/1 q0A 59/- ir)A FILE COPY RESTRICTED Report No. TO-666a

Public Disclosure Authorized This report was prepared for use within the Bank and its affiliated organizations. They do not accept responsibility for its. accuracy or completeness. The report may not be published nor may it be quoted as representing their views.

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION Public Disclosure Authorized

APPRAISAL OF THE

NATIONAL WATER SUPPLY PROJECT

TUNISIA Public Disclosure Authorized

October 28, 1968 Public Disclosure Authorized

Projects Department CURRENCY EQUIVALENTS

US$1. 00 D 0. 520 D 1.000 = US$1.92 1 Dinar = 1, 000 millimes

WEIGHTS AND MEASURES

1/sec = liters per second 1/day = liters per day m 3 = cubic meters m = meters km = kilometers mm = millimeters dia. = diameter

ABBREVIATIONS

SIDA = Swedish International Development As sociation SEMA = Societe d'Economie et de Mathematiques Appliquees RDE = Regie des Eaux SONEDE = Societe Nationale d'Exploitation et de Distribution des Eaux

STEG - Societe Tunisienne de l'Electricite et du Gaz

HER - Hydraulique et Equipernent Rural

Consultants: SCET = Societe Centrale pour l'Equipement du Territoire SOGETHA = Societe Generale des Techniques Hydro-Agricole s FISCAL YEAR January 1 - December 31 TUNIS It'

APPRATS.A-L r'F THE

TUNISIA NATIONAL WATER SUPPLY PR.OJECT

Table of Contents

Page No.

SUMMARY i - ii

1a INTRODIJCT ION 1- 2

2. THE SECTOR 3- 4

3. THE BORROWER 5

A, Background 5- 7 B. SONEDE 7.- 9 h6. THE PROJECT 10

A. Description of the Project 10 B. Second Project 11 C. Other Works 11 D. Cost of Project 12 E. Design and Supervision 12 - 13 F. Procurement and Disbursement 13 - 14

5. JUSTIFICATION 15

6. FINANCING PLAN & FUTURE POSITION 17

A. Financing Plan 17 - 19 B. Financial Outlook 19 - 20

7. CONCLUSIONS 21

This report was prepared by Messrs. J. Jennings and A. Thys from infor- mation obtained during investigations and discussions in Tunisia in Novernber-December 1967 and March-April 1968. TUNIS IA

APPRAISAL OF THE

TUNISTA INATIONAL WATER SUPPLY PROJECT

LIST OF ANNEXES

1. Organization Chart (1961)

2. Operations of Regie des Eaux

3. Comparative Income and Expense Statements

4. Collection Record

5. Societe Nationale d'Exploitation et de Distribution des Eaux (SONEDE)

6. Description Of the Project

7. Project Cost Estimates

8. Construction Schedule

9. Tourism in Tunisia

10. Internal Rate of Return lie Population and per Capita Consumption Graph

12. Past and Future Sales

13, Sales Projections

14. Long-Term Debt

15. Assumptions for Financial Statements

16. Projected Income Statements

17. Projected Cash Flow Statements

18. Projected Balance Sheets

MAPS

Tunisia Water Supply Project

Tunisia Population & Tc rist Areas TT.INIS IA

APPRAISAL "F THE

TUNISIA NATIONAL WATER SUPPLY PICJECT

SUMIAi RY

i. The Government of Tunisia has asked the Bank and the Governmenti of Sweden to assist in financing a project which comprises the major portion of a nationwide program of water supply investments to be executed in 1968-73. The Program has been developed from a study prepared by Societe Generale des Techniques Hydro-Agricoles (SOGETHI), which outlined investment requirements of the sector to meet demand over the next 15 years, and it reflects suggestions made by Bank staff during several missicns.

ii. The 1968-73 Program consists of three elements:

a. A group of high priority works to be compleLed be- tween 1968 and 1973, which is identified as the Bank/Swedish Project;

b. A group of works, identified in broad terms but not yet precisely defined, to be executed during 1971-73 which will be called the Second Project; and,

c. Other minor works, mainly works in progress and re- newals which will be executed and financed by the Borrower over the 1968-73 period. tThile all of these works are related in the sense that they are part of the national Program, they are in many cases physically inde-andent of each other in that they involve urban systems that are not interconnected~ The Project has been designed so that it can stand alone; none of tlh other works in the Program are vital to the functioning of the Project (except minor works defined in paragraph 4.03 (I) and (2) ). However, the sales projections, financing plan, etc., are based on the assumption that tne entire Program will be completed as scheduled. iii. The Project consists of improvement and expansLon of the supply and distribution systems of the two most heavily populated and economically important regions of Tunisia - Tunis and the Sahel (Sousse) Regions and als^ of Nabeul and Hammamet, in a rapidly growing tourists area. Management and technical assistance for a new national water supply organizaticn are also included. Preliminary engineering is largely ccmpleted and detailed engineering is under way. The first contracts are expected to be called for bids in late 1968. The Bank and Swedish loans would be disbursed partly against the foreign exchange cost of imported items and partly as a percentage of expenditures under other internationally bid contracts. More than 99% of the total expenditures will be under internationally bid contracts. - ii - iv. The 1968-73 Progran is exoected to cost D31oB million (US$61.0 million), of which D17.1 million (US$32.8 million) is for the Project, including interest during construction; D9.6 million (US$18.4 million) is for the Second Project; and D5.1 million (US$9.8 million) for other wqorks. The financing plan ircludes a Bank loan of US$15 million, a Swedish loan of US$5 million equivalent, permanent capital contributed by the government and a large amount (D8.2 millicn) of net cash generated from operations. The Bank would finance 46% of the Project (25% of the Program) including interest during construction, and Sweden would finance 15% of the Project (8% of the Program). The foreign exchange cost of the Project is estimated to be US$1607 million (US$31-3 million for the Frogram). v. The government has establis'hed an autonomous government-o-.neo organization, Societe Nationale d'Exploitation et de Distributi:n des BauŽ.2 (SOIEDE), which will be the Borrower. It is responsible for all water supply activities in the country, which were being carried out by a lcocely organized government department designated as the Regie des Eaux (RDE). Consultants prepared an organizational plan and are installing a new accounting system. Staffing requirements have been studied and th-e senior staff have been appointed. vi. SONEDE has engaged technical consultants to assisit with the ex- ecution of the project and management consultants wo help implement the new organizational plan and accounting systeiL. This work is already under way. vii. The government and SONEDE have agreed during negotiations to take the measures necessary for proper execution of the project and for develoQo- ing a sound water supply operaticn. The project provides a suitable basL. for a Bank loan of US$15 million with a term of 25 years; including 5-1/2 years grace. TUNISIA

APPRAISAL nF THE

TUNISIA 'NATICNAL W!ATER SUPPLY PROJECT

1. INTRODUCTION

lOl In 1966, the Government of Tunisia asked the Bank and the Govern- ment of Sweden, represented by the Swedish International Tbvelopment Association (SIDA), to assist in financing certain water supply works. In November 1966, a Bank/Swedish mission (Messrs, Bowering and Geli from the Bank and Mr. Gustaf3on from SIDA) visited Tunisia to identify worlcs whi-h might be suitable for financing. As a result of this mission,- the Tunisi.3n Government engaged Societe dtEconomie et de Mathlematiques Appliquees (SEIVIA to preDare a plan for reorganizing the Regie des Eaux (RDE), a secticn of the Ministry of Agriculture which is responsible for urban water supply, and to make a study of water rates, Technical consultants, Societe Generale des Techniques Hydro-Agricoles (SC(ETHA), were engagod to develop a program which would provide some basis fcr considering proiorities and financial requirements. This program was reviewed in June 1967 by Mr. Thy.; of the Bank. After discussion with the government, it was substantially reduced, and the consultants were instructed to complete the preliminiary engineering studies for the most needed elements. In the meantime, work on the organization plan and the rate study was continuiingo

1.02 A Bank/Swedish preappraisal mission consiting of Messrs. Jennings Thys and Miller from the Bank and Messrs. Wfillen, Gustafson and Heineman from SIDA visited Tunisia in November-December 1967, to investigate the program, the organizational arrangements and the financing plan. During the mission, further progress was made in refining the prog arn and icent,L- fying the works which were ready for financing. The organizational plan and the rate study were also reviewed in detail and the government started preparing a draft of the law which would establish a government enterpr-.e to take over all potable water supply activities in Tunisia.

1,03 During the appraisal mission of March-April 1968 (Messrs0 Jennings, El-Fishawy and Thys for the Bank, and Mr. Sandberg for SIDA), the final definition of the 1968-73 Program and the Project proposed to be financed by the Bank and Sweden were agreed and a final draft of the law was pre- pared. A number of other arrangements concerning rates, the financing plan, technical and management assistance for the new organization, etc., were-also agreed, subject to approval by the Bank.

1.04 Negotiations took place August 19-30, 1968. During negotiations the Tunisian delegation announced that the law creating the Societe Nationale dtExploitation et de Distribution des Eaux (SONEDE) had been passed on July 2, 1968, that all of the se:nior management positions had been filled and that SONELE was beginning to function,, SON'EDE will have a large degree of financial and administrative autonomy and sound publir, utility policies. Its organizational structure and accounting systems - 2 -

have been prepared by consultants and accepted by the government and the Bank, It will assume responsibility for all potable wiater supply activities of Tunisia, and will execute the 1968-73 Program0 lrO5 This report, which describes the Program, the Project, and the related arrangements in detail, has been prepared by Messrs. Jennings and Thlys within the broad outlines agreed with the Swedishl representative during the appraisal mission0 - 3 -

2. TKE SECTOR

2.01 All potable water supplies have been operated or supervised by RDE, which is a part of the division of "Hydraulique et Equipemernt Rural" (HER) of the Department of Agriculture (see Annex 1). Societe Tunisienns de ltElectricite et du Gaz (STEG) has a contract with RDDE to operate the distribution system of Tunis. All water resources of Tunisia were under the control of RDE.

2002 Water is a scarce commodity in Tunisia. The limited water re- sources available for urban, industrial and agricultural use are further dimninished by the salinization of surface waters as they flow towards the sea. The salt content of most ground water resources makes them unfit for human consumption, and difficult to use for irrigation. Most fresh water sources are found some 100 km inland in the mountains; only limited amounts are found in the coastal areas where the population is concentrated, Theic- fore expensive dams and long transmission lines are required to serve the population centers. This means that potable water will always be relatively expensive in Tunisia.

2,03 Potential sources of fresh water in the North are limited, If large scale irrigaticn projects are implemnented in that area, all known fresh water scurces could be fully utilized by about 1985. To meet in- creasing needs for urban, industrial and agricultural water after that time, it may be necessary to resort to desalination, an extremely oeJpnsivc source of water. Before this point is reached, a plan for optimum develop- ment of all existing and potential sources should be prepared. The govern- ment, with the aid of bilateral technical assistance, has gathered a weal.ti of hydrological data. This data needs to be systematically reviewed and organized to lay the basis for preparation of the development plan. WOin completed, this plan will affect investment decisions in the urban watar supply sector in the 1980s.

