Document of The World Bank
FOR OFFICIAL USE ONLY Public Disclosure Authorized Report No: PAD694
INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT
PROJECT APPRAISAL DOCUMENT
ON A
PROPOSED LOAN
Public Disclosure Authorized IN THE AMOUNT OF EUR 92 MILLION AND US$ 31.72 MILLION (US$ 158.6 MILLION EQUIVALENT)
TO THE
OFFICE NATIONAL DE L'ELECTRICITE ET DE L'EAU POTABLE
WITH THE GUARANTEE OF THE KINGDOM OF MOROCCO
FOR A Public Disclosure Authorized RURAL WATER SUPPLY PROJECT
APRIL 3, 2014
Sustainable Development Department Middle East and North Africa Region Public Disclosure Authorized This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS (Exchange Rate Effective February 28, 2014)
Currency Unit = Moroccan Dirham (MAD) EUR I = MAD 11.2234 USD 1 = MAD 8.13705 EUR I = USD 1.3793
FISCAL YEAR January 1 - December 31
ABBREVIATIONS AND ACRONYMS CAS Stratigie d'Assistance Pays Country Assistance Strategy CPS Stratigie de PartenariatPays Country Partnership Strategy CR Commune Rurale Rural Municipality DA Compte D&signd Designated Account DAE Direction de l'Assainissement et de Sanitation and Environment Department l'Environnement (ONEE) (ONEE) DEP Direction de la Gindralisationde l'Eau Department for Universal Access to Potable Potable (ONEE) Water (ONEE) DGCL Direction Gindrale des CollectivitisLocales General Department of Local Communities DGH Direction Gindrale de l'Hydraulique General Department of Hydraulics DM DirhamsMarocains Moroccan Dirhams DR DirectionsRdgionale Regional Departments EIA Evaluationd 'ImpactEnvironnemental Environmental Impact Assessment ESMP Plan de Gestion Environnemental et Social Environmental and Social Management Plan ESW Analyse Economique et Sectorielle Economic and Sector Work FMR Rapport de Suivi Financier Financial Monitoring Report GDP ProduitInt&rieur Brut (PIB) Gross Domestic Product GEP Programmede Gindralisationde l'Eau Universal Water Access Programme Potable GG Gardien Gerant Standpipe Caretaker GOM Gouvernement du Maroc Government of Morocco GPN Notice Gindrale de Passationdes Marchis General Procurement Notice GPOBA PartenariatGlobal pour l'Aide Basee sur les Global Partnership on Output Based Aid Resultats HC Connection Individuelle House Connection IBRD Banque Internationalepour la International Bank for Reconstruction and Reconstruction et le Diveloppement Development ICB Appel d'Offres International International Competitive Bidding IFR Rapport FinancierIntermidiaire non audit Interim unaudited Financial Report IRR Taux de RentabilitiInterne Internal rate of return INDH InitiativeNationale de Diveloppement National Human Development Initiative Humain MDG Objectifs de Diveloppement du Millinaire Millennium Development Goals M&E Suivi et Evaluation Monitoring and Evaluation MEMEE Ministere de l'Energie, des Mines, de l'Eau Ministry of Energy, Mines, Water and et de l'Environnement Environment MENA Moyen-Orient et Afrique du Nord Middle East and North Africa NCB Appel d'Offres National National Competitive Bidding NPV Valeur Actuelle Nette Net Present Value OBA Aide Base sur les Rssultats Output Based Aid O&M Exploitation Operation and Maintenance OMEX Dipenses d'Exploitation Operations and Maintenance Expenses ONEP Office National de l'Eau Potable National Potable Water Utility ONEE Office National de l'Electricitiet de l'Eau National Electricity and Potable Water Potable Utility ONE Office National de l'Electriciti National Electricity Utility PAGER Programmed'Approvisionnement Groupd en Rural Water Supply Program Eau Potable des PopulationsRurales PDO Objectif de Diveloppement du Projet Project Development Objective PHRD Diveloppement de la Gouvernance et des Policy and Human Resources Development Ressources Humaines PIM Manuel des Operations Project Implementation Manual PNA ProgrammeNationale d'Assainissement National Sanitation Program PNAR ProgrammeNationale d'Assainissement National Rural Sanitation Program Rural PPP PartenariatPublic-Privd Public Private Partnership PV Valeur Actuelle Present Value QCBS SOlection Basde sur la Qualiti et le Coiut Quality and Cost Based Selection RAP Plan d'Acquisition des Terrains Resettlement Action Plan RPF Plan Cadre d'Acquisition de Terrains Resettlement Policy Framework RWS Approvisionnement en eau potable en milieu Rural Water Supply rural RWSP Projetd'approvisionnement en eau potable Rural Water Supply Project en milieu rural RWSS Approvisionnement en eau potable et Rural Water Supply and Sanitation assainissementen milieu rural RWSSP Projet d'approvisionnementen eau potable Rural Water Supply and Sanitation Project et assainissementen milieu rural SMT Equipe de Mobilisation Sociale Social Mobilization Team SOE Etat de ddpenses Statement of Expenses SP Borne-Fontaine Standpipe (public) TA Assistance Technique Technical Assistance VAT Taxe sur la Valeur Ajoutie Value Added Tax VSL Valeur Statistique de la Vie Value of Statistical Life WSS Approvisionnement en eau potable et Water Supply and Sanitation assainissement WTP Usine de Traitement d'Eau Water Treatment Plant WUA Association d'Usagers Water User's Association
Regional Vice President: Inger Andersen Country Director: Neil Simon M. Gray Sector Director: Junaid Kamal Ahmad Sector Manager: Steven N. Schonberger Task Team Leader: Xavier Chauvot De Beauchene
KINGDOM OF MOROCCO Rural Water Supply Project
TABLE OF CONTENTS
Page
I. STRATEGIC CONTEXT ...... 1 A. Country Context ...... 1...... B. Sectoral and Institutional Context...... 1 C. Higher Level Objectives to which the Project Contributes ...... 4
II. PROJECT DEVELOPMENT OBJECTIVES ...... 5 A. PDO...... 5 B. Project Beneficiaries ...... 5 C. PDO Level Results Indicators...... 5...... 5
III. PROJECT DESCRIPTION ...... 6 A. Project Components ...... 6 B. Project Financing ...... 7 C. Lessons Learned and Reflected in the Project Design...... 8
IV . IM PLEM ENTATION ...... 11 A. Institutional and Implementation Arrangements ...... 11 B. Results Monitoring and Evaluation ...... 12 C. Sustainability...... 12
V. KEY RISKS AND MITIGATION MEASURES...... 15 A. Risk Ratings Summary Table ...... 15 B. Overall Risk Rating Explanation ...... 15
VI. APPRAISAL SUMMARY ...... 15 A. Economic and Financial Analyses ...... 15 B. Technical ...... 18 C. Financial Management...... 19 D. Procurement ...... 19 E. Social (including Safeguards) ...... 20 F. Environment (including Safeguards) ...... 22 ANNEXES
Annex 1: Results Framework and Monitoring ...... 25
Annex 2: Detailed Project Description...... 34
Annex 3: Implementation Arrangements ...... 45
Annex 4: Operational Risk Assessment Framework (ORAF)...... 66
Annex 5: Implementation Support Plan ...... 69
Annex 6: Economic and Financial Analysis of the Project ...... 71
Annex 7: Financial Analysis of ONEE ...... 81 PAD DATA SHEET Morocco Rural Water Supply Project (P145529) PROJECT APPRAISAL DOCUMENT
MIDDLE EAST AND NORTH AFRICA MNSWA
Report No.: PAD694
Basic Information Project ID EA Category Team Leader P145529 B - Partial Assessment Xavier Chauvot De Beauchene Lending Instrument Fragile and/or Capacity Constraints [ ] Investment Project Financing Financial Intermediaries [ ] Series of Projects [ ] Project Implementation Start Date Project Implementation End Date 29-Apr-2014 31 -Mar-2021 Expected Effectiveness Date Expected Closing Date 30-Jun-2014 30-Sep-2021 Joint IFC No Sector Manager Sector Director Country Director Regional Vice President Steven N. Schonberger Junaid Kamal Ahmad Neil Simon M. Gray Inger Andersen
Borrower: Office National de l'Electricit6 et de lEau Potable (ONEE) Responsible Agency: Office National de l'Electricit6 et de lEau Potable (ONEE) Contact: Samira Badri Title: Direction Financi&e Telephone Email: [email protected] No.:
Project Financing Data(in USD Million) [X] Loan [ ] Grant [ ] Guarantee ] Credit [ ] IDA Grant [ ] Other Total Project Cost: 223.60 Total Bank Financing: 158.60 Financing Gap: 0.00
1 Financing Source Amount Borrower 65.00 International Bank for Reconstruction and 158.60 Development Total 223.60
Expected Disbursements (in USD Million) Fiscal 2014 2015 2016 2017 2018 2019 2020 2021 2022 Year Annual 0.00 5.00 15.00 20.00 30.00 30.00 35.00 23.60 0.00 Cumulati 0.00 5.00 20.00 40.00 70.00 100.00 135.00 158.60 158.60 ve
Proposed Development Objective(s) The project development objective (PDO) is to provide access to safe and reliable drinking water supply for rural communities in targeted underserved areas in the Project area.
Components
Component Name Cost (USD Millions) Component 1: Extension of access to water supply through 194.20 standpipes in selected provinces within the Project area Component 2: Supporting the shift towards water service 15.20 delivery through house connections in the Project area Component 3: Implementation Support and Capacity Building 13.80
Institutional Data
Sector Board Water
Sectors / Climate Change Sector (Maximum 5 and total % must equal 100)
Major Sector Sector % Adaptation Mitigation Co-benefits % Co-benefits % Water, sanitation and flood protection Water supply 100
Total 100
I certify that there is no Adaptation and Mitigation Climate Change Co-benefits information applicable to this project.
ii Themes
Theme (Maximum 5 and total % must equal 100) Major theme Theme % Rural development Rural services and infrastructure 100 Total 100
Compliance Policy Does the project depart from the CAS in content or in other significant respects? Yes [ ] No [X]
Does the project require any waivers of Bank policies? Yes [ ] No [ X]
Have these been approved by Bank management? Yes [ ] No [ ]
Is approval for any policy waiver sought from the Board? Yes [ ] No [ ] Does the project meet the Regional criteria for readiness for implementation? Yes [X] No [ ]
Safeguard Policies Triggered by the Project Yes No Environmental Assessment OP/BP 4.01 X
Natural Habitats OP/BP 4.04 X
Forests OP/BP 4.36 X
Pest Management OP 4.09 X
Physical Cultural Resources OP/BP 4.11 X
Indigenous Peoples OP/BP 4.10 X
Involuntary Resettlement OP/BP 4.12 X
Safety of Dams OP/BP 4.37 X
Projects on International Waterways OP/BP 7.50 X
Projects in Disputed Areas OP/BP 7.60 X
Legal Covenants
Name Recurrent Due Date Frequency
Agreements with Rural Municipalities X Continuous (Schedule 2, Section I (B) to the Loan Agreement) Description of Covenant Prior to executing any contract to supply potable water to a rural community in the Project Area, the Borrower shall ensure that a written agreement has been executed with the relevant Rural Municipality which sets forth the level of service required; the financial contribution of the Rural Municipality to the construction costs of activities to be carried out, and, for communities requiring individual household connection service, the need for household sanitation systems to be developed in accordance with agreed
iii standards as defined in the Project Implementation Manual; the responsibilities for operation and maintenance of the infrastructure and service delivery; the fees to be charged to water users and the commitment from the relevant Rural Municipality to make the required land available to the Borrower, and the conditions for the acquisition of such land, as necessary, all as further detailed in the Project Implementation Manual. The Borrower shall exercise its rights under the agreements with the Rural Municipalities referred to in paragraph 1 above in such manner as to protect the interests of the Borrower and the Bank and to accomplish the purposes of the Loan. The Borrower shall not assign, amend, abrogate or waive any of said agreements or any of its provisions if such assignment, amendment, abrogation or waiver shall affect the implementation of the Project or the achievement of its objective. Name Recurrent Due Date Frequency Conditions for Water Users (Schedule 2, X Continuous Section I (C) to the Loan Agreement) Description of Covenant Prior to pre-financing, through a credit under the Pre-financing Mechanism, the costs of the installation of an individual household connection to be bome by a water user, the Borrower shall ensure that the following conditions shall be met: * the Borrower shall have received from the water user satisfactory evidence establishing that a suitable collective or individual household sanitation system shall have been established by the water user in compliance with the requirements of the Project Implementation Manual; and * the Borrower shall have entered into an agreement with the water user setting forth, inter alia, the terms and conditions of the credit to be granted to such water user under the Pre-financing Mechanism. Name Recurrent Due Date Frequency Financial Covenant (Schedule 2, Section X Yearly V (a) to the Loan Agreement) Description of Covenant Except as the Bank shall otherwise agree, the Borrower shall take, in consultation with the Guarantor, all actions necessary to ensure that its Cumulative Debt to equity shall be lower than 4.5 by closing of each fiscal year during Project implementation.
Conditions Source Of Fund Name Type IBRD Project Implementation Manual Effectiveness (Article 4.01 (a) to the Loan Agreement) Description of Condition The Project Implementation Manual, satisfactory to the Bank, has been adopted by the Borrower. Source Of Fund Name Type IBRD Resettlement Action Plan (Bedouza) Effectiveness (Article 4.01 (b) to the Loan Agreement) Description of Condition A Resettlement Action Plan, satisfactory to the Bank, for the activities to be carried out by the Borrower in Bedouza, Province of Safi, has been published by the Borrower on its website and submitted by the
iv Borrower to the Bank for publication at the Infoshop.
Source Of Fund Name Type IBRD Resettlement Action Plan (Skhour Rehamna) Effectiveness (Article 4.01 (c) to the Loan Agreement)
Description of Condition A Resettlement Action Plan, satisfactory to the Bank, for the activities to be carried out by the Borrower in Skhour Rehamna, Province of Rehamna, has been published by the Borrower on its website and submitted by the Borrower to the Bank for publication at the Infoshop.
Source Of Fund Name Type IBRD Retroactive Financing (Schedule 2, Section IV. 1 Disbursement (a) to the Loan Agreement)
Description of Condition No withdrawal shall be made for payments made prior to the date of this Agreement, except that withdrawals up to an aggregate amount not to exceed $2,785,000 equivalent for the amount of the Loan expressed in Dollars and C8,077,000 equivalent for the amount of the Loan expressed in Euro, may be made for payments made prior to this date but on or after May 1, 2013, for Eligible Expenditures under Categories (1), (3) and (4).
Source Of Fund Name Type IBRD Condition of Disbursement (Schedule 2, Section Disbursement IV. 1 (b) to the Loan Agreement)
Description of Condition No withdrawal shall be made under Category (2), unless a revised EIA and a revised ESMP, satisfactory to the Bank, covering the activities to be carried out by the Borrower under Part I (b) of the Project, shall have been published by the Borrower on its website and submitted by the Borrower to the Bank for publication at the Infoshop.
Team Composition
Bank Staff Name Title Specialization Unit
Xavier Chauvot de Sr Water & Sanitation Team Lead MNSWA Beauchene Spec. Richard Abdulnour Water & Sanitation Team Member MNSWA Specialist
Jean-Charles de Daruvar Senior Counsel Country Lawyer LEGAM
Hassine Hedda Senior Finance Officer Senior Finance Officer CTRLA Eric Ranjeva Finance Officer Finance Officer CTRLA
Franck Bessette Sr Financial Sr Financial MNAFM Management Specialist Management Specialist
V Abdoulaye Keita Senior Procurement Senior Procurement MNAPC Specialist Specialist
Khalid Anouar Consultant Environmental Specialist MNSWA Najat Maalla M'Jid Consultant Social Scientist MNCMA Abdoul-Wahab Seyni Senior Social Senior Social MNSSD Development Specialist Development Specialist Kamel Bezzine Financial Management Financial Management MNAFM Specialist Specialist
Claudine Kader Program Assistant Operations MNSSD
Non Bank Staff Name Title Office Phone City
Locations
Country First Location Planned Actual Comments Administrative Division Morocco Oriental Region Nador/Driouch X Nador/Driouch area of intervention (Northern provinces)
Morocco Doukkala-Abda El Bedouza X Bedouza area of intervention (Central provinces) Morocco Marrakech-Tensift- Skhour Rehamna X Skhour Rehamna area of Al Haouz intervention (Central provinces) Morocco Doukkala-Abda Sidi Bennour X Sidi Bennour area of intervention (Central provinces) Morocco Souss-Massa-Draa Tiznit X Tiznit area of intervention (Southern provinces)
Taghzout area of intervention (Southern provinces) Morocco Souss-Massa-Drda Ait Baha X Ait Baha area of intervention (Southern provinces)
vi I. STRATEGIC CONTEXT
A. Country Context
1. A steady path of growth. Morocco has a long history as a nation, and the country has been on a steady path of growth in the past decades, which has proved relatively resilient in the face of the recent global economic slowdown. Growth averaged 4.8 percent over 2001-12, compared to 2.8 percent in the 1990s, as the GDP per capita doubled from 2001 to reach US$2,951 in 2012, unemployment declined from 13.6 percent in 2000 to 9 percent in 2012, and absolute poverty decreased from 15.3 percent to roughly 8.8 percent between 2001 and 2008.
2. A distinct experience of the Arab Spring, ushering in a new Constitution (2011). Despite a steadily improving economic situation, Morocco has been affected by the wave of protests that has swept the Middle East and North Africa (MENA) region since 2011. Morocco had already engaged on a wide-ranging reform program to strengthen the roles of the regions and promote social solidarity and inclusion. A new constitution was adopted through a popular referendum on July 1, 2011 and was promulgated. The new constitution provides mechanisms for the construction of a modern state of law and institutions. It also lays the foundation for extended regionalization as a democratic and decentralized system of governance. In November 2011, parliamentary elections followed the promulgation of the constitution, leading to the formation of a four-party coalition government that has embraced the constitution's principles and called for more social solidarity and inclusion. This experience has shown that Moroccans are more inclined to seek evolution within the system - gradual change continuous with the country's history and religious values.
3. Increased expectations for reform and development. Morocco's unique experience reflects its political distinctiveness in the region, even though many of the same grievances among the population exist: a quarter of the population is still economically vulnerable (near-poverty), with persistent disparities as 70 percent of poverty is still rural, and most development indicators in rural areas lag behind urban areas. Moreover, rural poverty exacerbates gender disparity with relatively higher illiteracy and primary school dropout rates for rural women, and higher infant and maternal mortality. Against this background, Morocco has engaged in a dynamic process towards strengthening economic opportunities and social inclusion. Several high profile development programs (e.g. the second phase of the National Human Development Initiative, the INDH) and new sectoral strategies in the areas of education, employment, and youth have been initiated. Nonetheless, additional efforts are needed to support the country-led reforms. The movements associated with the political transition and constitutional changes represent real pressure on the Moroccan State for meaningful and quick change. While the people seem to be willing to support the Government and its mandate, they are expecting and indeed demanding that it break with the past and usher in more credible and faster reforms, notably in the areas of job creation and improvement of the quality of public services delivered.
B. Sectoral and Institutional Context
4. A persistent urban-rural disparity. In Morocco, the urban-rural disparity is evident in the water supply and sanitation sector, as access to potable water in rural areas experienced delays compared to urban areas. Due to the limited financial and technical capacities of the Communes
1 Rurales (CRs, responsible by law for ensuring public services such as water supply and sanitation), the average access rate to potable water supply in rural areas was only 14 percent in 1995. This meant that more than 8 in 10 rural Moroccans had no access to a safe and reliable water supply. Consistent with the Moroccan regulation, "safe water supply" is defined as a water supply service which meets the Moroccan water supply quality standards'. A "reliable water supply" service is a continuous water service. Instead, they had to rely on alternative resources, often of unregulated quality (groundwater resources of degraded quality), requiring long and frequent trips (a burden most often borne by women and children), or excessively costly (water tankers, informal water providers). Where it existed, access to publicly provided water supply in rural areas was most often granted through public standpipes (SP), and in rarer instances through local distribution systems to house connections. 5. Impressive achievements in developing Rural Water Supply (RWS). In 1995, the Government of Morocco (GOM) launched a first RWS program known as the Programme d'Approvisionnement Groupd en Eau Potable des Populations Rurales (PAGER). The responsibility for its implementation was shared between the General Department of Hydraulics, or Direction Gndrale de I'Hydraulique (DGH), and the National Potable Water Utility, or Office National de 'Eau Potable (ONEP), which was recently merged with the national electricity utility 2 . DGH would build standalone groundwater fed systems to be managed by Water Users Associations (WUA), whereas ONEP would lay lateral pipelines to connect villages located along its regional urban potable water trunk pipelines. PAGER successfully raised rural water supply access rates from 14 percent in 1995 to 61 percent by the end of 2004, mostly through installation of SPs in thousands of villages or douars. Since 2004, ONEP has been entrusted with the management of the entire PAGER program. It restructured it into the Universal Water Access Program, or Programme de Gndralisationde 'Eau Potable (GEP), with the objective to further expand rural water supply coverage to 96.5 percent access by 2017. To achieve this, ONEP (hereafter be referred to as ONEE) relied mostly on the extension of piped rural water supply, limiting the supply from groundwater resources to places where they were proven reliable in terms of adequate quality and quantity. 6. Significant Bank support to accelerate ONEE's piped approach since 2004. The Bank supported ONEE in this mission. The on-going Rural Water Supply and Sanitation project (RWSSP), approved in 2005 and funded jointly with the AFD, supports the implementation of GOM's GEP in selected provinces. In 2010, the Bank approved a loan for a Regional Potable Water Supply Systems Project (RPWSSP), aiming at supporting ONEE's extension of regional trunk pipelines in rural areas. In addition, ONEE and the Bank, with support from the Global Partnership on Output-Based Aid (GPOBA), collaborated since 2005 in the preparation of rural pilots for small-scale delegated management contracts involving Output-Based Aid approaches as an innovative and promising approach for the extension and sustainable management of service delivery through house connection (HC) in rural areas. This combination of efforts enabled a dramatic increase in RWS access rates in the past 15 years, reaching 94 percent of the
1 Moroccan Norm NMO3-7-002 related to the Control and Surveillance of Water in Public Water Supply Networks, published in the Official Gazette (Bulletin Officiel or B.O.) No. 5936 on April 21, 2011. 2 The National Potable Water and Electricity Utility Office National de l'Electricite et de l'Eau Potable (ONEE) was created in 2009 by the Law 40-09 (promulgated through the Dahir 1-11-160 of September 29, 2011) to consolidate the former National Potable Water Utility (Office National de lEau Potable - ONEP) with the former National Electricity Utility (Office National de l'Electricite - ONE).
