Afdb Portfolio in Egypt (September 2017)

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AFRICAN DEVELOPMENT BANK

Public Disclosure Authorized Authorized Public Disclosure

EGYPT

SUSTAINABLE DEVELOPMENT OF ABU RAWASH WASTEWATER TREATMENT PLANT (ABU-RAWASH-WWTP)

APPRAISAL REPORT

Authorized

Authoriezd Public Disclosure Authorized Public Disclosure

RDGN/AHWS November 2017

TABLE OF CONTENTS

I – STRATEGIC THRUST & RATIONALE ...... 1 1.1 Project linkages with country strategy and objectives ...... 1 1.2. Rationale for Bank’s involvement ...... 1 1.3. Donor coordination ...... 2

II – PROJECT DESCRIPTION ...... 3 2.1. Project components ...... 3 2.2. Technical solution retained and other alternatives explored ...... 3 2.3. Project type ...... 4 2.4. Project cost and financing arrangements ...... 4 2.5. Project’s target area and population ...... 5 2.8. Key performance indicators ...... 7

III – PROJECT FEASIBILITY ...... 7 3.1. Economic and financial performance ...... 7 3.2. Environmental and Social impacts ...... 8

IV – IMPLEMENTATION ...... 10 4.1. Implementation arrangements ...... 10 4.2. Monitoring ...... 13 4.3. Governance ...... 14 4.4. Sustainability...... 14 4.5. Risk management ...... 15 4.6. Knowledge building ...... 15

V – LEGAL INSTRUMENTS AND AUTHORITY...... 16 5.1. Legal instrument ...... 16 5.2. Conditions associated with Bank’s intervention ...... 16 5.3. Compliance with Bank Policies ...... 16

VI – RECOMMENDATION ...... 16

Appendix I. Egypt’s Socio-Economic Indicators ...... I Appendix II: AfDB Portfolio in Egypt (September 2017) ...... II Appendix III: Key related projects financed by other development partners in the country ... IV Appendix IV. Map of the Project Area ...... V

Currency Equivalents As of October 2017

1 UA = 1.4133 USD 1 UA = 24.9531 EGP 1 USD = 17.65591 EGP

Fiscal Year 1 July – 30 June

Weights and Measures

1metric tonne = 2204 pounds (lbs) 1 kilogramme (kg) = 2.200 lbs 1 metre (m) = 3.28 feet (ft) 1 millimetre (mm) = 0.03937 inch (“) 1 kilometre (km) = 0.62 mile 1 hectare (ha) = 2.471 acres 1 feddan = 0.42 hectares

Acronyms and Abbreviations

ACCF Africa Climate Change Fund ADB African Development Bank AFD French Development Agency CAPW Construction Authority for Potable Water and Wastewater CPIA Country Policy and Institutional Assessment CSP Country Strategy Paper CSS Climate Safeguard System COEG Country Office Egypt DPG Development Partners Group EA Executing Agency EIB European Investment Bank EPC Engineering, Procurement, and Construction ESIA Environmental and Social Impact Assessment EU European Union CFRA Country Fiduciary Risk Assessment GCF Green Climate Fund GCWW Giza Company for Water and Wastewater GIZ German Agency for International Cooperation GoE Government of Egypt HCWW Holding Company for Water and Wastewater FM Financial Management IsDB Islamic Development Bank KfW (German Bank for International Development Financing) KFAED Kuwait Fund for Arab Economic Development M&E Monitoring and Evaluation MHUUC Ministry of Housing, Utilities, and Urban Communities MoIIC Ministry of Investment and International Cooperation MIC TAF Middle Income Countries Technical Assistance Fund MWRI Ministry of Water Resources and Irrigation NCB National Competitive Bidding NWRP National Water Resources Plan O&M Operation & Maintenance PCN Project Concept Note PCR Project Completion Report PIT Project Implementation Team PRCA Procurement Risks and Capacity Assessment PPP Public Private Partnership PSC Project Steering Committee UA Units of Account USD United States Dollar WSS Water, Wastewater and Sanitation WB The World Bank WWTP Wastewater Treatment Plant VFM Value for Money

Loan Information

Client’s information

BORROWER : The Arab Republic of Egypt

EXECUTING AGENCY : Construction Authority for Potable Water and Wastewater (CAPW) Financing plan

Source Amount (USD) Instrument ADB 100.00 million Loan AGTF 50.00 million Loan Government* 237.44 million Counterpart TOTAL COST 387.44 million *Government of Egypt contribution is in EGP.

ADB and AGTF key financing information Loan Currency United States Dollar (USD) Loan Type Fully Flexible Loan

Tenor TBD (Up to 25 years inclusive of Grace Period)

Grace period TBD (Up to 8 years)

Average Loan Maturity* TBD (function of the amortization profile)

Repayments Consecutive quarterly payments after grace period Interest Rate Base Rate +Funding Cost Margin+ Lending Margin + Maturity Premium This Interest Rate will be floored to zero Base Rate Floating Base Rate ( 6 Month LIBOR) A free option to fix the Base Rate is available Funding Cost Margin The Bank funding cost margin as determined each 1st January and 1st July and applied to the Base Rate each 1st February, 1st May, 1st august and 1st November Lending Margin 80 basis points (0.8%)

Maturity Premium - 0% if Average Loan Maturity <= 12.75 years - 0,10% if 12.75< Average Loan Maturity <=15 - 0,20% if Average Loan Maturity >15 years Front-end fees 0.25% of the loan amount payable at latest at signature of the loan agreement

Commitment fees 0.25% of the undisbursed amount. Commitment fees start accruing 60 days after signature of the loan agreement and are payable on Payment dates Option to convert the Base Rate** In addition to the free option to fix the floating Base Rate, the borrower may reconvert the fix rate to floating or re-fix it on part or full-disbursed amount. Transaction fees are payable Option to cap or collar the Base The borrower may cap or set both cap and floor on the Base Rate to be applied on part or full Rate** disbursed amount Transaction fees are payable Option to convert loan The borrower may convert the loan currency for both undisbursed or disbursed amounts in full currency**(Only for ADB loan) or part to another approved lending currency of the Bank Transaction fees are payable EIRR, NPV (base case) 29.9%, EGP 19,336 million at 10%

Timeframe - Main Milestones (expected) Concept Note approval October, 2017 Project approval December, 2017 Effectiveness March, 2018 Completion December, 2021 Closing Date December, 2022

Project Summary

Project Overview: The Sustainable Development of Abu Rawash Wastewater Treatment Plant (ARWWTP) aims to protect the environment and water resources from pollution and to reduce health risks due to discharge of untreated wastewater to the drains and canals and enhance water re-use. The project is aligned to Egypt’s Sustainable Development Strategy: 2030 Vision, its current five-year Macroeconomic Framework and Strategy (MFS FY14/15-FY18/19), and the Cabinet’s comprehensive reform program. It is also in line with the Bank’s High Fives Agenda and the Bank’s Ten Year Strategy through development of critical infrastructure and contribution to green growth, focusing mainly on improving quality of life of people and Feed Africa. The project cost is estimated at USD 387.4 million to be financed by ADB (USD100 million), AGTF (USD50 million), and the Government of Egypt (USD237.4 million). It will be implemented in four years.

The main outcomes of the project are a) upgrade or improve the quality of existing primary treatment system of 1.2 million m3 per day to include secondary treatment, and b) increase or expand the treatment plant’s capacity from 1.2 million m3 to 1.6 million m3 per day of both primary and secondary treatment. The treated wastewater can be used in agriculture activities and therefore will contribute to the improvement of livelihoods and income generating for the surrounding communities with a significant positive impact on health. The project will benefit more than 8 million people (men, women and children) in the broader project service area covering eastern side of the River Nile, Cairo-Alexandria Desert Road, mainly in the Giza Governorate in the West Bank of the River Nile. Sharqia, El-Behira, Kafr El-Sheikh and Monofia Governorates. This will result in increased incomes and food security in these communities with increased economic off-farm activity as well. Furthermore, the project will create more than 1,200 job opportunities during implementation and operation. In addition, more than 4000 indirect jobs are also expected to be created in various areas, including SMEs in tourism, agriculture, and fisheries for unskilled, semi-skilled, and skilled persons.

Needs Assessment: The Abu Rawash WWTP was designed from the onset to be developed in phases in response to the growth of the catchment population and resulting demand for services. The first stage, designed as a primary treatment system, had a capacity of 400,000m3/day and it was expanded to its current capacity of 1.2 million m3/day. However the current inflow into the plant exceeded the capacity by more than .4 million m3/day and the current project was supposed to be in operation as of 2015. With the increasing inflow, the quality of the effluent also deteriorated. With increasing population and demand for food, many in the downstream areas reverted to the use of the effluent for agriculture albeit the risks to the public health and in contravention to the Egyptian laws. The project aims to bring down the effluent quality to acceptable limit for reuse in agriculture and hence its design includes secondary treatment system.

