Document of The World Bank

FOR OFFICIAL USE ONLY Public Disclosure Authorized ReportNo. 4225b-TUN

STAFF APPRAISAL REPORT Public Disclosure Authorized TUNISIA

THIRD URBAN SEWERAGE PROJECT Public Disclosure Authorized

March 3, 1983

Public Disclosure Authorized Water Supply and Sewerage Division Europe, Middle East and North Africa Region

This documenthas a restricteddistribution and may be used by recipientsonly in the performanceof their official duties. Its contents may not otherwise be disclosedwithout World Bank authorization. CURRENCY EQUIVALENTS

(As of January 1983)

Currency Unit = Tunisian Dinar (TD) = 1,000 Millimes TD 1 = US$ 1.587 US$ 1 = TD 0.630

ABBREVIATIONS

ft = foot m3 /s cubic meters per second lcpd = liters per capita per day Mm = million of cubic meters m = meter imm millimeter s = second g/l gram per liter

MEASURES AND EQUIVALENTS

Metric System US System

Kilometer (km) = 0.62 mile (mi) Hectare (ha) = 2.47 acres (a) Meter (m) = 39.37 inches (in) Cubic meter (m3) = 264 US gallons (gal) Million cubic meters/year (Mm3 /year) = 0.72 million US gallons per day (mgd) Liter (1) = 0.264 US gallon (gal) Liters per second (lls) = 22,800 US gallons per day (gd)

GLOSSARY OF ACRONYMS

AFESD = Arab Fund for Economic and Social Development EEC = European Economic Community GTZ = Deutsche Gesellschaft fUr Technische Zusammenarbeit IBRD = International Bank for Reconstruction and Development IDA = International Development Association IDB = Islamic Development Bank KfW = Kreditanstalt fUr Wiederaufbau NIS National Institute of Statistics OED Operations Evaluation Department ONAS Office National de l'Assainissement ONTT = Office National du Tourisme Tunisien SFD = Saudi Fund for Development SIDA Swedish International Development Agency SMIG Salaire Minimum Interprofessionnel Garanti SONEDE = Société Nationale d'Exploitation et de Distribution des Eaux USAID = United States Agency for International Development

ONAS' FISCAL YEAR

January 1 - December 31 FOR OFFICIAL USE ONLY TUNISIA

THIRD URBAN SEWERAGE PROJECT

STAFF APPRAISAL REPORT

Table of Contents

Page No.

I. THE WATER SUPPLY AND SEWERAGE SECTOR...... 1

General ...... 1 Water Resources ...... 1 Sector Organization ...... 1 Water Supply and Sanitation ...... 2 Solid Waste ...... 2 Urban Sewerage. 2 State of Repair of Sewer Systems. 3 Sector Objectives. 3 Individual Sanitation Systems. 3 ONAS' Sixth Development Plan. 4 Bank Involvement in the Sector. 5

II. POPULATION, SECTOR SERVICES AND DEMANDIN THE PROJECT AREA.... 7

Population. 7 Service Levels. 7 Project Area. 8 Existing Sewerage Facilities. 8

III. THE PROJECT...... il

Project Objectives ...... il Project Scope ...... il Project Description ...... 12 Cost Estimate ...... 12 Investments Per Capita ...... 14 Project Financing ...... 14 Implementation...... 16 Procurement ...... 16 Disbursements ...... 17 Advance Contracting and Retroactive Financing ...... 19 Monitoring System...... 19

IV. THE BENEFICIARY ...... 20

Background ...... 20 Organization and Management ...... 20

This report was prepared and written by Messrs. Johan Van Beuzekom, and Michel Pommier.

This document has a restricted distribution and may be used by recipients only in the performance of their officiai duties. Its contents may not otherwise be disclosed without WorId Bank authorization. Table of Contents (Continued) Page No.

Personnel and Training ...... 21 Billing and Collection ...... 21 Accounting ...... 21 Auditing ...... 22 Insurance ...... 23

V. FINANCIAL ANALYSIS ...... 24

Past and Present Financial Performance ...... 24 Revenues ...... 24 Tariffs ...... 25 Financial Policy and Objectives ...... 26 Financing Plan of ONAS' Investment Program ...... 27 Future Financial Performance ...... 28

VI. JUSTIFICATION ...... 29

Least Cost Solution...... 29 Institution Building ...... 29 Health Benefits and Environmental Impact ...... 29 Beneficiaries ...... 29 Affordability ...... 30 Cost Recovery ...... 30 Risks and Safeguards...... 30

VII. AGREEMENTS REACHED AND RECOMMENDATIONS ...... 32

LIST OF ANNEXES

No.

1 Program of Take-over of Sewerage Services by ONAS until 1988. 2 ONAS' Sixth Plan 3 Feasibility Study - Tentative Terms of Reference 4 Terms of Reference for Computer and Information Systems Study 5 Cost Estimate 6 Project Implementation Schedule 7 Annual Project Investments Schedule 8 Monitoring Indicators 9 ONAS Organization Chart 10 Income Statements il Cash Flow Statements 12 Balance Sheets 13 Sources and Applications of Funds 14 Repartition of Water Consumed by Volume and Customers 15 Forecast Water Volumes Consumed by ONAS' Customers and Number of Connections 16 Financial Assumptions 17 Selected Documents Available in Project File

Map No. 16721 - Locations of Project Zones. TUNISIA

THIRD URBAN SEWERAGE PROJECT

STAFF APPRAISAL REPORT

I. THE WATER SUPPLY AND SEWERAGE SECTOR

General

1.01 Tunisia is located on the southern bank of the Mediterranean sea about midway between Gibraltar and Suez. It occupies an area of 160,000 km2 which is rather poorly endowed with natural resources. The great Atlas moun- tain chain, which runs from west to east about 280 kms south of the northern coastline, separates the country into two distinct regions. North of the Atlas mountain chain is a semi-arid area where the majority of the population lives and where most potentially irrigable land is found. Industries and other economic activities are concentrated in the northern coastal areas. The mean annual rainfall in this region fluctuates around 600 mim. South of the Atlas mountain chain lies arid land with an average annual rainfall of less than 100 mm (Map IBRD No. 16721).

1.02 Administratively, Tunisia is divided into 20 governorates, 136 counties and 162 communes. Nearly half of the estimated total population of 6.4 million, which is growing at an average annual rate of 2.2%, is considered urban. More than one-third of the urban population is concentrated in Tunis and Sfax, the two largest metropolitan areas. The rural population, however, is widely dispersed into more than 3,500 locations often isolated from each other and where low population density to a great extent impedes rapid imple- mentation of water supply and sanitation systems.

Water Resources.

1.03 The volume of water available in Tunisia for urban, industrial and agricultural use is limited. At present, about 58% of the total exploitable water resources is under exploitation, and by the year 2000, more than 90% will be utilized. Urban and agricultural water demand could soon exceed available regional water resources. This is already occurring in the southern part of the country which draws part of its supply from the north. Ulti- mately, it will become necessary to resort to desalination of brackish or sea water to supplement potable water resources and to treated wastewater for industrial and agricultural purposes.

Sector Organization

1.04 The Ministry of Agriculture manages all water resources in the country. "La Société Nationale d'Exploitation et de Distribution des Eaux" (SONEDE), an autonomous public enterprise established in 1968 under the tutelage of the Ministry of Agriculture, is responsible for the production and distribution of potable water in all agglomerations above 500 inhabitants. "L'Office National d'Assainissement" (ONAS), also an autonomous public enter- prise established in 1974 under the tutelage of the Ministry of Equipment, is responsible for sewage collection, treatment and disposal, the reuse of treated sewage and storm drainage in urban agglomerations and industrial and touristic zones. "La Direction du Génie Rural" (DGR), a department in the Ministry of Agriculture, is responsible for water supply and sanitation in the rural areas not covered by SONEDE and ONAS. The municipalities are respon- sible for solid waste collection and disposal.

Water Supply and Sanitation

1.05 Since its creation, SONEDE has grown into a technically capable and financially viable company with an experienced and dedicated staff. Presently about 64% of the total population has access to a safe piped water supply. This includes about 97% of the urban population of which about 80% is supplied through private house connections.

1.06 In villages with less than 500 inhabitants, only about 25% of the population has access to a safe public water supply and of these, about one in five through private house connections. Public water supply systems are normally limited to wells and boreholes and in the larger villages to an over- head reservoir connected to a number of public fountains. DGR's activity is limited to the construction and sanitation of wells, the installation of hand pumps and the construction of simple water supply sytems. In concordance with its policy to improve living conditions in the rural areas, however, the Government intends to substantially increase rural water supply services.

1.07 Virtually no public sewerage exists in rural villages. Most of the houses provided with private water connections possess individual waste water disposal systems (seepage pits).

Solid Waste

1.08 The Government intends to improve solid waste collection and dis- posal, and to this effect has entrusted ONAS with the responsibility for carrying out, with the assistance of consultants, a study on the collection and disposal of solid waste in the Greater Tunis area. This study, for which financing is foreseen in the Urban II Bank project, would make recommendations on how to improve garbage collection and disposal, including the establishment of municipally-owned autonomous public enterprises.

Urban Sewerage

1.09 Under the First Urban Sewerage Project (Loan 1088-TUN), and with Bank assistance, the Government created ONAS in 1974, in order to have an institu- tion able to efficiently manage the country's urban sewerage subsector and to plan and implement future expansions. ONAS started its operations in July 1975 by taking over the sewer systems of Greater Tunis (13 municipalities), Sfax and Sousse, and is now in the Drocess of taking over the sewer systems of agglomerations with over 10,000 inhabitants. To date ONAS has assumed respon- sibility for sewerage and sewage disposal in 26 municipalities and 6 touristic zones and is planning to take over 54 additional systems over the next 6 years (Annex 1).

State of Repair of Sewer Systems

1.10 The sewer systems which ONAS acquired are often in a serious state of disrepair. A lack of preventive maintenance has often resulted in sewers being obstructed, which causes overflow of sewage in high housing density areas with consequent health hazards, or in the case of storm sewers, flooding of low lying areas when severe storms occur. Furthermore, where they exist, these sewer systems are not serving the entire urbanized area as their devel- opment has lagged behind urbanization. These sewer systems require a consi- derable amount of rehabilitation and it will take some time before ONAS can extend them to catch up with the existing service backlog.

Sector Objectives

1.11 The sewerage subsector's main objective set by the National Commis- sion for Sewerage (NCS) consists of bringing sewerage services to a level comparable to that of potable water supply. This objective is to be achieved through the rehabilitation, upgrading and expansion of existing sewer systems, the provision of flood control and drainage and the development of treatment and disposal facilities in order to safeguard the environment and abate health hazards. NCS had proposed house connection rates of 60% by 1986 and 81% by 1990 for urban areas. However, because of financial constraints, ONAS had to considerably reduce its planned investments for the Sixth Plan period (1982- 86) (para. 1.15) with the result that it will not be able to assume responsi- bility for as many centers as had been envisaged and the 1986 target will not be achieved. Overall, the 1986 connection rate for all urban areas is not expected to rise significantly above the present level of 42%. However, in the towns where ONAS will take over sewerage by 1984, the proposed 1986 target of 60% should be achieved.

1.12 Another important subsector objective consists of promoting the reuse of treated sewage for industrial or agricultural use in order to supplement the country's scarce water resources (para. 1.03)

1.13 Government priority is now to keep the momentum of development of sewerage systems in the urban areas within ONAS' purview, to extend progres- sively ONAS' services to all other urban centers and to increase service levels through house connections by encouraging the population to connect to the rehabilitated or the new sewer systems by providing credit facilities to cover connection costs.

Individual Sanitation Systems

1.14 In order to keep ONAS' immense task within reasonable limits, and to reduce public investments, the Government is promoting the use of individual sewage disposal systems whenever approriate (seepage pits or septic tanks with leaching fields for the fringe of urban areas and pit latrines for dwellings not connected to a public water supply system). In the small towns and rural villages where the population density is low and soil conditions are appro- priate, individual systems are satisfactory. This approach should enable ONAS to concentrate on the large and more densely populated agglomerations where individual sewage disposal systems are no longer appropriate or are more costly than sewers (para 2.05 through 2.08).

ONAS' Sixth Development Plan (1982-1986)

1.15 Using sound technical and economic studies, ONAS has prepared a Five- Year Development Plan (1982-1986) detailing the investments necessary to achieve the objectives mentioned in para. 1.11. Because of budgetary con- straints and after discussions among ONAS, the Ministry of Equipment, the Ministry of Finance and Planning and the Bank, the original plan was reduced from an original TD 210.0 million to TD 120.0 million (in current value). This was achieved by rescheduling some investments of lower priority. The reduced plan for 1982-1986 (the Sixth Plan) has the same magnitude as the Fifth Plan in real terms and represents an increase of 50% in nominal terms. The sewerage projects included in the Sixth Development Plan are listed in Annex 2 and may be divided into two categories:

A. Ongoing Major Projects (TD 57.0 million)

This category includes the major projects which were started during the Fifth Development Plan (1977-1981):

(i) the First Urban Sewerage Project (Loan 1088-TUN), for the Greater Tunis area, completed;

(ii) the SIDA Project, also nearing completion and including the construc- tion of treatment plants in Sfax and Kairouan, and sewer systems in Gabès and Kelibia;

(iii) the 17 cities Project, receiving financial assistance from EEC, covers seventeen medium-sized towns:

(a) already taken over by ONAS:

Sousse, Monastir, Kairouan, Gabes, Nabeul, Hammamet, Le Kef, Hamma (Gabès), Hammam Sousse; and

(b) to be taken over by ONAS in 1983:

Gafsa, Tozeur, Kasserine, Moknine, Menzel Bourguiba, Kalaa Kebira, Jemmel, Akouda;

(iv) the Second Urban Sewerage Project (Bank Loan 1675-TUN), currently in progress, for Greater Tunis and Sfax; and - 5 -

(v) studies, rehabilitation and upgrading of existing facilities, as well as acquisition of operating equipment and erection of offices and workshops for ONAS.