2 rural population in 2013, including 35 percent through local distribution networks to house connections. 7. A program now facing several limitations. Despite such impressive progress, where widespread deployment of SPs yielded undeniable benefits to rural populations who previously had no access to a safe and reliable water supply, the program faced a number of limitations, including: (a) uneven access coverage between provinces, with those on the Atlantic coast, Rif and "pre-Rif' Mediterranean mountainous regions lagging behind the national average. (b) very low standpipe consumption levels as standpipe uptakes measured on average at 8 liters/hab/day, while the networks were designed to convey 20 liters/hab/day in PAGER and 50 liters/hab/day in more recent GEP projects, in anticipation of HC- service demand flowrates, and very low flows and velocities may create a risk of loss of water quality and of public health impacts; (c) a limited and inconsistent choice of SP management models, including water users associations (WUA) promoted by DGH, and individual SP caretaker - gardiens- g6rants (GG) promoted by ONEE; (d) strong demand for house connections as the majority of the population in rural communities accept water supply service through standpipes as a temporary solution and would rather benefit from a house connection which would significantly ease the burden of water-intensive non-drinking uses of water (washing, cooking, etc.); and (e) insufficient attention to wastewater management (on-site sanitation) and hygiene promotion, a greater concern for house connections than for standpipe-service.
8. GOM now looking to reach universal access while gradually shifting to house connection service. Taking these shortcomings into account, GOM is now facing two major challenges. Its main challenge is to continue increasing the rural access rate to safe and reliable water supply to reach near universal access. This means replicating ONEE's current successful approach of constructing a network of lateral mains from its regional trunk lines to standpipes, in villages not yet served by previous ONEE projects where access rates are among the lowest in Morocco. As these communities still rely on high-burden low-quality alternatives to proper water supply, this would provide them with a significant improvement in safety and reliability of supply. Furthermore, as access rates have significantly increased everywhere, GOM's second challenge is to gradually shift its focus to extend service delivery from existing SPs to HCs, thus addressing increased demand for the perceived benefits of in-house water delivery, and capitalizing on the initial sizing of conveyance laterals in anticipation of HC-service.
9. GOM is engaging into rural sanitation. In 2007, the GOM set up a National Sanitation Program (PNA) for the promotion of wastewater collection and treatment in urban areas. Building on the early successes of the PNA, the GOM is currently preparing a Rural National Sanitation Program (PNAR), aiming at promoting improved sanitation in rural areas. The PNAR design study is expected to be completed in 2014. However, the timeframe for its validation, funding allocation and implementation start remain to be clarified. Consultations and workshops made clear that individual on-site solutions would be the preferred option and that piped
3 solutions should be limited to areas where environmental or technical obstacles make them indispensable. According to Moroccan regulation, all housing must be equipped with an appropriate sanitation solution3 . Decree No. 2-05-15334, which defines on-site or autonomous sanitation, states that all rural housing needs to be equipped with an on-site sanitation solution. It also entrusts the local government (commune) with the responsibility of verifying the conformity and operational status of existing or new sanitation systems and to enforce their implementation in case the current system is not in conformity with the regulation. Taking this into consideration, the PNAR will have to clarify the question of the institutional organization for the promotion, implementation and management of on-site sanitation systems and propose measures to strengthen municipalities with insufficient capacities or means to handle this municipal mandate. The responsibility of the network service providers is limited to reviewing the evidence, whether provided by the household or the municipality, that an acceptable solution is in place prior to connecting a house to water supply. In the meantime, for the purpose of this project, funding will be sought from the GOM to pilot the development of adapted sanitation solutions in the project areas, in an effort not to delay HC-service extensions. In all cases, in line with Moroccan regulation and ONEE's procedures, eligibility for house connection under the proposed Project will require the existence of an adequate sanitation solution to handle the expected increase in grey water or sewage flows in an environmentally safe manner.
C. Higher Level Objectives to which the Project Contributes
10. The Project is fully consistent with the Bank's twin goals of eliminating extreme poverty and boosting shared prosperity for the bottom 40 percent, with Bank-wide sector strategy to extend access and improve service delivery and with continuous Bank support to Morocco to further exceed the MDG objectives for access to an improved, safe and reliable water source. The Bank and GOM elected water as an important focus of the 2010-2013 Country Partnership Strategy (CPS), and a key strategic focus of the 2014-2017 Country Partnership Strategy, with renewed commitments to develop equitable, sustainable and affordable water supply and sanitation service. Bank support to the water sector has been underpinned by substantial analytical work and policy dialog. It builds on a solid experience of investment and development policy lending in support of urban sanitation, rural water supply, and efficient irrigation programs, as well as of reforms in sector governance, water resources management, irrigation, water supply and sanitation.
11. In supporting a new rural water supply project, the Bank contributes to GOM's objective of full access to improved water supply in areas still underserved in the selected provinces while assisting GOM in the development of financially balanced approaches to house connection service in rural areas and addressing wastewater concerns. It will also contribute to further exceed water supply MDG targets at a national scale, and to narrow the service gap between rural and urban areas. By improving the living conditions of the beneficiaries in rural areas, in particular for women and children, the project expects to contribute to social inclusion and develop economic opportunities.
Law 25-90 promulgated by Dahir no 1-92-7 of 15 hija 1412 (17 juin 1992), published in the Official Gazette (Bulletin Officiel) No. 4159 on 15/07/1992, page: 307. 4 Decree No. 2-05-1533 of 14 MOHARREM 1427 (February 13, 2006) published in the Official Gazette (Bulletin Officiel) No. 5404 on Thursday March 16, 2006.
4 II. PROJECT DEVELOPMENT OBJECTIVES
A. PDO
12. The project development objective (PDO) is to provide access to safe and reliable drinking water supply for rural communities in targeted under-served areas in the Project area.
13. A "safe water supply" is defined as a water supply service which meets the appropriate quality standards, as required by the applicable Moroccan regulation 6. A "reliable water supply" service is a continuous water service, provided twenty-four hours a day seven days a week.
B. Project Beneficiaries
14. The project is expected to have positive impacts on the quality of life of the population in the targeted areas by providing access to safe and reliable drinking water supply to about 390,000 rural inhabitants in some 1,400 villages (douars), where they currently only have access to high- burden, unreliable and low quality water resources.
15. In addition, the Project will have positive impacts by supporting the shift towards water service delivery through house connections. By pre-financing household contributions to the switch from SP to HC7 , it will further improve drinking water service delivery for approximately 50,000 additional rural inhabitants currently getting water through a standpipe.
16. The communes targeted by the project are amongst the poorest in Morocco. Based on official census data from 2004 and poverty data from 2007, 25.6 percent of the population of the communes targeted by the Project (equivalent to more than 100,000 potential beneficiaries) are below the vulnerability line, which is defined in Morocco as people who make less than US$1.80 a day. Amongst them, it is estimated that 15.6 percent are extremely poor, which is equivalent to more than 60,000 potential beneficiaries who make less than US$1.20 a day. These figures are significantly higher than the national poverty (9.5 percent) and vulnerability (18 percent) rates. The project is therefore expected to benefit disproportionately poor or vulnerable populations, thereby contributing to the World Bank's twin goals of eliminating extreme poverty and boosting shared prosperity for the bottom 40 percent.
C. PDO Level Results Indicators
17. The achievement of the PDO will be monitored through the following indicators8:
"Project area" is defined as the regions of Chaouia-Ouardigha; Doukkala-Abda; Fes-Boulemane; Gharb-Chrarda- Beni Hssen; Grand Casablanca; Marrakech-Tensift-Al Haouz; Meknes-Tafilalet; Oriental; Rabat-Sale-Zemmour- Zair; Souss-Massa-Dr5a; Tadla-Azilal; Tanger-Tetouan; Taza-Al Hoceima-Taounate and the provinces of Tan-Tan, Tata and Guelmim of the Kingdom of Morocco. 6 Moroccan Norm NMO3-7-002 related to the Control and Surveillance of Water in Public Water Supply Networks, published in the Official Gazette (Bulletin Officiel or B.O.) No. 5936 on April 21, 2011. 7 The Project includes the requirement that house connections will be extended only to houses equipped with a satisfactory sanitation solution, as defined in the Moroccan regulation, detailed in ONEE's technical solutions for rural sanitation, and deemed appropriate by the World Bank. Core indicators are indicated with an
5 * Direct project beneficiaries (number)*, percentage of which female* and percentage of which extremely poor. * Number of people in rural areas provided with access to "Improved Water Sources" under the project* * Villages in rural areas provided with access to Improved Water Sources under the project (number), percentage of which receive drinking water of appropriate quality (safety) and percentage of which receive drinking water on a continuous basis (reliability).
18. In addition, progress towards achievement of the PDO will be monitored through a set of intermediate results indicators (as listed in Annex 1 on Results Framework and Monitoring) and output indicators (within a separate operational monitoring process described in the Project Implementation Manual).
III. PROJECT DESCRIPTION
A. Project Components
19. The proposed Project builds on the experience and lessons learned from on-going projects to further support a high-capacity borrower consolidate its RWS service delivery in areas that remain underserved. It aims at continuing the World Bank's support to the latest phase of GOM's GEP program by intensifying its efforts to extend access to SP-service in areas which remain underserved (component 1, consisting of 80 percent of Project costs); by leveraging a household pre-financing mechanism to accelerate HC-service deployment (component 2, consisting of 8 percent of Project costs, half of which is allocated to the upgrading of upstream access networks that had been under-sized). Another 7 percent of Project costs will fund technical assistance and capacity building activities. The remaining 5 percent will cover for physical and financial contingencies.
20. As such, the Project would include three components. Financing indicated below amounts to a total Project cost of EUR 162.1 million (USD 223.6 million equivalent), out of which EUR 92.0 million and USD 31.72 million (USD 158.6 million equivalent) is funded through the proposed Bank loan.
Component 1: Extension of access to water supply through standpipes in selected provinces within the Project area.
21. The cost of this component, with contingencies and taxes, is estimated at EUR 140.8 million (USD 194.2 million equivalent), of which EUR 97.3 million (USD 134.2 million equivalent) is financed by the Bank loan (69 percent) and EUR 43.5 million (USD 60.0 million equivalent) is counterpart funding.
22. This component aims at developing infrastructure necessary to extend water supply to selected rural areas in provinces including Nador and Driouch in the North of the country; Safi, Sidi Bennour, El Jadida and Rehamna in the Center; and Tiznit and Chtouka Ait Baha in the South. Infrastructure development will consist mostly of works including the possible need to augment water supply production in the Tiznit area, construction of storage tanks (elevated or
6 grounded), pumping stations, lateral mains, and public standpipe delivery systems in targeted villages (douars). All water supply infrastructure developed under the Project will be operated and maintained by ONEE. Once installed, standpipes will be operated and maintained by individual caretakers under management contracts.
Component 2: Supporting the shift towards water service delivery through house connections in the Project area.
23. The cost of this component, with contingencies and taxes, is estimated at EUR 11.0 million (USD 15.2 million equivalent), of which EUR 9.0 million (USD 12.4 million equivalent) is financed by the Bank loan (82 percent) and EUR 2.0 million (USD 2.8 million equivalent) is financed by counterparts.
24. This component aims at responding to the demand of an increasing share of the rural population for HC and will be implemented by ONEE throughout the Project area as defined for this component. IBRD financing will contribute EUR 5 million (USD 6.9 million equivalent) to a Pre-financing mechanism managed by ONEE, set up as a revolving fund that will pre-finance a share of the cost of a household's individual connection. ONEE's pre-financing facility will only be made available to households upon receipt of evidence from the requesting household that a suitable sanitation solution is in place, be it collective or individual. Acceptable rural sanitation solutions have been adopted by ONEE and will be described in detail in the Project Implementation Manual.
25. This component will also comprise limited infrastructure development to increase the capacity of the regional access network in areas where the regional network installed in earlier stages of PAGER and GEP is insufficient to provide an adequate service, due to lower design standards at the time (20 liters per capita per day), to allow HC-service delivery.
Component 3: Implementation Support and Capacity Building
26. The cost of this component, with contingencies, is estimated at EUR 10.0 million (USD 13.8 million equivalent), of which EUR 8.4 million (USD 11.6 million equivalent) is financed by the Bank loan (84 percent) and EUR 1.6 million (USD 2.2 million equivalent) is financed by counterparts. This component will finance consultant services to provide technical assistance to ONEE for project implementation support, studies and capacity building activities.
B. Project Financing
27. In its request, the Borrower stated a loan amount in Euros. However, in order to reduce its exposure to exchange rate fluctuations, ONEE works to maintain a foreign currency basket of 80 percent Euros and 20 percent USD. Through the loan worksheet, the Borrower requested 80 percent of the loan amount in Euros (EUR 92 million) and 20 percent in USD, namely the equivalent of EUR23 million, which amount to USD31.72 million.
28. The Project costs are summarized in the following table. Counterpart funding is a cost- sharing structured as a percentage of costs without taxes. Financing percentages amount to 80% for extension of access and 100 percent for production augmentation, pre-financing mechanism, technical assistance and capacity-building.
7 Total Total Cost % of Total Counterpart in million EURO, incl. taxes Cost without 1BRD without Financing taxes taxes Component 1: Extension of access to water supply through standpipes in selected provinces within the 135.8 113.2 92.3 82% 43.5 Project area Northern Provinces 40.1 33.4 26.7 80% 13.4 Central Provinces 48.5 40.4 32.3 80% 16.2 Southern Provinces 36.5 30.4 24.4 80% 12.2 Southern Provinces (Production augmentation) 10.7 8.9 8.9 100% 1.8
Component 2: Supporting the shift towards water service delivery through house connections in the 11.0 10.0 9.0 90% 2.0 Project area Pre-financing Mechanism 5.0 5.0 5.0 100% - Upgrading Access Networks 6.0 5.0 4.0 80% 2.0
Component 3: Implementation Support and 9.6 8.0 8.0 100% 1.6 Capacity Building Technical Assistance 8.4 7.0 7.0 100% 1.4 Capacity Building 1.2 1.0 1.0 100% 0.2
TOTAL BASELINE COSTS 156.4 131.2 109.3 83% 47.1 Physical contingencies 2.8 Financial contingencies 2.6 TOTAL PROJECT COSTS 161.8 131.2 114.7 87% 47.1 Interest during implementation 0 Front-end fees 0.3
TOTAL FINANCING REQUIRED 115.0
C. Lessons Learned and Reflected in the Project Design
29. The new project design benefits from lessons learned from the international experience of similar projects and during the decade long support to ONEE, be it the on-going implementation of the RWSSP (2005) or RPWSSP (2010) for the extension of rural water supply, or the multiple GPOBA-funded technical assistance grants to accompany rural pilots for small-scale PPPs with OBA for house connection service development.
30. Project implementation Technical Assistance (TA) should be contracted as early as possible. Current experience with on-going RWS Projects has shown that early and targeted TA is critical to the smooth running of operations. The project design ensures that the TA consultants are in place and have carried out information and awareness-raising, confirmed the interest of the beneficiary populations and documented the satisfaction of prerequisites before works start in any douar under the project. This will allow ONEE to engage into project implementation on a sound and consistent methodological basis, to identify and deal with potential difficulties early on, and to build an efficient communication channel with beneficiaries. The on-going implementation TA contract for the RWSSP and an ONEE-funded TA assignment in the Rehamna province will be amended to include information and awareness-raising tasks in the
8 Center provinces. In other project areas, these tasks as well as all other implementation support tasks will be procured under a new TA assignment. The selection for this assignment started as soon as the project concept was validated, using advance procurement, in order to ensure its mobilization in the early stages of project implementation.
31. Ensure that Rural Municipalities play an active role in accompanying water service improvement. The collection of the beneficiary contribution to the cost of SPs has been a significant challenge under the on-going RWSSP, which show low collection rates. This situation was aggravated by the poor support from CRs to help ONEE in this endeavor. The design of the proposed Project makes it a strict prerequisite that community information activities are carried out and beneficiaries' adhesion is documented before the start of the works. Arrangements to that effect include amendments of on-going TA contracts and advance procurement of the new TA contract for project implementation support, which is to be funded under Component 3 of the Project. The project design also reinforces the CRs' responsibility, per the 'Charte Communale', to provide water and sanitation services to their constituents. They will have an active role to play to support ONEE's intervention, through the satisfaction of the prerequisites laid out in the financial agreements for the improvement of water service, which will be signed between ONEE and the CRs before the start of the works.
32. Rely on the SP-manager approach for SP-service provision. International experience (e.g. Uganda, Kenya) confirmed the Moroccan's experience that relying on SP caretakers ("Gardien G6rants"- GG) have proven an efficient and sustainable model for SP-service management in rural areas. The Project design will rely on this management solution for further SP extensions.
33. Mainstream gender-disaggregated and poverty-disaggregated benefit monitoring. A survey carried out as part of the RWSSP monitored gender-specific information which helped better understand the benefits and impacts of SP-service extension for women and girls and gender- disaggregated expectations from the service. The project design proposes to conduct similar household surveys prior to the project Mid-Term Review and prior to project closing. The survey questionnaire will include relevant gender disaggregated information, as well as information allowing better understanding and quantifying of project benefits and impacts on extremely poor populations.
34. The conditions are now in place for setting up the pre-financing mechanism. Developing an effective approach to meet the growing demand for HC-service in order to increase both potable water consumption and its operational revenue is a priority for ONEE as it focuses on developing access, and addressing the unfavorable financial conditions for HC-service development financing and associated risk on ONEE finances, staff limitations hindering ONEE's capacity to directly manage these systems, and the absence of a valid alternative to ONEE for the sustainable management of HC-service delivery. These issues have been addressed over time through policy dialog discussions. Revised financial conditions 9 for HC- service provision were agreed in 2009 to address concerns over financial sustainability of
9 Investments costs for SP-service extension are funded by a 15% contribution by CRs and a 5% contribution from beneficiaries (80% ONEE). Investments costs for HC-service deployment are covered by connection fee of DM 3,500 per household (at least 50%) and the CR (up to 50%).
9 ONEE's water service delivery and various management models based on small-scale PPPs, including with Output-Based Aid (OBA) approaches, were tested and are being mainstreamed. On that basis, ONEE is now ready to set-up the pre-financing mechanism to support its shift towards HC-service provision.
35. Supporting the shift towards HC service calls for simultaneous development of satisfactory sanitation solutions. The installation of a HC leads to an increase in water consumption, mainly for household uses such as drinking, cooking and washing, and to a lesser extent for sanitary uses. As a result, HCs lead to a significant increase in wastewater flows, mainly grey water flows. Although a large majority of households in rural areas have a sanitation solution meeting the public health definition of sanitation (no contact with excreta), these solutions do often not meet acceptable environmental and health standards as households' consumption increases with access to HC-service. Consistent with Moroccan regulation and its own current rules, ONEE will make available its pre-financing facility only to household providing evidence that a satisfactory sanitation solution is in place. It is the commune's mandate and not ONEE's to enforce the regulation on rural sanitation (currently being addressed under the PNAR, see Sector Context). ONEE nevertheless takes on to engage with rural households to raise awareness of the benefits of improved sanitation. They distribute leaflets promoting economical options for the development of an acceptable sanitation solution. However, they have to rely on the household to implement an acceptable solution and on the commune to verify and document it, consistent with Moroccan regulation. ONEE has neither the mandate nor the means to carry out such verification. Nevertheless, well aware of the potential negative impacts linked to increased wastewater flows on public health and the environment, ONEE has, as an operator, provided support to relevant stakeholders to (i) develop systematic approaches to assess and quantify the necessary mitigation measures of potential impacts of HC-service, and has developed guidelines defining adequate sanitation solutions at the individual and community levels; and (ii) assist CR initiatives to improve their sanitation and drainage conditions with the funds they will have mobilized to that effect.
36. Alternatives considered and rejected.
(a) The possibility of folding this project into the on-going RWSSP through an additional financing mechanism was considered and rejected in view of the new corporate requirement under OP 10.00 published on April 8, 2013, which no longer made it the most adapted processing option for the proposed operation.
(b) The development of groundwater-based RWS systems, as a cheaper alternative to piped-RWS was not considered in view of the poor capacity and quality of the underground water resources in the project areas.
10 IV. IMPLEMENTATION
A. Institutional and Implementation Arrangements
37. IBRD will enter into a Loan Agreement with ONEE and into a Guarantee Agreement with the Kingdom of Morocco. ONEE is a new legal entity resulting from the merger (regroupement) of the former Office National de l'Eau Potable (ONEP) and the Office National de l'Electricit6 (ONE) as provided by Law 40-09, promulgated through the of September 29, 2011 and made effective on April 24, 2012. After the merger, ONEE kept a Water Branch ("ONEE-Branche Eau") and an Electricity Branch ("ONEE- Branche Electricit6"). These changes did not entail any change in the organizational structure or staffing of formerly ONEP and ONE. As a result, this merger will not impact ONEE's capacity to handle Bank-funded projects, as the staff dealing with project implementation remains the same.
38. ONEE is Morocco's biggest national public utility and remain an autonomous public enterprise. ONEE's Water Branch is the most important actor in the Water and Sanitation Sector. It is responsible for water supply planning, bulk production of potable water, water distribution to over one million customers in more than 500 medium to small urban centers, and the development of RWS through GEP, which has allowed 94 percent of the rural population to have access to safe water supply mostly through a standpipe. It is also responsible for the development of sanitation in about 200 urban centers. ONEE already has experience with the Bank-financed RWSS and RPWSS projects, especially in the Central and Northern provinces. Implementation would leverage existing ONEE structures and available staff with the support of the implementation TA consultants. Establishment of a special implementation unit is therefore not planned, and project implementation will in fact reinforce ONEE's effective ongoing decentralization and outsourcing of its services.
39. The implementation arrangements are the same as the on-going RWSS and RPWSS projects. Within ONEE's Water Branch, the Financial Department will be responsible for overall project oversight, and will be the focal point for the World Bank. The Department for Universal Access to Potable Water (DEP) will be responsible for the overall project coordination and monitoring. ONEE's provincial and regional directions, including dual-purpose agencies ("agences mixtes"), will be responsible to implement, each one for the activities they are in charge of, the technical, social and environmental studies, community mobilization, and the construction and supervision of works outsourced to consulting firms and other private sector companies. The regional and provincial offices will also be responsible for tendering and managing contracts, with the support of central departments, if and as needed.
40. The CR will enter into Co-financing Agreements with ONEE that will define (i) the level of their contribution in the financing of lateral mains construction costs, namely, 15 percent of the cost of SP-service extension and/or 50 percent of the cost of water distribution networks for HC- service; (ii) for HC-service delivery, the need for each household to provide evidence that a suitable sanitation solution is in place, in accordance with agreed technical solutions as defined in the PIM, as a condition to benefit from ONEE's prefinancing facility; and (iii) an in-principle agreement regarding the delegation of the water supply service to ONEE and the management model (i.e., Gardien g6rant, WUA, private operator, or ONEE) for service delivery and associated responsibilities for infrastructure O&M, as well as fees charged to water users. The
11 Ministry of Interior's Direction G6n6rale des Collectivit6s Locales (DGCL) will see that relevant CRs respect their commitments towards ONEE under the project as per the terms of the agreements signed by the CRs with ONEE, and validated by the DGCL. DGCL will be asked to review the process by which CR contributions are paid to ONEE, to ensure that these payments take place in due time, consistent with the terms of the agreements.
