Tunisia - Third Water Supply Project

CIRCULATING COPY < FILE C QPY TM BE RETURNED TO REPORTS DESK DOCUMENT OF INTERNATIONAL BANK'FOR RECONSTRUCTION AND DEVELOPMENT Not For Public Use Report No. P-1417a-TUN REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO SOCIETE NATIONALE D'EXPLOITATION ET DE DISTRIBUTION DES EAUX WITH THE GUARANTEE OF THE REPUBLIC OF TUNISIA FOR A - THIRD WATER SUPPLY PROJECT May 13, 1974 This report was prepared for official use only by,the Bank Group. It may not be published, quoted or cited without Bank Group authorization. The Bank Group does not accept responsibility for the accuracy or completeness of the report.  Currency Unit Tunisian Dinar (D) The exchange rate of the Tunisian Dinar is floating. The current rate, which is that used in the appraisal report, is: US$1 D 0.435 D 1 = 1,000 millimes US$ 2.30 D 1,000 = US$ 2,300 D 1,000,000 = US$ 2,300,000 Fiscal Year: January 1 to December 31 Abbreviations: 1. Measurements: 1 = liter = 0.26 US gallons 1/cd liter per capita per day m3 cubic meter = 264 US gallons 2. Acronyms: HAR Hydraulique et Amenagements Ruraux KfW= Kreditanstalt ffr Wiederaufbau SOGETHA Societe Generale des Techniques Hydro-Agricoles SONEDE Societe Nationale d'Exploitation et de Distribution des Eaux WHO World Health Organization  INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOIMENT REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO SOCIETE NATIONALE D'EXPLOITATION ET DE DISTRIBUTION DES EAUX WITI THE GUARANTEE OF THE REPUBLIC OF TUNISIA FOR A THIRD WATER SUPPLY PROJECT 1. I submit the following report and recommendation on a proposed loan to the Societe Nationale d'Exploitation et de Distribution des Eaux (SONEDE) withi the guarantee of the Republic of Tunisia for the equivalent of US$23.0 million to help finance a project for water supply. The loan would have a term of 25 years, including 5 years of grace, with interest at 7-1/4 percent per annum. PART I - THE ECONOMY 2. A report entitled "Current Economic Position and Prospects of Tunisia" (EMA-51a) was distributed to the Executive Directors on August 14, 1972. A basic economic mission visited Tunisia in February and March 1973 and is now finalizing its report following discussions with the Government. The main conclusions of this report are reflected below. Country data sheets are attached (Annex I). 3. Tunisia's development has been hampered by scarcity of natural re- sources including water. Much of the country is arid or semi-arid, and agri- culture is highly dependent on rainfall. Minerals are mostly of low quality and, apart from phosphates, limited in quantity. In the mid-1960's, petro- leum was discovered and has since become an increasingly valuable source of revenue and export earnings. Industrial development has been handicapped by the small size of the domestic market, as well as a lack of skills and expe- rience. Tourism has developed rapidly and workers' remittances have become a significant item in the balance of payments. Per capita income increased by 4.4 percent annually between 1961 and 1972 to reach a level of $379. Tunisia has enjoyed a large amount of external aid and has used this to ex- pand economic and social infrastructure, broaden the industrial base, increase the rate of growth, and make available a wide range of social and welfare serv- ices to a large part of the population. Like most developing countries, how- ever, it has not yet found a way to eliminate unemployment and poverty and to achieve a balanced distribution of consumption among income groups, between urban and rural areas, and among regions. 4. Government strategy in the 1960's relied heavily on central planning of investment and resource allocation, with the public sector playing a major role in production as well as providing infrastructure and services. Foreign exchange shortages and preoccupation with restraint of inflation led to re- course to a pervasive system of official price determination and administra- tive controls. An unusually long series of poor crop years due to shortage of rainfall slowed down growth of output. Many of the investments in public  -2- enterprises proved to be uneconomic and private initiative in most sectors except tourism and petroleum was discouraged. Growth was relatively slow until 1969, but was combined with a high degree of domestic price stability. 5. The Government's present development strategy was introduced after 1969 and forms the basis of the current Fourth Plan, 1973-1976. The principal objectives are (a) accelerating growth based on export-oriented industries, mainly by encouraging private initiative, reducing direct Government involve- ment in procluction and relaxing administrative regulations; (b) easing the country's unemployment problem by creating new jobs primarily in the expanding industrial sector, but also by encouraging worker emigration, reducing popula- tion growth and improving education and training; and (c) maintaining internal and external financial stability. The target rate of GDP growth is 7.1 percent, providing for a 5.4 percent growth rate in per capita private consumption. In- vestment is projected to increase by 70 per,cent above Third Plan levels. Na- tional savings are to finance three-quarters of investment. Exports of goods and services are projected to grow at 8.8 percent per year at constant prices and imports at 12.2 percent. An increase in net external capital flows of almost 100 percent over 1969-1972 average levels would be required, with ex- ternal capital providing 23.5 percent of total investment; the debt service ratio would be held to below 20 percent. The Plan targets may be conservative in terms of both growth and savings potential, and are affected significantly by the impact of the changed petroleum and phosphates situations on the Tunisian economy (paragraphs 7 and 8). 