B. New Major Projects

This category includes new projects to be implemented during the Sixth (1982- 86) and Seventh (1987-91) Development Plans:

(i) the proposed Third Urban Sewerage Project, described in more detail in Chapter III and covering a phased program for thirty towns to be taken over by ONAS during 1983-1988. Total cost TD 49.5 million;

(ii) the Medjerdah Basin Project, designed to protect the Sidi Salem dam reservoir from urban and industrial pollution. It includes eleven cities: Ghardimaou, Jendouba, Bou Salem, Beja, Teboursouk, Gaafour, Djedaida, Siliana, Tebourba, Testour, Medjez El Bab. Total cost TD 26.0 million, receiving financial assistance from the Federal Republic of Germany (Kreditanstalt fUr Wiederaufbau; DM 27 million);

(iii) the Greater Tunis Project, which covers the expansion of the sewerage and stormwater systems. Total cost TD 35.0 million, 50% of which financed by the Kuwait Fund;

(iv) a new project expected to start hefore the end of the Sixth Plan for the expansion of the existing sewerage system of Sfax. Total cost TD 19.0 million;

(v) three sewage treatment plants to be built for Mahdia, Gabès and Kasserine. Total cost TD 8.3 million; and

(vi) eight sewage treatment plants to be expanded. Total cost TD 4.7 mil- lion.

Bank Involvement in the Sector

1.16 The Bank's strategy is to assist the Government to attain its service level objectives for the water supply and sewerage sector and to step up public enterprise savings through further improvements in management effi- ciency and tariff policy. The Bank has helped to establish and develop SONEDE and ONAS and bas maintained a continuous and close dialogue with the Tunisian Government on sector policies and operating practices through a series of operations. In the water supply subsector, the Bank Group has made five loans and one credit totalling US$ 124.5 million and is preparing a rural water supply project throughout Tunisia. In addition, the Bank is preparing a flood protection project for Sfax. In the early years, following the establishment of SONEDE and ONAS, projects suffered substantial delays, but these diminished as the institutions matured and gained experience. The sewerage subsector received three loans and one credit from the Bank Group:

(i) the Tourism Infrastructure Project (Loan 858-TUN for US$ 14.0 million and Credit 329-TUN for US$ 10.0 million, both of September 28, 1972) included US$ 16.64 million for sewerage in six tourist zones. The -6-

project was revised as the result of changes in the Government's tourism development objectives in 1975, and suffered further delays due to related changes needed in the detailed design and additional time needed to complete detailed land-use plans and acquire land. The revised project was completed in 1981;

(ii) the First Urban Sewerage Project (Loan 1088-TUN of February 18, 1975 for US$ 28.0 million). The main objectives of this project were to support the establishment of ONAS as an effective operating agency, to clean up Lake Tunis by building a canal along its shores and to improve the sewerage facilities of the Greater Tunis area. This pro- ject which is now completed has had a major environmental impact because cf the depollution of Lake Tunis and the suppression of sewage olfactive nuisances. As a consequence, the land value around the Lake has increased about twentyfold and a government agency (Société d'Aménagement des Berges du Lac) has been recently estab- lished to develop the lake shores; and

(iii) the Second Urban Sewerage Project (Loan 1675-TUN of April 13, 1979 for US$ 26.5 million). This project is part of ONAS' Fifth Develop- ment Plan (1977-81) to develop the sewerage sector through improve- ment and extension of waste water collection, treatment and disposal facilities and stormwater systems in the Greater Tunis and Greater Sfax areas. Project implementation is progressing satisfactorily, although three stormwater collectors need to be retendered as bids were considerably higher than anticipated and additional local funds have to be allocated. The Government is studying appropriate measures to provide these funds and complete the project expediously.

In addition, three urban projects contain sewerage components. Urban I (Loan 937-TUN, Credit 432-TUN of October 5, 1973 for US$ 18 million), which is now completed, contained several sewerage studies. Urban II (Loan 1705-TUN of May 31, 1979 for US$ 19 million) includes US$ 3.9 million for the improvement and expansion of water supply and sewerage systems in several low income settle- ments. This project also contains a solid waste component including a study which is now being executed by ONAS. Urban III (2223-TUN of January 11, 1983), loan of US$ 25 million, includes US$ 2.7 million for the upgrading and expansion of water supply and sewerage systems in low income settlements.

1.17 The Project Performance Audit Reports on the first two water supply projects (PPAR No. 1902 of February 13, 1978) and of the third water supply project (PPAR 3914 of May 4, 1982) concluded that these projects had met their objective of providing water of acceptable quality for the increasing require- ments of the population in the areas served, and contributed greatly towards the development of SONEDE into a technically sound and financially viable institution. The audit for the third water supply project concluded that more detailed engineering should have been carried out prior to Board presentation. Accordingly subsequent projects have been appraised on the basis of well advanced final designs. The Operations Evaluation Department (OED) has also published a Sector Operations Review on the Water Supply and Waste Disposal Program in Tunisia (Report 4146 of October 20, 1982) which states that there have been few examples of the Bank's involvement in the Water Supply and Waste Disposal Sector as successful as the Tunisian experience. The reasons for the success are stated to be the Government's commitment to its sector policy objectives, and the harmony of the Bank's program with these objectives. Il. POPULATION, SECTOR SERVICES AND DEMAND IN THE PROJECT AREA

Population

2.01 The latest census, held in May 1975, reported a total Tunisian popu- lation of 5.6 million. A recent survey carried out by the National Institute of Statistics (NIS) estimated that, as of July 1980, the population was about 6.4 million of which about 52% or 3.3 million lived in urban areas l/. Average annual population growth rates are projected at 2.2% per annum during the 1980s and 2.0% thereafter. On this basis, total population is expected to reach 7.7 million by 1990 and 9.1 million by 2000. The urban segment of the population however would grow at about 3.3% per annum, a substantial part of this growth stemming from rural migration to urban areas. Rapid urbanization is expected to continue with the dispersed rural population accounting for less than 20% of the total population by the end of this century.

2.02 Of the 3.3 million urban dwellers, about 45% or 1,500,000 people live in large cities (District of Tunis, Bizerte, Sousse and Sfax), 30% or 1,000,000 persons in towns of over 10,000 inhabitants, and the remaining 25% or 800,000 people in small towns of from 2,000 to 10,000 inhabitants. About 12% of the total urban population, or 400,000 persons, have an income below the Bank estimated urban absolute poverty threshold2/ of TD 140 (US$ 250) per capita per year. The proportion of urban poor is higher in the small and medium-sized towns (15% or 270,000 people) than in the large towns (8% or 130,000 people). It is therefore appropriate that, after improving the sewer- age systems of Greater Tunis and Sfax, ONAS devote its attention to medium- sized towns, which is the object of the proposed project.

Service Levels

2.03 The sewerage subsector is characterized by various levels of service. In small urban centers and in the fringe of large urban areas, where it is common for dwellers to hand-carry water from public water hydrants, latrines and open ditches for sullage water prevail. Where the water supply service has been upgraded to individual house connections, low volume cistern-flush toilets and on-site seepage pits have been installed. However, because of insufficient seepage pit design capacity or poor soil permeability, overflows occur frequently, inducing householders to by-pass their seepage pits and to discharge their sullage water directly into the street. Finally, where high housing density exists, mostly in the towns' center, individual sanitation systems have been converted into limited communal sewered systems. Today, the overall sewerage house connection rate for all urban communities is about 40%. Poor operation and maintenance, lack of financial resources, and in- adequate sewage disposal still persist in the centers for which ONAS has not yet assumed responsibility. By contrast, in ONAS operated centers the quality

1/ For this purpose urban areas were defined as towns with over 2,000 inhabi- tants.

2/ The absolute poverty threshold is the level below which a minimum adequate nutritional diet plus essential non-food requirements are not affordable. -8-

and level of service have improved dramatically. In the 26 municipalities taken over so far by ONAS the average sewerage connection rate is about 63% and exceeds 70% in the large urban centers.

Project Area

2.04 In 1977, ONAS hired consultants (Netherlands Consulting Engineers) to carry out a general study of the sewerage subsector to draw up a national pro- gram of works and establish rehabilitation and expansion priorities among 162 urban centers. Four main selection criteria were employed: (i) the existence of a sewerage master plan and/or urban development plan which could speed up project preparation; (ii) the proportion of dwellings served by water supply systems but not connected to sewerage facilities; (iii) the percentage of dwellings discharging sullage water into open ditches; and (iv) the potential for reuse of treated water for agricultural or industrial purposes. As a result of these studies, a first project, comprising a phased program of sewerage development in 17 top priority towns, has been launched with partial financing from EEC. ONAS' estimate of the cost of this project is TD 20.4 million (US$ 32.4 million). A second program is under preparation for 11 cities in the Medjerdah Basin. Its total estimated cost is TD 26.0 million. The Federal Republic of Germany (Kreditanstalt fUr Wiederaufbau) is providing financing for an amount of DM 17 million. A third project, involving 30 urban centers and 34 municipalities, has been proposed for Bank financing. This project is located in six zones in different parts of the country. (Map no: 16721). The 1981 combined population of these 30 urban centers was about 555,000, i.e. about 8.5% of Tunisia's total population, and is projected to grow to 655,000 hy 1986 and 1.2 million hy 2006. The 1981 average connection rates of these 30 centers were 82% for water and 42% for sewerage. The pro- posed project should help to increase the average sewerage connection rate to about 60% by the end of 1987 and above all to substantially upgrade existing sanitation facilities.

Existing Sewerage Facilities

2.05 Existing sanitation facilities in the proposed project area are generally poor. The 30 towns selected may be grouped as follows:

(i) 5 towns are equipped with individual sanitation facilities;

(ii) 16 towns have a combination of individual sanitation facilities and communal sewerage systems; and

(iii) 9 towns have communal sewerage systems.

2.06 The first group of towns is completely deprived of collective sewer- age systems. Soak-aways, and in some instances septic tanks, for one or two households are used (Sheitla, Ksour Essaf, Mahares). These have usually been installed by the owners themselves. Proper operation and efficiency of these facilities has been hampered by one or a combination of the following condi- tions: - 9 -

(i) insufficient soil permeability and underdesign of the facilities (Mahares) which cause overflow of the effluents directly into the streets or open drainage ditches. In these instances the soak-aways or septic tanks function as holding tanks which have to be emptied several times a year at a cost of between TD 3 to TD 10 (US$ 5 to US$ 15) each time they are emptied;

(ii) proximity of river beds or sea shore (Medenine, Mahares) where swel- lings and high tides reverse the water flow into the soak-aways, thus preventing subsurface infiltration of effluents;

(iii) insufficient distance from nearby groundwater used for drinking which causes contamination and consequential health hazards (Medenine and Sbeitla);

(iv) high urban density (Ksour Essaf) which results in insufficient capa- city of the soil to absorb the effluents; and

(v) virtual lack of stormdrainage systems and exposure almost every year to important flooding.

2.07 In the second group of towns where individual sanitation facilities are combined with a sewer system which usually serves the center of the town, sanitary conditions are generally inadequate. The major problems of this group are:

(i) insufficience or even sometimes inversion of the slopes of the sewer pipes which hampers or prevents the self cleaning velocity of efflu- ents and causes obstructions and extra maintenance;

(ii) poor quality of sewer pipes and fittings which results in leakages and potential contamination of the underground water;

(iii) environmental hazard which is created by the discharge of large volumes of wastewater in the dry river beds running through these towns; and

(iv) lack of facilities to reuse water in areas where water resources are limited.

2.08 In the third group of towns where the service level is above 70%, municipal departments have been responsible for operation and maintenance of their sewerage facilities. The lack of managerial and technical skills, the shortage of materials and equipment to operate, maintain and replace sewers, and the absence of a cost recovery policy are responsible for the rapid deterioration of the systems. Repair and rehabilitation of existing facili- ties rather than network expansions are the first order of priority. Further- more, in order to remove the increasing environmental hazards arising from the growing population, effluents have to be taken outside the town limits where they can be treated for reuse by industry and agriculture. - 10 -

2.09 Of the thirty towns included in the proposed project, only one, Dar Chaabane, operates a sewage treatment plant. The treatment plants of Zaghouan and Grombalia are out of service. The demand for treated wastewater exists in towns such as El Djem where farmers have diverted the flow of raw sewage which is used without appropriate treatment and control for the irrigation of vege- tables and garden crops. The present practice represents a serious health hazard which would be corrected by the construction of adequate treatment facilities under the proposed project. - il -

III. THE PROJECT

Project Objectives

3.01 The proposed project is the result of a continuing dialogue between the Bank, the Government and ONAS on the development of the sewerage subsector and on ways to finance ONAS' investment plans. It was prepared by the Govern- ment, with the assistance of consultants, under the Second Urban Sewerage Pro- ject (Loan 1675-TUN). Its main objectives are:

(i) to improve urban sanitation through the rehabilitation of existing sewer systems, and to abate pollution through proper discharge of effluents;

(ii) to expand sewer systems where individual sanitation facilities present serious health hazards, and to encourage the population to connect to the new sewers;

(iii) to provide stormwater drainage;

(iv) to treat sewage for reuse by industry and agriculture in the frame- work of a national water resources management policy, and to elimi- nate irrigation of garden crops with raw sewage;

(v) to support the Government's efforts to develop in the medium to long- term a technically capable and financially self-supporting sewerage sector; and

(vi) to assist ONAS in:

(a) securing its financial position by supporting the adoption of a new long-term financial policy which would allow ONAS to finance at least 13% of its investments during the project implementation period (1983-1989);

(b) gradually taking over the responsibility for sewerage, sewage treatment and disposal in all urban centers with a population above 10,000 inhabitants; and

(c) improving its operating capability by acquiring the necessary maintenance and data processing equipment and office accommoda- tions.

