Document of The WorldBank FILECOPY FOR OFFICIAL USE ONLY Public Disclosure Authorized Report No. 5068a-AL Public Disclosure Authorized

STAFF APPRAISAL REPORT

ALGERIA

ALGIERS REGIONAL WATER SUPPLY PROJECT Public Disclosure Authorized

June 11, 1984 Public Disclosure Authorized Water Supply and Sewerage Division Europe, Middle East and North Africa Regional Office

This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS (As of April 2, 1984)

Currency Unit = Algerian Dinar (DA) 100 Centimes DA 1 = US$ 0.21 US$1 = DA 4.80

DA 1,000,000 - US$ 208,333

ABBREVIATIONS

ft = foot m = meter ha hectare mm = millimeter 3 Km = kilometer Mm = million of cubic meters 3 inh = inhabitant m /sec cubic meters per second lcpd = liters per capita per day min minute

MEASURES AND EQUIVALENTS

Metric System U.K. System

Kilometer (km) = 0.62 mile (mi) hectare (ha) = 2.47 acres (a) Meter (m) = 3.28 feet (ft) Cubic meter (m3) 220 gallons (g) 3 Million cubic meters/year (Mm /year = 0.603 million gallons per day (mgd) Liter (1) = 0.220 gallon (g) Liters per second (1/sec) 19,000 gallons per day (gd) 2 Kilogram/cm = 0.981 Bar

GLOSSARY OF ACRONYMS

EPEAL = Entreprise de Production, de Cestion et de Distribution d'Eau d'Alger DGE = Direction Generale de l'Exploitation DGIH = Direction Generale des Infrastructures Hydrauliques DWH = Direction de la Wilaya d'Alger Chargee de l'Hydraulique SEDAL = Societe des Eaux de l'Agglomeration d'Alger SONADE = Societe Nationale de Distribution d'Eau Potable et Industrielle SNC Societe Nationale de Comptabilite

EPEAL's FISCAL YEAR

January 1 - December 31 FOR OFFICIAL USE ONLY ALGERIA

ALGIERS REGIONAL WATER SUPPLY PROJECT

STAFF APPRAISAL REPORT

Table of Contents

Page No.

I. INTRODUCTION ...... 1

II. THE WATER SUPPLY AND SEWERAGE SECTOR ...... 2

Background ...... 2 Water Resources ...... 3 Sector Organization ...... 4 Service Levels ...... 5 Constraints to Sector Development ...... 5 Investment Program in the Sector ...... 6 Previous Bank Loans in the Sector ...... 7 Bank's Objectives for the Sector ...... 8

III. THE PROJECT AREA ...... 8

General Features ...... 8 Water Production Facilities ...... 9 Conveyance System ...... 9 Existing Distribution Network ...... 10 Existing Sewerage ...... 10

IV. DEMAND AND MARKET ASPECTS ...... 11

Water Consumption ...... 11 Composition of the Demand ...... 12 Population Forecast ...... 12 Projected Water Consumption ...... 13

V. THE PROPOSED PROJECT ...... 13

Project Genesis and Concept ...... 13 Objectives of the Project ...... 15 Project Description ...... 15 Cost Estimates ...... 8

This report was prepared and written by Mr. Fritz Rodriguez and Mr. Nabil Shehadeh.

This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. Table of Contents (Continued)

Page No.

Project Execution ...... 19 Project Financing ...... 20 Reimbursement of the Government ...... 21 Procurement ...... 22 Disbursement ...... 22

VI. PROJECT IMPLEMENTATION AND OPERATION ...... 23

Executing Agency ...... 23 Operation and Maintenance ...... 24 Project Accounts and Audit ...... 25 Reporting ...... 25

VII. THE BENEFICIARY ...... 26

Background ...... 26 Past Performance ...... 26 Organization and Management ...... 27 Management Assistance ...... 28 Staffing ...... 28 Current Accounting Practices ...... 29 Billing and Collection ...... 30 Audit ...... 31 Insurance ...... 31

VIII. FINANCIAL ANALYSIS ...... 31

Past and Present Financial Position ...... 31 Revenues ...... 32 Financial Studies ...... 34 Financing Plan ...... 35 Future Financial Performance ...... 36 Monitoring System ...... 36

IX. ECONOMIC ANALYSIS ...... 37

Objectives of the Proposed Investments ...... 37 Least-Cost Solution ...... 37 Project Justification ...... 38 Affordability ...... 38 Environmental Impact of the Project ...... 38 Institution Building ...... 38 Adequacy of EPEAL's Pricing Policies ...... 39 Risks ...... 39

X. AGREEMENTS TO BE REACHED AND RECOMMENDATIONS ...... 39 Table of Contents (Continued)

LIST OF ANNEXES

Annex No.

1 Development of Water Resources in the Algiers-Sebaou Region 2 Terms of Reference for Technical Assistance in Setting-Up a Regulatory Agency for Water Supply and Sewerage 3 Service Levels in Urban Areas in Mid-1981 4 Terms of Reference for Carrying Out a Survey of the Water Supply and Sewerage Sector 5 Water Consumption and Sales in Algiers Wilaya, Past and Forecast 6 Population and Housing in Algiers Wilaya 7 Forecast of Water Demand and Sales in Algiers Wilaya 8 Isser Water Transfer to Keddara Reservoir 9 Detailed Cost Estimates 10 Annual Project Investments 11 Bar Chart of Construction Schedule 12 Allocation of the Loan Proceeds 13 Estimated Schedule of Disbursements 14 Organization Chart of the Ministry of Hydraulics 15 EPEAL - 1984 Organization Chart 16 Terms of Reference for Organization, Management and Financial Studies 17 EPEAL - Income Statements - 1983-1992 18 EPEAL - Table of Sources and Application of Funds - 1983-1992 19 EPEAL - Balance Sheets - 1983-1992 20 Assumptions for Financial Projections 21 Mlonitoring Indicators 22 Assumptions for Economic Evaluation of the Project 23 Calculation of the Long-Run Average Incremental Cost of Water 24 Distribution of Annual Expenses by Households in Greater Algiers 25 Selected Documents and Data Available in the Project File

Map No.

16088 Urban Areas to be Served 16089R General Layout of the Project Facilities

ALGERIA

ALGIERS REGIONAL WATER SUPPLY PROJECT

STAFF APPRAISAL REPORT

I. INTRODUCTION

1.01 Since Algeria's independence in 1962, there has been an explosion of its urban population which has grown at an annual rate of more than 5 percent. This has been particularly acute in Algiers, the nation's capital and largest city, whose population has more than tripled since 1962 to its present level of 2.1 million. However, in spite of the rapid growth of the population, the expansion of the cities' social infrastructure has not kept pace with the urban growth, and public services such as water supply, sewerage, transport, telecommunication, etc. are very deficient. The water supply system of Greater Algiers has basically remained the same since the early seventies and the city is experiencing severe water shortages. The unsatisfied demand has now reached 46 percent of the production.

1.02 The Government is aware of this situation and has placed the improvement of water supply to Greater Algiers among its highest priorities. Such improvement, however, would entail the transfer of water resources located outside the Algiers basin and costly river regulation schemes. It would also require better management of the services and greater participation of consumers in raising funds needed for expanding the services. It is a difficult task for which the Government has clearly expressed its desire to receive assistance from the Bank, whose involvement in the sector would be fully justified, as adequate water supply and sewerage have become prerequisite to urban renewal and continued industrial growth of Algeria.

1.03 The proposed project involves the construction of an impounding dam on Oued Boudouaou and another on Oued Isser, two river basins adjacent to Greater Algiers, to regulate an annual flow of 160 Mm3 for urban water supply. Because of the present institutional weaknesses of the sector, the project includes important software elements. A sector study would be carried out and another study would outline the policies and functions of a national regulatory authority to be set up for the water supply and sewerage sector. The project further includes management assistance to the water supply and - 2 -

sewerage company in Greater Algiers to assist it in the development and implementation of more effective policies and procedures.

1.04 The total estimated cost of the proposed works and technical assistance is US$770.5 million, with a foreign exchange component of US$392.4 million. A Bank loan of US$290.0 million to finance partly this component is proposed. The execution of some of the project components has started since early 1982 and the construction of the remaining elements is programmed to begin by mid-1985. Bids for this construction have already been received. The proposed project is technically sound and represent the least cost alternative for increasing water supply to Greater Algiers. It would amount to an investment of about US$ 219 per capita, which is acceptable considering the obsolescence of the existing system and the need to provide at once a large production increase.

1.05 A Bank loan (S-17AL) of US$5.0 million was made in 1980 for the project preparation which was carried out by the Ministry of Hydraulics with the assistance of British consultants. Formulation of a master plan for development of water resources in the Algiers/Sebaou region was also financed under the loan. The Bank reviewed the feasibility study of the master plan and actively participated in the formulation of the water supply project for Greater Algiers, which was originally appraised in June 1981. Further processing of a loan for the project, however, was stopped, awaiting the Government's approval of a tariff increase in Greater Algiers and more progress by the Algiers water company in strengthening its organization and procedures. These issues were finally resolved and a Bank mission composed of Messrs. Fritz Rodriguez and Nabil Shehadeh updated the project appraisal in March 1984.

II. THE WATER SUPPLY AND SEWERAGE SECTOR

Back round

2.01 Algeria is the largest country of North Africa and occupies an area of about 2.3 million Km2 which is divided by the Saharan Atlas into two distinct regions. North of the Atlas is a semi-arid area which encompasses a coastal strip along the Mediterranean, the interior plains, some highlands near the coast and the high plateaux located at about 200 kms from the coast. More than 95 percent of the Algerian population lives in this region. The mean annual rainfall in the northern areas varies from 300 mm to 1,000 mm, exceeding 600 mm only in the central and eastern coastal parts where the richest arable land is found. South of the Atlas is the Sahara where the mean annual rainfall is less than 100 mm, but which is rich in mineral resources. There are 17 major river basins in the country. - 3 -

2.02 Administratively, Algeria is divided into 31 provinces (wilayate) 11, 160 counties (dairate) and 704 communes. The current total population is estimated at 21 million. More than half of the population live in urban areas located along the Mediterranean. About 40 percent of the urban population is concentrated in the three largest metropolitan areas, Algiers, Oran and Constantine, whose annual population growth rate is estimated to be more than 5 percent. Most of the rural population resides in fixed settlements which need to be equipped with water supply and sanitation facilities; only a small portion of the rural population, roaming in the high plateaux, can be considered dispersed.

Water Resources

2.03 Water resources in Algeria are generally limited and difficult to exploit. Most of the surface water sources are dry in summer, are of poor quality and thus cannot readily be used for domestic and industrial supply. In general, regulation of the rivers through costly reservoirs is required in order to obtain economically exploitable yields. On the other hand, the rate of infiltration from storm runoff and surface sources is high and as a result, groundwater is available all over the country and represents more than two-thirds of the available water resources. The salinity of a large portion of the groundwater, however, is high, restraining its use for domestic consumption and irrigation. A majority of the cities are supplied with groundwater.

2.04 Overall, the average yield of the existing fresh water sources with full development of storage is estimated at 7 billion m3 /year, which should be sufficient to cover the water needs for urban, industrial and agricultural use until the early part of the next century. Beyond that time, it would become necessary to resort to reclamation of wastewaters and later on to desalination, to meet the demand. This situation already exists in some densely populated river basins where the present demand actually exceeds the available resources in these basins, and for which water needs to be transferred from adjacent basins. The scarcity of water within those basins and the need for high capital investments in water production and transmission facilities may constitute serious constraints to rapid industrialization in these regions.

2.05 In the Algiers area, groundwater is now used for both urban supply and irrigation. The present water demand in this area exceeds the potential capacity of the groundwater aquifer which is already over-exploited. Consequently, the groundwater level is lowering rapidly, with the possible danger of sea water intrusion into the aquifer and the subsequent degradation

1/ Recent proposals have been made by the Government to establish 48 wilayate. - 4 - of the water quality. To satisfy the growing demand, surface water sources must be developed to complement the groundwater production. The preparation of a master plan of water resources in the Algiers-Sebaou region (see Map 16089R) was financed under Loan S-17AL. An outline of the master plan is presented in Annex 1.

Sector Organization

2.06 The Ministry of Hydraulics (established in 1977, incorporating the former Secretariat of Hydraulics set up in 1970) is responsible for the development and conservation of the country's water resources and the planning and construction of water supply and sewer systems. Thirteen regional authorities, recently created, operate and maintain water supply and sewerage facilities in large urban areas; in the rest of the country, municipal entities are responsible for water production and distribution and for sewage collection in their municipalities.

2.07 The Government's objective is to decentralize the management and operations of water supply and sewerage, leaving such responsibility to regional enterprises set up to provide services in one or more adjacent river basins. A first experience with a regional enterprise was made with the creation of a wilaya authority, the "Soci6te des Eaux de l'Agglom6ration d'Alger - SEDAL", which provided water supply and sewerage services in Greater Algiers. SEDAL was set up as part of the Bank's first operation in the sector, the Algiers Sewerage Project (Loan 1545-AL). The SEDAL experience was conclusive and the Government in May 1983 established twelve more enterprises, based on SEDAL's organization as a model. At the same time, SEDAL was replaced by a regional authority, "Entreprise de Production, de Gestion et de Distribution d'Eau d'Alger - E.P.E.AL.".

2.08 In conjunction with the sector reorganization, the Government issued a Water Code (Law No. 83-17 of July 16, 1983), to regulate the allocation and collection of water resources, and to set out financial policies for the sector. In addition to dealing with ownership, concession and use of the water resources, the Water Code prescribes that water utilities should be managed as commercial enterprises and should implement the tariffs necessary to make them financially self-supporting. It also recommends that tariffs for industrial and commercial usage be set sufficiently high to encourage economic use of water.

2.09 To coordinate the operations of the regional authorities and to some extent arrive at cross-subsidizing financial resources in the sector, the Ministry of Hydraulics is considering the setting up of a national regulatory agency, which would function under this Ministry's authority. The agency would assist the Ministry in planning water supply and sewerage investments in the country and in establishing the level of Government contributions to the regional authorities. It would also formulate detailed policies for the sector and oversee the operations of the regional authorities. The Ministry of Hydraulics would request the assistance of organization consultants for establishing the functions and a work agenda for the national agency. Terms - 5 - of reference for this assistance, which has been included in the project, are given in Annex 2. During negotiations, assurances were obta-ined that, not later than January 1, 1986, consultants for the organization assistance will be retained in accordance with the Bank Group Guidelines for the Use of Consultants, and under terms and conditions satisfactory to the Bank.

Service Levels

2.10 Presently, the existing water supply and sewerage systems in most of the cities are obsolete and over-loaded. Though more than 80 percent of the urban population is provided with direct water service lines, only a third of this population can be considered well served. Preliminary results of a survey of water supply and sanitation services in 36 cities with populations ranging from 500,000 to 2,000 are shown in Annex 3. The overall per capita consumption varies widely from 286 liters/day in El Golea in the central part of Algeria to 20 liters/day in Chegoun in the Kabylie Mountains, but in most cases is considered inadequate. The per capita allowance is further greatly reduced by the high volume of unaccounted-for water which in most of the cities reaches around 50 percent of the production. In general, water supply in the cities is intermittent and available not more than 12 hours a day.

2.11 About 70 percent of the urban population is connected to public sewer networks which in most cases are combined systems evacuating also stormwater runoff. Wastewaters in the cities are in most cases discharged untreated into the Mediterranean or rivers. About 70 percent of the rural locations are provided with public water supply systems and 60 percent of them have sewer systems. About 40 percent of the rural population has direct access to public water supply networks; only 25 percent to sewerage.

Constraints to Sector Development

2.12 Until recently, the lack of sound financial policies in the sector was certainly a major constraint to its accelerated development. In general, all over the country, water tariffs have remained low during the last decade. The municipalities, which were responsible for water supply services, were reluctant to implement effective tariffs which would have encouraged consumers to economize on their water use. This situation has lasted until now, because past investments in water supply and sewerage were financed by Government grants to the municipalities. In addition, the municipal water supply agencies in most cases had delayed payment for their water purchases from bulk suppliers like SEDAL and SONADE 2/. As water demand has been increasing rapidly, the bulk suppliers in turn had been forced to make more lnvestments in production facilities, in spite of the municipalities' large overdue payments to them.

2.13 Administrative burden has also been another constraint to the sector development. The Ministry of Hydraulics, which is responsible for the construction of all major water supply and sewerage facilities, has been taking unusually long delays in implementing its work programs. In

2/ Soci6t6 Nationale de Distribution d'Eau Potable et Industrielle. - 6 - particular, bidding of the works has been long delayed, which has resulted in some cases in cost overruns. Though procurement regulations and schedules are well defined in codes, they have not been respected in most cases. The Bank has undertaken various project implementation reviews with the Government, to determine how the procurement process and project execution can be streamlined.

2.14 Further, the number of engineers and administrative staff in the sector is very limited. Other sectors offer better salaries and benefits and young professionals tend to join them instead of the water supply sector. To lessen this constraint, the Ministry of Hydraulics created in 1974 a specialized school, the "Institut d'Hydrotechnique et de Bonification - IHB". But, so far, the Institut has produced few graduates.

2.15 As part of the proposed project, the Ministry of Hydraulics will carry out a sector study which among other things will try to diagnose the causes for the slowness of the sector development. Terms of reference for this study are outlined in Annex 4. Consultants would assist the Ministry of Hydraulics in carrying out the sector study and would be retained in accordance with the Bank Group Guidelines for the Use of Consultants, and under terms and conditions acceptable to the Bank, not later than July 1, 1985.

Investment Program in the Sector

2.16 The second Four-Year Investment Plan (1974-77) included DA 4.0 billion (US$920 million) or about DA 240.0 (US$55.2) per capita for water supply and sewerage works. About DA 1.0 billion (US$230 million) of this amount was to complete works initiated during the previous investment plan (1970-73). These investments accounted for about 4 percent of the total capital expenditures in the public sector. The selection of communities, where investments were made, was based on the population growth rate, population density, percentage of population served, possibility of improving and expanding services and reducing water losses. With a few exceptions, so far, all projects in the water supply and sewerage sector have been financed 100 percent by Government grants, and the municipal authorities have practically no debt.

2.17 It is estimated that, during the first Five-Year Plan (1980-1984), investments in the order of DA 6.0 billion (US$1.3 billion) or about DA 300 (US$62.5) per capita, would be made in the sector. During the forthcoming Five-Year Plan (1985-1989), the Ministry of Hydraulics is proposing to invest DA 45.0 billion (US$9.4 billion) in the hydraulic sector, 50 percent of which in water supply and sewerage works. The projected substantial increase of investments during the next plan (almost four times the level of investments during the preceding plan in current prices) demonstrates the Government's commitment to improving rapidly the conditions and service levels in the sector. - 7-

Previous Bank Loans in the Sector

2.18 The Bank became involved in the sector in 1978 when the first loan (1545-AL, US$82.0 million) was made for the Algiers Sewerage Project, to finance the construction of sewer interceptors and a sewage treatment plant in Greater Algiers, and management and engineering studies in the cities of Algiers, Constantine and Oran. One of the objectives of this project was to strengthen the sector organization in Greater Algiers through the creation of a regional water supply and sewerage authority (SEDAL). In spite of some delays in implementing agreed policies, the SEDAL experience has been good, as proved by recent Government decision to set up similar authorities in the rest of the country. The Algiers Sewerage Project provided for the carrying out of a study of SEDAL's organization, management, tariffs and financial structure. The study was originally scheduled to be completed in September 1979 and the recommendations regarding SEDAL's financial policies and performance were to be implemented as of 1980. This schedule, however, was not met and the study was completed only in March 1981. EPEAL, which has succeeded SEDAL, has started to implement the new organization since January 1982.

2.19 Meanwhile, EPEAL's financial position has remained good, following the implementation of a 67 percent tariff increase which was effected under the Algiers Sewerage Project. As a start towards the implementation of new financial policies for EPEAL, the Government has recently approved a 41 percent increase of the water rates in Greater Algiers. Other steps that should be taken in the implementation of the financial policies would be set out in the agreement for the proposed project.

2.20 The execution of the works included in the Algiers Sewerage Project, after some initial delays, has been progressing recently extremely well; works are to be completed by the end of 1987. The initial delays have been due to various causes such as the failure to inscribe the project in the national budget and to appoint consultants, rethinking of the project concept, delays in the review and approval of bidding documents and in the procurement process. As of May 1, 1984, US$11.3 million was disbursed and loan disbursements are forecast to continue to pick up rapidly with the recent award of the remaining contracts under the project and the acceleration of the execution of the works.

2.21 The studies in Constantine were completed in 1982 and a project defined for this city; its construction is scheduled to start soon. The studies in Oran are still under way. The closing date of Loan 1545-AL was extended for a year to December 31, 1984 and would have to be extended further to allow full disbursement of the loan.

2.22 EPEAL's prime responsibility is to provide water supply services, whose quality directly affects the public perception of its performance. As already mentioned, these services are at present rather deficient, because of insufficient production. To help improve them, the Bank in 1980 made a loan of US$5.0 million (S-17AL) to finance water supply studies in Greater - 8 -

Algiers. As in the case of Loan 1545-AL. the selection process of consultants was delayed and the studies started in April 1981, a year later than originally scheduled in the loan agreement. The original closing date of the loan has been extended to December 31, 1984, but no further extension of the closing date would be necessary, as the studies are practically completed. As of May 1, 1984, US$2.6 million has been disbursed and an additional US$1.4 million would be disbursed by the end of the year. The original cost of the studies has been substantially decreased due to the appreciation of the US$ vis-a--vis other currencies, The unused balance of the loan (US$1.0 million) would be cancelled. The proposed project is based on the recommendations of these studies.

Bank's Objectives for the Sector

2.23 The Banik role and sector lending strategy are essentially geared towards assisting the Government in strengthening its project implementation capacity and establishing a strong institutional framework for the sector. The existing Bank-financed projects have been implemented with some delays in the schedule of the appraisal reports, and the Bank has reviewed with the Government the causes for such delays and suggested some actions, such as a project inscription in the budget prior to its appraisal, packaging of works in single contracts, decentralization of project construction supervision, which should improve project implementation performance. The Bank's involvement in the sector would be particularly effective in providing the necessary expertise in institution building, policy formulation and staff training. It is also expected that the Bank's association with the sector development would help to enhance the standing of the new regional authorities, strengthen their independence and ensure the implementation of financial policies that could lead to the finiancial viability of the sector.