2.O4 In 1967, RDE supplied water to 246 centers with a total populatico of 2.17 million (h8% of the population of Tunisia) (see Annex 2)0 The re- maining 2.4 million (52%) live in scattered villages and farms, generally not large enough to warrant establishment of a public water supply and their needs are met by water from wells, irrigation systems. cisterns, or from public taps of the nearest center, The three major systems, which supply 112' centers with a total population of about 1.35 million, are Tunis (35 centers, population 815,000), Sahel (64 centers, population 335,000) and Sfax (13 centers, population 195,000). In Tunis about 75% of the population have water in the house. In Sfax about 50% have house connec- tions, in the Sahel 30%, and in the rest of the country only 25%, according to RDE estimates. Water for the Tunis system ccmes from the Ben Metir dam in the northwest of Tunisia, from several ground water sources, and the Kebir dam south of Tunis. The Sahel is supp'lied by aquifers located west of Kairouan (see Map 1); Sfax is supplied by springs and wells located near Kasserine (Map 2). 2.05 Prior to 1956, the systems supplied only the large urban centers and those with a sizeable European population. Tunis, the capital accounted for more than two-thirds of the ccnsumption. After independence (1956), large investments of about D15 million were made to supply the smaller cities, and in 1961 interest free loans for the installation of private house connections were granted by the government to new customers. As a result, the increase in sales and customers after 1961 was consider- able (see Annex 2), each increasing by 63% over the last five years. The increase in sales was particularly evident in the northern pr'ovinces and in the Sahel.

2,O6 In 19667 RDE, with the assistance of SOGETHA, prepared an outline for technical development of the water supply sector based on the estimatC'.'. water needs of the population in 19820 From this outline, a five-.ye.ar pro-- gram to rehabilitate and expand the existing systems was preparedn It wa2 reviewed by the Bank and subsequently modified to form the present 1968713 National Water Supply Program.

2.07 The Natio-.nal Water Supply Program consists of three e]emc%-ts;

a. A group of high priority works to be cormpleted in the 1968-73 period and which is identified as "The Project";

bo A group of works called "The Second Project" which includes works not yet ready for appraisal, and some small'er projects whooe justification will have to be substantiated later by more factual data0 These works would be started in 1971; and,

co Other minor works, mainly work in progress, renewals, and major repairs which will be execubed and financed entirely by the Borrower over the 1968-73 period.

In general, the Program emphasizes supply works in the early years because of the need to relieve shortages, and emphasizes distribut-'on works in the later years to improve the quality of service in areas alread.y served and to extend service to adjacent areas, The 1968-73 Program will meet the most important needs until about 1982, when new sources of supply will 'or needed for Tunis and the Sahel. It will improve the water supply of more than one third of the people of Tunisia. 3 TI. BO'RRC;ER

3,01 The borrower of the Bank loan will be SONEDE a government owned, autonomous water supply organization having the form of a public utility enterprise. The organization was legally created by a law passed July 2, 1968. The activities which it will take over have been carried out by the management and staff of a section of the Ministry of Agriculture called the Regie des Eaux (RDE)O All RDE employees have been transferred to SONEDE, although there will be a number of changes of responsibilities and functions, mostly at the management level, to conform to the new structure. The senior staff of the RDE, along with representatives of "he Ministries of Finance and Agriculture have been responsible for the arrarg -, ments leading to the creation of SONEDE, and for preparation of the Progran and the Project.

3.02 While SONEDE has little structural resemblace to RDE, the poople are largely the same, and it will take time to charge patter-)s of thikcing developed over many years of operatio-^ as a part of governmsnt0 The RDE's past operations and some of its problems are described briefly belcw, in order to provide a background against which tlhe probable success of the Project and the importarnce of the various changes recoinmended can be measured.

A, Background

3.03 The organization chart of RDE is shown in Annex lo As a relatively obscure section of a governrient department, RDE suffered from lack of good management, inadequate revenues, an.d fragmentation of its activities. For example, the distribution system of Tunis, the largest in the country, is operated by a department of the national electricity organization, (STEG). STEG collects water bills in Tunis but f;equently failed to turn over the cash collected to RDE. (The government has agreed to guarantee that STEG will remit promptly to SONEDE all funds collected in tile future.) Large civil works have frequently been executed by another section of the Ministry of Agriculture called Grands Travaux, which is completely outside the control of RDE. Although the RDE has about 1,850 employees, there has been a short- age of qualified engineers and almost all of the design and planning has been done by two expatriate engineers and by consultants. Planning has suffered from lack of coordination between the two regional subdivisions of RDE, the lack of detailed financial information, poor sales and production statistics, etc.

1/ The borrower of the Swedish credit will be the Government of Tunisia and the proceeds will be relent to SON.EDE. - 6 -

3.o4 Operating details of RDEts most important systems are shown in Annex 2. The Tunis system is by far the most important, with about 45% of total sales, and other important urban systems are found in Sfax, Sousse and Bizerte. Technical operations of the various systems have been reasonably good, but there is room for many operating improvements of the kind which can be quickly made once the restraints of money anId technical skills are eased.

3.05 The financial affairs of RDE, a government department, have been administered by the Treasury. Operating and capital budgets were prepared in a complicated form required by government regulations, and did not yield the kind of information needed for efficient management of a water supply organization. The accounting system was completely inadequate. Useful in- formation about revenues and expenses was difficult to assemble and there was practically no fixed assets accounting. The RDEts financial objective was to achieve a balance between cash revenues and cash expenditures, but this objective was observed more in form than in fact, since various kinds of expenditures related to the operations of RDE were not charged to RDE'S budget, e.g. debt service. Pro forma income statements had to be prepared by the Bank and are shown in Annex 3. The statements show that there has been a rough balance between cash operating revenues and expenses. Depre- ciation has not been covered and debt service was not taken into account. About the only conclusion that can be drawn from these statements is that billings and cash receipts, and expenses, have steadily increased, and that tarif's have boen much too low. The RDE had no balance sheebs.

3.06 The rate structure below was in effect from 1961 until October 1, 1968, and was uniform throughout the country.

Present 1W1ater Chawges

¢/1,ooo Millimes/m3 US Gal.

General Customers 40 28.8 Public Hydrants 8 508 Agricultural 16 11.5 Industrial Negotiated -

This structure produced average revenues for water consumed of about 32 millimes per m3 (US$0.23 per 1,000 US gal.).

3.07 The system of collections used by RDE has been reasonably efficient in some respects and very poor in others. The main problem has been the five to six months lag between the time meters are read and the bills issued. Once the bills were issued, the RDE was fairly effective in collecting from individual consumers. Records show; about 8050 has been collected within six months of issuing the bills and more than 90% has been collected within 12 months. The performance concerning government accounts has been much worse. The collection record .s shown in Annex- It, - 7 -

3.08 The government was aware of the RDE's operating deficiencies, and SOTEDE's structure and policies, which reflect most of the suggestions made by their consultants and the Bank missions, are designed to overcome these def ic ienc ies e

B. SONEDE

3,09 SOMEDE was created by a new law-r passed by the National Assembly on July 2, 1968. A draft of the law was reviewed and found acceptable to the Bank. While it eatablishes "a public entity of an industrial and commercial nature, possessing juridicial status and financial autonomy", it also pro- vides that the government, as sole owner, will have close control over all policy matters. This is in line with legislation covering existing govern ment and semi-government companies. The governnment has in&icated thzat SONEDEts management will be free to deal with all normal operational matters- In fact, the ministers seem to be eager to relieve themselves of these details. In view of the government's attitude and the satisfactory Bank experience with the Port Authority, which has somewhat more restrictive statutes, the assurances given during negotiations, that the government will not unduly interfere with SONEDE's management, should be sufficient to assure reasonable autonomy,

3.10 The law does not specify the structure of SONEDE below the Isvol of the Board of Directors. However, an organizational plan has been pre- pared by SEMA, under a contract with tho government. SEMA worked on the neiw, organization for more than one-year and produced detailed organization charts, an analysis of staffing requirements, job descriptions, detailed manuals of procedures, flow charts, etc. Annex 5 shows the new organization chart. The four key positions are the general manager and the three depart- ment heads. Senior staff of the RDE have been appointed to those positions, except for the financial manager, who was recruited from a similar pcsition: with a large semi-government building supply companyt With the technic.1l and management assistance to be provided, these men are capable of managing SONEDE satisfactorily. Assurances were obtained during negotiations that these four key positions will be held only by fully qualified people and t-hat no changes will be made without prior consultaticn with the Bank.

3.11 SONEDEts basic structure will be in effect from the beginningl/ but the details of the plan will be put into effect gradually over about two years. The new systems will require skills not available in RDE (e0g. accountants), SEE4A estimates that about 20 positions (out of 43) in the first three grades will have to be filled from outside RDE by the time all

1/ One important structural change will be the take over of operations of the Tunis distribution system from STEGO This is expected to take place sometime during 1969. - 8 -

of the systems are in operaticn. In connection with their contract for implementing the organization plan and installing the new accounting systems, SEMA is helping to recruit competent people for these positions. SEMA be-- lieves that there can be a reduction of 300-h00 unskilled employees (eog. drivers, manual workers), This reduction would be accomplished over a period of time by transfer to other government departments, att,ition and upgrading. The Borrower has given assurances during negotiations that the people needed to fill out SONEDEts staff will be recruited promptly.

3.12 The importance of the SEMA work on the accountirg system cannot be over-emphasized, The new system itself is relatively simple, yet it will produce a great deal of useful informationo As the system is installed, ith SEMA people will train SONEDE emp'loyees in its use and they will remain 'e1,0 enough to assure that it is working smoothly. The system is adapted from the French Plan Comptable Genera', a standard accounting system used by commercial and industrial firms in.France, which can be tailored for use by almost any kind of organization. SEMA (and the Bank) belie-es that any disadvantages arising from the use of a sy-stem which is not designed specL- fically for a water supply operaticn will be more than offset by the fact that all accountants available to SONEDE will be thoroughly familiar wzith the basic system and will only need a minimum of retrainirg. Assurarnces were obtained during negotiaticnd that SEi4A will remain as lo;ig as necessa y for proper operation of the system.

3.13 The governmnernt has agreed that SONEDE will have an annual audit ! its accounts by an independent commercial auditor acceptable to the Banks

3 .L4 To ensure that the managament will be able to deal with the liage number of problems arising from simultaneously undertaking a large projec. and establishing a new organization, the government has agreed t iat all necessary technical assistance will be provided, In addition to SEIHA technical consultants will be employed for the Projectt these arrangeioents are discussed in Section 4. The governmenat requested E:lectricite de France to provide, as advisor to the General Manager, a qualified and exper.enced public utility manager under a technical assistance agreement 0 Electrici.>: de France (EDF) agreed, and made available a man who appears to be well qualified particularly on the financial side. His proposed terms of reference and conditions of contract were discussed during negotiations. The final contract has now been signed and he is on the job.

3.15 Financial arrangements for the changeover from RDE to SONEDE were. kept as simple as possible. SONEDE will receive all fixed assets, supplies. mobile equipment, etc,, but will not take over RDE's accounts receivable, SONEDE will be entitled to receive for its own account only revenues from consumption after April 1, 1968. It will continue to collect old bills bl' these funds will go to a special liquidation account io the Treasury. SCi'LDE will take over RDE's accounts payable as of July 2, 1968, in order to re-- establish good relations with local suppliers. These arrangements are dit- cussed more fully in Section 6 and Annex 15. - 9 -

3,16 The Bank believes that the proposed organization and management arrangements are satisfactory in concept, and the governrment has agreed to take the actions required to put them into effect. These agreements aze confirmed in the loan documents, in the form of the various assurances mentioned above and in Section 7. - 10 -

4. THE PRnJECT

A. Description of the Project

4.01 The Project, which represents about 52% of the 1968-73 Program, will reduce shortazes and satisfy growing water' consumption in ll0 ities and villages located in the northern and eastern parts of Tunisia.- It will include Tunis and the densely populated and important touristic areas of the Sahel (Sousse) region and Nabeul-Hammamet. The Project is based on engineering and feasibility studies prepared oy RDE/SONEDE and two French consultants, SOGETHA and SCET-Cooperation. These studies were reviewed, modified and expanded following discussions with the Bank/Swedish missions: The Project (described in detail in Annex 6 and Map 1) is estimated to coo; US$32.8 million, including interest during construction, and is divided in- to four sub-projects.

