AFRICAN DEVELOPMENT BANK

MOROCCO

DRINKING WATER QUALITY AND SERVICE IMPROVEMENT PROJECT

APPRAISAL REPORT

Public Disclosure Authorized Public Disclosure Authorized Authorized Disclosure Public Authorized Disclosure Public

OWAS DEPARTMENT May 2016

Translated Document

TABLE OF CONTENTS

Acronyms and Abbreviations, …………...... …………. i

I – Strategic Thrust and Rationale ...... 1 1.1. Main Development Challenges ...... 1 1.2. Project Linkage with Country Strategy and Objectives ...... 2 1.3. Rationale for Bank Involvement ...... 2 1.4. Aid Coordination...... 3 II - Project Description ...... 3 2.1. Project Components ...... 3 2.2. Technical Solutions Adopted and Alternative Solutions Considered ...... 4 2.3 Type of Project / Instrument ...... 5 2.4. Project Cost and Financing Mechanisms ...... 5 2.5. Project Area and Beneficiaries ...... 7 2.6. Participatory Approach to Project Identification, Design and Implementation ...... 8 2.7. Bank Group Experience and Lessons Reflected in Project Design ...... 8 2.8. Key Performance Indicators ...... 10 III - Project Feasibility ...... 11 3.1. Economic and Financial Performance ...... 11 3.2. Environmental and Social Impact ...... 11 IV – Implementation ...... 14 4.1. Implementation Arrangements ...... 14 4.2. Monitoring ...... 16 4.3. Governance ...... 17 4.4. Sustainability ...... 17 4.5. Risk Management ...... 18 4.6. Knowledge Development ...... 19 V – Legal Framework ...... 19 5.1. Legal Instrument ...... 19 5.2. Conditions Associated with the Bank’s Intervention ...... 19 5.3. Conformity with Bank Policies ...... 21 VI – Recommendation ...... 21 Annex I. Development Indicators of ...... I Annex II. Table of the AfDB's Active Portfolio in Morocco (End-February 2016) ...... II Annex III. Major Related Projects Financed by the Bank and Other Development Partners of Morocco ...... III

The information and data in this report were collected by the project team, led by Mr. Belgacem BENSASSI, Chief Water and Sanitation Engineer, Project Officer, following a preparation mission to Morocco from 2 to 13 March 2015 and an assessment mission from 23 November to 4 December 2015.

Currency Equivalents December 2015

UA 1 = MAD 13.8232 UA 1 = EUR 1.29707 UA 1 = USD 1.37217

Fiscal Year 1st January – 31st December

Weights and Measures

1 km = kilometre = 1000 m 1 km2 = square kilometre = 1000 m2 1 ha = hectare = 10,000 m2 1 lm = linear metre 1 m3 = cubic metre 1 m3/d = cubic metre per day 1 hm3 = million cubic metres l/s = litres per second inhab/ha = inhabitants per hectare l p/d = litres per person per day

Acronyms and Abbreviations

AFD = French Development Agency KFW = Kreditanstalt für Wiederaufbau AFESD = Arab Fund for Economic and Social [German Public Investment Bank] Development MAFO = Morocco Field Office (AfDB) ARP = Abbreviated Resettlement Plan MEMEE = Ministry of Energy, Mines, Water BD = Bidding Documents Resources and the Environment CSP = Country Strategy Paper NHDI = National Human Development DWS = Drinking Water Supply Initiative EBRD = European Bank for Reconstruction and NSP = National Sanitation Programme Development ONEE = National Electricity and Drinking EIB = European Investment Bank Water Authority ERR = Economic Rate of Return PAPMV = Green Morocco Plan Support ESMP = Environmental and Social Management Plan Programme EU = European Union PNEEI = National Irrigation Water Saving FIRR = Financial Internal Rate of Return Programme GIS = Geographic Information System PP = Procurement Plan GIZ: German Agency for International Cooperation SAP-EAU = Water Sector Adjustment Plan IBRD = International Bank for Reconstruction and SDF = Saudi Development Fund Development SDGs = Sustainable Development Goals IsDB = Islamic Development Bank TFP = Technical and Financial Partners ISS = Integrated Safeguards System UA = Unit of Account IWRM = Integrated Water Resource Management WHO = World Health Organisation JICA = Japanese International Cooperation Agency WTG = Water Thematic Group

i

Project Information Sheet

Client Information BORROWER: National Electricity and Drinking Water Authority (ONEE)

EXECUTING AGENCY: ONEE (Water Branch)

GUARANTOR: Government of Morocco (Ministry of the Economy and Finance)

Financing Plan Source Amount (UA) Instrument

AfDB 68.5 million AfDB loan ONEE 22.5 million - EBRD (parallel financing) 12 million - IBRD (parallel financing) 34 million -

TOTAL COST 137 million -

Key Financial Information of the AfDB

Loan currency EUR Loan* Type Fully Flexible Loan (FFL) Interest Rate Base rate + Financing cost margin + Lending margin + Maturity premium Base Rate 6-month EURIBOR floating rate Lending Margin* 60 basis points (0.6%) Commitment Charge* None Other Charges* None Grace period 60 months FIRR, NPV (base-case scenario): 7.5% MAD 95 million ERR (baseline scenario) 15.2% MAD 217 million *if applicable Duration – Main stages (projected)

Approval of concept note November 2015 Project approval May 2016 Signing of loan and guarantee agreements June-July 2016 Effectiveness of the agreements September 2016 First disbursement September 2016 Completion December 2020

ii

PROJECT SUMMARY

General Overview of Project

1. The project to improve water quality and the performance of DWS systems in Morocco entails strengthening and securing drinking water supply in several towns especially , Ben Slimane, Youssoufia and Safi and improving water quality within the Bouregreg system (artificial aeration at SMBA dam and ozonation at the current treatment plant) and the performance of existing DWS systems (reduce losses, optimize operation...). The project area includes all provinces along the - highway and especially the provinces of Bouznika and Ben Slimane (in the economic hub of Rabat-Casablanca) and Youssoufia and Safi provinces (in the economic hub of Doukkala Abda) which are experiencing an economic, tourism and industrial boom. It seeks to meet the drinking and industrial water needs of these areas up to 2030. This project, which is estimated to cost UA 137 million, is scheduled to be implemented over a period of 48 months (2016-2020).

2. Under its Component A, the project will benefit communities in the provinces of Bouznika and , estimated at 120,000 inhabitants in 2015 (including over 50,000 inhabitants in rural areas) and of Youssoufia and Safi, estimated at 316,000 inhabitants in 2015 (including 202,000 inhabitants in rural areas). Operations under component B will benefit communities in the area that lies between Morocco’s two major cities (Rabat and Casablanca), which is the most populated and most urbanized part of the country, estimated at 5 million inhabitants in 2015 (including approximately 1 million in rural areas).

Needs Assessment

3. The project was designed based on priority needs defined by ONEE (Water Branch) under its Programme Contract with the State of Morocco for 2014-2017. The need to implement the project now is essentially driven by the necessity to improve the quality of DWS services (especially the quality of distributed water) for a population of almost five million people (along the Rabat-Casablanca highway which is the most crucial region of the country from the demographic and economic standpoints), especially in summer and early autumn and all the more so during periods of drought which have become more frequent due to the effects of climate change in recent years. It is also driven by the need to ensure the sustainability of the drinking water distribution service of ONEE (Water Branch) throughout the territory, improve service by ensuring its continuity and cut the operating costs of DWS systems (reduce losses, increase storage autonomy...).

Bank’s Value-added

4. The decision by ONEE (Water Branch) to propose that the Bank participate in financing this project is motivated by the AfDB's proven advantage in the implementation of similar projects (with fairly emergency operations in large and medium-sized cities). Such comparative advantage is clearly illustrated in the implementation quality of recent projects financed by the Bank in the drinking water and sanitation sector in Morocco, the most recent ones being the DWS consolidation project along the Rabat-Casablanca highway approved in 2010 and the drinking water consolidation project in the region of Marrakech, approved in 2012. Efforts are still needed to improve the procurement process and the latest policy on the procurement of goods, works and services approved by the Bank's Board of Directors in October 2015, will contribute significantly to this objective .

5. This operation will also serve as an opportunity for the Bank to intervene in the ONEE (Water Branch) performance improvement programme currently supported by several partners in Morocco’s water sector, namely IBRD, KFW, AFD, EIB, EBRD...

Knowledge Management

6. The project will enhance the experience of ONEE (Water Branch) in the implementation and operation of drinking water supply and sanitation projects in urban and rural areas. The introduction of innovative techniques such as ozonation, improvement of the output of various networks and the selection of more economical alternatives reflect the effort of ONEE (Water Branch) to build on its achievements in research and development and improve its project design and implementation skills.

iii

RESULTS-BASED LOGICAL FRAMEWORK

Country and Project Title: Morocco - Drinking Water Quality and Service Improvement Project Project Goal: Consolidate and secure DWS in several towns and improve water quality and the performance of existing DWS systems. RESULTS CHAIN PERFORMANCE INDICATORS MEANS OF VERIFICATION RISKS / Indicator (including ISCs) Baseline Situation Target MITIGATION MEASURES The socio-economic and sanitary living 1. Percentage of household health expenditure 53% in 2014 Less than 50% in 2020 National statistics conditions of the communities are (contribution of water quality) improved through securement of 2 Net enrolment ratio for girls (in rural and urban 82.7% (rural areas) and 99% (urban 90% (rural areas) and 99.5 % (urban National statistics drinking water in the urban and rural areas) areas) in 2014 areas) in 2020 areas concerned. 3. Water-borne disease rate 22.9% in 2011 Less than 10% in 2020 Statistics from the Ministry of Health 4. Under-five mortality rate (contribution of water- 30 per 1,000 inhabitants in 2014 Less than 25 per 1,000 inhabitants in Statistics from the Ministry of Health borne diseases) 2020 5. Maternal mortality rate Statistics from the Ministry of Health 6. Unemployment rate 112 per 100,000 inhabitants in 2014 50 per 100,000 inhabitants in 2020 7. Poverty rate 9.2% in 2013 Less than 7% in 2020 National statistics 8.9% in 2012 Less than 7% in 2020 National statistics

IMPACT 1. The drinking water production and 1.1. Access to drinking water for urban communities 100% in 2014 (including 51% 100% in 20201 ONEE reports and statistics Risks supply systems for the towns of in the towns concerned. women) - Preservation and availability of water Bouznika, Ben Slimane, Youssoufia, 1.2. Drinking water access rate for urban 92% in 2014 (including 51% 95% in 2020 Reports and statistics from the Authorities resources as well as integrated and optimal Safi are secured and strengthened. communities in the towns concerned. women) management of these resources. National statistics Mitigation Measures 2. Quality of treated water at Bouregreg - Implementation of SAP-Eau and State-ONEE complex improved. 2. Quality of treated water (taste and smell) Taste threshold <1 in 2020 User surveys programme contract (2014-2017) measures as Taste threshold ≥ 1 in 2014 well National Water Strategy action plans. 3. Technical performance of existing