III, THE PROJECT AREA

General Features

3.01 Algiers WLlaya, with a current population of 2.8 million, is Algeria's most populated provInce. It is also the most urbanized with 2.5 million people or almost 90 percent of the total population living in urban locatiors. About 84 percent of the urban population is concentrated in Algiers City, the nation's capital, and the political, economic and cultural center of Algeria. Algiers City is divided into 5 dairates (boroughs) and 13 communes (wards). (See Map 16088). Greater Algiers, which is made up of Algiers City and 10 more communes, extends along the Mediterranean coast from the Sahel Hills to the Mitidja Plain. Four more communes in Algiers Wilaya are not administratively integrated in the metropolitan area. But their total population accounts for less than 3 percent of the urban population in the wilaya. Water supply and sewerage services in Greater Algiers are provided by EPEAL. - 9 -

3.02 A relatively mild climate prevails in Greater Algiers, though high temperatures are occasionally recorded in summer. The mean annual rainfall varies from 580 mm to 760 mm, but is unevenly distributed through the year. Most of the rainfall occurs during the months of October through March, while it is practically dry from June through August. Rainstorms of high intensity (more than 100 mm per hour) and duration (more than one hour) often occur during the rainy season. Algiers City's configuration is rugged, making both the installation and operation of a public water supply system very costly. East of the city the land is flatter. But at the same time, convenient sites for service reservoirs cannot be found and expensive elevated tanks must be built.

Water Production Facilities

3.03 Potable water in Algiers Wilaya comes from some 145 wells sunk in the Mitidja and Sahel Plains. The wells are incorporated into 12 main well fields known as: Mazafran I, Mazafran II, Baraki, Haouch Felit, Oued Adda, Trois Caves, Haouch Bel-Abbes, Boureah, Thenia, Zemmouri, BirKhadem/Birmandreis and Hamiz. The well fields are owned and managed by EPEAL. They account for more than 96 percent of the total water production in the Wilaya. The remaining production comes from isolated wells owned by municipalities located outside of Greater Algiers. Total water production in 1983 averaged 412,000 m3/day, of which about 83 percent came from the three main fields of Mazafran I, Mazafran II and Baraki. With the exception of the Mazafran and Hamiz Well Fields, which are located respectively some 40 kms. west and east of Algiers City, all the other fields are situated within the limits of Greater Algiers, in the southern part of the metropolitan area (see Map IBRD No. 16089R).

3.04 The groundwater aquifers have been overexploited for some time and as a result, the water level in the wells has been lowering at an average rate of 0.40 m/year. The increasing water heads in the well fields collection systems ~haveresulted in decreasing production of the existing wells. To maintain the production level, it has been necessary to increase the number of wells or to equip the existing ones with more powerful pumping equipment. The Mazafran II Well Field, which accounts for 27 percent of the total available water production, was put in operation in July 1979. Water from all the well fields is of good quality and only requires normal disinfection.

Conveyance System

3.05 Most of the production of the three main well fields (Mazafran I, Mazafran II and Baraki) is conveyed to a central pumping station (El Harrach) from where water is boosted to the elevated areas of Greater Algiers. Water production in the other well fields is consumed locally. Two pipelines, a 900-mm and a 800-mm concrete, convey water from the Mazafran Well Fields to the El Harrach Pumping Station. In addition, from Mazafran I a 600-mm pipeline supplies water to the western part of Greater Algiers. Another 600-mm pipeline, connected to the Mazafran-El Harrach Main, provides water to the elevated central areas of Algiers City. The Baraki Well Field transits - 10 -

its production through four pipelines (a 1,000-mm,a 900-mm, a 700-mm and a 400-mm) to the El Harrach Pumping Station.

3.06 With the exception of the 600-mm pipeline serving the western areas of Greater Algiers, water flow in the conveyance system is boosted by the well pumps and four pumping stations. Twenty-three motor pumps with a total power of 13,600 HP are in operation in El Harrach Pumping Station. Some 300,000 m3 are transited daily through this station which was recently renovated and can provide many additional years of service. In general, the existing conveyance system is in good condition, though bursting of the Mazafran II Pipeline has in the past occurred at various times, because of construction faults in the pipe laying. Recently, the pipe foundations were reinforced in some sections of the pipeline.

Existing Distribution Network

3.07 Because of the rugged configuration of Algiers City, the water distribution network is one of the most complex and expensive to operate. Besides, the network is old and overloaded, as it was conceived to serve less than one-fourth of the current population. The distribution network is divided into various pressure zones, with elevations varying from 0 along the coast to 400 m in the Sahel Hills, and is made up of cast-iron pipes of diameters varying from 100-mm to 600-mm. The network functions by gravity only in a narrow strip along the coast. As ground elevations further inland increase rapidly, water must be boosted to reach the service areas. In addition to the El Harrach Station, five main booster pumping stations ~-m-aintainwater flows and pressures in the distribution network. Available service storage in the network amounts to 130,000 m3 or about 35 percent of the average daily consumption, which is considered adequate.

3.08 The existing water distribution network needs to be restructured and expanded to provide better continuous service to the consumers. In addition, a leak detection and repair program should be undertaken without delay to reduce water losses in the network, which are currently estimated at 14 percent of production. Preparation of a master plan for water distribution in Greater Algiers, which was partly financed under Loan S-17AL, was completed recently. A first construction stage of the plan is included in the proposed project and is expected to be completed at the end of 1989, by the time new production facilities, which are also included in the proposed project, would become operational.

Existing Sewerage

3.09 The 13 communes of Algiers City are served by a combined sewer system in which both wastewaters from households and industries, and stormwater runoff are collected and evacuated in the same conduits. Other districts of Greater Algiers, specially the industrial area, are equipped with separate sewer systems where wastewaters and runoff are collected and drained in different conduits. Most of the water customers are connected to the sewer - 11 - network and about 80 percent of water supplied to domestic consumers returns to the sewers. The existing sewer systems are relatively in good condition. There are 8 main sewage collectors, of which all but three are canalized through their entire length in close channels. The majority of industries in the El Harrach River basin use dry type processes requiring little water. Some industries of cellulose, barm and soap, however, use large individual volumes of water and discharge strong wastewaters.

3.10 Presently, wastewater generated in Greater Algiers is discharged without treatment into the Algiers Bay and El Harrach River whose allowable pollutional loading is very limited. It is estimated that the amount of waste matters actually poured into the river is 20 times greater than its permissible loading. As a result, waters along the coast and in El Harrach River are highly polluted and malodorous. The emission of hydrogen sulphide, characteristic of anaerobic decomposition in the river, can be detected a half mile away. Black sludge deposits and bubbles of decomposition gases can be observed along El Harrach River banks, which are densely populated with low-income people who now face increasingly unpleasant living conditions, as well as serious health risks.

3.11 In addition, potentially valuable vacant land at the river mouth is presently unused, because of the pollution problems. Recreational and fishing activities have many years ago ceased along the coast and in the river. The Algiers Sewerage Project, which is partly financed by the Bank (Loan 1545-AL, US$82.0 million) and whose objective is to redress environmental conditions in the El Harrach Basin, is currently under construction.

IV. DEMAND AND MARKET ASPECTS

Water Consumption

4.01 Current available water production for the Algiers Wilaya is estimated at 150.2 Mm 3 /year, which is about 46 percent lower than the calculated demand of 219.9 Mm3/year. No production increase is foreseen, until the proposed project becomes operational at the end of 1988, by which time the potential annual demand would be about 265 Mm3 . Thus, as the demand will continue to exceed the available supply, it will be necessary to continue to ration out water, which in some areas is already served only a few hours a day. Of the current total production, 96 percent or 144.2 Mm3 /year come from EPEAL's well fields. The rest is generated at individual wells operated by municipalities located outside the Greater Algiers area.

4.02 The evolution of water consumption and sales in Algiers Wilaya during the last four years is shown in Annex 5. Present per capita consumption for all usages averages only 108 liters/day, which is considered low for a city of the size and composition of Algiers. Since the demand was not met in recent years, the potential per capita consumption can only be estimated. In the - 12 - coming years, the available per capita consumption will continue to decrease, as the population increases, while production remains at the 1983 level. About 98 percent of the urban population in the Algiers Wilaya receives direct water supply services through some 95,000 service lines. Total water sales in the wilaya in 1983 reached 94.6 Mm3 /year, resulting in about 37 percent of the production unaccounted-for.

Composition of the Demand

4.03 A breakdown of water consumed in Greater Algiers in 1983 apportions the different uses as follows:

Domestic 58.8 Public 15.8 Industrial 10.6 Commercial 10.0 Others 4.8

All Uses 100.0

Essentially, water consumed in Greater Algiers is for domestic and public uses which account for almost 75 percent of total consumption. The commercial and industrial sector accounts for slightly more than 20 percent of the total consumption. Other uses correspond to water consumed in street washing, public gardens, etc.

Population Forecast

4.04 Results of the 1966 and 1977 census in Algiers Wilaya are shown in Annex 6. Between 1966 and 1977 the Algiers Wilaya's population grew at an average annual rate of 5 percent. The rate of population growth in Algiers City was, however, less (about 4.6 percent), while it remained at a high of 6.5 percent in the rest of the wilaya. A similar trend is expected to continue in the future, as the population in Greater Algiers seems to be inflecting towards its saturation level. Meanwhile, it is expected that the population in the suburban areas will continue to grow much faster than in the rest of the country, since the metropolitan area will remain an attractive pole for the population of a large number of medium and small cities in the adiacent wilayate.

4.05 Estimated mid-year urban populations in Algiers Wilaya in the years 1985 through 2000 are given in Annex 5. They have been estimated assuming that the population growth would average 4.1 percent in the eighties and then 3.6 percent in the nineties. Under the Government-approved urbanization plan for Greater Algiers, most urban development would continue to take place irn the eastern part of the wilaya, on the right bank of El Harrach River. The 1977 census recorded 288,400 households in Algiers Wilaya, resulting in an average occupancy of 6.8 persons per household. This occupancy level is expected to remain unchanged during the next ten years. - 13 -

Projected Water Consumption

4.06 Because of the current water shortage in Greater Algiers, it has not been possible to use the present water sales to estimate the per capita consumption and future water requirements, as the potential demand largely exceeds available supply. To estimate future water demands, it has been necessary to assume an average per capita water consumption which has been determined on the basis of levels of water consumption in other north African capital cities 3/, where climatic and social conditions are similar to those in Greater Algiers. It has been further assumed that the per capita consumption will increase slowly through the years, as the country's economy continues to grow.

4.07 Forecast water consumption up to the year 2000 is shown in column 8 of Annex 5 and illustrated in Annex 7. It is anticipated that by early 1989 the proposed project would become operational and that the demand would be met fully. It is further assumed that by that year the entire urban population would be connected to the water network and that unaccounted-for water would slowly decrease to level at about 25 percent by 1995. Water sales are projected to increase by 90 percent in 1989 and then to continue to rise at an annual growth rate of about 5 percent. Average per capita water usage is forecast to increase to 49.1 m3 /year by 1995. The maximum day demand is calculated to be about 20 percent higher than the yearly average demand. The maximum hour demand is expected to exceed by 70 percent the yearly average demand. A minimum residual pressure of 3 bars (43.5 psi) would be maintained in the distribution network.

V. THE PROPOSED PROJECT

Project Genesis and Concept

5.01 In 1980, the Bank made a loan of US$5.0 million (S-17AL) to the Government of Algeria to partly finance a Water Supply Engineering Project which covered inter alia: (i) the assessment of urban, industrial and agricultural water needs in Greater Algiers and surrounding areas; (ii) the preparation of a master plan for the use of water resources in the Mitidja/Isser/Sebaou region; (iii) the detailed design and preparation of tender documents for a first construction stage of water production facilities for the Algiers Conurbation; and (iv) the preparation of a master plan of potable water distribution in Greater Algiers, and the detailed design and tender documents for a first construction phase of this plan. The Bank was concerned with the evident water shortage in Algeria's largest urban area and

3/ Average per capita water consumption in the metropolitan area of Tunis is about 70 m3 /year; 53 m3/year in the Rabat-Casablanca Conurbation. - 14 - the Government's apparent lack of technical capability to eliminate such shortage. The Engineering Project was recently completed and bids for construction of the first phase of production and distribution facilities in Greater Algiers were received at the end of March 1983.

5.02 Greater Algiers is now served by groundwater whose current production has already exceeded the safe yield of the aquifer and cannot be increased to meet the demand. There is no other major aquifer in the area and the next source of supply would have to be surface water. Various alternatives of surface water have been identified and evaluated in previous studies. One alternative would be to divert water from Oued Mazafran into a reservoir located at Douera, west of Algiers City (see Map No. 16089). A second alternative would consist of building an impounding dam on Oued El Harrach at Rocher des Pigeons. A third one would be to impound waters of three oueds, Isser, Boudouaou and Hamiz, in a reservoir located at Keddara, east of Algiers City.

5.03 An economic comparison of the three schemes showed that the Keddara System is the least-cost alternative to increase potable water production to Greater Algiers and has been integrated as such in the master plan. The Keddara System involves the construction of a 160-Mm3 impounding reservoir (Keddara) on Oued Boudouaou to store additional raw waters from Oueds Isser and Hamiz, followed by treatment and finished water conveyance to Greater Algiers. To that end, excess water from an existing dam (Hamiz) and part of the flow of Oued Isser (the second most important oued in the Sebaou/Isser/Mitidja Valley) would be diverted and transferred to the Keddara Reservoir, from which raw water would be drawn and treated in a plant to be built near the town of Boudouaou. The Keddara Dam and the Hamiz-Keddara Tunnel are now under construction. Detailed design and bidding of the other components of the Keddara System have been completed recently and their construction is expected to start by mid-1985.

5.04 There are several ways that water from Oued Isser can be diverted and transferred to the Keddara Reservoir. Annex 8 outlines the technical and economic evaluation of the feasible alternatives for this transfer. The conclusion of the evaluation is that the least-cost alternative would be to build a small impounding dam (18 Mm3 ) on Oued Isser at Beni Amrane and to pump the diverted waters directly to the Keddara Reservoir (see Map 16089R).

5.05 On the basis of 40 years of stream flow records, the regulated flow of Boudouaou River at Keddara Dam would be about 20 Mm3 /year, while an average flow of 30 Mm3 /year would be diverted from the Hamiz Reservoir to the Keddara Dam. The transfer from Oued Isser would supply an average 110 Mm3 /year. In total, the yearly regulated flow by the Keddara Dam would be 160 Mm3. Such an increase in raw water production would be sufficient to meet the demand up to 1993. Beyond that year, a new water supply source, which is foreseen to come from Oued Sebaou located further east to Algiers, should be put in operation.

5.06 The proposed project, which covers the construction of the Keddara System and other water transmission and distribution works in Greater Algiers, - 15 - stems from the studies included in the Water Supply Engineering Project (Loan S-17AL) and from previous studies carried out by the Ministry of Hydraulics and the Ministry of Industry and Energy (SONATRACH) for the development and use of the country's water resources and in particular for an increase of water supply to Greater Algiers. The feasibility study of the Keddara System was carried out by an American consulting firm, Hydrotechnic Corporation. The design of the Keddara Dam was carried out by a specialized Swiss consulting firm and later verified by a specialized Portuguese engineering consulting firm (KOBA associated with COYNE ET BELLIER, France), which also prepared the detailed construction drawings. The smaller Beni Amrane Dam was designed by British experts (Binnie & Partners). The concept and design of the dams were reviewed by a panel of experienced and competent dams' experts of the Ministry of Hydraulics acceptable to the Bank. Normal and acceptable precautions against earthquakes have been taken into account in the design of the dams.

Objectives of the Project

5.07 The objectives of the proposed project are to increase water production to the level required to meet the unsatisfied demand and future demand up to 1993 (which is forecast to reach 308 Mm3 in that year) and to expand and improve water distribution in Greater Algiers. The existing distribution network is old, and a large volume of water distributed is now lost through leaks in the system. Under the proposed project, the secondary distribution network would be renovated and an extended program of leak detection and repairs would be executed, in order to reduce the percentage of unaccounted-for water to not more than 25 percent by 1995.

5.08 Under the Algiers Sewerage Project (Loan 1545-AL), management assistance was provided to EPEAL for defining and outlining its organizational structure, administrative procedures and financial objectives. The execution of this assistance was successful and has led to major improvements of EPEAL's operations. Meanwhile, the field of EPEAL's activities has been expanded to cover all the wilaya of Algiers and consequently its organization needs to be modified to suit its new responsibility. The proposed project includes technical assistance for updating the previous management and financial studies and for helping EPEAL implement the resulting recommendations (para. 7.10).

Project Description

5.09 The project is composed of two parts and includes:

PART I

(i) the construction of an impounding dam on Oued Boudouaou (Keddara Dam) and a tunnel to transfer excess waters of the Hamiz Reservoir into the Keddara Reservoir (para. 5.10); and

(ii) the supply of mechanical and auscultation equipment for the Keddara Dam. - 16 -

PART II

(a) the construction of a diversion dam on Oued Isser at Beni Amrane, pumping facilities and a conveyance main (including two tunnels) to transfer waters to the Keddara Reservoir (para. 5.11);

(b) the construction of a water treatment plant at Boudouaou, with an original capacity of 450,000 m3 /day (para. 5.12);

(c) the laying of a transmission pipeline between the Keddara Reservoir and the Boudouaou Treatment Plant;

(d) the installation of a transmission pipeline to convey finished water to Greater Algiers (para. 5.12);

(e) the laying of two primary distribution mains and the construction of three new reservoirs and related pumping stations (para. 5.13);

(f) the supply of master and domestic water meters and operational equipment for EPEAL (para. 5.15);

(g) a leak detection and repair program aiming at reducing unaccounted-for water from a present 38 percent of water production to about 30 percent by 1990 (para. 5.15);

(h) technical assistance to EPEAL in reviewing and implementing its organizational structures and management and financial procedures (para. 7.10); and

(i) technical assistance to the Ministry of Hydraulics in carrying out a sector survey and establishing a national agency for the regulation and supervision of the regional water supply and sewerage authorities (paras. 2.09 and 2.15).

5.10 A general layout of the proposed facilities is shown on Map IBRD No. 16089R. The Keddara Dam would be a rock embankment, with a central core of clay. It would have a height of 108-m at the lowest point and would be 486-m long at the crest. A seal gallery of 550-m long would be built along the dam to put in place an impervious core and cut-off wall in the foundations. The dam would incorporate a 45-m wide surface spillway to divert flow into a channel located at the embankment toe. A tower intake, equipped with gates allowing to draft water at three different elevations in the reservoir, would be built on the left bank of the oued. The Keddara Reservoir would submerge a 9-Km stretch of Route No. 29 and about 7 Kms of a high voltage electric line, which would be relocated under the project. Some 10 families, whose settlement was in the Keddara Reservoir, have been relocated. - 17 -

5.11 Like the Keddara Dam, the Beni Amrane would be a rock-fill dam with an impervious element. Its capacity would be, however, only 18 Dm3. The dam would be 38-m high and 10-m wide at the crest, and would contain a total amount of 655,000 m3 of earth and rock fill. The dam would be equipped of a side-channel spillway which would be located in a concrete structure containing an outlet and a number of floodgates mounted on the river bottom, to allow regular cleaning of the reservoir. The Oued Isser waters carry a high load of suspended solids (14 g./liter) and the Beni Amrane Reservoir would serve as a sedimentation basin prior to the pumping of the water to the Keddara Dam. The Beni Amrane Reservoir, however, would have to be flushed regularly, specially at times of flood, to impede quick silting of the reservoir. Only two families, whose properties are within the limits of the Beni Amrane Reservoir, would need to be relocated.

5.12 From the Beni Amrane Reservoir, the water would be drawn to a pumping station which would transfer it through a 2-m pipeline over 28 kms to the Keddara Reservoir. Two sections of the conveyance system, totaling 1.75 kms, would be built in tunnel. The Keddara Reservoir would supply raw water to the Boudouaou Treatment Plant located some 8 kms downstream the dam. The plant would be a conventional one and would include standard processes, such as sedimentation, filtration and disinfection. A 2-m pipeline, 32-km long, would convey the treated water to the city of Algiers.

5.13 The present way of feeding the existing pressure zones in Greater Algiers would basically remain unchanged. Two new distribution centers, however, would be established at Gu6 de Constantine and Beaulieu. The new production facilities would be connected to the existing El Harrach Pumping Station and to the new distribution centers, from where water would be conveyed to the service reservoirs through the existing transmission mains and two new primary mains. The first would connect the distribution center of Beaulieu to the pumping station of Telemy and would serve the low level districts of Algiers. The second main would convey water from the distribution center of Gue de Constantine to a new reservoir at Sidi Garidi and would serve the high level districts located west to Algiers. Three new storage tanks would be built respectively at Gu6 de Constantine (20,000 mi3 ), 3 3 Sidi Garidi (25,000 m ) and Beaulieu (40,000 M ).

5.14 The existing main production facilities are located west to Greater Algiers and connected to the El Harrach Pumping Station. The new production would be coming from the east. Under the proposed project, the existing production facilities would first serve the western part of Greater Algiers, after which any excess would be conveyed to the El Harrach Pumping Station. The new production facilities would serve the eastern part where most urban development is currently taking place.

5.15 The objectives of items 5.09 (f) and (g) of Part B of the project are to arrive at establishing a better estimate of the levels of water production and consumption in the Algiers Conurbation and to reduce unaccounted-for water. A better knowledge of these levels would result in a more efficient - 18 -

management of the existing water supply network and the future Keddara System. An appreciable volume of water (17 Mm3 /year), which is actually lost through leaks in the network, could be recuperated and used to somewhat alleviate the water shortages that are expected to be felt in Greater Algiers until the completion of the proposed project. EPEAL is committed to reduce by 1990 the amount of unaccounted-for water to 30% of production and agreement was reached on an action program.

Cost Estimates

5.16 The estimated total cost of the project is DA 3,698.2 million (US$770.5 million) with a foreign exchange component of DA 1,883.0 million (US$392.4 million) or 50.9 percent of the total cost. A summary of the cost estimates follows. Detailed cost estimates and annual project investments for Parts I and II are given in Annexes 9 and 10.