41. Where HC-service will be extended, the Co-financing Agreements will also require that a suitable household sanitation system be in place, be it collective or individual, before a HC can be installed. Standards for acceptable rural sanitation solutions have been adopted by ONEE and the Bank and will be described in detail in the Project Implementation Manual. Because rural sanitation is beyond ONEE's mandate, potential other sources of funding are being explored to fund the development of acceptable sanitation solutions.
42. In the case of HC-service extension, when households request a pre-financing from the Pre- financing Mechanism under component 2 to finance a share of up to MAD2,500 of their contribution to the cost of their house connection (full household contribution to its house connection is MAD3,500), ONEE will enter into a specific agreement with these households. This specific agreement will state the amount and conditions of the pre-financing, the repayment schedule and the repayment modalities in installments over time through their water bills.
B. Results Monitoring and Evaluation
43. ONEE will submit Project reports on a 6-month-basis to the Bank, no later than 45 days after the end date of each period. Such reports will cover the status of implementation, updated outputs and outcome indicators, financial statements, environmental and social issues and reporting requirements, and actions taken to ensure satisfactory project implementation. They will also include an updated procurement plan. Financial, technical, procurement and safeguard- related data will be collected in time by the relevant ONEE departments, in collaboration with the project coordinating department, in order to inform Project reports. In addition to the regular reporting, information including an updated procurement plan and disbursement previsions may be requested prior to the Bank's implementation support missions in order to monitor Project's progress towards achievement of its objective.
44. A participatory mid-term review and a final evaluation will be conducted. Those evaluations will include a household survey on a sample of customers (a baseline household survey will be conducted at the initiation of the Project) in order to assess their level of satisfaction with Project interventions and other relevant indicators such as estimated time and cost savings arising from the Project, changes in hygiene practices, etc. Special attention will be paid to disaggregation of information based on gender and poverty levels.
C. Sustainability
45. ONEE has demonstrated a strong commitment to achieving GOM's rural water access objectives and targets. ONEE fully integrates the imperative of sustainable infrastructure and service development, and has accordingly committed to better satisfy rural demands for HC- service. Project preparation has clarified aspects related to the implementation of HC-service extension, including the methodology and roles and responsibilities to set up and operate the pre-
12 financing mechanism, viability of different options for the sustainable management of HC- service extension and operation, and the rural sanitation question. It also builds on the experience of on-going projects with respect to the sequencing of the engagement with the beneficiary population, namely the timing for technical studies, information and awareness-raising activities and key prerequisites to be met before implementation works can start.
46. In an effort to support HC-service development, by ensuring that it does not further stress the long-term financial viability of ONEE, GOM agreed in October 2009 to adjust financing arrangements for HC-service development by increasing CR financial contribution to the capital costs of distribution systems from 30 percent to 50 percent and beneficiary contributions to the cost of connection from the promotional rate of MAD 2,500 to MAD 3,500. This revised level of contribution was derived from a willingness to pay survey conducted in 2005, which conservatively indicated that at least 60 percent of households would at the time have paid MAD 3,500 for HC service with credit facilities provided by ONEE. The revised financing arrangements were sized on the basis of HC-service development costs extrapolated from actual development costs incurred or calculated for 135 projects across Morocco to ensure that the majority of HC-service distribution systems are cost-neutral to ONEE. In an effort to facilitate a nationwide transition to HC-service, ONEE may consider a mutualized approachlo, to the extent that the overall financial equilibrium of HC-service extension is maintained.
47. Sustainability of the project's objectives rests on the effective implementation of the following design provisions:
(a) Offering more viable and better differentiated service alternatives (SP-service or HC-service, community WUA-operated or professional operator-operated) to achieve increased ownership and usage of RWS systems by beneficiary villages.
(b) Steady development of HC-service in order to increase rural water demand and ensure that flow velocities in conveyance lines are consistent with maintaining good water quality and to guarantee the cost-effectiveness of the project.
(c) Demonstrated sustainable management models for SP-service (GG model) or HC- service (delegation model such as PPP with Output-Based Aid approaches), presented in Section III.C on Lessons Learned.
(d) Satisfactory mitigation and management of issues related to rural sanitation. The proposed Project will make a strict prerequisite that a satisfactory sanitation solution be in place prior to the deployment of HCs. Financial support will be sought from GOM to fund such solutions, which can be pilots and provide valuable implementation and operational experience for the implementation of the National Rural Sanitation Program (PNAR) it is currently preparing.
(e) Securing ONEE's capacity to fulfill its operational and financial commitments:
10For systems where the sum of the CR and beneficiary contributions exceed the investment costs for HC-service extension, ONEE will use the difference to bridge eventual funding gaps in other HC-extension operations.
13 (i) The project will promote sustainability by enforcing per capita cost thresholds for ONEE-born contributions to the water conveyance and water distribution capital costs. In parallel, ONEE will continue to expand devolution of operations and maintenance responsibilities to domestic private sector operators, in particular for conveyance laterals and village distribution networks, which has already proven to be an effective way to reduce costs and improve affordability of services.
(ii) The development of metered HC-service, with the application of urban- service derived block tariffs will substantially improve ONEE RWS revenue compared to SP-service, and is thus seen as strategic to enable better overall RWS service cost recovery over time. The tariff structure in place needs to be revised to enhance cost recovery. Cross-subsidies between urban and rural areas have reached their limits. The Strategic FinancialPlanning model to be developed by ONEE will be key to ensuring ONEE's long-term financial sustainability while making progress towards reaching GOM's target for access to potable water.
(iii)The issue of tariff and long-term financial sustainability of ONEE has been discussed between ONEE and GOM for years. These are one of key issues which delayed the signature of ONEE's "program contract"" by over three years. Improving sector financing and sustainability is a key and permanent topic of the sector and country policy dialog. The discussion is being informed by various activities and studies, including the on-going Non-Revenue Water Reduction Regional Study led by the Bank. There is now a broad consensus within the GOM on the need for a tariff reform. ONEE's "Program contract", which should be signed during the first half of 2014, is expected to include a set of measures to ensure the long term financial viability of ONEE. Nevertheless, consistent with on-going projects, the project design includes a financial covenant in the legal documents to monitor key financial indicators and ensure ONEE's overall financial health. The policy dialog on these issues may be further informed by a planned assessment of rural tariff strategies for water and sanitation services.
" The Program Contract "Contrat programme" to be signed by GOM and ONEE defines the strategic priorities, investments and tariff increase for 4 years: 2014-2017.
14 V. KEY RISKS AND MITIGATION MEASURES
A. Risk Ratings Summary Table
Stakeholder Risk Moderate Implementing Agency Risk - Capacity Moderate - Governance Low Project Risk - Design Low - Social and Environmental Moderate - Program and Donor Low - Delivery Monitoring and Sustainability Moderate Overall Implementation Risk Moderate
B. Overall Risk Rating Explanation
48. Overall Implementation Risk is moderate, mainly as a result of the need to closely monitor land acquisition processes and the implementation of environmental safeguard policies in subprojects (mainly increased wastewater flows), as well as the financial sustainability of local SP and HC services and the rural water supply sector at large.
VI. APPRAISAL SUMMARY
A. Economic and Financial Analyses
49. A quantitative cost benefit analysis was performed for the extension of service delivery through standpipes. Six identified intervention areas and the overall project consisting in the provision of rural water supply through standpipes to more than 1,400 villages (douars) located in areas in the north, south and center regions of the country were covered in the analysis. These areas are home to a portion of the remaining 6 percent of the population without access to safe and reliable water supply. The project also promotes the extension of service delivery through house connections in the Project area, though a Pre-financing Mechanism. The analysis of house connection service delivery extension was difficult as areas where it will take place are unknown at this stage. A methodology for such analysis was nevertheless developed (see Annex 6). It will be refined at mid-term review.
50. Regarding the financial cost benefit analysis, all subprojects and the overall project are not expected to be profitable over 15 years. Suggested tariffs would be close to recovering at least operations and maintenance expenses (OMEX) for the majority of the targeted population by 2030, except in Areas 4, 5 and 6 where investments are higher than for the other areas and would require additional pumping. Hence, the applied average tariffs are significantly lower than
15 OMEX in these three areas. To give an order of magnitude, if revenues from these areas had to cover OMEX related to their service provision, the current tariffs would need to be increased 3.1 fold for Cercle Rif, 14.2 fold for Anzi and 11.5 fold for Ait Baha (Table 1). This is expected as the remaining 6% of the population that do not yet have access to an improved water resource are the hardest to reach and will inevitably experience higher than average cost of supply.
Table 1: FinancialAnalysis Results Potable Water Provision Intervention Population Total OMEX as a Investment OMEX Suggested Financial Area by 2030 Investment percentage Cost per m3 per r 3 Average NPV net of VAT of Investment Tariff # DM million % DM/m3 DM/m 3 DM/m' DM million 1.Zemamra Sidi Bennour 258,909 256.462 5 4.05 3.64 3.86 -247 2. Nord Safi Systeme Bedouza 24,000 37.65 ±5 5.78 3.69 4.09 -38 3. Cercle Skhour Rehamna 62,249 144.707 ±5 9.67 7.09 3.44 -194 4. Cercle Rif 110,740 370.200 ±5 10.78 -674 5. Anzi 35,887 256.575 ±5 33.56 -448 6. Ait Baha 9,485 108.4 ±5 47.25 -195 Total 501,270 1,174.0 ±5 9.98 8.91 -1,702 Note: household connection provides 50 liters/day/capita;Stand post provides 20 liters/day/capita.Investment costs per m3 are assumed to increase over time to compensatefor inflation. Source: ONEE (2014)
51. Regarding the economic cost benefit analysis, major health and socioeconomic benefits, which are detailed in Annex 6, could accrue over time and include: (i) reduced water-related burden of disease through the provision to improved water supply; and (ii) socioeconomic benefits in terms of reduced time fetching water quantified in terms of freed up time of household members dedicated to this task, mainly girls as reported in previous Bank-funded education and rural water supply projects in Morocco.
52. The project intervention areas under Component 1 are poor areas without domestic wells, where dwellers rely on fetching water lasting two hours on average rather than buying water supplied through bottles, gallons or trucks. Based on a very conservative stance, a number of valuation techniques was used to derive the benefits including: diarrheal risk reduction from improved water supply where the value of statistical life was used for mortality and the cost of illness was used for morbidity; and the opportunity cost of time to determine the consumer surplus where disposable income was applied to lost time fetching water which captures for instance girls missing school when they fetch water. Other socioeconomic benefits have been identified but are difficult to quantify such as psycho-physical stress while fetching water, etc.
16 Table 2: Economic Analysis and Sensitivity Summary by Area and OverallProject Key Economic Viability Area 1 Area 2 Area 3 Area 4 Area 5 Area 6 Overall Indicator Criteria Zemamnra Nord Safi Circle Circle Rif Anzi Ait Project (10% Sidi Systemne Skhour lBaha Results Discount rate lBennour BedouLza Reharnna
Population served Total by 2034 268,637 25,005 64,776 115,716 37,347 9,670 521,152 Economic Cost Benefit Analysis NPV (DM million) >0 529.7 34.5 42.0 52.1 -168 -80 312.7 IRR (±%) >10% 39% 28% 19% 17% 8% 11% 16% PV Benefit/Cost Ratio >1 3.3 2.1 1.4 1.3 0.4 0.3 1.4 Project viability Sensitivity Analysis NPV (DM million) >0 3.0 0.1 1.6 0.4 0.0 0.0 0.0 IRR (±%) >10% 13% 18% 16% 14% 0% 0% 13% PV Benefit/Cost >1 1.1 1.1 1.1 1.1 0 0 1.1 Ratio Project Viability Switch off point >Cost = 53. The project, which ensures improved rural water supply between 20 to 50 liters per day to about 521,000 inhabitants between 2015 and 2034, is viable as it yields a net present value (NPV) of DM 312.7 million over 20 years, a Present Value (PV) benefit/cost ratio greater than 1 associated with an economic internal rate of return (IRR) of 16 percent (Table 2). When taken individually, Areas 1 to 4, which cover 89 percent of the population, are fully viable with NPVs greater than zero, economic IRRs ranging between 17 percent and 39 percent and a PV benefit/cost ratios greater than 1. Area 5 and 6 are not viable because of the high cost of providing water to these areas (Table 1).Despite considering least cost solutions for Areas 5 and 6, these are not viable because they are associated with a very high cost to providing improved water to these remote areas. An analysis at the margin would be unfair and exclude this population that represents 11 percent of the total targeted population in 2034 (Table 2). Collectively, the results of the analysis are positive and satisfactory. The overall rates of return relate to the fact that the project is aimed at a portion of the remaining 6 percent of the population without access to safe and reliable water supply, partly because these are amongst the hardest to reach and the networks are the costliest to implement. Nevertheless, the project is justified and the entire targeted population is expected to reap the benefits of having access to improved potable water. 54. A sensitivity analysis was conducted to test the viability of the subprojects and overall project. Considering the same increase in cost, the switch off point for project viability is reached when the benefits are decreased by 11.4 percent. Then, the project remains viable with a NPV of DM 14,150, an IRR of 13 percent and a PV Benefit/Cost ratio of 1.1: the project is no longer viable beyond these brackets. Similarly, the sensitivity analysis was performed for the four area 17 subprojects that are viable with NPVs ranging between DM 0.1 and 3.0 million, economic IRRs greater than 10 percent and PV benefit/cost ratios greater than 1 with the increase in cost and decrease of benefits ranging between 8 percent and 50 percent which would maintain the subprojects viable. (Table 2). 55. An analysis of ONEE's financial statement for 2012 was performed in Annex 7. It demonstrates that the financial situation of ONEP (prior to April, 2012) and water-related activities of ONEE (since April 2012) is overall satisfactory. Financing resources derived from operations, together with the surplus of permanent funding over fixed assets, generate a positive cash flow. Nevertheless, consistent with a recent Additional Financing of an electricity project, it was agreed to introduce the debt service ratio as a Financial Covenant to the Legal Document, in order to monitor and ensure ONEE's overall financial sustainability. B. Technical 56. Selection ofproject area. The selection of the proposed investments in the Project area gives priority to the rural districts yet untouched by previous projects and where technical studies are advanced and levels of demand for improved services by the population are high. 57. Water Supply Infrastructure. The technical solution proposed for services extension through SP or network infrastructure development to increase the capacity of the access network prior to HC-service delivery includes the installation or expansion of regional trunk lines, and the construction of a web of lateral mains from regional lines for RWS. This "large web" RWS approach is justified by the lack of local quality groundwater resources in the project areas, the availability of impounded water in reservoirs or canals, and by the objective of limiting the number of water sources to better ensure the sustainability and quality of the water supply. The systems to be funded as part of the project will be almost exclusively served by sustainable surface water resources. 58. Water distribution through HC and rural sanitation. An increasing share of the rural population demands higher service levels, such as provided by HCs. In order to protect public health and comply with environmental safeguards, adequate rural sanitation solutions will be a prerequisite for households requesting individual connections to benefit from ONEE's pre- financing facility, consistent with procedures adopted by ONEE, found to be satisfactory to the Bank. Where population density is high and geological conditions do not favor on-site household solutions, sewerage systems would be put in place to address the increase in wastewater flows. The project does not include the financing of such solutions as it falls outside of ONEE's mandate. It is however working to confirm GOM's interest to pilot and finance the development of satisfactory on-site or network solutions and to strengthen communes' awareness and capacity to handle this mandate. According to the Moroccan regulation, it is the communes' responsibility to enforce that each house has an appropriate sanitation solution; to control the conformity and operational status of existing or new sanitation solutions and to enforce their implementation in case the current system is not in conformity with the regulation. 18 C. Financial Management 59. ONEE will be responsible for managing the project funds and all related financial transactions. ONEE is a state-owned commercial and industrial enterprise with financial and administrative autonomy (Etablissement public a caractere industriel et commercial). Accordingly, it operates as a private sector entity and the systems in place are based on the principles and procedures of the commercial law of the Kingdom of Morocco. ONEE has a Managing Director and a Board chaired by the Prime Minister and composed of representatives of various ministries. ONEE issues year-end financial statements that are audited by external independent auditors with the required qualifications and experience. The accounting is centralized at Headquarters. ONEE's Financial Department is well structured, and it has an adequate staff with proven experience in donor-financed projects. ONEE already has significant experience managing Bank-financed projects. 60. During project preparation, a financial management capacity assessment of ONEE was carried out. This assessment reviewed the financial management capacity, internal control procedures, financial reporting and ex-post reviews. It confirmed the robustness of the entity's financial management system as ONEE is a very experienced entity which has in place procedures and systems to prevent financial irregularities. However, the capacity assessments identified the following risks: (a) Payments: To mitigate the risks of delayed payments, ONEE will follow closely all the steps in this process to identify rapidly the bottlenecks and act accordingly. (b) Nature of the project: The project will involve several participants both at central and regional level. In addition to this decentralization, the project must follow specific Bank procedures, directives and guidelines. To mitigate any implementation risk, ONEE is preparing a Project Implementation Manual (PIM) describing the procedures, the actors, the flow of documents, and the outputs. 61. Retroactive financing has been proposed as part of the design, in case advanced procurement leads to contracts disbursing before the Legal Documents are signed. Retroactive financing would be limited to USD 2,785,000 equivalent for the amount of the Loan expressed in Dollars and EUR 8,077,000 equivalent for the amount of the Loan expressed in Euro, for payments made on or after May 1, 2013. 62. The pre-financing mechanism will be set up as a revolving fund, under modalities which have been discussed and agreed during project preparation. A note presenting such modalities was submitted and reviewed by the Bank. A Designated Account would be included in the FM arrangements to convey the funding allocated to the pre-financing mechanism. The risk associated with this mechanism is related to appropriate identification of beneficiaries and management of relevant information required for financial reporting. To mitigate this risk, the entity information system may be adapted. D. Procurement 63. ONEE-Water Branch has good experience in implementing Bank-financed projects and in carrying out procurement activities. Assessment of former ONEP's (new ONEE-Water Branch) 19 procurement capacity carried out for the Rural Water Supply and Sanitation project (on-going) and confirmed for the current Regional Potable Water Supply System project and for the Oum Er Rbia Sanitation project, concluded that the public procurement system is solid and operates in a structured and reliable control environment, and is thus devoid of major fiduciary risks. ONEE- Water Branch follows its own procurement rules, which are fundamentally based on the national procurement rules (Decret sur les conditions et forms de passation des marches de 'Etat) and have been approved by the Ministry of Finance as per the Law. These procurement rules are generally in line with the Bank's guidelines, with some exceptions as outlined in Annex 3. At the central level of ONEE-Water Branch, procurement capacities are considered overall satisfactory. Regional Departments (DRs) of the Atlantic Coast (DRC) and of Oujda (DR6), procurement capacities are also considered overall satisfactory. With respect to the Regional Department of Agadir (DRI), which does not have prior experience of Bank-funded project implementation, a training dedicated on procurement will be carried out at the beginning of the project and it will be provided support for the first procurement activities. Procurement under the Project will be carried out in accordance with Bank guidelines and procedures defined in Annex 3. 64. Considering that procurement in the project will be mostly handled at central level and, with DEP's supervision and support to DRs, at decentralized level, the overall risk is assessed to be low. This will be mitigated by the following set of actions: (a) The standard bidding document for Works under National Competitive Bidding (NCB) was prepared by ONEE and submitted to the Bank, which approved it. They include all the above adjustment clauses for NCB in Morocco as well as the Audit Clause and the Fraud and Corruption clauses (AFCC). Any change in these standard bidding documents for Works under NCB will have to be submitted to the Bank for approval, in compliance with the Loan Agreement. Likewise, a standard bidding document for Goods under NCB will be prepared by ONEE and will be submitted to the Bank for its approval prior to issuing the first call for bids for Goods under NCB. (b) The initial Procurement Plan, indicating the thresholds for use of procurement procedures other than International competitive Bidding (ICB) and Quality and Cost Based Selection (QCBS) methods, has already been prepared and reviewed by the Bank. During preparation, the Bank reviewed the proposed procurement plan and agreed with the Client on the possibility to do advance procurement, using the standard bidding documents and procedures agreed by the Bank. During Project implementation, procurement plans will be updated as often as necessary and at a minimum once a year and will be submitted to the Bank for its no objection; and (c) Implementation design includes regular ex-post reviews. E. Social (including Safeguards) 65. Social impacts. The project will have substantial social benefits and no adverse social impacts. Previous rural water supply studies in Morocco have shown that providing access to potable water supply has positive social impacts, including reducing the drudgery of water collection for women and girls, and improvement of living conditions in the household and within the village. Specific benefits include: (a) time savings leading to increased participation in 20 educational and economic activities, in particular by girls and women; (b) reduced prevalence of water-borne diseases, especially among children under five; (c) strengthening of social cohesion and fostering the emergence of community-based activities; and (d) slowing down the strong trend in rural to urban migration which has been fueled by the increase of poverty in rural areas. Poor people are often the most affected by lack of access to improved, community water systems, as they cannot afford the cost of the coping strategies used by the non-poor (water vendors, private wells). The poor are therefore likely to receive significant benefits from this project. This will be monitored through specific indicators in the Results Framework, and as part of the midterm and final evaluations. 66. Participation. The project strategy is based on a partnership between various sector stakeholders: ONEE, CRs, the private sector, and beneficiary populations. Sub-project participation will be at two levels: (a) at the level of local, elected representatives for the provincial and communal RWS planning process and cost sharing of investments in water production and conveyance; and (b) at the community level for the selection of the level of service and the cost sharing of investments in water production and conveyance; for the design, construction and O&M of the water distribution systems; and wastewater management at the village level, including the promotion of proper hygiene and sanitation practices. Community mobilization efforts will include devising any steps needed to facilitate the access of the poor to project benefits, mainly through the pre-financed credit mechanism to facilitate payment for house connections, community-level arrangements for the poor to obtain water from neighbors with house connections, or the placement of stand posts in villages to provide improved water supply for those who do not opt for house connections. In the Project provinces, rural and urban/small town areas are more distinct, though there is variation among rural areas, with some houses in some villages being very dispersed, while other villages contain houses built quite close together. This variation has an impact on the cost of providing a village house connection network. 67. Gender. In addition, the project will promote women's participation through at least two mechanisms: (a) the TA will systematically include women in its field teams; and (b) the TA will promote the inclusion of women along with men in community discussions on project activities and in any community committees related to the project. 