Bank’s Added Value: The Bank’s intervention in this project will add significant value to the investment made by the Government of Egypt for this important Wastewater Treatment Plant. This project is critical to the country considering the extent of water scarcity problems, enhancing water quality, and treated wastewater reuse. The inclusion of the feasibility study for waste to energy as part of the project will enable the Bank to provide technical assistance to Egypt to find an appropriate financing mechanism including climate finance to enhance the greening of the AWWTP. In addition, the Bank’s holistic approach, combining investment with capacity building, is its distinct characteristic of focusing on development and sustainability. The Bank’s intervention will contribute the much needed financial resources by GOE, as it strives to improve environmental sustainability and quality of life in line with its Sustainable Development Strategy: Vision 2030.

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Knowledge Management: The knowledge gained through the implementation of several projects and studies in the sector in Egypt has been duly applied in designing this project. In the same pattern, the knowledge that will be generated by this Project will be instrumental in designing and managing subsequent phases of the Wastewater Treatment Projects generally, and the proposed Green Sludge Facility Phase of Abu-Rawash to generate electricity from Bio- Gas. The lessons from the design, construction and management of projects of such magnitude will be useful to many other countries in the region. The lessons learnt and experience gained will be documented for dissemination in workshops, discussions and seminars. Even during construction, the Bank will encourage groups from regional countries to visit the plant for learning purposes and knowledge dissemination.

RESULTS-BASED LOGICAL FRAMEWORK Country and Project Name: Egypt – Sustainable Development of Abu Rawash Wastewater Treatment Plant Purpose of the project: To improve environmental sustainability and quality of life of people and to improve quality of water resources in agriculture through re-use of treated wastewater. PERFORMANCE INDICATORS MEANS OF RISKS/MITIGATION RESULTS CHAIN Indicator Baseline Target VERIFICATION MEASURES (including CSI) Improved public GDP health Expenditure > .7% Less than MoF/National statistics 1) Risk: Implementation health and on water and sanitation (2016) 0.1% delays:

poverty related diseases (2025) Mitigation: Use of advance alleviation due 33/1000 10/1000 contracting to facilitate timely to improved Under 5 infant mortality (2016) (2037) start-up of construction. The sanitation and Rate project will be executed environmental through a PIT with strong

IMPACT protection Reduce incidences of 17000cases <3000/1000 management for coordination. waterborne diseases /100,000 in 00 by 2037 In addition, an international 2016 engineering firm will be Improve Secondary Treatment 0million 1.2 million CAPW/HCWW recruited to support the PIT in treatment from Capacity (mc/d) (2017) (2021) Annual Reports supervision of project primary to operational at existing plant (only Secondary implementation and secondary Primary treatment management. CAPW already treatment treatment have experience in implementing previous projects Increased plant Plant Treatment Capacity 1.2 1.6 million (Gabal Al Asfar WWTP) using Treatment increased by 400,000 million (2021) the same institutional capacity m3/day (2017) arrangements. Quality of Suspended Solids (SS) and > 178 mg/l 20 mg/l and Plant Operation Report wastewater Biological Oxygen and 250 20mg/l Environmental Agency 2) Risk: Lack of capacity to mg/l in respectively effluent released Demand (BOD5) reduced Report maintain and sustain the system from the WWTP 2016 by 2021 Mitigation: Adopt standard meets national WWTP system similar to the OUTCOMES standard1 other wastewater treatment Safe reuse of Proportion of un-treated 100% < 20% plants managed by the EA, and treated wastewater used in (2017) (2021) by including at least 3-year wastewater agriculture in the operational period during surrounding areas (%) which the contractor will operate the plant and provide Job creation Number of jobs directly 0 1200 Project progress and on-the-job training to the created through the project (2017) (2021) completion reports relevant staff. (at least 27% for women) Upgrading of Upgraded and Expanded 0 1 Annual report 3) Risk: Continued low tariffs primary WWTP WWTP (2017) (2021) unable to cover O&M costs. facilities to Mitigation: Introduction of secondary TP cost reflective tariff system Preparatory Feasibility study and tender 0 1 Documents validated by which also allow for social activities for documents prepared for (2017) (2020) EA tariffs, supported by sludge sludge management with sensitization campaigns will management energy production mitigate such a risk. 4) Risk: availability and timely Provision of Annual Report Number of on the job release of counterpart funding.

OUTPUTS institutional and 0 8 training programs on E&S Mitigation: Close follow up technical & social inclusion with the borrower will be made support No. of heath & hygiene during implementation to 0 (8, >50% QPR and Annual report promotion campaigns ensure timely allocation and of women) availability of local counterpart funding. Components: Source Amount (Mil USD) a) Wastewater Treatment Plant Upgrading and Expansion GoE 237.44

ADB Loan 100.00

S b) Environment, Social, Climate Change and Institutional AGTF Loan 50.00 KEY KEY Support Total 387.44 c) Project Management and Engineering Services

ACTIVITIE

1 There are five quality indicators which the plant shall meet following upgrading: Biological Oxygen Demand (BOD5) < 20mg/l; Total Suspended Solids (TSS) < 20 mg/l; Chemical Oxygen Demand < 80mg/l; Fat, Oil, Grease (FOG) < 5mg/l; Faecal Coliforms <1000 No./100ml

Project Time Frame

Egypt: SUSTAINABLE DEVELOPMENT OF ABU RAWASH WASTEWATER TREATMENT PLANT (ABU-RAWASH-WWTP) 2017 2018 2019 2020 2021 2022 2023 Activity 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 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 Project Preparation Project Appraisal Board Approval Signing Effectiveness Launching First Disbursement

Consultancy Services (Supervision) Bid Opening F& T Evaluation Contract Award Supervision Services

Project Implementation Contract Award Design Civil Works Electro-mechanical Works Commissioning Period

Operation and Maintenance O & M

Institutional Capacity Building and Studies Training and Capacity Building Awareness, Sensitization & Promotion Waste to Energy FS

Supervision Monitoring and Evaluation Quarter Progress Reports (QPR) Q Q Q Q Q Q Q Q Q Q Q Field Supervision Mission F F F F F F Mid-Term Review M Financial Audit (Submission) A A A A

Project Completion PCR C

Advance Contracting Project Completion Project Closure

REPORT AND RECOMMENDATION OF THE MANAGEMENT OF THE AFDB GROUP TO THE BOARD OF DIRECTORS ON A PROPOSED LOAN TO THE GOVERNMENT OF THE ARAB REPUBLIC OF EGYPT FOR ABU-RAWASH WASTEWATER TREATMENT PLANT

Management submits the following Report and Recommendation on a proposed ADB loan of USD 100 million and AGTF loan of USD 50 million to finance the Sustainable Development of Abu-Rawash Wastewater Treatment Plant in Egypt.

I. STRATEGIC THRUST & RATIONALE

1.1 Project linkages with country strategy and objectives

1.1.1 The Bank’s current Country Strategy Paper (CSP) 2015-2019 for Egypt is anchored on two pillars. Pillar I: Infrastructure in support of Stabilization and Economic Recovery; and Pillar II: Governance in support of Inclusive Growth to Reduce Poverty. The proposed operation is in alignment with Pillar No. 1 to foster sustainable and inclusive growth, and improve the business environment. The project aims to improve environmental sustainability and quality of life of people and increase available water resources from the re-use of treated wastewater in agriculture. The project objective is aligned with the Bank’s High Fives Agenda and the Bank’s Ten Year Strategy through development of critical infrastructure and contribution to green growth, focusing on improving quality of life of people and Feed Africa. It fits well with the Bank’s IWRM policy as it aims to enhance the availability of good quality water for environmental sustainability and productive purposes. The operation is also aligned with the Bank Group’s Private Sector Development policy, particularly in promoting local entrepreneurship.

1.1.2 Egypt’s development strategy is built around the “Sustainable Development Strategy: 2030 Vision”, the five-year Macroeconomic Framework and Strategy (MFS FY14/15- FY18/19), and the Cabinet’s comprehensive reform program. The strategy is designed to address four key challenges: (i) a large population with growing basic needs and high social, spatial and economic expectations; (ii) a difficult macroeconomic situation that has constrained fiscal space; (iii) insufficient and inefficient infrastructure; and (iv) a weak business environment that undermines competiveness, growth, and job creation. The proposed operation responds directly to the first and third key challenges and it is identified as one of the top priority projects in the strategy. In terms of the sector strategy, the project is well aligned with the National Water Resources Plan through its emphasis and contribution to the safeguarding of Egypt’s water resources and preservation of the environment and the ecosystem while advancing socio-economic benefits.