Local Foreign Total Local Foreign Total % Item ----- DA Million ------US$ Million ----

Keddara Dam and Hami7- Keddara Tunnel 351.6 231.8 583.4 73.2 48.3 121.5 19.7 Mechanical and Auscultation Equipment 3.2 11.7 14.9 0.7 2.4 3.1 0.5 Beni Amrane Dam 184.0 122.7 306.7 38.3 25.6 63.9 10.3 Beni Amrane Pumping Station 20.2 54.6 74.8 4.2 11.4 15.6 2.5 Raw Water Pipelines 107.0 160.4 267.4 22.2 33.4 55.6 9.0 Boudouaou Treatment Plant 129.2 145.7 274.9 26.9 30.4 57.3 9.3 Filtered Water Pipeline 127.1 190.7 317.8 26.5 39.7 66.2 10.7 Storage Tanks and Pumping Stations 107.5 107.6 215.1 22.4 22.4 44.8 7.3 Distribution Network 195.7 212.0 407.7 40.8 44.1 84.9 13.8 Instrumentation 0.8 4.8 5.6 0.2 1.0 1.2 0.2 Supply of Water Meters 0.9 1.0 1.9 0.2 0.2 0.4 0.1 Leak Detection Program 0.9 1.0 1.9 0.2 0.2 0.4 0.1

1,228.1 1,244.0 2,472.1 255.8 259.1 514.9 83.5 - 19 -

Local Foreign Total Local Foreign Total % Item ----- DA Million ------US$ Million ----

Physical Contingencies 193.6 193.1 386.7 40.3 40.3 80.6 13.1 Construction Supervision 41.9 46.7 88.6 8.8 9.7 18.5 3.0 Technical Assistance to EPEAL 1.4 3.4 4.8 0.3 0.7 1.0 0.2 Technical Assistance to the Ministry of Hydraulics 1.9 4.3 6.2 0.4 0.9 1.3 0.2

Total Cost (March 1984 Prices) 1,466.9 1,491.5 2,958.4 305.6 310.7 616.3 100.0

Price Escalation 347.8 388.6 736.4 72.5 81.0 153.5 24.9

Front End Fee - 3.4 3.4 - 0.7 0.7 0.1

TOTAL PROJECT COST 1,814.7 1,883.5 3,698.2 378.1 392.4 770.5 125.0

(Current Prices)

% 49.1 50.9 100.0 49.1 50.9 100.0

5.17 The cost estimates are based on actual bids for construction of the project components, and include customs duties on imported equipment and materials, and other taxes on sales and services. To the bid prices, a 15 percent allowance has been added for physical contingencies. Construction supervision of the works is estimated to account for about 3 percent of the project costs. To provide for price escalation during the project execution, local expenditures are projected to increase by 7.5 percent in 1984, 7 percent in 1985 through 1988 and 6 percent in 1989. Foreign expenditures are projected to increase by 3.5 percent in 1984, 8 percent in 1985, 9 percent in 1986 through 1988, and 7.5 percent in 1989. Price escalation, which has been limited to contractual ceilings, is forecast to account for about 25 percent of the sum of the base costs and the physical contingencies and construction supervision.

5.18 The project provides for an estimated 1,350 man-months of consultant services for the technical assistance to the Ministry of Hydraulics and EPEAL, and for construction supervision of the proposed works.

Project Execution

5.19 A bar chart for the project execution is presented in Annex 11. The construction of the Keddara Dam and the Hamiz-Keddara Tunnel (Part A of the project) has started since January 1982 and is well under way. This part would be completed by the end of 1986. Meanwhile, bids for the remaining - 20 - project components (or Part B) were received at the end of March 1984. The execution of this part is expected to start by mid-1985 at the latest and to be completed by the end of 1989. The production facilities, however, are programmed to be completed by the end of 1988, and a major production increase would become available in early 1989. Other works in the distribution system would be completed by the end of 1989.

5.20 The Ministry of Hydraulics, with the assistance of consultants, is supervising the construction of the Keddara Dam and the Hamiz-Keddara Tunnel. The Ministry would also be responsible for the construction supervision of the other project components. It would retain a consulting firm to assist it in supervising the project construction. This firm would also conduct periodic reviews with the panel of experts during construction to ensure whether any modifications in the design of the dam have become necessary. Furthermore, agreement was reached during negotiations that the Borrower would employ by July 1, 1988, engineering consultants to assist the Ministry of Hydraulics in annual inspections of the Keddara and Beni Amrane dams and related structures. After 1992 these inspections would be done once every five years. The firms would be retained in accordance with the Bank Group Guidelines for the Use of Consultants, under terms and conditions satisfactory to the Bank, not later than January 1, 1985.

Project Financing

5.21 The construction of Part I of the Project has been underway since 1982 and the Government has already invested DA 175.7 million (US$36.6 million) in this part. An additional amount of DA 84.7 million (US$17.6 million) would be invested during the first semester of 1984. The remaining investments, for which financing is being sought, are estimated to amount to DA 3,434.2 million (US$715.4 million), with a foreign exchange component of DA 1,772.6 million (US$369.3 million).

5.22 The project would be executed over a six-year period. A Bank loan of US$290.0 million, including a capitalized front-end fee, would finance part of the foreign exchange cost of the project. The loan would be made to the Covernaint and would be repaid over 15 years including 3 years of grace, at the standard variable interest rate. The loan should become effective by March 1985. EPEAL would finance the local cost of secondary distribution works, of the leak detectlon and repair program, the supply of water meters, and the technical assistance program to the enterprise. The Government would finance the balance of local and foreign exchange costs of the project. On this basis, the financing plan for the project would be as follows: - 21 -

1982 - 1989 Requirements DA US$ % ------Million

Project Expenditures 3,698.2 770.5 100.0

Financed by: Government: Local Expenditure 1,489.4 310.3 40.3 Foreign Expenditure 491.4 102.4 13.3 EPEAL 325.4 67.8 8.8 Bank 1,392.0 290.0 37.6

Total 3Z698.2 770.5 100.0

Reimbursement of the Government

5.23 Once the construction of the project has been completed, the Government will transfer the ownership of the facilities to EPEAL, which will operate and maintain them. The legislation governing the operations of water supply and sewerage enterprises in Algeria requires that the enterprises finance their investments principally by long-term loans and eventually develop a self-financing capability. It is therefore intended that EPEAL should reimburse the Government for part of the investments in the project.

5.24 Some of the facilities, such as the two dams, represent enormous investments which would be amortized over a long period of time. However, in view of the short period of time for repayment of the debt, the debt service for the construction of the dams would be extremely high. Further, it has been necessary to lump the investments together, trying to catch up the delays in providing an adequate water supply system in Greater Algiers. Under these circumstances, it would be impossible for EPEAL to assure the full debt service on the proposed loans, if reasonable tariffs were to be maintained during the next five years.

5.25 Thus, it is proposed to consider the cost of the two dams as a Government contribution to EPEAL and to limit EPEAL's reimbursement to US$212.0 million equivalent. To this amount would be added interest and other charges paid by the Government on the funds during the construction period. The reimbursement would start from July 1, 1990 and would be completed over 20 years, with an interest rate of 10 percent. The foreign exchange risk on the loan would be borne by the Government. Details of the reimbursement modalities, together with the conditions of Government financing of the program, would be set out in a Reimbursement Agreement between the Government and EPEAL. The execution of this agreement, with terms and conditions satisfactory to the Bank, will be a condition of effectiveness of the proposed Bank loan.

5.26 Including the value of the dams, the Government would make an equity contribution of DA 1980.8 million to EPEAL for the project financing. EPEAL should be required to reflect such contribution in its statutory capital. Assurances to this effect were obtained during negotiations. - 22 -

Procurement

5.27 The contract for construction of the Keddara Dam and the Hamiz-Keddara Tunnel was awarded to a Yougoslav firm, Hidrotecnica, following international competitive bidding consistent with the Bank's guidelines. Similarly, international competitive bidding procedures are also being followed to secure the works included in Part II of the project. Bids for this part were received on March 31, 1984. Their evaluation is now under way. The works would be awarded to a single contractor or at most to two contractors. This solution has been adopted to speed up the bidding process and to ensure better planning and coordination of the execution of the works. In evaluating bids for the supply of equipment and materials, a 15 percent margin of preference or the actual customs duties, whichever is lower, would be allowed for goods manufactured in Algeria.

5.28 A summary of project elements and method of procurement is as follows:

Procurement Method 4/ Total Project Element ICB LCB Other Cost --- US$ Million --- US$ Million

Keddara Dam & Tunnel 155.6 155.6 (40.5) (40.5) Mechanical & Sounding Equipment 4.3 4.3 (2.9) (2.9) Consulting Services - Dam and Tunnel 1.3 1.3 (0.8) (0.8) Construction Supervision 1.2 1.2 (0.0) (0.0) Beni Amrane Dam, Algiers Pipeline, Treatment Plant and Related Works 583.3 583.3 (233.3) (233.3) Equipment (Meters) 1.0 1.0 (.5) (.5) Consulting Services 23.10 23.10 (11.3) (11.3)

TOTAL PROJECT 744.2 25.6 769.8 (277.2) (12.1) (289.3)

Disbursement

5.29 Annex 12 shows the allocation of the loan proceeds to various types of expenditures. In order to avoid a repetition of long delays which have

4/ Figures in parenthesis are the amounts proposed to be financed by the Bank. - 23 -

occurred in the implementation of two previous Bank-financed projects in the sector, specially during the bidding process, advanced contracting of the proposed works has been sought, so that disbursement of the Bank loan can commence right upon its effectiveness. The proposed Bank loan would be disbursed against foreign expenditures made for the project from July 1, 1984. US$3.6 million equivalent in retroactive financing would be foreseen as of July 1, 1984. Through July 1, 1984 the Government is projected to have already invested US$22.4 in foreign expenditures from its own resources and would forward the remaining foreign expenditures (of US$80.0 million) through the project completion.

5.30 Estimated quarterly disbursements of the loan and Government funds are shown in Annex 13. The estimates are not based on disbursement profiles of past water supply projects in Algeria, because the status of preparation of

the proposed project is very different from that of previous water supply projects. Rather, the loan disbursements have been estimated on the basis of the work programs submitted by the contractor for the Keddara Dam and the Hamiz Tunnel and bidders for Part B of the project. Disbursement is expected to advance rapidly, as works under the contract for the Keddara Dam are progressing well and the other contract should be awarded prior to the loan effectiveness, two features which allow to forecast faster disbursements than in previous projects.

5.31 In order to make prompt payments to contractors and consultants for the project, the Bank should agree to advance regularly funds for the establishment of a Revolving Fund in Algeria to cover these payments. The Fund would be maintained at the Central Bank of Algeria for a maximum amount of US$10.0 million which would cover the Bank's share of eligible expenditures on the project over a period of three months. The Fund would be maintained in US dollars and replenished by reimbursement applications from the Government in US dollars. Applications with appropriate supporting documentation, covering the use of the Fund, should be submitted when approximately half the maximum allowed amount in the Fund has been spent. The establishment of a special account for the Fund at the Central Bank of Algeria would be a condition of effectiveness of the proposed loan.

5.32 The closing date of the loan would be December 31, 1991, or two years after the provisional acceptance of the works, which is the time needed to monitor the performance of the works and to return retention money on the civil works contracts.

VI. PROJECT IMPLEMENTATION AND OPERATION

Executing Agency

6.01 The Ministry of Hydraulics through its "Direction Gen6rale des Infrastructures Hydrauliques" (DGIH) would be responsible for the construction - 24 - of the project. Under the current organization of the Ministry of Hydraulics, DGIH is in charge of the design and construction of water works for irrigation, water supply, sanitation and drainage. DGIH is well organized and staffed. It is presently divided into three major departments: water resources development, water supply and sewerage, and irrigation and drainage. Below the departments are various divisions in charge of specific fields (see Annex 14, Organization Chart of the Ministry of Hydraulics).

6.02 DGIH is currently managed by a competent, dynamic and very influential Chief Engineer. The present staff numbers 66 civil engineers, 30 technicians and 410 foremen. In addition, 64 foreign advisors provide technical assistance to the agency. A team of 9 civil engineers and 30 technicians has been assigned for the construction supervision of the Keddara Dam and the Hamiz Tunnel. A similar but more staffed team would be formed for the construction supervision of the other project components. However, in view of the importance of the works and the expertise required for their proper execution, DGIH would be assisted by specialized engineering consultants for construction supervision of the project (para. 5.20).

6.03 The metering and leak detection and repair programs would be executed by EPEAL, the regional authority responsible for providing water supply and sewerage services in Greater Algiers. The installation of the meters and the works under the leak detection and repair program would be carried out by EPEAL's own technicians who are the only specialists in Algeria of this type of work. The Bank loan will be disbursed against only the supply of equipment and materials for the programs.

6.04 DGIH carries insurances covering motor vehicles, fire damages and third party liability. It is also insured for workmen's compensation. All supply and civil works contracts on the project will be insured against loss and damage in shipment, work accidents, fire and property damages.

Operation and Maintenance

6.05 A department of the Ministry of Hydraulics, the "Direction G6n6rale de l'Exploitation - DGE" operates and maintains dams and irrigation structures in Algeria. The DGE would continue to provide such services to EPEAL for the Keddara Dam, the Hamiz-Keddara Tunnel and the Beni Amrane Dam. EPEAL would pay DGE for its services.

6.06 Maintenance of the Keddara Dam, the Beni Amrane Dam and related works would require special attention, since any structural failure could result in severe loss of life and property in the Boudouaou Valley and the Isser Plain. As a precautionary measure, engineering experts should inspect the dams regularly to ensure that no structural deficiency is developing in the dams and reservoir banks. Following an inspection, the Ministry of Hydraulics would carry out any remedial actions suggested by the consultants and found necessary (see para. 5.20).

6.07 The other project facilities, after they are completed, will be handed over to EPEAL which will be responsible for their operation and - 25 - maintenance. A training program for EPEAL's staff was included in the Algiers Sewerage Project (Loan 1545-AL) and is currently under implementation (para. 7.14). One major success of this program has been the creation of a training school which has already graduated 24 electro-mechanical engineers. More training is being undertaken to cover other fields like plumbing, administration, etc.

6.08 Thus, it is expected that by the time the proposed project becomes operational in early 1989, EPEAL will have the technical capability and the staff required to operate and maintain the project facilities properly. The training program, as defined in the Algiers Sewerage Project (Loan 1545-AL), is progressing well and sufficient funds are available for its execution. No amendment of the program or additional funds are required under the proposed project.

Project Accounts and Audit

6.09 DGIH maintains records and separate accounts for its projects. A financial controller from the Ministry of Finance permanently controls the accounts. The present system is satisfactory. Data on project expenditures would be sent regularly to the Bank as part of DGIH's quarterly progress reports (para. 6.10).

Reporting

6.10 In order to measure progress in the project implementation, agreement was sought during negotiations that DGIH and EPEAL will submit quarterly reports to the Bank. The reports will in particular cover:

(a) progress in procurement of equipment, materials and civil works;

(b) progress in construction of the proposed facilities; and

(c) expenditures incurred and updated cost estimates of remaining works.

6.11 DGIH and EPEAL would, within six months following the closing date of the loan, prepare and submit to the Bank a completion report on the execution and initial operation of the project, its costs and the benefits derived or to be derived from it, the performance and fulfillment by the Government, the Bank, DGIH and EPEAL of their respective obligations under the Loan Agreement and the Project Agreement and the accomplishment of the objectives of the Bank loan. - 26 -

VII. THE BENEFICIARY

Background

7.01 The project facilities would be operated by EPEAL, a public enterprise established by Presidential Decree No. 83-333 dated May 14, 1983. In accordance with the decree, EPEAL is responsible for the provision of domestic and industrial water and the collection and treatment of wastewater in the wilaya of Algiers. EPEAL was set up, as one of thirteen new regional water supply and sewerage companies, in a major reorganization of the sector, to replace SEDAL, the Wilaya company, which was responsible for the same services (para. 2.07). SEDAL itself was created in 1977 as part of the first Bank-financed operation in the sector, the Algiers Sewerage Project (Loan 1545-AL). Under the Bank loan, management assistance was provided to SEDAL to establish its organization and financial policies. EPEAL, in fact, is not different from its predecessor, except that it operates under the tutelage of the Ministry of Hydraulics and its jurisdiction covers a larger territory extending over the wilaya of Algiers.

7.02 EPEAL is a young public-owned enterprise. It has a corporate statute, is financially autonomous and managed as a commercial undertaking. Its parent authority (the Ministry of Hydraulics) exercises overall governmental control of the enterprise, such as, approving its investment program and annual budgets, annual accounts and decisions on borrowing and tariff levels.

7.03 The former SEDAL was formed through the merger of three water supply companies 5/ and the sewerage service of the city of Algiers. EPEAL has completed the takeover of the water supply and of the major sewerage facilities in Algiers. The transfer of responsibility for the secondary network is to be completed by end 1987.

Past Performance

7.04 EPEAL is the beneficiary of Loan 1545-AL made in April 1978 to finance partly sewerage works in Greater Algiers. The executing agency of the sewerage project was the "Direction de la Wilaya d'Alger Charg6e de l'Hydraulique - DWH", while EPEAL was essentially responsible for the execution of management and financial studies for the company. Contrary to the rest of the project, the consultants for the studies were employed promptly and the studies were completed with slight delays in the appraisal report schedule. EPEAL has put in place the organizational structure

5/ They were (i) SONEDE-WA, a division of the National Water Production Company serving the Western part of Algiers; (ii) ECOEVA, a municipal company serving the rest of Algiers; and (iii) Societ6 Alg6rienne des Compteurs d'Eau (SACE), a service company which was managing water meters in individual apartment buildings served by SONEDE-WA and ECOEVA. - 27 - recommended under the studies, and as a result, the company's administrative procedures have improved. SEDAL's financial situation was affected by delays of the Government approval of increased tariffs (see Chapter VIII).

Organization and Management

7.05 Annex 15 shows the current organizational structure of EPEAL. A Board, chaired by the Director General, supervises EPEAL's activities. All Board members are full-time managers of EPEAL, with the exception of two who are workers' representatives. The General Director is appointed by Presidential decree upon nomination by the Minister of Hydraulics. He is responsible for the day-to-day operations of the Company, which are handled by six departments: water operations, sewerage operations, administrative, finance, commercial, and engineering studies and new works. The Director General is also assisted by two divisions, one for organization and data processing, and another for legal matters.

7.06 The ongoing Algiers Sewerage Project included a technical assistance component for setting up EPEAL's structure. The organization and management part of the studies included the definition of EPEAL's organizational structure, the preparation of statements of objectives for all functional units and detailed organization of the units. The studies, which were completed in 1981, covered also the provision of assistance for improving billing and collection, accounting procedures, fixed assets and materials control systems. They further included a study of computerization of EPAL's activities and the feasibility of acquiring data processing equipment for the company.

7.07 As a result of the assistance, substantial progress and improvements have been achieved in the company's organization, notably in reorganizing the commercial department, the operating districts, and the finance department. In addition, EPEAL is in the process of purchasing computer equipment and has implemented the systems developed by the consultants for billing. The implementation of the studies' recommendations was affected, however, by (i) the expectation that a different organization might be needed following a proposed sector organization (para.7.01); (ii) the unavailability of adequate office space, due to delays in achieving the construction of the company's head office; and (iii) a lack of qualified staff to continue the implementation of the studies' recommendations.

7.08 The sector reforms are now known and EPEAL's jurisdiction has been expanded to cover the whole Algiers Wilaya. As a result, there is a need for revising EPEAL's organizational structure and management requirements. EPEAL, in accord with the Ministry of Hydraulics, believes that the management study should be updated to fit its expanded organization. However, given the magnitude and volume of the ongoing water supply and sewerage programs, EPEAL would not be able to provide the staff needed for the updating work.

7.09 Therefore, an important component of the project (para. 5.09, h) is the provision of technical assistance to EPEAL in establishing a revised organization and management procedures. The assistance would also cover a - 28 - review of EPEAL's financial policies. Terms of reference for the technical assistance are outlined in Annex 16; they were discussed and finalized during negotiations.

Management Assistance

7.10 The program of management assistance would comprise a review of the studies, which were carried out under the Algiers Sewerage Project, an update of the organizational and management structure of EPEAL, and the provision of assistance during the implementation of the study's recommendations. The following aspects would be covered:

(i) an evaluation of progress made in implementing the recommendations and systems of the previous studies;

(ii) an update and definition of the broad lines of the company's organizational structure and its relationship with the supervising authority and other agencies of the Government and the Algiers Wilaya;

(iii) an update of job description and statements of objectives for all main functional departments;

(iv) development of detailed organizational structure for all departments and divisions together with an organization plan and staffing requirements;

(v) development of general and cost accounting procedures and practices; and

(vi) provision of assistance and training for the implementation of the recommended organization, and of revised systems and procedures. The latter will include in particular provision of guidance to EPEAL's staff in inventoring and reconciling past accounts.

7.11 The assistance for the financial aspects is described in para.

8.13. During negotiations, assurances were obtained from EPEAL that, not later than March 31, 1985, it will employ qualified consultants in accordance with the Bank Group Guidelines for the Use of Consultants, and under terms and conditions acceptable to the Bank, to carry out the management assistance program. Assurances were obtained that, at the conclusion of the studies, EPEAL will promptly review their recommendations with the Government and the Bank and implement the agreed structures and procedures.

Staf fing

7.12 At the end of 1983, EPEAL had 1,200 staff, or an average of 59 employees per 10,000 people served. This ratio is considered adequate and would be further reduced after EPEAL takes over the rest of - 29 - municipalities in Algiers Wilaya (para. 7.01). EPEAL plans to reach a ratio of 43 employees per 10,000 people served by the end of 1990, a year after the project completion. The staff ratio would be one of the principal indicators that would be monitored during the project execution (para. 8.19).

7.13 EPEAL's salaries and conditions of employment are somewhat adequate, though lower than those in the private sector. Consequently, because of a shortage of skilled engineers and accountants in the country, EPEAL has found some difficulties in recruiting qualified staff. To overcome this, EPEAL has been carrying out a training program and has sent abroad young staff to specialize in sanitary engineering, administration and finance.

7.14 The General Director is assisted by a training coordinator who oversees the company's training needs and programs. A training center was set up as part of the Algiers Sewerage Project. The center, which became operational in 1981, had already graduated 45 electro-mechanical assistant engineers. Seventeen others would be graduated at the end of 1984. The duration of the studies is 18 months, after which graduates are integrated automatically in EPEAL's personnel. Besides its full-time training programs, the center is used for training seminars and short-term courses. In 1983, ten administrative staff were trained to become accounting personnel. EPEAL is closely monitoring its training needs and is using training as a means to rotate and promote staff.

7.15 EPEAL has received assistance from the "Soci6t6 des Eaux de Marseilles-France" for conducting courses for assistant engineers. For other courses, EPEAL uses the services of the "Ministere de la Formation Professionelle" Twenty-four candidates, who have received EPEAL's fellowships, are now enrolled in civil and sanitary engineering courses in the Federal Republic of Germany. A first group of graduates (six engineers) is expected to join EPEAL in September 1984 and the remainder by the end of 1987. Under the terms of their fellowships, they are required to work for EPEAL for at least ten years after their return to the country.

Current Accounting Practices

7.16 EPEAL keeps its accounts in accordance with the "Plan Comptable National" which is acceptable. The company's accounts were computerized as from January 1, 1983, using a Government-owned computer outlet. A broader plan for computerization of the accounts, together with other activities, has been developed under the previous management assistance program (para. 7.10), and EPEAL is expected to acquire computer equipment by the end of 1984. EPEAL performs annual inventories of its stocks prior to finalizing its annual accounts.

7.17 So far, EPEAL's accounts have been based on an estimate of the assets of the merger companies, and EPEAL's take-over of their accounts. Some deficiencies existed in the old accounts and persisted afterwards, - 30 - and because of lack of documentation, it has not been possible to consolidate the accounts. EPEAL's auditors have indicated that consolidation of the past accounts and actions to strengthen EPEAL's practices in this field, are required in order to ensure that EPEAL's financial statements truly represent the company's financial situation.

7.18 Actions to streamline the accounting procedures and financial reporting should aim to: (i) update and complete the implementation of fixed assets and material control procedures, which is under way as part of the previous management assistance; (ii) develop general and cost accounting procedures and financial reporting requirements; (iii) train the accounting and financial staff; and (iv) reconcile and consolidate past accounts in conjunction with an appropriate inventory of EPEAL's assets and liabilities. The first two tasks are part of the management assistance to be provided under the proposed loan. Training of the financial staff would also be carried out under the proposed management assistance, and through special courses at the training center. The assistance to EPEAL would further include guidance on proper ways to consolidate the past accounts.