6. The annual growth rate of the gross domestic product over the decade 1961-1970 was 5 percent. A remarkable upsurge has taken place since 1970, with GDP growing in real terms by 9 percent in 1971, and 18 percent in 1972. The improvement can be attributed in part to exogenous factors such as good weather, leading to record cereal crops and a three-fold increase in olive pro- duction, in part to important growth in several areas (tourism, petroleum and emigrant workers' remittances) which previous policies had fostered, and in part to the general reorientation in Government policy since 1969, generating renewed self-confidence and initiative in the private sector. By 1972, the in- vestment rate was 23.6 percent of GDP compared to 20.8 percent in 1970; domestic savings were 21.1 percent of GDP compared to 16.3 percent in 1970, reducing Tunisia's dependence on external borrowing from 31.6 to 13.6 percent of in- vestment. The balance of payments has improved steadily since 1967, with the current account deficit dropping from about $114 million up to 1967 to $44 million in 1972. The traditional negative net foreign exchange reserve posi- tion was reversed in 1968, and at the end of 1973 net foreign assets amounted to $256 million, covering 5.5 months of commodity imports. 7. Following the very rapid expansion of the economy in 1972, the growth rate slowed last year to an estimated 2.8 percent. Agricultural output fell by 11.6 percent from the very high 1972 level, increases in production of cereals and livestock offsetting only part of the expected drop in olive pro- duction. Growth may be about 9 percent in 1974. The Government is attempting to maintain its past success in controlling inflation, though there will be increased pressures arising from the higher level of investment, the build-up of foreign exchange reserves and the increased cost of imports. In the medium  - 3 - term, and assuming no major recession in developed countries, Tunisia's gain from the rise in petroleum and phosphate prices should more than offset fore- seeable adverse external developments on tourism earnings, workers' remit- tances and other exports. Export earnings from petroleum are now projected to increase fourfold from $98 million in 1973 to some $368 million in 1976, and phosphate prices have also risen sharply. As a result, small surpluses in the current account of the balance of payments, and a rapid build-up of reserves, may be expected over the next several years. A substantial reduc- tion in the net rate of emigration, originally projected at 20,000 per year, could have serious repercussions on unemployment and income, particularly in rural areas, unless energetic measures are taken to increase labor absorption in other sectors. 8. The increased foreign exchange reserves and Government surplus ex- pected from higher export pri'ces and consequent tax revenue do not call for a basic revision in development strategy but suggest that Tunisia could step up its efforts to achieve higher investment and growth rates and increased employment, and to depend less on emigration and foreign aid. The main con- straints are likely to be the speed at which policies and institutions re- spond to the challenge and projects are prepared and executed. The new orientation since 1969 and the improved economic situation provide the Gov- ernment with an opportunity to step up efforts to achieve its declared social objectives, including greater impact on employment. 9. Tunisia has made some impressive social gains. By 1971, primary school enrollment had reached 73 percent and secondary enrollment 42 percent of the relevant age-groups. Public health services have been greatly expanded with many provided free, a family planning program introduced and social secur- ity services provided to an increasing proportion of the labor force. Public social expenditure, both current and capital, has increased at the rate of 9.3 percent per year and accounted for 14.5 percent of GDP in 1970. Nonethe- less, major social issues remain. Further progress is needed in land reform. Wide regional and income disparities are persistent and there has been a grow- ing concentration of productive activities in urban areas. Job creation has not kept pace with the growth of the labor force, and in 1972 the unemploy- ment rate was estimated at 14 percent. 10. Agriculture, the dominant sector in the economy, provides nearly half of total employment, 30 percent of merchandise exports and 17 percent of GDP. Food processing industries account for another 5 percent of GDP and over a third of value added in manufacturing. Agricultural production jumped in 1971 and again in 1972, largely as a result of favorable weather, and the potential for further growth is clear. While large infrastructure invest- ments were made during the last decade, current policy emphasizes projects that make a rapid and direct contribution to production and recognizes var- ious constraints on agricultural development: absentee ownership and insecur- ity of tenure, inadequate access to agricultural credit, the need to devote more resources to extension services and agricultural education, and under- utilization of irrigation investments. D 40 million has been allocated to a rural development program to be executed by the provincial administrations.  -4- 11. During the 1960's manufacturing production in Tunisia increased by 7 percent annually. There was a remarkable 30 percent further increase in 1972 due in part to a record year for the olive oil processing industry. The early thrust of industrialization was supplied by large import substitu- tion projects in the state sector. These suffered, however, from the limited domestic market and shortages of experienced staff and management. Under the Fourth Plan, private manufacturing investment, particularly in textiles, fertilizers and metals transformation, is expected to average D 25 million per year between 1973 and 1976, compared with D 12 million in 1972, and to account for two-thirds of total investment in manufacturing. Foreign private investors have been offered incentives and are expected by Tunisia to contri- bute through finance, know-how and overseas marketing, in creating competitive industries producing a wide range of exports. Tunisia's preferential trade agreement with the EEC, currently being renegotiated, also gives it some ad- vantages. Preinvestment work, and the preparation of programs for re-equipment and mode:nization in priority subsectors,have been started. Tunisia aims to develop petroleum-based industries and production of phosphoric acid and other phosphate derivatives for export, while possibilities for metal manufacturing for export are being explored. The Plan further foresees the establishment of a small-scale industry fund to encourage growth and decentralization of such industries. 12. The development of tourism is relatively recent. Foreign-visitor arrivals in Tunisia reached 780,000 in 1972, with an annual rate of growth of 30 percent - higher than any other Mediterranean country. Earnings from tourism are now the most important source of foreign exchange, reaching US$143 million in 1972. The Government actively supports expansion through incentives to private hotel promoters and has recently embarked on a long-term tourism infrastructure program. 13. Since the early 1960's Tunisia has received large amounts of external capital. Official aid amounted to an average of US$19 per capita per annum, almost half from the United States, mostly in the form of program loans and PL 480 commodity aid. Other major lenders were France, the Federal Republic of Germany, Italy, Kuwait and the Bank Group. Project loans, particularly for public enterprises, accounted for 58 percent of total disbursements in 1969- 1972. Most aid has been obtained on concessionary terms: from 1969-1972, the average terms of borrowing from bilateral sources were 2.3 percent interest and 27 years to maturity, including 9 years of grace; from multilateral sources 5.4 percent interest and 28 years to maturity, including 6 years of grace. For private borrowing (about $40 million annually), average terms were 6.0 percent interest and 9 years to maturity. Direct foreign private investment in Tunisia has been limited. However, mainly as a result of increasing out- lays on petroleum exploration and development, it has risen from an average of $ 19 million per annum in the late 1960's to $ 4O million in 1972. 14. Tunisia's total external public debt was $1,108 million (of which $693 million were disbursed) at the end of 1972. Disbursed debt is estimated to have been $862 million at the end of 1973. The debt service in 1973 is estimated to have been 12.7 percent of exports of goods, non-factor services and workers' remittances. The ratio is expected to fall significantly by 1976,  -5- following recent petroleum and phosphate price increases. Government policy on future external borrowing in the light of its new balance of payments po- sition is still under review. Tunisia is capable of servicing substantial additional debt on harder terms than it has received in the past. PART II - BANK GROUP OIPERATIONS IN TUNISIA 15. Starting in 1962, Tunisia has received a total of sixteen Bank loans and ten IDA credits amounting respectively to $166.6 million and $65.7 million, net of cancellations and refundings. Annex II contains a summary statement of Bank loans, IDA credits and IFC investments as of March 31, 1974T and notos on the execution of ongoing projects. 16. While there have been problems in project execution, as in the rail- wavs, agricultural credit and family planning projects, on the whole project implementation has been satisfactory. Important institutional improvements have bee,L achieved. In both the transport and public utilities sectors, in- dependenv agencies have been created or strengthened. The main Tunisian de- velopment finance company, BDET, has been placed on a sound footing. 17. In accordance with Tunisian priorities, past Bank Group lending has emphasized support for long-term investments in infrastructure. Lending for transport, power and tourism infrastructure, has accounted for 38 percent of Bank/IDA commitments in Tunisia. Lending for urban and social development, including water supply, education, family planning and the Tunis urban plan- ning and public transport project, has accounted for a further 33 percent. Industrial and hotel financing through Banque de Developpement Economique de Tunisie (BDET, formerly Societe Nationale d'Investissement) comes third with 21 percent. Agriculture and fisheries have received 8 percent of total com- mitments. 18. One more project, for the training of hotel personnel, is expected to be presented to the Executive Directors this fiscal year. Future lending is expected to support the further reorientation of the Government's economic policies towards rapid growth in a more open, export-oriented economy, meas- ures to create employment and to achieve a more equitable income distribution, and institutional change and reform. The proposed lending program will em- phasize agriculture including rural development, industry - especially small- scale industry - and urban and social development. The most important impact is hoped for in agriculture, requiring substantial inputs of manpower and technical assistance to support the creation of new institutions which can reach the rural poor. Over the next several years, it is expected that a number of projects will be presented which address the problems of land re- form, organization for agricultural and rural development, and integration of agricultural with other aspects of rural development in such areas as the Medjerda and Nebhana Valleys, Sedjenane and Central Tunisia. Lending to medium-size industrial companies through the development finance company, BDET, will continue, but at a declining rate as BDET diversifies its sources of funds. It will be supplemented by direct industrial lending, first for a  - 6- project in phosphate mining, and later in other priority subsectors, now being studied with Bank technical assistance, in which Tunisia has a comparative advantage and a potential for promoting small-s;cale industries. Urban and social development will be furthered by the present project, as well as by a first operation in the sewerage sector involving important organizational changes, while a third education project will also be presented. 