1.2 Rationale for Bank’s involvement

1.2.1 Egypt’s future challenge will revolve around the declining water per capita availability due to population growth, limited or dwindling water resources, demand increases, food gap, pollution and climate change. Protecting and enhancing the quality of water in the River Nile, canals and drainage systems is one of the several interventions to address the challenge. These water bodies (mainly agriculture drainage) receive heavy loads of municipal waste (treated and untreated) polluting the water quality and endangering public health. In order to address these issues, the National Water Resources Plan (NWRP) identified measures for improvement of water quality in the water bodies that includes increasing and enhancing the municipal wastewater treatment plants. Among these plants, the upgrading and expansion of the Abu Rawash Wastewater Treatment Plant has been considered among the highest priority by the GOE as clearly indicated in Egypt’s MFS.

1.2.2 Since 2009, the Bank has been involved in Egypt’s water sector mainly through the financing of the Gabal Al Asfar Waste Water Treatment Plan Phase 2 project with a similar objective as the proposed intervention at Abu Rawash. The Bank also supported the Helwan Waste Water Treatment Plant PPP Transaction Advisory study to enable the GoE to make informed judgment and decisions regarding the implementation approach and financing strategy. In view of the Bank’s recent activities in similar initiatives in the country, the GOE submitted its financing request to the Bank demonstrating GOE’s confidence in the ability of the Bank to provide technical support and financial resources to fund the proposed project. The Bank’s intervention will contribute to much needed resources by GOE, as it strives to improve environmental sustainability and quality of life in line with its Sustainable Development Strategy: Vision 2030.

1.3. Donor coordination

1.3.1 Several development partners (bilateral and multi-lateral DPs) are supporting the water sector in Egypt. Key sector supporters, in addition to the Bank, are the World Bank (WB), EU, KfW, AFD, EBRD, EIB, USAID, GIZ, and the Government of Netherlands. The DPs support includes investment operations, institutional and sector reforms, and technical assistance to enhance capacity building. The Bank is very active and collaborates with all DPs through the Development Partners Sub-Group on Water (sharing information, participation at water events, periodic meetings, etc.). The main development partners active in the sector are shown in the matrix below.

Size Sector or subsector* GDP Exports Labor Force [Water and Sanitation] [1.2%] n.a [1.0%]

Players - Public Annual Expenditure (average 2007-2012)**

Government Donors [EU] [5%]

[UA 540 m] [UA 210 m] [World Bank] [30%] [61%] [39%] [EBRD] [20%] [EIB] [24%] [AfDB] [3%] Level of Donor Coordination Existence of Thematic Working Groups [Y] Existence of SWAPs or Integrated Sector Approaches [N] ADB's Involvement in donors coordination*** [M]****

**** L: leader, M: member but not leader, none: no involvement

II. PROJECT DESCRIPTION

2.1. Project components

2.1.1 The project’s development objective is to protect the environment and water resource from pollution and to reduce health risks due to discharge of untreated wastewater to the drains and canals, and enhance water re-use. The main outcomes of the project are: a) upgrade or improve the quality of existing primary treatment system of 1.2 million m3 per day to include secondary treatment, and b) increase or expand the treatment plant’s capacity from 1.2 million m3 to 1.6 million m3 per day of both primary and secondary treatment. Provision of secondary treatment facilities is essential to meet effluent standards in Egypt and to improve the water quality environment of the drainage system.

2.1.2 The project is composed of 3 components namely: (i) Wastewater Infrastructure Upgrading and Expansion; (ii) Environment, Social, Climate Change and Institutional Support; and (iii) Project Management and Engineering Services.

Table 2.1 Project Components Est. cost Component Outputs Component name (USD million) 1. Wastewater 377.58  upgrading the existing 1.2 million m3/d primary treatment plant Infrastructure in Abu Rawash WWTP to secondary treatment;

Upgrading and 3 Expansion  expand the existing plant capacity by additional 400,000 m /d to reach a total plant capacity of 1.6 million m3/day with primary and secondary treatments 2. Environment, 0.627  capacity building to address critical shortcomings at Construction Social, Climate Authority for Potable Water and Wastewater (CAPW), Holding Change and Company for Water and Wastewater and Giza Company for Institutional Water and Wastewater (GCWW), Support  public outreach to sensitize communities, water user associations, agricultural committees on good practices and benefits of the project and safe re-use of effluent,  undertake studies to identify and design agricultural interventions for the benefit of the existing communities, and  carry out feasibility study for the Sludge Management Facility for energy production (including PPP option) 3. Project 9.235  Project Management and Engineering Supervision Management and Engineering  M&E Services  Financial Management, Audit, etc. Total 387.44

2.2. Technical solution retained and other alternatives explored

2.2.1 The design of the project is combining both the public and private sectors comparative advantages. The government has carried out initial scoping and feasibility studies to identify solutions to protect the environment and promote public health. As the operation of large wastewater treatment plants involves complex process engineering and the application of latest technology and innovation in the design for efficiency, the project has employed a design and build approach. The technological and design risk is transferred to the private sector. The project has also included an operator role for the first three years during which adequate capacity is built through the hands on training within the public sector operator.

2.2.2 In terms of alternative techniques of wastewater treatment, the most preferred system adopted for the project is the conventional activated sludge process. The main reasons for the selection of the method have been due to (i) efficiency of the system to remove more than 90% of the BOD and SS (ii) integration and utilisation of existing facility and space economically, (iii) other large scale wastewater treatment plants in the country apply similar method and therefore eases challenge of operation and maintenance. The other possible processes which were rejected are shown in the table below. It is important to note that the project is incorporating a feasibility for sludge management and energy production as a follow up project.

Table 2.2 Project alternatives considered and reasons for rejection Alternative name Brief description Reasons for rejection

Waste Stabilisation This method treats sewage in a series of . The method does not allow to fully utilise the Ponds ponds. The method requires a very large existing plant and its space. area. . It requires huge area of land Oxidation ditch These methods don’t require primary . Suitable for lower BOD-SS loading operation; process (ODP) / clarification to reduce organic load . Not suitable for large scale plant application Extended Aeration . Existing primary facilities will not be utilised / Sequential Batch Reactor Methods Aerated Lagoons This is a mixed aerobic biological . Requires large area and power consumption is reactor without recycling high

2.3. Project type

2.3.1 The Sustainable Development of Abu Rawash WWTP Project is a stand-alone project as big and complex projects in the water sector are implemented as stand-alone operations.

2.4. Project cost and financing arrangements

2.4.1 The total cost of the Project is estimated at USD 387.44 million (equivalent UA 274 million), net of taxes and duties, of which USD 237.8 million (61.4%) is in foreign currency and USD 149.67 million (38.6%) in local costs. Table 2.3 below provides a summary of the estimated project costs by component. These estimates are based on information provided by the executing agency, for EPC plus 3 years operations as extracted from the updated proposals. In addition, physical contingency of 5% and price contingency of 3% per year has been applied.

Table 2.3 Project cost estimates by component (in USD ‘000) No. Component Local Foreign Total % Total Cost Cost Base 1 Wastewater Treatment Plan Upgrading and 127,827 217,000 344,827 97.5% Expansion, with 3Y O & M 2 Environment, Social Climate Change and 571 - 571 0.2% Institutional Support 3 Project Management and Engineering 8,410 - 8,410 2.4% Services

Sub Total 136,807 217,000 353,807 100.0%

Physical Contingencies 6,840 10,850 17,690

Price Contingencies 6,019 9,924 15,942

Total 149,666 237,774 387,440

38.6% 61.4% 100.0%

2.4.2 The Project will be financed by AfDB, AGTF and GoE as shown in the financing plan presented in Table 2.4 below. The total Bank Group financing is USD 150 million, comprising of AfDB loan of USD 100 million and AGTF loan of USD 50 million. These funds will be used to finance part of component 1 of the project. GOE will contribute 62% of the total project cost in EGP for the equivalent of USD 237.44, covering components 1, 2 and 3 of the project. Details of ADB and AGTF financing are provided in Annex B2. The Bank appraisal mission discussed and agreed with the relevant Ministries on the above financing and the proposed conditions stated in Section V of this document.

