee des pauvres" (2003). Banque Mondiale. * Republic of Tunisia / World Bank (2000). "Private Sector Assessment Update. Meeting the Challenge of Globalization". * Republique Tunisienne, Ministere du Plan et du Developpement Regional / USAID / COMETE Engineering (1995). "Etude sur la production et le financement des infrastructureset services urbains".

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* Smith, R. Graham, Nemat Shafik, Pierre Guislain, James A. Reichert (1997). "Getting Connected, Private Participationin Infrastructure in the Middle East and North Africa". World Bank. * Welch, Dick and Olivier Fremond (1998). "The case-by-case Approach to Privatization- Techniques and examples". Technical Paper No. 403 (1998). World Bank.

TELECOMMUNICATIONS

* Republique tunisienne / Banque mondiale (2002). "Technologies de l'information et des communications. Contributiona la croissance et a la creiation d'emplois". * Rossotto, Carlo Maria, Khalid Sekkat and Aristomene Varoudakis (2003). "Opening up Telecommunications to Competition and MENA Integrationin the World Economy". Middle East and North Africa, Office of the Chief Economist, Working Paper Series No. 33. World Bank. * World Bank. Hank Intven McCarthy Tetrault (2000). "Telecommunications Regulation Handbook". TRANSPORT * Banque mondiale (1997). "Tunisie. Etude sur la strategie des transports". Etudes Economiques de la Banque Mondiale sur le Moyen-Orient et l'Afrique du Nord. * Muller-Jentsch, Daniel (2002). "Transport Policies for the Euro-Mediterranean Free- Trade Area ". An Agenda for Multimodal Transport Reform in the Southern Mediterranean". * Republique Tunisienne, Ministere du Transport, Direction Generale de la Planification et des Etudes, DGPE (2002). "Plan Directeur National des Transports, Privatisation & Financement". Rapport No. 4, version provisoire. * Republique Tunisienne, Ministere du Transport (Juillet 1998). "Etude du Cadre General des Concessions dans le Secteur des Transports". * Silva, Gisele F. (1999). "Private Participation in the Airport Sector - Recent Trends, Public Policyfor the Private Sector", Viewpoint Note No. 202. * World Bank / PPIAF (without year). Port Reform Toolkit. * World Bank (1995). "Airport Infrastructure. The Emerging Role of the Private Sector. Recent Experiences on IO Case Studies ". CES Discussion Paper Series, No. 115.

ELECTRICITY

* Albouy, Yves (1999). "Regulationfor InfrastructureSectors: How to Adapt it to Country Institutions, Proceedings of the Annual Meetings of the African Development Bank". * Albouy, Yves and Reda Bousba (1998). "The Impact of IPPs in Developing Countries - Out of the Crisis and into the Future ", Public Policy for the Private Sector, Viewpoint Note No. 162. * Bacon, Robert. World Bank (1995). "Appropriate Restructuring Strategiesfor the Power GenerationSector - The Case of Small Systems ".

-Paqe 82 - Suggested Reading

* Banque mondiale / STEG / Ministere de l'Industrie / KEMA Consulting (2003). "Reforme du Secteur de Productionde V'Electricite en Tunisie". * Besant-Jones, Bernard Tenenbaum (2001). "Les le,ons de la crise de l'einergie en Californie", Finances & Developpement, Septembre 2001, p. 24-28. * Lalor, Peter and Hernan Garcia (1996). World Bank Viewpoint Note No. 85. "Reshaping Power Markets - Lessons from Chile and Argentina". * Miiller-Jentsch, Daniel (2001). World Bank Technical Paper No. 491. "The Development of Electricity Markets in the Euro Mediterranean Area - Trends and Prospects for Liberalisationand Regional Integration". * Republic of Tunisia / Ministry of Industry / World Bank / Mitsubishi Research Institute / PA Consulting Group (2001). "Study and Evaluation of the Negotiations for the Privatizationof Infrastructurein Tunisia: The Case of Rades II IPP ". * Republique Tunisienne / Ministere de l'Industrie / Observatoire National de l'Energie (sans annee). "20 ans d'energie, Revue Tunisienne de V'Energie". WATER AND SANITATION * Republique Tunisienne / MEAT / ONAS (2002). "La Participationdu Secteur Prive dans le Domaine de l 'Assainissement Liquide en Tunisie". * Republique Tunisienne / MEAT / ONAS / IDEA Tunisie (2001). "Actualisation de la strategie de participationdu secteur prive dans le domaine de l 'assainissementliquide". * Rivera, Daniel. "Private Sector Participationin the Water Supply and Wastewater Sector, Lessons from Six Developing Countries ". * World Bank (1997). "Toolkits for Private Participationin Water and Sanitation".