19. Tne Bank Group accounted for almost 20 percent of disbursements of official aid to Tunisia between 1969 and 1972 and is expected to maintain its share, with that of the US declining and that of other, particularly Arab, sources of funds rising. The Bank Group's shares in total debt outstanding at the end of 1972 and in debt service during 1972 were 18 percent and 7 per- cent respectively. Over the rest of the decade, the Bank Group's share in total external debt is not expected to vary much; its share in debt service will probably rise to approach the share of debt outstanding. 20. IFC has invested in a fertillzer plant, in BDET, in COFITOUR (a company to promote and invest in tourism projects) and in RYM (a large hotel development). It has also made a small equity investment in the promotional company "Sousse Nord", which is to prepare plais for an integrated tourism resort development in the Sousse area, one of those in which tourism infra- structure is being financed jointly by the Bank, IDA and Kreditanstalt fur Wiederaufbau (KfW). IFC's Board of Executive Directors approved an equity investment of $621,000 in Industries Chimiques du Fluor, which will produce aluminum fluoride from local fluorspar for export, on May 7, 1974. IFC's net commitments in Tunisia total $14.0 million with the inclusion of this investment. PART III - WATER SUPPLY IN TUNISIA 21. Tunisia's water resources are located inland at considerable dis- tances from the main population centers. The cities of Tunis and Sfax and the important area around Sousse must be supplied by sources between 90 and 165 kilometers away. Groundwater sources are used throughout the country; signi- ficant sources of surface water exist only in the north. Total resources are very limiited and demands for irrigation and potable water are expected to exceed the total available supplies of fresh water in part of the country by 1930, and throughout the country by 1990. Potable water from groundwater sources in the southern half of the country already has a salinity level higher than thiat considered the maximum desirable for human consumption by the World Hlealth Organization. Studies are therefore underway on methods of treating brackish water, possibilities of blending and the tolerance of crops to differ- ent salinitv levels of irrigation water. Later, the reuse of treated sewage and eventually large-scale desalination will have to be considered.  -7- 22. The Directorate of "Hydraulique et Amenagements Ruraux" (HAR) of the Ministry of Agriculture is responsible for the overall management of Tunisia's water resources. Societe Nationale d'Exploitation et de Distribution des Eaux (SONEDE) is an autonomous public utility created with Bank support in 1968 to manage the production and distribution of potable water (see para 29). BAR -nd SONEDE have agreed on the allocation of known resources to potable water And to irrigation, with priority being given to the quantity and quality of water required by SONEDE. SONEDE recently has accelerated the provision of water to individual houses and plans to supply all settlements having popula- tions of 500 or more. The remaining population lives in isolated dwellings not readily served by public water distribution systems; they may ultimately be supplied by systems of public wells and fountains. 23. In 1966, the Government asked the Bank and the Kingdom of Sweden for assistance in financing various water supply works. A study by technical con- sultants, Societe Generale des Techniques Hydro-Agricoles (SOGETHA), helped define a program of works which became the basis of the 1968-1973 National Water Program. In support of this program a Bank loan (581-TUN) of $15 mil- lion and a Swedish credit of $5 million were made in 1969 for joint financing of a first project consisting mainly of major supply works for the most densely populated areas, Tunis and the Sahel region. In 1970, an IDA credit (209-TUN) of $10.5 million and a Swedish credit of $3.5 million were made for joint fi- nancing of a second project to be executed over broadly the same period (1970- 1973), principally for supply works for fast-growing tourist areas and cities not covered by the first project. SONEDE was the borrower and beneficiary under the Bank loan and IDA credit; together, the two projects constituted the bulk of the works in its 1968-1973 Program. In addition, SONEDE is the executing agency for the water supply component of the Tourism Infrastructure Project (Loan 858-TUN and Credit 329-TUN) jointly financed with KfW. SONEDE is also executing a program of miscellaneous works and renewals with some bilateral financing from Sweden, USAID and the Federal Republic of Germany. 24. Tunisia's 1973-1976 Plan foresees improved supply and distribution facilities for Sfax, a program of extensions to existing distribution systems and the commencement of a program for supply of water to all settlements having a population of over 500. PART IV - THE PROJECT 25. The proposed Bank loan would assist SONEDE in the financing of the major components of its 1974-78 investment program. The need for these works was already apparent when Credit 209-TUN was approved and it provided funds for preparation of the Sfax component, the major item in the proposed project, as well as for remedial works there to meet the most urgent needs.  - 8 - 26. The project was appraised in October-November 1973. Negotiations were held in Washington in April-May 1974. SONEDE was represented by Mr. T. Delloua, Deputy Director General and the Government by Mr. T. Ennaifer (Mfinistry of Planning). A report entitled "Appraisal of a Third Water Supply Project - Tunisia" (No. 369a-TUN dated May 6, 1974) is being distributed se- parately to the Executive Directors. A loan and project summary is attached as Annex III. 27. The main component of the proposed project would improvre water supply in Sfax, Tunisia's second largest city with a population of 260,000 in 1972. Rapid urban development has outstripped the capacity of present water sources; in addition, the distribution system is wearing out and undersized. Large numbers of consumers now suffer unreliable supply. Only 37 percent of the population in Sfax is presently connected to the distribution system, while thousands of applications for connections are outstanding and many potential consumers have not thought it worthwhile to apply. The proposed project would involve drilling of wells near Kasserine, construction of a well-field collection system and production reservoirs, a 165 km transmission pipeline to Sfax, distri- bution reservoirs and improvements to and extensions of the existing distribution system. The large villages of Agareb and Mahres, which lie along the route of the Sfax pipeline, would be connected to it; in these two villages and a third, Menzel Chaker, mains and distribution systems would be provided or improved. 28. Other components of the project would serve to bring piped water sup- plies to many low-income groups in urban and rural areas for the first time. In addition to extensions in Sfax, distribution networks in other urban centers would be extended. The project would further provide for the supply of water through both standpipes and house connections to 93,000 inhabitants of 62 rural centers as part of SONEDE's program to supply water to settlements of over 500 inhabitants. Finally, a study would be carried out to compare the costs in- volved in using water of increasing salinity with other alternatives, since Tunisia will increasingly be faced with the need to use such water. In the next five years, the population served by SONEDE is expected to increase by 600,000. Project Execution 29. The project would be carried out by SONEDE. Since its foundation, SONEDE has steadily built up its operating efficiency. Its management has become cost-conscious and performance-oriented. The utility employs 2,100 people with satisfactory conditions of service. The only training need is at foreman level and SONEDE is making arrangements with the Government train- ing agency to meet this need. SONEDE's accounting system is comprehensive and efficient and its accounts are audited by an international firm of auditors, assisted by a local firm. Use of the local firm alone is being considered in view of its satisfactory performance. 30. SONEDE will retain an engineering consultant to prepare the detailed design and tender documents for the Sfax component. SONEDE will carry out the salinitv study with the assistance of consultants. SONEDE personnel, assisted  by consultants, will prepare the tender documents for the extensions and rural centers components of the project and will supervise the construction of the entire project. 31. The first tenders will be called in 1974 and the rest in mid-1975, with the bulk of construction taking place in 1976 and 1977. The Sfax compo- nent and the works in the various rural centers will be completed in 1978. Project Cost 32. The total project cost is estimated at D 18.5 million ($42.6 million). The foreign exchange component is estimated at $24.2 million, or 57 percent of the total cost. Price contingencies have been established assuming an increase over past low inflation rates for local purchases, to 5 percent per annum, and inflation rates on imported goods and services of 14 percent in 1974, 11 per- cent in 1975 and 7.5 percent per annum thereafter. The estimates take into account the impact of recent developments in energy prices. The cost of the main components is set out below: (US$ Million) Foreign Local Total Sfax: 10.6 9.2 19.8 Headworks 1.4 1.4 2.8 Transmission 7.6 6.4 14.0 Distribution 1.6 1.4 3.0 Adjacent Villages 0.5 0.3 0.8 Extensions 2.1 1.9 4.0 Rural Centers 1.6 1.3 2.9 Salinity Study 0.2 0.5 0.7 Design and Supervision 0.6 1.0 1.6 Physical Contingency 2.2 2.0 4.2 Price Escalation Contingency 6.4 2.2 8.6 TOTAL 24.2 18.4 42.6 Financing Plan 33. The project financing forms part of SONEDE's total financial require- ments to carry out its 1974-78 investment program. Total requirements are estimated at D 40.3 millions ($92.7 million), 1/ of which the proposed project will require D 18.5 million ($42.6 million), or 46 percent. The proposed Bank loan would provide D 10.0 million, equivalent to 25 percent of the estimated funds required for the total investment program, and 54 percent of the esti- mated cost of the project. Net internal cash generation under new tariffs to be introduced in 1974 should produce D 14.2 million, or 35 percent of the total requirement. Borrowing for the next major projects would provide D 1.7 million. Consumer contributions are expected to total D 4.3 million over the 1/ Exclusive of residual expenditures on earlier IBRD/IDA projects and their related financing.  - 10 - period. The Government would provide the remaining D 10.2 million. This con- tribution comprises budget allocations based on forecasts in the 1973-1976 national plan, and full reinmbursement by Government of SONEDE's expenditure under the tourism infrastructure project (see para. 23). However, the Gov- ernment's net contribution to SONEDE over the period will be small as it will be largely offset by taxes and duties relating to the project, a tax on all water sales and interest payments on IDA furds relent by the Government to SONEDE amounting, in all, to some D 9 million. Assurances were obtained that the Government will make available promptly any funds needed to meet cost overruns on the project (Guarantee Agreement, Section 2.03). The Government is obliged bv law to rnake good any sl-ortfall in fincincing required by SONEDE for its investment program. Financial Position of SONEDE 34. SONEDE's capital comes mainly from the Government by way of fixed assets hanided over at its formation and cash contributions to development prograins between 1968 and 1973. Over the ;ast five years it has consistently earned a modest return of about 4 percent cn net fixed assets. Under the last agreement with the Association, SONEDE has undertaken to earn a rate of return of 5 percent each year from 1973 to 1975, and 6 percent thiereafter, and these commitments have been reaffirmed in the proposed Loan Agreement (Section 5.06). In 1973 the target rate could not be achieved because of lagging sales due partly to lack of supplies. Water sales are IIow projected to increase by 50 percent over the six years to 1979 with the increasing amount of water becom- ing available. Over the same period, however, the value of total fixed assets and the annual charge for depreciation are expected to double, suggesting a rapidly rising marginal cost of water, as new more costly sources of water must be introduced, often at great distances from points of consumption. Meeting peak demand in tourist areas is particularly costly. 35. In order to achieve the target rate of return, SJNEDE has obtained Government approval to introduce higher tariffs beginning in July 1974. The present tariff was established in 1968 and provides uniform rates for large or small quantities consumed and for all parts of the country. Three classes of consumer are distinguished: general including hotels, large industrial, and public, with the first category paying more than twice the price charged at public standpipes. SONEDE has now agreed to raise the average rate from $0.54/1000 gallons (61 millimes/cubic meter) to $07V1,000 gallonis (84 millimes/cubic meter), an increase of 38 percent (Loan Agreement, Section 5.06). It also proposes to restructure the tariff to direct the increase to hotels and industry, and, via a progressive tariff, to other large consumers. The new tariff level approximates the rising marginal cost of water. The rates charged to two-thirds of domestic consumers would not be changed. The impact on hotels and industry would be negligible in relation to their total costs. 36. The revenue generated by the new tariffs should permit SONEDE to generate about 50 percent of its foreseeable investment needs from internal resources up to 1982. Financial projections for SONEDE suggest that the utility should be able to maintain its debt service coverage ratio well above  the level of 1.5 which it has undertaken to maintain (Loan Agreement, Section 5.05). SONEDE will also continue to consult with the Bank before making new investments outside the project or its present tentative investment program of more than D 1,000,000 in a single project, or D 2,000,000 in any one year (Loan Agreement, Section 5.04). Procurement 37. Major civil works contracts and equipment contracts, except flow regulators requiring standardization and minor purchases of equipment and materials, will be put to international competitive bidding in accordance with Bank Group guidelines. Civil works for small and widely-scattered works will be put to tender based on local advertising and competitive bidding. A prefer- ence margin of 15 percent or the level of customs duty, whichever is less, is proposed for domestic manufacturers of equipment. Disbursement 38. The Bank loan would be disbursed over five years. Disbursements would be made against the c.i.f. cost of imported equipment and materials; 85 percent of the ex-factory cost of locally manufactured equipment; 25 per- cent of all eligible civil works conrracts, representing the estimated foreign exchange expenditure component; and the full foreign exchange costs of consult- ants' services for design and supervision of the works and for the salinity studv. The Bank has approved a contract for the provision of consultants' services to SONEDE by SOGREAH (France) for detailed design and preparation of tender documents for the Sfax component of the project. Retroactive financing of not more than $200,000 would be provided for such services starting from May 1, 1974, since the engagement of consultants to carry out this work was required without delay to maintain the timetable for project execution (Loan Agreement Schedule 1). Project Justification 39. The water supply situation in Sfax is continually deteriorating as the maximum capacity of present sources falls further behind growing demand. At some point, this is likely to hamper the further development of the city. It already poses important health risks. The project works will meet demand until at least 1981. While they are expensive, this reflects the large dis- tance between well-field and point of consumption, and the proposed works are the least costly method of supplying water to the city. The national program of extensions, and the supply of rural centers, will bring increasing numbers of mainly low-income consumers within reach of piped water supplies for the first time. SONEDE's new tariffs will permit low-income, low-consumption households to pay less for water than will more affluent larger consumers. The social benefits will complement the housing effort of the Tunisian au- thorities in rural areas and may help to slow rural-urban migration. The health benefits from piped water supplies are particularly important for these groups of new consumers. The tariff also penalizes excessive water consumption and reflects the rising marginal cost of supplying water. Since  - 12 - Tunisia will increasingly be forced to use water of higher salinity levels, the study of economic costs of higher salinity will provide valuable data for evaluation of future projects and decision-making on water use and development. PART V - LEGAL INSTRUMENTS AND AUTIHORITY 40. The draft Loan Agreement between the Bank and Societe Nationale d'Exploitation et de Distribution des Eaux, the draft Guarantee Agreement between the Republic of Tunisia and the Bank, the Report of the Committee provided for in Article III, Section 4 (iii) of the Articles of Agreement and the text of a draft resolution approving the proposed loan are being distributed to the Executive Directors separately. 