68. Monitoring. A participatory mid-term review and a final evaluation will be conducted. These evaluations will be preceded by various surveys regarding key aspects including customer satisfaction surveys on beneficiary samples (one before the mid-term review and one before the end of the project) in order to promote accountability of service providers to customers, as well as gauge the impact of the Project on women and girls and on the extremely poor. 69. Land Acquisitions. There will not be involuntary resettlement, but there is likely to be permanent and temporary limited land acquisition. Based on recent experience, land acquisition most probably will not entail any physical resettlement or impact on residences or economic activities and that only the asset value of undeveloped land is concerned. Accordingly, the resettlement instruments for this project include a Resettlement Policy Framework (RPF) and Resettlement Action Plans (RAP), consistent with the Bank's OP4.12 requirements. The Borrower prepared a RPF for the entire project area, since the specific activities/works related to rural water supply for most areas would not be known with certainty by appraisal, but rather 21 during implementation. For the two intervention areas of Bedouzza and Skhour Rehamna, where initial designs were completed during preparation but RAPs could not be prepared by appraisal, "enhanced RPF" documents were prepared, presenting additional information and results of consultations. Cleared RPF and "enhanced RPFs" were disclosed in country and on the World Bank's Infoshop prior to appraisal (respectively on January 28 and March 13, 2014). The in country disclosure and publication on the World Bank's Infoshop of RAPs, acceptable to the Bank, for the two intervention areas of Bedouzza and Skhour Rehamna, was made a condition of effectiveness. All RAPs will also be submitted for safeguards clearance and will be disclosed in country and on the World Bank's Infoshop prior to the start of the works in each intervention area. F. Environment (including Safeguards) 70. The environmental screening conducted as per Bank's Operational Policy 4.01 has classified the project as "Category B". An environmental impact assessment (EIA) and an Environmental and Social Management Plan (ESMP) were accordingly established by ONEE during preparation. Public consultations were also organized in one province concerned by the project (Rehamna) in order to inform the population and the different stakeholders concerned by the project's activities, to inform them of the assessment of potential impacts of the project on environment and to allow them to formulate comments and proposals. The Central and Northern provinces were recently consulted on similar activities under the on-going RPWSSP Project. However, it was agreed that ONEE would systematically include in the initial consultation with beneficiaries a presentation of the project, its expected positive impact and potential negative impacts and associated mitigation measures. 71. The ESMP sets up the process for the management and integration of environmental aspects in all phases of the project and includes four parts: environmental management and coordination; mitigation of negative impacts; monitoring and supervision; and capacity-building activities. 72. The ESMP will be implemented by ONEE's Sanitation and Environment Department (DAE). DAE's capacity was assessed and deemed sufficient in light of the significant experience it acquired conducting EIAs, defining mitigation measures and implementing ESMPs for similar projects, including on-going Bank-funded rural water supply projects. DAE will include information on safeguards policies application and monitoring in its periodic Project reports to the Bank, including as related to the implementation of site-specific ESMP in construction bidding documents, in addition to annual environmental monitoring reports to be generated for the Project. In these implementation and monitoring tasks, the DAE will be supported by the technical assistance, which will guide and monitor ESMP implementation in the intervention areas. To facilitate these tasks, DAE has prepared an operational manual for EIAs and a template for environmental monitoring reports. 73. Expected positive environmental and socio-economic impacts of the project include: (a) Increased availability of potable water, a vital resource for human development in rural areas; (b) Reduced pressure on groundwater with a beneficial effect on groundwater levels; 22 (c) Improved quality of water supplied to households resulting in a decrease in waterborne diseases, especially among children; (d) Easier access to potable water resulting in less time spent in fetching water, especially for women and children; (e) Increased availability and involvement of women in community-based associations; (f) Creation of local jobs and mitigation of rural-urban migration through the improvement of rural living conditions; (g) Increased level of environmental awareness in rural communities, especially in relation to wastewater; (h) Promotion of sustainable practices for greywater management and rural sanitation; (i) Development and dissemination of improved on-site rural sanitation (RS) solutions adapted to the local rural environment; and (j) Contribution to the promotion of a RS market, and capacity building with regard to the provision of on-site sanitation services, works and supplies. 74. The EIA also allowed to inventory potential negative environmental and socio-economic impacts of project activities and to identify mitigation measures which could reduce or prevent them. The main potential negative impacts that could be created by the project include: (a) An increased consumption of surface water resources; (b) Where household connections are deployed (component 2) (i) Increased wastewater generation and discharges, with associated risk of groundwater and surface water resource pollution; (ii) Risk of increased pathogen contamination of groundwater; (iii) Risk of development of water borne diseases as a result of untreated wastewater stagnation or reuse; (c) Temporary and localized nuisances due to the construction works; and (d) Increased energy consumption for water supply operations. 75. The impacts generated by project construction activities, such as laying conveyance and distribution pipes, drilling, and occasional construction works (treatment plants, pumping stations, reservoirs, etc.) are considered of low, local and temporary importance. Bidding documents will specify that contractors will be held to good management practices as per ONEE's guidelines, and to site specific Environmental and Social Management Plan mitigation and reporting requirements, consistent with specific environmental assessments developed for each of the subprojects in component 1. 23 76. ONEE is reviewing the need to increase water supply production of the Tiznit Water Production Plant, to determine whether and when this may be needed, as well as the possible technical options to consider. Funding is nevertheless reserved under the project to cover for this investment, if and when it materializes. However, as additional information is required in order to be able to fully appraise this investment and to prepare the relevant Environmental Impact Assessment, a disbursement condition has been included in the Project design that a revised EIA and a revised ESMP, satisfactory to the Bank, covering such water supply production investments shall have been published by ONEE on its website and submitted by ONEE to the Bank for publication at the Infoshop. 77. For the deployment of household connections under component 2, as indicated in Annex 2, eligibility for financing under the Pre-financing mechanism for HC solutions require the existence of an adequate sanitation system (in-site or networked) that complies with ONEE's standards. The Moroccan regulation imposes that any housing be equipped with an appropriate sanitation solution 2. Decree No. 2-05-15331 3 defines on-site or autonomous sanitation and states that any discharge from rural housing needs to be equipped with an on-site sanitation solution. It also entrusts the local government (commune) with the responsibility of controlling the conformity and operational status of existing or new sanitation systems and of enforcing their implementation in case the current system is not in conformity with the regulation. 78. Building on this regulation, ONEE adopted a set of standards which defines a set of acceptable sanitation solutions which needs to be in place before a house can be connected to water supply. This set of acceptable solutions has been reviewed and found acceptable to the Bank. It will be used as a list of possible options to be implemented before any request for financing of HCs under the Pre-financing mechanism to be created under Component 2 of the Project can be approved. The description of acceptable rural sanitation solutions will be presented in detail in the Project Implementation Manual together with the procedures used to verify their existence. 12 Law 25-90 promulgated by Dahir no 1-92-7 of 15 hija 1412 (17 juin 1992), published in the Official Gazette (Bulletin Officiel) No. 4159 on 15/07/1992, page: 307. 1 Decree No. 2-05-1533 of 14 MOHARREM 1427 (February 13, 2006) published in the Official Gazette (Bulletin Officiel) No. 5404 on Thursday March 16, 2006. 24 Annex 1: Results Framework and Monitoring Country: Morocco Project Name: Rural Water Supply Project (P145529) Results Framework Project Development Objectives PDO Statement The project development objective (PDO) is to provide access to safe and reliable drinking water supply for rural communities in targeted under-served areas in the Project area. These results are at Project Level Project Development Objective Indicators Cumulative Target Values Data Source/ Responsibility for Indicator Name Core Unit of End Methodology Data Collection CreBaselineMeasureMeasureNam YR1 YR2 YR3 YR4 YR5 YR6 Target Frequency This includes "Number of people provided with improved water resources" (people provided ONEE DEP with Direct project Number 0 0 3,500 27,500 105,500 175,000 335,000 440,000 Semester with SP-service) assistance from beneficiaries under component TA and DRs 1 as well as people provided with HC-service under component 2. 25 3 surveys Objective is to conducted in. te assess positive Pe e oc gender bias of ONEE DEP with RWS assistance from Female beneficiaries Sub-Type 0 0 55 55 55 55 55 55 implementa Supplemental tion intervention. DAO, TA and (baseline, Objective is set at DRs mid-term 55% of total and final), beneficiaries. Extreme poverty is understood to be consistent with "taux de pauvret6" as 3 surveys defined by GOM conducted to be the part of in the the population. ONEE DEP with Percentage course of whose revenue is .NE from bxreefi r Sub-Type 0 0 15 15 15 15 15 15 implementa below around aO,itand Supplemental tion 1.25 USD / day. DRs (baseline, According to DRs mid-term HCP data, and final). average vulnerability rate of targeted CRs is 15.6%, target is thus set at 15%. 26 This includes people who benefit either from upgraded systems where the current Number of people in system was not rural areas provided deemed safe and ONEE DEP with with access to reliable assistance from Improved Water Number 0 0 0 20,000 90,000 150,000 300,000 390,000 Semester (improved DAO, TA and Sources under the access) or from DRs. project new systems (additional access). This excludes people who benefit from a HC as they already had access to a SP. This captures people benefiting Number of people in Number from new ONEE, with rural areas Sub-Type 0 0 0 2,600 22,500 47,000 60,000 80,000 Semester community support of TA and benefitting from new Breakdown points (SPs) DRs water systems where there was no water supply system available. This captures people benefiting from SPs where Number of people in there was an ONEE DEP with rural areas benefiting Nubrexisting Sub-Type 0 0 0 17,400 67,500 103,000 240,000 310,000 Semester but assistance from from upgraded water Breakdown severely TA and DRs systems degraded water supply system (unsafe and unreliable) 27 Incremental percentage points must capture impact of Project investments alone. Calculated mathematically as number of people benefiting Consolidated Access Percentage from new water ONEE DEP with Rate in selected Sub-Type 93 93 93 93 94 95 96 97 Semester systems divided assistance from provinces Supplemental byTA and DRs population of targeted provinces. Baseline access rate for targeted provinces (El Jadida, Safi, Sidi Bennour and Rehamna) will be given for reference. Villages in rural E] areas provided with ONEE project ONEE DEP with access to Improved Number 0 0 0 36 268 619 850 1,400 Semester documents + TA assistance from Water Sources under reports TA and DRs the project Villages served _+ ONEE water under the Project Percentage that receive drinking Sub-Type 100 100 100 100 100 100 100 Annual quality. ONEE water of appropriate Supplemental monriN quality (safety) program Villages served under the Project Percentage that receive drinking Sub-Type 100 100 100 100 100 100 100 Annual ONEE service ONEE water on a monitoring data continuous basis (reliability) 28 Intermediate Results Indicators Cumulative Target Values Data Source/ Responsibility for Collection Indicator Name Core Unit of End Methodology Data CreBaselineMeasureMeasureNam YR1 YR2 YR3 YR4 YR5 YR6 Target Frequency Captures the number of built standpipes that Improvedare operational community water are ot ONEE DEP with points constructed or Number 0 0 0 54 362 774 1,000 1,600 Semester btre assistance from serviced. rehabilitated under This corresponds TA and DRs the project to ONEE's "mise en service industriel" Captures the proportion of operational standpipes that are managed and Sub-projects with deliver water (i.e. ONEE DEP with post-project ratio of number assistance from community of operational TA and DRs, as engagementenggeentorPercentage or 0 0 0 2 13 34 60 100 Semester standpipesstnpesor over wellwlla as O&M arrangements number of "Directions (%) managed Commerciales" standpipes). This corresponds to ONEE's "mise en service commercial" Captures the ONEE DEP with Sub-projects that are number of assistance from expected to have a Number villages that have TA and DRs, as mechanism for post- Sub-Type 0 0 0 22 173 460 810 1,400 Semester operational completion Supplemental standpipes that ,eas operation are managed and "D,rcins, Commerciales" deliver water. 29 Captures the number of operational New piped household household water connections built, ONEE DEP with connections that are Number 0 0 700 1,500 3,000 5,000 7,000 10,000 Semester where the assistance from resulting from the household TA and DRs project intervention contribution is financed under the pre-financing mechanism Length of access Monitors length ONEE DEP with water pipes laid out Kilometers 0 30 300 1,200 2,000 2,300 2,400 2,600 Semester of pipes installed assistance from or rehabilitated under the Project TA and DRs Captures E] DEP with Additional reservoir Cubic additional water ONEE from capacity Meter(m3) 0 370 3,200 5,700 11,700 13,500 15,000 17,000 Semester storage capacity assistance built under the TA and DRs Project 30 Project Development Objective Indicators Indicator Name Description (indicator definition etc.) Direct project beneficiaries Direct beneficiaries are people or groups who directly derive benefits from an intervention (i.e. families that have a new piped water connection). Please note that this indicator requires supplemental information. Supplemental Value: Female beneficiaries (percentage). Based on the assessment and definition of direct project beneficiaries, specify what proportion of the direct project beneficiaries are female. This indicator is calculated as a percentage. Female beneficiaries Based on the assessment and definition of direct project beneficiaries, specify what percentage of the beneficiaries are female. Extremely poor beneficiaries Percentage of beneficiaries who are extremely poor Number of people in rural areas provided with This indicator measures the actual number of people in rural areas who benefited from access to Improved Water Sources under the improved water supply services that have been constructed under the project. project Guidance on "improved water sources": "Improved water sources" include piped household connections (house or yard connections), public standpipe, boreholes, protected dug well, protected spring and rainwater collection. Hence, "Improved Water Sources" do not include, inter alia, water provided through tanker truck, or vendor, unprotected well, unprotected spring, surface water (river, pond, dam, lake, stream, irrigation channel), or bottled water. The definition of what is considered an 'improved water source' follows the UNICEF-WHO Joint Monitoring Program definition. Note that "Improved Water Sources" does not refer to the question of new versus rehabilitated water sources, but is the standard definition used to track progress on the Millennium Development Goals. Guidance on people with access: The data on the number of people provided with access can be estimated by TTLs by multiplying i) the actual number of piped connections with an estimate of the number of people per household connection; and/or ii) the actual number of community water points with an estimate of the number of people per community water point. The assumptions made regarding number of people per connection made should be carefully documented in the 'comments' section of the indicator when data is entered in the ISR. Guidance on rural classification: The classification should follow the official definition used in the country. Number of people in rural areas benefitting from This captures people benefiting from new community points (SPs) where there was no water new water systems supply system available. 31 Number of people in rural areas benefiting from This captures people benefiting from SPs where there was an existing but severely degraded upgraded water systems water supply system (unsafe and unreliable) Annual increase of the consolidated Access Rate Incremental percentage points must capture impact of Project investments alone. of the Project provinces Calculated mathematically as number of people benefiting from new water systems divided by the total population of targeted provinces. Baseline access rate for targeted provinces (El Jadida, Safi, Sidi Bennour and Rehamna) will be given for reference. Number of villages in rural areas provided with This indicator will account for all villages served by SP service under the project, benefiting access to Improved Water Sources under the from either new or upgraded systems. project Percentage of villages served under the Project Appropriate quality of drinking water supplied is defined as water quality analyzed and that receive drinking water of appropriate quality determined as consistent with ONEE service standards, which are compliant with Moroccan (safety) water quality norms. Percentage of villages served under the Project Continuous basis is defined as continuous supply where no service interruptions exceed 6 that receive drinking water on a continuous basis hours, and there is no more than one interruption per week. (reliability) 32 Intermediate Results Indicators Indicator Name Description (indicator definition etc.) Improved community water points constructed or Number of improved community water points constructed or rehabilitated under the project in rehabilitated under the project rural and urban areas. A community water point is defined as a public outlet for the provision of water supply to a number of households. Improved community water points refer to standpipes, protected dug well, borehole, or protected spring. Hence, improved community water points do not include, inter alia, unprotected wells or unprotected springs. Sub-projects with post-project community This indicator is likely to be most relevant for CDD-type projects and measures the existence of engagement or O&M arrangements (%) specific arrangements created under the project to ensure ownership by project beneficiaries. Sub-projects that are expected to have a No description provided. mechanism for post-completion operation New piped household water connections that are Number of new piped household water connections which result from the project intervention. resulting from the project intervention A piped household water connection is defined as a connection that provides piped water to the consumer through either a house or yard connection. Hence, they do not include, inter alia, standpipes, protected well, borehole, protected spring, piped water provided through tanker trucks, or vendors, unprotected wells, unprotected spring, rivers, ponds and other surface water bodies, or bottled water. Length of access water pipes laid out or This includes pipes laid out under component 1 or rehabilitated under component 2. rehabilitated Additional reservoir capacity Captures additional capacity built under component I in cubic meters 33 Annex 2: Detailed Project Description KINGDOM OF MOROCCO: Rural Water Supply Project 1. The project development objective (PDO) is to provide access to safe and reliable drinking water supply for rural communities in targeted under-served areas in the Project Area. 2. The project is expected to have positive impacts on the quality of life of the population in the targeted areas by providing access to safe and reliable water supply to 390,000 rural inhabitants in some 1,400 villages, where they currently only have access to high-burden, low quality water resources, and by improving service delivery through HC to approximately 50,000 additional rural inhabitants where they currently have access to a standpipe. 3. The origin of this project is an explicit request from ONEE and the GOM for support from the World Bank to set-up the pre-financing mechanism to roll-out HC-service extension nationwide and to further extend its support to the GEP program. As such, the new project substantially builds on the experience and lessons learned from on-going projects to further support a high-capacity Borrower consolidate its RWS service delivery in areas remaining underserved, in support of Morocco's economic and social development objectives. 4. The proposed Project aims to continue the World Bank's support to the latest phase of GOM's GEP program. As such, and consistent with the provisions of the legal documents, the Project would be structured around the following parts: Part I: Extension of Access to Water Supply through Standpipes in Selected provinces within the Project Area Carrying out of works, and acquisition of goods, to deliver water supply to selected villages ("douars") through: a. the construction of lateral mains from regional trunk lines, elevated or grounded storage tanks, pumping stations, and public standpipe delivery systems; and b. the expansion of the capacity of the Tiznit water treatment plant and associated infrastructure. Part II: Supporting the Shift towards Water Service Delivery through House Connections in the Project Area a. Supporting a Pre-financing Mechanism to pre-finance a share of the cost of households' individual water connections. b. Carrying out of works and acquisition of goods, to increase the capacity of the regional water access network in prevision for house connection service delivery. Part III: Project Implementation Support and Capacity Building a. Provision of technical advisory services to strengthen the Borrower's capacity in the following areas: (i) Project management and monitoring and evaluation; (ii) participatory 34 approaches to service provision; and (iii) identification of proper wastewater management solution for the villages and raising awareness on sanitation. b. Carrying out of studies and strengthening the capacity of the Borrower in the following areas: (i) rural water supply; (ii) management of the overall universal water access program; (iii) preparation of sustainable management models for extension and management of house connection service provision; (iv) performance of rural water supply standpipe service and household connection service operations; and (v) remote- management pilots in rural water supply and opportunities and conditions for scaling-up successful approaches. 5. Financing indicated below amounts to a total Project cost of EUR 162.1 million (USD 223.6 million equivalent), out of which EUR 92.0 million and USD 31.72 million (USD 158.6 million equivalent) is funded through the proposed Bank loan. Although the exact details will be determined during Project implementation, it is estimated that they could include infrastructure as presented in the following description. During project implementation, ONEE (the Borrower) and the Bank may decide to extend the activities under Part I.a to other provinces within the Project Area. Component 1: Extension of access to water supply through standpipes in selected provinces within the Project area. 6. The cost of this component, with contingencies and taxes, is estimated at EUR 140.8 million (USD 194.2 million equivalent), of which EUR 97.3 million (USD 134.2 million equivalent) is financed by the Bank loan (69 percent) and EUR 43.5 million (USD 60.0 million equivalent) is financed by counterparts. 7. This component consists of water production, conveyance and rural water supply in provinces including the provinces of Nador and Driouch in the North of the country; Safi, Sidi Bennour, El Jadida and Rehamna in the Center; and Tiznit and Chtouka Ait Baha in the South. As detailed below, it will finance the delivery of water supply to villages through the construction of lateral mains (piquages) from existing or planned ONEE regional trunk lines, storage tanks (elevated or grounded), pumping stations, and public standpipe delivery systems in targeted villages. This "large web" approach is justified in the project area by the lack of local quality groundwater resources, the availability of impounded water in the dams within respective water basins, and by the objective of limiting the number of water sources to better ensure the sustainability and quality of the water supply. The systems to be funded as part of the project will be almost exclusively served by sustainable regulated surface water reservoirs. It is estimated that this component will provide new access to potable water to approximately 390,000 rural citizens (2004 census) in around 1,400 villages (douars). 35 Extension of access to water supply through standpipes in villages in the Northern provinces ofNador and Driouch. 8. The objective is to supply water to approximately 83,000 inhabitants in 232 douars in the Nador and Driouch provinces. Works are expected to be implemented in two phases: (a) The first phase would consist of the construction of a 47 km ductile iron or PVC pipes of 400 to 500 mm in diameter to convey water from the main regional trunk line located in El Hoceima to 12 CRs of the Cercle du Rif, including Trougout, Ijermaous, Ouled Amghar, Boudinar, Tamsamane, Tallilit, and Bni Marghane. (b) The second phase would consist of the distribution of water from the conveyance described above to the douars. Works under this phase are separated into 10 systems, and consist of the construction of 64 storage tanks (capacities ranging from 10 m3 to 500 m3), 92 pumping stations, approximately 448 km of rural conveyance pipes, and ancillary works. Local distribution will be done through the construction of approximately 232 public standpipes. Extension of access to water supply through standpipes in villages in the Central provinces of Safi, Sidi Bennour, El Jadida and Rehamna. 