PROJECT INFORMATION DOCUMENT (PID) APPRAISAL STAGE Report No.: AB5044 Morocco Urban and Rural Water Systems Project Name Public Disclosure Authorized Region MIDDLE EAST AND NORTH AFRICA Sector Water supply (100%) Project ID P100397 Borrower(s) Office National de l’Eau Potable (ONEP), Morocco with a guarantee by the Government of Morocco Implementing Agency Office National de l’Eau Potable (ONEP) Station de Traitement Akrach Route des Zaers,-Akrach Rabat Morocco Public Disclosure Authorized Tel: (212-537) 650-695 Fax: (212-537) 726-707 Environment Category [ ] A [X] B [ ] C [ ] FI [ ] TBD (to be determined) Date PID Prepared September 9, 2009 Date of Appraisal March 15, 2010 Authorization Date of Board Approval May 27, 2010, 2009 1. Country and Sector Background Morocco stands out in the region for its political opening and structural reform ambition. Since 1999, King Mohamed VI has led the country to broader political participation while Public Disclosure Authorized ensuring security and stability. Morocco’s civil society is flourishing, thousands of NGOs are active today, and a dynamic press corps is at work. Comprehensive pro-growth structural reforms have been launched in the last decade in areas of decentralization, trade, customs, transport deregulation, privatization of telecoms, housing sector reform, financial sector reform, public administration modernization, agriculture reform, etc. Along with sustained investment and targeted social development and protection reforms, these initiatives set the stage for economic growth and social development. Despite undeniable gains, growth remains unsteady, still vulnerable to droughts, and unemployment rates high especially among the youth. Social protection, poverty reduction and human development are Government priorities. Morocco’s social indicators, while gradually improving, continue to rank low among middle- income countries (MIC). In 2005, about 15% of Morocco’s population was below the poverty line, from 19% in 1999, with poverty still disproportionately affecting a vast rural population1. Public Disclosure Authorized Viewed as fertile ground for extremism, urban and rural poverty are among top targets of GOM. Launched in 2005, the National Initiative for Human Development (INDH) applies community- 1 At 42%, Morocco features one of the highest ratio of rural vs. total population in the MENA region. based approaches to improve access to services and opportunity in 600 of Morocco’s poorest rural and urban communities. Water strategies have long focused on securing urban and irrigation supplies. Since independence Morocco has steadily invested in water infrastructure: 90% of accessible resources are stored in 116 large dams, irrigation is developed over 1.4 million hectares, and potable water supply reaches almost all urban dwellers (universal access to potable water, network connections and continuous service for 83% of households). By comparison, access to service is inadequate in poor peri-urban areas, and urban sanitation is lagging, with 70% of households connected as of 2005 and only 5% of discharges treated in 2004. GOM was late in addressing rural water supply (RWS): In 1995 rural access to potable water was estimated as low as 14%. Early rural water supply efforts (1995-2004): GOM launched its first RWS program in 1995, known as PAGER2. Its implementation was shared by the General Directorate of Hydraulics – Direction Generale de l’Hydraulique (DGH), and the National Potable Water Board – Office National de l’Eau Potable (ONEP). DGH built standalone groundwater-fed systems, whereas ONEP would lay lateral pipelines to connect villages located near its regional potable water trunk pipelines. By installing public standpipes (SP) in thousands of villages, PAGER successfully raised RWS access rates to 50% by 2004, with unquestionable public health, education and gender benefits. Accelerating ONEP’s “piped” approach to RWS (2004 to date): Since January 2004, the program for Universal Access to Potable Water – Programme de Généralisation de l’Eau Potable (GEP) has replaced PAGER, and is placed under the sole responsibility of ONEP. The rationale is to accelerate RWS coverage to exceed 92% access by 2010, by scaling-up ONEP’s “piped” RWS approach, limiting dependence on locally unreliable groundwater sources, and essentially forgoing budget support by increasing cross-subsidies and surcharges from ONEP’s urban water sales3. Like PAGER, GEP focuses on developing RWS access through SP-service, and does not address rural sanitation needs. Impressive RWS access achievements, underlain by sustainability concerns. As of December 2008, GEP projects (completed or on-going), had accrued an 87% access rate nationwide, and GEP was well on its way to achieving its 