1. The Tunis project, whose cost is estimated at US$21,4 muilion, provides for construction of a 123 km pipeline from Oued Kassab Dam to the out- skirts of Tunis. These works will almost double the supply capacity of Greater Tunis and 34 other centers served along the pipeline and will satisfy demand until about 1982. The distribution system of Tunis will be extended and reconditioned. Some minor improvements to existing ground water supply facilities will also be included, Com- pletion is scheduled for early 1973;

2. The Sahel project will develop ground water sources, double the existing pipeline supplying the coastal area, construct sections of trunk pipelines feeding 63 cities and municipalities, and rehabilitate and extend distribution systems in Sousse, Kalaa Kebira, and Msaken. Works are designed to meet demand urntil 1978, and will be completed in 1972. Total cost is estimated at US$6.7 million;

3. The Nabeul-Hammamet project i3 designed to meet the immediate needs of a fast developing resort area. It consists of new wells, reservoirs, and an inter- connection between the distribution systems of the two cities, to be completed in 1970 The cost is estimated at US$1.12 million; and,

1/ It will supply more water to about 60% of the population served by SONEDE. - 11 -

4. The supply and installation of metering equipment in all systems to improve efficiency of operations and provide factual data to prepare for future ex- pansion. The cost is estimated at US$0.52 million.

B. The Second Project

4.02 The Second Project will consist of certain works which had boen proposed for the 1968-70 period but were postponed for financial and ad- ministrative reasons. It will also include works which have been identi- fied but not yet thoroughly studied and justified, along with the bulk of extensions, malor repairs and renewals during 1971-73. It is estimated tc cost about US$18. 4 million. Since it will have a large foreign exchange component, it has been assumed that the works would be financed in part by a foreign exchange loan equivalent to 55% of the total cost.

C. Other Works

4.03 Works programmed for 1968-73 but not included in etW'or cro-ect are estimated at D2.02 million in 1968-1 D2.8 million in 19659-70, and LV,'9 million in 1971-73. These works outside the Project consist of:

1. Tunis: Completion, by the end of 1969, of the Gdir el Goulla treatment plant (partly financed by US.-AID), which will treat water conveyed by the Oued-Kas3eb - Tunis pipeline;

2, Sahel: A 15.5 km section of the Sahel pipeline under construction will provide 40 l/s additional capacity to reduce the summer shortages until the Sahel project is completed; and,

3. Extensions and urgent renewals of several small systems to relieve existing shortages.

4.04 Since completion of works under 4.03 (1) and (2) is necessary to functioning of pipelines to be constructed under the Project, assurances have been given that these facilities will be completed prior to the end of 1970c

D. Cost of Project

4.05 The total cost of the Projegt is.estimated at about D17J1 millior (US$32.8 million), including interest during construction on the proposed Bank and Swedish loans. The remainder of the Program, including the Second Project and all other capital investments during the period is estimated to cost D14.7 million (US$28.2 million). However, except for the Bank/Swedisa

lT Dl.3 million after creation of SCN7DE. - 12 -

project, the works in the Program are not precisely defined, and the cost estimate will no doubt be changed from time to time during the period. It is not likely that the estimate would be raised, but it could be lowered (or the Program could be stretched out) as SONEDE ts investment planning is refined,

4.o6 Cost estimates for the Project, summarized below, are given in detail in Annex 7, along with estimated yearly expenditures during the con-- struction period and the assumptions used for foreign exchange cost eval-- uation.

--- Million Dinars------Millon US$ Local Foreign Total Local Foreign Tot.1 Costs Exchainge Costs Costs Eschange Covis

Supply of Equipment 0027 0062 0o89 o.51 1,19 1,70 Supply -of Pipes 4,28 2c62 6e9o 8 23 5aO3 13956 Installation of Pipes lq89 lr69 3.58 3>63 3.24 5a'? Other Civil Engineering Works o.59 o056 1015 lc13 1.08 2,21 Engineering & Supervision O015 0.61 0.76 0,29 1J7 1 J". Sub-Total 7.18 6.10 13.28 13751 11,71 2 ;5

Contingencies 0.48 O(hO 0088 092 Ol78 1]e70 Price Escalation 0.73 0o62 1.35 14o 1.19 2 5) Interest during Const-ruction - 1.,E6 1X56 2?992 2Y99

Total 8o39 8.68 17o07 1.60]i 1.67667 3

4-,07 Construction costs are derived fromr estimates made l:y SOGETHA a d RDE on the basis of advanced preliminary design, and actual costs for simi>. work performed in Tunisia during the last two years. Prestressed conciret pipes costs are based on current prices of the local pipe factoryO The es-i mate includes 4% per annum for price escalat iDn and physical conti:igencies of about 15% on civil engineering works and 2% on supplies. Tnh project sbo!ulA he completed in five years. The construction schedule, which is realistic. is shown in Annaex 8.

E. DEs ign and Supervision

4.08 SONEDE will need enginieering assistance in the execution of the Project. SOGETHA, which did most of the prelimirary engineering will prcepare detailed engineering, tender documents, analyze bids, exercise general su;er- vision of construction, including schedules and cartify all expenditure.s The terms of the SOCETHA-SONEDE contracts are satisfactorya The engineer.--g works will be done primarily by engineers from SOGETHA s Tunis office anr :e general supervision works will be done by a team from the home office in Grenoble. - 13 -

4.09 Detailed supervision of construction will be done by SOTEDEts engineering department, strengthened by additional engineers and by experi- enced pipelaying supervision teams from Grands Travaux. A satisfactory agrea- ment has beeni signed between SONEDE and Grands Travaux describing the methods and conditions for this assistance.

4.10 These arrangements should provide for adequate maii?gament of the project while ensuring that Tunisian engineers play an active role and benefit. from the consultants1 experience. The loan documents contain assurances that SONEDE will employ adequate engineering services for all phases of tho con- struction program.

Fo Procurement and Disbursement

4.11 Procurement of more than 99% (based on value) of goods and servic&c covered by the Project would be through international comspetitive bidding TIre local pipe manufacturing industry is we'll established and should be able t.:- compete for certain kinds of pipe. The prestressed concrete pipe indu3try i: particularly competitive. Large contracting firms established in Tunisia are mostly subsidiaries of foreign construction companies. Purely local firms a,e. not excpected to be competitive for large contracts, but may compete for some of the smaller distributic:a works.

4.12 The margin of Fvoference for local manufacturers will be lmite3 to the amount of the applicable import duty, or 15%, whichever is the low.,er0 Tunisian custom duties for most of the goods to be imporcted for the project vary from 5.5% to 11%. However, for concrete pipes the duty is 30%.0 h4J3 Procurement procedures to be followed by SONEDE h2vs been es tab- lished by a decree. The provisions of the decree will not inter2fere with p10- curement procedures normally required for Bank projects.

4.14 Licenses are reouired for import of all goods into Tunisia. Doe to lack of foreign exchange, long delays are common, The government has - assurances that imported goods for use in the project will be granted licer!;es without delay. The guarantee agreement states that '.he government will, at, the request of SONEDE, issue promptly all import licenses required for the Project, including licenses for local suppliers if certified by SONEDE.

4.15. Land expropriation procedures can be lengthy when normnal procedurv- are followed. The government can decree accelerated procczdures which re&dcc delays required to occupy the land. Assurances that these procedures will ba used if requested by SONEDE are obtained in the Guarantee Agreement.

4.16 It is recommended that disbursement of the Bank and Swedish loans be on the basis of:

a. The actual foreign excharige cost of imported goods and of consultants services; - 14 -

b. Forty-eight percent of civil works contracts, and goods fabricated locally and procured after inter- national bidding; and,

c. Fifty-six percent of goods procured locally but fabricated abroad.

(The amounts under (c), if any, will be very small; (See Article 2.03 and schedule 1 of the Loan Agreement.) All disbursement requests will come to the Bank,and the Bank having approved the request, the amounts to be dis- bursed will be divided betweQn the Bank and Sweden on a three to one basis. This procedure will also apply to charges for interest and fees during the grace pericd, even though the two loans have different interest rates. If any surplus funds are available after completion of the project, and if SOMEDE so requests, it is recommended that consideration be given to finan- cing additional pipes and related fittings for the distribution systems, subject to an evaluation of the situation existing at that time byr a supe;- vision mission, - 15 -

5. JUSTIFICATION

5.01 The proposed Project is the most urgent part of the 1968-73 nationa water supply Program. It will relieve shortages and meet growing water needs of important economic areas. Improved financial policies (particularly rates" new management techniques, and better sector planning associated with the Project will help to ensure efficient use of scarce resources in the future. After 1972, capital contributions to this sector, which have been a burden on the national budget in the past, should no longer be needed.

5.02 The population of Tunisia grew from 3.94 million in 1956 to 4.46 million in 1966. In the same period, the number of people living in areas supplied by RDE (this includes almost all population centers) increased from 1.35 to 2.09 million despite an emigration of some 250,000 inhabitants. Future population growth is estimated at 2 to 2.5% per year. The population served by SONEDE is expected to increase at a rate of b% per annum (see Annex 11).

5.03 Water demand during summer already exceeds the reliable capacity of present sources. RDE had to restrict water use in residential and commercial areas to provide sufficient amounts to the tourist areas. Additional supply, transmission and distribution facilities are now required. The additional capacity created by the proposed program (1968-73) would meet needs until about 1982. 5.oh Annexes 12 and 13 show projected sales. The average increase from 1966 to 1977 is 5.5% per annum. This seems conservative in view of the re- corded increases of the last five years (10.2% per annum) and in light of the widespread shortages of the past few years. It has been assumed that an increase in rates to about double the present level would have no significant effect on consumption because most of consumption is by customers for whom water costs represent only a small part of their total expenditures.

5.05 The Project will benefit areas which are producing most of the in- crease in economic activity in Tunisia. Tunis, the main population, business and commercial center, has about 50% of all of Tunisia's industrial production and 25% of its tourist trade. The Sahel and Nabeul-Hammamet are being spurred by the tourism boom. Most of Tunisia's textile industry is also in the Sahel. Tunis and Sahel can provide a large skilled labor force (population 1 million and 0.5 million, respectively) in a 50 km radius, easy access to imported raw materisl (ports of La Goulette, Tunis, Sousse), an important infrastructure (power production, roads and airports of Tunis and Monastir), all banking and business services and the tourist resorts. These areas naturally attract a large portion of the capital investments made in Tunisia. 5.06 Tourism, the fastest growing industry in Tunisia (see Annex 9), accounted for 17% of all exports of goods and services in 1967 as opposed to 1% in 1960, according to the latest economic report. Tunis, the Sahel and Nabeul-Hammamet have accounted for 75% of foreign exchange earnings due to tourism. An adequate supply of water is vital to the operation of tourist - 16 -

facilities. All three areas have expereinced water shortages at the height of the tourist season in recent years. If shortages are allowed to cohtinue and become worse, the Tunisian industry's reputation for quality may be damaged.

5.07 The various elements of the Project have been selected after a care- ful technical and economical evalution of alternatives. The mission reviewed several studies prepared by RDE and its consultants, as well as results of ground water studies prepared by FAO, US-AID and HER. These studies show:

a. That no ground water sources can economically supply Tunis and that the Oued Kasseb system is the only source available to satisfy demand during the next decade;

b. That the Sahel and Nabeul-Hammamet ground water sources are the only fresh-water sources available in these regions;

c. That these works should be started as soon as possible to avoid major year-round restrictions in 1972; and,

d. That the pipeline diameters selected are the most economical, using discount rates of 8 to 20%.