41. Features of the Loan and Guarantee Agreements of particular interest concerning SONEDE's rate of return and tariffs are referred to in paragraphs 34 and 35. Implementation of tariffs yielding an average revenue of not less than 84 millimes per cubic meter of water delivered to consumers would be a condition of effectiveness of the loan. 42. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank. PART VI - RECOMMENDATION 43. I recommendl that the Executive Directors approve the proDosed loan. Robert S. McNamara President Attachr,tents May 13, 1974  ANNEX I P 2~ ~ WDUNThY DATAm TURIdTI AREA POPULATION DENSITY k12iS cl5.2 Tillion (e 11971) 32 Per k.2 96 Ia Per arDor areble -and SOCIAL INDICATORS Reference Countries rtUNISIA France iAbycon itroecn __= O ~~~1970 1970 1970 ON? PERt CAPITA 15 AlA A IS 220 /1,.,c 280 Id 3,100 590 23'' DEMOGRAPHIC Crude birth rate (per thoueand) 1.6 38 16.6 hi1 5'' Crude death rate (per thousand) 1 4 1 11.9 13 1, Infant marta]lity rate (per thousand live births) *..15.1 2 .51S Life exPectan;y at birth (yearn) ..52 /n71.5 56 5' Gross reprodu,tion rate 12..31I12 19 Population groath rate /5 ...1 I . . Prpulation gr,.cath rtat - urban ..2.1. /hi2.1.:/ Age structure (percent) 0-b 1.2 Il, 16 /k 23.7 1. 1.' /k 15-61. 537)' 517W (2.9 52 4:7Wk 65 and over 57 1TkW 13.1. s Tk Denendency ralto /1 1.2 1.7- 0.9 If 1.6 2.1. Tk Urhan population as percant of total 1.0 Il , 441 Ii,n 70 /J 56 _/i 3'./kj Famviiy plannSi,g: Na of accePtors cumulative (thous.) .l30 . 6 N.. of users (% of married wcmcan) ..12. EN?LOYMENT Total labor f,rce (thousands) 1,1.30 /I 1, 500/ 20,1.00 I 570 6.,OOC /k Percentage casployed in agriculture 68 77 57 7W 1S/ 19 51~ 7Wk Percentage 'nemploysd *.11. 78 2 La 6 5N7 INCOME DISTRIBUTION Percent of national income received by highest 5%,.. Percent of cat-ional income received by highest 20% .. Perce nt of car tonal income received by lowest 20% .... Percnt of natioa ..1income received by loawst 1.0% - .. rITIRIBUTION OF t.ND OdJERSHIP I ownadbEy to;0. fwer .5.,.ai ..57/n- % caned by nmc [lent 10% of owners .. .5 77? ..7W HEALTH AND N7JTRI lION Population per -phyninlon 10,000 I 5,710 /f 750 1,47C /f 131,6 /f Population par cusing persoc n 7!W 7?, 250 It 1 0(70 TWf . 2 75', 7-,,t Populutiun per honpital bod 3(:2 Ia ac LID If.r, 11 230 7~ff 6d, /f,vt Per capita cal cie supply an % of requirements a5. 94I/ 120 969I Per capita prote.in vupply, total (grace per d,yya . 63 /5 103 70 ~ ' Of which. an_mal and pulse . 11.77 o6 11 11, ~11 Death rain 1-1 yearn /7. 165 c. 0.9 EDUCATION Adjusted 18 prinary school enrollment ratio 71. 10? I 120 /f 116 5: /f Adj-sted 7W sO.condury school enrollment ratio 11 20 1/a 70 7? 36 1/ 7?f YTsa- of ;7Whoollcg provided, first and second level 13 13- 12 12 I Vocational enr *1llccnt an % of s-c school encollment 21. 31.Iq 23 /f I If Adult litaracy rote % . 55 7W,j .69Alo 2ik 7Woiac NiOUSING Average No. of parsons per room (urban) ..I: od0.9 / ..2.1 1k Percent of occpied o-its without piped cater .. 5 T7'n 7~, 7j ..- l Access to elno'ricity (an % of total population) . 21. 7mWan 997?bI,ru Percoot of ,or.,l population connected to electricity. .. 9l8 CONSUMIPTION Radio receiver- par 1000 population Li1 77 3LI a Passenger car s per 1600 population 11 13 253 1.9 1; Electric power consumption (lkch p.c.) 75 154. 2,761 1.11 132 Newsprint cons,moption p.c. kg per year 0.3 0.1 12 1.6 0. Notes: Figures roeme either to the lateat p-riode or to accoact of environmental temperature, body wihs n t.he latest years Latest periods refer in principle to dietrlhoticn hy age and see of national poPulations the yearn 1956-60 -r 1966-70; the lateet yeare in pri- &6 Proteilo standards (requirements) for all countries as estab- ciple to 1960 and :970. Only significantly different lishec by USlDA Economio Research Service provide fur. a miniso. periods or years ap-e footnoted aeparately. allowance of 60 grums of total protein per day, and 20 girams of /1 The Per Capita GNP estimcates for years other than 1960 animal and pulse protein, of which 10 grace should be animal in at market p.-ices, calculated by the sane conversion protein. These standards are somewhat lowe:r than those of 71~ technique ae the 1972 World Bard, Atlan. gram of total protein and 23 grams of animal protein as an 12 Average nombsr of daughtere per womean or reproductive avera1e for the world, proposed by FAQ in the Third World Fond age. Survey. 13 Population grms th raina aure fbr the decadesencading in ? oSme tLadine have suggested that crude death matee of childrau 1960 end 1970. ages 2 through 4 may he used a.c. first approcimatioc indes of /4Ratio of under iS and 65 asnd over age brackets to malnotrition. 