DWS systems improved. 3.1. Average output of ONEE (Water Branch) water 95.13% in 2014 95.7% in 2020 supply networks 3.2. Average output of ONEE (Water Branch) water 73.9% in 2014 76.5% in 2020 distribution networks 3.3. National energy ratio 0.618 kWh/m3 in 2014 0.649 kWh/m3 instead of 0.723 kWh/m3 in 2020 2

OUTCOMES 1.1. Bouznika DWS reinforced 1.1. Water flow rate available. 407 l/s in 2014 507 l/s in 2018 Quarterly project monitoring reports Risks 1.2. Ben Slimane DWS reinforced 1.2. Water flow rate available. 190.5 l/s in 2014 340.5 l/s in 2018 provided by ONEE, Bank supervision - Long delays in procurement of the necessary 1.3. Youssoufia DWS reinforced 1.3. Water flow rate available. 137 l/s in 2014 377 l/s in 2018 reports lands. 1.4. Southern Safi DWS reinforced - Long delays in the procurement of goods and 1.5. BC2 and BC5 pipes rehabilitated 1.4. Water flow rate available. 0 l/s in 2014 40 l/s in 2018 Reports and statistics from MENEE and works. 1.5. Number of interventions per year caused by 2 to 3 None (0) other ministries concerned - Limited experience of ONEE (Water Branch) ageing pipe in artificial aeration and ozonation 2.1. Artificial aeration installed at 2.1. Eutrohication of SMBA dam O2 = 0 mg / l and H2S from the O2 ≥ 4mg/l and absence of H2S from Mid-term review report and project Mitigation Measures SMBA dam. bottom intake in 2014 the bottom intakes 2018 completion report (PCR) - Selection of the conduits and locations for the Non-availability of a bottom outlet piping and facilities (excluding towns and low- from the inlet water tower value land) and commencement of the

2.2. Reduction of THM formation (following procurement process before start of the project. 2.2. An ozonation section installed at reduced use of chlorine) THM index ≥1 in 2014 THM index3<1 in 2018 - Clear and precise definition of the various the existing Bouregreg treatment plant stages of the procurement process, and of the documents to be used (standard bidding document models).

OUTPUTS

1 Maintaining the urban access rate at 100% requires extra effort to meet the water needs of the additional population and of new economic activities (tourism, industry ...) programmed for 2020. 2 That is to say, if the project is not executed, the energy ratio will amount to 0.726 kWh/m3; in order words ONEE (Water Branch) will gain 0.074 kwh/m3 thanks to the project. 3 THMs are by-products of water chlorination formed primarily when chlorine reacts with organic substances (humic and fulvic substances) present in water (Health Canada, 1993). The recommended value by Moroccan standards is: THM < 1. iv

3.1. Four treatment stations 3.1. Hydraulic efficiency of the treatment stations In 2014: 74.56% (Taounate), 89.62 95% in 2021 for the 4 stations - Reinforcement of the technical support team rehabilitated. enhanced. (Mkansa), 94 (Ain Gdah) and 80% with the required experts from the fields of

3.2. Improved metering. (Kria) artificial aeration and ozonation.

d)

’ 3.3. Leakages sought. 3.4. Output of distribution networks 3.2 to 3.4 Average output of the water distribution 73.9% in 2014 76.5 in 2018 improved. networks of ONEE (Water Branch) 3.5. Production facilities rehabilitated: 3.5.1 Water supply piping 3.5 &3.6. Storage capacity (hours per day) Autonomy < 12 hours in 2014 (*) Autonomy < 12 hours in 2019 3.5.2 Pumping stations 3.6. Storage capacity enhanced.

OUTPUTS (cont

COMPONENTS RESOURCES A. Reinforcement of DWS systems of several urban areas RESOURCES (in UA million) A.1. Reinforcement of the Bouznika DWS system (laying of pipes, building of the pumping station and reservoirs ...). - ADB loan: UA 68.5 million. A.2. Reinforcement of the Ben Slimane DWS system (laying of pipes, building of the pumping station and reservoirs ...). Kingdom of Morocco (ONEE): UA 22.5 million. A.3 Reinforcement of the Youssoufia DWS system (laying of pipes, building of the pumping station and reservoirs ...). EBRD & IBRD (parallel financing): UA 46 million. A.4 Reinforcement of the Safi DWS system (laying of pipes, building of the pumping station and reservoirs ...). A.5 Rehabilitation of BC2 and BC5 pipes (laying of pipes). B. Improvement of the treatment quality at Bouregreg complex B.1. Artificial aeration of SMBA dam (installation of aerators and piping, air compression facility ...). B.2. Installation of an ozonation system in the existing pumping station (laying of pipes, installation of ozonation equipment ...). C. Improvement of the performance of existing DWS systems C.1. Rehabilitation of the 4 existing treatment stations.

C.2. Improvement of metering (large calibre mechanic and electronic). C.3. Identification of leakages. C.4. Improvement of the output of distribution networks. C.5 Rehabilitation of production facilities. C.6 Reinforcement of storage capacity. D. Technical support D.1 Implementation studies by companies approved. D.2 Acceptance report signed, works attachments validated, monitoring reports prepared.

KEY ACTIVITIES

(*) The establishment of new production facilities can be justified in some cases by lack of pressure or low autonomy

v

PROJECT IMPLEMENTATION SCHEDULE 2016 2017 2018 2019 2020 Description 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 Loan approval by the Board Signature of loan agreement Effectiveness of the loan agreement First disbursement 1- Technical support (AAA) Shortlist of consultancy firms Consultation of consultancy firms selected Assessment of bids Award of contracts Implementation of services Drafting of completion of report 2- STRENGTHENING OF DWS SYSTEMS BOUZNIKA DWS Consultation of companies Assessment of bids Award of contracts Works execution Acceptance of works BEN SLIMANE DWS Consultation of companies Assessment of bids Award of contracts Works execution Acceptance of works YOUSSOUFIA DWS Consultation of companies Assessment of bids Award of contracts Works execution Acceptance of works SAFI DWS Consultation of companies Assessment of bids Award of contracts Works execution Acceptance of works REHABILITATION BR Consultation of companies Assessment of bids Award of contracts Works execution Acceptance of works 3- QUALITY IMPROVEMENT ARTIFICIAL AERATION Consultation of companies Assessment of bids Award of contracts Works execution Acceptance of works OZONATION Consultation of companies Assessment of bids Award of contracts Works execution Acceptance of works 4- PERFORMANCE IMPROVEMENT TREATMENT STATIONS Consultation of companies Assessment of bids Award of contracts Works execution Acceptance of works METERS (SMALL AND LARGE SIZES) Consultation of companies Assessment of bids Award of contracts Works execution Acceptance of works IDENTIFICATION OF LEAKAGES Consultation of companies Assessment of bids Award of contracts Works execution Acceptance of works DISTRIBUTION NETWORKS Consultation of companies Assessment of bids Award of contracts Works execution Acceptance of works PRODUCTION FACILITIES Consultation of companies Assessment of bids Award of contracts Works execution Acceptance of works STORAGE CAPACITY Consultation of companies Assessment of bids Award of contracts Works execution Acceptance of works 5-. PROJECT COMPLETION Completion report of ONEE (Water Branch) Completion report of the Bank

vi

REPORT AND RECOMMENDATION OF BANK GROUP MANAGEMENT TO THE BOARD OF DIRECTORS CONCERNING A PROPOSAL TO AWARD A LOAN TO MOROCCO FOR THE DRINKING WATER QUALITY AND SERVICE IMPROVEMENT PROJECT

Management hereby submits these reports and recommendations for a proposed loan of EUR 88.85 (approximately UA 68.5 million) to the National Electricity and Drinking Water Authority (ONEE) to finance the Drinking Water Quality and Service Improvement Project in Morocco.

I Strategic Thrust and Rationale

1.1. Main Development Challenges

1.1.1 Morocco is a water-stressed country which constitutes the primary challenge to its development. The rainfall is very low and water is unevenly distributed among the various regions of the country. Drinking water production has increased threefold over the past three decades. Given the projected trend of water needs for various uses, the storage capacity of the 140 dams should be strengthened. Water scarcity projections are disturbing and the rate of renewable water resources per capita and per year must rise to 625 m3/inhab/year in 2020 (the critical threshold being 1000 m3/inhab/year). Furthermore, the quality of surface and particularly ground water has deteriorated. According to recent studies, an estimated 8% to 10% of the nitrogen used as fertilizer on farms leaches into the groundwater. Indeed, integrated water resource management has emerged as the Number 1 environmental priority both in growth diagnosis and in mid-term review of the 2012-2016 country strategy. This project will boost the development of infrastructure that contributes to sustainable water management.

1.1.2 At the same time, Morocco has been experiencing steady urbanization for the past three decades. The proportion of urban dwellers in the total population rose from 51.4% in 1994 to 60.3% in 2014, and is projected to rise to 69% in 2050. This urbanization is partly driven by better living conditions in the cities. Indeed, poverty remains a predominantly rural phenomenon in Morocco (14.5% compared to 4.8% in urban areas in 2007). Access to basic services is also better in urban areas. For instance, the household access rate to improved water sources in 2015 is 100% compared to 95% in rural areas. This is directly reflected in the social indicators. The cities attract so many people because they are, above all, the driving force of the Moroccan economy and are replete with opportunities for creating jobs with higher value added and, consequently, better remuneration. Hence, cities account for over 75% of the national GDP.

1.1.3 However, regardless of this accelerated urbanization process, cities must continue to develop inclusively. In that regard, the national “Cities without Slums” programme launched in 2004 has led to more harmonious development of urban areas. As a result, some 54 cities were declared slum-free in 2015. Meanwhile, the National Human Development Initiative (INDH), is implementing the “programme to combat social exclusion in urban areas” which seeks to upgrade basic infrastructure (water, electricity, roads,), improve access to education and health and create income-generating activities.

1.1.4 Consequently, the second development challenge is to avoid extremely wide disparities in access to services between city suburbs (which have the poorest communities, including those generated by rural exodus) and the city centres, between large cities and satellite towns (in interurban areas), and between rural and urban areas. In fact, regular infrastructure upgrade is necessary, with priority given to basic infrastructure. Access to drinking water in these increasingly urbanized areas is a major challenge that has a predominant “gender” dimension because there is no sustainable access to water for the new urban communities whose members very often come from poor backgrounds. Accordingly, this project seeks to improve access to drinking water for poor communities in urban or rural and interurban areas, comprising the Regions of Rabat-Casablanca, Bouzinka-Ben Slimane and Youssoufia-Safi.