9. The objective is to supply water to approximately 261,000 inhabitants in 619 douars in three main intervention areas of the provinces of Safi, Sidi Bennour, El Jadida and Rehamna: (a) Bedouza area. This part will supply water to approximately 17,000 inhabitants in 36 douars in the CRs of Ayir and El Bedouza in the province of Safi. Water will be conveyed from ONEE's 1,000 m3 storage tank in Laakarta, which contains water from the Bouariss well field (approximately 55 percent) and the Safi water treatment plant (approximately 44 percent). Works will consist of 104 km of pipes of diameters from 50 to 400 mm, 3 storage tanks, 1 pumping station, and 54 standpipes for the distribution of water to the douars, as well as ancillary works. (b) Skhour Rehamna area. This part will supply water to approximately 53,000 inhabitants in 191 douars in the CRs of Ait Hammou, Ait Taleb, Bouchane, Labrikiyine, Oulad Aemer Tizmarine, Oulad Hassoune Hamri, Sidi Ali Labrahla, Sidi Mansour, and Skhour Rehamna in the province of Rehamna. Water will be conveyed from the regional Benguerir conveyance pipe. The area is the third and final phase of an on-going project financed by ONEE. Works will consist of 470 km of pipes, 12 storage tanks, 3 pumping stations, and approximately 234 standpipes for the distribution of conveyed water to the douars, as well as ancillary works. (c) Sidi Bennour area. This part will supply water to approximately 191,000 inhabitants in 392 douars, of which 294 douars in the CRs of Bni Hilal, Bouhmame, El Gharbia, Laagagcha, Laghnadra, Lmechrek, Loualidia, Oulad Sbaita, and Saniat Berguig in the province of Sidi Bennour, 97 douars in the CRs of Oulad Ghanem, Sebt Sais, Sidi Mhamed Akhdim, Sidi Smail, and Zaouiat Sais in the province of El 36 Jadida, and 1 douar in the CR of Ayir in the province of Safi. Water will be conveyed from the Canal Haut Service. Works will consist of 790 km of pipes (of which 55km of conveyance), 5 storage tanks, 1 pumping station, and 486 standpipes for the distribution of conveyed water to the douars, as well as ancillary works. Extension of access to water supply through standpipes in villages in the Southern provinces of Tiznit and Chtouka Ait Baha. 10. This subcomponent will supply water to approximately 41,000 inhabitants in 550 douars in the provinces of Tiznit and Chtouka Ait Baha. It consists of three main intervention areas: (a) Ait Baha area. This part will supply water to approximately 9,000 inhabitants in 77 douars in the CRs of Tizi N'Takoucht, Tanalt and Ida Ougnidif in the province of Chtouka Ait Baha. Water will be conveyed from the Ait Baha water treatment plant to the project area. Works will consist of approximately: (i) 57 km of pipes, 5 storage tanks, and 8 pumping stations for the conveyance portion, and (ii) 191 km of pipes, 12 storage tanks, 14 pumping stations, and approximately 99 standpipes for the distribution of conveyed water to the douars, as well as ancillary works. (b) Tiznit area. This part will supply water to approximately 24,000 inhabitants in 319 douars in the CRs of Ait Issafen, Anzi, Tighmi, and Tnine Aday in the province of Tiznit. Water will be conveyed from the Tiznit water treatment plant to the project area. 92 douars in the CRs of Ida ou Gougmar and Tafraout El Mouloud were excluded from this intervention as they are at a farther distance and higher altitude than the remaining CRs, which would have generated excessive costs and delays. ONEE is currently reviewing the need for water supply production increase in this area, to determine whether and when this may be needed, as well as the possible technical options to consider. Funding is reserved under the project to cover for this investment, if and when it materializes. Works are expected to include: (i) 79 km of pipes, 2 storage tanks, and 6 pumping stations for the conveyance portion, and (ii) 308 km of pipes, 25 storage tanks, 23 pumping stations, and approximately 227 standpipes for the distribution of conveyed water to the douars, as well as ancillary works. (c) area supplied by Taghzout borehole. This part will supply water to approximately 8,000 inhabitants in 154 douars in the CR of Arbaa Ait Ahmed in the province of Tiznit. Water will be supplied from the nearby Taghzout borehole. This borehole, built by ONEE to supply the CR of Arbaa Ait Ahmed, has a capacity of 18 liters per second, which is sufficient to satisfy the estimated water demand of the CR of 8.5 liters per second. Works are expected to comprise: 37 (i) An 18 liters per second pumping station at the Taghzout borehole, as well as a 6 km pipe and a 200 m3 storage tank for the conveyance portion, and (ii) 153 km of pipes, 10 storage tanks of a total capacity of 270 M3 , 11 pumping stations, and approximately 134 standpipes for the distribution of conveyed water to the douars, as well as ancillary works. Component 2: Supporting the shift towards water service delivery through house connections in the Project area. 11. The cost of this component, with contingencies and taxes, is estimated at EUR 11.0 million (USD 15.2 million equivalent), of which EUR 9.0 million (USD 12.4 million equivalent) is financed by the Bank loan (82 percent) and EUR 2.0 million (USD 2.8 million equivalent) is financed by counterparts. 12. This component aims to respond to the demand of an increasing share of the rural population for HC and will be implemented by ONEE through the following two subcomponents. Pre-financing mechanism 13. The cost of this subcomponent is estimated at EUR 5 million (USD 6.9 million equivalent), fully financed by the Bank loan. IBRD financing will contribute to a Pre-financing mechanism, set up as a revolving fund or pre-financing mechanism available to provide credits to households who opt for HC-service and request such facility, that has the following characteristics: (a) This pre-financing mechanism has been set up and is being managed by ONEE under the on-going Rural Water Supply and Sanitation project, but with a geographical limitation to households located in the project provinces. Under the proposed project, ONEE is to scale-up such pre-financing facility nationwide. The design will remain the same as under the ongoing project. Namely, the pre-financing mechanism will provide credits to households which request it, to pre-finance a share of up to MAD 2,500 of their contribution to the cost of their house connection (Full household contribution to its house connection is MAD3,500). Households will refund this credit in installments over time through their water bills, according to a pre agreed repayment schedule. (b) The revolving fund (and therefore the Loan proceeds) will not be used to directly finance any works or contract for HC-services. ONEE's involvement to develop HC service delivery in a given CR will be based on the fulfillment of the following prerequisites: (i) commitment of at least 70 percent of the population to request a HC for water supply; (ii) the upfront payment by households of MAD 3,500 contribution to the cost of their house connection (either upfront or using the pre-financing mechanism); (iii) the payment by CR of a contribution of 50 percent of the investment cost; and (iv) households provide evidence that a satisfactory sanitation solution is in place, as defined in the PIM. 38 14. Before engaging into HC-service extension in an area requesting it, ONEE, with support of its implementation TA consultant, will carry out a comprehensive review of the level of fulfillment of the aforementioned prerequisites. This review will also encompass an environmental screening of the proposed area, to assess whether existing sanitation solutions are available according to standards and procedures adopted by ONEE. This review will also raise- awareness of the CRs of the need to actively operate and maintain these sanitation solutions, and of the fact that it will be made explicit in the Co-financing Agreements signed between ONEE and the CRs prior to the deployment of HC service that "a suitable household sanitation system should be in place, be it collective or individual, before a HC could be installed". Concretely, ONEE's pre-financing facility will only be made available to a household upon receipt of evidence from the requesting household that a suitable sanitation solution is in place, be it collective or individual. ONEE adopted in 2005 a set of standards that define the type of sanitation that is considered adequate and required before a house connection can be approved. This set of standards has been reviewed by the Bank, and deemed satisfactory. It will be used as a menu of possible options to be implemented before any request for financing of HCs under the Pre-financing mechanism to be created under Component 2 of the Project is approved. A description of acceptable rural sanitation solutions will be presented in detail in the PIM together with the procedures to confirm and document their existence. 15. Because rural sanitation is beyond ONEE's mandate, potential sources of funding are being explored to support the promotion, construction and installation of acceptable sanitation solutions when these are not available. Upgrading access networks 16. The cost of this subcomponent, with contingencies and taxes, is estimated at EUR 6 million (USD 8.3 million equivalent), of which EUR 4 million (USD 5.5 million equivalent) is financed by the Bank loan. This subcomponent comprises mainly works to increase the capacity of the regional access network in areas where the regional network installed in earlier stages of PAGER and GEP is insufficient to provide an adequate service, due to lower design standards at the time (20 liters per capita per day), in prevision for HC-service delivery. 39 Component 3: Implementation Support and Capacity Building 17. The cost of this component, with contingencies, is estimated at EUR 10.0 million (USD 13.8 million equivalent), of which EUR 8.4 million (USD 11.6 million equivalent) is financed by the Bank loan (84 percent) and EUR 1.6 million (USD 2.2 million equivalent) is financed by counterparts funding. This component will provide technical assistance and capacity building under two subcomponents. Technical assistance (TA) 18. The cost of this subcomponent is estimated at EUR 8.8 million (USD 12.2 million equivalent). This subcomponent comprises a single consultancy service to ONEE's project implementation to: (a) enable efficient project management and monitoring; (b) strengthen participatory approaches to service provision including helping communities prepare and organize for either SP-service or HC-service deployment and operation; (c) facilitate effective integration of hygiene and wastewater management into the provision of improved water supply services; and (d) identify the proper wastewater management solution for each village and raise awareness on sanitation to prevent any possible negative impacts from an inadequate disposal of increased wastewater flows. Capacity building (CB) 19. The cost of this subcomponent is estimated at EUR 1.2 million (US$ 1.6 million equivalent). This subcomponent comprises consultancy services to deliver a series of studies to inform ONEE's overall RWS program, increase ONEE's capacity to effectively manage the overall GEP program, develop and support sustainable management models for extension and management of HC-service provision, improve the performance of RWS SP- and HC-service operations and evaluate on-going remote-management pilots in RWS and opportunities and conditions for scaling-up successful approaches. 40 Annex 2 - Appendix 1 - Methodology for the Participatory Approach Phase 1. Information and Commitment of Local Authorities 20. During this phase, ONEE works along two parallel fronts: the first being information and commitment of local authorities (provinces and rural communes-CRs), and the second technical studies. 21. Step 1. Consultation with Local Authorities and Elected Representatives. ONEE informs provincial authorities and CRs of the priority program. More specifically, the following points are explained: (a) the proposed selection of the sub-projects; (b) the methodology for community participation; (c) the financial and management implications of the choice of delivery system (SPs or HCs); and (d) the financial contribution from each party to construction costs. 22. Step 2. Information and Commitment of the Rural Communes. The rural commune through its Co-financing Agreement with ONEE commits itself to the payment of its contribution to the cost of service delivery. Ideally, the rural commune will designate a technician to support the Social Mobilization Team (SMT) in the initial contacts and mobilization of the population. At this stage the project can also begin to explain to the rural commune representatives the overall characteristics of the participatory approach. 23. The detailed studies presented to the communes and local authorities should also indicate whether there will be any environmental impacts, temporary occupation of lands, or land acquisition and if so, the mitigation measures to be taken. Phase 2. Social Mobilization and Community Participation 24. During this phase, the SMTs fully launch their work in the villages. This is a critical phase to gain the trust and cooperation of the communities. Before beginning their work, the SMTs must have the information necessary to understand the technical aspects of the proposed sub-projects. This will also help them in focusing the participatory diagnostic. During this phase SMTs carry out three critical steps: informing and consulting with the community and verifying their demand; conducting the participatory social community diagnostic, and forming the community structures needed for the project. 25. Step 1: Community Information. The SMTs begin the process of education and mobilization with the communities. This work will require one or several visits to the communities, depending on their degree of prior information and other factors. During this phase the SMTs inform the population about the requirements for accessing the project; technical and management options, including choice of SPs or HCs; the rationale behind community participation and the necessary contributions required to bring the water to the douar; and the financial contributions and sanitation systems required by the users if HCs are chosen. 26. Step 2. Community Participatory Diagnostic and Choice of Service Level. The objective of the diagnostic is to establish an accurate socio-economic baseline for the implementation of the project and to begin to explore the best methods for the management of the water systems. It will be implemented in the following manner: 41 (a) The participatory diagnostic will include: (i) a socio-economic baseline study, which will be used for project M&E. Data/information collected could include: (i) the number of households with and without access to water and sanitation; (ii) an inventory of households and household characteristics (led by men, by women, widows); (iii) the type of house: permanent construction, earth, other; (iv) a typology of the village settlement pattern: concentrated, dispersed; (v) alternative water sources, mapping of existing water sources; (vi) existing roles within the household, work distribution, time spent collecting water; (vii) cost of water provisioning; (viii) hygiene and sanitation practices and infrastructure; and (ix) statistics on water-related diseases; (ii) a diagnostic of existing forms of community organization and of the existence and types of social cohesion. This will permit the SMT to explore the potential for different models of organization and management of the water distribution system as well as wastewater management. This also helps to identify existing organizations and the role they could play in the social mobilization and management of water distribution systems; (iii)assessment of the community level of relative wealth and poverty and capacity to pay for the different technical choices offered to them; and (iv)the type of sanitation systems in place in these communities, either in-site individual or networked and their compliance with ONEE technical solutions. (b) The outcome of the diagnostic permits the SMT to: (i) verify community demand for the project (ii) know local capacities (of men and women, youth and aged) that can be used for the implementation of the project; (iii)evaluate potential capacity for different management models; (iv)recommend possibilities for different types of distribution (SPs or HCs) depending on local conditions/preferences as well as technical considerations; and (v) assist the community in decision-making concerning the choice of service level (water management and wastewater management). (c) After the community has made the choice of water distribution systems (SPs or HCs), the SMT must inform the communes of the results of the diagnostic as well as the community's choice. At this time, ONEE signs an agreement with the commune rural concerning the commune's 15 percent financial contribution and the eligibility criteria related to the existence of adequate sanitation solutions. In addition, the communities start collecting their capital cost contribution. 42 27. Step 3: Choice and formation of community management structures. The project cycle follows two different paths, depending on the choice of the community for either SPs or HC. However, they both have the following steps in common: (a) community decision on the management model to be chosen; (b) formation of the management unit at the community level as appropriate; (c) community committee written agreement confirming commitment to project; and (d) consolidation and evaluation of impacts, and M&E. (e) The steps in this phase of community organization can be summarized as follows. Standpipes HCs" 1. Selection of location for placement of 1. Discussion with the community on the standpipes according to set criteria." conditions of access to HCs.16 2. Community agreement and technical feasibility 2. Technical studies and choice of option for of the placement of standpipes. sanitation. Where needed, piped sanitation solution should be studied jointly with the water distribution network. 3. Identification of possible models for 3. Identification and decision on the management of the water system and provision of management model, with the SMT explaining management training. Completion of collection of the different alternatives, requirements and first tranche of community contribution to capital responsibilities. The SMT subsequently costs. provides any needed management training. 4. Signing of the contracts with the managers in 4. Financing period launched by the association the community and the ONEE. and, if necessary, measures to acquire land required for any works 5. Hygiene education related to water supply and 5. Signing of management contracts with any wastewater management. associations as appropriate. 6. Turning over the standpipes to the managers 6. TA for the adoption of acceptable sanitation and the community, after final contributions to systems and development of operation and capital costs have been received by the project. maintenance mechanisms. 7. Regular monitoring of the management system 7. Follow up in cases of management and consolidation of the management structures; associations and assist in their functions, monitoring of health and hygiene and sanitation. consolidation of the associations, M&E of the management, and environmental and social impacts. 14 The SMT work with communities will be more intense in the case of house connections. 15 Criteria for the location of SPs: one standpipe for an area covering 500 meters in a grouped population; One standpipe per 300 inhabitants average; one standpipe for 100 to 150 inhabitants minimum in an area of 1 km in a dispersed settlement; placement has to be accessible to all the users. 16 Criteria for individual connections: community consensus for HCs (at least 70% of households demand this level of service); 100% financing by the users; need to have created an association or other management structure to manage and deal with ONEE; adequate sanitation systems already available ; create the distribution system for the connections according to the technical plan proposed by ONEE. 43 28. The role of the SMT is of particular importance in the assistance to the community, guiding them to decide on the appropriate management structure. This is relatively straightforward in the case of the standpipes, but requires more assistance as well as community consensus in the case of HCs and the maintenance of the distribution system. Among their functions the SMTs will: (a) explain to the community the legal aspects of each management model (standpipe operator, water users association, cooperatives, private contractors, etc.); (b) explain the role of the other partners: rural communes and ONEE; (c) demonstrate the role and advantages of each management model depending on the community's characteristics and needs; (d) explain the roles and duties of the members of a management model; (e) help communities that are forming management associations and provide them with training; (f) assist the communities in integrating women into the processes of preparation and creation of the management association; and (g) make available to the members of a management association the documents required to formalize the organization: statutes, models of assemblies, legal texts governing micro-enterprises, rights and duties of associations, copies of the conventions drawn between the community, the rural commune and ONEE, etc. 29. The role of the SMTs will be to continue to work within the communities until the chosen management model is operating, and then to provide follow-up support over the next two years through occasional visits. These management structures can encompass more than a single douar; however, all the households must be in agreement with the model that is chosen so as to avoid conflict. The modalities of the management model chosen should include measures to ensure that the women's interests are well represented. 30. The SMT will keep a dossier with the relevant information to inform ONEE and subsequently sign the contracts. 31. Monitoring will be participatory as much as possible, with the assistance of the SMTs. This will consist, in addition to the result indicators, of indicators of social impact produced by the community. It is suggested that from the beginning of the social diagnostic, a small sample group be chosen by the SMT for the measurement of impacts. This group would be heterogeneous reflecting the wider community in order to follow through the changes in wellbeing and quality of life of the communities (schooling rates, women's literacy, rising levels of income, new economic activities, reduction in water borne diseases and infant mortality, etc.) 44 Annex 3: Implementation Arrangements KINGDOM OF MOROCCO: Rural Water Supply Project Project administration mechanisms 1. Project Institutional Framework. The project will be implemented by ONEE. The project is consistent with ONEE's mandate to plan and develop potable water supplies in Morocco, and is identified for implementation in the Framework Agreement (Contrat Programme), to be signed between ONEE and the Government of Morocco. The Project will also involve beneficiary local governments, who will enter into agreements with ONEE for the delivery of potable water service. Such agreements will define, in particular, the conditions to be fulfilled by the municipality before the actual service delivery (complementary funding...). 2. Project Contractual Arrangements. The International Bank for Reconstruction and Development (IBRD) and ONEE would enter into a Loan Agreement. The Kingdom of Morocco would guarantee repayment of the IBRD loan. The Loan Agreement includes a financial covenant to ensure that ONEE's debt service capacity will be preserved. The General Directorate for Local Governments (DGCL) will ensure that municipalities fulfill their commitment under the project. 3. Project Management. ONEE has significant experience with Bank-financed projects. Implementation would leverage existing ONEE structures and available staff and there is no plan to establish a special implementation unit. Projects are prepared and managed through relevant operating departments, led in this instance by the Department of Universal Access to Potable Water (DEP) with the support of its regional and provincial Departments, seconded and coordinated by ONEE's FinancialDepartment for reporting to donors. 4. In addition to DEP overarching project implementation responsibility, the Direction Technique et Ingenierie will be responsible for the construction and supervision of the increase of water production in the Tiznit area while DAE will be responsible for environmental screening, environmental assessment and environmental monitoring. ONEE's Legal Services will be responsible for procedures related to temporary and permanent land acquisition. ONEE's Financial Department will be responsible for the management and monitoring of the Pre- financing mechanism under Component 2. 5. ONEE's provincial and regional offices, with the support of the central departments, will oversee the technical, social and environmental studies, community mobilization, communication campaigns and the construction and supervision of distribution works. The regional and provincial offices will also be responsible for issuing the call for bids and issuing contracts, with the support of the central departments. This arrangement is appropriate due to: (i) the geographically dispersed nature of the works in rural areas and the local availability of qualified contractors; (ii) the small value of contracts; and (iii) the nature of labor intensive works. It is expected that most contracts will not attract foreign competition and will be processed under NCB procedures. Most of the tasks overseen by the provincial and regional offices would be outsourced to the greatest extent possible to consulting firms. This would include the TA activities described under Component 3. 45 6. The project will be implemented through a demand-driven, participatory approach adapted to the sector and the Moroccan context, meaning that it will seek to stimulate and organize active and responsible community participation in the selection of the level of service and of the management model. The TA specialists will conduct the demand-driven and participatory approach to service provision, and monitor the design and implementation of the environment and social action plans, including those related to land acquisition issues. The social scientist and the environment specialist will work during the first years of the project, to fully elaborate their respective work-plan, and to provide training and initial supervision. Later on in the project, their supervision roles will be taken over by the social mobilization coordinators. The SMTs will be responsible for village-level implementation of the strengthened demand-driven, participatory approach to service provision introduced by the project. They are expected to spend most of their time in the field with rural communities. Each SMT will comprise a social scientist and a sanitation specialist (one male, one female). 7. ONEE will be responsible for collecting data on outcomes and progress. It will submit to the Bank semiannual Project reports indicating the status and progress of project implementation, outputs, outcomes, financial statements, updated procurement plan, environmental and social issues, and actions taken to ensure satisfactory project implementation. A mid-term review and final evaluation will be conducted to assess progress and impacts. 8. Financial management of the Project will be the responsibility of ONEE's Financial Department. 9. The Communes Rurales (CR) under the Ministry of Interior are responsible for water supply and sanitation in villages under their jurisdiction. Each CR will need to have its municipal council formally express its position in favor of the project and enter into a Co-financing Agreements with ONEE that will define the level of their contribution in the financing of lateral mains construction costs (15 percent of the portion of the investments related to access to water through standpipes and/or 50 percent of water distribution networks installation costs for HC service delivery), the commitment of CR to cause households to develop and/or document that they have a satisfactory sanitation solution in place prior to ONEE agreeing to prefinancing a share of their connection fee; and the responsibilities for infrastructure O&M and service delivery (i.e., Gardien G6rant, WUA, private operator, or ONEE) as well as tariffs charged to water users. The Ministry of Interior's Direction G6n6rale des Collectivit6s Locales (DGCL) will carry out the payment of the CR's contribution to ONEE, consistent with the terms of the agreements signed by the said CRs with ONEE, in order to ensure the timely disbursement of agreed financial contributions of CRs to ONEE. Financial Management FinancialManagement Assessment Nationalsystem 10. The Bank's experience in Morocco and the main conclusions of the 2009 PEFA assessment indicate that the Moroccan public finance system is governed by a solid legal and regulatory framework. It also contains strong reliability and transparency safeguards. The system is based 46 on the principle of strict separation between authorizing officers and accounting officers. Moreover, the system includes (a) prior authorization of expenditures and supervision; and (b) internal and external audits. 11. The reform of the public sector financial control was initiated under Law 69-00 of 11 November 2003 modifying Dahir of 14 April 1960, modified in 1962. The reform intended to enhance the management of public institutions. 12. The financial management risk of the Moroccan public finance system is considered low. 13. The ONEE operates as an autonomous entity and has a long experience of managing externally funded projects. The on-going rural water supply and sanitation projects provided the Bank with previous experience working with ONEE. The current project is largely inspired by the present one and will benefit from the same arrangements. FinancialManagement Arrangements Financialmanagement system 14. General framework. The ONEEs financial management system is based on principles and procedures defined by the legal framework applicable to the public sector enterprises, more precisely, to the principles applicable to government institutions and public agencies. 15. The State financial oversight now modernized and called "Performance Control" (contr6le d'accompagnement) to which ONEE is subject according to provisions of law 69-00 of November 11, 2003 -guarantees the separation of the functions through several levels of independent controls. In addition, the internal audit function is performed by the audit and organization department, directly attached to the general manager's office. 