Project Scope

3.02 The proposed project covers the rehabilitation and expansion of existing sewer and stormwater systems, and the provision of sewage treatment facilities in the following centers (Map IBRD No. 16721): - 12 -

(i) North: Bizerte, Ras Jebel and Mateur;

(ii) Cap Bon: Menzel Temime, Soliman, Menzel Bou Zelfa, Beni Khalled, Grombalia, Korba, Dar Chaabane and Zaghouan;

(iii) Sahel; Kalaa Sghira, Sahline, M'Saken, Ouardanine, Sayada- Lamta-Bou Hajar, Ksar Hellal, Teboulba, Bekalta and Ksour Essaf;

(iv) Sfax region; El Djem, Sfax suburbs and Mahares;

(v) Interior: Sbeitla, Sidi Bouzid and Nefta; and

(vi) South; Houmt Souk, Zarzis, Medenine and Tataouine.

Project Description

3.03 The proposed project is detailed in Annex 5. It includes:

(i) the construction of about 110 km of primary sewers together with about 20 sewage pumping stations and other related structures;

(ii) the construction of about 300 km of secondary sewers;

(iii) the construction of about 25 km of stormwater sewers;

(iv) the construction of about 12 sewage treatment plants, the expansion of one existing treatment plant and the connection of five towns to existing treatment plants;

(v) the provision of maintenance and data processing equipment and office accommodation;

(vi) the provision of consulting services for related designs and super- vision of construction; and

(vii) studies:

(a) feasibility studies for 10 to 15 new centers to be taken over by ONAS, and for the promotion of the reuse of treated sewage for industrial and agricultural purposes. (Terms of Reference, Annex 3); and

(b) computer and information system study (Terms of Reference, Annex 4).

Cost Estimate

3.04 The estimated cost of the proposed project appears in Annex 5 and is summarized in the table below. It amounts to TD 49.44 million (US$ 78.48 mil- lion) including a foreign exchange component of TD 21.42 million (US$ 34.0 - 13 - million), or 43% of the total cost. Identifiable taxes and duties amount to about 21% of the total cost.

Local Foreign Total Local Foreign Total ------TD million------US $ million----- base: January 1983

I. SEWERAGEFOR 30 TOWNS

a. primary sewers 4.24 2.82 7.06 6.73 4.48 11.21 b. pumping stations 0.34 0.29 0.63 0.54 0.46 1.00 c. secondary sewers 6.19 4.22 10.41 9.82 6.70 16.52 d. stormwater drainage 1.77 0.65 2.42 2.81 1.03 3.84 e. treatment plants 3.16 2.63 5.79 5.02 4.17 9.19

Sub-Total I 15.70 10.61 26.31 24.92 16.84 41.76

II. MISCELLANEOUS

Office Accommodation 1.59 0.93 2.52 2.53 1.47 4.00 Maintenance and Other Equipment 1.00 1.86 2.86 1.59 2.96 4.55

Sub-Total II 2.59 2.79 5.38 4.12 4.43 8.55

III. CONSULTANTS SERVICES AND STUDIES 0.94 1.42 2.36 1.49 2.25 3.74

TOTAL 19.23 14.82 34.05 30.53 23.52 54.05

Physical Contingencies 1.99 1.42 3.41 3.15 2.25 5.40

Sub-Total 21.22 16.24 37.46 33.68 25.77 59.45

Price contingencies 6.80 5.02 11.82 10.80 7.98 18.78

TOTAL PROJECT 28.02 21.26 49.28 44.48 33.75 78.23

Front-end fee - 0.16 0.16 - 0.25 0.25

Total required financing 28.02 21.42 49.44 44.48 34.00 78.48

1 US$ = TD 0.63

3.05 The cost estimates are based on final designs for the sewerage sys- tems and preliminary designs for the treatment plants and recent bid awards - 14 -

for pipes, pumps, treatment equipment and civil works procured under the on- going sewerage projects in Tunisia, particularly the project financed by EEC which is very similar to the proposed project. All costs have been adjusted to January 1983 levels. Physical contingencies have been estimated at 10% for sewers and 15% for treatment plants. These percentages are justified in view of the considerable knowledge and experience gained in similar towns in the two first Urban Sewerage Projects and in the ongoing EEC project. Price con- tingencies of 9% for 1983 and 8% per year thereafter for both local and foreign components have been included in the cost estimates for equipment and civil works based on ONAS' recent experience with Tunisian and international prices for sewerage equipment and works.

3.06 The project provides for an estimated 750 man-months of local consul- ting services for the preparation of the detailed engineering and bid docu- ments for the sewerage systems and for works supervision, and 130 man-months of foreign consultants for the final designs and works supervision of treat- ment plants and the feasibility and computer studies. The estimated cost of these services (including international travel and subsistence) is TD 2.36 million (US$ 3.74 million) or an average of US$ 3,500 per man-month for local consultants and US$ 8,500 for foreign consultants.

Investments per Capita

3.07 The investments for the secondary sewer systems amount to TD 10.41 million in January 1983 prices, of which about 30% is attributable to the rehabilitation of the existing sewer systems. At the end of the project period when about 155,000 additional inhabitants would be served by new sewers, the capacity utilization rate would reach only about 75%. This means that the investment cost per capita at that date would be about TD 35 (US$ 56). Furthermore, as the new sewers would evacuate both sanitary sewage and stormwater in the proportion of about 50:50 of annual volumes, the cost per capita for the sanitary evacuation of sewage alone would be about TD 17.50 (US$ 28) per capita.

3.08 A similar calculation for primary sewers for which the capacity utilization rate at the end of the project period would only be about 50%, results in a per capita cost of TD 18.0 (US$ 29). Following the same metho- dology for treatment plants, a per capita cost of TD 36.0 (US$ 57) is ob- tained. The resulting total costs per capita would thus amount to TD 71.5 (US$ 114) for sanitary sewage, and TD 46 (US$ 74) for stormwater drainage. These costs are very reasonable.

Project Financing

3.09 The following sets out ONAS' proposed project financing plan: - 15 -

TD us$ % ----- million ----- Funds Required

Proposed Capital Investment 49.44 78.48 100.0

TD US$ %

…- million Sources of Funds

Internal Cash Generation 15.49 24.59 31.3 Less: Debt Service - 11.65 18.49 23.5

Net Internal Cash Generation 3.84 6.10 7.8 Customers' Contributions 4.18 6.64 8.4

Total Self-Financing 8.02 12.74 16.2

Proposed Bank Loan 21.42 34.00 43.3 Government Equity 20.00 31.74 40.5

Total Sources 49.44 78.48 100.0

ONAS' proposed self-financing for the project would amount to about 16% through internal cash generation (8%) and customers' contributions (8%). The Government would provide the balance of the local financing requirements of US$ 31.7 million (41%) and the proposed Bank loan of US$ 34.0 million would finance the foreign exchange financing requirements, including US$ 253,102 for the front-end fee which the Government has requested the Bank to finance.

3.10 The proposed Bank loan would be made to the Government which would on-lend it to ONAS at the same terms and conditions including the variable interest rate, the front-end fee and the commitment charges. ONAS would also bear the foreign exchange risk. Domestic long-term commercial Bank lending rates in Tunisia currently range from 5.25% to 11.5%. Inflation in the past three years has averaged 8.9% as indicated by the cost of living index and the forecast for the next two years is 9%. In these circumstances, on-lending at terms similar to those of the Bank seems adequate. Execution of a subsidiary loan agreement between the Government and ONAS under terms and conditions satisfactory to the Bank, would be a condition of effectiveness of the pro- posed loan. - 16 -

Implementation

3.11 It is estimated that the proposed project would be completed in six years as shown in the implementation schedule in Annex 6. The proposed works would be implemented under the responsibility and supervision of ONAS with the assistance of consultants retained in accordance with Bank guidelines. Con- sultants' contracts for the preparation of tender documents have been divided into four contracts for sewer systems and two for treatment plants. The same consultants will be retained for supervision of their part of the project. The first bids are scheduled to be invited in the spring of 1983 and construc- tion could start in the fall of 1983 and would be completed by the end of 1988. Estimated annual project investments are shown in Annex 7.

Procurement

3.12 Major civil works, pipe laying and equipment supply contracts esti- mated at US$ 40 million will be awarded on the basis of international competi- tive bidding (ICB) in accordance with the Bank's procurement guidelines. In order to encourage international competition, contracts will be grouped as far as practicable, particularly according to geographical location. ONAS will acquire the asbestos-cement and concrete pipes and accessories through ICB in three installments, each for one third of total requirements, and make the pipes and accessories available to the pipe laying contractors. Treatment plants will also be grouped and procured through ICB with one contract per group for civil works and one for equipment supply and installation. For bid evaluation purposes a 15% margin of preference or an amount equal to customs duties, whichever is lower, would be applied in the case of equipment manufac- tured in Tunisia. Small contracts for equipment and works, which are not expected to attract international competition will be procured through local competitive bidding (LCB), in accordance with ONAS' procedures which are satisfactory. For this type of contract, individual ceilings of US$ 800,000 per civil works contract and US$ 200,000 per equipment contract, and aggregate ceilings of US$ 4 million and US$ 1 million, respectively would be retained. Work by force account, after Bank approval, is allowed up to a maximum value of US$ 1.5 million for works in isolated areas where no contractor would be interested to carry out works at a reasonable price. Small works related to connections to, or deviations or protection of, telephone, gas, water, elec- tricity, lighting and transport services and lines, estimated at US$ 200,000, will be executed by the Post, Telephone and Telegraphic Authority (PTT), the Electricity and Gas Authority (STEG), the Water Authority (SONEDE), the Rail- roads Authority (SNCFT) and the Ministry of Equipment for the account of ONAS, according to local procurement procedures for public contracts which are acceptable to the Bank. Consultants would be engaged in accordance with the Bank's guidelines for the use of consultants by World Bank Borrowers. All ICB bid documents, amounting to about 80% of the total contracted value, would be reviewed by the Bank on a priorto-award basis.

3.13 Foreign contractors are expected to win the contracts for the supply of pipe accessories, maintenance and treatment equipment. Because the local contracting industry is reasonably developed, local contractors, either alone or in partnership with foreign firms, are expected to win most of the con- tracts for pipe supply, pipe laying and civil works. - 17 -

Disbursements

3.14 The proposed loan of US$ 34.0 million would be disbursed as follows:

Amount of % of Category the loan in expenditures US$ million to be disbursed

1. Civil Works and Pipe Laying 14.24 35% of total expenditures

2. Supply of Equipment and Pipes 13.33 100% of foreign expenditures and 56% of expenditures for items purchased locally

3. Consultant services and studies 2.93 100% of foreign expenditures and 70% of local expenditures

4. Front-end Fee 0.25 Amount due

5. Unallocated 3.25

Total 34.00

3.15 Disbursements are expected to be completed six months after project completion, hence the closing date of the proposed loan would be December 31, 1989. The estimated financing and amounts of disbursements of the proposed Bank loan are shown in the following schedule; - 18 -

Estimated Schedule of Disbursements

Disbursements per Cumulative semester Disbursements Bank FY and Semester ------US$ Million ------%

1984 lst semester 1.19* 1.19 3.5 2nd semester 1.53 2.72 8.0

1985 Ist semester 2.04 4.76 14.0 2nd semester 2.72 7.48 22.0

1986 lst semester 3.06 10.54 31.0 2nd semester 3.40 13.94 41.0

1987 lst semester 3.40 17.34 51.0 2nd semester 3.40 20.74 61.0

1988 Ist semester 3.40 24.14 71.0 2nd semester 3.40 27.54 81.0

1989 lst semester 3.06 30.60 90.0 2nd semester 1.70 32.30 95.0

1990 lst semester 1.70 34.00 100.0

* Includes front-end fee of about US$ 0.25 million

3.16 Disbursements for works carried out by force account would be made against certificates of expenditure. The supporting documentation would not be submitted for review but would be retained by ONAS and made available for inspection by Bank supervision missions. ONAS has the administrative and accounting capability to prepare and maintain the necessary records and, fur- thermore, these statements of expenditure would be audited annually. All other expenditures would be fully documented.

3.17 Disbursement profiles show that disbursements for the sector in the EMENA region have extended over an eight-year period, while the disbursements for Tunisia have extended over seven and a half years. Taking into account that ONAS' implementing capacity has improved and that the final designs are well advanced, it is anticipated that disbursements would start immediately after the loan would become effective and that the proposed project could be completed and fully disbursed within a six and a half year period. - 19 -

Advance Contracting and Retroactive Financing

3.18 Some of the bid documents are expected to be completed and reviewed by the Bank before the signing of the proposed loan and, in order to speed up the realization of the project, advance contracting for these components in accordance with the Bank's guidelines is appropriate. Expenditure for these components is not expected to be incurred before the signing of the proposed loan agreement. Final studies of the sewerage systems including topographical and geotechnical studies and the preparation of bid documents in the 30 towns are being carried out by qualified consultants under terms and conditions acceptable to the Bank. In order to contribute to a speedy and effective exe- cution of the project, retroactive financing for the work performed by these consultants starting November 1, 1982 and up to an amount of US$ 300,000 is recommended.

Monitoring System

3.19 Proposed key indicators for monitoring the technical and financial performance of the project are shown in Annex 8. During negotiations, these key indicators and the project implementation schedule (Annex 6) have been discussed and agreed upon with ONAS. These would serve as targets ONAS would strive to achieve. The project implementation schedule was also discussed and agreed upon. Assurances have been obtained during negotiations that ONAS will report quarterly on all aspects of project work including the key indicators. Furthermore, ONAS will comment on any deviations from agreed targets and will as necessary take prompt remedial action in consultation with the Bank.

3.20 During negotiations, assurances have also been obtained that within six months following the closing date of the proposed loan ONAS will prepare and submit to the Bank a project completion report reviewing the planned objectives and the achievements of the project, including the costs and bene- fits derived and the performance and contribution of all parties associated with project execution and systems operation. - 20 -

IV. THE BENEFICIARY

Background

4.01 The beneficiary of the proposed loan would be ONAS, the national sewerage authority, which was established in 1974 (para 1.04). ONAS has the status of an industrial and commercial public company with financial autonomy. ONAS has been the beneficiary of previous Bank Group lending in the sector channeled through the Government (Loan 1088-TUN and Loan 1675-TUN).