1

1.1.5 Apart from these two challenges, growth diagnosis at the national level has revealed market weaknesses with regard to innovation in Morocco.

In particular, the study reveals how the public sector, through better investment coordination can be the vector of innovation within the economy by, for instance, promoting new technologies when providing public services. In this regard, the project seeks to promote an innovative water treatment technique (artificial water aeration in the dam and an ozonation system in the treatment stations[1]).

1.2. Project Linkage with Country Strategy and Objectives

1.2.1 Cognizant of the importance of sustainable water management, Morocco launched the reform of its regulatory framework in 2015. Law No. 10-95 on water resources laid the foundation for integrated water resource management (IWRM) that is more demand-driven. The bill to revise Law No. 10-95 on water resources, drafted in 2015, will be used to: (a) clarify and simplify the conditions for using water resources and the public water domain; (b) integrate provisions on groundwater preservation, rainwater management, sanitation and recycling of wastewater, management of water-related risks and water information systems. Consequently, this project will directly contribute to the implementation of some provisions of this revised law.

1.2.2 Furthermore, a national water strategy for Morocco (2009) was prepared with the aim of transforming the water sector through the development of alternative resources, rational management of demand, increased production and better consideration of environmental factors. As regards drinking water for example, an estimated water savings potential of 120 million m3/year, is possible through the improvement of network performance, standardization and encouragement of the use of appropriate technology, review of the pricing system and the improvement of water use efficiency. The operationalization of this strategy is laid out in the Programme Contract between ONEE and the State for 2014-2017 and includes this project among the priority projects identified in this contract.

1.3. 1.3. Rationale for Bank Involvement

1.3.1 The Bank has always supported the country in its sustainable water resources management. The Bank provides such support through technical assistance, investment projects and budget support. This support is evident in: (a) the development of water-saving infrastructure, integrated water resource monitoring and management frameworks and tools for recycling wastewater and facilitating groundwater recharge within the agricultural sector which is the primary user of water (over 80% of mobilized resources); (b) the development of infrastructure to ensure the efficient distribution of drinking water and sanitation; and (c) the development of a legislative framework for water resource protection and management. Beyond reform support provided by Law No. 10-95 on water resources within the PAPMV (Phase II) in 2015, SAP-EAU, completed in 2008, laid the regulatory groundwork for: (i) better integrated water resources management; (ii) pricing regulation of water use; and (iii) the reallocation of investment budgets.

1.3.2 The Bank has developed extensive experience in Morocco within the drinking water and sanitation subsector. Various ADB-financed projects enabled the Bank and ONEE (Water Branch) (ex- ONEP) to create an interaction in the processing of various files (BDs, contracts, disbursement requests, etc...) and to consolidate their relations, which have been further strengthened by the presence of the AfDB Field Office (MAFO) in Rabat.

[1] within the Bouregreg water treatment system which is the largest in the country (and among the 10 largest in the world) and which supplies the region starting from Rabat to Casablanca, representing over 5 million inhabitants, for an estimated output of approximately 150 Mm3/year.)

2

1.3.3 Furthermore, this project features on the list of projects approved under CSP 2012-2016 and is fully consistent with the Bank's strategic thrust in Morocco as defined during the 2014 mid-term review of the 2012-2016 Country Strategy. The first two components of this project, aimed at increasing water supply (in quantity and quality), fall under Pillar II (infrastructure) which relates to reduction of spatial and social disparities and promotion of innovation. The third component aimed at improving the performance of existing DWS systems (search for leaks, improvement of output, rehabilitation of structures), will support the crosscutting theme of the 2012-2016 country strategy which promotes the sustainability of water resources. Furthermore, given its predominantly urban character, the project is consistent with the Bank's urban strategy, especially in 2 of its 3 pillars relating to 'infrastructure' and 'governance '.

1.3.4 Lastly, this project will contribute to the implementation of the Ten-year Strategy and especially the Bank’s High 5s. Indeed, the first component relating to the enhancement of drinking water supply in several towns will guarantee the availability of water for several new industrial units planned, including a new industrial zone in Bouznika. The second project component on the artificial aeration of dam water and ozonation at the treatment station will introduce innovative infrastructure and industrialization of drinking water production and treatment facilities and also encourages the use of appropriate technologies. The third component on performance improvement seeks to increase the efficiency of DWS systems and ensure sustainable and adequate water supply to vulnerable communities in semi-urban areas and the surrounding rural areas. This will greatly enhance their living conditions given that such communities, which are generally underprivileged, do not always have secure access to drinking water.

1.4. 1.4. Aid Coordination

1.4.1 The Moroccan Government has made substantial efforts to coordinate aid. Hence, it plans to set up the Geographical Information System (GIS) for real-time monitoring of the operations of various technical and financial partners (TFPs) by region, sector and amount. Donor aid is relatively well aligned on the Government’s strategic priorities and there is no parallel project implementation unit. Several bilateral and multilateral donors are involved in Morocco’s drinking water and sanitation sector, including the AfDB, World Bank, EIB, EU, EBRD, AFD, KFW, JICA, IsDB, AFESD, SDF, Belgium and Spain. Coordination between the various water sector donors is conducted through a Water Thematic Group (GTE) co-chaired until 2015 by AFD and the EU. Since 2011, the Ministry delegate for water resources has participated in the organisation of some meetings of this group, which is indicative of the growing involvement of national institutions in sectoral dialogue. This thematic group meets regularly in Rabat to discuss sector trends, focusing on country policy and strategies, intervention strategies and the activity programme of each donor, to ensure greater coordination and harmonization of interventions in the water and sanitation sectors. The Bank has regularly attended these meetings since the establishment of its field office in Morocco in 2006 and since February 2016, following withdrawal of the EU from the chairmanship of GTE, the AfDB and the World Bank take turns in chairing the GTE, alongside the Ministry in charge of water resources and the AFD.

1.4.2 Furthermore, ONEE (Water Branch) has an investment programme designed under its 2014-2017 programme contract with the Moroccan Government. It funds this programme of the Ministry of the Economy and Finance with the assistance of its traditional donors.

II Project Description

1.5. Project Components

The project will satisfy the drinking water needs of several towns (Bouznika, Ben Slimane, Youssoufia and Safi) and improve the quality of water (artificial aeration and ozonation) and the performance of existing DWS systems (reduce losses, optimize operation...). The various project components are presented in Table 4.1 below:

3

Table 2.1 Project Components and Costs

Name of component / sub- Cost estimate Cost estimate Description of Components component (UA million) (EUR million) A Strengthening drinking water supply in urban communities Sub-component A.1: 6.1 7.9 . Supply pipes and related structures Strengthening of the DWS . Tanks (semi-submerged and elevated) systems of Bouznika (including . Pumping stations rehabilitation of the upstream supply pipes) and Ben Slimane Sub-component A.2: 43.8 56.8 . Supply pipes and related structures Strengthening of the DWS system . Equipment for pumping stations and tanks of Youssoufia and southern Safi . Power lines B B. Improvement of water quality at Bouregreg complex Sub-component B.1: Artificial 1.4 1.8 . Artificial aeration system (aerator and aeration at SMBA dam piping) . Air compressor . Power line and transformer substation Sub-component B.2: An 21.0 27.2 . Ozone generators and related equipment ozonation section installed at the . Irrigation structures and water inflow pipes existing treatment plant C Improvement of the performance of existing DWS systems Rehabilitation of treatment 60.9 79.0 . Rehabilitation of raw water intake stations; Strengthening of structures and piping as well as treatment production facilities; station facilities Enhancement of storage . Rehabilitation of pumping stations autonomy; Improvement of . Rehabilitation of water supply pipes network output; Installation of . Storage tanks metres; Search for leaks . Electrical flow metres . Mechanical metres . Leakage identification mobile metres D Institutional support & project 3.8 4.9 . Studies, works control and supervision management Total, including contingencies 137.0 177.7

1.6. Technical Solutions Adopted and Alternative Solutions Considered

2.2.1 Component A:

Sub-component A.1: Strengthening of the DWS System of Bouznika and Ben Slimane

- For strengthening of the DWS system of Bouznika town, a single option is available, namely strengthening the existing water supply structures connecting the Bouregreg complex to the town, through rehabilitation of the Bouregreg DN500 water supply piping (between BC2 and BC5) and laying of DN400 pipes, as well as increase of the storage capacity through the construction of a tank with a capacity of 2 x 2000 m3. Moreover, an elevated tank with a capacity of 800 m3 will be constructed to serve the upper section of the downtown area, following expansion of the city.

- For strengthening of the DWS system of Ben Slimane town, several alternatives have been studied for strengthening the DWS system in the downtown area and water supply to rural areas which are (or could be) connected to the facilities in Ben Slimane town. The multi- criteria analysis facilitated selection of the option that strengthens the DWS system in the downtown area (through facilities that are independent of the existing system).

4

Sub-component A.2: Strengthening of the DWS system of Youssoufia and Southern Safi

- For strengthening of the DWS system in Youssoufia province, the options studied differ, depending on the design of the water supply network and the location of the intermediate pumping station. The chosen option entails laying a water supply pipe across the city-centre and setting up an intermediate pumping station outside the city. This option is advantageous because: (i) it involves a shorter piping distance than the discarded option (city bypass) and entails less land expropriation; (ii) it avoids crossing railway lines, which would be impossible under the city bypass option; and (iii) it is cheaper than the “no intermediate pumping station” option, in terms of investment, maintenance and repairs. Furthermore, the chosen option has the advantage of an intermediate water storage capacity large enough to supply water to the rural areas that lie upstream of the city.

- As regards strengthening the system in southern through high service canals, the alternatives studied differ depending on the flow rate from existing boreholes. The chosen alternative has the advantage of being cheaper and of strengthening the DWS systems of all rural areas supplied by existing facilities.

2.2.2 Component B:

Sub-component B.1 - Artificial aeration at SMBA dam: Analysis of several scenarios for improving raw water quality led to the adoption of a scenario that entails having hypolimnetic aeration around the existing water intake structure which supplies water to the Bouregreg treatment station and the new intake structure which supplies water to the planned Oum Azza treatment station (Annex C2). This solution facilitates the extraction of raw water to be treated for drinking from the low-temperature and algae-free hypolimnion. This means that the water would have optimum quality for treatment and be less costly to tap.

Sub-component B.2 - Ozonation facilities at the Bouregreg treatment station: Analysis of several scenarios led to adoption of the option that entails building a complete ozonation section to treat water through pre- ozonation (rather than prechlorination), (Annex C2).