Table 2.4 Sources of financing Sources of Funds (USD '000) %

ADB Loan 100,000 25.81 AGTF Loan 50,000 12.91 GOE 237,440 61.28 Total 387,440 100.00

Table 2.5 Program cost by category of expenditure (in USD ‘000) No. Category of Expenditure Local Cost Foreign Cost Total

1 Goods 127,827 217,000 344,827 2 Services 6,031 - 6,031 3 Miscellaneous 2,950 - 2,950

Sub Total 136,807 217,000 353,807

Physical Contingencies 6,840 10,850 17,690

Price Contingencies 6,019 9,924 15,942

Total 149,666 237,774 387,440

Table 2.6 Expenditure schedule by component (in USD ‘000) No. Component 2018 2019 2020 2021 Total

1 Wastewater Treatment Plan Upgrading and 63,174 125,266 109,608 46,779 344,827 Expansion, with 3Y O & M 2 Environment, Social Climate Change and 143 143 143 143 571 Institutional Support 3 Project Management and Engineering Services 2,102 2,102 2,102 2,102 8,410

Sub Total 65,419 127,511 111,853 49,024 353,807

Physical Contingencies 3,271 6,376 5,593 2,451 17,690

Price Contingencies - 4,017 7,152 4,773 15,942

Total 68,690 137,903 124,598 56,248 387,440

2.5. Project’s target area and population

2.5.1 The proposed Project will benefit more than 8 million people (men, women and children) in the project service area covering eastern side of the River Nile, Cairo-Alexandria Desert Road, mainly in the Giza Governorate in the West Bank of the River Nile. It will serve directly Giza Governorate (including 6th of October City and indirectly Monofia, El-Behira,

Kafr El-Sheikh, Sharqia Governorates. The plant is located at Abu-Rawash village, which is one of the main villages of Kerdasa District with total population of 27,564, who will benefit from job creation and hygiene promotion. Other beneficiaries include people living in villages downstream of the plant and along the system draining the effluent from the plant into Barakat drain, with an estimated population of more than 407,608. This population will also benefit from an improved environment and consequent reduction of diseases associated with untreated wastewater.

2.6. Participatory process for project identification, design and implementation

2.6.1 Consultations regarding the project started since 2013 and continued during pre- preparation mission in 2015, the preparation, and appraisal missions in February and September 2017 respectively. In addition, intergovernmental consultations among relevant institutions has been going on since 2013. Institutions consulted include CAPW, Ministry of International Cooperation (MIC), Holding Company of Water and Wastewater (HCWW), Giza Company, Ministry of Health, Ministry of Irrigation. DPs, namely WB, AFD, KfW, EU, EIB, EBRD, and JICA were met. Visit to the proposed project site for infrastructure and outlet of the drainage was carried out. Consultations and discussion with beneficiary communities surrounding the wastewater treatment plan, beneficiaries from downstream along the drainage and upstream of El Giza Governorate took place during the preparation of the ESIA.

2.6.2 During the consultations, community members raised their concern that as the volume of water in the canals for irrigation is not enough, they have little choice but to use drainage water for irrigation even for cultivating edible crops, which could lead to severe health hazards to farmers, and consumers, at large. The issue was also raised that the Abu-Rawash WWTP should ensure the interaction with the representatives of the local communities surrounding the wastewater treatment plant as well as other stakeholders such as Kerdasa City Council heads.

2.6.3 The primary and secondary treatment of the wastewater at Abu Rawash will mitigate the health hazards and help the farmers to irrigate their fields in accordance with the ‘Egyptian Code of 2014 for the reuse of wastewater’. The project will benefit the population living along the Barakat Drain as well as communities living downstream. Temporary and permanent jobs will be created for the local communities. The consultations will be done quarterly during implementation as part of the ESIA and will be supervised by the E&S focal point of the executing agency.

2.7 Bank Group experience, lessons reflected in project design

2.7.1 The Bank has accumulated experience in the water and sanitation sector in Egypt and across the continent. Besides, lessons learnt and experience of other development partners supporting the water and sanitation sector in Egypt have also been taken into account in the project. These lessons include, the need to include at least 3 years operation period after completion of construction works. This will allow the contractors to operate the plant and to provide on the job training to the relevant staff of the executing agency. Other lessons taken into account are: (i) the need to address institutional issues while supporting infrastructure development, ii) the importance of having Monitoring and Evaluation Unit specific to the project to provide analytical content in progress reports; (iii) need to streamline and avoid having numerous and onerous conditions precedent to effectiveness to avoid delayed effectiveness of projects. These lessons have been incorporated and the Bank is also working closely with the other development partners (WB, EIB, EBRD, EU, AFD, and KfD) in implementing this programme under the Joint Integrated Sector Approach (JISA).

2.8 Key performance indicators

2.8.1 The key performance indicators for monitoring of project achievements are identified and captured in the results based logical framework. The project’s main outcomes are a clean environment and subsequent improvement in health through reduction of water and sanitation related diseases. The main key performance indicators to be monitored during implementation include enhanced treatment system, incremental capacity added to the treatment plant, quality of effluent and reception by communities of information campaign regarding improved sanitation and hygiene. The plant’s throughput will be monitored everyday using the strategically placed measuring devises, while the quality of the effluent will be monitored using the existing laboratory at the site. The responsiveness of health messages will be monitored through regular surveys carried out on the concerned communities.

2.8.2 The implementing agency (CAPW) will be responsible for project implementation and will monitor its outputs and the agreed performance indicators. The PIT shall closely monitor progress and liaise closely with both the project consultant and the contractor to ensure achievement of both its outputs and outcomes. Regular reporting by the PIT (progress reports, Audit reports, and mid-term review report, etc) will keep the GOE and the Bank fully informed of the progress. The concerned parties will take timely action to comply with the recommendations contained in these reports.

III. PROJECT FEASIBILITY

3.1. Economic and financial performance

Table C.1: Key economic figures EIRR 29.9% and ENPV EGP 19,336 million (at 10% base case) NB: detailed calculations are available in Annex B7

3.1.1 The underlying assumptions for the calculation of the EIRR are provided in Annex B6. The economic analysis of the project has been undertaken by comparing “with” and “without project” of the various costs and benefits that will accrue to the beneficiaries of improved and sustainable wastewater treatment system. The principal benefit of the project is treated waste water meeting the required national health standards, which will enhance the environmental benefits of the residents in the project and surrounding areas. The main assumptions are: health benefits from improved sanitation services comprising improved sewerage and faecal sludge management systems, incremental economic value of treated wastewater representing environmental and socioeconomic benefits downstream of the treatment plant, as well as economic value of sludge produced from the improved facilities. On the cost side, these include investment costs, replacement costs, and other items as part of operation and maintenance costs comprising of staff costs, energy, chemicals and repairs and other overhead costs have been taken into account. The economic life of the investment is estimated as 25 years, all the costs and benefits considered are net of duties and taxes. The project’s economic rate of return is estimated at 29.9%. The value is higher than the opportunity cost of capital of 10% and thus is considered economically viable. Sensitivity analysis to test the robustness of the EIRR was carried out to determine the impact of adverse variations. The EIRR changes to 26.7% assuming that investment cost increases by 20%, and to 25.7% assuming that the benefits of the project are decreased by 20%. The analysis shows that the project is economically viable and socially beneficial for Egypt.

3.2 Environmental and Social impacts

Environment

3.2.1 The project has numerous environmental benefits as it will improve the water quality of effluent discharged and its compliance with the legal standards; decreasing the pollution of the water resources especially in the Nile River which is the final discharge point of the treated wastewater and reduce the waterborne related diseases in surrounding communities along main drains and rivers. Besides, the project will create job opportunities during its construction phase and operation phases, create various training and research opportunities and contribute to improve the quality of life of the population especially with regards to the sanitation coverage of Greater Cairo.

3.2.2 Overall, the project is not likely to generate major negative impacts as all construction activities will be within the actual plant boundaries and no land acquisition will be required to expand the WWTP. In addition, the existing capacity of the sludge lagoons facility (20 basins with a total area of 84 ha located within 1,470 ha of a free of use land owned by HCWW will not require any expansion. Thus, the project will not require any land acquisition, neither has an impact on involuntary physical and/or economic displacement. According to National Environmental Policy requirements, the project is under Category C (Black List) given its capacity of 1.2 million m3/day. Even though the project will not generate significant adverse environmental impacts, its scale (large-scale urban wastewater treatment plant) made it eligible for category 1 as per the Bank Integrated Safeguard System (ISS) (category validated by the Safeguards Department on 22 March 2015).