Organization and Management

4.02 The actual organizational structure of ONAS is shown in Annex 9. The Board of Directors, presided by ONAS' General Manager, supervises the com- pany's activities and is composed of fifteen members. Nine board members are public officials and represent Ministries and other public agencies involved in the water and sewerage sector. The remaining six Board members represent the municipalities and ONAS' customers. The overall control exercised over ONAS by the Government, aside from the appointment of its Board members, covers mainly the approval of ONAS' investment programs, borrowings and tariff levels.

4.03 The present General Manager, who, as usual, was appointed by the Minister of Equipment, has extensive experience and is well qualified to run ONAS. The day-to-day operations are handled by two departments for New Works (one for Greater Tunis and one for the rest of the country), one department for Planning and Studies and one for Operation and Maintenance and two divi- sions, one for Finance and one for Administration. Two service units in charge of internal audit, organization, management and resource control assist the General Manager in formulating long-term plans and policies.

4.04 Under existing agreements from a previous Bank loan (1675-TUN) in June 1980, ONAS retained the services of a consultant to coordinate the plan- ning and design of its works program and to develop and institute a project planning and control system. The consultant completed his assignment in June 1982 after having trained the personnel of the newly created Coordination and Planning Unit. Responsibility for this Unit was then given to the Director of Planning and Studies.

4.05 In June 1980 ONAS hired a management consulting firm (SOTINFOR) to upgrade its financial, administrative and management reporting systems. New cost control procedures are presently under implementation and computerization of ONAS' cost accounting system is expected to be operational by mid 1983 (para. 4.10).

4.06 ONAS' present capacity for implementation, operation and maintenance is adequate. However, some modifications, such as the provision of central- ized office accommodation to replace and expand the current inefficient dis- persed offices is required, especially in view of ONAS' future growth. Appro- priate accommodation with standards acceptable to the Bank is included under - 21 -

the proposed project. In addition, the creation cf additional regional divi- sions to its existing structure are required. These divisions will be insti- tuted progressively as the need arises. Existing agreements under Loan 1675- TUN, which commit ONAS to consult with the Bank before making any changes in its organization and administrative structure, would be maintained.

Personnel and Training

4.07 At the end of 1981, ONAS' permanent staff totalled 1,455, which is equivalent to 9.46 employees per thousand house connections. This ratio is acceptable for ONAS' decentralized type of organization. ONAS' future growth will require an additional 1,280 employees by the end of 1990 when it will have to service about 195,500 additional customers. Between now and 1990, ONAS intends to improve its staff productivity and to reduce the number of employees per 1,000 connections to about 7.6. ONAS' salary structure and benefits are adequate to recruit and retain qualified personnel.

4.08 A comprehensive training strategy bas been developed by the Staff Training division of ONAS ("Commission de la formation et du perfectionnement professionnel") with the assistance of the Federal Republic of Germany (GTZ) and EEC training experts. The current staff training program is considered adequate. During 1977-1981, 479 employees participated in short-term training seminars covering various aspects of ONAS' operations. In addition, nineteen overseas scholarships were granted to ONAS' engineers for training in sanitary engineering and other fields related to sewerage operations. Operators for the new sewage treatment plants will receive additional training from the equipment manufacturer who will be responsible for the first year operation of the plants. ONAS, with the help of SOTINFOR, is also giving attention to training its staff in budget planning and cost accounting. ONAS is consider- ing creating its own training center and discussions to this effect have started with the EEC for financial and technical assistance.

Billing and Collection

4.09 Sewerage charges are based on water consumption, and billing and col- lection is carried out jointly by SONEDE, the National Water Authority. ONAS' customers are billed on a rotating basis every three months for the water sur- charge and the maintenance fee. Collection by SONEDE is generally efficient, although, in the past, delays have occurred in the transfers to ONAS. Ini October 1982, however, SONEDE agreed to settle the existing transfer backlog in two steps, about 50% by December 31, 1982 and the remainder by March 31, 1983. It is understood that, starting with FY 83, SONEDE will transfer the amounts collected for ONAS within one month. As of December 31, 1981, accounts receivable from private consumers amounted to about 85 days of billing, while those from government agencies amounted to 99 days of billing.

Accounting

4.10 ONAS operates a commercial accounting system based on the Tunisian General Accounting Plan. All transactions are recorded properly and allow - 22 -

identification of expenditures by major cost categories. However, the present system does not permit the monitoring of the cost effectiveness of each regional center and activity. Therefore in December 1980, ONAS revised with the assistance of SOTINFOR its accounting and internal control procedures. A new computer-based accounting system is now under implementation and is expec- ted to be operational by mid 1983. The system is set up to provide detailed cost information for each branch office, regional office and project.

4.11 ONAS' general accounts, inventory control and payroll are now proces- sed on a computer on a time sharing basis with its consulting firm (SOTINFOR) for a monthly fee of TD 250/month. The programs library, however, is develop- ed and maintained by ONAS' programmers who benefit from their association with SOTINFOR. ONAS has thus been able to develop its own computing capability without having to devote immediately sizeable resources to purchase, operate and maintain its own computer equipment. Nevertheless, with its increasing responsibilities and expected growth, ONAS contemplates acquiring its own equipment as soon as its staff has gained sufficient expertise in computer operations. It is therefore necessary for ONAS to study how its information and management control system should be modified to meet its requirements. Such a study (Terms of Reference, Annex 4) would:

(i) identify and define ONAS' present and future needs in financial, technical and statistical data reporting;

(ii) develop a detailed information network for all of ONAS' departments, regional and branch offices, and assess staffing needs;

(iii) propose the most efficient and economic solution for ONAS' data pro- cessing equipment (sub-contracting, leasing or purchasing);

(iv) adapt, if necessary, with appropriate modifications the existing pro- grams library; and

(v) propose assistance in implementing the new procedures.

The Terms of Reference for this study have been agreed with ONAS during nego- tiations.

Auditing

4.12 ONAS' operations are monitored by a Technical Controller and a Finan- cial Controller who are appointed by the Government, and who are advisory mem- bers of the Board of Directors. In addition, an external audit of ONAS' financial statements is carried out each year by independent private auditors who are acceptable to the Bank. Recent audit reports have been comprehensive and valuable to the development of the institution, although they were received with slight delays. The existing audit covenant (Second Urban Sewer- age Project, Loan 1675-TUN) which calls for ONAS to have its accounts and financial statements for each fiscal year audited, in accordance with appro- priate auditing principles consistently applied by independent auditors acceptable to the Bank, and to furnish to the Bank as soon as available, but in any case not later than six months after the end of each fiscal year, the - 23 - certified audit report, is being maintained in the present loan, as was agreed during negotiations. Annual audits would include the review of statements of expenditures (para. 3.16).

Insurance

4.13 ONAS carries adequate insurance to cover the risks of a public utility. The policies are with different Tunisian insurance companies and relate to motor vehicles operation, fire damages to buildings, and third party liability. ONAS is self-insured for workman's compensation and maintains a special insurance fund for this purpose. All supply and civil works contracts for the project will be insured by private companies against loss and damage in shipment, accidents, and fire and property damages. - 24 -

V. FINANCIAL ANALYSIS

Past and Present Financial Performance

5.01 ONAS' income statements, cash flow statements and balance sheets for the years 1978 through 1982 are shown in Annexes 10, 11 and 12.

5.02 In the period of 1978-1982, ONAS met all its financial covenants under the First and Second Urban Sewerage Projects (Loans 1088 and 1675-TUN). In that period its operating ratio increased from 66% to 76%. This decline in profitability was due to rapidly rising operating costs and deferral of tariff adjustments until early 1982. Nonetheless, ONAS financed about 35% of its investments out of internal cash generation, the remainder having been pro- vided by Government capital contributions (25%) and long-term borrowings (40%). Throughout the 1978-1982 period, ONAS' debt service coverage was at least 1.7 and at the end of 1982, its debt to equity ratio stood at 34:66.

Revenues

5.03 ONAS' cost recovery policy is aimed at preserving its short and long- term financial viability while, in the case of domestic customers, ensuring affordability for the less affluent and creating incentive for minimizing the flow of used water through scaled tariffs and, in the case of industrial cus- tomers, charging higher rates for higher levels of pollution of industrial effluents based on the BOD - values of the waste water. ONAS' revenues are expected to continue to cover its operating expenses and debt service as well as a portion of its ongoing investment costs. However, because in Tunisia the same tariff schedule applies to all centers regardless of size, the takeover by ONAS of increasingly small centers with higher attendant cost per unit together with the progressive phasing out of one of its revenue components (para. 5.05) are expected to reduce the proportion of ONAS' contribution to investments from its net cash generation below the 35% ratio achieved previously (para. 5.11).

5.04 ONAS' revenues come essentially from:

(i) sewerage charges and connection maintenance fees;

(ii) municipal levies;

1/ Biochemical Oxygen Demand. - 25 -

(iii) compensatory revenues;

(iv) connections and other works; and

(v) sale of by-products and services.

5.05 ONAS' sewerage charges and connection maintenance fees are based on water consumption and cover waste water operating and maintenance costs and part of those for stormdrainage and treatment. In 1982, these charges gene- rated 38% of the total revenues. A contribution of 8% of the "Fonds Commun des Collectivités locales," provided by the yield of municipal property taxes, covers the remaining costs for stormdrainage and treatment services and repre- sented 23% of ONAS' 1982 total revenues. In addition, compensatory revenues (about 40 millimes per m3 of water supplied in areas served by ONAS) estab- lished in consultation with the Bank in the context of the First Urban Sewer- age Project (Loan 1088-TUN) are designed to recover a portion of the benefits of cleaning up Lake Tunis and particularly the increase in the value of land and properties surrounding the lake. Due to the increasing number of connec- tions, these revenues which in 1978 accounted for about 50% of ONAS's reve- nues, amounted to only about 34% in 1982. In view of the increasing population which is connecting to the sewerage system of Greater Tunis, the Government has asked ONAS to program a progressive phasing out of these revenues. Finally, miscellaneous revenues arise from the sale of by-products (treated water for irrigation and sludge), from services such as cleaning and repair of house connections and from interest earned on credit facilities offered to customers. These accounted for about 5% of total revenues in 1982. It is expected that between 1982 and 1987, revenues from sewerage charges and con- nection fees would increase almost 8.5% per year in real terms while the recovery of increases in land and property value would be phased out. By 1987, the makeup of revenues would be 71% from sewerage surcharge and connec- tion fees, 19% from property taxes, and 10% from miscellaneous revenues. During negotiations the Government confîrmed its intention of progressively eliminating compensatory payments to ONAS by the end of 1986.

5.06 ONAS' non-operating revenues consist of the recovery of connection costs from new customers plus a property assessment towards the capital cost of secondary sewers. Since June 1980, ONAS extends credit to its customers for the payment of the connection costs and the property area assessment. Principal and interest are repaid over a five year period with installments added to customers' quarterly sewerage invoices. Consumers are charged inte- rest on these credits at the current interest rate of local banks plus 0.5%; effective January 1982, this rate was 11% per annum and is expected to increase to 12% in 1983.

Tariffs

5.07 ONAS' sewerage tariffs are based on a surcharge on the potable water consumption and a fixed fee for the maintenance of the sewer connection. These tariffs increased substantially during 1982, as shown in the table below. - 26 -

19 7q-81 lst Increase 2nd Increase Consumption (February 1982) (October 1982) …_____------…TDper quarter------Fixed Surcharge Fixed Surcharge Fixed Surcharge fee Per m3 fee Per m3 fee Per m3 Domestic and Puhlic

. First 20 m3 0.750 - 0.750 - 0.750 . Second 20 m3 0.750 - 0.750 0.010 0.750 0.020 . First 70 m 3 0.750 0.020 1.000 0.040 1.000 0.045 . Any Excess 0.750 0.020 2.000 0.060 2.000 0.065

Industrial

. Low Pollution 0.750 0.025 2.000 0.060 2.000 0.065 . Medium Pollution 0.750 0.035 2.000 0.075 2.000 0.080 . High Pollution 0.750 0.050 2.000 0.100 2.000 0.105

Touristic 0.750 0.085 2.000 0.140 2.000 0.150

5.08 As a result of the 1982 tariff increases, ONAS' average revenues increased by about 118% in current terms, or 98% in real terms. The increase affects mainly industrial and high domestic consumption. Between 1982 and 1989, ONAS is expected to further increase its tariffs at an average of about 8.5% per year in real terms. Average revenues from tariffs would amount to TD 0.205 per m3 in 1989, i.e. about TD 0.128 per m 3 in 1982 prices. Total average revenues would grow about 6% per year and would reach TD 0.280 per 3 m in 1989, i.e. about TD 0.162 per nJ in 1982 prices. ONAS' tariff structure and levels bave been planned in such a way as to meet its cost reco- very objectives (para. 5.03).

Financial Policy and Objectives

5.09 Under the First and Second Urban Sewerage Projects (1088-TUN and 1675-TUN) ONAS was required to undertake periodic reviews of its revenue structure and to adjust its tariffs so as to ensure the continuing rapid development of the sector. Concurrent with the preparation of its investment plan for 1982-86, ONAS undertook a complete review of its financial policies and objectives. A new financial policy, consistent with the Government policy and objectives for the sector, was introduced, whereby ONAS is required to finance out of internal sources at least 13% of its capital expenditures. Current projections show that ONAS' revenues will be sufficient to cover its operating and maintenance costs and its debt service, and to finance a per- centage of its capital requirem.!nts that will fluctuate between 13% and 22% during the 1983-1989 period. lhe new policy also foresees that ONAS' compen- satory revenues (para. 5.05) would be reduced gradually and disappear by the end of the Sixth Development Plan (1986). - 27 -

Financing Plan of ONAS' Investment Program

5.10 ONAS' Sources and Applications of Funds statements appear in Annex 13. Those for the project implementation period (1983-1989) may be summarized as follows:

TD US$ …Million … REQUIREMENTS

Proposed Bank Project 49.44 78.48 20 Other Projects 185.97 295.19 76 Credit Facilities 7.08 11.24 3 Working Capital 1.38 2.19 1

TOTAL REQUIREMENTS 243.87 387.10 100

SOURCES OF FUNDS

Internal Cash Generation 86.68 137.59 36 Less. Debt Service 60.34 95.78 25 Net Internal Cash Generation 26.34 41.81 il Property area assessment 19.28 30.60 8 45.62 72.41 19

Government Equity Contributions 82.20 130.48 34 Proposed Bank Loan 21.42 34.00 9 Existing Long-term Loans (a) Bank 12.24 19.00 5 (b) Other 17.95 28.92 7 Other Long-term Borrowings 65.44 102.29 26

TOTAL SOURCES 243.87 387.10 100

5.11 During the project implementation period the combination of net internal cash generation and property assessments would provide about 19% of total financing requirements, Government equity contributions 34%, existing loans 12%, the proposed Bank loan 9%, and other long-term borrowings for the latter part of the period 26%. This financing plan supports the Government and ONAS' cost recovery objectives (para 5.09), which are based essentially on generating sufficient cash to cover at least 13% of average annual investments in spite of the continuing additional burden for ONAS of taking over responsi- bility for increasingly small centers. A cash flow approach is readily under- stood in Tunisia and is working very well in the water sector. The existing covenantl/ would therefore be replaced by a conventional cash flow covenant as outlined in paragraph 5.12.