2.2.3 Component C

Enhance the performance of existing DWS systems: The activities under this project were selected based on the performance of Regional Directorates, with performance improvement operations spanning a period of 3 years (2016-2020) and covering a large part of the Kingdom’s territory. Such operations target cities and towns where ONEE (Water Branch) has the potential to achieve considerable performance gains, especially in the output of distribution networks.

1.7. 2.3 Type of Project/Instrument

It is an investment project to be financed with AfDB, ONEE, IBRD and EBRD resources (parallel financing).

1.8. 2.4. Project Cost and Financing Mechanisms

The total project cost, net of taxes and customs duties, is estimated at UA 137 million. The part to be financed with AfDB resources is estimated at UA 68.5 million, of which UA 52.9 million is in foreign exchange (77.2%) and UA 15.6 million in local currency (22.8%). It includes a 2% provision for physical contingencies, 2% for price escalation in foreign currency and 3% for price escalation in local currency. The cost was estimated based on detailed pre-project studies for Components A and B and on estimates of the Regional Directorates for Component C.

5

Table 2.2 Estimated cost per component for the part financed by the Bank (net of taxes and customs duties)

Components UA million EUR million % F.E. L.C. Total F.E. L.C. Total foreign exchan ge Component A - Strengthening drinking 9.4 2.8 12.2 12.19 3.63 15.82 77.0 water supply in urban communities Component B - Improvement of water 17.4 3.6 21.0 22.57 4.67 27.24 82.9 quality at Bouregreg complex Component C - Improvement of the 19.2 8.1 27.3 24.90 10.51 35.41 70.3 performance of existing DWS systems Component D - Technical support 3.7 0.0 3.7 4.80 0.0 4.80 100.0 Total baseline cost 49.7 14.5 64.2 64.46 18.81 83.27 77.4 Provision for implementation contingencies 2.3 0.7 3.0 2.98 0.91 3.89 - Provision for price escalation 0.9 0.4 1.3 1.18 0.51 1.69 - Total project cost 52.9 15.6 68.5 68.62 20.23 88.85 77.2

2.4.2 The project will be co-financed by the Bank, ONEE, IBRD and EBRD (in parallel financing). Bank financing will amount to EUR 88.85 million (approximately UA 68.5 million) representing 50% of the estimated project cost, while ONEE, IBRD and EBRD4 will finance the remaining 50%. The Bank will finance 100% of the tax-exclusive costs of activities to be financed by the AfDB.

2.4.3 Paragraph 4.2.2 (ii) of the policy on expenditure eligible for Bank Group financing, approved by the Board on 19 March 2008, requires that Bank funding should not exceed 50% of the total project cost. Furthermore, paragraph 2.1.2 (ii) of the same policy requires that the Government's contribution should be at least 50% of the project cost, unless special circumstances justify a different percentage.

2.4.4 The Bank financing to this project is limited to 50% of the total project cost (net of taxes). Meanwhile, the national contribution (ONEE) is limited to 16% of the total project cost (net of taxes), while the balance is financed by the EBRD and IBRD. This limited ONEE contribution is justified by the country’s commitment to implement its global development programme, the gradual improvement of ONEE’s financial situation and the significant allocations made to the drinking water and sanitation sector. The 2014-2017 programme-contract signed on 26 May 2014 between ONEE and the Moroccan Government attests to this commitment by allocating an investment budget of approximately MAD 20 billion (approximately EUR 1.9 billion) to the DWSS sector (ONEE (Water Branch)) over the 2014-2017 period.

Table 2.3 Financing Sources

Financing sources UA million EUR million % F.E. L.C. Total F.E. L.C. Total total AfDB 52.9 15.6 68.5 68.62 20.23 88.85 50.0 ONEE + EBRD + IBRD 50.0 18.5 68.5 64.85 24.00 88.85 50.0 Total project cost 102.9 34.1 137.0 133.47 44.23 177.70 100

4 ONEE: UA 22.5 million ≈ EUR 29.2 million; EBRD: UA 12 million ≈ EUR 15.6 million; IBRD: UA 34 million ≈ EUR 44.1 million. 6

Table 2.4 Project costs by expenditure category for the part financed by the Bank

Expenditure Categories UA million EUR million % F.E. L.C. Total F.E. L.C. Total foreign exchange Works 25.9 12.1 38.0 33.59 15.70 49.29 68.2 Goods 20.1 2.4 22.5 26.07 3.11 29.18 89.3 Services 3.7 0.0 3.7 4.80 0.0 4.80 100.0 Total base cost 49.7 14.5 64.2 64.46 18.81 83.27 77.4 Provision for implementation 2.3 0.7 3.0 2.99 0.90 3.89 - contingencies Provision for price escalation 0.9 0.4 1.3 1.17 0.52 1.69 - Total project cost 52.9 15.6 68.5 68.62 20.23 88.85 77.2

Table 2.5 Expenditure schedule by component (in EUR million) for the part financed by the Bank

Components 2016(*) 2017 2018 2019 2020 Strengthening drinking water supply in urban areas 1.30 2.59 4.15 5.19 2.59 Improvement of water quality at Bouregreg complex 0 3.89 6.48 12.97 3.89 Improvement of the performance of existing DWS systems 5.06 8.30 10.38 9.08 2.59 Technical support 0.39 1.04 1.05 1.03 1.30 Total base cost 6.75 15.82 22.06 87 37 Provision for implementation contingencies 0.39 0.78 1.03 1.17 0.52 Provision for price escalation 0.13 0.26 0.39 0.65 0.26 Total project cost 7.27 16.86 23.48 30.09 11.15 (*) Only applies to the 2nd semester.

1.9. Project Area and Beneficiaries

The project area includes all provinces along the Rabat-Casablanca highway and especially the provinces of Bouznika and Ben Slimane (in the economic hub of Rabat-Casablanca) as well as Youssoufia and Safi (in the economic hub of Abda Doukkala) for Components A and B, and practically the entire Moroccan territory for Component C.

2.5.2 For the Rabat-Casablanca segment, the project will improve water quality (through Component B) for the area which lies between the two major cities of Morocco, namely Rabat and Casablanca. This area is considered to be the most populated and most urbanized part of the country and is experiencing significant economic, tourism and industrial development (about 60% of the national industrial fabric, Bouregreg valley project, Bouznika tourist resort...). It also has major backbone infrastructure that promotes development (motorways, railways, airports...). The Rabat cluster consists mainly of the towns of Rabat, Salé, Bouknadel, Témara, Skhirat, Sidi Yahia, Zaer and Rommani, while the Casablanca cluster consists mainly of the towns of Casablanca, , Bouznika, Benslimane and Aïn Aouda. The beneficiaries of the project, who were approximately 5 million inhabitants in 2015, will exceed 8 million in 2030, including approximately one million in rural areas.

2.5.3 Furthermore, under Component A, the project will strengthen the DWS systems in the provinces of Bouznika and Benslimane, which had approximately 120,000 beneficiaries in 2015 and will have close to 150,000 by 2030, including over 50,000 in rural areas.

2.5.4 Similarly, Component A will strengthen the DWS system in Youssoufia province which includes the town of Youssoufia, the three urban centres of Chemaia, and as well as eight rural communes (Atiamim, El Gantour, Esbiaat, Lakhoualqa, Ras El Ain, Ighoud, Jnane Bouih and Sidi Chiker). It will also strengthen the DWS system in Safi province (to the South) which includes the town of Tnine Ghiate and the neighbouring douars in the rural municipalities of El Ghiate, Lamaachate and Touabet. The

7

beneficiaries in Youssoufia province were approximately 269,000 inhabitants in 2015 (including 168,000 inhabitants in rural areas). The beneficiaries in Safi province (to the South) were approximately 47,000 inhabitants in 2015 (including 34,000 inhabitants in rural areas).

2.5.5 Lastly, Component C will affect virtually all Moroccan territory and the specific beneficiaries of the portion financed by the Bank under the performance improvement programme for ONEE (Water Branch) will be determined at the beginning of each year based on the operations selected by the Regional Directorates of ONEE and included in this project.

1.10. Participatory Approach to Project Identification, Design and Implementation

2.6.1 The Bank's preparation and appraisal missions facilitated the holding of multiple meetings involving all stakeholders, namely: the various departments of ONEE (Water Branch), the Water Department of MEMEE and some development partners involved in the financing of ONEE programmes, such as the performance improvement programme. The purpose was to listen to their concerns and factor them into the design and execution of the project. These meetings and consultations highlighted the main concerns of stakeholders and beneficiaries, namely to: (i) improve the quality of drinking water in areas connected to the network; (ii) ensure water supply to several new settlements (housing areas, industrial units...); and (iii) ensure access to affordable drinking water for disadvantaged semi-urban and rural communities.

2.6.2 In addition to the various awareness-raising and communication campaigns carried out during feasibility studies and design of the detailed survey plan, which acquainted the communities with the characteristics and objectives of the project, ONEE (Water Branch) will also ensure that local communities are informed prior to the commencement of works, through their municipalities and/or local authorities, about the nature of the works, possible damage and related compensations and the need to organise themselves to benefit from the project (temporary jobs, etc.). Subsequently and throughout the works, the project contractors must maintain this consultation with local communities (this requirement will be included in the works contract provisions). Communication must focus essentially on: (i) the nature and duration of works; and (ii) the precautions to be taken as regards movement of project vehicles and machinery.

2.6.3 Furthermore, information, awareness and education campaigns are necessary to avoid water wastage and pollution. Such campaigns will focus on: (i) promoting a culture of respect for water and a positive water use behaviour; and (ii) promoting hygiene-friendly attitudes and behaviour. Direct on-site actions with various target groups should be promoted through communication of messages like: “drinking water is vital to health; it is a common right; and it should be used responsibly”. The target groups are: (i) children and youth (schools, holiday camps, facility visits...); (ii) women (women's centres, associations, youth centres...); (iii) customers (customer guide...); (iv) the media (press day, dispatch of brochures...); (v) public and private stakeholders; and (vi) policymakers, elected officials and other partners (information day...). For these campaigns, consideration will be given to the variety of socio-cultural data, manners and customs, habits and the people's readiness to participate in community actions.

1.11. Bank Group Experience and Lessons Reflected in Project Design

2.7.1 Performance in the implementation of recent projects with ONEE (Water Branch) is deemed to be satisfactory overall. ONEE (Water Branch) is conversant with Bank policies and procedures and the studies it conducted are of good quality. The main recommendations made in previous project completion reports and especially the last 4 (7th, 8th, 9th and 10th DWS projects) boil down to: (i) strengthening technical support and ensuring its availability prior to works commencement and right up to project completion; and (ii) strengthening project supervision missions (especially the number of experts) and ensuring better monitoring of project execution. These recommendations were taken into account in recent ongoing projects financed by the Bank in the sector (Rabat-Casablanca DWS project and Marrakech region DWS project) and will also be factored into the present project, with the assistance of the Bank's field office in Morocco (MAFO). An independent appraisal of the results of 3 DWS projects financed by the Bank in 8

Morocco (8thand 9th DWS projects and the Water Sector Adjustment Programme (SAP-EAU)) is underway and the results, expected in the first half of 2016, will be factored into the implementation of this project.