5.08 The internal rate of return of the national Program (1968-73) is 11%, calculated by taking into account only additional revenues resulting from water sales and service charges. Other benefits, such as the pre- vention of economic losses due to fire, the contribution of water supply to development of tourism and of industry, should be particularly significant in Tunisia since no other economic sources of water are available in the urban areas.

5.09 Wfater borne enteric diseases are responsible for high morbidity rates in developing countries. An analysis of the Tunis health statistics indicates that the incidence of enteric diseases is four time higher among persons living in poor environmental conditions than those who do not. Trachoma and other eye infections are also widespread in Tunisia and their transmission can also be controlled by good personal hygiene for which water supply is basic. Improvements of sanitation in the outlying areas, through provision of safe and adequate water is considered by the World Health Organization as fundamental to the development of a sound public health program. - 17 -

6. FINANCING PLAN AND FINANCIAL OUTLCOK

A. Financing Plan

6.o0 Capital requirements for the Program are discussed in paras. 4.05 to 4f.07. These requirements will be met by a combination of the Bank and Swedish loans, capital contributions by the Government of Tunisia, by a foreign exchange loan for the Second Project, and by internal cash generatic:n. The requirements and sources of funds during the construction period are shown in Annex 17 and summarized below:

Financing Plan

1968- - 1973

Thousand Diniars Capital Requirements

IBRD/Swedish Project 17,072 49 Other Capital Investment 14,758 42 Net Working Capital other than Cash 23410 7 Increase in Cash 657 2

Total Requirements 34,897 ilCO

Capital Sources

IBRD Loan 7,813 23 Swedish Loan 2,784 2/ 8 US-AID Loan 350 1 Second Project Loan 5.280 15

Total Borrowing 16,227 47

Government Capital tontribution 10,500 30 Internal Cash Generation 11,25 Less: Debt Service 3o8 8,170 23

Total Sources 34,897 100

1/ Frcm July 2. 2/ A loan of D180,000 for works outside the Bank/Swedish Project is iln- cluded in this amount. - 18 -

6.02 While the capital requirements for the Project are believed to be realiable estimates, the amount provided for other capital investment is con- siderabley less certain. The Second Project from 1971 to 1973 accounts for the bulk (D9.6 million) of this amount. It will be planned in detail between now and 1971 using improved operating data generated by SONEDE. It is not likely to be larger than estimated, but could be smaller and/or could be spread over a longer period. Since it is important that the Bank have an opportunity to comment on SONEDE's future investment program, agreement was reached during negotiations that, until 1980, the Borrower will not make in- vestments decisions involving commitments of more than D250,000 for a single investment and more than Dl million in aniy year without prior consultation with the Bank.

6.03 An amount has been provided for transfer to government for the service of outstanding debt related to water supply facilities to be used by SONEDE. Details of these debts, which are mostly bilateral foreign aid loans, are shown in Annex 14. The provision for working capital is unusually large because of the need to replenish inventories of supplies and materials; be- cause of a reduction in accounts payable of RDE, which will be assumed by SONEDE; and because of a large increase in accounts receivable in the early years of the project.

6.04 The government has agreed to provide whatever funds are needed to finish the Project; and has agreed to provide the necessary funds to carry out the Program as now defined. The actual amount of the government capital contribution will be affected by the size and financing plan of the Second Project, which is not yet precisely defined; by variations in the cost of the Bank/Swedish project; by variations in the amount of internal cash generation, etc. It has been agreed that the government will make the funds available to SONEDE quarterly, the amount in each quarter to be based on a statement by SONEDE setting out its net cash needs for the following quarter, after taking account of all sources and requirements for that period.

6.05 The proposed US$15 million Bank loan and US$5 million Swedish loan would cover 61% of the total cost of the Project and 30% of the cost of the Program. The estimated foreign cost of US$16.6 million for the Project would be covered by the combined loans; the foreign cost of the Program outside the Project would be covered partly by the assumed foreign exchange loan for the Second Project, and partly by the government's own resources. Neither the Bank nor Sweden are committed to a loan for the Second Project, although it is expected, in the normal course of events, that the government will consider them as potential lenders. The terms of the Bank loan have been assumed to be 25 years including 5-1/2 years grace, an interest rate of 6-1/2% and a committ- ment charge of 3/4%. Sweden has offered the terms used by IDA. The Swedish loan will be made to the government and relent to SONEDE on the same terms, in accordance with an agreement between the government and SONEDE.

6.06 The US-AID loan is the undisbursed portion of loans to the government totalling about US$2 million which were made for certain improvements to the Tunis and Sfax distribution systems and for the Gdir el Goulla reservoir and treatment plant. - 19 -

0.7 r.ternal cash generat2on depends on the validity of a large numbor of assumptions listed in Annexes 13 and 15. The government agreed to an initial rate increase from a average of about 32 millimes per m3 to an average of 60 millimes per m . The increase has been in effect from October 1, 1968.

6.CU SOMED2 has adopted the following rate schedule in ordor to achieve an average rate of 60 millimes/m 3 .

Millimes/m3 /1,000 US Gal.

Domestic and Commercial 63 49 Public 30 22 Agricultural 34 24 Large Industry 45 32

The new rates amount to a 70/S0 increase for the domest'Lc cate.-nr. 2rd large: percentage increases in the others (See para. 3.06). SONEDE Sand t.-.e governv- ment) has agreed to maintain an average rate of 60 millimes/m through 1970. If necessary, the above schedule will be adjusted to produce that average. The rate covenant commits SONEDE to produce a rate of return on net fixed assets of not less than 5% through 1973 and not less than 6/O thereafter), t* has been assumed that small rate increases in 1971 and 1974 will be necessary in order to meet the terms of the rate covenant.

6.09 Improved management practices associated with the project are ex- pected to produce much better statistical and financial data on which more rational rate policies may be based. Rates have traditionally been uniforrrm throughout the country, and this policy will be continued, at least for the present. In many cases such a policy would produce inequitites because cos;s are normally higher in small centers than in large cities where there are economics of scale. Ibwever, this is not necessarily true in Tunisia where the large population centers are far from the sources of fresh water and require expensive gathering and transmission facilities. The data necessary to make a useful analysis of this question are not available at present, but will be produced by SONEDEts new accounting system when it is in full operation. If large differences in costs are revealed at that time, it is expected that SONEDE will wish to adjust the rate structure to reflect these differences. However, these adjustments are likely to be modified to some extent by political considerations.

B. Financial Outlook

6.10 Projected income statements, cash flows, aid balance sheets, for SONEDE are shown in Annexes 16, 17 and 18 respectively. The assumptions underlying these projections are listed in Annexes 13 and 15. - 20 -

6.11 SONEDE's financial outlook, with the assumed rate increases and operating expenses, is good. It will be able to finance internally a portion of the 1968-73 Program, and at the end of this period will be pro- ducing about D2.5 million per year in net cash generation available for further investments. At this time, about 35% of revenues would be available for investments, and SONEDE should be able to finance internally about two- thirds of investment requirements after 1973. Borrowing would be needed only for an occasional large project. A low debt equity ratio and debt service coverage approaching three times, indicate a solid financial foundation for any borrowing that would be necessary.

6.12 Expressed in terms of the financial rate of return as normally used by the Bank, SONEDE's expected financial performance is adequate. The rate of return hovers around 5% during the construction period and around 6% in the three years following the construction period. However, it will improve steadily, without any further rate increases, as the facilities approach capacity operation in the early 1980s. The return at that time should be around 8%. It should be noted that the rate base reflects the estimated current value of fixed assets based on a study made by SEMA as of the end of 1966. If the value of these assets were taken as original cost less depre- ciation, the financial rate of return would be considerably higher. The expected financial return correspondsto an internal (discounted cash flow) rate of return of about 11% on the investment in the 1968-73 Program. - 21 -

7. CONCLUSIONS

7.01 The proposed Project is a vital part of a sector program needed to sustain and increase economic activity in the most populous and economically important areas of Tunisia. The tourist industry, in particular, depends on the adequate supply of water which the Project will provide. The Project has been well prepared and no unusual technical problems are anticipated. The proposed organization is satisfactory; management, with the assistance to be provided, is capable of carrying out the Project and the reforms needed to produce a sound water supply operation. The financing plan is adequate and the government is committed to sound financial policies in the future. The government was aware of the management, structural and financial problems of the RDE and is in full agreement with the steps necessary to correct them. Cooperation by both the government and SONEDE staff in preparing the Project has been excellent.

7.02 All of the measures necessary to properly execute the Project and to achieve a sound water supply operation have been agreed during negotiations. The most important of these are:

a. Establishment of an autonomous organization which is responsible for all potable water supply activities in Tunisia;

b. New management techniques and a new accounting system designed and installed by consultants;

c. Strengthening of the permanent technical staff and provision of the necessary engineering assistance for executing the Project; and,

d. A substantial rate increase.

7.03 The Project provides a suitable basis for a Bank loan of US$15 mil- lion, with a term of 25 years, including five and one half year grace.

October 28, 1968 REGIE DES FAUX ANNEX 1 Organtzation Chart (1967)

Sous-Secretaire d'Etat a l'Agriculture

Sous-aXrection de 1'Hydraulique et de l'Equipment Rural (HER)

epartments or:- Reele ax (Regis dea Eaux) Hydrology

Ehgieergneran ' o

Irrigation _cne n (Administration) (Operations) (Administration) (Operations) Major W'orks,

Ftc. I TunisstSupply B

Execution &, Superviaion of Now Wr

North sub- Reg on

UPersonnel,* _Accounting F.tc. I

* These functions apply, to some extent, also to the Center and South Region.

Oct'ober 28, 1968 ANNEX 2

TUNISIA NWTIONAL WATER SUPPLY PROJECT

Operations of Ftgie des Eaux

---- Tunis (Major System)--- Sahel Tunis & 34 other (Sousse Other Total Suburbs Localities Total Province) Sfax Systems Tunisia

I. Supply Systems (1967)

Type of resource 20% groundwater, 80% surface w. ------groundwater------Number of centers supplied 1 34 35 64 13 104 246 Population served (in 1000) 720 95 815 335 195 830 2,175 Distance from eources in kma. - - 100-132 76 165 n.a. n.a. c,f,cl c,f,cl c,f,cl cl cl cl - Type of treatment Y/ 3 Production capacity (in million m /year) 42.0 5.5 47.5 Y 11.0 6.3 n.a. n.a. Production " " , 36.4 5.1 41.5 lo.6 6.3 24.7 2/ 83.1 Metered sales " " 27.4 3.7 31.1 7.4 5.0 16.6 60.1 Non-revenue water n n " 9.0 1.4 10.4 3.2 1.3 3.6 23.0 % of non-revenue water 3 24% 27% 25% 30% 20% 32% 28% Peak production capacity in m /day 170,000 30,000 17,000 n.a. n.a. 1967 peak production in m'/day 170,000 30,000 17,000 50,000 267,000

II. Past Record of Sales Number of ----- Metered Sales in Million m3 per year ------C_tomers-_- Pending Requests 1962 1963 1964 1965 1966 1967 1962 1967 for New Connections Provinces

Tunis 20.60 19.50 22.70 22.60 26.05 28.11 28,665 39,274 3,024 Bizerte 2.10 2.45 3.57 4.76 6.95 6.63 6,131 8,375 705 Nabeul 1.01 1.43 1.73 1.67 2.05 2.44 2,154 6,196 1,311 Beja 1.17 1.19 1.54 1.61 1.98 2.07 2,104 3,355 590 Le Kef 0.24 0.26 0.61 0.78 0.79 1.05 554 2,439 1,Q37 Jendouba 0.01 0.01 0.10 0.37 0.68 0.92 1029 1,8330