1/ This covenant required ONAS to generate funds sufficient to cover its operating expenses, debt service and working capital requirement plus at least 4% of its net fixed assets including work in progress. - 28 -

5.12 Agreement has been reached during negotiations that ONAS will take and the Government will support all such measures, including adjustments to its tariffs, as may be required, for each of its fiscal years after its fiscal year ending on December 31, 1982, to provide funds from internal sources and customer contributions equivalent to at least 13% of the annual average of its capital expenditures incurred, or expected to be incurred, during that year and the following year. Furthermore, before November 30 of each of its fiscal years, ONAS will, on the basis of forecasts satisfactory to the Bank, review the required level of compensatory revenues, tariffs and property area assess- ment for the current and the following year and provide the Bank with a copy of such review report and the proposed adjustments.

5.13 To ascertain the continuing development and the improvement of the self-financing of the sector during the Seventh Development period (1987- 1991), ONAS will undertake a comprehensive review of its financial objectives during the preparation of its investment plan (1987-1991). This would facili- tate the Government's review and endorsement of timely tariff actions and, hence, ensure ONAS' financial viability.

Future Financial Performance

5.14 Forecast financial statements appear in Annexes 10, 11 and 12. Financial assumptions are presented in Annex 16. A tentative Seventh Invest- ment Plan (1987-1991) discussed with ONAS assumes investments on the order of TD 220.0 million, in current value, which represent a 15% increase in constant value over ONAS Sixth Investment Plan (1982-86). This objective is realistic and aims at maintaining the service level in the large urban areas and at improving the level in medium-size towns.

5.15 From now up to the end of the project implementation period (1989), ONAS' revenues are expected to grow about 2.9 times from TD 13.65 million to TD 39.56 million while its operating expenses before depreciation would grow about 2.8 times from TD 6.74 million to TD 18.93 million, leaving gross mar- gins sufficient to cover all of its projected debt service and a share of its investment costs. Its operating ratio would gravitate around 80. In the same period ONAS' total fixed assets would grow from TD 96.74 million to TD 292.07 million, i.e. about three times. Its debt to equity ratio would stay around 40;60 while its debt service coverage ratio would not drop below 1.3.

5.16 During negotiations agreement has been reached that ONAS will not incur any debt unless a reasonable forecast of its revenues and expenditures shows that its projected internal cash generation for each fiscal year during the term of the debt to be incurred would be at least 1.3 times its projected debt service in such year on all its debt including the debt to be incurred. - 29 -

VI. JUSTIFICATION

Least Cost Solution

6.01 The project components stem from the recommendations of the Master Plans prepared between 1975 and 1980 for a phased development of sewerage in the thirty towns included in the proposed project. The sewage treatment plants and pumping stations would be constructed in phases representing the least cost alternative. Alternative treatment processes considered for least cost comparison purposes include extended aeration, activated sludge, biologi- cal filters and discs, aerated lagoons and waste stabilization ponds. Sewers will be built to their ultimate capacity as this is the least cost solution.

Institution Building

6.02 Although ONAS has already proven to be an efficient organization, it would be further strengthened by the proposed project. In particular, its financial capability would be enhanced by the introduction of medium and long- term financial policies and objectives aimed at generating sufficient cash to finance a portion of its investments. This approach, which is better under- stood by Government than the former rate of return objective, will result in more frequent tariff adjustments to satisfy the new objectives. The proposed project will also assist ONAS to carry out its expansion program and strength- en its operation and maintenance capability.

Health Benefits and Environmental Impact

6.03 Sanitary conditions in the towns served by the proposed project will greatly improve as a result of the proposed project. Present health hazards caused by the discharge of effluents inside the town limits, by overflows from cesspools or even by the discharge of effluents directly into open ditches along the streets, will be eliminated. This will lessen the greatest sources of contamination and infection. Removal of effluents from the soil will also remove the threat of contamination of lower aquifers which are found below many of these towns and are used for human consumption. The treatment of sewage will provide safer water for irrigation and eliminate the dangerous habit of irrigating vegetable gardens with raw sewage.

Beneficiaries

6.04 The proposed project will benefit the present and future population of thirty towns, although at different levels. The rehabilitation of the existing sewers will provide a better service to the presently connected 250,000 inhabitants who will in addition benefit from the expected eradication of health hazards prevalent in the high density housing areas. The 1983-1988 expansion program will give 155,000 inhabitants access to community sewerage systems. The highest benefits in terms of health, living conditions and - 30 -

decrease of costs of sewage disposal are anticipated for this segment of the population (see para 2.06). Finally the treatment and reuse of the effluents of an estimated one million inhabitants living in the proposed project area by the year 2000, will have a major environmental and economic impact. The direct beneficiaries of the proposed project, about 40% of which are estimated to be at or below the current poverty threshold of TD 140 per year, will be offered service at affordable cost.

Affordability

6.05 The average water consumption of the low income group is 18 m3 / quarter (Annex 14) and therefore subject only to a fixed quarterly maintenance fee of TD 0.750. In addition, the cost of.a house connection which on average amounts to TD 70 is recovered from consumers in 20 quarterly installments, including principal and interest, which results in a quarterly payment of TD 4.705. The total monthly payment for sewerage is thus TD 1.818, or about 2% of the revenue of those living on the minimum wage of TD 89 per month. This is considered affordable. Future tariff adjustments will not change this picture as no increases in real terms are expected for low income consumers. The combined monthly payment for water and sewerage is likewise estimated at about TD 2.800 or 3% of the minimum wage which is also considered affordable.

Cost Recovery

6.06 The long-run incremental cost of providing sewerage service net of proceeds from the sale of treated sewage is estimated at TD 0.121/m 3 (TD 0.133/m 3 less TD 0.012/m 3 ) in 1982 prices, at a 10% discount rate-/. It is also estimated that by 1987, when compensatory revenues will have been phased out, the highest tariff step for domestic and public sewerage service will reach TD 0.122/m 3 (in 1982 prices), and that all tariff steps for industrial and tourist service will be higher. The fact that these tariff steps would at least equal the long-run incremental cost of providing a sewerage service indicates that the tariff structure and levels would be appropriate.

6.07 This analysis furthermore indicates that if revenues derived from sewerage tariffs are taken as a proxy for benefits, the rate of return for ONAS' investment program is higher than 10%, since this approach does not con- sider benefits associated with improved health of the population served, improved environment and increases in land value which are difficult to quantify.

Risks and Safeguards

6.08 The main risk confronting the project is that of slippage in the construction program, and the consequent escalation of costs. However ONAS' performance in implementing works has improved during the First and Second Urban Sewerage Projects. In addition further improvement is expected in the

1/ A 10% discount rate is considered appropriate for Tunisia. - 31 - future and the risks of not achieving the objectives of the project are low. ONAS has the required implementing capability, as demonstrated by the imple- mentation of the Fifth Development Plan (1977-81). Furthermore, the measures recommended in this report, such as (i) the assistance by consultants for pro- ject preparation, construction and supervision; (ii) experts to assist in the development and implementation of appropriate computer and information control systems; (iii) Bank's assistance in reviewing organization changes; (iv) Bank's monitoring of key performance indicators for ONAS and providing neces- sary guidance during supervision, should help to minimize the project risks. The risk of not achieving the forecast increase in the number of house connec- tions is small as households having a water connection are eager to connect to the sewer systems, particularly as connection fees can now be paid in install- ments. The risks that the sewage treatment plants will not be operated properly is also small, as ONAS is constantly training new staff which will be given additional training by the equipment suppliers. Existing treatment plants are well run. - 32 -

VII. AGREEMENTSREACHED AND RECOMMENDATIONS

7.01 During negotiations agreements have been reached on the following items:

(i) the terms of reference for the feasibility study for 10 to 15 new centers and for the reuse of treated sewage for industrial and agri- cultural purposes and the computer and information systems study included in the project as described in Annexes 3 and 4. (para. 3.03);

(ii) the number and type of monitoring indicators to be included in the quarterly progress reports. (para. 3.19);

(iii) the project implementation schedule (para. 3.19);

(iv) the preparation of a completion report (para. 3.20);

(v) the submission by ONAS of audit reports within six months after the close of each fiscal year. (4.12).

(vi) the measures to be taken by ONAS and to be supported by the Govern- ment, including adjustments to its tariffs, as may be required, for each of its fiscal years after its fiscal year ending on December 31, 1982, to provide funds from internal sources and customers' contribu- tions equivalent to at least 13% of the annual average of its capital expenditures incurred, or expected to be incurred, during that year and the following year (para. 5.12);

(vii) before November 30 of each fiscal year, starting in 1983, on the basis of forecasts satisfactory to the Bank, the review by ONAS of the required level of compensatory revenues, tariffs and property area assessment in order to adjust them to meet its cash flow requirements and provision to the Bank of a copy of such review report and the proposed adjustments (para. 5.12); and

(viii) the fact that ONAS should not incur any debt unless a reasonable forecast of its revenues and expenditures shows that its projected internal cash generation for each fiscal year during the term of the debt to be incurred would be at least 1.3 times its projected debt service in such year on all its debt including the debt to be incurred (para. 5.15).

7.02 The execution of a subsidiary loan agreement between the Government and ONAS on the same terms as the Bank loan would be a condition of loan effectiveness (para. 3.10).

7.03 Agreement having been reached on the above, the proposed project is suitable for a Bank loan of US$ 34.0 million to the Government of Tunisia for a term of 17 years, including 4 years of grace. TUNISIA

THIRD URBAN SEWERAGE PROJECT

PROGRAM OF TAKE-OVER OF SEWERAGE SERVICES BY ONAS UNTIL 1988

PROJECTS 1982 1983 1984 1985 1986 1987 1988

EEC Project MOKNINE AKOUDA HAMMAMSOUSSE KALAA KEBIRA HAMMA (GABES) JEMMAL LE KEF TOZEUR

KASSERINE GAFSA MENZEL BORUGUIBA

Medjerdah Project BEJA BOU SALEM JENDOUBA TESTOUR TEBOURSOUK MEDJEZ EL BAB DJEDAIDA SILIANA GAAFOUR TEBOURBA GHARDIMAOU

Proposed Project BIZERTE RAS JEBEL ZAGHOUAN GROMBALIA MENZEL BOUZELFA MATEUR M'SAKEN KORBA BENI KHALLED

SAHLINE SOLIMAN MENZEL TEMIME MEDENINE KALAA SGHIRA OUARDANINE

NEFTA SAYADA, LAMTA, BEKALTA BOU HAJAR TEBOULBA KSAR HELLAL KSOUR-ESSAF

SBEITLA EL DJEM TATAOUINE ZARZIS SFAX SUBURBS* MAHARES SIDI BOUZID

*Sfax Suburbs include 5 municipalities: GREMDA, EL AIN, CHIHIA, SAKIET EDDAIR and SAKIET EZZIT.

Number of Towns 4 8 4 8 15 12 3

Total, 54 - 34 - ANNEX 2

TUNISIA

THIRD URBAN SEWERAGE PROJECT

ONAS' SIXTH PLAN (1982-1986)

1982 1983 1984 1985 1986 Total ------TD Millions------

A. Ongoing Projects

Greater Tunis (Loan 1088-TUN) 1.4 1.4

SIDA Project 0.5 0.3 0.8

Seventeen Cities (EEC) 6.0 7.0 3.0 1.4 17.4

Greater Tunis and Sfax (Loan 1675-TUN) 8.7 10.0 8.2 26.9

Studies - Rehabilitation 2.4 3.2 2.3 1.2 1.2 10.3 Office Buildings and Equipment

Urban Project (participation) 0.2 0.2

TOTAL A 19.0 20.7 13.5 2.6 1.2 57.0

B. New Projects

30 Towns (Proposed Bank loan) 3.0 8.0 8.8 19.8

Medjerdah Basin (KfW) 0.2 0.5 2.5 4.5 5.5 13.2

Greater Tunis (Koweit Fund) 1.0 4.0 5.5 6.0 16.5

Sfax 1.0 1.5 2.5

Treatment Plants (Islamic Bank) 0.5 2.0 3.8 6.3

Treatment Plants expansion 0.5 2.5 1.7 4.7

TOTAL B 0.2 1.5 10.5 23.5 27.3 63.0

GRAND TOTAL 19.2 22.2 24.0 26.1 28.5 120.0 - 35 -

Annex 3 Page 1 of 2

TUNISIA

THIRD URBAN SEWERAGEPROJECT

FEASIBILITY STUDY

TERMS OF REFERENCE

1. Introduction

The national sewerage authority, the "Office National d'Assainisse- ment" (ONAS) established in 1974, is responsible for the planning, operation, maintenance, renewal and construction of all sewerage works located within the limits of the urban areas and within touristic and industrial development zones. In 1989, ONAS will have taken over the responsibility for operating the sewerage systems of 80 municipalities with a global population of 3.5 mil- lion inhabitants, 46% of the total Tunisian population. In these towns the connection level to the sewer system will be about 60%. The Government of Tunisia has requested a loan from the World Bank to assist in the financing of the upgrading and expansion of sewerage systems in about 30 medium-sized towns. Part of the proceeds of this loan will be used to assist in the financing of this study.