92% target. Despite impressive progress since 1995, PAGER and GEP evaluations have noted some shortcomings, including : (a) low per capita water consumptions from SPs, due to seasonal competition by traditional sources and limited willingness or capacity to pay for public SP-service; (b) a limited and inconsistent choice of SP management models, including water users associations (WUA) promoted by DGH, and stand- pipe supervisors – gardiens-gérants (GG) retained by ONEP ; (c) inadequate post-construction support to WUA for borehole pump operation and maintenance (O&M); (d) insufficient attention to greywater management and hygiene promotion and; (e) unequal access coverage between provinces, with those on the Atlantic coast, Rif and “pre-Rif” regions lagging behind the national 2 Programme d’Approvisionnement Groupe en Eau Potable des Populations Rurales (PAGER) 3 ONEP holds a de facto monopoly on potable water production in Morocco, selling water in bulk to municipal distribution utilities, and ensuring retail distribution in about 500 medium to small urban centers. 2 average. With today’s low consumptions4, the public health justification and sustainability assumptions of Morocco’s RWS program may be questioned. ONEP’s “Contrat Programme”: ONEP is Morocco’s most important WSS sector actor, responsible for water supply planning, bulk production of potable water, water distribution in over 500 medium to small urban centers, development of RWS through GEP, and for development of the lion’s share of Morocco’s National Sanitation program in about 200 urban centers. ONEP’s water distribution service perimeter grows by about 40 small towns per year, as rural chief towns seek to access professional upgrade and operation of their water service. To ensure the financing required for GEP while ensuring ONEP’s overall financial viability, GOM and ONEP commit to a Framework Agreement (CP - Contrat Programme) which regulates ONEP’s development and performance objectives with increases in financing resources over a 4 year period. Signed in late 2008 after three years of on-and-off negotiations, the current CP stipulates indicative commitments to: • An increase of the bulk potable water tariff of 5% per year, beginning in 2009. • A capital subsidy for the development of RWS of MAD 150 million per year. Based on prior experience, neither commitment is sure to be honored, but the CP, coupled with ONEP’s solid operational record and reputation, allows ONEP to finance its share investments by borrowing from donors and from local commercial banks (cf Annex 2). GEP’s participatory, demand-driven programmatic approach. Although confronted with locally strong demands for household connections (HC) instead of SP service, and committed to installing RWS laterals sized to one day can convey the flowrates called by HC-service5, ONEP’s has to date given exclusive priority to developing access through SPs. Supported by all donors, ONEP’s programmatic approach to community participation towards e GG-managed SP service is well tested, and includes a 15% capital contribution by local governments. Uniform rural bulk water tariffs also apply to GGs, cross-subsidized by ONEP’s urban tariffs and surcharges. Concurrently, aware of the financial and operational sustainability risks associated with rapid expansion in RWS, ONEP has committed to limit GEP costs, through “value engineering” and outsourcing the O&M of RWS laterals to small local private operators. Acknowledging the demand for household connections. By law, the responsibility for developing public services, including water distribution and sanitation, incumbs with local governments, in this instance rural communes – Communes Rurales (CR). Aware of the low capacity of local governments in certain rural regions, ONEP’s has sought to encourage the development of village distribution systems by WUAs through ad-hoc technical assistance and a subsidized bulk water rate. ONEP’s programmatic approach thus gives users a choice between two service levels, i.e. (i) SPs managed by GG or (ii) HCs to be financed, developed and managed by WUA. In most projects to date, this approach is not conclusively demonstrated. As an example, in the on-going Bank-funded RWSS project in the western parts of the Safi and El Jadida provinces, many villages express strong demand for HC-service but are unable or unwilling to set up and sustain a WUA for network financing, development and O&M. Aware of the need for more reliable and sustainable management models, and building on solid 4 Standpipe uptakes measured on average at 8 liters/hab/day, compared to the targeted 20 liters/hab/day 5 RWS infrastructure is designed to convey water to villages and supply an ultimate demand of 50 l/hab/day. 3 experiences of outsourcing to