SOLID WASTE * Agence Nationale de Protection de l'Environnement (ANPE). "La comptabilite' analytique dans les services de proprete des communes, Guide Pedagogique". * Banque mondiale / Agence Nationale de Protection de l'Environnement (ANPE) / Ernst Basler+Partner / IDEA (2003). "Gestion des ordures menageres dans le Grand Tunis". * World Bank. Cointreau-Levine, Sandra and Adrian Coad (2000). "Solid Waste Management Toolkit. Private Sector Participation in Municipal Solid Waste Management".

GENERAL

* Banque Mondiale (1996). "Tunisie. Integration mondiale et developpement durable, Choix strategiquespour le 21eme siecle". Etude Economiques de la Banque Mondiale sur le Moyen-Orient et l'Afrique du Nord. * Banque Mondiale (1995). "L'Etat Chef d 'Entreprise, Aspects Economiques et Politiques de la ProprietcePublique, Resume". * Republique Tunisienne (2002-2006). "Le Dixieme Plan de De'veloppement".

D-,. QS Study on pnvate participation ininfrastructure in Tunisia

ECONOMIC IMPACT OF THE LIBERALISATION OF SERVICES * Banque Mondiale (2002). "Global Economic Prospects and the Developing Countries, Making Trade Workfor the Worlds ' Poor", The World Bank, Washington DC * Institut d'Economie Quantitative (2003). "Simulation d'impact d'une ouverture concurrentielle dans les services Transport et Thlkcommunications avec prise en compte de la concurrence imparfaite", Version provisoire, Octobre 2003, Tunis. * Konan, D. and K.Kim (2003). "From Here to There: Trade Reform in Tunisia and Egypt", Background paper, April 2003, processed. * Konan, D. And K. Mascus (2002). "Quantifying the Impact of Services Liberalisationin a Developing Country", Background paper, April 2002, processed. * Konan, D. and K. Mascus (2000). "Service Liberalisation in WTO 2000: A Computable General Equilibrium Model of Tunisia". * Lovelock, P. et B. Petrazzini (1996). "Telecommunications in the Region: Comparative Case Studies", Paper presented at the International Institute for Telecommunications Forum, Sydney, Australia, April 22-23. * Mattoo, A., R. Rathindran and A. Subramanian (2001). "Measuring Service Trade Liberalisationand Its Impact on Economic Growth: An Illustration",World Bank Policy Research Working Paper No. 2655, World Bank, Washington D.C. * OECD (2003). "Services Trade Liberalisation: Identifying Opportunities and Gains, Policy Brief', Paris. * OECD (2002). "Quantifying the Benefits of Liberalizing Trade in Services", Policy Brief, Paris. * Rauf Gonenc & Maria Maher & Giuseppe Nicoletti (2000). "The implementation and the effects of regulatory reform: past experience and current issues", OECD Economics Department Working Papers 251, OECD Economics Department. * Robinson, S., Z. Wang and W. Martin (1999). "Capturing the Implications of Services Trade Liberalisation", Paper presented at the Second Annual Conference on Global Economic Analysis, GL Avernaes Conference Center, Ebberup, Denmark, June 20-22. * Varoudakis, A. K.Sekkat et C. Rossotto (2003). "Opening Up Telecommunications to Competition and MENA Integration to the World Economy". MENA Working Paper Series, No 33, July 2003, The World Bank, Washington DC

A wide range of reports on PPI, a considerable proportion of which are cited above, is available in English on the Internet site: http://rru.worldbankorg/ppi/

- Pann R4 -

Ministere Tunisien du Developpement et de la Cooperation Internationale Place Ali Zouaoui Tunis, Tunisie Tel: 216-71-240-133

The World Bank

The World Bank 1818 H St. NW Washington, DC 20433 USA Tel: 1-202-473-1000 Internet: HYPERLINK "http://www.worldbank.org" www.worldbank.org

PPMI

Private Participation in Mediterranean Infrastructure A joint World Bank/European Commission Programme Tel: 32-2-552-00-49 Internet: HYPERLINK "http://www.ppmi.org" www.ppmi.org

_ P UBJLIQ. PRIVAI F I RR',IR A U ( TUJRF ADVISA ORY F AC I I TYI

Public Private Infrastructure Advisory Facility (PPIAF) 1818 H. St. NW Washington DC 20433 USA Tel: 1-202-458-5588 Internet: www.ppiaf.org