3.2.3 An Environmental and Social Impact Assessment study (ESIA) was prepared for the project and validated by the Egyptian Environmental Affairs Agency (EEAA), which is the principal authority that coordinates environmental management in Egypt. The validation certificate was delivered for the project on 2 March 2016. The ESIA was reviewed by the project team in 2017 during the preparation phase to meet the Bank’s requirements and was approved internally by Safeguards prior the mandatory disclosure for 120 days on the Bank’s website on May 15th, 2017.

3.2.4 The direct negative impacts identified are the common impacts related to the construction phase and are due to the construction works and movement of machines. This includes mainly sound pollution, dust emission, public safety and health hazards, disruption of surface water drainage and pollution and disposal of waste. The project will not affect negatively any sensitive or protected area. During operations, no major adverse impacts on the environment are expected, however some environmental, health and safety issues related to routine works such as accidental leakages, labours injury and chemical/biological hazards are noted.

3.2.5 With regard to the cumulative impacts, after upgrading the capacity of the plant up to 1.6 million m³/day and implementing a secondary treatment, an extra sludge quantity will be generated in addition to the sludge produced from Zenein plant (estimated at 10,800 m³/day). The total sludge flow estimated at 39,797 m³/day will be pumped into 20 unlined lagoons currently located in the desert.

3.2.6 In terms of residual risks and impacts, the water borne diseases affecting the surrounding communities along the main drains and rivers will remain as long as the agricultural farms will keep using the un-treated effluent from drains to irrigate non-authorized crops in violation to the national Law 48/1982, Code 501/2005, Ministerial Decree No.383/2015.

3.2.7 In order to mitigate the project’s negative impacts including the cumulative and residual impacts , an environmental and social management plan including a feasibility study for the construction of a Sludge Management Facility, an environmental awareness component, a monitoring program and a detailed training program have been prepared. The budget for these activities (USD 153,000) is included as part of the overall project cost.

Climate Change

3.2.8 The Abu Rawash project presents a good opportunity for accessing climate finance to address climate issues while ensuring sustainable development with its high potential for contributing to both mitigation and adaptation.

Gender

3.2.9 The 2015 Global Gender Gap Index2 ranks Egypt at 136 out of 145 countries worldwide. Women have significantly lower participation in the labour force than men (26% vs 79%) and lower literacy (65% literacy for women vs 82% of males).3 This situation is mirrored in the project areas. Low literacy and socio-cultural dynamics limit women’s participation and hence reduces their chances to equal opportunities. Moreover, low public participation and illiteracy among women and children who dropped out of school has reduced public awareness about the dangers of environmental hazards. Residents on the farms affiliated to the wastewater treatment plant and the surrounding area currently have no access to the sewer services and depend on decentralized sanitation facilities. The most common method for collecting the drainage water is through the scavenge trucks. In the absence of this, women may discharge the drainage by themselves into drains or nearby areas. This constitutes a tremendous health hazard to women and children and burdens women with extra tasks, as they are responsible from household chores and taking care of sick member of the households.

3.2.10 While, the project will benefit all households serviced by Abu Rawash WWTP irrespective of their income or if the household has a male or female head, specific gender impact is anticipated in the Abu Rawash Village where the plant is situated and along the Brakat Drain where the treated wastewater is discharged. Three major issues have been identified: (i) limited women’s participation, (ii) environmental hazard impact on women, and (iii) limited access to income for improving their living conditions. The project’s interventions address these issues through: (i) Gender-sensitive public health awareness for communities residing in the surroundings of the plants and along the drains. (ii) Effective participation of women in water and sanitation committees by increasing public awareness on the importance of women’s involvement and gender-related issues. (iii) Encourage women from the local community to work during construction and operation. Currently, female employment in the sector is 29%. While a low parentage of women employment during the construction is envisaged due to low capacity and communities’ acceptance, 29% of women during operations is likely to be met4. In order to cover these activities, an estimated EGP 1.2 million has been allocated. A full gender and social analysis is provided in annex B8.

Social

3.2.11 The project has identified the following social challenges: (i) the treated water disposed into Barakat drain further to other drains does not comply with concerned Egyptian or international standards for safe disposal into drains. (ii) Malpractices of the communities resulting in environmental and health hazards. (iii) High rate of unemployment rate due to the

2 Measures disparities between men and women across countries, 3 Ahram-on line November 2015 4 The team is working toward getting a supplementary grant for increasing women’s participation in the sector through support to the water and sanitation vocational training centers. 9

stagnation and reduction of the tourism and closure of a number of small factories and stores. (v) Limited institutional capacity to address environmental, health, and social safeguards and for incorporating gender and social equity needs. Refer to Annex B8 for more information.

3.2.12 The project intends to address these issues through its components. Expected impact:

(i) Positive health impact: better quality of treated wastewater will decrease the disease burden, particularly non-communicable diseases that are predominant, such as Hepatitis C, renal failure and kidney diseases, as well as various forms of cancer.

(ii) Increased Employment Opportunities: It is envisaged that 1200 jobs will be created during construction and operation, primarily related to waste water management. In addition, more than 4000 indirect jobs (current experiences shows more than 27% are for female) are expected to be created in various areas, including SMEs in tourism, agriculture, and fisheries for unskilled, semi-skilled, and skilled persons.

(iii) Positive economic impact: opportunities for micro and small enterprises; as well as opportunities for local contractors and local suppliers of building materials. Moreover, the improvement in health will reduce the household’s expenditure on health treatment and reduce vulnerability.

(iv) Expanding gender diversity: encourage to increase women employment in the sector by facilitating gender inclusion through internship program of Al Giza WSSC and the contractor. Involuntary resettlement 3.2.13 No resettlement is expected from the project. The ABWWTP is established on government land. Construction of ARWWTP has been done in stages and phases. The plant still has area reserved for the remaining planned expansion works. This land is already fenced off and is not available or accessible to the public. IV. IMPLEMENTATION 4.1. Implementation arrangements 4.1.1 The ABWWTP Project shall be implemented using existing institutional arrangements incorporating lessons and experience gained from similar operations. The project will be implemented over four years. The GOE is the borrower of the ADB and AGTF loans while CAPW, under the Ministry of Housing, Utilities and Urban Communities (MHUUC), will be the Executing Agency (EA). The project will be implemented using existing structures of CAPW and taking into account lessons learnt from similar operations, particularly Gabal El Asfar Wastewater treatment project. CAPW has the experience in the implementation of similar projects having implemented the earlier phases of the same plant as well as other sewerage projects. The EA (CAPW) has constituted within its Construction Department, a Project Implementation Team (PIT), comprising a Project Coordinator, 4 Engineers (Electrical, Mechanical and 2 Sanitary), one of whom will be experienced in procurement/contracts management and another with expertise in M&E), Environmental/Social Specialist, Gender and Social officer, and Project Accountant. The PIT will be directly in charge of the project implementation. The PIT will be assisted by an experienced Engineering supervision services consultancy firm. Recruitment of the consultancy firm is in progress and is to be finalized before 31 January 2018. This is included as one of the undertakings of the loan. The CAPW shall be responsible for overall coordination of the project and reporting obligations to the Bank.

4.1.2 In addition, and in line with GOE’s current practice of ensuring effective project coordination across ministries, a Project Steering Committee (PSC) shall be stablished comprising various relevant stakeholders, including HHCW, GWSC, Ministry of Environment, Ministry of Finance, the Ministry of International Cooperation (MIC), Ministry of Health, Ministry of Social Solidarity, Ministry of Environment, Giza Governorate, to be chaired by the MHUUC to oversee the implementation of the project. The PSC will be responsible for the strategic direction and coordination of the Project. See Annex B.3 for implementation details.

4.1.3 Procurement Arrangements

4.1.3.1 Procurement of goods (including non-consultancy services), works and the acquisition of consulting services, financed by the Bank for the project, will be carried out in accordance with the “Procurement Policy and Methodology for Bank Group Funded Operations” (BPM), dated October 2015 and following the provisions stated in the Financing Agreement. Public Procurement in Egypt is governed by the Law 89/1998 “the Law” which was enacted by the decree 1367/1998, which includes the Executive Regulation (ER) of the Law. A Country fiduciary risk assessment (CFRA) was carried out in July 2015 by the Bank and found that (i) there are barriers to participation of foreign bidders, including mandatory Joint venture lead by a national; (ii) there is no standard Bidding documents; (iii) all Procurement methods are not described unambiguously and conditions under which to be used are not clarified; (iv) there is no General Condition of contract; (v) alternative Dispute Resolution (ADR) provisions such as Arbitration is not mandatory; and , (vi) the complaint mechanism body is not independent, has no authority for decision and the outcome of the review is not enforceable. The CFRA concluded that the risk for the use of BPS (Egypt’s Public Procurement system) in Bank- financed project is Substantial. The Bank reviewed the CFRA findings during the appraisal mission and confirmed the risk as Substantial. In light of above, Bank Procurement Policy and Methodology (BPM) are applicable to all procurement package planed under this project.