2. Objectives

The objectives of the study are:

1. after an analysis of the present situation, to assess future demand and define a long-term investment program up the year 2010;

2. to prepare feasibility studies for sewerage projects in new urban centers to be taken over by ONAS as first priority; and

3. to propose actions to promote the reuse of treated sewage for indus- trial and agricultural purposes.

3. Execution of the Study

Part I of the study consists of the critical examination of ali exîsting sector-related data and studies relevant to the agglomerations with a population above 2000 at the time of the 1975 census. Touristic areas and industrial zones are to be included, but the Greater Tunis and Greater Sfax areas are to be excluded. This basic information has to be updated and com- pleted as required.

After having analyzed the existing situation and future demands has been assessed, a phased investment program has to be elaborated to meet this demand. Criteria to define priorities have to be established in consultation - 36 -

ANNEX 3 Page 2 of 2 with ONAS, and should include inter-alia health aspects, flood protection, touristic or industrial developments, water supply situation, potential reuse of treated sewage, under or over-utilization of existing installations, ground-water contamination, the protection of the environnent and economic return on investments.

Part II of the study, should only be started after Part I has been cleared by ONAS. It consists of the feasibility studies for 10 to 15 new urban centers to be taken over by ONAS and for which the priority has been established in Part I of the study. The exact number and names of the centers will be determined by ONAS after Part I of the study has been completed. The feasibility studies should result in a phased development plan per center. An economic justification has to be prepared for the recommended technical solu- tion and the phasing. Cost estimates, in particular, for the first phase have to be in constant prices and reasonably accurate.

Part III of the study can be considered as a marketing study and should start at the same time as Part I. First, the existing situation should be described and analyzed and future demand assessed. Constraints to a speedy development of the demand should be identified and solutions proposed. A range of actions has to be proposed. The actions proposed should aim at the promotion of the sales of treated water for agricultural and industrial pur- poses. An economic analysis has to be carried out to see if tertiary treat- ment is justified. The actions to be considered to promote reuse of treated sewage should include an information campaign for the local rural and industrial communities.

4. Time Allowance and Reports

The time allowed for Part I of the study is 9 months after which a draft report has to be submitted to ONAS. ONAS is expected to give its com- ments and clearance to start with Part Il of the study within 3 months. Part II should be completed in 9 months afterwhich another 3 months are allowed for ONAS' comments and clearance. Finally, 2 more months are allowed for the preparation of the final reports. The time allowed for submission of the studies in Part III is 9 months after which comments and clearance from ONAS will be given within 3 months and 2 more months are allowed for the prepara- tion of the final reports.

All draft reports have to be submitted in 5 copies and final reports in 20 copies except for the feasibility studies of which 10 copies are re- quired. - 37 -

ANNEX 4 Page 1 of 2

TUNISIA

rHIRD URBAN SEWERAGEPRQJECT

COMPUTiERAND INFORMATION SYSTEMS STUDY

TERMS OF REFERENCE

Background

The "Office Naticnal de l'Assainissement,` (ONAS) is in charge of sewerage services in 26 large urban centers in Tunisia. ONAS is an institu- tion owned by the Governmenlt of Tunisia and managed alorig the lines of a public agency by a general manager and supervised by a Board of Directors. ONAS is in the process of 13radually taking over up to 1988, 54 additional municipal sewerage systems,, which are, or are about to be rehabilitated and expanded. All works are to be executed by local and international contrac- tors. ONAS' organizationa]. structure is presently characterized by;

(i) a centralized aLdministrative system covering personnel manage- ment, accountirtg, supply and resources management and monitoring; and

(ii) a customer management subcontracted to SONEDE, the National Water Supply publi,c us:ility, in charge of m,eter reading, billing and collection.

ONAS does not have^ a computer of its own. Manual or subcontracted computerized procedures hav e been adopted for invenl:ory control and valuation, payroll and pensions, gener. al accounting, cost accoiinting, and technical and statistical calculations.

Objectives of the Study

ONAS intends to in rite consultants for a stucly to examine the oppor- tunity of acquiring its own data processing Qquipmen2t aind propose the neces- sary modifications of its iliformation and management control system. This study will be partly financid by the World Bank in th,e framework of the Third Urban Sewerage Project.

Basic Documentation

The study will, as appropriate, refer to e:isting documents available at ONAS and in particular;

(i) studies relatE !d t.0 ONAS organization and internal information system; - 38 -

ANNEX 4 Page 2 of 2

(ii) existing data sheets and print-out forms;

(iii) documents provided by SONEDE resulting from ONAS' customer com- puterized treatment;

(iv) existing quarterly and annual statistical reports; and

(v) the detailed study on data processing carried out by ONAS.

Scope of the Work

The scope of the work. involves the following activities:

(i) identification alad definition of ONAS pxesent and future needs in financial, technical and statistical dac:a reporting;

(ii) recommendations on a detailed informatic>n network structure to adopt for all o:- ONAS' departments, regional and branch offices;

(iii) study and recommeandations on the most efficient and economic solution for ONAS rega:.ding data proces3iTig equipment utiliza- tion. Subcontracting, leasing and purtclbtsingalternatives will be examined in the light of ONAS growth:',

(iv) assessment of staffing needs to monitor data information;

(v) proposals to adapt, if necessary, witl\ a7?propriate modifications the existing programs library; and

(vi) proposals of assistance for the implem>.ntation of the new system.

Planning of the Study

The study will be (:arried out in two phaseie and a draft report will be submitted for review by ONAS at the end of each 1?hase, before the final report is issued.

PHASE I.

This phase will avialyze the present situat i on and the future require- ments of ONAS' flows of ini'ormation.

PHASE II

This phase will co-ver the study of differer t: alternatives for equip- ment, an economic analysis oE the proposed solution, eventually the prepara- tion of bid documents and proposals to assist ir. the implementation of the new system.

The time allowed foi these two phases is six months. - 39 - ANNEX 5

TUNISIA

THIRD URBAN SEWERAGE PROJECT

COST ESTIMATE (Tunisian Dinars '000)

(January 1, 1983 prices)

TOWNS Primary* Secondary Storm Sewers Sewers Sewers Treatment** TOTAL

1. BIZERTE 38.2 91.6 393.5 - 523.3 2. RAS JEBEL 235.4 45.8 12.1 - 293.3 3. MATEUR 182.1 16.3 17.4 - 215.8 Sub-total North 455.7 153.7 423.0 - 1,032.4 4. MENZEL TEMIME 143.9 173.3 327.0 27.3 671.5 5. SOLIMAN 639.8 85.0 91.6 614.8 1,431.2 6. MENZEL BOUZELFA 295.5 18.5 12.0 312.9 638.9 7. BENI KHALLED 286.7 - 140.6 179.9 607.2 Sub-total Cap Bon I 1,365.9 276.8 571.2 1,134.9 3,348.8 8. GROMBALIA 82.8 - 151.6 621.4 855.8 9. KORBA 192.9 150.4 226.8 18.5 588.6 10. DAR CHAABANE 189.7 346.6 147.2 - 683.5 11. ZAGHOUAN 186.4 - - - 186.4 Sub-total Cap Bon Il 651.8 497.0 525.6 639.9 2,314.3 12. SAYADA/LAMTA/BOU HAJAR 310.6 428.3 - 479.6 1,218.5 13. KSAR HELLAL 153.7 741.2 - - 894.9 14. TEBOULBA 345.5 479.6 - - 825.1 15. BEKALTA 268.2 310.6 - - 578.8 Sub-total Sahel I 1,078.0 1,959.7 - 479.6 3,517.3 16. KALAA SGHIRA 135.0 266.0 - 359.9 760.9 17. SAHLINE 442.6 261.6 - 143.9 848.1 18. M'SAKEN 137.3 137.3 589.7 - 864.3 19. OUARDANINE 129.8 170.0 184.2 421.9 905.9 20. KSOUR ESSAF 137.3 470.9 - 353.2 961.4 Sub-total Sahel Il 982.0 1,305.8 773.9 1,278.9 4,340.6 21. EL DJEM 132.0 366.2 - 353.2 851.4 22. SFAX SUBURBS 1,171.5 1,177.2 - - 2,348.7 23. MAHARES 254.8 484.0 - 406.9 1,145.7 Sub-total Sfax 1,558.3 2,027.4 - 760.1 4,345.8

24. SBEITLA 200.6 490.5 - - 691.1 25. SIDI BOUZID 179.9 546.1 - 550.5 1,276.5 26. NEFTA 381.5 588.6 16.4 551.6 1,538.1 Sub-total Interior 762.0 1,625.2 16.4 1,102.1 3,505.7 27. HOUMT SOUK 368.5 627.8 109.0 - 1,105.3 28. ZARZIS 356.1 327.0 - 378.6 1,061.7 29. MEDENINE 98.2 915.6 16.4 1,030.2 30. TATAOUINE - 594.1 - 13.1 607.2 Sub-total South 822.8 2,464.5 109.0 408.1 3,804.4

GRAND TOTAL 7,676.5 10,310.1 2,419.1 5,803.6 26,209-3

* includes 532.0 for pumping stations ** includes 96.0 for pumping stations. TUNISIA THIRD URBAN SEWERAGEPROJECT Implementation Schedule

1982 1983 1984 1985 1986 1987 1988 1989 ITEM AREA rrr-rrr Tv 1 i r4 1234 jjfr 123 fjql3j1121frij2Lj3i jiJ±I1JL

PIPE ACQUISITION

Contract 1 1-2-3 R B______Contract2 4-5-6 B .,......

Contract 3 7-8R ______

SEWER SYSTEMS

North 1 R ______

Interior 2 R ..... ______

Sahel1 3 RJ...... __t__

South 4 -R ....

CapBon Il 5 * -*.J -... V

Siax 6 ......

CapBon I 7 ~..A......

Sihe 8 R .~......

TREATMENT PLANTS

Equipment B- CivilWorks lst Croup 2-4-6

1 Equipment - .~~_jR B _____ IF______T CivilWork2nd Group 3-5-7-8

MISCELLANEOUS

Office Accommodation Tunis .

Acquisition ofBB

Feasibility Study P 4 R S JF

Computer Study ______VPJR + LRàF ______`__ _ _

Testing Studies and Preparation of Bid Docurments 4 =Change of ActivitV

P=Prequalification . Bidding Procedure V -Completion O 4 R Revievv (ONAS or Bank) Works F Final Reports VV.rlé Barik--24 02 TUNISIA

THIRD URBAN SEWERAGE PROJECT

ANNUAL PROJECT INVESTMgNTS

Year (cumulative price contingency Y) 1983 (4.5%) 1984 (13.4%) 1985 (22.5%) 1986 (32.2%) 1987 (42.8%) 1988 (54.2%) TOTAL Local Foreign Tta1 Local F ig Tt Lc Foig Tt l Foreig Total Loc FoForeign Total Local Foreign Total Locol Foreign Total

------TD thousands------______

1. PROJECT FOR 30 TOWNS

Sever Systens o C.W. - - - 670 385 1,055 2,110 1,210 3,320 2,655 1,530 4,185 2,950 1,800 4,750 1,175 675 1.850 9,560 5,600 15,160 Pipe Acquisition - - 515 415 930 1,230 980 2,210 245 190 435 735 590 1,325 256 208 464 2,901 2,383 5,364 Treatnent Plants - - - - __- 645 535 1,180 2,060 1,2 3,780 450 375 825 3,155 2.630 ,785

Sob-Total - - - 1,185 800 1,985 3,340 2,190 5,530 3,545 2,252 5,800 5,745 4,110 9,855 1,881 1,258 3.139 15,696 10,613 26,309

Coos1ltants Servions 6 Sctdien 80 120 200 295 382 677 260 261 521 117 236 353 090 265 355 - - - 842 1,264 2,106

Sub-Total 80 120 200 1,480 1,182 2,662 3,600 2,451 6,051 3,662 2,491 6,153 5,835 4,375 10,210 1,881 1,258 3,139 16,538 11,877 28,415

PhysicaL Contiogeocios 8 12 20 150 120 270 370 240 610 405 275 680 700 520 1,220 192 166 358 1,825 1,333 3,15

Sob-Total 88 132 220 1,630 1,302 2,932 3,970 2,691 6,661 4,067 2,766 6,833 6,535 4,895 11,430 2,073 1,424 3,497 18,363 13,210 31,573

Pr-se Conting..cien 4 6 10 219 174 393 894 605 _mao 1,310 890 2,200 2_797 2,093 4,910 1,123 772 1,89 6,347 4,540 10,887

TOTAL 30 Toono 92 138 280 1,849 1,476 3,325 4,864 3,296 8,160 5,377 3,656 9,033 9,332 6,988 16,340 3,196 2,196 5,392 24,710 17,750 42,460

I1. OTtlER INVESTMENTS 560 659 1,219 935 868 1,803 815 937 1,752 285 327 612 ------2,595 2,791 5,386

(Maintenance eqoipoeot and Office Accommodations)

Phys-cal Costiogeocico 27 il 38 65 32 97 53 39 92 16 9 25 - - - - - 161 91 252

Pr-se Contingencies 26 31 57 134 121 255 196 219 415 99 107 206 - _ _ - - - 455 478 933

rOTAL OThtR INVESTMENTS 613 701 1,314 1,134 1,021 2,155 1,064 1,195 2,259 400 443 843 ------3,211 3,360 6,571

IlI. STUDlES ------100 150 250 - - _ - - - _ 100 150 250

GRAND TOTAL 705 839 1,544 2,983 2,497 5,480 6,028 4,641 10,669 5,777 4,099 9,876 9,332 6,988 16,340 3,196 2,196 5,392 28,021 21,260 49,281

(base: January 1983) TUNISIA

ONAS - TUIRD URBAN PROJECT

MONITORING INDICATORS

INDICATORS 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990

1. GENERAL

Total Population 103 6.540 6.620 6.710 6.830 6.980 7.120 7.260 7.400 7.550 7.700

Total Urban Population 10 3.400 3.510 3.630 3.750 3.870 3.990 4.130 4.270 4.400 4.550 Total Urban Population in ONAS 3 Served Areas 10 1.720 2.060 2.250 2.420 2.640 2.940 3.210 3.340 3.440 3.530