16. ONEE is also subject to controls by Ministry of Finance General Inspection (IGF) as well as to the external audit by the Court of Auditors. ONEE's accounts are also subject to an annual external financial and accounting audit. Staffing 17. The existing human resource capacity is adequate to carry out the financial management tasks of the project. At this stage therefore, there is no need for change in quantity and quality of the existing staff to meet Bank and ONEE financial reporting requirements. It is however expected that the staffing will be monitored closely so as to anticipate any capacity gap which could occur and agree with ONEE on a capacity-building program in a timely manner. For this project, ONEE has appointed an internal dedicated staff to take charge of the project financial management aspects. Accounting System, Accounting Policy and Procedures 18. ONEE's accounting system is governed by rules applicable to autonomous public state owned agencies (Decree of 10 November 1989). Moreover, ONEE maintains an accounting 47 system in line with corporate and commercial law. Project statements will be issued based on ONEE's accounting system. 19. ONEE already has a comprehensive accounting system with an adequate chart of accounts which is in compliance with the existing laws and regulations of Morocco. Donor-financed projects are integrated into ONEE systems. A cursory review of ONEE's internal control system indicated satisfactory levels of segregation of duties. Reporting is adequate and timely. 20. The project's general accounting principles are as follows: * Project accounting will cover all the project sources and uses of funds, including payments made and expenditures incurred. * The project transactions and activities will be clearly identified from the rest of ONEE's activities. Financial statements summing up project commitments, receipts and expenditures will be prepared on a semester basis, using appropriate procedures. * The project chart of accounts will cover the expenditure classification and sources of funds indicated in project documents and the general budget breakdown. The chart of accounts should facilitate the financial monitoring of project expenditures by component and sub-component, expenditures allocation and category of disbursement. Books of Registry 21. In addition to any information system installed, and the books needed to maintain an accurate and complete record of transactions, ONEE will maintain a set of additional books of registry, either within their systems or outside them, for control purposes. These books will include but not be limited to: * Fixed assets register at Headquarters and in the Regions * Contracts register Budgeting 22. ONEE has a reliable integrated information system called SAP. This system is installed both at the central level and at the regional level. It makes it possible to follow expenditure from budgeting to the payment to supplier, and it blocks any non-budgeted expenditure. 23. The project annual budget process will follow the ONEE budget cycle as follows: May-June: Letter of Orientation issued by the Finance Director to all Departments September: Budget and Controller consolidate data and prepare financing plan September - December: Internal negotiations and validation of the draft budget December: Board approval of the draft budget 48 ProjectReporting System 24. The Division of the Financings (division des financements) mapped with the Financial Direction will be responsible for the preparation of the Interim unaudited Financial Reports (IFRs). 25. ONEE will produce, on a semester basis, interim unaudited Financial Reports for the project and submit them to the Bank as part of the Project reports, or separately. These reports will consist of: (i) statement on sources and uses of funds for the reporting period and with cumulative figures; (ii) a statement of use of funds by component and expenditure type; and (iii) a variance analysis indicating budgeted amounts versus actual and explanation of variances for the period covered by the Interim unaudited Financial Report. The Financial Management team of the project will review the IFRs and share any comments for ONEE's consideration. 26. The Statement of Expense (SOE) specific to the Pre-financing Mechanism is attached to the Disbursement Letter. It will be remitted to the Bank together with each replenishment request for the DA. It will also be attached to the IFRs following such replenishment request. 27. The IFRs will be remitted to the Bank within 45 days from the end of the period. The format and content of the IFRs were discussed during the appraisal mission. ProjectFinancial Statements 28. In addition to the semester financial reports related to project activities, ONEE will produce its customary annual financial statements related to the project. These project annual financial statements will be composed of: * A Statement of Sources and Applications of Funds reflecting the year expenditures plus cumulative amounts disbursed to date; * A use of funds by project categories/activities reflecting the year expenditures plus cumulative amounts disbursed to date; * An SOE withdrawal schedule, listing individual withdrawal applications relating to disbursement through the SOE, by reference number, date and amount; * Specific SOEs related to the Pre-financing Mechanisms remitted during a given fiscal year will be attached to the annual financial statements of the same fiscal year; * Any supplementary information or explanation that may be deemed appropriate by Management to enhance understanding of the financial situation of the project. Internal controls 29. The internal control system established within ONEE is in line with the existing country internal control framework and considered satisfactory by the Bank. An adequate internal control system is in place, which makes it possible to guarantee the segregation of duties through three levels of control: (a) the control ex ante of the expenditure at the stage of their engagement; 49 (b) the centralization of the payments on the level of the Financial Direction; and (c) the second ex ante control at the stage of their effective payment by the agency of control (ACO) according to the system of the double signature. 30. Thus, pursuant to 2003 Law Nr. 69-00 related to Government financial control of public agencies and other institutions, regarding its capacity and performance, ONEE is benefiting from a control system which is performance control (contr6le d'accompagnement). 31. ONEE has a manual of procedures describing all management rules applicable to all major processes. Audit Arrangements 32. Internal Audit. There is a full-fledged Department of Audit and Organization at ONEE, headed by a senior staff reporting directly to the Managing Director. The Audit Department is composed of five (5) divisions, namely, Organization, Audit, Total Quality, Improving project management and Post-evaluation. The Department has a well-established statement of mission objectives which includes, inter-alia, assurance that procedures set forth in the Financial Management Manual of Procedures are enforced, conducting internal audit missions, and reinforcement of coordination among the various operating aspects of ONEE. 33. External Audit. ONEE's financial statements have been audited for several fiscal years by independent external auditors. The last financial statements (2012) were certified, with a qualification due to uncertainty to recover the credit of VAT and other receivables (Communes) which respectively amount on December 31, 2012 to MAD 2.45 billion and MAD 3.13 billion. This issue, together with the broader question of the financial equilibrium of ONEE, are being discussed in the framework of the Contrat-Programme between ONEE and GOM for the years 2014-2017, which is currently being finalized. 34. During project implementation, ONEE will submit its financial statements annual audit, conducted by an external independent auditor, to the Bank after its approval by ONEE's Board of Directors (Conseil d'Administration). Each submission shall include financial audits as well as a management letter. 35. The records and financial statements of the project will be separately audited annually, in accordance with international audit standards, by the same independent auditor. The audit would include a comprehensive review of all statements of expenses (SOEs). In addition to the audit report, the auditor will issue a management letter including recommendations on project controls and recommending enhancements if any weaknesses are identified.. The audit report shall be submitted to the Bank no later than six months after the closing of each fiscal year. Supervision Planning 36. Supervision activities will include, inter-alia, review of semester interim unaudited financial reports, review of annual audited financial statements and management letters, as well as timely follow up on issues which have arisen, and participation in Bank project supervision missions, as appropriate. There will be about two financial management supervision missions each year. 50 Bank supervision missions will consist of visits to ONEE and its decentralized offices to review financial management practices, procurement methods, payment procedures, and documentation. Disbursements Disbursement for activities other than the Pre-financing Mechanism) 37. The expenditure related to the project is dealt with on the system by the various technical directions at the decentralized level. The technical directions establish calculations ("attachements") on the basis of the progress of work. These "attachements" inform the preparation of "d6comptes" (calculations). These are sent to the Financial Direction where those are controlled, checked for eligibility and in compliance with procedures. Before payment the agency of control (ACO) carries out the last control before validation of the payment (also see diagram below). 38. Disbursement Arrangements. The proceeds of the loan will be disbursed in accordance with the Bank's disbursement guidelines and as outlined in the disbursement letter. Transaction- based disbursements will be used under this project. Withdrawal applications will be submitted for the reimbursements of expenditures prefinanced by ONEE, direct payments or the issuance of Special Commitments. All requests for payment from the loan account will include appropriate supporting documentation including detailed Statement of Expenditures (SOEs). ONEE may request to the Bank the opening of a Designated Account and the disbursement letter will then be amended accordingly. 39. Use of Statements of Expenditures (SOEs). All applications to withdraw proceeds from the Loan will be fully documented, except for: (a) expenditures of contracts with an estimated value of US$10,000,000 or less for works; (b) US$5,000,000 or less for goods; (c) US$200,000 or less for consulting firms; and (d) US$50,000 or less for individual consultants which may be claimed on the basis of SOEs. Documentation supporting expenditures will be available for review by Bank supervision missions and project auditors. All disbursements will be subject to the conditions of the Loan Agreement and the procedures defined in the Disbursement Letter. 51 40. The following diagram summarizes the flow of funds Stage Action Control of attachments ONEE/Concerned Department -< App:roval ONEE-Procurement and Control of attachments and Purchase Department issuance of 'd6comptes' or DR if project at regional level (in this case there is no stage 1) 2 Approval Booking and preparation of payment order ONEE - Finance Department Payment of Direct Payement World Bank supplier by ONEE request 3 Application to withdraw proceeds from loan 52 Disbursement for the pre-financing mechanism 41. A Designated Account (DA) will be opened in a Commercial Bank acceptable to the Bank for the functioning of the Pre-financing Mechanism of the project. The Ceiling amount of the DA will be MAD 10 million. The detailed functioning of the DA is explained in the Disbursement Letter and can be summarized in the diagram below: C m c undu DisbusemenCategoriesde 42. The DA will receive advances based on the needs expressed by ONEE or based on justifications provided in the specific SOE. Transfers from this DA will be made to an Investment account managed by ONEE which will be financing projects and receiving household and municipalities' contributions. Disbursement Categories 43. The following table specifies the categories of eligible expenditures that may be financed out of the proceeds of the Loan, the allocation of the amounts of the Loan to each category, and the percentage of expenditures to be financed for eligible expenditures in each category. Activities under each category refer to the activities described under Annex 2, paragraph 4. 53 Category Amount of the Loan Amount of the Loan Percentage of Allocated Allocated expenditures to be (expressed in USD) (expressed in EUR) financed (exclusive of Taxes) (1) (a) Goods, works 23,000,000 66,720,000 80% and non- consulting services under Part I (a) of the Project; and (b) Goods, works and non- 1,100,000 3,200,000 consulting services under Part 11 (b) of the Project (2) Goods, works, 2,460,000 7,130,000 100% non-consulting services, and consultants' services under Part I (b) of the Project (3) Consultants' 2,210,000 6,400,000 100% services under Part III of the Project (4) Support to the Pre- 1,380,000 4,000,000 100% financing Mechanism under Part II (a) of the Project (5) Front-end Fee 79,300 230,000 (6) Interest Rate Cap or Interest Rate Collar premium (7) Unallocated 1,490,700 4,320,000 TOTAL AMOUNT 31,720,000 92,000,000 Procurement Guidelines and Standard Bidding Documents 44. Procurement for the proposed project would be carried out in accordance with (i) the World Bank's Guidelines On Preventing and Combating Fraud and Corruption in Projects Financed by IBRD Loans and IDA Credits and Grants, known as the 'Anti-Corruption Guidelines' dated October 15, 2006 and revised in January, 2011; (ii) the 'Guidelines: Procurement of Goods, Works, and non-consulting services under IBRD Loans and IDA Credits and Grants by World Bank Borrowers' (known as Procurement Guidelines) published by the Bank in January 2011; 54 (iii) the 'Guidelines: Selection and Employment of Consultants under IBRD Loans and IDA Credits and Grants by World Bank Borrowers,' (known as Consultant Guidelines) dated January 2011; and (iv) all the accompanying standard bidding documents for any new procurement and the provisions stipulated in the loan Agreement. The various items under different expenditure categories are described in general below. For each contract to be financed by the loan, the different procurement methods or consultant selection methods, the estimated costs, prior review requirements, and agreed time frame are set out in the Procurement Plan 45. Procurement under the Project will be mainly for (i) Works and equipment for the augmentation of water production in the Tiznit area, the extension of access to water supply through standpipes and upgrading of access networks for HC eligible villages, consisting in construction of storage tanks (elevated or grounded), construction of pumping stations and rural conveyance laterals and construction of public standpipe delivery systems, in the project areas; and (ii) consultant services for technical assistance to ONEE and for studies. 46. National Competitive Bidding (NCB) procedures adapted as indicated below will be used for Goods contracts estimated to cost less than the equivalent of five millions US dollars (USD 5,000,000) and for works, as well as Supply and installation contracts estimated to cost less than the equivalent of ten millions US dollars (USD 10,000,000). Necessary adaptationsto the National Competitive Bidding procedures: 47. To ensure broad consistency with the Procurement Guidelines, the following provisions will apply when using NCB under this project. Said procedures shall ensure that, inter alia: (a) The bidding documents include explicitly the bid evaluation method, award criteria and bidder qualification criteria; (b) Technical, administrative and financial envelopes are opened immediately after the bid opening session has started and prices are read aloud; (c) The bids are evaluated on the basis of the price and any other criteria expressed either in pass/fail terms or in monetary terms; (d) Contracts are awarded to the qualified bidder who has submitted the least-cost evaluated and substantially responsive bid as stipulated in the bidding document; and (e) Standard bidding documents and bid evaluation reports found acceptable by the Bank are used. 48. The standard bidding document for Works under NCB was prepared by ONEE and submitted to the Bank, which approved it. They include all the above adjustment clauses for NCB in Morocco as well as the Audit Clause and the Fraud and Corruption clauses (AFCC). Any change in these standard bidding documents for Works under NCB will have to be submitted to the Bank for approval, in compliance with the Loan Agreement. Likewise, a standard bidding document for Goods under NCB will be prepared by ONEE and will be submitted to the Bank for approbation prior to issuing the first call for bids for Goods under NCB. 55 49. Moreover, it has been agreed with the Borrower that each contract financed from the proceeds of this loan shall state that suppliers, contractors and subcontractors shall permit the Bank, at its request, to inspect their accounts and records relating to the bid submission and performance of the contract and to have said accounts and records audited by auditors appointed by the Bank. The deliberate and material violation by the supplier, contractor or subcontractor of such provision may amount to "obstructive practice". Advertisement, Publication of Results and Debriefing 50. In addition to advertising pertaining to each contract, a General ProcurementNotice (GPN) will be published in DG-Market, in United Nations Development Business, and in at least two national newspapers. The GPN will be published after the project is approved by the Bank and prior to Effectiveness. The GPN will provide a description of the project and information on related procurement. 51. Online (DG Market, UN Development Business, and /or Client Connection) publication of contract awards would be required for all ICB, Direct Contracting, and the Selection of Consultants for contracts exceeding a value of US$200,000. In addition, where prequalification has taken place, the list of prequalified bidders will be published. With regard to ICB and large- value consulting contracts, the Borrower would be required to assure publication of contract awards as soon as the bank has issued its "no objection" notice to the recommended award in UN Development Business (UNDB) online and dgMarket. All consultants competing for an assignment involving the submission of separate technical and financial proposals, irrespective of its estimated contract value, should be informed of the result of the technical evaluation (number of points that each firm received) before the opening of the financial proposals. The borrower would be required to offer debriefings to unsuccessful bidders and consultants should the individual firms request such a debriefing. 52. Procurement of Works and Equipment: Works or Equipment procured under this project would include mainly the construction of RWS infrastructure facilities such as storage tanks (elevated or grounded), pumping stations and rural conveyance laterals, public standpipe delivery systems for the extension of access to water supply and the upgrading of access networks for HC eligible villages in the project areas. These contracts are expected to add up to an aggregate of Euro 115 million equivalent. The procurement will be done using the Bank's Standard Bidding Documents (SBD) for all ICB and National SBD agreed with and satisfactory to the Bank. * International Competitive Bidding (ICB): Contracts for civil works estimated to cost the equivalent of US$10,000,000 or more per contract shall be procured on the basis of the International Competitive Bidding (ICB) procurement method, using the applicable World Bank Standard Bidding Documents. * National Competitive Bidding (NCB): Each package of civil works estimated to cost less than the equivalent of US$10,000,000 may be procured on the basis of National Competitive Bidding procedures. Standard Bidding Documents acceptable to the World Bank will be used. 56 53. Procurement of Goods/Equipment: Goods/Equipment procured under this project would include: hydraulic equipment, pumps, transformers. The procurement will be done using the Bank's SBD for all ICB and National SBD agreed with and satisfactory to the Bank. * International Competitive Bidding (ICB): Goods contracts estimated to cost the equivalent of US$5,000,000 or more per contract shall be procured on the basis of International Competitive Bidding (ICB). Applicable Bank Standard Bidding Documents shall be used. * National Competitive Bidding (NCB): Each package estimated to cost less than the equivalent of US$5,000,000 may be procured on the basis of NCB procedures as found acceptable by the Bank. Bidding documents acceptable to the Bank will be used. 54. Shopping: Goods and works estimated to cost US$200,000 or less may be procured using Shopping procedures. 55. Direct Contracting: Under circumstances which meet the requirements of paragraph 3.6 of the Procurement Guidelines, goods and works may be procured in accordance with the paragraph 3.7 of the Procurement Guidelines using the Direct Contracting procurement method. 56. Selection of Consultants: Consultants services comprise mostly technical studies, capacity building activities, as well as audits, engineering studies and construction supervision services. 57. The following Bank methods and corresponding standard documents will be used: * Quality & Cost Based Selection (QCBS) for technical assistance, capacity building and audits as well as contracts for consultants services above US$200,000 equivalent per contract. Standard Bank procedures and documents will be used. * Quality-based Selection (QBS). Services for assignments which meet the requirements set forth in section 3.2 of the Consultant Guidelines may be procured using the Quality-based Selection method in accordance with the provisions of paragraphs 3.1 through 3.4 of the Consultant Guidelines. * Selection under a Fixed Budget (FBS) Services for assignments which meet the requirements set forth in section 3.5 of the Consultant Guidelines may be procured using the Quality-based Selection method in accordance with the provisions of paragraphs 3.1 and 3.5 of the Consultant Guidelines. * Least-cost Selection. Services for assignments which meet the requirements of paragraph 3.6 of the Consultant Guidelines may be procured using the Least-cost Selection method in accordance with the provision of paragraphs 3.1 and 3.6 of the Consultant Guidelines. * Selection Based on Consultant's Qualifications (COS). Services estimated to cost less than US$100,000 equivalent per contract may be procured in accordance with the provisions of paragraphs 3.1, 3.7 and 3.8 of the Consultant Guidelines. * Single Source Selection. Under circumstances which meet the requirements of paragraph 3.10 of the Consultant Guidelines for Single Source Selection, consultant 57 services may be procured in accordance with the provisions of paragraph 3.9 through 3.13 of the Consultant Guidelines, with the Bank's prior agreement. * Individual Consultants (IC). Services for assignments that meet the requirements set forth in the paragraph 5.1 of the Consultant Guidelines may be procured under contracts awarded to individual consultants in accordance with the provision of paragraph 5.2 and 5.3 of the Consultant Guidelines. Under the circumstances described in paragraph 5.4 of the Consultant Guidelines, such contracts may be awarded to individual consultants on a sole-source basis. 58. Short lists may be composed entirely of national consultants for contracts of less than US$200,000 equivalent per contract in accordance with the provisions of paragraph 2.7 of the Consultant Guidelines, complying with the remarks mentioned above, Fraud, Coercion, and Corruption 59. All procuring entities, as well as bidders, suppliers, and contractors shall observe the highest standard of ethics during the procurement and execution of contracts financed under the project in accordance with paragraphs 1.16(d) of the Procurement Guidelines and paragraphs 1.23(d) of the Consultants Guidelines. Procurement Plan 60. A procurement plan in a format acceptable to the Bank has been prepared for the first 18 months of implementation. It has been submitted to the Bank and approved during preparation. The procurement plan indicates which contracts are subject to the Bank's prior review. All other contracts shall be subject to Post Review by the Bank. On the basis of the procurement plan approved during preparation, the Bank agreed that the Client could do advance procurement, using the standard bidding documents and conditions in place for the Regional Potable Water Supply Systems project (P100397). The Procurement Plan will be updated at least annually or as required to reflect the actual project implementation needs and improvements in institutional capacity. The procurement plan will be available in the project's database and in the Bank's external website. Frequency of Procurement Supervision 61. Supervision of Procurement by the World Bank is an integral part of Project implementation support. The evaluation of existing procurement systems considers the overall risk assessment of procurement implementation for this project to be low. On that basis, and considering that the project is following as a part of an ongoing program, most of the procurement review will be carried out ex-post. The sample size for the review will be determined during Project implementation as a function of the performance of the implementing agencies and the results of reviews. Environmental and Social (including safeguards) 62. The project triggers two safeguard policies: Environmental Assessment (OP/BP 4.01) and Involuntary Resettlement (OP/BP 4.12). In order to address these safeguard policy issues and to ensure that implementation of project activities will be carried out in an environmentally and 58 socially sustainable manner, ONEE has prepared (i) an Environmental and Social Management Plan (ESMP) and (ii) a Resettlement Policy Framework (RPF). The following sections of the Annex present the rationale for the ESMP and RPF. 63. In additional to semi-annual project status reports, ONEE will prepare an annual report to document compliance of project activities with regards to environmental and social safeguards, as per the ESMP and RPF. 64. During the implementation of the on-going Bank-funded water supply projects, ONEE has demonstrated a solid capacity to ensure en efficient and timely implementation of ESMP provisions . This capacity was built over time, and with support from the Bank. As part of the supervision of the Regional Water Supply Systems Project, initial gaps were identified in the implementation of safeguards requirements, in particular related to enforcing the respect by some construction firms of the environmental and safety requirements embedded in their contracts. 65. Concerning wastewater management, the proposed project builds on the experience developed in on-going projects which includes a screening of douars against environmental criteria, in areas where service provision through house connections is considered. The criteria considered in the screening include the density of housing, the soil infiltration capacity and the groundwater level and vulnerability. The same methodology will be applied in the present project, to identify the most appropriate sanitation solution where the pre-financing mechanism will be used to help households access to water supply through house connections. 66. During the operational phase, the regional departments of ONEE - Water Branch will be responsible for enforcing the ESMP's provisions related to the environmental monitoring of the facilities developed under the Project and the associated service provision. Environmental Assessment 67. According to the Bank's Safeguard and Operational Policies, the Project was rated "B" and its implementation is subject to a partial Environmental Assessment and an Environment Management Plan. 68. An Environmental Assessment (EA) of the project was finalized in December 2013, which included : (a) An analysis of the natural environment in the project areas, in particular to assess their environmental sensitivity and vulnerability (b) An assessment of the project activities on the basis of the project documents, technical studies, as well as public consultations results and visits of some villages; and (c) An analysis of planned activities and an assessment of their potential environmental impacts as well as of their socio-economic consequences on the project's beneficiaries. 17 ONEE is also satisfactorily implementing a project piloting the use of country systems (Oum Er Rbia Sanitation). 