2.7.2 Since the beginning of its intervention in Morocco, the Bank has financed 13 operations in the DWSS sector, bringing the total amount of its DWSS commitments to approximately EUR 1 billion (MAD 11 billion). These projects have secured a 99% drinking water access rate in urban areas while raising the rate in rural areas from 14% in 1990 to 94.5% currently. They have also raised the sanitation access rate in urban areas from less than 50% in 1990 to over 70% currently. The facilities constructed under the various Bank-financed projects have ensured sustainable drinking water supply to several towns in Morocco (Rabat, Casablanca, Marrakech, , Tetouan, Beni Mellal, Fes, , , , Khénifra, Kenitra, , Ouarzazate, , Tan, Tahanaout, Azilal, ...), facilitated access to drinking water in previously unconnected rural areas, improved community health conditions and protected and preserved water resources.

2.7.3 The two water supply projects currently underway, have experienced difficulties related to: (i) default by one of the works companies and delay in the land expropriation process for the Rabat-Casablanca DWS project; and (ii) bottlenecks in the procurement process for the Marrakech water project. The 2014 and 2015 delays in the procurement and expropriation processes of the Rabat-Casablanca and Marrakech projects stem mainly from the nature of these 2 projects, characterized by a limited number of major structures that are somewhat technically complex and involve substantial amounts and by the expropriation of highly valuable land located in the 3 largest cities of the country (Rabat, Casablanca and Marrakech).

2.7.4 This situation has improved significantly since the end of 2015 with (i) acceleration of the implementation rate of the Rabat-Casablanca project after replacement of the defaulting Contractor and revival of the stalled expropriation process; and (ii) acceleration of the procurement process, with a commitment rate that has just reached 49%. Both projects, currently flagged for their low disbursement rate and low commitment respectively, will be struck off the list of flagged projects in April 2016 since the disbursement rate of the Rabat-Casablanca project will exceed 60% thanks to the ongoing processing of payment requests and the commitment rate of the Marrakech project will exceed 50% upon signature of the next contract expected in April 2016.

2.7.5 This specificity (technical complexity and high-value land) does not apply to the new project covered by this report, which is rather characterized by a large number of small-sum procurements and the acquisition of low-value lands with a smaller surface area (Annex B5).

2.7.6 Based on these achievements, the main lessons to be learnt from the partnership between the Bank and ONEE (Water Branch) focus on the need to build the capacity of ONEE (Water Branch) staff, primarily in monitoring and evaluation and post-evaluation of projects. In this regard, a partnership project between the Bank’s IDEV Department and the Audit and Organisation Department of ONEE (Water Branch) was initiated following a Bank mission conducted in December 2009 that led to the adoption of an action plan, followed by the organisation of several seminars. The actions proposed in this plan are intended to assist ONEE (Water Branch) in the development of an evaluation policy, a system that ensures the internal organisation and management of appraisal missions and to develop the capacity to engage in monitoring and evaluation and retrospective evaluation. Since then, several exchanges and capacity building missions have taken place, with ONEE (Water Branch) experts attending workshops organised by the Bank in Morocco and at its headquarters. The most recent exchange in which ONEE (Water Branch) participated concerns the organisation of a regional workshop to evaluate the outcomes of DWSS projects, which led to the publication of a report in June 2015 on the evaluation of the results of DWSS projects reflecting best practices from Bank-financed projects in Morocco’s water sector.

2.7.7 With regard to the Bank’s overall portfolio in Morocco, the rating for 2015 remains satisfactory, according to the Country Portfolio Performance Review (CPPR) of 2015. The monthly “Flashlight Report” ranks the Bank's portfolio in Morocco among the most effective portfolios throughout 2015.

9

This ranking of the Flashlight Report is also justified by satisfactory results in the implementation of operations (average PI score of 2.42) and good performance in the attainment of the development objectives (DO) of projects (average DO score of 2.6). To build on this performance, efforts must be stepped up to improve portfolio implementation through continuous capacity building in the area of procurement for some executing agencies and comprehensive and rigorous preparation of operations at commencement by systematically anticipating procurements with a realistic disbursement plan within the framework of application of the new PD 02/2015.

2.7.8 As regards fulfilment of the conditions precedent to first disbursement, performance in the fulfilment of loan conditions remained highly satisfactory in 2015. The average loan effectiveness period continued to decline globally from 4.9 months in 2014 to 4.2 months in 2015 (which is below the maximum period of 6 months required by PD 02/2015).

1.12. Key Performance Indicators

In the Short Term

2.8.1 The project will ultimately yield an additional flow rate of 100 l/s for Bouznika, 150 l/s for Ben Slimane, 240 l/s for Youssoufia, and 40 l/s for the southern region of Safi. It will also improve the output of the supply and distribution networks of ONEE (Water Branch), from 95.13% (supply networks) and 73.9% (distribution networks) in 2014 to 95.7% and 76.5% respectively in 2018.

2.8.2 Furthermore, the project will slow down eutrophication at the SMBA dam by increasing oxygen (O2 increase from a negligible amount to a minimum of 4 mg/l and H2S eliminated from the bottom intake structures in 2018), and curbing THM formation at the "Bouregreg” treatment plant by reducing its value to less than 1, in keeping with Moroccan standards.

In the Medium Term

2.8.3 The project will maintain the drinking water access rate at approximately 100% in urban areas (the towns concerned) and increase the rural rate (provinces concerned) from 92 % to 95%. It will maintain the drinking water access rate in urban areas at 100% by providing an additional supply of drinking water that meets the changing needs of the regions. In other words, non-implementation of the project will reduce the drinking water access rate by a few points in the area concerned.

In the Long Term

2.8.4 The main project performance indicator is the drinking water access rate at the national level that will be maintained at 100% in urban areas and raised to almost 100% in rural areas by 2030.

2.8.5 Furthermore, the project will contribute to a significant reduction in the under-five mortality rate (contribution of water-borne diseases) from 30 deaths per 1000 in 2014 to less than 25 deaths per 1000 as from 2020 and reduce health spending as a percentage of household expenditure (contribution of water quality) from 53% in 2014 to less than 50% in 20205.

5 According to the Ministry of Health

10

III Project Feasibility

1.13. Economic and Financial Performance

Table 3.1 Key Economic and Financial Data

IRR 7.5% NPV: MAD 95 million ERR: 15.2% NPV: MAD 217 million Nb: The detailed calculations are found in Annex B7

3.1.1 The project has three additional investment components to: strengthen existing water production facilities in order to supply drinking water to urban and rural communities in four provinces; rehabilitate existing DWS systems and treatment stations; and improve water quality at the Bouregreg facility by introducing aeration and ozonation systems. It will generate many financial, socio-economic and environmental benefits. Furthermore, it will enable ONEE (Water Branch) to strengthen its productive base and its financial indicators and implement its development strategy, with a view to securing drinking water supply, improving the productivity and output of its production and distribution systems and introducing innovative technology to improve service quality in the most developed region of the Kingdom (Rabat- Casablanca highway), given its administrative, political, socio-economic and tourism benefits. The project’s externalities are numerous, namely: the creation of temporary and permanent jobs; continuity of service; optimization of investments and resources; improved output; loss reduction; and reinforcement of the commercial, industrial, tourism and agricultural fabric of the regions concerned.

3.1.2 The project’s financial rate of return is acceptable, making it possible to service the debt and cover recurrent expenditure. Its cumulative financial internal rate of return (FIRR) for all components amounts to 7.5% and the net present value is estimated at MAD 95 million. The profitability of the three project components has been consolidated, taking into account the nature of the additional components, which are geared towards the common goal of improving drinking water supply in terms of quantity, quality and continuity.

3.1.3 The economic rate of return (ERR) stands at 15.2% with a net present value of MAD 216,958 million. This rate is calculated based on the same data used to calculate financial profitability, with a 0.9% adjustment for costs in local currency, rollover of investment costs in foreign currency and adjustment of the economic value of water by a coefficient of 1.1, representing the consumer surplus. Also factored into the calculation were the value of workdays generated during project implementation and the impact of continuing economic activities in the area supplied by the Bouregreg complex through the introduction of new ozonation technology that will eliminate the dependence of ONEE (Water Branch) on a single supplier of chlorine and expose it to the risk of interrupted supply.

3.1.4 Lastly, the project will strengthen the fundamentals of the structure and the financial and economic management parameters of ONEE (Water Branch).

1.14. Environmental and Social Impact

Environmental Impact

3.2.1 The project was classified under category 2 in accordance with the Bank’s integrated safeguards system (ISS) and based on the identified impacts which range from low to average. Summaries of the Environmental and Social Management Plan (ESMP) and the Abbreviated Resettlement Plan (ARP) covering all project components will be published on the Bank’s website 30 days prior to submission of the project to the Board of Directors. The main positive environmental impacts expected from the project are: (i) reduced use of chemical reagents (active carbon and chlorine) thanks to water aeration and the use of ozone, thus reducing the safety and health hazards for persons handling chlorine; (ii) controlled release of 11

reduced compounds (with a decrease in levels of iron, manganese, ammonia, etc.) and reduction of the hydrogen sulphide content in the hypolimnion of the dam; (iii) reduction of eutrophication and improvement of the ecological conditions of the dam; and (iv) better adaptation to the effects of climate change (see section on climate change for details). The major negative environmental and social impacts are: (i) land acquisition (see section on resettlement for details); (ii) risk of liquid waste pollution during works on the various sites; and (iii) risk of ozone release into the air during the operational phase. Provision has been made for appropriate mitigation measures. These are: (i) implementation of the ARP; (ii) the inclusion of environmental clauses in the BDs for each works lot; (iii) the installation of automatic gas leakage detectors and water quality measures. The cost of the ESMP (excluding expropriations) is estimated at MAD 8 million and is included in the cost of works.

Forced Resettlement

3.2.2 A total of 158 plots will be affected by the project mainly in the communities of Ben Slimane, Bouznika, Youssoufia and southern Safi. Most of these plots are farmlands located within the right-of-way of the storage/treatment facilities and some pipes. It will entail land expropriation without movement of people (no house will be affected). A total of 160 people (essentially men) will be affected. An ARP was prepared defining all compensation procedures and measures for affected persons. A consultation and communication plan for stakeholders will underpin implementation of the project in general and of the ARP in particular. For certain components such as the Safi DWS, the compensation for landowners has already been deposited at the CDG (Caisse de dépôt et de management) in accordance with the regulations in force. The cost of the ARP (expropriations) is estimated at MAD 16 million and shall be borne by ONEE. Compensations shall be carried out in accordance with the provisions of §5.2 of this report.