4.1.3.2. Procurement Risks and Capacity Assessment (PRCA): the assessment of procurement risks at the Country, Sector, and Project level and procurement capacity of the Executing Agency (EA), were undertaken. The outcome of these assessments have informed the decisions on the procurement regimes (BPS, Bank or Third party) being used for specific transactions or groups of similar transactions under the project. The appropriate risks mitigation measures have been included in the procurement PRCA action plan proposed in Annex B5, Para. 5.3.8.

4.1.3.3 Executing Agency Procurement Capacity Assessment/ The Construction Authority for Potable Water and Wastewater (CAPW), will have the overall responsibility of overseeing the implementation of the project. To meet the objective of the Bank’s procurement policy, the mission has carried out an assessment of CAPW’s procurement capacity and noted that CAPW has adequate capacity in procurement management. CAPW is already familiar with Bank rules and procedures through the implementation of current Helwan Study and Gabal Al Asfar Project. It was agreed that CAPW will use their own –Projects Department to complete the process of finalizing the contract with the intended awarded contract under close monitoring from the Bank. The implementation of the Project will use existing arrangements incorporating lessons and experience gained with other similar Projects and a qualified engineering firm will be recruited for works supervision including contract management and supervision during the operation period. CAPW will be provided with hands-on training and support from the procurement officer at COEG, as part of the project launching and during the implementation of the activities.

4.1.3.4 Independent Procurement review of the construction contract

The main procurement package to be financed from the ADB loan will be the construction of the wastewater plant. The GOE launched in Jan 2013 an open invitation to companies 11

worldwide in order to express interest in prequalifying for the upgrading and expansion of Abu Rawash wastewater treatment plant (WWTP) in West Cairo (GIZA) based upon a PPP contractual arrangement of 20-25 years’ duration. The bidding process was governed by Law 67 of 2010 (the Law regulating Partnership with the private sector in infrastructure projects, services and public utilities) which stipulates transparent bidding and contract implementation conditions and prescribes award to the Most Economically Advantageous Bid (VFM). .

The Bank and GOE agreed to engage an Independent Procurement Review (IPR) specialist in order to look into the feasibility of the Bank’s concurrence with GOE’s decision to negotiate the contract with the winner.

The Independent Consultant recruited by the Bank examined the proceedings of the prequalification and bidding processes and confirmed that there were no irregularities that could taint compliance with the law or the integrity of these processes. The outcome of the competition does represent evident “Value for Money” for the Bank and the GOE while ensuring a “fit for purpose” procurement arrangement that will save valuable project implementation time considering the urgent need of ending the contamination of the Nile as a result of the discharge of the current poorly treated effluent into its fresh waters which is forcing a shutdown of numerous potable water treatment plants downstream the Nile.

4.1.3.5 In light of the foregoing, the Bank concluded that the bidding process was compliant with internationally accepted practices and the Bank Procurement Policy principles (VFM, FfP). In order for the Bank to finalize the review of bidding process, in line with the advance contracting procedures and the BPM, GOE shall use the standard contract incorporated in the AfDB version of the Multilateral Development Banks’ Harmonized Standard Bidding Document for Design, Supply and Installation and Commissioning of Plant for Bank’s Prior review and approval at each stage of the implementation process for the main procurement package. In addition, further details on the change of membership of the recommended Joint Venture will be provided.

4.1.4 Financial Management

4.1.4.1 The financial management (FM) of the project will be based on the existing systems of CAPW. These systems were assessed in accordance with the Bank FM policies and procedures and covered each FM component adequacy: budgeting, accounting, internal control, treasury management, financial reporting and external auditing. In assessing the FM capacity, the team used the country fiduciary risk assessment (CFRA) conducted in 2015 and the financial management performance of Bank-financed projects executed by CAPW, namely Gabal Al-Asfar Project (loan of 53 M€) and Helwan Study Project (grant of 0.6 MUA). The assessment concluded that the current applicable FM systems are well developed and capable of managing the project resources with an overall moderate risk level. Some mitigating measures are required to enable these systems to meet the Bank requirements on project reporting and auditing.

4.1.4.2 CAPW has experience with similar projects financed by the Bank and adequate budgeting and treasury processes including the newly introduced electronic payment system. As a public service authority, its internal control environment imposes clear segregation of duties, prior authorization of commitments and ex-ante controls of payments. However, there is no internal audit function based on internationally accepted audit standards and risk-based approach and the cash-based accounting system in place is largely manual and should be used with some improvements to provide the project with the adequate and timely financial information. Therefore, CAPW will assign, as part of the project implementation team, a financial management officer with adequate qualifications and previous experience with donor funded projects acceptable to the Bank to handle the day-to-day financial activities of the 12

Project and ensure timely recording of all project transactions and adequate filing of project documents. CAPW will provide to the Bank, on 1st of August of each year, the necessary evidence (through the corresponding budgetary allocations) on the availability of the counterpart funds needed to carry out the project. Using a simple application, allowing automated compilation of project financial statements and reports, CAPW will submit quarterly financial reports for the project and annual financial statements duly audited by an external auditor covering the entire project components and sources of funds.

4.1.5 Audit: The executing agency (CAPW) financial statements are audited by the Accountability State Authority (ASA, formerly CAO), which is the Egyptian Supreme Audit Institution. The audits are technically conducted in compliance with INTOSAI standards and are prepared within six months of the end of the fiscal year. However the ASA reports are treated as confidential according to the current legislation in Egypt and cannot be communicated to the Bank. Therefore, an independent private auditor acceptable to the Bank will be recruited to audit the project annual financial statements in compliance with the Bank standard TOR for audit of investment operations. The audit fees will be paid by GoE once the audit reports are accepted by the Bank. The external auditor report shall include all project’s components and activities, cover all sources of funds (the Bank, co-financiers funding and CAPW own resources) and be submitted to the Bank no later than six months after the end of each Egyptian fiscal year (i.e. before 31 December).

4.1.6. Disbursement Arrangements: Disbursement of the Bank (ADB) and AGTF loans will be made using the Direct Payment Method of disbursement, in accordance with Bank rules and procedures as laid out in the Disbursement handbook. The Bank will issue disbursement letters, which provide specific guidelines on key disbursement procedures and practices. 4.2. Monitoring 4.2.1 M&E of the project will be carried out as a regular management function by the Project Steering Committee (PSC) and the PIT based on the baseline data and indicators defined in the result based logical framework. The M&E Expert who is also a member of the PIT will be fully responsible for collecting and analysing data for reporting. In addition, Bank supervision missions will be undertaken twice per year and the Bank will undertake desk supervision quarterly, providing feedback and following up on progress reports. A mid-term review will be undertaken during the second year of implementation. The PIT/CAPW will prepare quarterly Progress Reports, annual technical and financial audits. Upon completion, CAPW will prepare and submit to the Bank a project completion report (PCR). Table 4.1 Key Milestones Timeframe Milestone Monitoring process/feedback loop December 2017 AfDB Board of Directors Loan approval January 2018 Sign contract with Signing contract of Engineering Supervision Consultant Engineering Consultant January 2018 Signing of Loan Loan Agreements signed between GoE and AFDB/AGTF. Agreements February2018 Award of construction Signing of construction contract contract March 2018 Loan Effectiveness Launching mission; Loan conditions approved by the Bank March 2018 Construction start Construction commences. Monthly construction supervision reports; Bank’s comments on the annual and quarterly reports; Supervision missions June 2019 Mid-Term Review Assessment of progress/performance, restructuring if needed December 2021 Project completion Commissioning of construction December 2021 Project completion Report Project completion mission

4.3. Governance

4.3.1 The 2014 Presidential elections paved the way for Egypt’s restored stability following three years of difficult political transition. The new constitution was ratified in January 2014 and presidential elections were organized in May 2014 paving the way for Egypt’s economic rebound and stability. The electoral constituencies’ law was approved in December 2014 and constituted the final legal step before the next parliamentary elections. The forthcoming elections will represent the final milestone of the political roadmap set forth in July 2013. Meanwhile, the GoE has been deploying efforts to restore security and implement critical policy reforms to further consolidate economic and political stability. At sector level, water sector governance has been evolving through sector reforms aimed at streamlining and strengthening sector institutions, with separation of roles and responsibilities for policy setting, regulation and service provision. The Bank in collaboration with development partners will remain engaged to support government to deepen and consolidate sector reforms.