59 69. An Environmental and Social Management Plan (ESMP) was proposed as part of the project preparation studies. It aims at integrating environmental protection concerns into the design, planning, management and implementation processes of project activities. This ESMP includes the four following components: (a) Environmental management and coordination; (b) Mitigation measures for project's negative impacts; (c) Project's environmental performance monitoring and evaluation plan, and (d) Environmental management capacity building program. 70. Public consultations were organized in all provinces common to the Regional Potable Water Supply System Project (P100397) and to the proposed Project. Consultations have also taken place in the province of Rehamna, in order to inform the population and concerned stakeholders on the project activities, to associate them to the assessment of the project's potential environmental impacts, and to allow them formulating their comments and proposals. ONEE plans to carry out the consultations in the remaining provinces of Tiznit and Chtouka Ait Baha in 2014. 71. The main positive environmental and socio-economic impacts expected from the project include: (a) Increased availability of potable water, a vital resource for human development in rural areas; (b) Reduced pressure on groundwater with a beneficial effect on groundwater levels; (c) Improved quality of water supplied to households resulting in a decrease in waterborne diseases, especially among children; (d) Easier access to potable water resulting in less time spent in fetching water, especially for women and children; (e) Increased availability and involvement of women in community-based associations; (f) Creation of local jobs and mitigation of rural-urban migration through the improvement of rural living conditions; (g) Increased level of environmental awareness in rural communities, especially in relation to wastewater; (h) Raise awareness on sustainable practices for greywater management and rural sanitation; (i) Dissemination of improved on-site rural sanitation (RS) solutions adapted to the local rural environment; (j) Contribution to the promotion of a RS market, and capacity building with regard to the provision of on-site sanitation services, works and supplies. 60 72. The EIA also allowed to inventory potential negative environmental and socio-economic impacts of project activities and to identify mitigation measures which could reduce or prevent them. The main potential negative impacts that could be created by the project include: (a) An increased consumption of surface water resources; (b) Where household connections are deployed (component 2) (i) Increased wastewater generation and discharges with associated risk of groundwater and surface water resource pollution; (ii) Risk of increased pathogen contamination of groundwater; (iii)Risk of development of water borne diseases as a result of untreated wastewater stagnation or reuse; (c) Temporary and localized nuisances due to the construction works; (d) Increased energy consumption for water supply operations. 73. Except for the increased wastewater flows where household connections are deployed (Component 2), the EA confirmed that the negative environmental impacts of the project were minor to moderate. No major or irreversible negative impact was identified: (a) The impacts generated by project construction activities, such as laying conveyance and distribution pipes, drilling, and occasional construction works (pumping stations, reservoirs, etc.) are considered of low, local and temporary importance. Bidding documents will specify that contractors will be held to good management practices as per ONEE's guidelines, and to site specific ESMP mitigation and reporting requirements. (b) For the deployment of household connections under component 2, as indicated in Annex 2, eligibility for financing under the Pre-financing mechanism for HC solutions require the existence of an adequate sanitation system (in-site or networked) that complies with ONEE's standards. The procedures to be used by ONEE to inform the communities of this requirement and by communes to verify their compliance are described in appendix 1 to Annex 2. (c) ONEE adopted a set of standards that define the type of sanitation that is considered adequate and required before a house connection can be approved. This same set of standards will be used before any request for financing of HCs under the fund to be created under Component 2 of the Project is approved. 74. The EA and ESMP include detailed mitigation measures as follows: (a) Environmental mitigation components (surface and ground water quality, collection conditions, soil erosion, air quality, noise levels, flora and fauna conservation, as well as their habitats, etc.) ; and (b) Social mitigation components (population, well-being, construction works and site management, access and traffic, public safety, known or potential historical and archeological sites, agricultural activities, water resource management, etc.). 61 75. The ESMP will be implemented by ONEE's Sanitation and Environment Department (DAE). DAE's capacity was assessed and deemed sufficient in light of the significant experience it acquired conducting EAs, defining mitigation measures and implementing ESMPs for similar projects, including on-going Bank-funded rural water supply projects. DAE will include information on safeguards policies application and monitoring in its periodic Project reports to the Bank, including as related to the implementation of site-specific ESMP in construction bidding documents, in addition to annual environmental monitoring reports to be generated for the Project. In these implementation and monitoring tasks, the DAE will be supported by the technical assistance, which will guide and monitor ESMP implementation in the intervention areas. To facilitate these tasks, DAE has prepared an operational manual for EAs and a template for environmental monitoring reports. 76. The costs for implementing the training and monitoring plan in the ESMP were estimated to MAD 25 million. The environmental management costs associated with the project are therefore less than 2.5 percent of the project budget. These costs will be incurred by ONEE as part of current operations, and are not financed under the IBRD loan. Involuntary Resettlement /Land Acquisition 18 77. No resettlement is expected to take place as part of this Project. Resettlement Policy Framework 78. In order to achieve its infrastructure investment program in water supply and sanitation, ONEE will need to acquire land under various land tenure arrangements for the related works and equipment. Consequently, public domain and temporary occupancy regulations will apply, as specified by Law No 7-81, dated June 5, 1982 and its implementing decree No. 2-82-382 dated April 16, 1983. The Resettlement Policy Framework was prepared in accordance with the provisions of this law and according to the requirements of World Bank OP 4.12. Specifically, the proposed policy framework for land acquisition includes measures which ensure that the affected population is: (a) Informed of the options available to them and the rights attached to handing over of land or land transfer; (b) Consulted, provided with several choices and informed of realistic alternatives to the technical and economic plans; and (c) Immediately provided with compensation, equivalent to total replacement costs for the loss of assets directly attributable to the project. 79. Securing full compliance with OP 4.12 should remain a forefront concern during project implementation. 18 Pre-feasability studies indicate that the land acquisition described here generally entails no physical resettlement or impact on residences or economic activities and that only the asset value of undeveloped land is concerned. Therefore, for ease of communication with the client and the public, the resettlement instruments have been entitled Land Acquisition Framework and Land Acquisition Procedures. Irrespective of the title, the instruments respond fully to the Bank's op.p.4.12 policy requirements in the context of this project. 62 80. ONEE has a long experience in land acquisition as it relates to water supply and sanitation projects. The RPF is based on the file prepared by ONEE on land acquisition practices and the results of consultations between experts, consultants, Bank lawyers, and ONEE which were organized for the preparation of the RPF and according to OP 4.12 provisions. The draft RPF was prepared by ONEE based on the RPF established under the RPWSSP Project under implementation, taking into account lessons learnt during the implementation of existing Projects. It was submitted to the Bank for comments. The approval of the final RPF, which was published, takes into accounts these comments. 81. ONEE is responsible for developing and monitoring the implementation of the RPF. As such, each regional directorate will ensure that all identified persons affected by the project will be consulted, taken into account and compensated under the framework. A registry will be opened in ONEE's legal unit to ensure the proper implementation and monitoring of expropriation procedures, since this process is planned at the local level (decentralization), including payments to claimants for land acquired for Project activities. The registry will document compensation for damages caused during the temporary occupation (trees and crops) and compensation payments for expropriated land. This registry must be comprehensive and kept updated, as the expropriation process progresses. A document highlighting the status of land acquisition and compensation for eligible persons, including updated monitoring tables, are required to be submitted to the World Bank on a regular basis during Project supervision Monitoring & Evaluation Logical Framework 82. The Project's Logical Framework is summarized in the following table: OUTPUTS INTERMEDIATE OUTCOMES PROJECT OUTCOME (PDO) monitored by ONEE. monitored in results framework monitored in results framework outside of results framework SP-Service (component 1) Constructed standpipes are People (women and the extremely operational (mise en service poor in particular) directly benefit Construction of regional industrielle) from the Project. mains and standpipes 4 D. Number of improved (Project) community water points 4 A. (a) Number of directproject 4 Length of network installed constructed or rehabilitatedunder beneficiaries*, (b) percentage of 4 Number of reservoirs built the project* whichfemale*, or (c) extremely 4 Number ofpumping poor stations built Operational standpipes are 4 Number ofstandpipes built managed and deliver water (mise en People who had no access to an 4 Detailed monitoring of service commerciale) "improved water resource" operationalarrangements 4 E. Percentageofsub-projects or (standpipe, piped water or protected investments for which well), now have access to safe and arrangementsfor community reliable water from a managed engagement in post-project community standpipe sustainabilityand/or operations and maintenance are established* 63 HC-service (component 2) Installation of household 4 B. Number ofpeople provided connections (ONEE), when all with access to "Improved Water Activation of pre-financing prerequisites are met and works go Sources" under the project* mechanism for households forward 4 Total pre-financingfunds 4 F. Number of new piped 4 C. (a) Number of villages in available household water connections that rural areasprovided with access to 4 Monitoring of other HG- are resultingfrom the project Improved Water Sources under the deployment prerequisites intervention* project, (b) percentageof which 4 Number of households receive drinking water of benefittingfrom pre-financing appropriatequality (safety) and (c) 4 Length of distribution percentageof which receive network installed drinking water on a continuous basis (reliability) Note: * indicates a core indicator 83. Specifically achievement of the PDO will be monitored through the following indicatorsl9 * A.(a) Number of direct project beneficiaries*, (b) percentage of which female* and (c) percentage of which extremely poor. * B. Number of people in rural areas provided with access to "Improved Water Sources" under the project* * C. (a) Number of villages in rural areas provided with access to Improved Water Sources under the project, (b) percentage of which receive drinking water of appropriate quality (safety) and (c) percentage of which receive drinking water on a continuous basis (reliability). 84. Progress towards achievement of the PDO will be monitored through the following intermediate indicators: * D. Number of improved community water points constructed or rehabilitated under the project* * E. Percentage of sub-projects or investments for which arrangements for community engagement in post-project sustainability and/or operations and maintenance are established* * F. Number of new piped house connections that are resulting from the project intervention* 85. In addition to this set of results indicators, ONEE will also separately monitor operational indicators such as the length of access or distribution networks built, the incremental volume of water distributed or billed, and the unit cost of service extension through house connections. ONEE will also conduct a participatory mid-term review and a final evaluation which will include a household survey on a sample of customers (a baseline household survey will be conducted at the initiation of the Project) in order to assess their level of satisfaction with Project 19 Core indicators are indicated with an 64 interventions (core indicator) and other relevant indicators such as estimated time and cost savings arising from the Project, changes in hygiene practices, etc. Arrangements for results monitoring 86. ONEE will submit a biannual report to the Bank covering the status of implementation, updated outputs and outcomes indicators, financial information, environmental and social issues, and actions taken to ensure satisfactory project implementation. They will also include an updated procurement plan. Financial, technical and procurement data will be collected by the relevant ONEE departments, in collaboration with the project coordinating department. In addition to the regular reporting, information including an updated procurement plan and disbursement previsions may be requested prior to the Bank's implementation support missions in order to monitor Project's progress towards achievement of its objective. 87. Biannual reports compile information gathered from various reporting processes, such as technical, financial, commercial etc. These reporting processes are understood to be of larger and deeper scope, and higher frequency than the biannual report, and include indicators that are equally important to implementation support teams to monitor the efficiency and effectiveness of Project implementation. Those indicators will be also made available to the implementation support missions in order to monitor the evolution of the level of service in the project's area and anticipate or deal with issues arising during implementation. For example, ONEE's DEP, with the support of its technical assistance, will monitor, in coordination with relevant departments of ONEE, a set of operational indicators on a semester basis, such as: (a) Length of constructed network (or upgraded in the case of component 2); (b) Number of standpipes constructed; (c) Volumes of water produced and distributed (billed); (d) Water loss linear index; (e) Network efficiency. 88. A participatory mid-term review and a final evaluation will be conducted. Those evaluations will include a household survey on a sample of customers (a baseline household survey will be conducted at the initiation of the Project) in order to assess their level of satisfaction with Project interventions (core indicator) and other relevant indicators such as estimated time and cost savings arising from the Project, changes in hygiene practices, etc. 65 Annex 4: Operational Risk Assessment Framework (ORAF) KINGDOM OF MOROCCO: Rural Water Supply Project Evaluation by the World Bank of Project related risks Stakeholder Risk Rating Moderate Risk Description: Risk Management: Communities may become increasingly vocal in resisting land ONEE has established communication rules to inform and consult the populations and owners acquisitions. However, this risk is low given the extent to which early in the process. ONEE will monitor instances of difficulties in processing land acquisitions rural communities have expressed high satisfaction with similar or in ensuring proper sanitation prerequisites, while constantly correcting its approach to conform extensions of access to adequate rural water supply, including to corresponding safeguard policies. from on-going Bank projects. Resp: Status: Stage: Recurrent: Due Date: Frequency: On the other hand, there is a moderate risk that communities express low demand or have low capacity for the development Client In Progress Both Continuous of proper sanitation solutions. Capacity Rating Moderate Risk Description: Risk Management: This Project builds on the Bank's strong relationship with a Procurement training will be provided in the first months of project implementation. repeat, high-capacity Borrower, and leverage existing ONEE structures and skilled staff, a solid public procurement system operating in a structured and reliable control environment, and a Both In Progress Implementation Continuous well-structured financial department. Nevertheless, the decentralized procurement bears a moderate risk for newly involved Regional Departments. Governance Rating Low Risk Description: Risk Management: ONEE has constantly demonstrated efficient and sound decision-making. It is a very experienced entity that has in place Resp: Status: Stage: Due Date: Frequency: procedures and systems to prevent financial irregularities and which issues year-end financial statements that are audited by I qualified external independent auditors. 66 Design Rating Low Risk Description: Risk Management: The Project's main component (extending access to under- served areas) replicates the design and builds on the lessons Resp: Status: Stage: Recurrent: Due Date: Frequency: learned from on-going RWS Project. In particular, most procurement packages are at an advanced stage of preparation, 7 and strong attention is given to the quick and early mobilization of technical assistance. As such, it is low risk. The Project's second component comprises a pre-financing mechanism that is a novel tool with which ONEE has no previous experience. Moreover, the success of this mechanism in contributing to the development of HC service depends on matching contributions from CRs and community engagement. As such, this innovative approach is deemed of moderate risk. Social and Environmental Rating Moderate Risk Description: Risk Management: based on updated and adapted SocialDevelop a solid resettlement policy framework and procedures Soercia an Enineta safjeguts willebuildtonscen sts versions of currently used documentation and closely monitor its implementation, with a specific experience m on-gomng Projects to replicate successful aspects fcso cest opnain and correct any recurrent shortcomings. In particular, recent experience has shown: Resp: Status: Stage: Recurrent: Due Date: requency: (i) a low risk of deviation from agreed upon land acquisition Client In Progress Both Quarterly policy where works would start before the acquisition process runs its course; Risk Management: (ii) a moderate risk of implementation delays due to either slower land acquisition processes when they are handled by Replicate technical assistance detailed screening of potential needs and options for wastewater communes, or oppositions despite completion of expropriation management in villages targeted for deployment of HC service. Further mitigated by the in some exceptional circumstances; requirement for adequate sanitation system, according to technical solutions satisfactory to the (iii) a moderate risk of ineffective management of increased Bank, as part of the eligibility criteria for HC support. wastewater flows due to increased water consumption. Resp: Status: Stage: Recurrent: Due Date: Frequency: Client Not Yet Due Both Quarterly 67 Program and Donor Rating Low Risk Description: Risk Management: There are no risks identified. Resp: Status: Stage: Recurrent: Due Date: Frequency: 0 Delivery Monitoring and Sustainability Rating Moderate Risk Description: Risk Management: Monitoring of contracts and progress towards results will build The main strategic orientations of ONEE, including on tariffs and sustainable management on existing systems that have proved efficient and reliable. At models, were discussed during the preparation of the Framework-Contract ("Contrat- this stage, the main and only identified risks to the sustainability Programme") 2014-2017, which is being finalized between ONEE and the GOM. ONEE of the Project are: developed adapted monitoring mechanisms for each management model, in order to ensure their (i) aggravate the deficit linked to the lack of O&M cost recovery technical and financial sustainability. ONEE's main concern is to implement the strategic through tariffs in rural areas; orientation agreed with GOM, while preserving its long term financial sustainability, despite the (ii) limits on ONEE's capacity to directly manage all lack of tariff increase by GOM. The loan agreement includes a financial covenant aiming to infrastructure and inherent risks linked to management model maintain a minimum debt coverage ratio by ONEE. The Loan agreement also states a strict relying on third-party (SP caretaker, associations, delegated prerequisite that a satisfactory sanitation solution is in place prior to ONEE grants a prefinancing management contracts) for SP and HC services facility households (water users) for the deployment of HCs. Awareness-raising activities will be (iii) potential delays linked to the limited financial and technical carried out to clarify roles and responsibilities of households to implement such solutions and of capacity of households to install satisfactory sanitation systems, CRs to verify them, consistent with Moroccan Law. Financial support will be sought from GOM when required for HCs. to fund such solutions. Resp: Status: Stage: Recurrent: Due Date: Frequency: Both In Progress Preparation 29-Apr-2014 Overall Implementation Risk: Rating Moderate Risk Description: Overall Implementation Risk is moderate, mainly as a result of the need to closely monitor land acquisition processes and the implementation of environmental safeguard policies in intervention areas (mainly related to increased wastewater flows in HCs options), as well as the financial sustainability of local SP and HC services and the rural water supply sector at large. 68 Annex 5: Implementation Support Plan KINGDOM OF MOROCCO: Rural Water Supply Project Strategy and Approach for Implementation Support 1. The World Bank will support the implementation of this project through a combination of fiduciary and technical supervision, technical assistance, monitoring and evaluation, as well as coordination. Teams composed of Bank staff, consultants, and experts in outreach, consultations and social safeguards will support the implementation of these activities. 2. The strategy for implementation support takes into consideration the technical and institutional capacities of ONEE, the funding arrangements, in particular for the pre-financing mechanism, and the number and complexity of the contracts that will need to be managed. 3. Consideration is also given to the substantial technical assistance involved in the pre- financing of the deployment of house connections under component 2. On one hand, the Project will build and expand ONEE's capacity to implement and monitor a complex and innovative Pre-financing mechanism. On the other hand, by mandating the existence of an appropriate sanitation system before a household connection can be installed, the Project also calls for ONEE to assist and support municipalities and potential beneficiaries with the necessary technical assistance for the identification of proper sanitation systems. 4. Regarding implementing agency risk, ONEE has proved its capacity to respond to donors criteria while taking into consideration beneficiaries' needs and constraints as well as the ability to report in a timely manner to different donors. The team will support ONEE in establishing clear and transparent communication channels with project stakeholders to ensure a regular flow of information throughout the project preparation and implementation that will help address issues from the beginning of the project. Implementation Support Plan 5. The Bank's Project supervision team will include a Task Team Leader in charge of the overall water sector program, as well as Country Office-based sector, procurement, FM, and safeguards staff. HQ-based safeguards specialists will augment support provided by locally based staff. Technical support will principally involve supervision missions to be conducted on a semester basis. 6. Procurement and financial management training may be provided in the first months of project implementation, with some procurement training to be scheduled prior to Effectiveness. 7. Safeguards staff will coordinate with ONEE technical staff to oversee monitoring of environmental and social impacts and ensure that ONEE is satisfactorily executing their environmental management plan. 8. Fiduciary support will be provided primarily by the Bank's procurement and financial management specialists based in Rabat. In addition to biannual supervision missions, these 69 specialists will be available on an ad hoc basis to provide support as may be required to the project implementing agency. 9. The following table summarizes the focus of implementation support at various stages of the Project: Time Focus Skills Needed Resource Partner Role Estimate First twelve Establishment of Technical support The World Bank months project for procurement Rabat Office will implementation and consultant provide technical arrangements. mobilization. support for Establishment of pre- Fiduciary support procurement. financing mechanism for pre-financing Procurement of works mechanism. and technical assistance supervision contracts. 12-48 months Project supervision Water supply Coordination with and quality assurance. specialist, DGCL Monitoring Sanitation effectiveness, specialist, including monitoring environmental of households calling impact monitoring, on pre-financing. procurement, financial management Other Ensuring consistency Project Led by DGCL with national rural management and sanitation strategy, in outreach terms of HC roll-out. Resource requirements Skills Needed Number of Staff Weeks Number of Trips Comments Technical supervision 4 weeks/year 2 per year (RWS and sanitation specialist) Procurement 2 weeks/year 1 per year supervision Financial 2 week/year 2 per year Strengthened focus on management pre-financing mechanism M&E specialist 2 week/year 1 per year May increase as implementation accelerates Safeguards 2 week/year 2 per year 70 Annex 6: Economic and Financial Analysis of the Project KINGDOM OF MOROCCO: Rural Water Supply Project Background 1. Financial analysis (i.e., commercial profitability analysis) and economic analysis (i.e., national profitability analysis) differ in several ways. The objective of commercial profitability analysis is to assess the net financial results of a project from the investor point of view, while the national profitability analysis aims to identify and measure the net economic benefits of the project from the society point of view. Moreover, commercial profitability analysis is based on prevailing market prices, while national profitability analysis is determined with the help of adjusted prices (i.e., shadow prices) that are deemed to be an approximation of true economic prices (reflecting the social opportunity cost). Similarly, for commercial profitability analysis, the time value of money is tackled by application of the private discount rate based on the prevailing interest rate of the capital market, while in the case of national profitability analysis, the social discount rate is applied, i.e., the rate at which Morocco can borrow money taking into consideration the country risk. 2. The project is the most recent of a series of projects focusing on rural water supply in Morocco. A financial analysis and economic analysis were performed for the project, i.e., 2015- 30 periods and 2015-34 periods respectively. 3. Three indicators are considered in the financial and economic analysis to determine the viability of the project: (a) The Net Present Value (NPV), which is the difference between the discounted total benefits and cost; (b) The Internal Rate of Return (IRR), which is the discount rate that zeroes out the NPV or, the interest rate that makes the NPV of all cash flows equal to zero. In other words, the IRR estimates the actual return on the project, expressed as a percentage or interest rate; and (c) The present value (PV) Benefit-Cost Ratio, which is the ratio of the PV benefits over the PV of costs over the lifetime of the project. Sometimes the Benefit-Cost Ratio is based on undiscounted benefits to costs, but this is a less useful measure. 