Billing and Collection

7.19 EPEAL bills its customers every six months for water consumed and a fixed charge for meter rental and connection maintenance. In addition, in some apartment buildings, EPEAL reads individual meters and apportions the consumption and charges between tenants. For such services, EPEAL charges a special fee for reading and billing. Bills are prepared manually for customers with master meters, whereas for individual customers, bills are computerized using a Government-owned computer outlet.

7.20 From the merger companies, EPEAL has inherited a backlog of receivables, which at the time of the creation of the former SEDAL, amounted to about 2 years of billing. The number of deteriorated meters was high and EPEAL experienced many problems in identifying customers' contracts and accounts. About two-thirds of these old receivables represent debts which should be written off through reconciliation and consolidation of past accounts and an Action Plan to reduce by end 1984 the receivables to not more than nine months of water sales (excluding accounts dating from prior to 1979) and to not more than six months of water sales by the end of 1987 was agreed during negotiations. This plan includes measures to write off old accounts and to collect from public sector debtors directly through the Ministry of Finance. The computerization of billing by end 1984 will further improve the system.

7.21 EPEAL plans to install individual meters for tenants in apartment buildings and to phase out progressively the use of master meters, as part of a general tariff policy issued in the water code (para. 2.08). The phasing out, however, should be first completed, before a progressive tariff structure can be introduced for water usage. EPEAL is also planning to introduce quarterly billing of its customers. - 31 -

Audit

7.22 As a socialist enterprise, by law EPEAL's accounts are subject to be audited by "La Cour des Comptes". In addition, an external audit of EPEAL's annual financial statements is carried out by the "Societ6 Nationale de Comptabilite (SNC)" - a state accounting firm which received technical assistance under Bank Loan 1185-AL (SNMC Expansion Project).

7.23 Existing arrangements between the Bank and EPEAL provide for submission to the Bank of the auditors' annual report within six months after the close of each fiscal year. Past audits have been satisfactory, but have been received with some delays, due to the time needed by EPEAL to review the reports prior to their submission to the Bank. It has now been established that after the close of a fiscal year, a period of nine months is needed to finalize the audit, before it can be sent to the Bank. Consequently, it is now proposed that EPEAL's financial statements should be submitted to the Bank within six months of the end of each fiscal year and the audit report within nine months. Assurances to this effect were obtained during negotiations.

Insurance

7.24 EPEAL carries insurance covering motor vehicles. Other assets are self-insured by the Government. EPEAL is also insured for workmen's compensation. All supply and civil works contracts for the project will be insured against loss and damage in shipment, accidents, fire and property damage.

VIII. FINANCIAL ANALYSIS

Past and Present Financial Position

8.01 EPEAL's statements of income, sources of application of funds , and balance sheet for 1983 are shown in Annexes 17 through 19. In 1983, EPEAL had a cash surplus of about DA 19.0 million which was declining, as tariffs had remained unchanged since 1978. Though its net income in 1983 was negative (the operating ratio was about 120 percent), EPEAL contributed significantly to its new investments after servicing its debt. EPEAL's net cash generation and customers' contributions financed about 19% of the water supply and sewerage investments in Greater Algiers in 1983; the remainder was financed by borrowing (18%) and Government contributions (63%). The company's debt service in 1983 remained low, reflecting the long delays in the investment program and Government financing through equity contributions.

8.02 EPEAL's initial equity was provided by the Government in transferring the ownership of fixed assets (less related debts) of the previous water supply operators in Algiers and the sewerage department of the municipality of Algiers. New water and sewerage systems which have been built by the Algiers - 32 -

Wilaya in the past five years, were passed to EPEAL as equity contributions. As a result, EPEAL's capital structure is sound, as reflected by its debt:equity ratio which remained at about 3:97 until the end of 1983. The level of inventory and receivable accounts, however, is high (para. 7.20). Measures to redress this situation are under way and would be strengthened by the management assistance to be provided to EPEAL under of the project (para. 7.10).

Revenues

8.03 EPEAL derives its revenues essentially from water sales which until recently were charged at a flat uniform rate of DA 1.00/m 3 (US$0.21f/m3 ) 6/ for all types of usage. Additional revenues come from charges for new connections, meter rental, connection maintenance fees, and service fees for meter reading and billing of tenants in apartment buildings. The old tariff was implemented in 1978 under the Algiers Sewerage Project (Loan 1545-AL), as a temporary measure to redress the financial situation of SEDAL, the predecessor of EPEAL. Under the loan, EPEAL is committed, in each fiscal year, to raise revenues sufficient to cover the aggregate amount of its operating and maintenance costs, plus debt service in excess of provision for depreciation. EPEAL was further required to carry out, with consultants' assistance, a study of its financial structure and policies to determine how its financial performance should be improved in the future.

8.04 The study, which was completed in 1981, was based on EPEAL's projected financial position and investments during a five-year period (1981-1985). It recommended that about 50 percent of the investments be financed by borrowing, 10 percent by EPEAL's own cash generation and the remaining 40 percent by Government equity contributions. The study also recommended the introduction of progressive rates for different types and levels of consumption. The implication of the recommended financial policy was that the average tariff needed to be increased by about 40 percent and adjusted subsequently in accordance with inflation and changes in EPEAL's investment program.

8.05 Parallel to the EPEAL study, the Government, however, undertook an overall assessment of the sector organization and financial policies, and was reluctant to apply, in isolation in Greater Algiers, the EPEAL's proposal. So, although the Government was willing to approve a policy essentially conceived to strengthen EPEAL's self-financing capability, a decision on that matter was postponed pending completion of the sector assessment. This was completed recently and the Government has issued legislation giving the water supply and sewerage enterprises a commercial statute and recommending the implementation of appropriate and efficient tariffs. At the same time, the

6/ In addition, prior to the creation of EPEAL, SEDAL used to sell bulk water to some adjacent municipalities in Algiers Wilaya at the rate of DA 0.601/m3 (US$0.13/m3 ). But this accounted for only 6 percent of the total sales. - 33 -

Government recently approved a 40 percent tariff increase in the Algiers Wilaya, thus implicitly approving the EPEAL's proposal.

8.06 The new approved tariff structure, which was outlined in the management study, for the first time introduces a new block rate for public, commercial and industrial consumption. This rate is set at DA 2.00/m3 (US$0.42), while domestic consumption continues to be charged at DA 1.O/M3 (US$0.21/m3). The Government's objectives in introducing the new rate are to:

(i) rationalize the use of water through pricing of the services, notably for higher levels of consumption; and

(ii) increase EPEAL's self-financing capacity as part of a broader objective of enrolling the sector enterprises in participating in the financing of their investments.

8.07 A water code, which was issued by Law No. 83-17 in July 1983, recommends that rates for water consumption should be set on the basis of usage and should be progressive in accordance with volumes consumed. Towards this goal, a first step has been taken by EPEAL with the introduction of a differential tariff for public, commercial and industrial consumption. The objective is to induce large consumers to restrict their consumption, which in turn would help reduce future capital outlays. The next step would be to allocate a first usage block charged at a rate affordable by low-income families and to introduce progressive rates for domestic consumption. The grounds for this have been laid down in the financial studies financed under Loan 1545-AL. An update of these studies would determine the timing for introduction of the progressive rates .

8.08 The "Loi des Finances" for 1984 (issued in December 1983), which applies to EPEAL as a socialist enterprise, states that investments of the socialist enterprises should be financed by local and external borrowing, Government equity contributions, and the enterprises' own internal cash generation. The share of each of the financing sources would depend on the nature of the investments and is to be determined by the Ministry of Finance.

8.09 As indicated earlier, past investments in the sector were financed mostly by Government contributions. EPEAL's self-financing, including repayment of its debt, so far, has accounted for less than 10 percent of its total investments. But there is an increasing awareness in Algeria of the need to improve the self-financing capability of the public enterprises, including the water supply and sewerage companies. Nevertheless, a decision on the level of EPEAL's future self-financing ratio would depend to a large extent on the volume of the proposed investments compared to the current level of its fixed assets. The timing of the investments in relation to the demand, and the potential for EPEAL to generate revenues on the basis of reasonable and affordable tariffs, must also to be taken into account in fixing the level of self-financing. - 34 -

8.10 The proposed investments (1984-1991) would almost triple EPEAL's current gross fixed assets because the proposed project would more than double EPEAL's present water production capacity. Because of the need to provide at once a large increase in order to meet a fully justified pent-up demand, the proposed facilities are lumpy and costly but will produce water for the next sixty years. However, the repayment period of the Bank's loan is set at 15 years, including three years of grace, which is about one-fifth of the depreciable asset life. As a result, EPEAL should expect to confront a high debt service. Therefore, in the beginning, a low self-financing from internal cash generation should be available. As the debt service decreases, self-financing should increase progressively. This objective, however, should avoid sudden high increases of the tariffs, which are difficult to implement.

8.11 A forecast of EPEAL's future finances (para. 8.17) shows that EPEAL would achieve increasing self financing and would be able to finance, with its net internal cash generation, about 7 percent of its investments during the years 1986-1990. Subsequently, this ratio would increase to 15 percent in 1991 and 25 percent thereafter. To achieve that, the average tariff would just have to be increased more or less in accordance with the projected annual inflation rate of 7 percent during the investment period.

8.12 At negotiations agreement was reached with the Government and EPEAL that:

(i) the Government will enable EPEAL to implement the tariffs necessary to achieve a ratio of net cash generation to its capital investments (during the year considered and two successive years, divided by three) of not less than 7 percent in the years 1986 through 1990, not less than 15 percent in the year 1991, and not less than 25 percent in the years thereafter; and

(ii) not later than October of each year, starting in 1985, EPEAL will prepare and review with the Government and the Bank its financial forecast for the next two fiscal years, indicating the estimated net internal cash generation ratios in these years.

Financial Studies

8.13 As indicated earlier (para. 7.10), the project includes an update of the financial and tariff studies which were carried out under the sewerage project. The new studies would assist EPEAL in formulating and implementing long range pricing policies and structures for water supply and sewerage services in the Algiers Wilaya. They would in particular help EPEAL plan appropriate actions for the progressive phasing out of the existing master meters on service lines to apartment buildings. Terms of reference for the studies are given in Annex 16. They were discussed and agreed with the Government and EPEAL during negotiations. Agreement was also reached with EPEAL that, at the conclusion of the studies, it will promptly review their recommendations with the Government and the Bank, and adopt the agreed policies and structures. - 35 -

Financing Plan

8.14 The following sets out an estimate of the fund requirements for the investmentsduring the period 1984-1991 and the sources from which they would be met. The financing plan assumes that tariffs would be increased as projected in para. 8.12 above.

FinancingPlan (1984-1991)

DA US$ 7/ Million ------%

Requirements

Proposed Project 3,694.80 769.75 68.9 Sewerage Project 738.20 153.79 13.8 Other Investments 636.50 132.60 11.9 CapitalizedInterest 284.39 59.25 5.3 Increase in Working Capital 5.35 1.11 0.1

Total Requirements 5,359.24 1,116.50 100.0

Sources

Internal Cash Generation 1,122.44 233.84 20.9 Less: Debt Service 686.71 143.06 12.8

Net InternalCash Generation 435.73 90.78 8.1 Customers' Contributions 91.50 19.06 1.7

Total 527.23 109.84 9.8

Proceeds from Bank Loan 8/ 1,183.9 246.64 22.0 Proceeds from Expected Financing 8/ 511.75 106.61 9.5 Proceeds from Bank Loan 1545-AL 8/ 416.88 86.85 7.8 Other Borrowing Local Banks 48.90 10.18 0.9

Total 2,688.66 560.12 50.1

Government Equity 2,670.58 556.38 49.9

Total Sources 5,359.24 1,116.50 100.0

8.15 In addition to the portion of the Bank loan (US$212.0 million), the sources of funds include those Government funds onlent to EPEAL which will

7/ Based on a constant rate of exchange of US$ 1 = DA 4.8 8/ Includes refinanced interest during construction. - 36 - be reimbursed by EPEAL. Other sources are the existing Bank Loan 1545-AL and borrowing from local banks.

8.16 The proposed financing plan is sound. Under the plan, about 50 percent of the capital requirements would be financed by EPEAL's internal cash generation (10 percent) and borrowing (40 percent). About 50 percent would be financed by a Government equity. Given the magnitude of the proposed investments, the proposed level of self-financing appears to be adequate.

Future Financial Performance

8.17 EPEAL's forecast financial statements from 1984 through 1992 are given in Annexes 17 through 19. The assumptions made in preparing these statements are discussed in Annex 20. EPEAL's financial performance is expected to improve starting from 1984 when the new tariff is applied during the remaining year. Its performance would improve further in 1985, as its operating ratio would decrease from 120 percent in 1983 to 89 percent. The operating ratio is projected to reach about 75 percent in 1989 and to improve further in the ensuing years, reaching about 70 percent in 1992.

8.18 EPEAL's internal cash generation ratio would increase from 7 percent in 1988 to 25 percent in 1992. The rate of return on net fixed assets (including all facilities for water supply, wastewater and pollution abatement) would be 4 percent in 1992 increasing to 7 percent in the year 1995. The rate of return on net fixed assets of the water supply facilities is about 5 percent in 1992 and is expected to reach 8.4 percent in 1995 (assuming a break-even for wastewater operations). This indicates that, over the years, the company's self-financing capability as well as the rate of return on its net fixed assets would continue to increase, bringing about progressive improvement in the sector's financial autonomy. Following completion of the tariff studies and the likely introduction of progressive block tariffs which will result in a significant increase in revenues, EPEAL's financial performance would further improve.

Monitoring System

8.19 Annex 21 shows the technical and financial indicators which would be monitored during the project execution. This Annex also gives the values forecast for the indicators in the years 1986 through 1992. These values were discussed and agreed with EPEAL during negotiations. Agreement was also reached with EPEAL that it will: (i) report the evolution of the indicators to the Bank on a quarterly basis during the project execution, and on an annual basis for five years after the project completion; and (ii) carry out any reasonable remedial action suggested by the Bank, aiming at meeting the targeted values of the indicators. - 37 -

IX. ECONOMIC ANALYSIS

Objectives of the Proposed Investments

9.01 The need for improving and increasing water supply to Greater Algiers seems obvious. The current supply is about 46 percent short of the demand, which is already considered restrictive for an urban agglomeration of the size of Greater Algiers. The present per capita consumption in Greater Algiers averages 108 liters/day; it reaches 200 liters/day in neighboring countries with less per capita income. The shortage of running potable water inside the dwellings, coupled with defective sanitation and population congestion in the inner city, seems to be the leading cause of some infectious diseases in Greater Algiers. Cholera, typhoid, paratyphoid, dysentery and infectious hepatitis appear to be endemic in Algiers Wilaya.

9.02 The proposed works would increase water production to the level required to eliminate the current supply deficit and to meet the 1993 average demand. The project would benefit some 3.5 million people living in the Algiers Wilaya; about a third of them are low-income consumers. It would help meet water supply requirements in the developed districts of Greater Algiers, but more particularly would permit to improve water supply services in the developing and poorer districts, such as El Harrach and Hussein Dey. They are the areas where the lowest income people live and where water supply services are most deficient. The proposed project would also help meet water supply requirements in the industrial districts of Rouiba and Ain Taya, where industrial development has been slowed by the lack of basic services.

Least-Cost Solution

9.03 So far, groundwater has been used for both municipal and agricultural water uses in Algiers Wilaya. Groundwater is a relatively inexpensive water source for urban supply, because in most cases it does not need to be treated and is generally found close to urban agglomerations. This is the case of Greater Algiers which is being supplied with water from the Mitidja and Mazafran Aquifers. But for some time, the extraction rate from these aquifers has been exceeding their recharge, and as the aquifers' reserves have been depleted, the water table has been declining, making it possible for sea water to intrude in the aquifers and deteriorate the quality of the groundwater. Undoubtedly, higher volumes of groundwater cannot be extracted from the aquifers and surface water sources must be looked upon to meet the demand in Algiers Wilaya.

9.04 There are various sources around the major urban agglomerations in Algiers Wilaya, that could be tapped for potable water supply. Among them, the closest are El Harrach River, the Isser/Boudouaou River and Oued Mazafran. An economic comparison of the possible alternatives on those sources, with the possibility of expanding and integrating them with other farther surface water resources, like the Sebaou River, showed that the proposed project (the Isser/Boudouaou) is the least-cost solution at discount rates of 6 percent to 12 percent. - 38 -

Project Justification

9.05 The overriding justification for the proposed project is the need to provide Greater Algiers with decent urban water supply services. The whole concept of urban development rests upon the premises that basic amenities, such as water supply, are available, and no urban agglomeration can harmoniously grow without adequate public water supply. The proposed project is the least-cost solution to provide such supply. The many health and environmental benefits that the proposed project would generate, such as: (i) reduced expenses for health care; (ii) welfare improvement of women and children who actually spend much time looking for water; (iii) higher productivity of children in school; (iv) improved welfare of the population, stemming from a cleaner and better environment; and (v) workers' higher productivity as a result of better health, should produce a high economic return on the proposed investments. These benefits are, however, difficult to quantify and a true economic rate of return cannot be calculated.

Affordability

9.06 The results of a survey of household expenses for basic items, carried out in 1980, are given in Annex 24. Water supply for domestic consumption accounts for a small portion (less than 1 percent) of the households' total expenses and is not considered a burden on the household budgets. It is estimated that even the lowest income segment of the population in the project area would spend not more than 1.3 percent of their income for water supply services, well below the usually accepted norm of 5 percent.

Environmental Impact of the Project

9.07 As already discussed in this report, the shortage of potable water has resulted in deplorable sanitary conditions in Greater Algiers. The objectives of the project are to eliminate the water shortage and to contribute to the improvement of environmental conditions in the most populated area of the country. As a result of the project, wastewater in Greater Algiers will increase and will need to be disposed of properly. Improvement and expansion of the sewer systems are currently being carried out under the Algiers Sewerage Project (Loan 1545-AL). The expectation is that, once the sewerage project has been completed, wastewater would be quickly evacuated from the urbanized areas, with no detrimental impact on the environment.

Institution Building

9.08 A first step towards the reorganization and strengthening of the water supply and sanitation sector in Algeria was taken with the Algiers Sewerage Project (Loan 1545-AL), which included the setting up of a new water authority (SEDAL) in Greater Algiers, and feasibility studies in the second and third largest cities, Oran and Constantine. The objective was to put in place a financially viable water authority that could be used as a model in setting up similar organizations in other cities and wilayate. This was attained, as the Government has set up water companies similar to SEDAL in twelve regions of the country. - 39 -

9.09 It remains that water supply services provided by EPEAL in Greater Algiers are still deficient, due to the current production deficit. The proposed project is conceived to provide the additional supply and to help EPEAL establish itself as a more effective regional water authority. Solving the water supply problem in Greater Algiers is a difficult task for which the Government and EPEAL need to receive outside technical assistance, if this task is to be carried out successfully. The Bank can provide such assistance to the Government and the leverage required to push for implementationof sound managerialand financial policies in the sector.

Adequacy of EPEAL's Pricing Policies

9.10 For the purposes of testing the adequacy of the water supply pricing in Algeria, the average incremental cost (AIC) of providing water supply in Greater Algiers is calculated at different discount rates (6 percent to 10 percent). The calculation shows that AIC varies between 1.28 DA/m3 (US$0.28) and 2.06 DA/m3 (US$0.42) at discount rates of 6 percent and 10 percent respectively. At any discount rate, the commercial, industrial and public consumers pay tariffs which are higher than the AIC. In addition, it is envisaged that a progressive tariff structure be generalized once the individual domestic meters have been installed to replace the master building meters. If present tariffs are used as a proxy for benefits, the economic rate of return is 8 percent.

Risks

9.11 There is a risk that the Government would not implement the tariff increases in the timely fashion required to maintain the self-financingratios indicated as financial performance objectives for EPEAL. In view of the recent decisions taken by the Government regarding the overall institutional and financial framework and objectives for the sector, which emphasize that water utilities should be managed as commercial enterprises and should implementthe tariffs necessary to make them financially self-supporting,this risk appears relatively unlikely. There are no special risks involved in he technicalexecution of the project. The availability of contracts or bids for most of the components allows a relatively confident estimate of project costs. In spite of this, the volume of works for components such as dams and tunnels might increase substantially,resulting in a decrease of the return on the investments. There is a further risk that procurement problems would delay project implementation. However, the advanced status of procurementand the proposed packaging of project components into two or three large contracts reduces this risk.

X. AGREEMENTS TO BE REACHED AND RECOMMENDATIONS

10.01 During negotiations, agreements and understandings were reached on various issues referred to in Chapter II to VIII of this report. - 40 -

10.02 A condition of effectiveness of the proposed loan would be the execution of a Reimbursement Agreement between the Government and EPEAL, with terms and conditions satisfactory to the Bank (para. 5.25). Another condition of effectiveness would be the establishment by the Ministry of Finance of a special account for a revolving fund at the Central Bank of Algeria (para. 5.31).

10.03 Provided that agreement can be reached on the foregoing conditions, the proposed project is suitable for a loan of US$290.0 million to the Government of Algeria for a term of 15 years including 3 years of grace.

June 11, 1984 - 41 -

ANNEX 1 Page 1 of 5

ALGERIA

ALGIERS REGIONAL WATER SUPPLY PROJECT

DEVELOPMENT OF WATER RESOURCES IN THE ALGIERS-SEBAOU REGION

Study Area

1. The Algiers-Sebaou area is located in the central part of Algeria and embraces six wilayate 1/: Algiers, Tizi Ouzou, Bejaia, Blida, Bouira and Medea. It extends along the Mediterranean coast from Tipaza in the west to south of Ain Boucif in the east. The distance between these two points is about 230 kms with the city of Algiers located midway. The Algiers-Sebaou region covers a total area of about 10,750 kmz extending over the catchment basins of Oued Mazafran in the west, Oued Isser in the center and Oued Sebaou in the east. In addition to these oueds, the region contains perhaps the largest aquifer in Algeria, the Mitidja, which presently provides water to urban settlements in the area and for irrigation in the Mitidja Plain.

2. The population in the study area in 1981 was estimated at 6.1 million or about a third of the country's total population. Algiers City, the nation's capital, with an estimated population of 2.1 million, is the largest urban agglomeration in Algeria. Other important provincial cities such as Blida (population 180,000), Tizi Ouzou (population 50,000) are also located in the region. These urban settlements are surrounded by some 124,000 ha of irrigable land, 70 percent of which is found in the Mitidja Plain, considered one of the most prolific lands in Algeria. Irrigation is actually practised in some areas of the Mitidja Plain, using groundwater and surface water from Hamiz Dam, originally built during the last century, renovated and extended in the forties.