4.3.2 As regards procurement within the project, CAPW has internally inbuilt checks and balances to ensure transparency and fight corruption. Procurement is carried out by an independent Committee of 12 people, comprising staff of the Authority and from other Government organizations and ministries including Ministry of Finance. The Committee undertakes its evaluation according to set rules and procedures, and submits its recommendations to the Chairperson of CAPW for approval. The Chairperson approves contract awards on behalf of the Minister of MHUUC. For the proposed project, a reputable engineering consultancy firm will be recruited to assist with supervise construction works. In addition, a provision has been made under the project for an annual audit to be carried out covering all aspects of project implementation. In addition, the PIT will include an expert with adequate experience in procurement and contract management.

4.4. Sustainability

4.4.1 To ensure technical sustainability, the project includes a requirement for the consortium of contractor to operate and maintain the plant for three years following construction. Both the consultant and the consortium of contractors will be mandated to train additional counterpart staff of the executing agency and the operator, on all aspects of the project’s O&M to promote technology transfer. In addition, the proposed project is similar to other treatment plants managed by the executing agency.

4.4.2 In order to ensure financial and economic long term sustainability of the sector, the water and wastewater policy is targeting continued progress towards cost recovery in service provision through user charges. Currently it is estimated that the recurrent cost of the project (operation and maintenance) will be approximately EGP 91 million per year. For the existing facilities, the costs are met through Government subsidies. The recently approved tariff adjustment (effective August 2017) shows GoE’s commitment to set the sector on solid foundation of cost recovery. In this regard, GOE is committed to implement a program of tariff adjustments for WSS services in order to ensure sustainability of service provision including investment. These adjustments will also take into account the social nature of services and the needs of the poor. The government plans to reach O&M cost recovery in the short term (up to two years), O&M cost plus replacement (medium term) and full cost recovery as its long term plans. In this regard, the government continues to demonstrate its commitment by issuing required decrees, as done recently with Prime Minister’s decree number 1730 of 2017 to ensure financial sustainability of water and wastewater service delivery and reduce dependency of sector institutions on Government subsidy.

4.4.3 One of the challenges of the water sector in Egypt is the need to protect and enhance the quality of water in its river, canals and drainage systems. The water bodies receive heavy 14

load of municipal waste deteriorating the water quality and endangering public health. The GoE has in the past two decades invested more than 60 billion EGP and is currently updating its NWRP 2017-37, with an investment plan of requiring more than EGP 885 billion. The NWSP has identified measures for improving water quality in the water bodies that includes increasing and enhancing the municipal wastewater treatment plants to curtail pollution of water bodies. The proposed project is part of GoE long term plans and is a manifestation of the government’s commitment to the development of the sector.

4.5. Risk management

The following risks shall be monitored and the required mitigating measures will be taken.

RISKS MITIGATION MEASURES (rating) 1. Project The project will be executed through one contract, which is at advanced stage of Implementation procurement/contract negotiations. Use of advance contracting will facilitate timely delays start-up of construction. Constant and continuous supervision and monitoring by an engineering consultant who will be hired by the EA. The EA will be required to (i) adopt best practice in contract management, and (ii) strictly follow-up contract execution. Besides, the EA already has experience in implementing similar big projects (example Gabal Al Asfar project) using the same procurement/contractual arrangements. (Medium) 2. Low tariffs: unable GOE committed to introduce cost reflective tariff system which will allow for social to meet O&M costs tariffs, supported by sensitization campaigns. With Prime Minister’s decree number 1730 of 2017, effective August 2017, tariff has been increased with the objective to reach O&M recovery in the short term and full cost recovery in the long term. (Medium) 3. Limited technical The EA adopting standard systems with the other similar wastewater treatment capacity to operate plants managed by the EA, and by including at least 3-year operational period during and maintain which the consortium of contractors will operate the plant and provide on-the-job infrastructure training to the relevant staff. Incorporate on the job training and capacity building of CAPW/GWWC personnel to operate and maintain the facilities. (Low) 4. Availability and The GoE will be providing significant financing for infrastructure activities. timely release of Government is committed to implement this project of “national interest”. Counterpart Designated as a “National project”, the GoE is committed to implement the project. funding In addition, close follow up with the borrower will be made during implementation to ensure timely allocation and availability of counterpart funding. (Medium)

4.6. Knowledge building

4.6.1 The knowledge gained through the implementation of several projects and studies in the sector in Egypt has been duly applied in designing this project. In the same pattern, the knowledge that will be generated by this Project will be instrumental in designing and managing similar projects in the sector in the future. The results from the proposed studies and other surveys, including the socio-economic impact study will inform the stakeholders on how to put the acquired knowledge attributes into practical use for better results-oriented achievements and sustained benefit flows.

4.6.2 With the current trend of population growth in major cities in Africa, many institutions continue to grapple with the mammoth problem of managing wastewater in their countries. Management of wastewater has direct impact on the quality of the environment and especially on water resources. The project is therefore expected to generate considerable interest and knowledge, on how to resolve problems associated with management of large volumes of wastewater. The lessons from the design, construction and management of projects of such magnitude will be useful to many other countries in the region. The lessons learnt and experience gained will be documented for dissemination in workshops, discussions and seminars. Even during construction, the Bank will encourage groups from regional countries to visit the plant for learning purposes and knowledge dissemination. Bank supervision

missions, quarterly and annual progress reports, mid-term review, audit and completion reports will provide an opportunity to capture knowledge on relevant aspects of the project. This will include its design, implementation modalities, procurement, as well as operations and management, which will be available for analysis and will be shared both within the Bank and with other development partners as well as authorities in RMCs.

V. LEGAL INSTRUMENTS AND AUTHORITY

5.1. Legal instrument

The Project will be financed by an ADB and AGTF loans.

5.2. Conditions and undertakings associated with Bank’s intervention

5.2.1 Conditions Precedent to Entry into Force of the Loan Agreement: The entry into force of the Loan Agreement shall be subject to the fulfilment by the Borrower of the provisions of Section 12.01 of the General Conditions Applicable to Loans and Guarantee Agreements of the ADB.

5.2.2 Conditions Precedent to First Disbursement of the Loan: The obligation of the Bank to make the first disbursement of the loan shall be conditional upon entry into force of Loan Agreement in accordance with 5.2.1 above.

5.2.3 Undertaking:

The Borrower undertakes to:

(i) Provide evidence acceptable to the Bank of having recruited an Engineering Supervision Consultant by 31st January 2018, to support in the contracting process between CAPW and the contractor, review the design, and supervise the construction; and

(ii) Implement the Project in accordance with national legislation and the Environmental and Social Impact Assessment (ESIA), and report to the Bank on a quarterly basis in a form acceptable to the Bank on the implementation of the ESIA.

5.3. Compliance with Bank Policies

This Project complies with all applicable Bank policies.

VI. RECOMMENDATION

Management recommends that the Board of Directors of the Bank approve the proposal for an ADB loan of USD 100 million and AGTF loan of USD 50 million to the Arab Republic of Egypt for the purposes and subject to the conditions stipulated in this report.

Appendix I. Egypt’s Socio-Economic Indicators

Arab Republic of Egypt: Selected Economic Indicators, 2011/12–2016/171/

2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 Prel. Proj. Output and prices Real GDP (market prices) 2.2 2.1 2.2 4.2 3.8 4.0 Consumer prices (average) 8.6 6.9 10.1 11.0 10.2 18.2

Public finances General Government2/

Revenue and grants 21.1 21.9 23.7 21.9 20.3 25.5 Expenditures (incl. net acquisition of financial assets) 31.1 35.3 36.7 33.5 32.0 33.1 Overall balance -10.0 -13.4 -12.9 -11.5 -12.0 -10.0 Primary balance -4.9 -6.3 -5.8 -4.8 -4.4 -1.8 Gross Debt 74.6 84.8 86.3 89.0 94.6 93.8 External 9.3 10.8 9.9 8.0 7.7 10.1 Domestic 65.3 74.0 76.4 81.0 86.8 83.7 Budget sector3/ Revenue and grants 18.3 19.0 20.8 19.1 17.6 22.9 Expenditures (incl. net acquisition of financial assets) 28.4 32.0 33.9 30.6 29.4 30.5 Of which: Fuel subsidies 5.8 7.0 6.6 4.0 3.0 2.6 Of which: Food subsidies 1.8 1.8 1.7 1.7 1.5 1.4

Monetary sector Credit to the private sector 7.1 9.8 7.4 16.7 14.2 8.3 Reserve money6/ 5.1 20.4 14.8 33.3 -1.6 16.1 Broad money (M2) 8.3 18.4 17.1 16.4 18.6 16.7 Treasury bill rate, 3 month (average, in percent) 13.4 13.4 10.9 11.4 11.8 19.7