4. A sensitivity analysis is also performed to determine the viability of the project with increase of costs and decrease in benefits. Financial Analysis Process and Results 5. The financial analysis was performed by ONEE and used the same indicators mentioned above. In all six intervention areas, the financial analyses showed negative results with an overall negative net present value of DM 1,702 million. The average investment cost and Operations and Maintenance expenses (OMEX) per cubic meter were calculated and are compared to the suggested tariffs in Table A6.1. Although the suggested tariffs exceed OMEX for 55 percent of the targeted population by 2030, OMEX significantly exceeds suggested average tariffs in two intervention areas. This could strain ONEE financial position unless at least the Douars of Circle 71 Rif and Circle Anzi tariffs are increased or supplemented by the Government to match OMEX: 3.1 folds and 14.2 folds respectively. Although, Douars Ait Baha suggested average tariff is very low, the population is relatively small when compared to the former mentioned areas with 110,740 and 35,887 people respectively in 2030 (Table A6. 1). Table A6.1: FinancialAnalysis Results Potable Water Provision Intervention Population Total OMEX as a Investment OMEX Suggested Financial Area by 2030 Investment percentage Cost per m3per m3 Average NPV net of VAT of Investment Tariff # DM million % DM/m3 DM/m' DM/m 3 DM million 1.Zemamra Sidi Bennour 258,909 256.462 5 4.05 3.64 3.86 -247 2. Nord Safi Systeme Bedouza 24,000 37.65 ±5 5.78 3.69 4.09 -38 3.Circle Skhour Rehamna 62,249 144.707 +5 9.67 7.09 3.44 -194 4. Circle Rif 110,740 370.200 ±5 10.78 -674 5. Anzi 35,887 256.575 ±5 33.56 -448 6. Ait Baha 9,485 108.4 ±5 47.25 - Total 501,270 1,714 ±5 9.98 -1,702 Note: household connection provides 50 liters/day/capita;Stand post provides 20 liters/day/capita.Investment costs per m3 are assumed to increase over time to compensatefor inflation. Average Investment and OMEXper m3 are weighted by the population. Source: ONEE (2014). Economic Analysis Process 6. The major difference between the financial and economic analysis is that the economic analysis consists of eliminating all the distortions of prices on the inputs used for the rural water supply systems. There is therefore a need to identify and quantify price distortions that affect operating expenditures as well as the investments. The evaluation of these distortions makes it possible to rectify the financial prices and to obtain the economic prices. From the corrected structure of the economic prices, the revaluation coefficients were estimated. 7. By looking at the social profitability of a project, shadow prices" or "opportunity costs are used in an economic analysis instead of market prices (real) that will help determine the social profitability of an investment. Shadow prices are adjusted in the following way: * Determination of Price Distortions. The conversion of the financial costs into economic costs is essential to reflect the value of the output (treated effluents) for the community. The objective of this calculation is to determine the opportunity costs of both the inputs and outputs. As taxes, duties and subsidies such as for electricity constitute internal flows in the national economy, those were not taken into account in the calculation of the economic costs. * Labor. The wages applied for unqualified skills is the minimum wage without the social contribution. For the skilled job salaries, the conversion factor is taken equal to 1 but the social contributions are also not considered. Moreover, most labor needed for the whole project and other activities are assumed to be locally hired. * Equipment, Goods and Infrastructure. A conversion factor ranging between 0.83 and 0.9 (10 percent for VAT and 17 percent for average import taxes) has been applied to 72 calculate the economic costs of equipment, goods and infrastructure in order to deduct from them the included taxes (construction). The project investment costs are already netted from taxes and will be used in the analysis. * The conversion factors used are summarized in the following Table A6.2. Table A6.2: Conversion factorsfor the economic analysis Category Factor Energy 1.45 (subsidies range between 21% and 69% depending of product) Services 1 Equipment, Goods and Infrastructure 1 for Bank funded (instead of 0.9 for VAT and 0.83 on import duties) are investment costs are net of VAT Labor 1 and social cost is not used Salaries 1 and social cost is not used Source: adaptedfrom IMF Morocco Article IV (2013). 8. Calculation of Economic Expenditures. On the basis of these conversion factors, the financial expenditures were reviewed in order to determine their economic value. 9. A number of additional key assumptions have been considered for economic analysis: * The economic analysis is carried out over 20 years. * All designs and construction are performed over the first 3 years starting 2015. * A real discount rate of 10 percent per annum is used for the economic analysis. * Revenues and benefits are netted for inflation in the original economic analysis but are increased for the sensitivity analysis. * Mechanical (every 30 years) and electric (every 15 years) investments are considered over the lifetime of the stand post and associated infrastructure and are included in the Operation and Maintenance flows. All civil works have a lifetime of at least 20 years. Residual values of the investments are therefore considered nil by the end of the investment. * The right-of-way including the price of land and any structures upon it is accounted for the increasing area sites. * Real operations and maintenance (OMEX) cost is used in the analysis and represents on average 5 percent of the economic cost of the investment. * One third of the benefits are assumed to begin to accrue in 2016, two third in year 2017 and full benefits by year 2018 onward. * The population average increase in rural areas was set at an average annual of 0.97 percent (population projection figures provided by ONEE) whereas the household member size follows the reduction as projected by the Haut Commissariat au Plan 2004-2030 projection. The same trend is used for projection from 2031 to 2043 connection rate average increase is set at 2 percent over the 2015-2050 periods. Household members were estimated to drop from 5.5 to 4.0 over the 2015-2034 periods. 73 * For the sensitivity analysis, cost and benefits are adjusted to reach the switch off point beyond which the project is no longer viable. 10. Deriving the economic analysis benefit is made difficult by the complexity and heterogeneity of the health, environmental, economic and social expected outcomes from building the rural water supply systems. For instance, the well-being improvement, potential income generation, etc. 11. A quantitative cost benefit analysis was carried out for the entire project consisting of the provision of rural water supply to cover 1,400 douars through stand posts in the north, south and center regions of the country. Major health and socioeconomic benefits include: (i) reduced water-related burden of disease through the provision to improved water supply; and (ii) socioeconomic benefits in terms of reduced time fetching water quantified in terms of free up time of household members dedicated to the water drudgery, mainly girls as reported in previous Bank funded education and rural water supply projects in Morocco. 12. The targeted regions are poor areas, home to a portion of the remaining 6 percent of the population without access to safe and reliable water supply, where dwellers do not have domestic wells and rely on fetching water lasting two hours on average rather than buying water supplied through bottles, gallons or trucks. Based on a conservative stance, a number of valuation techniques was used to derive the benefits and include: diarrheal risk reduction from improved water supply where the value of statistical life was used for mortality and the cost of illness was used for morbidity; and the opportunity cost of time to determine the consumer surplus where disposal income was applied to lost time fetching water which captures for instance girls missing school when they fetch water. Other socioeconomic benefits have been identified but are difficult to quantify such as psycho-physical stress of fetching water, etc. Reduction of the water-related burden of disease 13. The achievable reductions morbidity and mortality due to diarrhea after improving water supply, sanitation and hygiene measures are based on the latest meta-analyses that are shown in Table A6.3. A very conservative diarrheal disease risk reduction for mortality rate of 25 percent is applied on the population when stand post is provisioned, which is lower than the suggested 35 percent lower bound risk reduction. 14. The burden of health is valued by using the cost of illness technique for morbidity and the value of statistical life (VSL) for mortality. The cost of illness is derived from the number of visits to doctors and hospital visit day and is set at DM 93 and DM 198 respectively. The value of statistical life (VSL), which is an expression of preferences for reducing risks of death in monetary terms. The benefits to society of mortality risk reductions are usually valuated by people's willingness-to-pay (WTP) for such risk reductions. WTP is then converted to a value of statistical life (VSL) that is applied to estimated cases of mortality avoided from the investment- related improvements to arrive an estimate of the monetary benefits of the improvement. The VSL varies across countries in proportion to GDP/capita (PPP terms). 2 0 It should be emphasized 20 An empirically estimated function from a recent meta-analysis of studies of VSL in over 30 countries (of which nearly half are countries with a GDP per capita in the range of that of the ENPI countries) by Navrud and 74 that these VSLs have nothing to do with value of life, but rather reflects how people are willing to reallocate their resources from consumption of market goods and services to paying for reductions in the risk of mortality. Table A6.3: Diarrhealmorbidity and mortality reduction with improved services Groups Improved Water and Sanitation Definition Benchmark Expected average reduction in diarrheal disease and mortality Already good Substantial scope hygiene for hygiene improvement Improved water Improvement in reliability and quality of water (so as to ensure 15% 45% supply and plentiful and safe water supply) for those of this population currently sewage having water reliability and quality problems connection Improved water a) Improvement in reliability and quality of water (so as to ensure 35% 65% supply but no plentiful and safe water supply) for those of this population currently sewage having water reliability and quality problems. connection b) Sewage connection for all of this population. Unimproved 25% 55% water supply but Reliable and safe water supply to premises for all of this population sewage connection Improved water 45% 75% supply and no Reliable and safe water supply and sewage connection for all of this sewage population connection Total 28% 60% Source: adaptedfrom Bassi et al. (2011). 15. The baseline for the birth rate per 1000 is projected to decline by 5% per year. The diarrheal child mortality rate of 5.95 (WHO, 2011) and diarrheal incidence rates for children under 5 and the population of 5 years and above rates are assumed to be constant and amount to 2.5 and 0.5 respectively. The reduction is 40% for mortality rate and 50% for diarrheal incidence when water improvement is achieved. Gains associated with access to improved drinking water for one year are shown in Table A6.4 where these gains amount to DM 96.4 million in 2015 and are projected over the project lifetime. Table A 6.4: Gains associatedwith access to improved drinking water, 2015, in DM Million Population without improved access 2015 Reduction of Reduction of Reduction of Value per Gains in Diarrhea mortality cases Diarrhea cases case 2015 Coef. # Million DM DM Million Without Improved Water (million) 0.433 Birth rate (newborn per 1,000 inhabitants) 22.3 2.380 46 1,661,189 76.8 Population < 5 years (million) 0.043 1.25 0.05 198 10.6 Population > 5 years (million) 0.391 0.250 0.10 93 9.1 Total 96.4 Source: Bassi et al. (2011); WHO (2011); and WDI (2013). Lindhjem (2010) prepared for the OECD are used to estimate VSL in Morocco (www.oecd.org/env/policiesNSL). 75 Opportunity cost of time 16. The opportunity cost of time is calculated based on the avoided time fetching water. Hence, the analysis is based on the reduction of the time fetching water of 1 household member from 2 hours per day to 30 minutes per day. The difference is valued by using the Gross National Income that is DM 24,482 per capita in 2012. The avoided days fetching water per year amount to 68.4 days based on an 8 hour work day. The results are illustrated in Table A6.5 and amount to DM 883 gained per household per year. These gains are projected over the lifetime of the project. Table A 6.5. Opportunity Cost of Time per Household Gainedfrom Improved Water GNI/Capita GNI/ HH Avg. Daily Avg. Daily Equivalent GNII/Capita GNI/Capita/year/ /year Capita/day Size Water Water in yearly /year gained HH gained Fetching Fetching time days of 8 h time Reduction work day DM/capita DM/capita # Hour/day Hour/day Days per year DM/capita DMI/HH 24,482 67 5.5 2 1.5 68 4,590 883 Source: Project documents; and WDI (2013). Economic Analysis Results Determination of the Project NPV, IRR, and PV Benefit/Cost Ratio 17. The project, which ensures improved rural water supply between 20 to 50 liters per day to about 521,000 inhabitants between 2015 and 2034, is viable as it yields a net present value (NPV) of DM 312.7 million over 20 years, a Present Value (PV) benefit/cost ratio greater than 1 associated with an economic internal rate of return (IRR) of 16 percent (Table A6.6). When taken individually, Areas 1 to 4, which cover 89 percent of the population, also are significantly viable with NPVs greater than zero, economic IRRs ranging between 17 percent and 39 percent, and a PV benefit/cost ratios greater than 1. Conversely, despite considering least cost solutions for areas 5 and 6, the latter are not viable because they are associated with a very high cost to providing improved water to these remote areas as an analysis at the margin would be unfair and exclude this population that represents 11 percent of total targeted population (Table A6.6). Collectively, the results of the analysis are positive and moderately satisfactory. The overall modest rates of return relate to the fact that the project is aimed at areas which are home to a portion of the remaining 7% of the current population without access to safe and reliable water supply, partly because that are amongst the hardest to reach and costliest to implement. Nevertheless, the rationale in favor of the project is justified and the entire targeted population reaps the benefits of having access to improved potable water. Table A6.6: Economic Analysis by Area and Overall Project Key Economic Viability Area 1 Area 2 Area 3 Area 4 Area 5 Area 6 Overall Indicator Criteria Zernamra Nord Circle Circle Rif Anzi Ait Project (10% Sidi Safi Skhour 1Baha Results Discount rate lBennour Systerne Reharnna Population served Total by 2034 268,637 25,005 64,776 115,716 37,347 9,670 521,152 Cost Benefit Analysis 76 NPV (DM million) >0 529.7 34.5 42.0 52.1 -168 -80 312.7 IRR (±%) 10% 39% 28% 19% 17% 8% 11% 16% PV Benefit/Cost Ratio >1 3.3 2.1 1.4 1.3 0.4 0.3 1.4 Project viability Determination of the Project Sensitivity Analysis 18. The sensitivity economic analysis is conducted to test the viability of the overall project. Considering the same increase in cost, the switch off point for project viability is reached when the benefits are decreased byll1.4%. Then, the project remains viable with a NPV of DM 14,150, an IRR of 13 percent and a PV Benefit/Cost ration of 1.1: the project is no longer viable beyond these brackets (Table A6.7). Moreover, the sensitivity analysis allowed determining the viability of the overall project with a reduction of the monetized benefits by 20.4 percent per year over 20 years and an increase of investment and operations and maintenance by 25.7 percent per year over 20 years: within these brackets, the project remains viable. Hence, these are the switch off points beyond which the investment is no longer viable and show higher sensitivity to benefit decrease (-20.4%) than cost increase (+25.7%). Similarly, the sensitivity analysis was performed for the 4 area subprojects that are viable with NPVs ranging between DM 0.1 and 3.4 million, economic IRRs greater than 10 percent and PV benefit/cost ratios greater than 1 with the same increase in cost and decrease of benefits ranging between 8 percent and 50 percent which would maintain the subprojects viable. Also, the switch off points beyond which the investment is no longer viable and show higher sensitivity to benefit decrease (-15%:-66%) than cost increase (+1 8%:202%). Table A6.7. Sensitivi Anal sis b Area and Overall Pro ect Population served Total 268,637 25,005 64,776 115,716 37,347 9,670 521,152 Sensitivity Analysis NPV (DM million) >0 3.0 0.1 1.6 0.4 0.0 0.0 0.0 IRR (±%) 10% 13% 18% 16% 14% 0% 0% 13% PV Benefit/Cost Ratio >1 1.1 1.1 1.1 1.1 0 0 1.1 Project Viability Switch off point >Cost = 77 References Bassi, S. (IEEP), P. ten Brink (IEEP), A. Farmer (IEEP), G. Tucker (IEEP), S. Gardner (IEEP), L. Mazza (IEEP), W. Van Breusegem (Arcadis), A. Hunt (Metroeconomica), M. Lago (Ecologic), J. Spurgeon (ERM), M. Van Acoleyen (Arcadis), B. Larsen and, F. Doumani. 2011. Benefit Assessment Manualfor Policy Makers: Assessment of Social and Economic Benefits of Enhanced Environmental Protection in the ENPI countries. A guiding document for the project 'Analysisfor European NeighbourhoodPolicy (ENP) Countries and the Russian Federationon social and economic benefits of enhanced environmentalprotection'. Brussels. Haut Commissariat au Plan du Maroc website: 78 Appendix 1 to Annex 6: Methodology for House Connection 19. The methodology for house connection is based on consumer surplus defined as the difference between the consumers' willingness to pay for water and the actual price paid by them as depicted in Figure 1. Hence, the objective is to determine the area (consumer surplus) that is above the pink rectangle. After determining the consumer surplus, a cost/benefit analysis will be performed to determine the efficiency of the investment. Figure 1. Water Consumer Surplus Price,,r Consumer surplus F7 Cost to consumer Quantity, x Source: Water resourcesplanning and management: 21. The costs of alternatives are developed below and illustrated in Table 1. (a) Standpost: the standpost has an access fee of DM 500 per household and it is difficult to determine the cost/m3 which is unnecessary for the analysis. 79 (b) House connection: the house connection includes an initial access fee of DM 3,000 and DM 2.57 per m3 for less than 6 m3/month and DM 7.51 per m3 for more than 6-20m3/month including taxes. A third bracket exists but is not considered herein. (c) Bottled water: currently, the average bottled water consumption is estimated at 15 liters per capita per year (households have 5.2 members on average).21 If we consider that the average price of bottled water is DM 5.6 for a local brand. 22 The cost amounts to DM 5,600/m3. (d) Water container: water container of 19 liters are provided through a dispenser (which may or may not be charged to the household) and the cost amounts to about DM 1,750/m3. (e) Private well: private wells could be used to supplement water. Table 1 gives the assumption for calculation where depth was assumed to range between 10 and 30 meters. In case the depth is outside the lower and upper bounds, the cost per m3 could be recalculated. The average cost amounts to about DM 66.8/m3. (f) Truck: the cost of water delivered through trucks was derived from Lebanon after adjusting for the income differential.23 Hence, the cost amounts to about DM 5 1/m3. Table 1. Water Cost per m3 to help derive the Consumer Surplus, DM Cost per liter Diesel consumption/ Average Diesel Average depth/m3 well depth cost 3 liter/meter meter DM/liter DM/liter DM/m Standpost NA HC <6 mJ bracket 0.00257 2.57 HC 6-20 m3 bracket 0.00751 7.51 Bottled water (1 liter) 5.6 5,600 Water container (19 liters) 1.75 1,750 Private well 0.5 10-30 7.42 0.0371-0.1333 37.1-133.4 Truck 0.051 51 Source: Author. 22. The consumer surplus will be derived by determining the alternatives available to household members in the area they live in. Hence, one or a mix of sources (water volumes could be derived from various alternatives) will be used to calculate the consumer surplus and then applying the results as benefits to the cost/benefit analysis. Obviously, the initial access fee together with the costing of the estimated household water consumption tariff net of taxes will be used over 20 years for the cost. A discount rate of 10% will be used. As for the benefits, the consumer surplus will be used for the benefit flows for the same volume of water over 20 years. Incidentally, bottled water cost could be discounted from the analysis as household preferences could favor mineral water for drinking irrespective of the house connection water quality. 21 Site web de l'Economiste : 80 Annex 7: Financial Analysis of ONEE KINGDOM OF MOROCCO: Rural Water Supply Project 1. This Annex describes in details the financial situation of the < Profit and Losses Statement Analysis Operating Revenue and Expenditures Account Analysis (DM million 24): 2010 2011 2012 Operating Revenues 4340 4665 5 159 Operating Expenditures 3 570 3 885 4 588 Operating Income 770 779 571 Financial Income -777 -611 -168 Recurrent Income -7 169 403 Non recurrent or exceptional income 235 35 -1 Earnings Before Taxes (EBT) 228 203 401 Net Income 138 98 326 3. Operating Revenues increased by 11 percent due to a 5 percent increase of volumetric sales and a subsidy of DM 271 million inherent to the eligible registration rights following the merger of ONEP and ONE. 4. Operating Expenditures increased by 18 percent in compared to 2011 due to a 17 percent increase of Consumables and Goods Purchases resulting from the increase of energy charges by 13.7 percent. These charges are variable and are generated essentially by the increase of production in 2012 in comparison to 2011. The increase of Operating provisions, including Amortization provisions and provisions for depreciations, are depend strongly on the start of operations of operations-related infrastructures, which have increased during fiscal year 2011. 24 DM million means Moroccan Dirhams million. 81 5. Operating Income reached DM 571 million in 2012 against DM 779 million in 2011. It represents 14 percent of Revenues in 2012, in comparison to 20 percent in 2011. The Financial Income decreased by about DM 168 million in 2012, against DM 611 million in 2011, thus recording a 72 percent reduction. 6. Financial Products increased by 25 percent in 2012 due mostly to a 27 percent increase of reversals and a 5 percent increase of Financial revenues coming particularly from Revenues from Interests and from Other Financial Products. 7. Financial Charges: In parallel, the 15 percent decrease of Financial Charges is explained by the 27 percent reduction of the Financial Provisions, namely DM 734 million in 2012 against DM 1007 million in 2011. 8. The Recurrent Income is of DM 403 million in 2012 against DM 169 million in 2011. Its significant increase (139 percent) compared to 2011 is explained by the evolution of aforementioned Operating Income and Financial Income. 9. The Non-Operating Income jumped from DM 35 million in 2011 to DM 1.4 billion in 2012. 10. Taxes: Corporate Taxes reached DM 75 million in 2012 against DM 105 million in 2011 and DM 90 million in 2010. With respect to other taxes, they comprise of the Urban Tax, Tax of Municipal Administration, patents taxes and other taxes, experienced a 6 percent decrease in 2012. The whole of aforementioned taxes including Corporation Taxes reached DM 109 million in 2012 against DM 141 million in 2011 and DM 123 million in 2010. 11. The Net Income reached DM 326 million, increasing by 233 percent compared to the previous fiscal year. It was DM 98 million in 2011. This is due to the reduction of the deficit from DM 611 million in 2011 down to DM -168 million in 2012. 12. Thus, while the Operating Revenue and Expenditures Account allows determining the various levels of Income (Operating, Financial, Current and Non-Operating), the Balance Sheet analysis will allow visualizing how the Income and Cash Flow were generated. Statement of Cash Flows Analysis : 13. The sales management account analysis reveals indicators of value created by the Office, namely the generation of value added and gross operating surplus "EBITDA" for which data are summarized in the following table (in DM million): 2010 2011 2012 Output for the fiscal year 3689 3 899 4091 Consumption for the fiscal year 1 191 1 256 1 436 Value Added 2498 2643 2655 Gross operating surplus (GOS) 1 465 1 474 1 664 14. Value added increased by 0.4 percent in 2012, rising to DM 2,655 million in 2012 compared to DM 2,643 million in 2011. This is mainly due to changes in the array of activities carried out ONEP. 82 15. As for EBITDA, it has increased by DM 190 million compared to the year 2011, (i.e. 12.8 percent). EBITDA was at 32.2 percent of sales in 2012, a slight increase compared to 2011 (31.6 percent) and to 2010 (33.8 percent). 16. ONEP's self-financing capacity has experienced steady growth between 2010 and 2011. In 2012 however, an increase of approximately 10.3 percent was recorded: going from DM 1,744 million in 2011 to DM 1,924 million in 2012. This growth is mainly due to the increase in provisions for liabilities between 2011 and 2012. Balance Sheet Analysis Financial Equilibrium Analysis: Evolution of the main balance sheet components (in DM million) Capital Assets 28,067 30,740 31,774 Current assets 3,918 4,968 5,764 Cash flow 1,649 1,611 925 Total assets 33,635 37,318 38,463 Equity and quasi-equity 16,190 17,326 18,273 Financing liabilities 13,316 15,625 17,008 Current liabilities 4,128 4,367 3,181 Total liabilities 33,635 37,318 38,463 17. The consolidated financial statements for the year 2012 show the following: > Total assets amounting to DM 38,463 million in 2012 compared to DM 37,318 million in 2011 i.e. a 3 percent increase of net assets; > Capital assets totaling DM 3,118 million in 2012 compared to DM 2,764 million in 2011. VAT credit standing at DM 2,379 million in 2012 against DM 2,044 million in 2011. > In addition, fixed assets (excluding financial assets) grew by 3 percent in 2012. This is explained by the increasing pace of investments made during the year. These assets represent 83 percent of total assets in 2012 compared to 82 percent in 2011. > Current assets have increased by 16.02 percent in 2012. Going from DM 5,764 million in 2011 to DM 4,968 million in 2012. This increase is primarily due to the increase in other receivables accounts; > Financing liabilities recorded an increase of 8 percent in 2012 compared to 17 percent in 2011. 83 18. Over the last three fiscal years, ONEP/ONEE-Water Branch's working capital, working capital need and net cash flow have evolved as follows: Working Capital (DM million) 1,439 2,211 3,508 Working capital Requirements (DM million) -210 600 2,582 Cash (DM million) 1,649 1,611 925 19. The working capital is showing significant growth compared to 2012. This is mainly due to the 5 percent increase of capital (equity & quasi equity) and the 9 percent increase in financing liabilities. 20. The working capital requirements increased from DM 600 million in 2011 to DM 2,582 million in 2012, which constitutes operating funding requirements which the Cash Flow allows covering. Indeed, the Cash Flow sharply increased from DM 2,211 million in 2011 to DM 3,508 million in 2012. 21. This first analysis reveals that the financial situation of water-related activities of ONEP and ONEE-Water Branch is overall satisfactory. Financing resources derived from the Operating Cycle, together with the surplus of permanent funding over fixed assets allow generating a positive cash flow. Debt Analysis 22. When comparing the last three years, the evolution of ratios reflecting the debt situation of water activities are is recapped below: 2010 2011 2012 Debt ratio (FinancialDebt /Permanent Capital) Debt Coverage Ratio 1,36 1,23 1,21 (EBIDTA/Debt Service) 23. The debt ratio, defined as the ratio of financial debt over permanent capital reached close to 48 percent in 2012. 24. With respect to the debt coverage ratio, it reached 1.21 in 2012 in comparison to 1.36 in 2010. 84