Total Population Served by ONAS 10 1.100 1.280 1.330 1.460 1.570 1.740 1.910 2.020 2.080 2.140

Number of towns taken over 26 30 38 42 50 65 77 80 80 80

2. STAFFINC

Total Staff 1.455 1.630 1.710 1.840 1.975 2.160 2.360 2.525 2.630 2.735

Staff per 1000 connections 9.4 9.0 8.8 8.5 8.3 8.1 7.9 7.8 7.7 7.6

3. SYSTEM OPERATION

Sewerage Volumes 10 6m3/year 68.48 72.49 82.33 90.08 99.71 108.55 119.78 131.63 141.21 151.31 3 Number of Connections 10 163 183 194 215 237 266 298 325 341 359

4. FINANCE

Working Ratio 95 75 67 62 59 57 54 51 48 48

Debt Equity Ratio 26:74 34:66 40:60 40:60 40:60 38:62 37:63 38:62 39:61 40:60

Debt Service Coverage 1.7 2.2 1.6 1.4 1.4 1.5 1.3 1.4 1.5 1.5

Average Tariff in TD per m3 0.033 0.072 0.088 0.105 0.120 0.141 0.160 0.180 0.205 0.215

Operating Expenses in TD per m 1/ 0.080 0.093 0.095 0.101 0.106 0.115 0.121 0.127 0.134 0.142 Self-financing Ratio %

Through Net lnternal Generation

Plus Consumer Contributions 16.5 14.6 20.0 13.1 13.0 15.7 21.5 17.6 22.2 26.3

1/ before depreciation TUNISIA THIRD URBAN SEWERAGEPROJECT Office National D'assainissement(ONAS) OrganizationChart - 1982

Financial…-r _ _ of_ Directo.r______| EBoard T…__

En|ineeringPresitint andtaA Nne_ Works Nesn Wor-ksOrgeoP | aation

TunIs Central Tanis Cap Bon Central Soat)rerrv Northen Engine.ring D|vin Igandr | | ProjectsandRegon Region eeio ego Region Stadues and Fnane Ats,inistration Progi'ammiflg

Prouremmngm|Pogr nMethndologytTnent TReasment Rearsent | Reainand e Hend*uarter andi Standardîzation tnsinAcaltfgAmnsrto

Procarernens Procurenfient Repairsend Rear niRepgirs andi Repairsandi Repeirsandi MaiteMainteMaintenance Maintenance Maintenance Maintenance Ec.noiande t Personnel r R7.,.na~~~~~~~~13.7inl r V .. inncil tedes Accanin SectorksI2 |Suet^ions L Regional | t ngional 1 Regionel | Regional L eg0ionali- Sto(2 |Laboratory | Laboratory Labonatory Lr abarnor |t LaboratorY Data Processing TreasurY Training

I Works 11l | Tanis §__ - Sections (2t Divin |I | Warehouse a t Warehousa Warehouse Warehoase

SerWorks1112| | Programmînt | Technîcal L | Technical | | Tëchnicala | | Techinical | | TeThhicat Stistiet Studiet Sttudesr Sttues Stiudes

Procurement District District District District Listrict | _ 0 | { Sectionst 0 Sections 0 0 Sections I } Sections Sections } W 2

|SuPervision ||Wnrld Bank-243û2 . |Sections /3)r - 44 -

TUNISIA ANNEX 10

THIRD URBANSEWERAGE PROJECT

ONAS - INCOMESTATEMENTS (TD Millions)

Fiscal year Ending ------Aua------___ ------Projected------December 31 1978 1979 1980 1981 19821/ 1983 1984 1985 1986 1987 1988 1989 1990

Sewage Flow (Million.M ) 57.00 53.15 63.64 67.04 72.88 83.60 90.08 99.71 108.55 119.78 131.63 141.21 151.31 No of Connections ('0003) 112.89 131.26 147.08 163.47 182.09 194.58 215.56 237.27 266.28 298.69 324.77 341.44 359.02 Average Tariff (TD/m3) 0.014 0.030 0.031 0.033 0.072 0.088 0.105 0.120 0.141 0.160 0.180 0.205 0.215 OPERATING REVENUES Sewerage Charges 0.80 1.78 1.98 2.21 5.22 7.25 9.46 11.97 15.31 19.17 23.69 28.95 32.53 Municipal Contributions 1.98 2.02 2.39 2.80 3.20 3.60 3.96 4.36 4.79 5.27 5.80 6.38 7.02 Connections & other .ork 0.12 0.14 0.19 0.30 0.38 0.48 0.63 0.89 1.01 1.45 2.02 2.54 3.16 Miscelaneous 0.19 0.14 0.07 0.50 0.27 0.43 0.69 0.88 1.08 1.32 1.68 2.12 2.62 Compensatory Revenues 2.94 3.20 3.40 3.64 4.65 4.30 3.00 2.50 1.50 - - - - Less: Bad Debt Provision (0.04) (0.04) (0.01) (0.03) (0.07) (0.11) (0.14) (0.18) (0.23) (0.29) (0.35) (0.43) (0.49)

TOTAL REVENUES 5.99 7.24 8.02 9.42 13.65 15.95 17.60 20.42 23.46 26.92 32.84 39.56 44.84

OPERATINS EXPENSES Personnel 1.56 1.96 2.43 3.08 3.84 4.39 5.15 6.02 7.18 8.55 9.97 11.32 12.83 Energy and Water 0.16 0.31 0.40 0.63 1.11 1.42 1.63 2.05 2.47 2.70 3.06 3.46 3.92 Materials 0.40 0.43 0.78 1.05 1.13 1.22 1.40 1.60 1.84 2.12 2.44 2.83 3.28 Third Parties Services 0.11 0.12 0.13 0.19 0.22 0.24 0.27 0.31 0.35 0.41 0.46 0.52 0.59 Administrative Expenses 0.23 0.31 0.37 0.44 0.49 0.55 0.62 0.62 0.67 0.76 0.86 0.96 1.09 Taxes 0.11 0.06 0.07 0.08 0.08 0.09 0.11 0.12 0.14 0.17 0.20 0.23 0.26 Less: Capitalized espenditures - - - - (0.07) (0.08) (0.11) (0.12) (0.16) (0.23) (0.32) (0.39) (0.49) Sub-Total 2.57 3.19 4.18 5.47 6.74 7.83 9.07 10.60 12.49 14.48 16.67 18.93 21.48 Depreciation 1.37 1.74 2.37 2.63 3.67 4.38 5.10 5.76 6.62 7.42 8.43 9.45 10.62

TOTAL OPERATING EXPENSES 3.94 4.93 6.55 8.10 10.41 12.21 14.17 16.36 19.11 21.90 25.10 28.38 32.10

NET OPERATING INCOME 2.05 2.31 1.47 1.32 3.24 3.74 3.43 4.06 4.35 5.02 7.74 11.18 12.74

Interest 0.23 0.41 0.69 1.22 1.79 2.62 3.24 3.75 4.30 4.86 5.70 6.92 8.25 Non Operating Income (0.35) (0.06) (0.08) (0.14) ------NET INCOME 1.47 1.96 0.70 0.24 1.45 1.12 0.19 0.31 0.05 0.16 2.04 4.26 4.49 Operating Ratio 66 68 82 86 76 77 80 80 82 81 76 72 72 Working R Z//ti 84 79 90 95 75 67 62 59 57 54 51 48 48 Rate of Retur-3 12.5 28.1 9.1 5.1 6.6 5.7 4.4 4.8 4.6 5.0 6.4 7.6 7.9

l/ 1982 results are pretiminary 2_ After deduction of compensatory revenues. 3/ On average net fixed assets in operation. - 45 -

TIUNISIA ANNEX Il

THIRD URBAN SEWERAGE PROJECT

ONAS - CASH FLOW STATEMENTS

Fiscal Yer Ending ------Actual------_-______------Projected------

December 31 1978 1979 1980 1981 19821/ 1983 1984 1985 1986 1987 1988 1989 1950

Internal Sources of Fends

Net Incore before depreciation 3.42 4.05 3.84 3.95 6.91 8.12 8.53 9.82 10.97 12.44 16.17 20.63 23.'3,

Non Operating Income (0.35) 0.06 (0.08) 0.14 ------

Gross Internai Generat{on 3.07 4.11 3.76 4.09 6.91 8.12 8.53 9.82 10.97 12.44 16.17 20.63 23.36

Operatienal Reguirements

Increase (Decrease) in Working

Capetal (2.90) (0.21) (2.46) (0.60) 1.16 (1.02) (0.15) 0.87 0.47 (2.53) 0.65 1.75 2.05 Debt Service-

Interest Charged to Operationa 0.23 0.41 0.69 1.22 1.79 2.62 3.24 3.75 4.30 4.86 5.70 6.92 8.25

Amortization f Loans 0.18 0.61 0.86 1.15 1.29 2.33 3.01 3.05 3.10 4.40 6.28 6.78 6.84 Total Debt Service 0.41 1.02 1.55 2.37 3.08 4.95 6.25 6.80 7.40 9.26 11.98 13.70 15.09 Total Operational

Requirements (2.49) 0.81 (0.91) 1.77 4.24 3.93 6.10 7.67 7.87 6.73 12.63 15.45 17.14

Balance of Internal Fends Available 5.56 3.30 4.67 2.32 2.67 4.19 2.43 2.15 3.10 5.71 3.54 5.18 6.22 for investments (3)

Capital Expenditures

Propesed project - - - - - 1.85 5.48 10.67 9.40 16.17 5.87 -

Others 5.78 19.87 15.95 17.73 19.51 26.85 17.43 19.63 19.10 21.83 36.13 45.00 47.0C Total Capital Expenditures 5.78 19.87 15.95 17.73 19.51 28.70 22.91 30.30 28.50 38.00 42.00 45.00 47.00

Increase Ic Long Term Advances 0.37 0.02 0.07 0.28 0.49 0.69 0.69 0,54 0.68 1.10 1.64 1.74 1.96 Total Capital Investments (4) 6.15 19.89 16.02 18.01 20.00 29.39 23.60 30.84 29.18 39.10 43.64 46.74 48.96

Balance te be Financed 0.59 16.59 11.35 15.69 17.33 25.20 21.17 28.69 26.08 33.39 40.10 41.56 42.74 Finances by;

1BRD - Existing - 1.23 2.29 5.30 7.33 5.96 3.91 2.37 - - - -

Other Loans - Existing 2.41 2.03 2.38 4.28 4.61 9.90 3.36 2.85 1.84 - - - - Proposed Bank Lean - - - - - 0.75 2.25 3.64 4.28 4.29 4.07 2.14 -

Other Loans - Proposed - - - - - 0.30 3.20 4.70 5.80 5.86 6.54 3.04 1.00 Other Loans - Dnidentified ------2.30 13.00 19.70 25.00

Total Lbans 2.41 3.26 4.67 9.58 11.94 16.91 12.72 13.56 11.92 12.45 23.61 24.88 26.00

Goverezent Contribotions 1.63 2.36 6.73 2.84 5.35 7.70 10.50 12.00 14.50 13.50 12.50 11.50 10.50 Custoser Contributiona (3) 0.33 4.09 1'.04 0.81 0.94 1.11 1.12 1.75 2.25 3.18 4.43 5.44 6.81

Total Funding 4.37 9.71 12.44 13.23 18.23 25.72 24.34 27.31 28.67 29.13 40.54 41.82 43.31

Cash Insreasse (Decrease) for Year 3.78 (6.88) 1.09 (2.46) 0.90 0.52 3.17 (1.38) 2.59 (4.26) 0.44 0.26 0.57 Cash at Beginning of Yesa 5.23 9.01 2.13 3.22 0.76 1.66 2.18 5.35 3.97 6.56 2.30 2.74 3.00 Cash at End of Year 9.01 2.13 3.22 0.76 1.66 2.18 5.35 3.97 6.56 2.30 2.74 3.00 3.57

Debt Service Coverage (times) 7.5 4.0 2.4 1.7 2.2 1.6 1.4 1.4 1.5 1.3 1.4 1.5 1.5 Self financing ratio Z:

incloding customer

contribution 2/ 45.2 41.2 33.6 16.5 14.6 20.0 13.1 13.0 15.7 21.5 17.6 22.2 26.3

_ 1982 results are preliminary. 2/ lines (3) as percentage of line (4) averaged on a two year period. - 46 - AJWEX 12

TUNI8IA

TH1RDURBAN SEWERAGEPROJECT

ONAS- BALANCESHEETS (TD Millions)

Fiscal Year Ending Deceober 31 1978 1979 1980 1981 19821/ 1983 1984 1985 1986 1987 1988 1989 1990

ASSETS Fixed Assets Gro.s Fixed Assets 26.22 31.82 39.92 64.89 89.19 115.59 135.76 162.13 190.97 220.95 257.65 296.89 337.10 Less: Acc. Depreciation 5.35 7.09 9.46 12.09 15.76 20.14 25.24 31.00 37.62 45.04 53.47 62.92 73.54 Net Fixed Assets 20.87 24.73 30.46 52.80 73.43 95.45 110.52 131.13 153.35 175.91 204.18 233.97 263.56 Work in Progress 11.98 26.25 34.10 26.86 22.07 24.37 27.11 31.04 30.70 38.72 44.02 49.78 56.57

TOTAL FIXED ASSETb 32.85 50.98 64.56 79.66 95.50 119.82 137.63 162.17 184.05 214.63 248.20 283.75 320.13 Long-tort Advances 0.38 0.40 0.47 0.75 1.24 1.93 2.62 3.16 3.84 4.94 6.58 8.32 10.28 Sub-Total 33.23 51.38 65.03 80.41 96.74 121.75 140.25 165.33 187.89 219.57 254.78 292.07 330.41