3. Urban water shortage has been chronic in the area, particularly in Greater Algiers where current available production covers less than half of the demand. Irrigation is now practised on a limited scale in the cultivated land. Agricultural production has substantially decreased in the Mitidja Plain which used to provide a major portion of the country's food needs. Because of the decrease in production, today almost half of the basic food products, like wheat, cereals, etc. are imported.

4. The Government's objective for the area is to provide it with the hydraulic infrastructure necessary to meet domestic and industrial water

1/ Based on the former geographical separation of the country into 31 wilayate. - 42 -

ANNEX 1 Page 2 of 5 demand in the shortest delay, and progressively to expand irrigation in the cultivated land. The objective is to have all arable land in the area fully irrigated by the year 2010. To that end, the Government has commissionedthe preparation of a water master plan for the development of water resources in the area. The plan was prepared with the assistance of a consortium of British engineeringfirms, Binnie & Partners and W.S. Atkins Internationaland its preparation was partially financed by a Bank loan of US$5.0 million (Loan S-17AL).

Water Demand

5. Urban water demand in the Algiers-Sebaouregion has been estimated as follows: Year Mm3/year

1985 297 1990 413 2000 633 2010 921

In 1981, the demand was calculated to be about 207 Mm3/year, but only 163 Mm3 was supplied during that year. It is foreseen that by the year 2010 the urban population would reach about 14.2 million distributed in some 43 cities and their water needs would amount to 921 Mm3/year or about 178 lpcd. Meanwhile, depending on the types of crops and irrigation systems adopted in the region, yearly agriculturalwater demand would fluctuate between 5450 and 9270 m3/ha, with an average demand of 740 Mm3 during the year 2010. Almost two-thirds of this volume or 492 Mm3 would be used in the Mitidja Plain.

Water Resources

6. So far, water needs in the Algiers-Sebaou region have been met by groundwater extracted principally from the Mitidja Aquifer. In 1981, about 294 Mm3 was extracted from this aquifer: 168 Mm3 was for urban supply and the remaining 126 Mm3 for agriculture. The volume pumped in that year exceeded the normal recharge of the aquifer, resulting in the over-exploitation of the aquifer. Because of the good quality of the groundwater, it should be reserved for urban supply, while surface waters could be used for irrigation. It should be noted that irrigation with surface water in the Mitidja Plain would result in an increase of recharge in the aquifer, allowing in the future a larger extraction rate from the aquifer.

7. Major oueds and dam sites in the Algiers-Sebaouarea are shown on Map 16089R. Based on the selected dam sites and capacities in the Mitidja area, the total regulated volume of water in this area would be 524 Mm3/year distributedas follows: - 43 -

ANNEX 1 Page 3 of 5

Dam Site Regulated Volume, Mm3/year

Bou Kourdan 40 Al Mouskakbal 100 Douera 100 Rocher des Pigeons 110 Keddara 160 Hamiz 14

Total 524

The Hamiz Dam already exists and three others, Al Mouskakbal, Keddara and Bou Kourdan, are now under construction. Based on the proposed dam sites and capacities in the catchment basins of Oueds Isser and Sebaou, the regulated volume of water would be about 527 Mm3/year for Isser and 611 Mm3/year for Sebaou. Thus, the total regulated volume of water in the Algiers-Sebaou region would be about 1,662 Mmn3/year, just enough to meet the urban and agriculturaldemand of 1,661 Mm3 in the year 2010.

8. The type of water resources as well as their expected production in the year 2010 are shown below:

Resource Origin Capacity,Hm3tyear

Small dams and local sources 187 Groundwater 353 Major structures on surface water sources 1,122

Total 1,662

As it can be seen, a major share of the demand would be met by surface waters through impounding and diversion dams on the three main oueds of Sebaou, Isser and Mazafran. The Mitidja Aquifer would be used exclusively for urban supply. About 36 Mm3/year of water coming from small dams and local sources would be for potable and industrial uses, and the remaining 151 Mm3/year for agriculture. Of the production of the large surface water schemes, 531 Mm3/year would be used to meet the urban demand and the remaining 591 Mm3/year in irrigation.

9. Most of the irrigable land in the study area is found in the Mitidja Plain. Water demand for irrigation in this plain would depend upon the type of crop and irrigation system in usage there. But even for the lowest consumptive use and the most efficient irrigation system, the minimum demand has been calculated to be 492 Mm3/year in the Mitidja and 51 Mm3/year in the Sahel. Thus, even if all the systems located in the Mitidja Valley were to be reserved for irrigation in the plain, additional water would need to be brought in from outside. - 44 -

ANNEX 1 Page 4 of 5

10. Because of the high cost of water transmission in irrigation 11, water sources should be assigned first to the closest irrigable lands. In principle, the Mazafran/Douera and Rocher des Pigeons schemes, which are located in the Mitidja Plain, should be assigned to irrigation in the Mitidja. Their combined production is estimated at 210 Mm3/year. The balance of irrigation needs should thus come from Oued Isser or Oued Sebaou. Water in the Koudiat Acerdoune Reservoir (see Map 16089R), however, cannot be used alone for irrigation, because of its high salinity. It must be mixed with a fresher surface water source, like Oued Sebaou, before it is used in irrigation. In essence, this constitutes a constraint in the design of the water master plan, since that water from Oued Sebaou, in spite of its outside location,must be brought in for irrigation in the Mitidja Plain.

11. Thus, once local demand in the Sebaou area has been satisfied, the remaining resources in the Sebaou Valley would be transferred to the Mitidja Plain and the Sahel. Water demand in the Sebaou basin in the year 2010 has been estimated at 75 Mm3 for urban supply and 47 Mm3 for irrigation. It is estimated that outside demand for the use of water resources of the Sebaou Basin would be 21 Mm3 in 1990, 149 Mm3 in 2000 and 275 Mm3 in 2010.

Proposed Master Plan

12. In designing the master plan for the use of water resources in the Algiers-Sebaouregion, it has been assumed that urban water demand would have first priority and would be met more than 95 percent of the time. Meanwhile, for irrigation uses which are second in priority, a shortage of water should not occur more than 20 percent of the time and the maximum shortage during a year should not exceed 50 percent of the water needs.

13. As previously mentioned, the major schemes in the Mitidja Plain should be built at once to meet the irrigation demand in this area. Following the constructionof the Keddara scheme, water from the Sebaou Basin would be brought in to meet the domestic and industrialwater demand in Greater Algiers and along the route Sebaou-Algiers. In addition, fresh water from the Sebaou Basin would be needed to be mixed with those of the Koudiat Acerdoune Reservoir to meet the residual irrigation demand in the Mitidja Plain. So, alternative designs of the master plan would come down to the most economical scheme in the Sebaou Basin to meet the urban demand and the residual irrigation demand at the lowest cost.

1/ Estimated at DA O.l/m 3 /year/km in Algeria. - 45 -

ANNEX 1 Page 5 of 5

14. The proposed water master plan would include:

(i) the tapping of the Mitidja Aquifer to meet domestic and industrial water demand in cities in the Mitidja Plain and west to the Sahel. This demand has been estimated at 353 Mm3 in the year 2010, of which 116 Mm3 for Greater Algiers and 237 Mm3 for the remaining cities;

(ii) the completion of the Mazafran/Douera System and the construction of the Rocher des Pigeons Dam (1990) and of Koudiat Acerdoune Dam (2000) to provide 330 Mm3 /year to areas in the center and east to the Mitidja Plain; and

(iii) the construction of Souk el Tleta Dam (1989), Taksebt Dam (1992) and Djemma Tizra Dam (2005) in Oued Sebaou basin to supply 295 Mm 3/year to Greater Algiers and cities along the line Sebaou-Algiers, and 154 Mm 3/year for irrigation in the Mitidja area.

15. The estimated total cost of the water master plan is DA 12.4 billion (US$ 2.6 billion) in 1983 prices, excluding the cost of distribution networks in the cities. Under the proposed plan, the production of raw water would reach 985 Mm3 in the year 2010. The cost price of raw water is calculated to be DA 2.1/m3 (US$ 0.4) at the discount rate of 10 percent.

April 16, 1984 - 46 - ANNEX 2 Page 1 of 4

ALGERIA

ALGIERS REGIONAL WATER SUPPLY PROJECT

TERMS OF REFERENCE FOR TECHNICAL ASSISTANCE IN SETTING-UP

A REGULATORY AGENCY FOR WATER SUPPLY AND SEWERAGE

Introduction

1. The Government of Algeria has recently established thirteen regional enterprises to be responsible for the provision of drinking water and the collection and treatmentof wastewater in various regions of the country. The enterprises have their head offices located respectively in the cities of Algiers, Oran, Constantine, Annaba, Mostaganem, Tizi Ouzou, Setif, Batna, Tiaret, Bechar, Laghouat, Medea and Ouargla, and in principle cover adjacent wilayate. Additional regional authoritieswould be set up to cover the entire country. The Government's objective is to decentralize water supply and sewerage operations, giving the responsibility for such services to the regional enterprises. It is believed that such a decentralized system would fit better the country's physical characteristics and administrative organization.

2. Nevertheless, the proposed system may present some problems, if the operations of the regional authorities are not regulated and controlled by a central agency. With a national authority, it is possible to apply a uniform tariff, thus allowing cross-subsidizationbetween regions. For the proposed system, one regional authority might be highly financially profitable because of its tariff level and population served, while other authorities might need operating subsidies. Each authority might choose to apply its own policies and procedures,which might not be in line with national goals.

3. To avoid these problems, the Ministry of Hydraulics is considering setting up a national agency to regulate and oversee the operations of the regional authorities. This agency will operate under the Ministry of Hydraulics' authority. In order that the agency should be fully equipped to tackle the above problems in the most efficient way, consultants are to be retained to advise on certain aspects of the agency's functions and organization. The required services are described below.

Functions

4. On the basis of the objectives set out for the agency, the consultant will outline the main functions of the agency. To this end, it is envisaged that the consultant will study and develop (but will not necessarily be limited to) the followingaspects of the agency's operations: - 47 - ANNEX 2 Page 2 of 4

A. On the Technical Side

(i) supervisionof the technicaloperations of the regional companies;

(ii) collection of sector data, such as the levels of production and sales, consumption by households, industry, commerce and public entities,number of service lines, storage availability,number of sewer connections,sewage treatment,water quality, etc. (iii) planning and progress of training programs, evaluation of training needs; and

(iv) progress in project implementation,updating of project costs.

B. On the Financial Side

(a) supervisionof the financialoperations of the regional companies;

(b) review of the financial results and auditors' reports on the results;

(c) evaluation of the companies' financial position and forecast of their future financial situation; and

(d) examination of specific operations, such as metering, billing and collectionprocedures, purchasing,storekeeping, transport, etc.

C. On the Planning Side

(i) examination of the companies' medium-term plans for the improvementand expansion of their services;

(ii) review of the companies' investment programs; and

(iii) review of their annual budgets.

5. The agency will constitute a link between the regional companies and to that end will take appropriate actions to keep the companies informed of development in the sector. In addition, the agency's goal is to rationalize and harmonize procedures in the sector. The agency will provide guidelines on appropriate procedures for planning, budget preparation and control, and project preparation. The consultant is expected to provide a draft of the guidelines and procedures.

6. The agency will discuss with the regional companies their long-term plans to reach certain levels of service in their areas. An important function of the agency will be to determine how the Government'scontributions and other external funds should be distributed between the companies. The - 48 -

ANNEX 2 Page 3 of 4 agency will prepare individual financing plans for the companies, taking into account the financial position of each of them and the resources available. The end result of these plans would be a sort of cross-repartition of the financial resources available in the sector. The agency will prepare and distribute relevant reports consolidating the technical and financial data of the regional companies.

Organization Studies

7. Based on the functions outlined above, the consultant will study and proposed an appropriate organization for the agency. The study will cover the following aspect:

(a) preparation of detailed organization charts for each division/ department within the proposed structure;

(b) preparation of statements of objectives and responsibility for each senior management position;

(c) establishment of appropriate procedures for planning and decision making;

(d) definition of the principal line and staff relationships;

(e) determination of appropriate ways for liaison and consultation with the regional agencies and other Government entities.

Timetable and Reports

8. It is envisaged that the study will be completed in an elapsed time of not more than 10 months (from mobilization of the consultant's team in Algiers).

9. The following reports are to be submitted:

(i) not later than the end of the sixth month, a first report on organization and management, containing recommendations on the matters set out in the terms of reference; two months will be allowed for consideration of this report by the Authorities, discussion with the consultant, and determination of any revision which may be necessary;

(ii) at the end of the assignment, a final report on organization and management, incorporating any revisions made to the first report and including in addition the results of the consultant's studies under the terms of reference. - 49 -

ANNEX 2 Page 4 of 4

10. The interim report is to be submitted in 20 copies, and the final report in 50 copies, in the French language, and delivered initially to the Secretary General of the Ministry of Hydraulics.

Proposals

11. Proposls in 5 copies in the French language should be submitted by to:

12. Proposals should contain. inter alia:

(a) a description of the consulting firm (or firms) and its areas of specialism;

(b) a description of other relevant assignments previously carried out by the firm;

(c) an explanation of the way in which the consultant proposes to approach the assignment, including any comment he may wish to make on the terms of reference or any modifications he may wish to propose in the interests of better achieving the objectives of the assignment;

(d) a brief description of any special methodology to be employed (for example, use of computers);

(e) a staffing chart for the assignment, showing each specialist to be employed and indicating the nature and duration of his involvement (distinguishing time in Algeria from time at the home office);

(f) an explanation of how supervision of the assignment is to be maintained by the firm's principals;

(g) curricula vitae of key personnel nominated for the assignment; and

(h) a statement of any special facilities the consultant may require in carrying out the assignment.

13. Proposals will be judged on technical merit and fees. The consultant should indicate in its offer any assistance that should be provided by the Algerian authorities to him, such as accommodation, local transportation and other administrative matters.

April 19, 1984 - 50 - ANNEX 3

AILERIA

ALGIERSREGIONAL WATER SUPPLY PROJECT

SERVICELEVELS IN UREBANAREAS IN MID-1981

Estimated WATERSUPPLY SERVICES SANITATIONSERVICES Population Consumption Per Cap. Cons. Storage Service Ave. No. Of % of Pop. T of Pop. Other Type of City In 1,000 m3/day I/day Volume, m3 % of Cons. Lines Pers. Per Line With Sewer With S. Tank Systemr Sewerage

(1) (2) (3) (4)=(3) (5) (6)=(5)x1OO (7) (8)=(2) (9) (10) (11) (12) (2-) T3 T7

Constantine 500.0 57,456 115 50,000 87 22,000 22.7 91 - 9 Ccdbined Annaba 273.0 45,000 165 24,200 54 14,040 19.4 95 - 5 Combinei Sidi Bel Abes 178.9 15,000 84 19,000 127 8,500 21.0 - - - _ Setif 144.5 29,730 206 7,000 24 10,580 13.7 100 - - Corbined Batna 140.0 22,000 157 37,500 171 11,150 12.6 100 - - Canbined BisKra 105.5 13,750 130 11,800 86 12,270 8.6 80 - 20 Carbined Tizi-ouzou 101.5 19,980 197 11,500 58 4,500 22.6 100 - - Cacriined Tilimcen 92.5 16,020 173 30,500 190 9,570 9.7 90 - 10 Carbined Bechar 80.4 6,300 78 9,200 146 9,320 8.6 70 11 19 Combined Ghardia 75.3 12,000 159 22,325 186 12,332 6.1 - 100 - boraj Bou Arreridj 69.0 7,870 114 6,000 76 5,020 13.7 100 - - Combined MeNea 66.4 9,480 143 8,750 92 6,600 10.1 100 - - Carmbined Maghnia 58.5 7,000 120 6,750 96 5,070 11.5 93 - 7 Ccsbined El Eulma 57.1 2,000 35 3,000 150 4,520 12.6 100 - - Cxrbined Touggourt 53.0 2,880 54 1,000 35 3,000 17.7 - - - Laghouat 48.5 11,840 244 3,750 32 6,310 7.7 20 80 - Separated Jijel 36.0 8,600 239 14,400 167 4,770 7.5 80 5 15 Ccmbined Qsar El bouKhari 29.2 4,460 153 3,950 89 2,630 11.1 85 - 15 Comrbined Chelghoun 26.0 530 20 2,000 377 - - 59 - 41 Corbined El Golea 24.6 7,040 286 2,500 36 1,675 14.7 - 45 55 Omr El bouagui 21.2 5,717 270 5,900 103 - - - 10 90 Guerrara 19.8 3,760 190 400 11 3,200 6.2 50 50 - Separated Sici-Aich 18.3 1,188 65 1,600 135 2,950 6.2 95 5 - Ccnbined Aflou 17.9 2,800 156 8,000 286 2,030 8.8 - - - - Drean 16.3 749 46 1,000 134 1,280 12.7 60 - 40 Canbined Sour El Chozlane 15.0 1,500 100 1,660 IlI 1,310 11.5 98 - 2 Combined El Kala 12.5 2,280 182 3,850 169 1,020 12.3 - - - Tindouf 12.1 900 74 1,450 161 770 15.7 40 60 - Canbined Aib Abid 7.4 300 41 300 100 610 12.1 90 - 10 Combined bouteldja 6.3 1,037 165 1,450 140 470 13.4 81 - 19 Coerbined Tablat 5.1 1,176 231 450 38 720 7.1 100 - - Separated Beni Abbes 3.9 840 215 1,370 163 690 5.7 94 6 - Cambined Beni Slimane 3.2 618 193 560 91 630 5.1 100 - - Ccrh ined Igli 2.5 560 224 - - 430 5.8 100 - - Combined El OCearia 2.1 344 164 200 58 283 7.4 100 - - Combined - 51 -

ANNEX 4 Page 1 of 5

ALGERIA

ALGIERS REGIONAL WATER SUPPLY PROJECT

MINISTRY OF HYDRAULICS

Terms of Reference for Carrying Out a Survey of the Water Supply and Sewerage Sector

Background

1. The Government of Algeria intends to carry out a study of the water supply and sewerage sector. This effort would constitute a part of Government's overall promotion of the sector development which was recently enhanced by issuing the Water Code and establishinga number of regional water supply and sewerage companies.

2. The objective of the study is to analyze the current situation in the sector, to provide the Ministry with basic data for planning the development of the sector, and finally, to establish a methodology for continued and updated planning for the growth of the sector. Besides assessing the water service levels in the country, the study would include a description of the current situation of water supply and sewerage systems, comments and recommendations on availability of resourcesand the organizationand financial setup of the sector.

3. The Government plans to employ qualified consultants to carry out these studies in collaboration with the Ministry's Departments of planning. The services to be performed under this study are described below.

Objectives

4. The objective of the study is to cover 90% of the total population of Algeria, starting with the most urbanized agglomerations. The consultant should determine at the early stage of Phase 'A' of the study (as described below) the size of agglomeration which could be considered the smallest to be covered under the study.

5. The execution of the study would be organized in four phases as follows: - 52 -

ANNEX 4 Page 2 of 5

Phase 'A' - Preparation of a Questionnaire for Conducting the Survey

6. Under this phase the following tasks should be performed:

(a) review of previous sector studies and results of census of 1977;

(b) establish a list of agglomerations to be covered by the study; and

(c) determine the population, number of dwellings, and other relevant data concerning the level of service for each of the agglomerations included under (b) as was reported in the 1977 census. 7. In preparing the questionnaire,consideration should be given to future use of the information to be collected under the study. The consultant should familiarize the Ministry's staff with the data processing program to be used in performing the study.

8. The following data should be collected for each locality:

(i) total population (urban and rural), and dispersed population;

(ii) households and average number of persons per family;

(iii) economic and social infrastructure (large industries, hospitals, schools, etc.);

(iv) water resources (surface and groundwater);

(v) water supply transmission and distribution systems (reservoirs, pumping station, pipes, etc.);

(vi) individual and master connections and metering (domestic, commercial and industrial);

(vii) sewerage networks and collectors, and type of sewage treatment and discharge;

(viii) organizational setup of water supply and sewerage services in the area; and - 53 -

ANNEX 4 Page 3 of 5

(ix) financial aspects of provision of the services such as current tariffs and financial reporting on operation and investments.

Phase 'B' - Data Collection

9. During this phase the consultant should proceed with field collection of the data and filling out the questionnaire. The consultant should verify the data through visits and interviews with the agencies concernedwith the survey.

Phase 'C'

10. Subsequent to the completion of Phase 'B' the consultant should proceed with a manual tabulationof certain elements of the data in order to establish some parameters. These may include, for instance, the following:

(i) consumptionper capita per day;

(ii) the level of service; and

(iii) unaccounted-forwater.

11. At a later stage the consultant should carry out a complete computerizedtreatment of the data for submission of results.

Phase 'D'

12. Under this phase the consultant should submit to the Ministry an overall report comprising the results of the survey. In doing so, the consultant should present the results of the study and recommendationsin an analytical manner. The consultant should analyze the sector problems, and the issues and constraints of the sector development. This should cover service aspects, water resources and the discharge of wastewater, the institutionalsetup and financial situation of the agencies involved in providing the services.

13. The consultant should formulate recommendations for sector development based on objectives for service levels. An estimate of required investments (through a Ten-Year Program) on the basis of agreed levels of service should also be establishedin the report. - 54 -

ANNEX 4 Page 4 of 5

Timetables and Reports

14. It is envisaged that the survey would be completed in an elapsed time of 12 months from mobilization of the consultant team in Algiers. The following documents and reports are to be submitted.

(i) monthly progress reports;

(ii) the preliminary report for Phase 'A' should be submitted by the end of the second month;

(iii) not later than the end of the seventh month, a preliminary report on completion of Phase 'B';

(iv) preliminary reports on Phases 'C' and 'D' would be submitted by the end of the eight and tenth month respectively; and

(v) at the end of the assignment a final report incorporating any changes and additions resulting from discussions with the Government should be submitted.

15. The monthly and preliminary reports should be submitted in (10) copies; the final report should be submitted in (50) copies. All reports will be in French and delivered to the Ministry of Hydraulics.

Proposals

16. Proposals in five copies in the French language should be submitted by ------to:

17. Proposals should contain, inter alia:

(a) a description of the consulting firm (or firms) and its areas of specialism;

(b) a description of other relevant assignments previously carried out by the firm;

(c) an explanation of the way in which the consultant proposed to approach the assignment, including any comment he may wish to make on the terms of reference or any modifications he may wish to propose in the interests of better achieving the objectives of the assignment;

(d) a brief description of any special methodology to be employed (for example, use of computers); - 55 -

ANNEX 4 Page 5 of 5

(e) a staffing chart for the assignment, showing each specialist to be employed and indicating the nature and duration of his involvement (distinguishing time in Algeria from time at the home office);

(f) an explanation of how supervision of the assignment is to be maintained by the firm's principals;

(g) curricula vitae of key personnel nominated for the assignment;and

(h) a statement of any special facilities the consultant may require in carrying out the assignment.