Sub-Total North Region 25.13 24.84 30.25 31.79 38.50 41.22 40,637 61,472 6,997

Sfax 3.95 4.10 .4.89 5.30 5.47 5.00 4,889 9,778 4,738 Katrouan 1.71 1.90 2.24 2.37 2.46 2.60 1,270 3,494 430 Oafsa 0.96 1.08 1.09 1.33 1.14 1.15 2,281 3,688 1,113 Gabes 1.21 1.37 1.53 1.47 1.21 1.25 2,675 4,025 202 Medenine 0.42 0.55 0.63 0.67 0.58 0.80 828 1,845 1,205 Kasserine 0.44 0.89 0.94 0.78 0.66 0.70 268 694 384

Sub-Total South Region -8.69 9.89 11.32 11.92 11.52 11.50 12,211 23,524 8,072

Sahel (Sousse) 3.18 3.59 3.33 5.og 6.73 7.41 6,020 10,867 1,747

Total Tunisia 38.32 148.80 .7 60.13

V/ The production capacity of Tunic (major s"itea) is am follows 3 a. Ben Metir damn safe yield -.38 million m /year Fernana treatment plant lossest 2 million P/year 3 Net production Fernanal 36 million m /year

b. Supplies South of Tunis 3 springs and Kebtr Dam 13.5 millon m 4eer Yield of wells, 3 Losses on aqueducts and pipelines 2.0 million n hyear Net production southern supplies 11.5 million m3 4ear

3 c. Net production available for distribution - 4 7j. million m/year

2/ Estlmated c * coagulation f - filtration cl - hypochlorination

October 28, 1968 AEX 3

TUNIS IA NATIONA;L TYATER STUPTPLY PROJECT

REGIE DES EAUX

Comparative Income and Expense Statements CTIn DirnarsT) 1964 1965 1966

Water Sales (million m3) 4L4.9 48.8 56.7

Revenue

Total Billing - 1,638,079 1,770,958 2,072,772

Cash Receipts 1,216,571 15 56,o55 1,7-55733

EjCanses (Cash)

Personnel 501,601 529,877 572,696 Power ) Chemicals ) 589,514 507)985 6064182 Yaintenance )

Remuneration of STEG 200,077 206,262 242sL27

General Expense l >296 1j9L26 - 4,16-i

Total Operating Expenses 1,2 288 1e2 6 05O ].,h251 66

Cperating Income (Before Depreciation) (75,917) 310,905 330,267

2/ Includes charges incurred during the period, much of which may not have been billed until a later period.

2J Of the D 2,072,772 billings, D 266,424 or 13% ori-gnated from charges other than for water consumed.

October 28, 1968 TUNISIA NATIONAL WATER SUPPLY PROJECT ANNEX 4

REGIE DES EAUX Collection Record

Period Btlls sent out Feb.'66 Mar.'66 June'66 oct.t66 Jan.167 May '67 Aug.'67 2nd 3rd 4th lst 2nd 3rd 4th Period Charges incurred Quarter Quarter Quarter Quarter Quarter Quarter Quarter V 1965 1965 1965 1966 1966 1966 1966 Total

North Reg3,on Indtvidualst Billing 44,870 52,208 45,569 43,960 48,716 58,854 50,214 343,391

Recovery K/ 39,637 46,750 40,373 38,751 43,298 47,859 27,833 246,501 % 88% 90% 90% 8,% 90% 80% 55% 72%

Government Billings 33,459 34,120 31,911 28,189 36,140 45,081 42,608 251,508

RecoveryV! 19,712 20,833 17,153 15,920 19,663 20,108 11,970 125,339

% 59% 60% 54% 56% 54% 45% 28% 50%

S fax

Individuals: Billings 26,325 32,978 28,710 45,996 38,432 35,976 25,752 234,169

Recoveryz/ 24,737 31,361 27,388 44,996 35,460 29,711 17,217 210,870

% 93% 95% 95% 98% 92% 83% 67% 9Di

Government Billings 6,291 6,950 6,389 9,905 8,408 9,157 9,575 56,675

Recovery2/ 3,518 4,719 4,140 5,013 3,047 2,970 2,792 26,199 56% 68% 65% 52% 36% 32% 29% 46%

Central and South Region Individuals: BillingsL3 346,964 Recovery 4 253,621

% 73%

Government Billings 290,282

Recovery i 156,149

% 54%

Tunis

Individuals- Billings 1,166,397 Recovery 1,115,947

95%

North Region - Sfax l/ Note that tne delay between the period that water is oonsumed and the date that bills are sent out varies from 6 to 8 months. 2/ As of September 30, 1967.

Central and South Region 3/ Total of bills sent out between January 1, 1966 and November 30, 1967. 17/ Total recovered from these bills during the same period. Tunis 5/ Total of bills sent out between the third quarter 1966 and the fout-th quarter 1967 for water consumed between the second quarter 1966 and the third quarter 1967. 6/ Total recovered from these bills up to December 16, 1967.

October 28, 1968 TUNISIA NATIDNAL WATER?SUPPLY PROJECT

SONEDE

Board of Directors

General Manager

. urchasin Province: urc asi Province: Cennral Execution & | neeri Inspectors Accountin Purchasin Supervisi orInternal Major Bizerte Major Sfax Major Tunis I Management Maintenance Maintenance Maintenance Audit) &RePair & Re air Sousse & Repair

j w orN k et | B e j a H N et sr o r k | Xa s s e r i n e Ne t w o r k | T u n i s I I l A d mi n i s t r a t i v e _ a C n t a a P e rs on ne l, Ma u e esurement asine e.If Housekeeping, &uait Jendouba Mesrmn asrr esureuent Tunis !I & Quality Quality Etc. Control Control Gafsa Control

r-ouce Nabeul Gabes 7 Or

O ration Xe eration Medenine - Opration Tunis III

pc S ober 23, 1968 ANNEX 6 Page 1

TUNISIA NATIONALr WATER SUPPLY PROJECT

Description of the Project

1. The project will satisfy the growing water consumption in 101 cities and localities in the north and eastern parts of Tunisia. It will include Tunis, the capital, all cities between Beja and Tunis, and densely populated areas of the province of Sousse (Sahel) and the touristic area of Nabeul-Hammamet. The water supply of over 60% of the population served by SONEDE will be improved0 Measuring equipment, to reduce losses in all water supply systems of Tunisia, will also be provided.

2. The project is subdivided in four sub-projects:

a . Tunis

i. A 123 km. pipeline from the Oued Kasseb Dam (under construction) to the Gdir el Goulla Reservoir (out- skirts of town) will be constructed. This pipeline was designed by SOGETHA and has the following characteristics:

1. Section I : From Oued Kasseb to the junction with existing Ben Metir-Tunis line, 1505 km. diameter 1,100 mm;

2. Section II : Follows about the same route as the existing line until Medjez el Bab. Diameter 1,250 mm for 49. h km Diameter 1,600 mm for 3.7 km for passage of mountain passes and tunnels; and

3. Section III : From Medjoz el Bab to Gdir el Goulla 53ol km. diameter 1,100 mm.

4. Sections I and II will be linked to the existing lower section of the Ben Metir pipeline, Section III with the upper section. This will reduce the static pressure on the existing lower section and will hopefully reduce the numerous breakages which occur on this section.

5. Peak flcw capacity l,465 1/sec. Safe yield of dam : 38 million m3 /year ANNEX 6 Page 2

The pipe will be prestressed concrete. Civil works will include: 1) a receiving basin from the hydro plant; 2) an open channel; 3) a siphon under the Cued Kasseb stream; 4) a head water basin at the Cued Kasseb Dam site; 5) 12 surge towers from Kasseb to Gdir el Goulla; 6) bridges over the Medjerda River (74 m); and, 7) the Cued Chefrou (13 m), In Section III, there will be downstream control equip- ment, some of it patented products. All high and low points will be equipped with air vents and drain valves.

ii. Improvements to the sources of supply south of Tunis

1. Replacement of three sections (5,ooo m) of heavily corroded pipe on the "S550 south" main;

2. Construction of five new tube wells (3 in Kebir Valley, 1 in Khledia, and 1 in Djouggar);

3. Supply and installation of pumping units; arid,

4. Construction of small well pumping stations. iiit Transmission pipelines inside Greater Tunis: The con- struction of the mlain feed3r line froti Gdir el Gouila reservoir to Rastabia Reservoir.

Length 8.5 km Diameter 1,000 mm Material Prestressed Concrete

iv. Tunis Distribution System

1. Feeder mains of prestressed concrete pipes:

Diameter Length in mm111T (iE_nkim)

coo 0.3 600 1.25 500 3.h 450 1.65 4oo 5.25 350 1.0 ATMNEX 6 Page 3

2. Improvements, renewals, and extensions to the Greater Tunis distribution network. These works will consist in the supply and installation of asbestos cement and cast iron pipe. The works represent half of the program for the rehabili- tation and expansion plan of the system. The re- maining works will be completed in 1971-73.

b. Sahel

i. The Sahel region extends 100 km, along the coastal region of the Sousse province from Hergla (north of Sousse) to Mahdia (see Maps), It receives water from the 60 km. Sahel pipeline which conveys water from the existing ground water aquifers of Haffouz-Cherichea.9 to the west of Kairouan. At its terminal point at El Onk, this main is subdivided into trunrk pipelines known as: 1) "Sahel North", ahich supp1'.e- Sousse, Msaken and Kalaa Kebira; 2) "Sahel Central"', which supplies Monastir and El Djem; and, 3) "Sahel. South", serving Mahdia. The project designed to satLsfy the wator requirements until 1978 include6

1. The construction of a 39.7 km0 trar.smi.ssion line made of prestressad concrete pipe (300 mm) and constituting pha,se ~Ibll of the doubli..g of the existing line 1/;

20 Davelopment of additional ground water sources in the Cherichera area to increasa capacity to 695 1/sec., including the installation of the caning for 7 tube wells, 7 pumping statl.o:ns, installation of 10 km. of 800 mm pipe.ir.ne and of 10.1 kvn. of smaller diameter feeder lines; and,

3, Doubling of certain sections of trunk pipe- lines of Sahel North. Work will include t!.e following:

V/ A section known as phase "c" will be constructed beginning 1968, by RDE outside the project. Phase "a" will be implemented about 1975. ANNEX 6 Page 4

Diameter Length (mm) (km-

Sahel North

El Cnk - Cued Laya 800 7.5 Oued Laya - Sousse 600 2.1 Oued Laya - Sousse 500 2.6 Oued Laya - Akouda 400 6.o Oued Laya - Matmeur 200/250 5.9 Matmeur - Sidi Ameur 150 1.8 Matmeur - Skanes 300 5.3 Akouda - Hergla 150/250 13.4 Other smaller lines 200/250 10.1

Storage facilities at El Onk, Cued Laya, Matmeur and 'Iles 2 soeurs" and adequate main meters will also be provided.