CURRENTASSETS Cash and Equivalent 9.01 2.13 3.22 0.76 1.66 2.18 5.35 3.97 6.56 2.30 2.74 3.00 3.57 Receivables 0.41 0.49 0.68 0.97 1.43 1.65 2.05 2.49 3.08 3.75 4.53 5.43 6.09 Other Receivablos 0.23 0.84 1.34 1.86 2.70 2.36 2.63 3.35 4.11 5.14 6.51 8.15 10.16 -ventories 0.26 0.56 0.56 0.81 0.84 0.87 0.90 0.93 1.07 1.24 1.42 1.65 1.91 Total Current Assets 9.91 4.02 5.80 4.40 6.63 7.06 10.93 10.74 14.82 12.43 15.20 18.23 21.73

TOTAL ASSETS 43.14 55.40 70.83 84.81 103.37 128.81 151.18 176.07 202.71 232.00 269.98 310.30 352.14

EQUITIYAND LIABILITIES Equity Government Contributions 27.38 29.74 36.47 39.31 44.66 52.36 62.86 74.86 89.36 102.86 115.36 126.86 137.36 Customors Contributions 4.31 8.40 9.44 10.25 11.19 12.30 13.42 15.17 17.42 20.60 25.03 30.47 37.28 Retained Surplus 2.23 4.37 5.40 4.96 5.12 5.13 7.06 8.11 10.14 12.18 14.72 18.98 23.62 Total Equity 33.92 42.51 51.31 54.52 60.97 69.79 83.34 98.14 116.92 135.64 155.11 176.31 198.26 Long-term Debt Proposed IBRD Loans - - - - - 0.75 3.00 6.64 10.10 12.74 15.16 15.66 14.01 Previo.s IBRD Loans 1.92 3.15 5.18 10.19 17.52 23.48 25.56 26.05 24.13 22.15 20.12 18.02 15.87 Other Existing Loans 1.84 3.08 4.56 8.66 13.27 21.95 24.09 25.03 24.97 23.62 22.27 20.92 19.56 Other Proposed Loans - - - - - 0.30 3.50 8.20 13.56 18.12 22.91 24.26 23.51

UJoidostified Loass ------2.30 15.30 35.00 59.92 Total Long-Teio Debt 3.76 6.23 9.74 18.85 30.79 46.48 56.15 65.92 72.76 78.93 95.76 113.86 132.87 Current Liabilities Supplier- 3.83 4.59 6.21 7.19 7.05 8.56 7.72 7.88 7.48 9.91 10.97 11.79 12.38 Accounts Payable 1.41 1.21 2.42 2.96 2.23 0.97 0.92 1.03 1.15 1.24 1.36 1.50 1.65 Current Maturities 0.22 0.86 1.15 1.29 2.33 3.01 3,05 3.10 4.40 6.28 6.78 6.84 6.98 Total Carrent Liabilities 5.46 6.66 9.78 11.44 11.61 12.54 11.69 12.01 13.03 17.43 19.11 20.13 21.01

TOTAL EQUITY 6 LIABILITIES 43.14 55.40 70.83 84.81 103.37 128.81 151.18 176.07 202.71 232.00 269.98 310.30 352.14

Debt Equity Ratio 10:90 13:87 16:84 26:74 34:66 40:60 40:60 40:60 38:62 37:63 38:62 39:61 40:60

-i 1982 results are preliminary. TUNISIA

THIRD URBAN SEWERAGE PROJECT

ONAS - SOURCES AND APPLICATIONS OF FUNDS (TD and US$ Million)

Financing Plan (1982-1986) Financing Plan (1987-1990) Financing Plan (1982-1990) TD US$ % TD US$ % TD US$ %

REyUIREMENTS Capital Investments 129.92 206.22 92.7 172.00 273.02 97.0 301.92 479.24 95.1 Long Term Advances 3.09 4.90 2.2 6.44 10.22 3.6 9.53 15.12 3.0 Increase in Working Capital 7.13 11.32 5.1 (1.07) (1.70) (0.6) 6.06 9.62 1.9

TOTAL REQUIREMENTS 140.14 222.44 100.0 177.37 281.54 100.0 317.51 503.98 100.0

SOURCES Internal Cash Generation 44.35 70.40 31.6 72.60 115.24 40.9 116.95 185.64 36.8 Less: Debt Service (28.48) (45.21) (20.3) (50.03) (79.41) (28.2) (78.51) (124.62) (24.7)

Net Internal Cash Generation 15.87 25.19 11.3 22.57 35.83 12.7 38.44 61.02 12.1 Customers Contributions 7.17 11.38 5.1 19.86 31.52 11.2 27.03 42.90 8.5

TOTAL SELF-FINANCING 23.04 36.57 16.4 42.43 67.35 23.9 65.47 103.92 20.6

Proposed Bank Loan 10.92 17.34 7.8 10.50 16.66 5.9 21.42 34.00 6.7 Other Existing Long Term Loans 42.13 66.87 30.1 - - - 42.13 66.87 13.3 Expecteo Long Term Loans 14.00 22.22 10.0 76.44 121.33 43.1 90.44 143.55 28.5

TOTAL BORROWINGS 67.05 106.43 47.9 86.94 137.99 49.0 153.99 244.42 48.5

Government Equity 50.05 79.44 35.7 48.00 76.19 27.01 98.05 155.63 30.9

TOTAL SOURCES 140.14 222.44 100.0 177.37 281.54 100.0 317.51 503.98 100.0 TUNISIA THIRD URBAN SEWERAGEPROJECT Repartition of WaterConsumed by Volume and Customers

VOLUME CUSTOMERS

Domestic 3 3rd Step 40-70 m = ,<« .. . : :.: ...... : ^ ~~~~~Domestic

lstDUm/05nIXSteps0-20 _s

3 4th ~Step > ~70 m ~ ~~~~~~~ t te 0 2 Domesticurstc .2 Publicic 8.0%etic I nduStep2040ml4

Dmeti Public"

Do sti 8.0% Touristie~~~~~~~~~~~~~ 4th Step > 70 3~ ~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~> Touristic~ 0.2~ ~ ~ ~ Industrial ~ 1.V ~ ~ World Bank-24282

5 TUNISIA

THIRD URBAN SEIERAGE PROJECT

FORECAST WATER VOLUMES CONSUMED BY ONAS' CUSTOMERS AUN NUMBER OF CONNECTIONS

Water Severage Year Volumes Repartition of volumes per category Connections Repartition of connections per category Total Domestic Public Iouristic Industrial Total Domestic Public Touristic Industrial

3 3 …------…10 m /yr------…

1978 57,000 30,300 14,000 4,240 8,460 112,887 106,565 4,967 225 1,130 1979 59,145 31,440 14,744 4,400 8,561 131,270 123,922 5,779 225 1,314 1980 63,o34 32,860 15,830 5,513 9,431 147,089 139,543 5,870 292 1,384 1981 68,482 35,071 16,727 6,221 10,463 163,468 155,469 6,381 288 1,330

1982 72,491 35,421 18,143 7,089 11,838 183,152 174,171 7,177 318 1,486 1983 82,326 39,476 20,735 8,250 13,865 194,576 184,433 7,895 379 1,869 1984 90,082 42,284 22,627 9,394 15,777 215,560 204,457 8,666 416 2,021 1985 99,711 45,868 24,680 10,647 18,516 237,271 225,175 9,408 452 2,236 1986 108,546 49,087 26,538 12,109 20,812 266,284 252,713 10,555 498 2,518 1987 119,783 53,504 28,846 13,831 23,602 298,687 283,496 11,789 546 2,856 1988 131,628 58,209 31,135 15,804 26,480 324,774 308,252 12,800 595 3,127 1989 141,205 60,814 33,122 17,684 29,585 341,443 324,084 13,455 624 3,280 1990 151,311 63,344 35,111 19,776 33,080 359,017 340,777 14,146 653 3,441

1995 212,427 92,412 43,913 28,972 47,130 462,514 439,106 18,206 828 4,374

2000 301,183 136,110 55,182 42,502 67,389 598,798 568,650 23,531 1,049 5,568 - 50 -

ANNEX 16 Page 1 of 4

TUNISIA

THIRD URBAN SEWERAGEPROJECT

FINANCIAL ASSUMPTIONS

REVENUES

Sewerage Charges

Sewerage charges have been calculated on the basis of projected water consumptionof ONAS' customers, taking into account population growth, the rate of connectionsand consumera' categories. In the 1983-1990period, ONAS is planning to do about 12,000 house connectionsper year. ReflectingONAS' financialobjectives (discussed in body of SAR), average revenues from the sewerage charge in Dinars per m3 of water consumed would gradually increase, as followst

1982 1983 1984 1985 1986 1987 1988 1989 1990 0.072 0.088 0.105 0.120 0.141 0.160 0.180 0.205 0.215

Connection and Related Charges

Connectionsare the property of customers. The costa of making the connection is billed to consumera. The cost per connectionwhich in 1982 averaged TD 70.0 includes materials and labor, plus 10% for overhead,plus a service tax of 8% on labor. Projections from this base assume annual price increases of 8% and 9% respectivelyfor materials and labor.

OperatingContribution from Municipalities

This amounts to 8% of municipal property taxes (Fonds Commun des CollectivitesLocales) which have been assumed to grow at 10% per annum including price increase adjustments.

Operating CompensatoryRevenues from Government

This reflects ONAS' recovery of part of the increasedvalue of land and property resulting from prior projects (Loan 1088-TUN and 1675-TUN). These revenues currentlyamount to TD 0.040/m3 of water consumed in areas served by ONAS. It is the Government'sintention that this be gradually reduced and eventuallyeliminated after 1986.

Miscellaneous

This covers sale of treated effluents and sludge, and the interest earned on the credit facilities offered to customers for house connections. Such credit is for five years at 12% per annum. - 51 -

Annex 16 Page 2 of 4

EXPENSES

All expenses subject to price increases of 9% in 1983 and 8% thereafter. Projected volume/quantities are explained below.

Personnel

Salaries and wages adjusted on basis of projected staffing levels and staff upgrading.

Energy

Based on operating requirements, mainly pumping stations and treatment plants.

Materials

Quantities based on projected number of new connections, lengths of main extension or rehabilitation made on force account, and in the case of maintenance an amount equivalent to about 0.3% of gross fixed assets in operation.

Administrative and Other

in line with general activity of ONAS.

Taxes

Based on a 2% tax on wages for professional training plus a service tax of 8% on labor. ONAS is currently tax exempt on sales and profit.

Capitalized Expenses

These cover the cost of extensions carried out by ONAS.

Depreciation

Calculated on a straight-line basis during the estimated useful asset life. An average rate of 4% has been used for new treatment works and 3% for sewerage pipes.

CASHFLOW STATEMENTS AND BALANCE SHEETS

Capital Contributions from Government

These are the Government's expected contributions towards the cost of ONAS' investment program. For the period 1982-86, the annual amounts required are embodied in the Government Five Year Development PLan. The Government is expected to introduce the necessary amounts in the next Development Plan to take care of the years beyond 1986. - 52 -

Annex 16 Page 3 of 4

Capital Contributions From Customers

Contributions paid by houseowners, industries, touristic facilities and other public administration towards financing of secondary network on the basis of property frontage. A fixed fee of TD 20.00 per meter is charged for the first 50 meters and estimated cost beyond that. Projected amounts have been adjusted for annual inflation.

Long-Term Advances

These represent ONAS' credit given to customers for the cost of house connections and related extensions of secondary sewers. Loans are repayable in five years. Interest is set at prevailing commercial rate plus 0.5%.

Cash

Cash on hand has been forecast at levels sufficient for normal operations.

Re ce ivab les

These have been factored at the equivalent of 2 months of sales for private customers as well as Government agencies. Bad debts have been estimated at 1.5% of revenues from sewerage charges, and have been deducted from each year's gross revenues.

Inventories

During 1982, inventories were equivalent to nine months of materials, fuel and chemical requirements. These have been projected at eight months equivalent for 1983 and seven months thereafter.

Payables

Estimated at equivalent of (i) three months of capital expenditures up to 1984 and two months thereafter; (ii) ten weeks equivalent of materials and supplies and; (iii) retention money.

Long Term Debt

The projected Long Term Debt includes:

(a) The proposed Bank loan of US$ 34.0 million, including a front-end fee of US$ 0.25 million, for 17 years, including four years of grace, and interest of 10.97% per annum;

(b) Existing Bank Group loans and other International Lenders' loans included in the projections on the basis of existing contracts; - 53 -

ANNEX 16 Page 4 of 4

(c) Proposed loans from KFW for the Medjerdah project and from the Kuwait Fund from the Greater Tunis Third Project expected to start in 1984. These borrowings are expected to be for periods of 20 and 25 years respectively including a five-year grace period and to bear interest at 4.5% and 4% per annum respectively. Also, expected loan from the Islamic Bank for Development for the construction of three treatment plants, for 20 years, including 4 years of grace and subject to a 3% service fee; and

(d) As yet unidentified borrowings for ONAS' expansion after 1986. These have been assumed to be repayable in 15 years after an initial grace period of four years and to bear interest at 7% per annum. - 54 -

ANNEX17

TUNISIA

THIRD URBANSEWERAGE PROJECT

SELECTEDDOCUMENTS IN PROJECT FILE

A1 Situation et évolution de la consommation des ménages en Tunisie - Résultats de l'enquête nationale 1980

B1 Etude de faisabilité du Projet 30 villes, ICN

- Rapport général - Annexes I à VI - Plans detaillés - Addendum

B2 Projet de Perspective ONAS - VIe Plan de Développement

B3 Equipement Informatique - ONAS

B4 Tarification des redevances d'assainissement et équilibre financier pour la période 1982-1986 - SOTINFOR

B5 Détermination des structures d'exploitation durant la prochaine décennie - ONAS

B6 Formation professionnelle - ONAS

C1 Impact du 3 eme Projet Urbain d'Assainissement sur la population à faible revenus - consultant

C2 Projections for water consumption and house connections (1981-2000)

C3 Staff working papers

C4 Average Incremental Cost IBRD16721

rT U N I SI A IC° 11° NOVEMBER 1982 THIRD URBAN SEWERAGE PROJECT LOCATION OF PROJECT ZONES

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