Climate Change

3.2.3 As regards climate, the project is classified in category 2, considering the overall vulnerability of Morocco’s water sector. Since the project does not provide for the construction of water mobilization structures, and considering that adaptation measures have already been taken vis-à-vis existing structures, this risk is low for the project. Nevertheless, the project has included activities that will mitigate climate change and boost climate resilience, in line with Morocco’s climate change policy objectives adopted in March 2014. With regard to adaptation, the main innovation resides in the fact that artificial aeration will make it possible to tap millions of litres of water which would otherwise be unusable due to the seasonal decline in water quality. Indeed, at the end of spring and during periods of severe drought, a significant amount of water becomes almost anoxic and sometimes covers almost the entire hypolimnion for a few months. Artificial aeration helps to solve this problem and ensure steady supply regardless of climate variability. Hence, the improvement of network performance will ensure better optimization and use of the resource. Lastly, as regards mitigation, the improvement of system performance and the efficient operation of the aeration and ozonation systems will yield a net positive energy balance, relative to the no-project situation. The details are presented in Annex B8.

Monitoring of ESMP and ARP Implementation

3.2.4 For the environment component, the Environment Division (DE) of ONEE (Water Branch) will collaborate with the works control bureau and the technical directorates concerned to monitor the implementation of ESMP measures by works companies. The ARP will be monitored by the Directorate for Legal and Lands Affairs (DAJ) in collaboration with the Regional Directorates concerned. The Directorate for Cooperation and Communication (DCC) will be responsible for the implementation and monitoring of the communication component. These institutional stakeholders possess the requisite experience and expertise and have successfully implemented several DWS projects financed by the Bank and other development partners. Lastly, the expert in the monitoring and evaluation of technical assistance will contribute to monitoring and evaluation under the environmental and social component. The project coordination team shall forward the ESMP implementation monitoring reports to the Bank every quarter.

12

Social Aspects

3.2.5 Given the rapid development of city suburbs (or new neighbourhoods in the big cities), regular drinking water supply is not always ensured for the often disadvantaged communities. With the rise in land prices, the spontaneous development of peripheral slums increases pressure on water resources. Hence, the project will seek to strengthen and secure access to drinking water for these vulnerable communities in urban areas or rural areas close to the city. Such secure access to drinking water will have a positive impact on hygiene and especially health, especially contribution to a significant decrease in water-borne diseases and a resulting increase in family savings. It will also help to reduce absenteeism in schools and the workplace.

Job Creation

3.2.6 The project will create new jobs during the works phase (a few hundred) and operational phase, in maintenance activities (dozens). It will also boost economic activities in the regions concerned. In the industrial and tourism sectors, water supply will encourage the establishment of industrial and tourism units, which will in turn boost local job creation in the provinces concerned (especially in Bouznika and Ben Slimane where indirectly created jobs are estimated to be in the hundreds).

Gender Aspects

3.2.7 This project will have a direct impact on women, who represent 51% of the Moroccan population and are the primary users of water for housework, gardening and small-scale stockbreeding, especially in rural areas. In the majority of cases, it is mainly women and children, especially girls, who have to fetch water. This water fetching duty and the shortage of facilities in rural areas often leads girls to drop out of school. The literacy rate is nearly 80% for rural women in Morocco and is among the highest in the North African sub-region. From the health perspective, regular and permanent water supply: (i) obviates the need to store water which is a vector of diseases and thus help to reduce health expenditure which puts enormous strain on family budgets; (ii) contribute to drastically reduce water-borne diseases, thus relieving women of the burden of caring for sick children; (iii) helps to improve maternal and infant health; and (iv) saves time and reduces the drudgery of fetching water for women and girls in rural and semi-urban areas, thus creating time for other pursuits such as literacy and income-generating activities.

3.2.8 Secure drinking water supply and the installation of individual connections (ICs) in homes will help create a change in activity profiles. Hence, division of labour becomes equitable in the household since women no longer have to fetch water, although they still remain in charge of household chores. It also reduces household chores for girls.

3.2.9 From the economic perspective, securing drinking water supply in semi-urban communities will help to create opportunities for undertaking income-generating activities such as market gardening and small-scale stockbreeding. This will help to increase the still low proportion (about 30%) of women engaged in productive activities, and afford them greater financial autonomy thus improving their social status.

3.2.10 The project includes gender-specific measures, especially the targeting of women as actors in ensuring the rational use and saving of the resource, as well as introduction of the "gender module" in the training of professionals who will conduct community awareness campaigns in the project areas. Moreover, the project makes no provision for gender-based discrimination in its activities throughout its implementation. The budget for implementing gender activities is estimated at MAD 4.5 million and is covered by the ONEE counterpart contribution.

13

Sustainable Development Goal (SDG)

3.2.11 The project will significantly contribute to the achievement of Morocco’s SDG goals, especially Goal 6 to "ensure access to water and sanitation for all and ensure the sustainable management of water resources" and Goal 13 to "combat climate change and its impacts". The project will also contribute to the achievement of some of the other SDGs relating to the elimination of poverty, the improvement of health and education and the promotion of sustainable industrialization that encourages innovation. 3.2.12 By paying special attention to the needs of women, girls and vulnerable communities in terms of drinking water access, the project will indirectly contribute to the achievement of other SDGs, such as Goal 5 to "achieve gender equality and empower all women and girls" and Goal 10 to "reduce inequality within and among countries". It will improve the drinking water access rate in disadvantaged localities such as semi-urban and rural areas (Appendix B8).

IV Implementation

1.15. Implementation Arrangements

Institutional Arrangements:

4.1.1 ONEE (Water Branch) is the project’s executing agency. The Technical and Engineering Directorate (DTI), assisted by the Directorate for Asset Management (DPA), the Directorate for Universal Access to Drinking Water (DEP) and the Centre Regional Directorate (DR3), will be responsible for managing all technical aspects of the project, in close collaboration with the Directorate for Supplies and Contracts (DAM) as regards the procurement of goods, works and services; the Directorate for Finance (DFI) as regards the project’s accounting and financial management and general coordination with the Bank; the Directorate for Sanitation and the Environment as regards monitoring measures that mitigate project impact on the environment; the Directorate for Legal and Lands Affairs (DAJ) as regards land expropriation; and the Directorate for Cooperation and Communication (DCC) for implementation of the communication plan.

4.1.2 The DTI will ensure the technical management of the project and shall, to that end, appoint a General Project Coordinator who will be supported by officials designated by the other directorates (DPA, DEP and DR3) and assisted by an engineering consultant for works coordination, monitoring and supervision within the context of technical support to project implementation. An organisational chart was prepared for the Project Coordination Unit that defines the duties of the various units and persons tasked with management of the project and the implementation of its various components (Annex B3). This chart shows that the Project Coordination Unit has adequate key staff for project management in accordance with Presidential Directive PD 02/2015.

Procurement Arrangements

4.1.3 Consultancy services for technical support as well as international competitive bidding (ICB) for the design and construction of the artificial aeration and ozonation systems will be procured in accordance with Bank rules and procedures (May 2008, revised July 2012), using the Bank’s standard bidding documents (SBDs). Meanwhile, works worth less than UA 6 million as well as the supply and installation of goods worth less than UA 500,000 shall be procured in accordance with the provisions of the letter of agreement signed on 31 May 2013 between the Kingdom of Morocco and the Bank on the use of country procedures. Hence, works related to the laying of pipes, civil engineering, electricity power lines, rehabilitation of treatment plants, production and network structures, as well as the supply and installation of equipment (pumping stations, metres, flow metres, searching for leaks) will be procured through national competitive bidding (NCB) using standard BDs jointly prepared to that end by the Bank and the Kingdom of Morocco.

14

4.1.4 ONEE (Water Branch), through the Directorate for Supplies and Contracts (DAM) and the Purchase Services of the Regional Directorates, shall be responsible for the procurement of goods, works and services under the project as detailed in Annex B5. During project preparation the procurement capacity of ONEE (Water Branch) was evaluated. This evaluation revealed that ONEE (Water Branch) has the resources and experience in this area, meaning that the risk is low. The resources, capacities, expertise and experience of ONEE (Water Branch) are detailed in Technical Annex B5.

4.1.5 Pursuant to Presidential Directive PD02/2015 and to ensure the effective commencement of the project after its approval, the Procurement Plan (PP) was developed by ONEE (Water Branch) (Annex B5). Furthermore, the borrower has requested and obtained advance procurement action (APA) from the Bank for the procurement of technical support (Component D) and some goods and works (Components A and C) pursuant to the provisions of Article 1.9 of the Rules and Procedures.

Disbursement Arrangements

4.1.6 AfDB loan resources shall be disbursed in accordance with the applicable provisions of the Bank's disbursement handbook. ONEE (Water Branch) is familiar with the Bank’s disbursement rules. In light of the activities and the large number of contracts involved, disbursements shall be made following the special account and direct payment methods. The reimbursement method may be used if necessary and a single method shall be applied to each contract. A disbursement letter shall be forwarded to ONEE (Water Branch) upon approval of the project by the Bank.

Financial Management

4.1.7 ONEE (Water Branch) shall report to the Bank on the project’s implementation and financial management. Its financial management, as the executing agency, was evaluated in accordance with Bank guidelines, taking into account the assessment of Morocco's fiduciary risk, the financial management system used and the experience acquired by ONEE’s financial directorate (DFI) in the management of similar ongoing projects (Rabat-Casablanca DWS project and the Water Project). This approach led to the conclusion that the initial overall financial management risk is deemed moderate by the Bank. However, ONEE (Water Branch) should continue the regular and efficient use of the existing financial management elements reiterated in the action plan presented in Annex B4.

4.1.8 Financial Management Arrangements: ONEE (Water Branch) shall ensure the financial management of the project through its Directorate for Finance (DFI), which is composed of six (6) divisions, 4 (four) of which are directly or indirectly involved in the project, namely: the legal accounting and taxation division, the financing division, the management accounting division and the cash-flow division. Hence, the financial management of the project will be fully integrated into that of the executing agency which operates through the following formalized mechanisms: (i) budget planning of investment activities carried out by the technical directorates involved; (ii) monitoring of project budget execution by the technical directorates involved and the management control division; (iii) an internal control process which includes a formal expenditure control channel; (iv) the production of quarterly reports with detailed project status statements; (vi) an information system composed of several applications integrated into SAP implemented since 2007 (SAP/FI, SAP CO) and non-accounting statements which jointly generate interim financial statements (statements on commitments and payments per contract) and annual financial statements of the project (TER...); and (vii) external audit of ONEE and the funds granted by the AfDB and ONEE’s counterpart contribution by an independent audit firm. These mechanisms, which are outlined and formalized in ONEE’s procedures manual, guarantee transparency, traceability, asset protection and reliable financial information on the funds invested in project implementation. Nevertheless, project audit reports are not always submitted to the Bank on time. Similarly, the problem of non-accounting statements remains, despite the reliability of financial information.