18. Proposals will be judged on technical merit and fees. Any assistance the Algerian authorities may be able to provide in regard to accommodation, local transportation and other administrative matters should be indicated in the proposal. - 56 -

ANNEX 5

ALGERIA

ALGIERSREGIONAL WATER SUPPLY PROJECT

WATERCONSUWRICON AND SALES IN ALGIERSWILAYA, PAST AND FORECAST

Urban % of Population Ave. Percap. Total Water Unaccounted Water Existing Production Water Additional Population 1/ Population Connected 1/ Water Needs Requirerents for Water Deaand Production Deficit Sales Sales 4/ Year 1,000 Connected 1,000 m3/year Mn3/year % YN3/year Mn3/year Yn3/year m3/year vt3/year

(1) (2) (3) (4)=(2)x(3) (5) (6)=(5)x(4) (7) (8)= (6) (9) (10)=(8)-(9) (11)=(9)x(I-7) (12)=(11)-(1-7) 100 1-(7) 100 100 10-0

1977 1,805 95.0 1,715 54.5 93.47 38.5 151.98 98.20 53.78 60.39 - 1978 1,896 95.5 1,811 55.0 99.61 38.5 161.97 98.23 63.74 60.41 - 1979 1,991 96.0 1,911 55.5 106.06 38.5 172.46 116.04 2/ 56.42 71.36 - 1980 2,091 96.5 2,018 56.0 113.01 38.3 183.16 133.84 49.32 82.60 -

1981 2,178 97.0 2,113 56.5 110.38 38.3 193.48 133.84 59.64 82.60 - 1982 2,270 97.5 2,213 57.0 126.14 38.0 203.45 142.04 3/ 61.41 88.06 - 1983 2,364 98.0 2,317 57.5 133.23 37.0 211.48 150.24 61.24 94.65 - 1984 2,463 98.5 2,426 58.0 140.71 36.0 219.86 150.24 69.62 96.15 - 1985 2,567 99.0 2,541 58.5 148.65 35.0 228.69 150.24 78.45 97.66 - 1986 2,674 99.5 2,661 59.0 157.00 34.0 237.88 150.24 87.64 99.16 - 1987 2,786 100.0 2,786 59.5 165.77 33.0 247.42 150.24 97.18 165.77 65.11 1988 2,903 100.0 2,903 60.0 174.18 32.0 256.15 150.24 105.91 174.18 72.02 1989 3,024 100.0 3,024 60.5 182.95 31.0 265.14 265.14 - 182.95 79.28 1990 3,151 100.0 3,151 61.0 192.21 30.0 274.59 310.24 - 192.21 87.04

1991 3,266 100.0 3,266 62.0 202.49 29.0 285.20 310.24 - 202.49 95.82 1992 3,386 100.0 3,386 63.0 213.32 28.0 296.28 310.24 - 213.32 105.15 1993 3,510 100.0 3,510 64.0 224.64 27.0 307.73 310.24 - 224.64 114.96 1994 3,639 100.0 3,639 65.0 236.54 26.0 319.65 450.24 - 236.54 125.36 1995 3,772 100.0 3,772 65.5 247.07 25.0 329.43 450.24 - 247.07 134.39 1996 3,910 100.0 3,910 66.0 258.06 25.0 344.08 450.24 - 258.06 145.38 1997 4,053 100.0 4,053 66.5 269.52 25.0 359.36 450.24 - 269.52 156.84 1998 4,202 100.0 4,202 67.0 281.53 25.0 375.37 450.24 - 281.53 168.85 1999 4,356 100.0 4,356 67.5 294.03 25.0 392.04 450.24 - 294.03 181.35 2000 4,516 100.0 4,516 68.0 307.09 25.0 409.45 450.24 - 307.09 194.41

1/ Refer to aiid-year populations. 2/ Increase due to the Mazafran II System which became operational in July 1979. 7/ Additional production accruing frcom the HaminzSystem. 4/ Due to proposed project which is expected to beccoe operational at the beginning of 1987.

/1 ANNEX 6

ALGIERSREGICNAL W4IER SUPPLY PROJECT

POPULATIONAND HOUSI1; IN AlGIF.RSWIIAYA

1977 Census 1/ Ave. No. of 1966 Census 2/ Ave. No. of Population Nuiber of Persons per Population CrMth County Tawn Urban Rural Total Households Household Urban Rural Total Rate, 7 4/

SIDI M'WAEID Idi M'Hamerd 135,300 - 135,300 19,600 6.9 93,611 - 93,611 3.4 Alger Center 29,800 - 129,800 22,500 5.8 78,585 - 8,585 4.6 El Madania 156,100 - 156,100 21,300 7.3 97,963 - 97,963 4.3

EL HARFACH El Harrach 161,500 - 161,500 21,800 7.4 109,707 - 109,707 5.9 Baraki 45,900 - 45,900 6,100 7.5 - - - -

HAS EL OOED Bab El Oued 128,500 - 128,500 17,800 7.2 83,671 - 83,671 4.0 Kasbah 126,600 - 126,600 20,300 6.2 87,045 - 87,045 3.5 Bologhine 60,300 - 60,300 9,100 6.6 34,430 - 34,430 5.2

BIR7ANREIS 3/ Birmandreis 88,500 - 88,500 13,200 6.7 57,899 - 57,899 3.9 Bouzareah 48,100 - 48,100 6,700 7.2 21,827 - 21,827 7.3 El Brar 112,400 - 112,400 16,600 6.8 73,752 - 73,752 6.8

HUSSEINDEY Hussein Dey 240,800 - 240,800 33,100 7.3 138,916 - 138,916 5,1 Kouba 89,200 - 89,200 13,300 6.7 52,595 - 52,595 4.9

CITY OF ALGIERS 1,523,000 - 1,523,000 221,400 6.9 930,001 - 930,001 4.6

CHERAGA Cheraga 15,600 21,400 37,000 5,300 7.0 8,390 10,337 18,727 6.3 Ain Benian 32,600 1,300 33,900 5,000 6.8 16,954 453 17,407 6.2 Draria 15,500 1,700 17,200 2,600 6.6 8,320 410 8,730 6.3 Zeralda 9,800 6,900 16,700 2,700 6.2 5,364 2,764 8,128 6.6 Staouelli 16,500 3,400 19,900 3,300 6.0 8,187 2,216 10,403 6.0

KJIBA Rouiba 15,100 28,300 43,400 6,400 6.8 5,704 18,778 24,482 5.3 Ain Tava 43,600 400 44,000 6,900 6.4 22,217 202 22,419 6.2 Bordi El Kiffan 53,100 - 53,100 7,900 6.7 19,711 4,714 24,425 7.2 Dar El Beida 10,000 4,000 14,000 2,100 6.7 3,797 3,069 6,866 6.6

BaAJta.1U Boudouaou 17,700 16,700 34,400 4,900 7.0 8,749 9,554 18,303 5.8 Thenia 11,900 28,000 39,900 6,800 5.9 8,236 12,101 20,337 6.2 Reg8aia 17,100 15,900 33,000 4,900 6.7 1,743 5,736 7,479 13.7 Zemou.i 4,500 18,600 23,100 3,400 6.8 2,743 11,396 14,139 4.5

bIRl4NDREIS3/ BirKhadem 19,400 14,200 33,600 4,800 7.0 15,923 612 16,535 6.5

CUTSILEAICIERS CITY 282,400 160,800 443,200 67,000 6.6 116,038 82,342 218,380 6.5

WIlAYAOF AEIERS 1,805,400 160,800 1,966,200 288,400 6.8 1,066,039 82,342 1,148,381 5.0

1/ Taken an February 12. 2/ Taken on April 4. 3/ Part of this county extends outside the limits of Algiers City. 4/ Calculated for the total population. Between 1966 and 1977 the total urban population in the Wilaya of Algiers grew at an average amnual rate of 4.9%. Outside Algiers City, the urban population in the Wilaya grew at an average annual rate of 6.7%. - 58 - ANNEX 7

ALGERIA ALGIERSREGIONAL WATER SUPPLY PROJECT Forecast of Water Demand and Sales in Algiers Wilaya

1989 450 1~

______

400

SECONDSTAGE

35C

30C ~ \ '~ __ FIRSTSTAGE OF 20PROPOSEDPROJEC UNACCOUNTE

50 AVERAGEDEMAND

~~ V ~~WATERSALES

19075 1980 1985 1990 1995 200 YEARS

Apr 11 1984 WorldSBonk-~26206 - 59 -

ANNEX 8 Page 1 of 4

ALGERIA

ALGIERS REGIONAL WATER SUPPLY PROJECT

ISSER WATER TRANSFER TO KEDDARA RESERVOIR

Regulated Flow at Keddara Dam

1. The Keddara Dam would be built on Oued Boudouaou and would receive excess flow from the existing Hamiz Reservoir through a tunnel connecting the two reservoirs. The Keddara Reservoir would have a useful capacity of 160 Mm3. The regulated flow of Boudouaou River at Keddara Dam would be about 20 Mm3 /year, while an average flow of 30 Mm3 is expected to be diverted yearly from the Hamiz Reservoir to the Keddara Dam. In total, only about 50 Mm3 /year would be derived from Oued Boudouaou and Oued Hamiz and a major diversion must come from Oued Isser to reach the expected average flow of 160 Mm3 /year of the Keddara System.

2. Several factors would affect the quantities of water that can be transferred to Keddara Dam. The most important one is the future construction of an impounding structure upstream the diversion point to Keddara Dam. As mentioned in Annex 1, as part of the master plan for the development of water resources in the Algiers-Sebaou region, a major impounding structure, the Koudiat Acerdoune Dam, would be built in the upstream catchment of Oued Isser. The diversion structure to Keddara Dam must necessarily be located downstream the Koudiat Acerdoune Dam, in view of the shorter distance to the Keddara Reservoir. Therefore, the quantities of water transferred to Keddara Dam should be determined for the two sets of conditions prevailing before and after the construction of the Koudiat Acerdoune Dam.

3. Other factors that would affect the quantities of water that would be transferred to Keddara Dam would be:

(i) the location of the diversion point on Oued Isser;

(ii) the capacity of the conveyance system between Oued Isser and Keddara Reservoir; and

(iii) the volume of water impounded at the diversion point.

Diversion Site Selection

4. Because of the high load of suspended solids (14 gr/liter) in Oued Isser, the water must settle to some degree, before it is conveyed to the Keddara Dam. This can be accomplished either through: - 60 -

ANNEX 8 Page 2 of 4

(a) Impounding the oued to create a settling basin;

(b) Constructing a diversion channel within the river to slow the river velocity and force settling of the suspended solids; and

(c) Settling of the water outside the river bed in grit chambers.

5. Fifteen sites were originally identified for the transfer of Oued Isser waters to the Keddara Reservoir. Twelve of them were eliminated because of geologic faults or the high cost of the needed structures. The three remaining sites are located at Lakhdaria, Beni Amrane and Bas Isser (see Map 16089R) and have been identified under such names. At both the Bas Isser and Lakhdaria sites, settling of the water would take place in the river bed through the construction of diversion channels. The remaining structures would include grit chambers, low lift pumping stations, sedimentation tanks, high lift pumping stations and conveyahce systems to the Keddara Reservoir. In the case of Lakhdaria, the major portion of the conveyance system would consist of a tunnel (7.5 kms). For the Bas Isser scheme, a pipeline would link (Keddara Dam) and the diversion point on Oued Isser. The third alternative, Beni Amrane, would consist of the construction of an impounding dam on Oued Isser where settling of the water would take place. Because of the large retention time in the Beni Amrane Reservoir and the expected substantial reduction of suspended solids, the water withdrawn from it would be directly pumped through a pipeline to Keddara Dam. Two short sections of the pipeline would be built in tunnel.

Available Yields at Proposed Sites

6. The final choice of the site for the diversion of Oued Isser waters to Keddara Reservoir would depend upon the volumes of water available at this site before and after the construction of the Koudiat Acerdoune Dam, and the resulting cost per m3 of water transferred to Keddara Dam. After construction of the Koudiat Acerdoune Dam, the drainage basin of Oued Isser at the diversion point would be reduced substantially and the site must be selected, so that enough water would still be available to supply the Keddara System.

7. The following table gives the regulated flows at Keddara Dam, based on the available water transfers from the three selected alternatives: - 61 -

ANNEX 8 Page 3 of 4

Before Koudiat Acerdoune After Koudiat Acerdoune Conveyance Volume Regulated Volume Regulated Capacity Transferred Flow at Keddara Transferred Flow at Keddara Site m3/s Mm3/year Mm3/year Mm3/year Mm3/year

Lakhdaria 6 59 108 29 78 9 68 115 33 81 12 74 119 34 82

Beni Amrane 6 108 157 59 111 9 115 162 61 111 12 117 164 62 112

Bas Isser 6 84 135 62 112 9 99 147 70 118 12 108 154 75 121

8. As it can be seen from above, irrespective of the capacity of the conveyance system, the Lakhdaria diversion would not supply sufficient water to the Keddara System to enable it to reach the proposed yield of 160 Mm3 /year. For Beni Amrane, a conveyance system, with a capacity slightly larger than 6 m3 /s, would be able to supply the necessary flows for a yield of more than 160 Mm3 /year. It should be noted that, although the drainage basin at Beni Amrane is smaller than at Bas Isser's, the volumes of water transferred from Beni Amrane are larger, due to its impounding capacity.

Economic Comparison of the Proposed Sites

3 9. The following table gives the cost price per m of water diverted from the three proposed sites, at the discount rate of 10 percent.

Before Koudiat Acerdoune After Koudiat Acerdoune Conveyance Regulated Cost Conveyance Regulated Cost Capacity Flow Price Capacity Flow Price Site m3/s Mm3/year DA/m3 m3/s Mm3/year DA/m3

Lakhdaria 7 110 0.65 7 80 1.30

Beni Amrane 6 157 0.60 4 108 1.10

Bas Isser 6 135 0.61 4 105 0.81 - 62 -

ANNEX 8 Page 4 of 4

10. The economic comparison was carried out for the most economic 3 3 conveyance capacities, 7 m /s for the Lakdharia diversion, and 6 m /s for Beni Amrane and Bas Isser before the construction of Koudiat Acerdoune Dam, and 4 m3 /s after this construction. The economic comparison shows that the Beni Amrane alternative is always the cheapest, though its cost price is practically identical to the Bas Isser's prior to the construction of the Koudiat Acerdoune Dam. Nevertheless, before the construction of the Koudiat Acerdoune Dam, the Beni Amrane alternative would be able to deliver a larger volume of water for an increased regulated yield of the Keddara System.

11. In addition to its lower cost, other technical factors tend to favor the choice of the Beni Amrane site. This site presents many advantages, such as a lower content of suspended solids of the water transferred to the Keddara Reservoir, a substantial storage of raw water allowing a more uniform pumping rate to Keddara Dam, and better water quality. The Bas Isser site presents some obvious disadvantages: Due to the short retention time in the diversion channel, the suspended solids load of the water may be high, which may result in substantial damages to pump impellers and a gradual reduction of the transmission pipeline capacity. The water also may be very polluted at this point. The construction of the diversion weir, particularly its foundations, may be difficult and costly.

12. For these reasons, the Beni Amrane site was selected to locate the diversion structure, which would be used to convey Oued Isser waters to the Keddara Reservoir.

April 15, 1984 - 63 -

ANNEX 9

AtGERIA

AILIERS REG.IONALWATER SUPPLY PROLJECT

IEAIAED COSTESTIMATES

Item Local Foreign Total Local Foreign Total - - D A Million ------Us$ Million 1/ - - - Percent

PARTA

Keddara Dam and Hamiz-Keddara Tuhnel 351.6 231.8 583.4 73.2 48.3 121.5 81.3 Mechanical and Sounding EqulipnmEnt 3.2 11.7 14.9 0.7 2.4 3.1 2.1

Sub-Total 354.8 243.5 598.3 73.9 50.7 124.6 83.4

Detailed Design 2.7 3.9 6.6 0.6 0.8 1.4 0.9 Construction Supervision 4.3 2.8 7.1 0.9 0.6 1.5 1.0 Physical Contingencies 62.6 43.0 105.6 13.0 9.0 22.0 14.7

Total Cost (January 1984 Prices) 424.4 293.2 717.6 88.4 61.1 149.5 100.0 Price Escalation 40.2 21.3 61.5 8.4 4.4 12.8 8.6

TUTALCOST - PARTA (Current Prices) 464.6 314.5 779.1 96.8 65.5 162.3 108.6

PARTB

Beni Anrane Dam 184.0 122.7 306.7 38.3 25.6 63.9 13.7 Beni AnwranePumrping Station 20.2 54.6 74.8 4.2 11.4 15.6 3.3

Beni Anhrane-KeddaraPipeline 96.7 145.0 241.7 20.1 30.2 50.3 10.8 Keddara-Boudcuaou Pipeline 10.3 15.4 25.7 2.1 3.2 5.3 1.1 Boudouacu-Algiers Pipeline 127.1 190.7 317.8 26.5 39.7 66.2 14.2

Boudouaou Treatment Plant 129.2 145.7 274.9 26.9 30.4 57.3 12.3

Reservoirs and Pumping Stations 107.5 107.6 215.1 22.4 22.4 44.8 9.6 Distribution Network in Algiers 195.7 212.0 407.7 40.8 44.1 84.9 18.2 Instrurientation 0.8 4.8 5.6 0.2 1.0 1.2 0.3

Supply of Water Meters 0.9 1.0 1.9 0.2 0.2 0.4 0.1 Leak Detecticn Program 0.9 1.0 1.9 0.2 0.2 0.4 0.1

Sub-Total 873.3 1,000.5 1,873.8 181.9 208.4 390.3 83.7

Physical Contingencies 131.0 150.1 281.1 27.3 31.3 58.6 12.6 Construction Supervision 34.9 40.0 74.9 7.3 8.3 15.6 3.3 Sector Study 1.4 1.9 3.3 0.3 0.4 0.7 0.1 Technical Assistance to EPEAL 1.4 3.4 4.8 0.3 0.7 1.0 0.2 Technical Assistance to Hydraulics 0.5 2.4 2.9 0.1 0.5 0.6 0.1

Total Cost (January 1984 Prices) 1,042.5 1,198.3 2,240.8 217.2 249.6 466.8 100.0 Price Escalation 307.6 367.3 674.9 64.1 76.6 140.7 30.1

TTAL COST- PARTB (Current Prices) 1,350.1 1,565.6 2,915.7 281.3 326.2 607.5 130.1

TOlALPRWJECT COST 1,814.7 1,880.1 3,694.8 378.1 391.7 769.8

Percent 49.1 50.9 100.0 49.1 50.9 100.0

If Baseo on a constant rate of exchange of US$1 = DA4.80 - 64 - ANNEX 10

ALGERIA

ALGIERSREGIONiL WATER SUPPLY PRCJECr

ANNUIALPFRicECT flVESIM1TS (11AMillion)

1 9 84 1 9 8 5 1 9 8 6 1 9 8 7 1 9 8 8 1 9 8 9 TOTA L Item Local Foreign Local Foreign Local Foreign Local I La oi ol Foreig Local Foreign Total

PARTA

Keddara Dam anw hari-z- Keddara Tunnel 71.8 55.3 111.4 62.9 85.8 57.6 - - - - 269.0 175.8 444.8 Mechanical and Sounding Equiprent 0.9 2.0 2.4 5.4 2.0 4.3 - _ _ - _ - 5.3 11.7 17.0

Sub-Total 72.7 57.3 113.8 68.3 87.8 61.9 ------274.3 187.5 461.8

Detailed Design 0.6 0.9 0.9 1.2 0.7 1.1 ------2.2 3.2 5.4 Ccnstruction Supervision 1.1 0.7 1.1 0.7 1.1 0.7 ------3.3 2.1 5.4 Phlysical Contingencies 10.9 8.6 17.1 10.2 13.2 9.3 ------41.2 28.1 69.3 Actual Expenditures in 1982 and 1983 ------103.4 72.3 175.7

Sub-Total 85.3 67.5 132.9 80.4 102.8 73.0 - - - - 424.4 293.2 717.6

Price Escalation 3.2 1.2 17.4 7.8 19.6 12.3 - - - _ - - 40.2 21.3 61.5

T(7AL COST- PARTA 88.5 68.7 150.3 88.2 122.4 85.3 - _ - _ _ - 464.6 314.5 779.1

PARt B

Beni Amrane Darn - - 25.8 17.2 46.0 30.7 62.5 41.7 31.3 20.8 18.4 12.3 184.0 122.7 306.7 Beni Arrane Punping Station - - - - 3.0 8.2 8.1 21.8 7.1 19.1 2.0 5.5 20.2 54.6 74.8

Beni Amrane-Keddara Pipeline ------38.7 58.0 33.8 50.8 24.2 36.2 96.7 145.0 241.7 Keddara-Boudouaou Pipeline ------3.4 5.1 6.9 10.3 - - 10.3 15.4 25.7 Bcudouaou-Algiers Pipeline - - 16.5 24.8 31.9 47.7 33.0 49.6 30.5 45.8 15.2 22.8 127.1 190.7 317.8

Boudouaou Treatmnat Plant - - - - 32.3 36.4 51.7 58.3 25.8 29.1 19.4 21.9 129.2 145.7 274.9

Reservoirs and Pumping Stations - - - - 26.9 26.9 32.3 32.3 32.2 32.3 16.1 16.1 107.5 107.6 215.1 Distribution Network in Algiers - - - - 48.9 53.0 68.5 74.2 58.7 63.6 19.6 21.2 195.7 212.0 407.7 Instruraentation ------0.3 1.5 0.3 1.9 0.2 1.4 0.8 4.8 5.6

Supply of Water Meters - - - - 0.5 0.5 0.4 0.5 - - - - 0.9 1.0 1.9 Leak Detection Program - - 0.2 0.3 0.3 0.3 0.2 0.2 0.2 0.2 - - 0.9 1.0 1.9

Sub-Total - - 42.5 42.3 189.8 203.7 299.1 343.2 226.8 273.9 115.1 137.4 873.3 1,000.5 1,873.8

Physical Contingencies - - 6.4 6.3 28.5 30.6 44.9 51.5 34.0 41.1 17.2 20.6 131.0 150.1 281.1 Construction Supervision - - 1.7 1.7 7.6 8.1 12.0 13.7 9.1 11.0 4.5 5.5 34.9 40.0 74.9 Sector Study - - 0.4 0.6 0.7 0.9 0.3 0.4 - - - - 3.4 1.9 3.3 Technical Assistance to EPEAL - - 0.3 0.7 0.5 1.2 0.4 1.0 0.2 0.5 - - 1.4 3.4 4.8 Technical Assistance to Hydraulics - - - 0.3 1.2 0.2 1.2 - - - - 0.5 2.4 2.9

Sub-Total - - 51.3 51.6 227.4 245.7 356.9 411.0 270.1 326.5 136.8 163.5 1,042.5 1,198.3 2,240.8

Price Escalation - - 6.7 5.0 43.4 41.3 97.8 112.2 98.0 126.7 61.7 82.1 307.6 367.3 674.9

TOAL CMS - PARTB _ - 58.0 56.6 270.8 287.0 454.7 523.2 368.1 453.2 198.5 245.6 1,350.1 1,565.6 2,935.7

TOTALPROJECI OST 88.5 68.7 208.3 144.8 393.2 372.3 454.7 523.2 368.1 453.2 198.5 245.6 1,814.7 1,80.1 4.