External sector Merchandise trade balance -11.3 -10.8 -11.2 -11.7 -11.0 -12.5 Current account -3.7 -2.2 -0.8 -3.7 -5.5 -5.2 Capital and financial account (incl. errors and omissions) -3.7 1.1 0.9 5.5 4.6 1.7 Foreign direct investment (net in billions of USD) -3.7 3.6 3.8 6.1 6.7 9.4 Gross international reserves (in billions of USD) 15.2 14.5 16.3 19.5 17.1 22.0 In months of next year’s imports of goods and services 2.7 2.5 2.7 3.6 3.1 3.7 Financing gap (in billions of USD) … … … … 0.0 16.3

Memorandum items: Nominal GDP (in billions of Egyptian pounds) 1,656.6 1,843.8 2,101.9 2,429.8 2,777.8 3,434.1 Nominal GDP (in billions of USD) 275.8 285.4 301.5 330.2 … … GDP per capita (in USD) 3,347 3,370 3,478 3,710 … … Unemployment rate (period average, percent) 12.4 13.0 13.4 12.9 12.7 12.3 Poverty rate (percent) n.a. 26.3 … … … … Populations (in millions) 82.4 84.7 86.7 89.0 90.2 92.3 Sources: Egyptian authorities; and IMF estimates and projections. 1/ Fiscal year ends June 30. 2/ General government includes the budget sector, the National Investment Bank (NIB), and social insurance funds. 3/ Budget sector comprises central government, local governments, and some public corporations. 4/ Includes multilateral and bilateral public sector borrowing, private borrowing and prospective financing (in 2011/12). 5/ Debt at remaining maturity and stock of foreign holding of T-bills.

Appendix II: AfDB Portfolio in Egypt (September 2017) Bank Approved Total Sectoral Source of Age Closing % Approval Effective Amount Disbursed % Finance (years) Date Disbursed Date (UA m) (UA m) Suez Thermal Power Plant ADB-L 15-Dec-10 8-Oct-12 4.43 30-Nov-17 327.30 240 74% Ain Sokhuna Thermal Power ADB-L 22-Dec-08 19-Aug-09 7.53 30-Jun-17 296.10 284.14 97% Alcazar Energy 4 Sept Egypt Solar I ADB Priv 2017 12.74 0 0 Delta for Renewable 4 Sept Energy ADB Priv 2017 12.74 0 0 Shapoorji Pallonji 4 Sept Energy Egypt ADB Priv 2017 13.44 0 0 Egyptian Refining Company ADB Priv 17-Mar-10 21-Jun-12 4.72 15-May-16 128.17 128.17 100.00% Egyptian Refining Company sub convention loan ADB Priv 17-Mar-10 21-Jun-12 4.72 15-May-16 16.02 16.02 100.00% Sub-Total – Power (6) 48.1% 807 671 83.2% Airport Centre of excellence

29-May- MIC TAF 16-Apr-15 15 1.82 31-Dec-19 1.2 0.0002 0.00% Sub-Total - Transport (1) 0.1% 1.2 0.0002 0.0% Actuarial modelling study for implementation of national health 31 Dec insurance system MIC TAF 18-Aug-16 20-Sep-16 0.53 2017 0.18 0.11 59% Support to Parliament: Building Capacity and Mainstreaming Inclusive Growth and Decentralization MENA TF 11-Jun-14 11-Jun-14 2.78 30-Sep-17 1.96 0.07 4 Rx Health Care Fund (Equity) ADB Priv 19-Oct-16 N/A 14.33 Supporting the Upgrading of Informal Settlements MIC TAF 2-Nov-16 12-Feb-17 0.13 31-Mar-19 0.40 0.00 0.00% Sub-Total – Social (4) 1.0% 16.87 0.18 1.05 Green Growth: Industrial Waste Management and SME entrepreneurship Hub MENA TF 15-May-13 19-Dec-13 3.25 30-Sep-17 1.39 0.8 57.3% Restructuring of the Nasser Social Bank – Phase 1 MIC TAF 11-Oct-16 9-Feb-17 0.00 30-Jun-18 0.40 0.10 25.22% Support to Micro, Small & Medium Enterprises in Organic Clusters 29-May- Project MENA TF 20-Feb-13 13 3.80 30-Dec-17 1.39 1.39 100% Sub-Total - Finance (3) 0.2% 3.17 2.29 72.3% Gabel El-Asfar Wastewater Treatment Plant ADB-L 7-Oct-09 28-Jun-10 7.51 31-Dec-17 44.08 36.7 84% Sub-Total – Water & Sanitation (1) 2.64% 4.08 36.7 84%

Franchising Sector Support Program ADB-L 25-Feb-09 14-Jun-10 6.72 15/12/2017 28.74 20.38 70.91% Navisat - Transaction Advisory services for procurement of 19-May- NAVISAT system NEPAD-IPPF 4-Mar-13 13 3.83 30-Jun-17 1.07 0.09 8.41% Strengthening the Rule of Law: Effective and transparent delivery of justice and rule-making MENA TF 11-Jun-14 25-Sep-14 2.49 31-Aug-17 1.72 0.10 5.82% Support to EAPD MIC TAF 30-Apr-15 3-Jun-15 1.81 31-Dec-17 1.20 0.74 61.7% Strengthening of INP MIC TAF 8-May-15 11-Dec-15 1.29 25-Feb-18 1.20 0.76 63.6% Modernization of CBE’s Clearing and Settlement Depositary System MIC TAF 10-Jul-15 1-May-16 0.91 30-Dec-17 0.89 0.02 1.8% Economic Governance and Energy Support Program ADB - L 15-Dec-15 4-Jan-16 1.23 31-Dec-16 360.82 360.82 100.00% Emergency Humanitarian Assistance for Alexandria flood EMERGENCY victims GRANT 9-Nov-15 15-Nov-15 1.36 31-Dec-17 0.72 0.72 100.00% Building Capacity and Institutional Strengthening of Ministry of International Cooperation MENA TF 30-Dec-15 21-Apr-16 0.94 31-Dec-19 3.132 0.19 6.07% Economic Governance and Energy Support Program- Phase II ADB - L 13-Dec-16 31-Dec-17 360.82 360.82 100% Strengthening capacity of Administrative 23 May Control Agency to 2017 combat corruption MENA TF 2.55 0 0 Sub-Total – Multi Sector (11) 45.62% 763.86 744.64 97.6% Feasibility study and CB for use of RE for pumping irrigation water MIC TAF 1-Mar-15 27-Oct-15 1.42 31-Mar-18 0.80 0.12 14.6% National Drainage III ADB-L 17-Jun-15 1-Jun-16 0.83 31-Dec-21 41.17 4.55 11.71% National Drainage III Technical Assistance MIC TAF 1-Feb-16 31-Aug-16 0.58 31-Dec-21 0.40 0.039 10% Sub-Total – Agriculture & Irrigation (3) 2.53% 42.37 4.7 11.10% SUBTOTAL: 29 (7 public sector loans + 5 private sector loans (4 loan + 1 equity) + 17 grants (9 MIC TAF; 6 MENA TF; 1 NEPAD-IPPF; 1 Emergency Relief)) 1,677 1,460 87.1%

III

Appendix III: Key related projects financed by other development partners in the country

Name of Project Financier(s) Amount Year to be USD million commissioned Sustainable Rural Sanitation services for WB 550 2015 Results (P4R) Improved Water and wastewater Services KfW, EIB, AFD, EU & 391.6 2012 Programme (IWSP) GoE Integrated Sanitation and Sewerage WB, Netherlands, GTZ 201.5 2012 Infrastructure Project & GoE Kashinar Drainage Depollution Project EU, EIB, EBRD 600 2015 Water Sector Reform Programme (WSRP) EU 60 2012 Fayoum Expansion Depollution and WWTP EU, EBRD, EIB 525 2017 Project Kafr El Sheikh Wastewater Expansion Project EU, EBRD, EIB 205 2017 Alexandria East Sludge Facility AFD 62 Gabel Asfer Wastewater Treatment project – AfDB 66.5 Phase II – Stage II El-Rahawy Drainage Sanitation project Kuwait Fund for Arab 140 2016 Economic Development Exchange Rate used for Euro = 1.25 USD

Appendix IV. Map of the Project Area

Location of Abu-Rawash Wastewater Treatment Satellite Image for Land Cover and Land Use. Plant on the geographical map (Greater Cairo Map – Scale 1:100,000)