Furthermore, the budgetary risk and the existing control environment are monitored by the Ministry of the 15

Economy and Finance, the Court of Auditors and the ONEE Board of Directors which brings together the representatives of various ministries. Thus, considering the level of fiduciary risk, the project will receive a single supervision mission per year to review its financial management.

Audit Arrangements

4.1.9 The financial statements of the project prepared by the finance division will be audited each year by an external and independent audit firm, generally recruited for a period of three years. The audit shall be conducted in accordance with IFAC’s International Standards on Auditing (ISA) and the Bank’s terms of reference (ToRs) agreed upon with to ONEE (Water Branch). The audit report of the project, along with Management's letter on internal control, should be forwarded to the Bank not later than 6 (six) months after closure of the fiscal year concerned. Moreover, on account of its statute of establishment, ONEE shall be subject to several financial controls by the State (State comptroller, the Ministry of the Economy and Finance) and possible control by the General Inspectorate of Finance (IGF) and the Court of Auditors.

1.16. Monitoring

The physical implementation of the project is expected to cover a period of 48 months, from 2016 to 2020. This schedule is deemed reasonable, given the nature of the works and the experience gained by ONEE (Water Branch) in the execution of similar works.

4.2.2 ONEE (Water Branch), which is the executing agency, shall have the primary responsibility for monitoring project implementation and shall prepare quarterly project status reports covering all aspects of implementation, in the format recommended by the Bank. These reports shall essentially evaluate project status; expenditure; commitments and disbursements by component, by expenditure category and by financing source; the main issues; and recommended solutions. After the implementation period and during the operational phase, ONEE (Water Branch) has adequate structures to manage and monitor project outcomes. It will establish a database, references and statistics for monitoring and evaluation of the various performance indicators according to its standard formats.

The Bank will monitor project implementation through its supervision missions, progress reports and the financial statements of ONEE (Water Branch). The assistance of the Bank’s Field Office in Morocco (MAFO) will strengthen the management and monitoring of project implementation, especially in the areas of technical management, procurements, disbursements and financial management. At the end of the project, ONEE (Water Branch) will prepare a project completion report that will serve as the basis for a more comprehensive and joint report of ONEE and the Bank, on the performance of the project and of various stakeholders.

4.2.4 This is a project financed in parallel by the Bank, ONEE (Water Branch), IBRD and EBRD. Consultation with other donors on monitoring of the components not financed by the Bank will take place under the coordination of ONEE (Water Branch) teams from the various directorates involved in the project.

4.2.5 The project implementation schedule is presented at the beginning of the report. Project activities are scheduled to be completed in September 2020. The planned project implementation schedule is summed up as follows:

16

Duration Stages Monitoring Activities/Feedback Loop 2015 - 2016 Technical studies Validation of studies by ONEE (Water Branch) 2rd quarter of 2016 Consultation of the IC and Launch of consultations and procurement of goods procurement of certain and works through APA goods and works May 2016 Project approval AfDB Board of Directors 2nd quarter 2016 - 2nd Launch of BDs for goods Preparation by ONEE (Water Branch) and formal quarter 2017 (*) and works approval by the Bank 2016 - 2017 Evaluation of bids Preparation by ONEE (Water Branch) and formal approval by the Bank 2016 - 2017 Award of contracts Preparation by ONEE (Water Branch) and formal approval by the Bank 2017 - 2020 Execution of works Execution by contractors and acceptance by ONEE (Water Branch) 2016 - 2020 Monitoring of works Execution by IC and acceptance by ONEE (Water Branch) December 2020 Completion report Joint preparation by the Bank and ONEE (Water Branch) (*) Some BDs relating to the activities of Component C (outlined in the annual programme) will be launched in 2018 and 2019.

1.17. Governance

4.3.1 ONEE (Water Branch) constantly improves on its management, organisational and monitoring procedures. The current organisation chart establishes the principle of effective decentralization for the benefit of the regions, which enjoy great autonomy in the design, implementation, monitoring and operation of projects. Indeed, the regions carry out several specific functions such as studies, proposal of new projects, development and launching of competitive bidding, partial human resources management, conduct of communication campaigns, preparation of periodic reports and close commercial management, thus ensuring greater transparency in the accomplishment of public service missions.

4.3.2 Governance risks are low, given the increasingly favourable evaluation of the effectiveness and reliability of control, organisational as well as internal and external audit systems set up by ONEE (Water Branch). For the above reason, it has benefitted from support control, rather than ex-ante control exercised by the State; this is a favour routinely extended to entities that have confirmed their performance in internal control, budget execution and effective and optimal resources management. Furthermore, to strengthen the control framework, ONEE (Water Branch) pursues a risk management policy that is based on the mapping of preventive and curative risks, monitored by the various departments and bodies of ONEE.

1.18. Sustainability

4.4.1 The sustainability of these future investments depends essentially on the capacity of ONEE (Water Branch) to manage the project and to monitor, maintain and operate facilities optimally and continuously. ONEE (Water Branch) has executed several projects to the Bank’s satisfaction. Its performance has been proven and strengthened over the years thanks to an enabling environment and a sufficient number of competent technical staff at the central and regional levels. The various components of the project disburse sufficient financial resources to cover recurrent expenditure, repair and maintenance of the various structures constructed. ONEE (Water Branch) is characterized by a constantly balanced financial situation and guaranteed autonomy as described in the retrospective analysis and financial projections (Annex B7).

17

4.4.2 Moreover, the reforms made in the DWS sector such as the merger with the Electricity Branch and the establishment of a common programme-contract with the State augurs well for the steady and balanced development of the sector. A Monitoring and Evaluation Committee chaired by MEF and made up of representatives of signatory Ministries will monitor the commitments of the programme contract. In addition, an independent firm will establish and present the six-monthly reports to the said Committee.

4.4.3 The project's sustainability is also ensured through reforms and programmes initiated by the Government of Morocco mainly through the Water Sector Adjustment Programme (SAP-EAU) co- financed by the Bank, the World Bank and the European Union; the National Irrigation Water Saving Programme (PNEEI) and the National Sanitation Programme (PNA). These reforms, which have already been implemented for the most part, will lead to integrated water resource management, erosion control in catchment areas, rehabilitation of the DWS distribution and irrigation networks to reduce losses, the promotion of new irrigation techniques to save water, the development of adequate sanitation services, reduction of the pollution rate.

Billing System

4.4.4 Ultimately, project sustainability is based on a water billing system that seeks to reconcile the interests of consumers and various stakeholders so as to ensure continuity of service. The rates are based on a national equalization system to ensure social equity. Progressive pricing makes things easier for low- income communities and encourages large consumers to use drinking water economically.

4.4.5 The billing of drinking water and sanitation recently underwent a major development through the law published in Official Gazette No. 6275 of 22 July 2014, which became effective on 21 August 2014. The pricing structure, presented in Annex B7, is determined based on the distinction between production and distribution and a differentiation between towns, excluding the cities managed by ONEE (Water Branch) which are subject to a national billing system focused on usage categories (domestic, industrial, tourism). Changes made in the pricing structure relate to restructuring of the consumption bands (moving from 4 to 5 bands) and consideration of the social character of the first band. In addition to the pricing structure, two types of surtaxes have been incorporated in order to contribute to equity between users in large cities and those in smaller localities and rural areas (to finance the supplementary operational costs in smaller towns and part of the investments in rural DWS). All these measures have increased the affordability of water for the poorest segments of Morocco’s population.

1.19. Risk Management

4.5.1 The potential project risks concern: (i) the non-preservation and sustained suspension of water supply, as well as the absence of integrated and optimal water resource management; (ii) the time limit for acquiring the project lands; (iii) the time limit for procuring goods, works and services; and (iv) the limited experience of ONEE (Water Branch) in the field of artificial aeration and ozonation (specific risk under Component B).

4.5.2 The preservation and sustainable availability of water resources as well as integrated and optimal water resource management are some of the main goals of the SAP-EAU measures jointly funded by the Bank, the European Union and the World Bank. These measures establish the quality standards for surface water and the water used for DWS. These standards set the threshold values for water discharged into the sanitation systems and into the natural environment as well as the values for liquid effluents from various industrial and artisanal sectors. Furthermore, implementation of the action plans of the national water strategy and the programme-contract (2014-2017) between ONEE and the State help to ensure the integrated management of water resources.

4.5.3 The sometimes significant delays in procuring the land needed to lay the pipes and build the facilities, could constitute a risk to the timely implementation of the project. However, preliminary studies and the environmental impact study have shown that the lands to be acquired are: (i) State property (public works, municipalities...); or (ii) of low value (agricultural land located far from settlement areas). The

18

piping pathways and sites for the various facilities are deliberately located far from all existing settlement areas such that no constructed property will be affected. Furthermore, taking account of the lessons learnt from projects currently being implemented with ONEE (Water Branch), it was agreed that only operations whose parcelling plans have been finalized, whose land has been identified for expropriation and whose expropriation procedure has been launched, would be retained.

4.5.4 The sometimes significant delays in procuring goods, works and services, could constitute a risk to the timely execution of the project. However, based on the lessons learnt from ongoing projects, this risk will be mitigated by ensuring that the various stages of the procurement process and documents to be used (standard BDs...) are accurately defined in the project appraisal report and the Procurement Plan (PP).

4.5.5 The limited experience of ONEE (Water Branch) in the field of artificial aeration and ozonation will be offset by strengthening the technical support team with artificial aeration and ozonation experts.

1.20. Knowledge Development

4.6.1 The introduction of innovative techniques such as ozonation, improvement of the output of various networks and the selection of more economical variants reflect the effort of ONEE (Water Branch) to build on its research and development achievements and develop its skills in project design and implementation.

4.6.2 Knowledge development is strengthened by the involvement of several departments at the central and regional levels in the project design process, the selection of technical alternatives and the optimization and rational operation of investments. The policy practised by ONEE (Water Branch) of outsourcing certain tasks creates opportunities for young entrepreneurs to be trained, to acquire knowledge and to put it into practice through the creation of their own businesses, thereby strengthening the emergence of small private economic structures in the interest of regional development, while enabling ONEE (Water Branch) to save on repair and maintenance costs.

4.6.3 ONEE (Water Branch) has a website that facilitates the sharing of experiences inside and outside the country and a training centre that plays a role in disseminating knowledge and research, as recognized by WHO. ONEE (Water Branch) is a reference in Africa's DWSS sector through its close links with universities, research centres and counterpart entities (water operators and others). ONEE (Water Branch) provides training an assistance operates in 15 African countries. Through collaboration and monitoring of this project, the various units of the Bank will not fail to share expertise and lessons on ozonation technology and to factor them into future operations in other African countries.