4, Distribution systems of Sousse (population 56,000), Msaken (population 28,000), and Kalaa Kebira (population 17,000) will be rehabilitated and ex- panded. The works will include:

i. Lengths of distribution pipes (preliminary engineering estimate)

Prestressed Concrete ------Asbestos Cement---…

Dia. in mm 600 400 300 250 200 150 125 100 80

… - …-… Meters------…

Sousse 330 682 1,250 3,923 4,794 8,317 52925 17,843 21,815 Msaken - - 1,211 125 2,554 3,522 - 6,173 13,760 Kalaa Kebira - - 664 - 1,474 2,753 - 1,718 9,057 Total 330 682 3,125 4,048 8,822 14592 5,925 25 734 414032 =_ - _ j- 4 - -- -2-_ ...

ii. Ancillary valves and equipment; and,

iii. Civil engineering works a3d supply of equipment for one 1,500 m and one 80 m) reservoir in Kalaa Kebira , two houses for SONEDE personnel in Msaken and Kalaa Kebira, modification of main reservoir control room in Sousse. ANNEX o Page 5

c. Nabeul-Hammamet Water Supply

i. The cities of Nabeul and Hammamet, 50 km. south- east of Tunis, are the second most important resort areas of Tunis (after Sousse-Monastir). The project will provide a short-term solution, satisfying the de- mand for the next five years. It will consist of:

1. Drilling of additional tube wells in the aquifers presently used to supply Hammamet and Nabeul; 2. Two pumping stations;

30 Construction of storage reservoirs; and, 4. Interconnection of the distribution network of the two cities,,

d. Water Supplies of Tunisia

io Metering equipment will be provided to measure flows at key points in all systems. This will help SCNEDE to reduce losses and will also provide the factual basis for planning for future expansion. The supplies will iicludez 1. 370 large main meters; 2. 50 reservoir level recorders;

3. 150 distribution system pressure recorders; 4. 15 leak detectors 5. 175 tube wells water level indication; 6. 50 stream or channel level recorders; and,

7. 370 height gauges

October 28, 1968 TUNISIA NATIONAL WATER SUPPLY PROJECT

Projected Cost Estimates (In Dl,OOO)

.ivil Engineering --Supply of Pipes and Specials------Works------Supply of , Prestress3 Asbestos Installation Other Engineering Total Total EauiPment r te Ce met Zast Iron of Pipes Works & Supervision Sub-Total Contingencies Escalation Works Project

Tunis Water Supply 372 1/ 800 8,885 Oued Kasseb Tunis Pipeline 172 4,485 - - 2,121 520 415 7,713 405 60 40 505 Gdir el Goulla - Rastabia Main - 305 - _ 65 - 35 127 23 15 165 550 South Mains 15 55 - - 50 - 7 Ground water resources (Khledia, 20 265 Kebir, Djouggar) 60 - _ _- _O 15 215 30 485 875 9,820 Sub-Total 247 4,845 - _ 2,236 660 / 472 8,460

Distribution System: 1/ 35 385 Large Kains - 255 - - 52- - 28 335 15 80 965 Otber Dipes 83 - 190 202 235 2/ 33 2/ 67 810 75 1,350 Total Distribution 83 255 190 202 287 33 95 1,145 90 115 Total Tunis 330 5.100 190 202 2,523 693 567 9,605 575 990 11,170 11,170

Sahel Water Supply

Sahel Pipeline 56 673 - 401 45 70 1,245 80 130 1,455 535 New Ground Water Resources 59 183 15 - 143 25 25 450 35 50 North Sahel Feeder Mains 78 196 88 - 197 164 42 765 75 80 920 260 2,910 Sub-Total 193 1,052 103 - 741 - 234 - 137 2,460 190

Distribution System 30 340 Sousse 18 9 56 - 168 5 15 271 39 12 141 Msaken 18 - 27 - 54 8 7 114 15 11 8 101 Kalaa Kebira 5 - 13 - 3L 25 5 82 582 Sub-Total 41 9 96 - 256 ~ 382/ 27 467 65 50 3,1492 Total Sahel 234 1,061 199 - 997 272 164 2,927 255 310 3,492

50 583 583 Nabeul Hamsamaet Supply 51 - 127 20 67 l/ 186 1/ 30 481 52

- 270 270 Tunisia Metering Equipment 270 ------270 - - - - 1,557 Interest during Construction ------17,072 Total 885 6,161 516 222 3,587 1,15) 761 13,283 882 1,350 15,515

46% 46% 51% Foreign Erchange Cost in % 70% 34% 70% 70% (50% 1/ (50% 1/ 80% 46% 46% or (30% 2/ or(30% 1/ Foreign Exchange Cost 620 2,095 361 156 1,695 561 609 6,097 405 620 7,122 8,679 8,393 8,393 Local Cost 265 4,066 155 66 1.892 590 152 7,186 477 730 1,693 2,592 29,788 32,778 Total Cost in US$1,000 1,699 11,829 991 426 6,887 2,210 1,1461 25,503 1,190 13,674 16,664 Foreign Exchange Costs in US$1,000 1,190 4,022 693 300 3,254 1,077 1,169 11,706 778 1,1402 16,114 16,114 Lo cal Costs in US$1,000 509 7,807 298 126 3,633 1,133 292 13,797 915

I/ A foreign supplier or contractor is expected to be low bidder 2/ A local supplier or contractor is expected to be low bidder 3/ _ostWs based on price of local pipe factory E/ Includes valves, pumps, motors, transformers, meters, etc. Special items not subject to international bidding are estimated at D108,000. They include electrical equipment and some specific hydraulic control equipment

October 23. l '58 ANNEX 7 Page 2

Schedule of Expenditures (In 1illion Dinars)

1968 1969 1970 1971 1972 1973

Bank/Swedish project: Works 213 3,050 5,570 4,252 2,320 110 Interest during Construction - 86 185 329 443 514

Sub-Total 213 3,136 5,755 4,581 2,763 624

Rest of 1968-1973 Program 2,018 1,6oo 1,200 3,500 3,500 -_.22co

Total Program 2,231 ,736 955 82081 63 h 124

Foreign Exchange Component of Project le The foreign exchange of the project has been computed from:

a. An analysis carried out by SOGETHA on the com- position of costs for water supply projects in Tunisia; and,

b. Assumption made by the mission on whether con- tracts would be awarded to foreign or local suppliers or contractors.

The foreign exchange component of contracts awarded to foreign suppliers was calculated on the base of the c.i.f price. For supplies produced locally (prestressed concrete pipes) the estimated foreign exchange element of the net cost of production was assessed.

2. For civil engineering contracts:

a. Imported materials were assessed at 10%5 of im- ported cost, net of duty;

b. Materials produced domestically and for which the country is a net importer were taken at 100% of the net cost of production; and,

c. For materials produced locally, for which the country is not a net importer the estimated foreign exchange element of the net cost of pro- duction was taken.

October 28, 1968 TUNISIA: NATIONAL WATER SUPPLY PROJECT CONSTRUCTION SCHEDULE 1968 1969 AREA ITEM DESCRIPTION… 1970 1971 1972 1973 m I - 3| | ID _ - I I X I - m - I - m --

1.TUNIS Pip. Contractt Manofactare& Delivery _ - - - Iave Cont-at Vnoillery EqUip-eet Man-fact-rs &Delivery - Pipe Laying &Civil Deeigo a-od C.otot _-t SUpply Works Engin-eriog Work. C o.a.ution _ _ _ Pumping Equip-nt Contract M .. f..actu, Delivery &Erect Welds Contr-t

Dlatribution Sys MCo true t&o_ M.nf-actors &Delivery

l-stribotton Syst- Mac.ctactre &Delivery . - - _ Pipelying Deign &Cootract _ Velvos& in Contracts 2

PipiAg Couipntrtactst.(2) Mfnufactars &Delivery e IC.~ ~ ~ RgnsrnlAPEl, Conetroctico V M.ie Cootracte (2) F -uiManufntra& Drlivery I … I Pipe Laying &Cull Deeigo &C t ontront - _ _ Foigimering W-rk. CDrtsit &-

upply Works Pmp ing Stations, Dseig. &Contr-ct

Pumping rqoipseot Cootrant M|PnuFactor, Dli-very & Erect - - | cotrco ofClvilDEqipsit Cotr IMenuCantor,& Deivery &Erect

Pipes Cntrapt- -1 -.--- Vpives Contrat 5

______Dtervie Manufacture &Dclivery Itructuxre Conetroction - t _ | I 1 ------V.1- C t-ct~~~~~Coetucio t tF t*

______~ ~ ~ ~ ~ ~ ~ 5 -Desig. &Cootrc I'll*

-;t,ib.ti.. piplyimSYt- KEsoae K.i acDigo &Cootract

selpervoirs- Design &Contract _ _ _-

ICI, AEUL SLA|ASES SUFPLY Weils &P-apiog Plant Deuig &Contrac.t Manfacture, Delivey &Cryt C.-nirucc of civil DeIgn I Coctr-t Engloneriog Works Punpiog ut.ton & eevI C-teircti-c

M-ofact-r &Deli-ey

0010.0&cs. Contrat E,qu,Lpct M-uof.ctore &Dnli-ey I Vpein.ylog Doc-go I Contrat Coon ir-io * -I-I ------IV, CItTIA oTmteriog Eqoleei ooroi-

IBRD-3871 TCTJ 1,S1; . T TJUNISTA

_V,ono-rl,c Prov isional Bud:rt. 1961 l'_L6 a63 1')6L o65, ]66 1967 ll''68

Irn- ;stment (m:ill:on Dinars) 1.1 1.7 2.5 4.3 6.9 10.6 13.8 15.0

Annual growth rate - 5'.5 70.6 18.2 6o.5 53.6 30.2 8.7

Caxac'ity in Beds at Y,a.r End (No. of Beds) 3,"LS) L4077 5,743 7,573 '616 17,061 19/,765 25,507

Annual growth rate - 0.3 !4i. 31.9 27.0) 77!. 15.8 29.1

5 of capacity -n project area - n.a. n.a. n.a. 6)! 63 66

ThrI'L.St Vllifghts - 'iD nights) 320.L 395.8 5! o.8 694.4 1, 13 ., 1,636.9 2,100.0 2,600.0

oof tourist nights in Dro,ject areas n.a. n.a. 80 7)4 75 76 75 75

Forcnign Exchange Earnings (million Dina-rs 1.5 2.0 2.7 5. 9.1 13c8 17.5 '22.0

1/ Foreign non-residents only.

Sourc Crmimissar.iat General. aLi Touris3ne et au Tnerralisime.

Octob er .28, 1o68 ANNJEX 10 TUNISIA NATIONAL WATER SUPPLY PROGRAM (1968-1973)

DATA FOR INTERNAL RATE CF R''TURN CALCULATION

Net Increase in Water SalF- Investments Operation and Due to .J Revenues Other 4/ ' Tax on Total of 1968-73 Maintenance Total Program from 3/ Charges Added Added Programs _1/ Costs Costs (million m3 /yr.) Added SaIes Billed Sales Revenues

-in million Dinars------… --- In million Dinars -- -

1968 1.72 1.72 1969 3.10 o.o6 3.16 '..8 0.108 0.0-1 0.005 0.134 1970 5.12 0.21 5.33 4.57 0.274 00h2 0.012 J.328 1971 6.01 0.30 6.31 7.55 0.490 o.c63 0.020 0.573 1972 4.58 0.40 4.98 12.57 0.817 o.o84 0.033 0.934 1973 2.92 0.58 3.50 17.56 1.141 0.105 0.045 1.391 1974 0.67 0.67 23.20 1.7h0 0.126 o0.68 1.9314 1975 0.74 0.74 27.69 2.077 0.147 0.081 2.305 1976 0.81 0.81 32.18 2.14 0o168 0.094 2.676 1977 0,88 0.88 36.77 2.758 0.189 0.108 3.055 19r'8 o°95 0-95 42.00 3.150 0.210 0.122 3.482 1979 1.02 1.02 48.00 3.600 0.231 0.139 3.970 1980 1.p9 1.09 5h.00 4.050 0.252 0.157 4.h59 1981 1.16 1.16 60.00 4.500 0.273 0.174 b.947 1982 1.23 1.23 66.50 4.988 0.294 0.192 5.474

to

2022 1.23 1.23 66.50 4.988 0.294 0.192 5.474

Cost of renewals, duties and sales taxes on goods and services are excluded. 2/ The sales potential after completion of the program will be 132 million m3 /year At present sales potential is 65.5 million m3/year. 3/ WfZater rate of 60 millimes in 1969-70, 65 millimes in 71-73 and 75 millimes,/m3 afterwards. 17/ Revenues from connection and meter changes. ANNEX 11 TUNISIA: NATIONAL WATER SUPPLY PROJECT