TTAL pROJECTCOST IN US$ 1/ 18.5 14.3 43.4 30.2 81.9 77.5 94.7 109.0 76.7 94.4 41.4 51.2 378.1 391.7 769.A

11 Based on a constant rate of exchange of US$ 1 1DA 4.80 ALGERIA ALGIERSREGIONAL WATER SUPPLY PROJECT Constiuclion Schedub

C~& Y- 1985 19E<> 1987 19m8 i989 192 MAM SON62 JA if MAM ii AS~o OND O F M A M 26 M A M 1 i 801 16J F J JA 5 N JA P F .111 MW 96060

37k71" 39 6- W169170 7i172 73 74 75 16 77 1 79 32 83 ~7~87 610 3 4102?S-1 F 7nz z^2 '7~167 t P.I I I IA~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ hnans~~~w w1X lr + ; ^ i ;Et 't 0 4it vit It 'H r 9 owlum7nJ F t J1 f ---- 17~

* 70

PA ' 779 en499694F7o

FA 6097677609906197779 76 79797cCe6t7rK7 e9 ALGERIA

ALGIERSREGI(NAL WATER SUPPLY PROJEGC

ALUXATICMIOF THE1LOAN PROCEEDS (DA Million)

Type of 1 9 8 4 1 9 8 5 1 9 8 6 1 9 8 7 1 9 8 8 1 9 8 9 Total Allocation of Total Expenditures Investment Allocation Investment Allocation Investment Allocation Investment Allocation Investment Allocation Investment Allocation Investment DA tFSt Investrent

PART I

Foreign Purchases 1.2 1.2 6.8 6.8 5.8 5.8 - - 13.8 13.8 2.9 100 Local Purchases 1.1 - 3.1 - 2.7 ------6.9 - - - Civil Works - iKedara Dams 66.7 26.7 224.3 89.7 194.9 77.9 - - - - 485.9 194.3 40.5 40

Consulting Services Foreign 1.1 1.1 1.3 1.3 1.3 1.3 - - - - 3.7 3.7 0.8 100 Local 0.6 - 1.0 - 0.8 ------2.4 - -

Construction Sup. 1.8 - 2.0 2.1 ------5.9 -

Total- Part 1 72.5 29.0 238.5 97.8 207.6 85.0 _ - - - _ - 518.6 211.8 44.2 40.8

PARTrII

lquipment (meters) Foreign - - 0.4 0.4 1.0 1.0 0.8 0.1 0.2 0.2 - - 2.4 2.4 0.S 100 Local - - 0.3 - 1.0 - 0.8 - 0.2 - - - 2.3 - - -

Civil Works - - 108.0 43.2 531.5 212.6 939.0 375.6 792.2 316.9 429.3 171.7 7,800.0 1,120.0 233.3 40

Consulting Services Foreign - - 3.4 3.4 12.9 12.9 18.6 18.6 13.1 13.1 6.2 6.2 54.2 54.2 11.3 100 Local - - 2.6 - 11.4 - 18.5 - 15.6 - 8.6 - 56.7 - - -

Total - Part 11 _ - 114.7 47.0 557.8 226.5 977.7 395.0 821.3 330.2 444.1 177.9 2,915.6 1,176.6 245.1 40.4

TaIAL (PARTS1 & 11) 72.5 29.0 353.2 144.8 765.4 311.5 977.7 395.0 821.3 330.2 444.i 177.9 3,434.2 1,388.4 289.3 40. 4 - 67 -

ANNEX 13

ALGERIA

ALGIERS REGIONAL WATER SUPPLY PROJECT

ESTIMATED SCHEDULE OF DISBURSEMENTS (US$ Million)

Bank FY 1/ and Bank Loan Quarter In Quarter Cumulative 2/

1985 Fourth 3.2 3.2

1986 First 3.2 6.4 Second 4.8 11.2 Third 6.4 17.6 Fourth 7.5 25.1

1987 First 8.0 33.1 Second 8.0 41.1 Third 8.8 49.9 Fourth 14.3 64.2

1988 First 16.4 80.6 Second 18.0 98.6 Third 18.8 117.4 Fourth 19.2 136.6

1989 First 20.0 156.6 Second 18.8 175.4 Third 12.3 187.7 Fourth 12.2 199.9

1990 First 11.5 211.4 Second 10.9 222.3 Third 10.8 233.1 Fourth 10.2 243.3

1991 First 9.4 252.7 Second 8.6 261.3 Third 8.5 269.8 Fourth 7.9 277.7

1992 First 6.3 284.0 Second 6.0 290.0

1/ Runs from July 1 of a preceding year to June 30 of a current year. 2/ Figures shown under these columns give estimated accumulated disbursements at the end of the corresponding quarters. -8 -ANNEX 6a 14

1~

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0~~~~~~~~~~~2 *Q|-~~~~~~~~~~ 0 ------______------

< ~~ ~ ~ ~ ~ 2 Z ~~~ ~~~~~~~~~~~

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r …--- --

02_

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-2 ------

E

2 2 8- - - - - ALGERIA ALGIERSREGIONAL WATER SUPPLY PROJECT Entreprsede Production, de Gestion et de Distribution d'Eau d'Alger(EPEAL) Organization Chart - 1984

Board of Directors

General Director

|Organization & I I .gl one Data Processing o MS-

| ngineering, StuclieS Personnel& |e|OSeOatio | Water Operations |C| mmerlcRtial | Finance

Production Distribution L& Treatment I I

New Wors AdminitratineSringSbDiesn SeraPublDivislaionsBdetnu-iso H Studies | H Personnel | i Engineering |4 Water Wells|BitliColle|tionSt| tpong0 A Accounting

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World Baink-26208 - 70 - ANNEX 16 Page 1 of 8

ALGERIA

ALGIERS REGIONAL WATER SUPPLY PROJECT

ENTREPRISE DE PRODUCTION, DE GESTION ET DE DISTRIBUTION

D'EAU D'ALGER (EPEAL)

Terms of Reference for Organization, Management and Financial Studies

Introduction

1. The Government of Algeria has recently established a regional socialist enterprise to be responsible for the provision of drinking water and the collection and treatment of wastewater within the territory of the Wilaya of Algiers. The enterprise, "Entreprise de Production, de Gestion et de Distribution d'Eau d'Alger (EPEAL)," replaces a former Socialist Enterprise of Wilaya "Societ6 des Eaux de l'Agglomeration d'Alger (SEDAL)." It is a public-owned enterprise, financially autonomous and managed as a commercial undertaking. EPEAL is a continuation of the former SEDAL, but is operating under the tutelage of the Ministry of Hydraulics, and covers a larger territory extending over the Wilaya of Algiers.

2. EPEAL is designated as the agency which would be responsible for operating new large water supply and sewerage schemes which are currently being built by the Ministry of Hydraulics. The total cost of the new works (through 1989) is about US$950.0 million. They include the construction of two dams, a water treatment plant, water transmission and distribution mains, sewage main collectors and a sewage treatment plant. The sewerage component is expected to become operational by 1987, and the water supply scheme by 1989. The Government has received a loan of US$ 82 million from the World Bank to finance the sewerage project, and has requested a Bank loan of US$ 245.0 million to finance part of the water supply system.

3. Shortly after its establishment in 1978, SEDAL employed consultants to advise on aspects of its organization and management, financial structure and tariff policies. The consultants completed their work in 1980 and submitted a set of reports; a list of the reports is given in the attachment. They cover: - 71 -

ANNEX 16 Page 2 of 8

(i) definition of SEDAL's organizational structure, statement of objectives for main functional units;

(ii) plans for implementation of organization changes;

(iii) a study for mechanization of data processing;

(iv) manuals for material controls, fixed assets accounting, and billing and collection; and (v) proposals for financial policies and tariff structure.

Objectives

4. EPEAL is in the process of implementing the studies' recommendations for organization and management. This has been, however, affected by an expansion of EPEAL's jurisdiction and plans for future expansion in systems operation following the commissioning of the new works. In order that EPEAL should be fully equipped to discharge its responsibilities in a most effective way, consultants are to be retained to update the studies, which were completed under the previous assignment with regard to EPEAL's organization and management and its financial structure and tariff policies. The required services are as follows.

Organization and Management Studies

5. This part will comprise a review of the studies which were carried out previously, an update of the organizational and management structure of EPEAL, and the provision of assistance during the implementation of the studies' recommendations. It is envisaged that the consultants management assistance will cover (but will not necessarily be limited to) the following:

(i) an evaluation of progress made in implementing the recommendations and systems of the previous study;

(ii) an update and definition of the broad lines of EPEAL's organizational structure and its relationship with the supervising authority and the other agencies of the Government and the Wilaya of Algiers;

(iii) an update of job description and statements of objectives for all main functional departments;

(iv) development of detailed organization structure for all main departments and divisions; and

(v) a plan of actions for a phased implementation of the organizational changes. - 72 - ANNEX 16 Page 3 of 8

6. Parallel to the above-mentioned activities, the consultant should review progress made in implementing the system procedures for billing and collection, material control and fixed assets accounting. This task will involve updating the manuals and instructions for their implementation, and the preparation of an action plan to continue the implementation. Re-examination of billing and collection practices should take into account:

(a) phasing out of the master meters and use of individual meters; and

(b) the findings and recommendations of the second part of the study on tariff structures.

7. After completion and agreement on the organizational proposals, and the updating of documents as per para. 6 above, the consultant is required to proceed to a number of detailed tasks, as follows:

(i) development of general and cost accounting manuals. The Algerian "Plan Comptable National" should be the base for the chart of accounts and financial reports. Special attention should be paid to the fact that major capital works are carried out by the Ministry's agencies. Accounting for liaison, and reporting requirements to ensure prompt recording of these works and associated transaction in EPEAL's books should be given full attention;

(ii) development of budgeting system and procedures;

(iii) organization plan and staffing schedule for the establishment of a budget section within the finance department; and

(iv) plan and staffing schedules for the establishment of an internal audit function covering all aspects of the company's activities.

8. As the work proceeds on items described in para. 6 and following the completion of the tasks described in para. 7 above, the consultant should assist EPEAL in implementing the organizational proposals, and the revised and new systems and procedures. EPEAL's staff would carry out the implementation with assistance from the consultant mainly in the following areas.

(i) overall planning and coordination of the implementation process, follow-up, reporting and update of schedules;

(ii) training of EPEAL's staff assigned for implementation. This will include conducting workshops and provision of on-the-job training to ensure smooth implementation; - 73 -

ANNEX 16 Page 4 of 8

(iii) provision of guidance and establishment of procedures to reconcile and consolidate EPEAL's current accounts, and establishment of balances along the recommended chart of accounts; and

(iv) special attention should be given to coordinating the implementation with the ongoing program of computerization of EPEAL's activities.

Tariff Studies

9. The financial and tariff studies, which were carried out under the previous assignment, provided EPEAL with a set of projected tariffs for the years 1980 through 1985. They also included projected financial statements. The assumptions retained for the studies' recommendations were:

(i) EPEAL should have a growing self-financing capacity of its investment programs; and

(ii) that the tariff structure should be progressive based on quantities and types of water consumption.

10. The projected self-financing levels and tariffs were based on a number of assumptions regarding the expected capital and operating costs and rates of inflation.

11. Under the present assignment, the consultant is required to prepare a tariff structure which SEDAL might use for charging water supply and sewerage services, together with a schedule of proposed rates for the years 1986-1992. In the course of this part of the study, the consultant is expected to update forecasts of:

(a) Consumer use of the services, in terms of numbers of connections, volume of water sold, and any other measures he considers relevant; and

(b) the operating costs of the services, taking into account the organization structure proposed in the organization and management study, including depreciation of fixed assets value, and any taxes or duties likely to be imposed on EPEAL.

12. In developing his proposals for the tariff structure and rates, the consultant should thoroughly examine and evaluate the following:

(a) the economic efficiency of the proposed tariffs, in terms of their reflection of the estimated long-run marginal cost of the services; - 74 -

ANNEX 16 Page 5 of 8

(b) the extent to which EPEAL's activities convey benefits to a wider public than its own connected customers - for example, by safeguarding health and protecting against stormwater damage - and the possibility of recovering (by taxes or otherwise) such benefits in the form of income for EPEAL;

(c) the effect (if any) of the proposed tariffs on the forecast of water sales, and the adequacy of the resultant total revenues to cover costs as defined in para. 11(b) above;

(d) the extent to which identifiable groups or classes of consumers impose special costs on the system, which should be reflected in special charges to those consumers;

(e) the possibility and justification of charging to industries rates which would take into account the quality of the liquid wastes discharged by these industries;

(f) whether the proposed levels of charges are within the reasonable ability-to-pay of all consumer groups, and whether a case exists on these or any other grounds for concessionary rates to be applied to particular consumer groups or levels of consumption;

(g) the effectiveness of the proposed water rates in discouraging waste and inessential use of water, since this is EPEAL's policy;

(h) the means of recovering the cost of supplies delivered free through public taps; and

(i) consistency of the tariffs with the methods of assessment and billing which is to be reviewed under terms of reference (para. 6 above).

13. The consultant should review the cost of providing other services associated with the provision of water by EPEAL to its customers. They include fees for meter rental and maintenance, new connections, special fees for reading and billing of individual meters, etc. The consultant should provide EPEAL with proposals for:

(a) methods for establishing the fees;

(b) uniform fees for all the operating districts, and a timetable for their implementation; and

(c) methods for updating the costs of the services and a mechanism for updating the fees. - 75 - ANNEX 16 Page 6 of 8

14. On the basis of his forecasts of operating costs, future investments and replacement of obsolete assets, and revenues available from the proposed tariffs, the consultant should prepare projections of the resultant cash flows from operations. The consultant is then required to propose:

(i) the proportions in which it would be appropriate to apply this cash flow to:

(a) debt service on borrowed funds; and

(b) contributions to EPEAL's current or future capital expenditures as set out in EPEAL's financial objectives.

(ii) the proportions in which funds provided to EPEAL by the Government should accordingly be divided between capital contributions and loans;

(iii) the appropriate terms (interest, maturity and grace periods) for any loan funds so provided; and

(iv) the life expectancy of assets acquired or built with the funds so provided.

15. In carrying out this part of the studies, it is expected that the consultant will wish to examine a number of alternatives. In evaluating these alternatives he should pay particular regard to the declared objectives of Government with respect to the financing of investments by enterprises, as set out in the Finance Law of 1984. Similar consideration should be given to EPEAL's financial objectives which should be determined in agreement with the Government.

16. At the conclusion of this part of the studies, the consultant should prepare complete financial projections (income statements, balance sheets and cash flow statements) for the recommended alternative. In the event he wishes to submit alternative schemes for consideration, financial projections should be completed for each alternative.

Performance Indicators

17. The final part of the studies comprises the updating of performance indicators by which EPEAL's progress towards its objectives may be monitored. The performance indicators should be capable of precise and unambiguous expression, and within the capacity of EPEAL's information systems to calculate and report promptly and accurately. They may include (but are not necessarily limited to) cash generation ratios, balance sheet ratios, measures of unit costs and service levels. If appropriate, separate indicators may be developed for different parts of the company's operation, including in particular the water supply and sewerage operations. - 76 -

ANNEX 16 Page 7 of 8

18. The consultant should establish within EPEAL the methodology for updating the findings of the tariff study and the preparation of updated projections. To ensure that this task is carried out properly, the consultant should:

(i) provide relevant training to EPEAL's assigned staff during the preparation of the studies; and

(ii) coordinate this task with the development of budget systems and the setting up of a budgeting section (para. 7 (ii and iii).

Timetables and Reports

19. It is envisaged that the organization/management study and the tariff/financial study will be carried out in parallel, and an elapsed time of not more than 12 months (from mobilization of the consultant's team in Algiers) is allowed for completion of the studies. Assistance in implementing the organizational changes and new systems (para. 8) will continue for another 12 months.

20. The following reports are to be submitted: (i) not later than the end of the sixth month, a first report on organization and management, containing recommendations on the matters set out in terms of reference (paras. 5 and 6). Two months will be allowed for consideration of this report by the Authorities, discussion with the consultant, and determination of any revision which may be necessary; (ii) not later than the end of the eight month, revised manuals as per para. 7 should be submitted together with a detailed implementation plan; and (iii) by the end of the twelfth month of the assignment:

(a) a final report on organization and management, incorporating any revision made to the first report and including an updated plan of action for implementation; and

(b) a report on tariffs and finance, covering the matters described in terms of reference (paras. 11-18) and setting out the financial projections referred to in para. 16 of the terms of reference.

21. The interim reports are to be submitted in 20 copies, and the final reports in 50 copies, in the French language, and delivered initially to the Director General of EPEAL. - 77 -

ANNEX 16 Page 8 of 8

Proposals

21. Proposals in five copies in the French language should be submitted by ------to:

23. Proposals should contain, inter alia:

(a) a descriptionof the consultingfirm (or firms) and its areas of specialism;

(b) a description of other relevant assignments previously carried out by the firm;

(c) an explanation of the way in which the consultant proposes to approach the assignment, including any comment he may wish to make on the terms of reference or any modifications he may wish to propose in the interests of better achieving the objectives of the assignment;

(d) a brief description of any special methodology to be employed (for example, use of computers);

(e) a staffing chart for the assignment, showing each specialist to be employed and indicating the nature and duration of his involvement (distinguishing time in Algeria from time at the home office);

(f) an explanation of how supervision of the assignment is to be maintained by the firm's principals;

(g) curricula vitae of key personnel nominated for the assignment; and

(h) a statement of any special facilities the consultant may require in carrying out the assignment.

24. Proposals will be judged on technicalmerit and fees. Any assistance the Algerian authorities may be able to provide in regard to accommodation, local transportationand other administrativematters should be indicated in the proposal. - 78 -

ANNEX 16 Attachment Page 1 of 2

ALGERIA

ALGIERS REGIONAL WATER SUPPLY PROJECT

ENTREPRISE DE PRODUCTION, DE GESTION ET DE DISTRIBUTION

D'EAU D'ALGER (EPEAL)

Organization, Management and Financial Studies

List of Reports and Documents Prepared under SEDAL's Study (1980)

Report/Document Title Date

Organization and Management

1. Evolution de la Structure d'Organisation (June 1980)

2. Manuel: Gestion des Abonnes (Vols. 1-2) (March 1980)

3. Nomenclature des Stocks (March 1980)

4. Manuel: Achats - Stocks (March 1980)

5. Manuel: Gestion du Fichier des Immobilisations (March 1980)

6. Instructions Pour l'Initialisation du Fichier des Immobilisations (March 1980)

7. Definition de la Politique de Mechanisation de Traitement (August 1979)

8. Resum6 de Mise au Point du Projet (March 1980)

Finance and Tariffs

1. Options de Structure Financiere et de la Politique Tarifaire (January 1980)

2. Propositions de Principes de Politiques Tarifaires (January 1980)

3. Cout Marginal Moyen a Long term de l'Eau Potable d'Alger (January 1980) - 79 -

ANNEX 16 Attachment Page 2 of 2

4. Note Relative aux Amortissements Pris en Compte dans le Prix de Revient de l'Eau (January 1980)

5. L'Externalite du Projet d'Assainissement des Eaux de la Ville d'Alger (January 1980)

6. Les Indicateurs Financiers a Utiliser pour le Controle de 1'Execution du Projet d'Assainissement des Eaux de la Ville d'Alger (January 1980) ALGERIA

ALGIERS REGIONALWATER SUPPLY PROJELT

EPEAL: INCl0NESTATEMENTS - ACTUAL(1983) ANDPROJECiED (1984-1992)

DA MILLIONS

FISCAL YEARENDINZ DEC:EMBER 31

1983 1984 1985 1986 1987 1988 1989 1990 1991 1992

WATERPO)DUCED (MIL. M3) 135.90 144.00 150.20 150.20 150 20 150.20 265 10 274.60 285 20 296.30 UNACCCkJN FCR WATER% .36 .36 .35 .34 .33 .32 .31 .30 .29 .28 WATERSOLD (MimLIONM3) 86.98 92.16 97.63 99.13 100.63 102.14 182.92 192.22 202 49 213 34 AVI1RAGETARIFF (DA/M3) .98 1.20 1 40 1.61 1.70 1.83 1 95 2 25 2.50 2 60

REVENUES

W4ATERSALES 84.80 110.59 136.68 159.60 171.08 186.91 356.69 432.49 505.89 554.67 MEE RENrAL &MAINr?IANCE 7.82 8.37 9.65 16.79 17 93 29.79 38.03 47.17 55.12 63 64 NEW CONNECTIONS 2.85 3 42 8 47 14.45 15.72 16.30 18.12 19.85 5.94 5.90 UIHER REVENUES 3.13 2.69 2 77 2 94 3.12 3.29 3.47 3 64 4.75 5 84

TOTALREVUVJES 98.60 125.07 157-57 193.78 207.85 236 Z9 416.31 503.15 571.70 630.05

.JPEATLNG EXPENSES ______PEPSOtNEL 48.54 51.93 55.23 57.32 59.80 65.50 76 79 8U.56 84 69 88.64 IGkRY & FUEL 21.65 22.71 23.80 25 20 26.67 29.34 54.01 64 60 69.56 73.61 MkTERIAIS& MAINW. 18.41 19.87 25.05 31.37 33.92 42.53 69.45 82.24 78-95 83.50 TXES 6.41 7.98 8.90 9.96 11.05 13.49 19.90 3i.34 34.47 36.94 AIMIN. EXP. & OHERS 3.80 4.28 4.96 5.76 6.18 6.19 7.82 8.33 7.89 8.27 LESS: CAP. EXPENSES (16.73) (14.60) (15.10) (15.60) (i6.10) (16.60) (17.10) (17.60) (18.20) (18.90)

SUB-TOTAL 82.08 92.17 102.84 114.01 121.52 141 05 210.87 249.47 257.36 272.06 DEPRECIATION 36.08 37.02 37.66 38.34 47.17 69.94 116.72 156.52 163.67 164 52

"ITAL EXPE14SES i18.16 129.19 140.50 152.35 168.69 210.99 327.59 405 98 4Z1.03 436 58 NET OPERATINGINEh (19.55) (4.12) 17.08 41.43 39.i7 25.30 88.72 97.17 156.u6 193.47 INMEREST .15 .94 1.30 1.36 16.82 32.75 30.71 129 06 164.27 159.76 lrT INCME (19.70) (5.06) 15.78 40.07 22.35 (7.45) 58 01 (31.89) (13 61) 33.71

OPERATINSRATIO 1.20 1.03 .89 .79 .81 .89 .79 .81 .74 .69 - 81 -

ANNEX18

ALGIERSiKEGIONAL WATER SUIPLY 10L1I0

I:EAL: SDORCESAND APPLICATIONS (F FUNDS- ACr'IAL(1983) & PRJECTED (1984-1992)