4.6.4 Technical support will contribute to the transfer of know-how and knowledge in the area of project monitoring and implementation. It will be underpinned by specific expertise in the fields of the environment, monitoring and evaluation and new technologies. Periodic project reports will be published on the website of ONEE (Water Branch).

V Legal Framework

1.21. Legal Instrument

An AfDB loan agreement will be signed between the Bank and ONEE, complete with a guarantee from the Kingdom of Morocco.

1.22. Conditions Associated with the Bank’s Intervention

The AfDB loan is granted subject to the following conditions:

19

Conditions Precedent to Grant Effectiveness

The AfDB Loan Agreement will become effective on the date of its signature by the Borrower and the Bank. The effectiveness of the guarantee agreement is subject to the fulfilment by the Guarantor, to the satisfaction of the Bank, of the conditions under Section 12.01 of the General Conditions Applicable to Bank Loan and Guarantee Agreements (sovereign entities).

Conditions Precedent to First Disbursement

In addition to the effectiveness of the AfDB loan agreement and guarantee agreement, the first disbursement of AfDB loan resources is subject to fulfilment by the Borrower, to the satisfaction of the Bank, of the following conditions:

(i) Fulfil the conditions under Section 12.02 paragraph (a) sub-paragraphs (i) and (ii) of the General Conditions

(ii) Provide the Bank with proof of the appointment of the Project Coordinator whose experience and professional qualifications have been deemed acceptable beforehand by the Bank; and

(iii) Provide to the Bank proof of the opening of a Special Account in a bank acceptable to the AfDB to receive AfDB loan resources.

Other Conditions

The Borrower shall, to the satisfaction of the Bank:

(i) Provide: as the works progress, and, in any event, before any works begin in an area concerned: (a) evidence of compensation for project affected persons in this area, in accordance with the Abbreviated Resettlement Plan (ARP), the Environmental and Social Management Plan (ESMP) and the Bank’s relevant rules and procedures, in particular, its Involuntary Resettlement Policy, its Integrated Safeguards System; and/or if, for reasons beyond the Borrower’s control, compensation is not possible, either in whole or in part (b) evidence of deposit of such compensation funds in a dedicated account at the Caisse de Dépôts et de Gestion or any other authorized financial institution acceptable to the Bank;

(ii) Forward to the Bank, at the end of each quarter, a quarterly environmental and social monitoring report, resulting from implementation of the ESMP and ARP including as appropriate, the inadequacies and corrective actions taken or to be taken. This report could be part of the quarterly project implementation report.

Commitments

The Borrower undertakes, to the satisfaction of the Bank, to:

(i) Implement the project, the ARP and the ESMP and have them implemented by its contractors in accordance with: (a) the Bank's rules and procedures; (b) national legislation; and (c) the recommendations, requirements and procedures contained in the ESMP and ARP;

(ii) Not start any works in an area concerned without the project affected persons in this area having been fully compensated; and/or without the money allocated to such compensation having been deposited in a dedicated account with the Caisse de Dépôts et de Gestion or any other authorized financial institution acceptable to the Bank;

(iii) Provide to the Bank any documents reasonably needed for monitoring implementation of the project.

20

1.23. Compliance with Bank Policies

The project complies with all applicable policies, in particular Bank policies, guidelines and procedures on environmental and social management. It is a category 2 project. The ESMP summary was prepared and published on the Bank’s website and the cost of implementing the mitigation measures has been incorporated into the project costs.

VI Recommendation

It is recommended that an ADB loan, not exceeding a total amount of EUR 88.85 million, be awarded to ONEE complete with the guarantee by the Kingdom of Morocco to finance the Drinking Water Quality and Service Improvement Project, in accordance with the terms and conditions set forth in this report.

21

Annex I Development Indicators of Morocco

Develo- Develo- Year Morocco Africa ping ped Countries Countries Basic Indicators GNI Per Capita US $ Area ( '000 Km²) 2014 - 30 067 80 386 53 939 Total Population (millions) 2014 33,5 1 136,9 6,0 1,3 3500 Urban Population (% of Total) 2014 58,1 39,9 47,6 78,7 3000 Population Density (per Km²) 2014 75,0 37,8 73,3 24,3 2500 2000 GNI per Capita (US $) 2013 3 020 2 310 4 168 39 812 1500 Labor Force Participation - Total (%) 2014 50,7 66,1 67,7 72,3 1000 Labor Force Participation - Female (%) 2014 27,0 42,8 52,9 65,1 500

Gender -Related Dev elopment Index Value 0

2008 2011 2005 2007 2009 2010 2012 2013 2007-2013 0,828 0,801 0,506 0,792 2000 Human Dev elop. Index (Rank among 187 countries) 2013 129 ...... Popul. Liv ing Below $ 1.25 a Day (% of Population)2008-2013 2,6 39,6 17,0 ... Morocco Africa Demographic Indicators Population Grow th Rate - Total (%) 2014 1,5 2,5 1,3 0,4 Population Grow th Rate - Urban (%) 2014 2,1 3,4 2,5 0,7 Population < 15 y ears (%) 2014 27,9 40,8 28,2 17,0 Population Growth Rate (%) Population >= 65 y ears (%) 2014 5,0 3,5 6,3 16,3 3,0 Dependency Ratio (%) 2014 48,3 62,4 54,3 50,4 Sex Ratio (per 100 female) 2014 97,8 100,4 107,7 105,4 2,5 Female Population 15-49 y ears (% of total population) 2014 27,6 24,0 26,0 23,0 2,0 Life Ex pectancy at Birth - Total (y ears) 2014 71,2 59,6 69,2 79,3 1,5 Life Ex pectancy at Birth - Female (y ears) 2014 73,0 60,7 71,2 82,3 1,0 Crude Birth Rate (per 1,000) 2014 22,5 34,4 20,9 11,4 0,5 Crude Death Rate (per 1,000) 2014 6,3 10,2 7,7 9,2

0,0

2000 2009 2012 2008 2010 2011 2013 2014 Infant Mortality Rate (per 1,000) 2013 26,1 56,7 36,8 5,1 2005 Child Mortality Rate (per 1,000) 2013 30,4 84,0 50,2 6,1 Total Fertility Rate (per w oman) 2014 2,7 4,6 2,6 1,7 Morocco Africa Maternal Mortality Rate (per 100,000) 2013 120,0 411,5 230,0 17,0 Women Using Contraception (%) 2014 68,1 34,9 62,0 ...

Health & Nutrition Indicators Phy sicians (per 100,000 people) 2004-2012 62,0 46,9 118,1 308,0 Life Expectancy at Birth Nurses (per 100,000 people)* 2004-2012 89,0 133,4 202,9 857,4 (years) Births attended by Trained Health Personnel (%) 2009-2012 73,6 50,6 67,7 ... 80 Access to Safe Water (% of Population) 2012 83,6 67,2 87,2 99,2 70 60 Healthy life ex pectancy at birth (y ears) 2012 61,0 51,3 57 69 50 Access to Sanitation (% of Population) 40 2012 75,4 38,8 56,9 96,2 30 Percent. of Adults (aged 15-49) Liv ing w ith HIV/AIDS 2013 0,2 3,7 1,2 ... 20 Incidence of Tuberculosis (per 100,000) 10

2013 104,0 246,0 149,0 22,0 0

2000 2010 2014 2008 2009 2011 2012 2013 Child Immunization Against Tuberculosis (%) 2013 99,0 84,3 90,0 ... 2005 Child Immunization Against Measles (%) 2013 99,0 76,0 82,7 93,9

Underw eight Children (% of children under 5 y ears) 2005-2013 3,1 20,9 17,0 0,9 Morocco Africa Daily Calorie Supply per Capita 2011 3 334 2 618 2 335 3 503 Public Ex penditure on Health (as % of GDP) 2013 2,0 2,7 3,1 7,3

Education Indicators Gross Enrolment Ratio (%) Primary School - Total 2011-2014 117,5 106,3 109,4 101,3 Primary School - Female 2011-2014 114,5 102,6 107,6 101,1 Infant Mortality Rate Secondary School - Total 2011-2014 68,9 54,3 69,0 100,2 ( Per 1000 ) Secondary School - Female 2011-2014 63,4 51,4 67,7 99,9 100 90 Primary School Female Teaching Staff (% of Total) 2012-2014 55,1 45,1 58,1 81,6 80 Adult literacy Rate - Total (%) 2006-2012 67,1 61,9 80,4 99,2 70 60 Adult literacy Rate - Male (%) 2006-2012 76,1 70,2 85,9 99,3 50 Adult literacy Rate - Female (%) 2006-2012 57,6 53,5 75,2 99,0 40 30 Percentage of GDP Spent on Education 2009-2012 6,2 5,3 4,3 5,5 20 10

0

2000 2010 2013 2008 2009 2011 2012 Environmental Indicators 2005 Land Use (Arable Land as % of Total Land Area) 2012 18,0 8,8 11,8 9,2 Agricultural Land (as % of land area) 2012 0,7 43,4 43,4 28,9 Forest (As % of Land Area) 2012 11,5 22,1 28,3 34,9 Morocco Africa Per Capita CO2 Emissions (metric tons) 2012 1,2 1,1 3,0 11,6

Sources : AfDB Statistics Department Databases; World Bank: World Development Indicators; last update : avril 2016 UNAIDS; UNSD; WHO, UNICEF, UNDP; Country Reports. Note : n.a. : Not Applicable ; … : Data Not Available.

I

Annex II Table of the AfDB's Active Portfolio in Morocco (End-February 2016)

II

Annex III Major Related Projects Financed by the Bank and Other Development Partners of Morocco 1. The list of the main projects funded by the Bank and other development partners in the DWSS sector is presented in Appendix-A.

2. The table presenting the various operations of major donors in Morocco’s DWSS sector as of December 2015, is presented below (in EUR million).

Major water sector AfDB World JICA KFW AFD EU IsDB EIB Belgian GIZ Swiss Total donors Bank Cooperation Cooperation

Total (in EUR million) 589.33 530.95 481.00 422.62 384.50 270.15 270.12 70.00 45.60 21.78 4.30 3,090.35 % 19.07 17.18 15.56 13.68 12.44 8.74 8.74 2.27 1.48 0.70 0.14 100.00

Intervention des principaux Bailleurs de Fonds & des Partenaires Techniques au développement dans le secteur de l'eau au Maroc à fin décembre 2015 (millions d’EUR). 700,00

600,00

500,00

400,00

300,00

200,00

100,00

0,00 BAD Banque JICA KFW AFD UE BID BEI Coopération GIZ Coopération Mondiale Belge Suisse

III