AVERAGE DAILY WATER PRODUCTION AND SALES PER HEAD (LITERS) 150 ------150

125 TUNIS: PRODUCED 125

----- 1 _ ~~~~~ ~~SOLD_ - 100 100

75 ,, '75

50 50

'62 '63 '64 '65 '66 '67 '68 '69 '70 '71 '72 '73 '74 '75 '76 '77 -le ACTUAL 1 <::PROJECTED 3

POPULATION PROJECTIONS (MILLIONS OF PERSONS) 6 6 TOTAL POPULATION OF TUNII

TOTAL POPULATION SERVED IN TUNISIA

2 0 ~~~~~~~~~~~~~~~~~~~2

_ - ~~~~POPULATION OF TUNIS=POPULATION SERVED' (3.5% RATE OF GROWTH) |i

'56 '57 '58 '59 '60 '61 '62 '63 '64 '65 '66 '67 '68 '69 '70 '71 '72 '73 '74 '75 '76 '77 ACTUAL WC PROJECTED

IBRD-3870 ANX 12 TUNISIA: NATIONAL WATER SUPPLY PROJECT

SALES CUSTOMERS (CONNECTIONS) (MILLIONS OF CUBIC METERS PER YEAR) (THOUSANDS)

0ALL OF TUNISIA ALL OF TUNISIA1 o1,,0 ' 150

406% ANNUAL GROWTH - 12_

'-<4% ANNUAL/ 60 _0GROWTH 1

40 /'75

20 50

50 120

40TUNIS - / TUNIS= 0

30 . - 60

20' 40

25 25 SAHEL SAHEL

20 20

5 55

10 10

50 ~ ~ ~ ~ ~ ~ ~ ~~~~F100 REST OF TUNISIA REST OF TUNISIA 40 80

30 _ _ _ 60 ||AVERAGE SALES PER CONNECTION1 | j | | ~~~~~~~(EXCLUDINGIRRIGATIONWATER)|| 20 I(LITERS PER DAY) 40

10 1,20 20

l l i j ~~~~~~~'62'63 '64 '65 '66 '67

'62 '63 '64 '65 '66 '67 '68 '69 '70 '71 '72 '73 '74 '75 '76 '77 '62 '63 '64 '65 '66 '67 '68 '69 '70 '71 '72 '73 '74 '75 '76 '77 WE ACTUAL 31- -- PROJECTED - | dc-- ACTUAL ---- 31~I 8PROJECTED69 IBRD-36 TUNISIA NATIOUNAL WATER SUPPLY PROJECT

SO_D

Sales Projections (Million m3)

------Actual Sales RDF.-

1965 1966 1967 1968 1969 1970 1971 1972 1973 197T 1975 1976 1977

Sales

Tunis & suburbs 22.60 26.05 27.h4 28.80 30.20 31.70 33.30 3b.10 36.00 38.50 LO.50 h2.5o LL4.60 Sahel 5.09 6.73 7.L1 8.08 8.76 9.25 9.35 11.19 12.00 12.86 13.67 1h.48 15.29 Rest of Tunisia 21.11 23.97 25.28 26.56 27.84 29.12 30.40 32.78 35.06 37.34 39.'2 40.70 42.38

Total 48.80 56.75 60.13 63.14 66.80 70.07 73.05 78.07 83.06 88.70 93.19 97.68 102.27 8 % increase over previous year 6.7 16.3 6.0 5.5 5.3 L.S L.3 6.9 6.h 6.7 5.C 4. L.7

Production

Tunis 30.37 33.70 36.LO 37.90 39.30 O.50 62.10 42.60 L5.10 46.10 50.60 53.10 55.70 Assuming non-revenue water at 25% 23% 25% 24h% 23% 22% 21% 20% 20% 20% 20% 20% 20%

Sahel 7.33 9.65 10.60 11.50 12.30 12.80 12.80 15.10 16.00 17.10 18.20 19.30 20.LO Assuming non-revenue water at 30% 3t% 3Q0 30% 29% 28% 27% 26% 25% 25% 25% 25% 25%

Rest of Tunisia 30.10 3h.35 36.10 38.20 39.20 tC.iO 41.60 L2.90 46.60 49.90 51.90 5h.30 56.60 Assuming non-revenue water at 30% 30% 30% 30% 2?% 28% 27% 26% 25% 25% 25% 25% 25%

Total 67.80 77.70 83.10 87.h0 90.80 93.70 96.5o 100.60 107.70 115.10 120.70 126.70 132.70

'lumber of connoctions 83,200 80,300 96,000 103,000 110,000 117,000 12L,000 131,000 1,8,00Q 1h5,000 152,000 159,000 166,000

October 28, 1968 P.1NMX 14 Page 1

T'UISIA NATIONAL WTLTER SUPPLY PROJECT

Long-Term Debt

1. Long-term debt has been raised by the government in past years from various sources, for construction of water supply facilities to be used by SONEDE. The mission has assumed tnat the debt still outstanding will be serviced by SONEDE, even for those facilities which will not be the property of SONEDE (for example, the Cued Kasseb Dam)> When this subject was discussed during the appraisal mission, the government agreed in principle but, at that time, the total amount of debt service implied by this policy was not known. Information now received shows it to be D500-600,000 per year beginning in 1969, and the government may have second thoughts in view of this relatively large amount. In any case, the mechanics of the transfer of interest and principal payment froi,m SON)iEI to the government or directly to the various lenders will have to 'De worked out. Details of amounts outstanding are as follows:

Yugoslavia - for cast iron pipe, pumps and truclks

Original amount DU.2,910 Outstandi,ig December 31, 1967 D2Q80O96 Interest rate - various Repayment - semi-annual in 3 to 4 years Final payment - 1970

US-AID - for pipe, meters and Gdir el Goulla treatment plant

Original amount D919,900 Undisbursed at December 31, 1967 D345O000 Interest rate - £075 and e025 Repayment - 40 years including 10 years grace, equal semi-annual install- ments of principal Final paymenlt - 2006

Italy - for pipe

Original amount D95,000 Outstanding December 31, 1967 D57,0O0 Interest rate - none Repayment - 10 equal annual install- ments of D9,50O Final payment - 1973 ANNEX 14 Page 2

Russia - for Oued Kasseb Dam

Original amount Dl,872,247 Amount outstanding December 31, 1967 - not available, but full amount expected to be disbursed by end of -968 Interest rate - 3 Repayme:nt - 12 equal annual install- ments of principal beginning one year after completion of works (1969) Final paymerit - 1980

Consolidation loan for the Oued el Lil Pipeline

Original amount D9j,557,780 Outstanding Decernmber 31, 1967 D8,343,219 Int3rest rate - 1.5 Repayment - in 80 semi-annual annuities, but payments have been suspended since i1961 rinal pay:eri,t - 1996 (criginal schedule)

The amournts above are shown as outstanding in the opening balance sh-eot (Annex 18) although they are not, strictly speaking, obligations of SOMEDE itself. Furthermore, in the case of Oued Xasseb Dam loan, there is no off- setti-ng amount on the asset side.

October 28, 1968 ANNEX 15 Page 1

TUNISIA NATIONAL WATER SUPPLY PROJECT

Assumptions for Financial Statements

Income statements

1l Production and sales of water in cubic meters are according to detailed projections shown in Annex 13.

2. In addition to revenues based on consumption) it has been assumed that charges equiva'ent to D3 per connection/per year will be added to the bills. These othler charges are for such items as maintenance of the con- nections, maintenance and repair of the meters, etc., and presently amount to about 13% of total revenues.

3, Rate increases to an average of 60 millimes per cubic meter in October 1968, 65 millimes in 1971 and 75 millimes in 1974h, have been assunicd. The government has agreed only to the first increase.

4. It has been assumed that 10% of total revenues in 1969 will be un- collectable, reducing to 5% in 197h4 This relatively good performance for collections is possible because the government has agreed that 100%' of "administration" bills (abcut 40% of the total) will be paid within 120 days of the date of issue.

5. Operating expenses for 1967 are according to the RDE budget ad- justed slightly downwrard0 Beginning in 1968, operating expenses reflect tre estimated level of expenditures which would be incurred if the RDE were adequately staffed and operating on a sound basis. Since all of these cbang-, are not expected to take place in 1968, operating expenses for the fi-st two years are probably overstated to some extent. Expenses have been calculated including the activities now done by STEG, and no paymeint to STEG is shov:n after 1968. The payment of D45.,000 in 1968 reflects the estimated differenv;F between STEG7s actual cost and SONEDE ts payment, i,e, STEG?s profit on water activities.

6. The projection of personnel costs is based on a calculation by SEMA of personnel requirements for the new organization and reflects a de- crease in the total number of employees but an increase in upper staff levels. It also reflects a fairly substantial overall increase in the level of salaries to bring them in line with salaries paid by comparable institutioas in Tunisia. After 1968, personnel costs are increased at about 5% per year to reflect normal increases in salaries and the addition of a few lower leve3 staff to maintain and operate the new facilities which will be put into operation during the construction period.

7e Energy costs are based on 1966 costs and are increased proportion- ately to increases in sales region by region to take into account the dif- A-MlEX 15 Page 2 ferent energy costs for different systems. No basic change in the cost of power has been assumed.

8. The cost of chemicals is based on 1966 consumption, slightly re- duced to reflect the anticipated operatinig improvements. wVenty percent of chemical costs are assunmed to be for chlorine and these costs are in- creased in proportion to the total production. The remaining 80% is in- creased in proportion to production for the Tunis system oily, since only the Tunis system has treatment plants. Proper operation of the treatment plants should substant-ally reduce the cost of chemicals; on the other hand, experience in Tunisia indicates that the unit prices of chemicals increase rapidly and not in relation to general price levels. One factor should tend to balance the other,

9. Maintenance expenses have been increased substantially in 1968 and 1969 to reflect the cost of a proper maintenance program whaich the RDE does not now have, After 1969, maintenance costs ars incr'ea.ed in proportion to the number of connectioas.

10O. General expenses, which cover management costs and gene.cal over-, heads, are increased substantially in 1968 and 1959 to take account of the newJ accounting, billing and. collecting systems and other li3vJ activLties of the new organization. Thereafter, costs are increased in proportion to the number of cornections. ill Depreciation rates are assumed to be 2% (as an average) of the adjusted replacemenit value of assets existing as of the end of 1967, and 2/O for new assets.

12 o No change in the general level of prices has been assumied,

13. SONEDE was created as of July 2, 1968. The allocatio:n of veveinues and expenses for 1968, and other financial arrangements for the ch.ango- over from RDE to SONEDE have been made according to a plan agreed between the Bank and SONEDE. SONEDE is entitled to all irevenues arising frcm con- sumption after March 31, 19630 All revenues related to consumption prior to that date will go to the Treasury, even if collected by SO01EDE in the futuree The goverimenit made an initial contribution of capital of Dbi50,r) to provide SOiNEDE with working cash. Furthaer contributions will be made in 1968, according to SONEDE's cash needs:

Balance Sheets

149 Under the above arrangeirents, accouInts receivable iwould be zero in the opering balance sheet. The amount for 1968 year enid has been estimated on the basis of current collection rates. For future years, tne normal level is assumed to be four months sales, with a max.lmum of . r2,Q0OOO. Accounts payable for RDE (both operating and capital expenses) amounted to D851,000 as of July 2, 1968, Of this amcunt, D471,000 has b'eeu sent to the Treasury for paynient and the government has agreed to pay these bills promptly, The remaining D380,000 will appear as accounts payable on ANNEX 1l Pge J

S0NEDE2s opening balance sheet, and the government capital contribution for 1965 will include an amount to settle these bills. Accounts payable equivalent to one monthts operating expenses have been assumed for the projected balance sheets of SONEDE.