DAMILLIOSN

1983 1984 1985 1986 1987 1988 1989 1990 199% 199Z

USES OF FPU)S

CAPIAL INVfS1iTS

PWPOSWDPROJET - 332.90 353.10 765 50 977.90 821.30 '44.10 - - - OTHE11CAPITAL EXP. 151.79 168.7U 232.00U24.00 U26.UU 32 50 L34 00 140.50 197 UO 213 50 CAPITALIZEDINTEREST J3.66 7.41 13.09 32.81 44.72 b7-92 105.14 3 70 9 UO2 15 15

7TOALINVESmENITS 155.45 509 U1 598.79 1,022.31 1,248.U2 921 72 t83.24 164.20 2ub.UUt 2U8.65 UiCEEASE(DofiEASE) IN WOSKINGCAPITAL 10.17 (25.43) 22.29 4.95 (9.00) (16.73) 46.01 (22.73) 5.99 14.59 LESTSERVICE - INTERESr .15 .94 1.30 1 36 16.82 32.75 30 71 129.U6 164.Z7 159.76 - AMERTZ.OF IOANS .86 1.84 2.36 2.36 17.01 30,31 30.32 112.U1 113 i9 114.U9

TOTALDEBT SERVICE 1.01 2.78 3.66 3.72 33.83 63.06 bl.U 241.07 277.56 Z73.85

UTrALUSES OF FPU)S 166.63 486.36 624.74 1,030.98 1,273.45 968.05 790.28 382.54 489.55 517.09

SOURCESOF FPITS

OPERATINGINOItlE BEFR0EDEPRECIATION 16.52 32 90 54.73 79.77 86.33 95.24 205.44 253.69 314.34 357.99 Ba(M3CS

- EXlST0II i8RD WAN 27.L8 87.09 98.65 116.93 114.21 ------PWO9OSEDIBRD LOAN - - - 71.68 244 95 346,94 260.65 149.76 109.9Z - - OI1L LT 10AN2S - - - 20.36 68.12 96.34 124.29 105.28 97 36 - -MED.-TERM Sb (WGc 3.00 4.50 5.00 5.50 6.00 t.-0 7 00 7 UO 7 50 7.50

19TAL BOSROWINGS 30.18 9L.59 103.65 214.47 433.28 449 68 391.94 262.U4 214.78 7 50 llSL018S CONTRIBUIlONS 16.46 1OWO 10.50 11.00 11.0o 11.50 12.00 12 50 13 00 13.50 OVERRNE2T0X%TR1800IBND 103.47 351.87 455.86 725.74 742 84 411 83 180.90 (145.68) (52 57) 138.10

IUTTALSOURCES OF FLNOS 166.63 486.36 624.74 1,030.98 1.273.45 968.05 790.28 382.54 489 55 517.U9 - 82 - ANNEX 19

ALGIRS REGIONALkI4TER SUPPLY PRO1E1CT

EPEAL. BALANCESHEETS - ACI9AL(1983) ANDPRO.ECTEB (1964-1992)

DA MILL.IONS

1983 1984 1985 1986 1987 1986 1989 19%s 1991 1992

ASSETS

FIXED ASSETS

GROSSFIXED ASSETS 1,326.29 1,346.29 1,369.z9 1,394.29 2,246.00 3 i93.58 5 836 21 6,336 64 64368.b4 6,401.64 LESS ACCUM3.DEMECIATION 696.76 733.78 77. 43 809.78 856.94 926.88 1,043.61 1,200 i2 1,363.80 1 528.32 ------NETFIXED ASSES 629.53 612.51 597.66 584.51 1,389.u6 2,Z66 70 4 79Z.00 5,t36.52 5,004.64 4,73.32 W6R1IN PROGRESS 124 14 613.5 1,188.94 2,186.15 2.58316 2,557.30 597.91 261.68 435.68 631.33

TOTALFIXED ASS1 753.67 1,225 66 1,786.80 2,770.76 3,972.22 4,824.00 5,390.51 5,398.20 5 440 52 5 504.65

CURREhTrASSETS

STOCOS 38.84 42.00 4'5.o 38.0D 3600 3b.U0 57 00 7400 74. o 78.50 RBCEIVABIES 97.79 89.00 110.00 115.35 108352 93 Of 137.00 118.0o 63000 149. LO OrHEMDEBIT ACCOUNTS 30.86 21 00 18.00 17.70 19.0o 15.40 10.00 il.00 14.00 13.00 rASH 19.70 8.90 9 8o 1WSM 12.00 15.70 19.00 22.30 23.00 24.30

TOTALCUIRENT ASSTS 187.19 160.9 182.80 181.65 175.52 160.o1 223.00 225.30 241.00 z64.a0 ------TOTALASSE S 940.86 1,386.56 1,969 40 2,952.41 4,L47.74 4.964.10 5 413.51 5.623.50 5,681.52 5 769.45

EQUITY& LIABILITIES

1OVERBNhTTC(TIRIBUTION 896.41 1,248.28 1,704 13 2,429.87 3,.72.71 3,584.34 3,765 24 3,619.55 i 566.99 3 705.06 1USI1MERS1ONT3{I8UTNS 40.33 50.33 60 83 71.83 82.83 94.33 106.33 118.83 21 83 145.33 PETAINEDE8RINGS (87.o6) (92.12) (76.35) (36.28) (13.93) (21.38) 36 t2 4.73 (8.87) 24.84 ------_------_------EQIITYUTOTAL 849.67 1,206.48 1,688.62 2,465 42 3,241.61 3.657.29 3 908.19 3.743.12 3,689.94 3,875.25

IONG& MEDIUMTERM DEBT

1BRD(EXISTINS) 27.8L LL4.27 212.92 3L6.79 404.88 378.76 352.t4 326.52 300 40 Z74.Z2 IBRD(PROPOSED) - - - 71.68 316.63 663.57 865.02 955.58 1,006.30 947.10 OTHERLT BORROWIl4 - - 20.36 68.48 184.82 287.22 370.6l 446.08 424.19

TDTALLOW, TLHN DEBT 27.18 L14.27 212.92 408.83 809 99 6,227.2 ; ,504.88 1,652.71 L,75Z 78 L,45. 57 MEDIUMTERM DEBT 12.46 14.60 17.24 18.80 20 60 22.80 25 00 25.90 26.53 25.73

TOTAL ORROWI2 39.64 28.87 230.16 427.63 830.59 1,249.95 1,529.88 1,678.61 1,779.31 1 671.30

CfLRRENTLIABILITIES ------CUSTOMERSDEPOSITS 1.73 L.85 1.96 2.36 2.73 3.04 3.43 3.96 4 17 4.3a SUPPLIERS 40.84 39.00 38.00 36.00 39.00 36.00 53 uO 77.00 86.oo 93.00 OTHERPAYABLE ACCOUhTS 7.14 8.00 6 50 4.U0 3.50 7.50 7.0O 7.50 8.UO lo.O IEURRErTMATURITIES 1.84 2.36 2.36 17.00 30 31 30.32 112 01 113.31 114.10 115.52 ------_------_------_------TOTALCUPRENT LIA31LITIES 51.55 51.21 50.82 59.36 75.54 74.66 175.44 201.77 212.27 222.90 ------_ ------TOTALEO,LTY & LLABILITIES 940.86 1 386 56 1,969.40 2,952.41 4,147 74 4 984.L0 5 663.5L 5,623.50 5.681.52 5 769 45

DEBT EQUITY RATIO 4:96 10:90 12:88 15:85 20:80 25:75 28:72 31:69 32:68 30:70

1 - 83 -

ANNEX 20 Page 1 of 4

ALGERIA

ALGIERS REGIONAL WATER SUPPLY PROJECT

Assumptions for Financial Analysis

Income Statements

1. Internal Inflation: The following inflation rates were used:

1984 - 1988 - 7% 1989 - 1990 - 6% 1991 - 1992 - 5% 2. Operating Revenues

(i) Projection of Water Sales

Future water sales are assumed to increase slightly during the period 1984-1988, as a result of expected improvement in unaccounted-for water which is projected to reach 28% in 1992. Sales include additional sales which are expected as a result of extending EPEAL's area of operation (1984-1985 and onward). Water sales from 1989 onward are projected on the basis of expected demand and the production levels as envisaged under the project.

(ii) Water Revenues

Water revenues for 1984 and 1985 are based on the assumption that the tariff increase would be introduced as from July 1, 1984. It is expected that the following increase would be applied, starting from 1986, on the basis of proposed financial objectives by EPEAL. Tariff increases throughout the projection period are expected to be on average 7% annually.

(iii) Meter Rental and Maintenance

These were projected on the basis of the following:

(a) EPEAL will complete its gradual phasing out of the master metering and the introduction of individual meters by 1989. Meters for replacement and new connections would be on a rental basis (currently about 20% of individual meters are rented). - 84 -

ANNEX 20 Page 2 of 4

(b) All rates for meter rentals and fees for meter and connection maintenance would also be uniform through EPEAL's area of operation. These rates vary substantially between operating districts (between a total of DA 26.0 and DA 54.0 for a meter of same diameter).

(c) Special fees for metering and renting individual meters (currently DA 60.0 and DA 28.0 respectively per meter) would be replaced once the phasing out of master meters is completed, by the uniform rate (para. 2 (iii(b)). The projected rates are based on the expected cost of providing the service. They are calculated for the mid-year average number of connections.

(iv) New Connections

Connections are the property of the customers. They are billed at their cost, plus a service tax of 11.1X (currently at about DA 1,700 and DA 200 for master meters and individual meters respectively). From 1986 onward all new connections are projected to be individual.

3. Operating Expenses

(i) Personnel: Personnel expenses are projected to increase on the basis of the forecast number of staff based on a decreasing ratio of employees per population served. New staff for operating the new project and sewerage facilities are taken into account in the following years of operations.

(ii) Energy and Fuel: Future levels of consumption are projected assuming gradual improvement of efficiency. Energy required for operating the project and the sewerage facilities are estimated on the basis of the 1984 prices adjusted for inflation.

(iii) Materials and Maintenance: Their quantities are based on the estimated number of new connections, the current maintenance programs, and consumption of chemicals. The projections include operations' requirements for the new facilities to be constructed under the project and the sewerage project based on consumption requirements. - 85 -

ANN1EX20 Page 3 of 4

(iv) Taxes: Calculated according to their nature: a tax of 2.53% on gross revenues, a tax of 11.1% on all purchases of materials plus a 6% tax on salaries.

(v) Capital Expenses: This represents the cost of connection extensions (material, labor, overhead, and taxes) included in the foregoing items which are constructed by EPEAL and are incorporated in its assets.

(vi) Depreciation: Calculated at straight-line rates based on the estimated service lives of major assets components. The annual average depreciation rates approximates 2.5% through the projection period, which is somewhat lower than usual because of the dams.

Balance Sheets and Statements of Sources and Application of Funds EPEAL's Balance Sheet for 1982

4. EPEAL's Balance Sheets for 1982 were adjusted to reflect the following: (i) The incorporation in EPEAL's fixed assets of the water supply facilities which were constructed by the DWHA during the period 1980-1982 for EPEAL's account. The net value of the works is incorporated in the assets.

(ii) A decrease of the accounts receivable for unidentified accounts inherited from EPEAL's predecessors. According to EPEAL's audit report (1981), 43% of the receivables would have to be written-off through reconciliation and consolidation of past accounts (currently under way).

(iii) Change in EPEAL's equity to reflect the above adjustments.

Accounts Receivable

5. Receivables for water consumption are assumed to decline following improvements in billing and collection envisaged under the project and are based on target collection periods. Accounts receivable are expected to reach three months of billing by 1990. Other accounts are projected to vary slightly over the projection period.

Inventories

6. In 1983 inventories represented about 12 months of consumption of materials and chemicals. This high level is expected to decrease through the implementation of the materials control system which is currently under way. A declining level is therefore projected to reach an annual average level of six months by 1990. - 86 -

ANNEX 20 Page 4 of 4

Accounts Payable 7. They are projected as follows:

(i) Customers' deposits - in accordance with EPEAL's program for installing a uniform system of metering (para. 2 (iii)). Deposit per customer is calculated on an average six-month consumption, plus other fees, and is adjusted along expected tariff increases.

(ii) Suppliers (including retention money): A declining ratio per month of total purchase of materials and EPEAL's routine investments is projected. This ratio is assumed to reach three months of total purchase (excluding the projected investments for which working capital would be financed by the implementing agencies).

Long and Medium-Term Loans

8. They include loans to the Government for the project, like the proposed Bank loan and commercial banks's loan, which would be partly reimbursed by EPEAL to the Government. Conditions of the reimbursement are as follows:

(i) Proceeds of the existing Bank loan (Loan 1545-AL). Charges on the loan (7.45% interest, repayment over 17 years plus 3 years of grace) are calculated as per the existing Reimbursement Agreement and assuming that EPEAL will start repaying the loan plus interest during construction by January 1, 1987.

(ii) Proceeds of the proposed Bank loan, which are to be reimbursed by EPEAL. Charges on the loan are assumed to be at an of interest rate of 10%. The loan is repayable in twenty-five years including five years of grace.

(iii) Other loans include projected loans from various sources to cover the foreign exchange requirements. It is assumed that EPEAL would repay these loans with an interest rate of 11%, over a 20-year period including five years of grace. This item includes borrowing expected for financing the next major investments (1990 and after) on similar terms and conditions.

(iv) Current and projected medium-term loans: These are from local government-owned development and commercial banks for financing EPEAL's portion of investments. They are charged at 5.5% annual interest rate and are payable over five years plus two years of grace. ALGERIA

ALGIERS REGIONAL WATER SUPPLY PROJECT

Monitoring Indicators

Indicators 1986 1987 1988 1989 1990 1991 1992

I. Staffina

Total Staff 1/ 1,280 1,283 1,334 1,454 1,454 1,454 1,454 Staff Per 10,000 People Served 48 46 46 48 46 45 43

II. Systems operations

Water 3 Produced 106 m /year 150.20 150.20 150.20 265.10 274.60 285.20 296.30 Water 3 Sold, 10 m /year 99.13 100.63 102.14 182.92 192.22 202.49 213.34 Unaccounted-for Water % 34 33 32 31 30 29 28

III. Finance

Operating Ratio %2 79 81 89 79 81 74 69 Debt Equity Ratio x 15:85 20:80 25:75 28:72 31:69 32:68 30:70 Debt Service Coverage (times) 21.5 2.5 1.5 3 3.4 1.1 1.1 1.3 Average Rate in DA per m Sold 1.61 1.70 1.83 3 1.95 2.25 2.50 2.60 Collection Period (day) 238 207 165 125 90 90 90 Self-financing Ratio % 7% 7% 7% 7% 7% 15% 25%

I/ At year end (December 31). 2/ Total operating expenses divided by total revenues x 100. 3/ Accounts recievable at a given date divided by daily average of billing. - 8a -

ANNEX 22 Page 1 of 2

ALGERIA

ALGIERS REGIONAL WATER SUPPLY PROJECT

ASSUMPTIONS FOR ECONOMIC EVALUATION OF THE PROJECT

1. The project costs are those of the initial works and for equipment renewal, in order to utilize fully the project faci-li ties. The operating costs for the proposed water supply project are expressed in constant prices. Both the capital and operating costs are taken net of taxes and customs duties. Taxes are calculated to amount to about 15 percent of the total project cost, and customs duties to about 25 percent of the cost of imported materials and equipment.

2. The following assumptions have been made in calculating the internal rate of return:

(a) the average life of the assets is 50 years;

(b) since there is no excess capacity at present, all incremental -water sales are credited to the project;

(c) all values in the cost and benefit streams are expressed in terms of the 1984 price levels, in order to achieve a common base for the caiculation. The additional quantities of water provided are valued at the tariff of DA 1.61/m3 ; and

(d) only the incremental operating costs are charged to the project. All operating costs are adjusted to the 1984 price levels by an annual inflation factor of about 7 percent. The incremental operating cost in each year is then the difference between the adjusted operating costs and the 1984 operating costs.

Long-Run Average Incremental Cost of Water

3. The following gives the long-run average incremental cost of providing water to the Algiers IWJilaya,at various discount rates: - 89 - ANNEX 22 Page 2 of 2

Discount Volumes Total Cost Increment Rate, % Discounted Discounted Cost, DA/m3

6 1,370.1 1,765.4 1.28 8 983.3 1,627.1 1.65 9 846.3 1,570.0 1.85 10 734.9 1,518.9 2.06 11 643.3 1,472.5 2.29

Rate of Return

4. Using the above data for future investments, the economic rate of return using tariffs of today as a proxy for benefits is 8 percent. - 90 -

ANNEX 23 AURIA

ALGIERSREGIONAL WATER SUPPLY PROJECT

CAIJLATIONOF TIE ICNG-RUNAVERAGE MASICIAL COST OF WATER1/

Increaental Capital Costs Operating Expenses Equipment Sales Water Supply Water Supply Renewal TOTAL Year Mm3 Works System Costs COSTS

(1) (2) (3) (4) (5) (6)

1984 - 197.1 2/ - - 197.1 1985 - 189.7 - - 189.7 1986 - 389.3 - - 389.3 1987 - 460.7 - - 460.7 1988 - 358.0 - - 358.0 1989 79.3 180.2 5.1 - 185.3

1990 87.0 - 10.7 - 10.7 1991 95.8 - 20.2 - 20.2 1992 105.1 - 20.4 - 20.4 1993 115.0 - 20.5 - 20.5 1994 116.6 - 20.5 - 20.5 1995 118.2 - 20.5 - 20.5 1996 118.2 - 20.5 - 20.5 1997 118.2 - 20.5 - 20.5 1998 118.2 - 20.5 - 20.5 1999 118.2 - 20.5 - 20.5 2000 118.2 - 20.5 - 20.5 2001 118.2 - 20.5 - 20.5 2002 118.2 - 20.5 - 20.5 2003 118.2 - 20.5 - 20.5 2004 118.2 - 20.5 - 20.5 2005 118.2 - 20.5 4.8 25.3 2006 118.2 - 20.5 5.2 25.7 2007 118.2 - 20.5 5.0 25.5 2008 118.2 - 20.5 - 20.5 2009 118.2 - 20.5 - 20.5 2010 118.2 - 20.5 - 20.5 2011 118.2 - 20.5 - 20.5 2012 118.2 - 20.5 - 20.5 2013 118.2 - 20.5 - 20.5 2014 118.2 - 20.5 5.4 25.9 2015 118.2 - 20.5 - 20.5 2016 118.2 - 20.5 - 20.5 2017 118.2 - 20.5 - 20.5 2018 118.2 - 20.5 - 20.5 2019 118.2 - 20.5 - 20.5 2020 118.2 - 20.5 - 20.5 2021 118.2 - 20.5 - 20.5 2022 118.2 - 20.5 - 20.5 2023 118.2 - 20.5 - 20.5 2024 118.2 - 20.5 - 20.5 2025 118.2 - 20.5 - 20.5 2026 118.2 - 20.5 - 20.5 2027 118.2 - 20.5 - 20.5 2028 118.2 - 20.5 7.2 27.7 2029 118.2 - 20.5 5.0 25.5 2030 118.2 - 20.5 - 20.5 2031 118.2 - 20.5 - 20.5 2032 118.2 - 20.5 - 20.5 2033 118.2 - 20.5 (8.1) 12.4

1/ All values in the cost and revenue streams are expressed in terms of the 1984 price levels and in DAMillion.

2/ Of which DA 105.4 million represent sunk costs. - 91 -

ANNEX 24

ALGERIA

ALGIERS REGIONALWATER SUPPLYPROJEC?

DISURIBUTIONOF AMNUALEXPENSES BY OUSEHDLDSIN GREATERALGIERS _/

(DA Per Capita)

POPUlATIONPERCEN1YLE ITEM Average

10 20 30 40 50 60 70 80 90 Percentage

1. POTABLEWAIER SUPPLY 14 17 19 25 25 26 29 32 34 0.8

2. Bread - Cereals 247 298 340 291 295 305 224 245 257 7.5 3. Fresh Fruits and Vegetables 294 355 404 394 400 413 426 465 490 15.1 4. Soft Drink 337 406 463 414 420 433 376 411 432 13.6 5. Meat - Fish 296 357 407 428 435 448 525 574 604 17.4 6. Dry Fruits and Vegetables 37 44 51 48 49 ' 51 47 47 54 1.3 7. Clothes and Shoes 188 227 258 262 267 275 280 306 322 6.9 8. Housing 90 108 123 156 158 164 188 206 216 5.3 9. Electricity and Gas 21 24 29 35 36 37 42 46 49 1.2 10. Furniture 129 155 177 180 182 188 208 229 239 7.0 11. Health Care 65 79 90 88 90 93 90 98 104 2.7 12. Transportation 92 111 126 191 194 200 320 354 367 8.9 13. Education, Recreation 61 74 84 94 96 99 152 166 175 4.4 14. Other 172 207 236 246 250 258 200 218 230 7.9

TOTALANNUAL EXPENSES 2,3 2,462 2,807 2,852 2,897 2,990 3,107 3,397 3,573 100.0

I/ The average size of a household is 6.8 persons. - 92 -

ANNEX 25

ALGERIA

ALGIERS REGIONAL WATER SUPPLY PROJECT

Selected Documents and Data Available in the Project File

1. Etude G6n6rale Compl6mentaire sur l'Am6nagement Isser-Keddara-Hamiz et Etude Sommaire d'Identification sur l'Am6nagement du Sebaou (4 Volumes), Hydrotechnic Corporation, July 1980.

2. Avant-Projet Preliminaire, Projet Sebaou-Alger-Mitidja, Hydrotechnic Corporation, November 1977

3. Options de Structure Financiere et de Politique Tarifaire Proposees pour la SEDAL, Peat, Marwick and Mitchell & Co., Consultants, January 1980.

4. Propositions de Principes de Politiques Tarifaires, Peat, Marwick and Mitchell & Co., Consultants, January 1980.

5. Cout Marginal Moyen a Long-Terme de l'Eau Potable Distribu6e dans le Grand Alger, Peat, Marwick and Mitchell & Co., Consultants, January 1980.

6. Evolution de la Structure d'Organisation de la SEDAL, Peat, Marwick and Mitchell & Co., Consultants, June 1980.

7. Detailed Design of Keddara Dam, Tesco-Viziterv.

8. Water Code - Law No. 83-17 of July 16, 1983.

9. Loi de Finances, Official Journal, December 31, 1983.

10. Creation of Regional Water Companies, Official Journal, May 17, 1983.

11. Alger - Alimentation en Eau Potable - Etude Preliminaire, Kittelberger - Inco, 1970.

12. Depenses de Consommation des Menages Algeriens (2 Volumes), Office National des Statistiques, July 1983.

13. Recensement G6neral de la Population et de l'Habitat, 1966, Direction des Statistiques.

14. Population et Habitat des Villes et Chefs Lieux Au Recensement de 1966, Direction des Statistiques.

15. Etude Sectorielle d'Approvisionnement en Eau Potable et d'Assainissement (2 Volumes), 1976.

16. Formation du Personnel a la SEDAL, Hans Peter Haug. ~~~~~lmOISE16088 ALGERIA ALGIERSREGIONAL WATER SUPPLY PROJECT : URBAN AREAS TO BESERVED i - 0

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