150 The gross replacement value of fixed assets, according to a study made by SEAL, was D59.6 million at the end of 1966. The calculation was on the basis of an invertory of RDE assets expressed in physical quantities (meters of various diameters of pipe, cubic meters of reservoir capacity, etc.) multiplied by the present unit costs of the same items. This method does not produce a realistic valuation, since the system woulci never be rebuilt in exactly the same way, and many of the facilities are so old that they would have been long since fu'ly depreciated under any normal accounting procedure. We have adjusted this book value using a co-efficient which attempts to reflect technological change and the prese..;' physical arrangement of the system. This produces an adjusted gross value of D42.7 million0 After taking into account the age of tLe various assotcs and using realistic depreciation rates, the present book vallie relatii.T to the adjusted gross value above is D230 6 million at the end of 1966, T.'ie value of fixed assets shown in the opening balance sheet of SONEDE refloctE, in addition, the value of investments made in 1967 and the first par' of 19605 The SONEDE law establishes a commission which wil' set a value for the assets transferred frot' RDE to SOITEDE. The commission has been appointed and will begin its work shortly0 Since it will be using the same basic data as SEMA, the results are likely to be about the same. In ary case, the Bank has the right under the Loan Agreement to approve the valuation method used for ca'culation of the rate base.

160 SONEDE will make payments to the government in zioLrrits equivalent to interest charges and repayment of all outstanding dobt re'ated to the facilities whlch SONEDE will take over, including service of the debt .or the Oued Kasseb Dam, which is not an asset of SONEDEo Details of the ou-- standing debt and interest and amortization charges are shown in Annex 14-

17e There are two minor influences of SONEDE vs finances not fully r&- flected in the projections. The first is the cash income from tle payniwnt of the cost of connections by new customevs,, Certain classes of customers must pay the full amount in advance, others are extended credit (without interest) over a ten-year period. Records cf the RDE do not show how much has been received from these sources in past years. Some portion appears in income as charges billed in addition to consumption charges, but the RDE was unable to give a detailed explanation of the amount shown or of the amounts (if any) not included in the income account. Ths amount taken irnTo income for 1966 was D128,808. This factor has been taken into account from the income statement point of view, since it is included as a part of the fixed charges related to each connection. It has not been segregated in the balance sheets s,nce it becomes a part of the permanent capital of SONEDE and, in fact, has approximately the same effect as an equivalent amount of charges related to consumptionO The second factor is a sales ta~.. charged on water bills and collected by SONEDEo Since the proceeds of this tax are immediately turned over to the government, there is little or no effect on SONEE'Es finances.

October 2?. 1968 TUNISIA NATIONAL WATER SUPPLY PROJECT

SONEDE

Projected Income Statements (Thousand Dinars)

--- R D E ------1/ ------S O N E D E ---- ______1966 1967 1968 1968 1969 1970 1971 1972 1973 1971 1975 1976 (Actual) (Estimated) -

Water Produced (million m ) 77.70 83.10 40.50 47.50 90.80 93.70 96.5o 100.60 107.70 115.10 120.70 126.70

Water Unaccounted for (%) 27 28 28 28 26 25 24 22 23 23 23 23

Water Sold (million m3) 56.75 60.13 29.16 34.20 66.80 70.07 73-.5 78.07 83.06 88.70 93.19 97.68

Average Water Rate 2/ 31.8 31.6 31.8 31.8 60.0 60.0 65.0 65.0 65.0 75.0 75.0 75.0

Revenues Water Sales Billed 1,807 1,898 927 1,088 4,008 4,204 4,748 5,075 5,399 6,652 6,989 7,326 Other Charges Billed 31 266 283 142 167 330 351 372 393 414 435 456 477 Less Uncollectable _ _ _ -125 -434 -410 -410 -383 -349 -354 -372 -390

Total Revenues 2,073 2,181 1,069 1,130 3,904 4,145 4,710 5,085 5,464 6,733 7,073 7,413

Cash Receipts (1966,/67,/68_/only) 5/ 1,756 1,847 973 ------

Expenses Waes and Salaries 573 714 375 588 1,197 1,240 1,280 1,320 1,360 1,410 1,460 1,510 Energy ) ) 155 155 326 351 376 402 424 446 483 505 Chemicals 606 ) 635 ) 54 54 113 119 125 132 138 1145 153 160 Maintenance ) ) 165 165 375 400 423 445 468 490 512 536 General Expenses 4 51 75 92 202 200 212 222 23k 245 256 268 Payment to STW 242 270 - 45 ------Depreciation - _ - 364 756 800 898 1,008 1,113 1,281 1,398 1,438

Total Operating Expenses 1,425 1,670 824 1,463 2,969 3,110 3,314 3,529 3,737 4,017 4,262 4,417

Net Operating Income 331 177 149 (333) 935 1,035 1,396 1,556 1,727 2,716 2,811 2,996

Interest 2 29 6 72 192 184 178 170 162 1,008 977 949

Net Income 329 148 143 7/ (405) 7 743 851 1,218 1,386 1,565 1,708 1,834 2,047

Operating Ratio - - - - .76 .75 .70 .69 .68 .60 .60 .60

Return on(average) Net Fixed Assets - % - - - - 3.6 3.7 4.4 4.3 4.3 5.7 5.4 5.7

1/ Through July 1 3 3 2/ In Millimes/m (60 millimes/m = 43t/1,000 USGal.) 3/ Miscellaneous fixed charges related to each connection 4/ 10% in 1969, reducing to 5% in 1974 5/ Cash receipts include billings from previous periods. '/ Cash accounting basis in 1966, 1967 and 6 months of 1968 7/ Because 1968 is a transition period, allocation of revenues and expenses between RDE and SONEDE is arbitrary to some extent. Therefore, the results for each part-year are not very meaningful.

October 28, l?68 TUNISIA NATIONAL WATER SUPPLY PROJECT

SONEDE

Projected Cash Flow Statements (Thousand Dinars)

___---- R D E ------S 0 N E D E ------1966 1967 1968Y/ 1968 1969 1970 1971 1972 19U3 1974 1975 1976 (Actual) (Estimated) Sources of Funds Net Incm before Interest 331 177 149 (333) 935 1,035 1,396 1,556 1,727 2,716 2,811 2,996 Depreciation 364 756 800 898 1,008 1,113 1,281 1,398 1,438

Total from Operations 331 177 149 31 1,691 1,835 2,294 2,564 2,840 3,997 4,209 4,434

Government Capital Contribution 2,175 1,828 636 2,550 2,563 2,462 2,058 867 - - _ _ IBRD Loan - - - 89 1,347 2,477 2,033 1,306 561 - Swedish Loan _ - - 210 " 447 826 676 437 188 - _ IS-AID Loan 75 53 - - 350 ------Second Stage Loan ------1,760 1,760 1,760 - - - Increase in Accounts Fbyable - - - (146) 13 12 17 18 17 24 20 13

Total Sources 2,581 2,058 785 2,734 6,411 7,612 8,838 6,952 5,366 4,021 4,229 4,447

Application of Funds IM/Svedish Project 31 - - - 213 3,050 5,570 4,252 2,320 110 - - - Intereat and Fees during Construction - - - - 86 185 329 443 514 - _ _ Second Stage Project ------3,200 3,200 3,200 - - - Extensions and Replacements 2,569 1,875 700 1,318 1,600 1,200 300 300 300 2,000 2,000 2,000

Total Investments 2,569 1,875 700 1,531 4,736 6,955 8,081 6,263 4,124 2,000 2,000 2,000

Interest - IBERD ------505 491 477 Sweden 4 ------20 20 20 7 Other 5 2 29 6 72 192 184 178 170 162 483 466 452 Amortization - IBRD ------200 211 226 Other 5/ 10 154 79 171 502 362 361 364 367 520 532 550

Total Debt Service 12 183 85 243 694 546 539 534 529 1,728 1,720 1,725

Increase in Stocks - - - 180 220 30 30 30 30 30 30 30 Increase in Accounts Receivable - - - 580 721 81 188 125 126 179 - - Organization Expenses - - _ 100 40 _- - - - -

Total Application 2,581 2,058 785 2,634 6,411 7,612 8,838 6,952 4,809 3,937 3,750 3,755

Net Cash Generation - - - 100 - - - - 557 84 479 692 Cash at Beginning of Year - - - - 100 100 100 100 100 657 741 1,220 Cash at End of Year - - - 100 100 100 100 100 657 741 1,220 1,912 Debt Service Coverage (times) - - - - 2.4 3.4 4.3 4.8 5.4 2.3 2.4 2.6

1/ Through July 1 f/ Includes D180,000 loan outside Bank/Swedish project 3/ See Annexes 6 and 7 for details of investments b/ Interest is on loan of D2.6 million for the project and DloO,O00 in 1968 for Sahel "," which is outside the Bank/Swedish project. Amortization .of. the loans begins only in 1978 5/ See Annex 1L for details

October 28, 1968 TUNISIA NATIONAL WATER SUPPLY PROJECT

SONEDE

Projected Balance Sheets (Thousand Dinars)

July 2 i/ Calendar Year End 1968 1968 1969 1970 1971 1972 1973 1974 1975 1976

Assets Cash and Equivalent - 100 100 100 100 _100 657 741 1,220 1,912 Accounts Receivable - 580 1,301 1,382 1,570 1,695 1,821 2,000 2,000 2,000

Total Current Assets - 680 1,401 1,482 1,670 1,795 2,478 2,741 3,220 3,912

Stocks 200 380 600 630 660 690 720 750 780 810 Fixed Assets 36,415 36,515 39,148 41,060 48,734 52,198 59,273 68,945 70,945 72,945 Less Depreciation 10,929 11,293 12,049 12,849 13,747 1,755 15,868 17,149 18,547 19,985

Net Fixed Assets 25,1486 25,222 27,099 28,211 34,987 37,443 43,405 51,796 52,398 52,960 Works in Progress 700 2,231 4,374 9,417 9,824 12,623 9,672 2,000 2,000 2,000

Total Fixed Assets 26,186 27,453 31,473 37,628 44,811 50,066 53077 ,96 54,398 54,960

Total Assets 26,386 28,513 33,474 39,740 47,141 52,551 56,275 57,287 58,398 59,682

Liabilities Accounts Payable 380 234 247 259 276 294 311 335 355 368 Current Maturities of Long-Term Debt 171 502 362 361 364 367 720 743 776 940

Total Current Liabilities 551 736 609 620 640 661 1,031 1,078 1,131 1,308

Long-Term Debt - IBRD - 89 1,436 3,913 5,946 7,252 7,613 7,402 7,176 6,934 Long-Term Debt - Sweden 2/ - 210 657 1,483 2,159 2,596 2,784 2,784 2,784 2,784 Lorg-Term Debt - Other 37 o,666 lo,164 10,152 9,791 11,187 12,580 13,820 13,288 12,738 12,040

Total Long-Term Debts - 10,666 10,463 12,245 15,187 19,292 22,428 24,217 23,474 22,698 21,758

Gowornrment Capital Contribution 15,169 17,719 20,282 22,744 24,802 25,669 25,669 25,669 25,669 25,669 Earned Surplus - (405) 338 1,189 2,407 3,793 5,358 7,066 8,900 .20,947

Total Equity 15,169 17,314 20,620 23,933 27,209 29,462 31,027 32,735 34,569 36,616

Total Liabilities 26,386 28,513 33,474 39,740 47,1141 52,551 56,275 57,287 58,398 59,682

Debt/Equity Ratio 41:59 38:62 37:63 39:61 41:59 43:57 44:56 42:58 40:60 37:63

1/ Opening Balance Sheet 2/ Including D180,000 for Sahel "C" 3/ See Annex 14 for details i7/ Net of current maturities

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