5thno- in labor force bracket of ages 15 through 61.. /8 Poeretage enrolled of cor,responding population of school age LiFAO reference standards represent physiological re- an defined for each country. quire,,ents for noma activity and health, taking Iu hi estImate,ozudg pasture.s and forests; lb 19o1; /c Conpute; by applying to the 1971 figure toe gro.in rate of toe GNP/cap. to road nere from 1960 to 1970; Id Does nut coincide witn nhn 1970 Atlan figure since furcisian national aoccount, norto noon bee,i revmned; /n 1965-70; If 1969; a 19,63-70; /n 1956-66; Ai Over 10,000 population; Li Over 2,000 population; 1k 1971; Il 1956; Is 197W; In Urhan centern -anper enn,eratio-n; La 1972; /P Males o;nly; La 1968; Ir 1963; La In7n:ding nur7Wes, and also midwives and sanistant nurne. in coveronent nercice only; It Includiing midwicen; 77 Including anninn,ant comeS and midwives1 Iv Government only; I. 19:2; Ic Including cottages and -1ra honpitals; 7- 196o-66; /c irgistered deathn; l/a. 19617W62; lab Read and wri1te; lo Oe years old; lad (TN stotiotinal office estinatc; 7as Urban only; laf F7Wo-est of housecnolds; lagR Inside; 7?in Pe'roentaga of h.oaning unit. witn electric it ofdtiivttn 1an~ 4I5 Overo 1hyar of ld.aelad excluding 0.TW;Illior ha In public Onership, and 2.1 nillion 6 2 Ndovenbar 29 , 1973  ANNEX I Page 2 of 3 TUNISIA - ECONOMIC DEVELOPMENT DATA SHEET (amounts in milS:jns of U.S. dollars) I / Actual Estimoated Projected-' 1965 1970 19174 1 96-5 1970 1972 IE'L 197 1979 1 970 197 1979 1962 1970 197 9 NATIONAL, ACCOUNTS 5-Year Averages at 1967-69 En us and Exchange gates Average Annual Growth gate As Percent of GDY Cross Donestic Product 1052 1358 2641 1546 2035 2934 5.0 10.8 7.6 99.6 99.2 94.6 Gains from Terms of Trade (+) - 15 11 Sf1 :01 155 167 . 110.0 1.4 0.4 0.8 5.4 Cross Domestic Incoe 104-7 1369 1-67;9 1947 21190 3101 5.5 12.5 7.2 100.0 100.0 100.0 loports (C and NSF) 295 351 4iSs 64 626 913 5.2 14.0 7.8 29.1 27.8 29.4 Esco r ts (C and NFS) ( lmjr aai 191 329 4051 _S) 6L3 90 LI.6 2 I 7.7 19.2 24.0 29.1 Resoure Cap 104 52 34 14 3 12 -13.1 . . 9.9 3.8 0.3 Consuption Expenditurs 896 1113 13~05 1~145 1626 2305, 4.4 9.2 7.3 87.4 81.3 74.4 loesetmnet Expenditures (lorl. Stocks) 25 6 3~08~ 405 313 5,65 804 3.7 18.5 7.2 22.5 22.5 25.9 Domstic Sa-ings 152 25,6 374 399 565 795 11.0 25.0 7.0 12.6 15.7 25.6 Nations) Savings 153 232 361 453 548 788 11.7 28.0 7.5 12.1 16.9 2.5.4 MERCHANDISE TEASE Annual Data at Current Prices An Percent of Total Imports (1974) Copital Condo 77 74 157 170 245 .. -0.3 32.0 .. 19.3 23.2 27.5 Intermediate Goods (-xci. fuels) Si 513 138 17 235 .. 6.9 16.2 . 23.6 35.4 26,.7 Fuels and Related Mat erials 11 13, 32 36 99 . 3.4 41.0 . 6.6 4.1 11.3~ of which: Petralesm 10) (6 16) ( 20) (551) . - 10) (49.5) .. ( 2.1) ( 1. 9) ( 6.3) Consumption Goods 9: 11 1s5 ?23 301 .. J1.5 2.2.jg 50.5 ~37.3 1~4.2 Total Merchandise Imparts (nEf) 252 319 492 26 88 0 .. 4.8 23.9 .. 100.0 100.0 100.0 Exports Primary Products (cur,1 fuel~s Phos.) 59 54 143 429 1.57 .. -1.8 33.5 .. 54.0 28.7 25.4 lock Phosphate 22 24 21 22 68a 2..0 - 2.8 . 13.6 12.8 9.3 Fuels and geatled Materials - s0 55' .10 345 .. . 30.0 . - 26.6 46.9 of whisk: P~trnle- - (41) ( 1) (IOF) (550) .. . (32.5) .. - (23.9) (44.9) Manu.factured Geeds 40 60 -3 [ 04 135 . 20.2 .. 32.4 3AL9 18.4 Total Merchandise Exports (foh) 121 186 332 ~ 75 73-5 9.2 24.8 . 100.0 100.0 100.0 Touri sm 19 65s 149 :60O 176 28.0 35.0 .. 4.2 34.6 24.2 Merchandise Trade Indie~s Averag 19~67-6 = 100 Expert Price Index 94.6, 104.7 131.4 lEo-3 279.1 273.4 2.0 21.3 - Import Price Index 106.5 101.5- 113.4 133. -3 158.4 198..5 - 1.0 9.5 4.6 Terms of Trade Index 86.6 103.1 115.8 114.1 176.1 137.7 3.1 10.4 - 4.8 Exports Volume Index 80.0 125. 8 i65.6 I s,. 6 176.7 253.2 9.1 5. 9 9.9 PUBLIC FINANCE Annu.al Data at Cue-ent Prices As Percent of COp (Central Government) Current Receipt, 197 315 43:0 ~ 79 .. .. 9.8 . 19.0 22.1 Current Expenditures ~~~~ ~~~~ ~~~~~1-50 258 35 1 -527 .. . 11.5 17. . 18.1 Budgetary Savings 47 57 99 152 . 4.0 . 1.7 4.0 Other Esblic Sector ravings - 9 - 7 - 7 -I .. ... . -0.4 -0.5 Puhlic Sector Sovestrent 90 82 96 103 2. . -01 . .. 9.5 5.8 GCUBBEST FXPENDITTURE DE.AILS Actual -Estimated DETAIL ON As Percent (As '6 oi To~talCurretnt Excend.) 1965 l -0 1971 1~6 97 PUBLIC SECTOR At Correo,t Prices oi Total (Central Coveen.net) 2INVESTMEN'T PROGRAM4 Tl (97 2-75) (16871 (j7 5 Education 2.7 12.1 32.7 50.5 30.0 Other Social Services L5.5 16.8 17.3 Ilt.6r 16.7 Social Sectors 95 181 27.8 32.6 Agriculture 5.0 4.1 4.6 3.3 1,.38 Agriculture 122 133 35.7 23.9 Other Economic Servic,es 17.7 17.8 19.4 17.'3 20.4 Industry and Power Defense 3.4 7.2 7.0 (.4 6.9 Transport; Cooxm,nica. 49' 134 14.0 2. Adnimistration and Olser ~~~~~~~~3.7Q 22.0 19.0 27'.9 20.2 Other Total Current Expenditures 100.0 100.0 100.0 100d.0 100. 0 Total Invest. Expend. 1 342 5-56 10-0. 0 100.0 Other Capital Expend.- 193 491 57.9 88.3 SELECTED INDICATORS 1965- 1970 1974FIACN (Calculated r-m 3-ye- avraged data) 970 19U 14(9Puhlic Sector Savings 148 468 27.4 44.7 Average ICOR 4. 463 2.49 3.6.5 Other Financing 72 117 13.3 11.2 Import ElaSticity 1.05 1.36 1.04 Dometic Borrowing (net) 23 144 4.3 13.8 Marginal Donestie Suvfiogs Rate 0.32 0.40 0 13 ForeEgn Borrowing (net) 291 318 55. 0 &21 Marginal National Savings Rate ~~~~~ ~~~~~~~~~0.32 0.41 0.26 Tutal Financing 540 1047 100.0 100.0 LABOR FORCE AND Total Labor For- ~~~~~~~~~Value Added at Pactos Cost Per Worker LAOUTUB FORCEIn ANDon 1 Tota Taora Po: (16769Prcs ndExhng Rtia OUTPUT PEE WORKER Sn Millions ~~~~~~~~~~~ ci Total 1966-72 In U.S. Sollars Percent tf Averagellas 1966-72, - Awrge 166-7 1966 1972 1966 1972 Growth Rate ~ 196 1972 1 1966 2~ Growth Rare Agriculture 0.844 0.800 62.8 57.7 -0.9 220 375 30.8 34.4 9.3 Industry 0.208 0.2.5 15.5 15.4 3.4 1072 1515 150.1 137.6 6.0 Services 0.292 0.332 21.7 23.9 2.2 1,854 24385 263.9 228. 4.18 Total or Average 1.344 1.-35~7 100.0 100.0 05 7T14 109-1 100.0 100.0 7.3 l/ Projected hy the Wlrd Bank. 2/ -ncldes investments in Minis1, Industry. Powe and Transport through transfers te Puhlic Economic enterprise. Economic Analysis and Prc jections Department and EMENA CE II April 5, 1'174  ANNEX I Page 3 of 3 TUNISIA - BALANCE OF PAYMENTS. '.KTERNAL ASSISTANCE AND DEBT PROJECTIONS (amounts in millions of U.S. dollars at current prices) Avg. Annual 1/ Growth Rate Actual Esatimated Projected 1974- 1969 1970 1971 1972 197j 1974 1979 1979 SUMMARY BALANCE OF I'AYMENTS Exports (incl. NF') 286 317 405 563 630 1083 1782 10.5 Imports (inel. NF:') 344 382 439 588 724 1041 1803 11.6 Rcsource Balance (X-M) -58 -65 -34 -25 - 94 42 - 21 Interest (net) -21 -21 -23 -27 - 30 - 35 - 53 8.7 Direct Investment Income - 5 - 9 -10 -25 - 30 - 38 - 65 11.3 Workers' Remittan.es 22 29 43 62 79 85 136 9.9 Other Net Factor ::ervice Income -42 -38 -32 -33 - 35 - 40 - 10 -24.0 Current Transfers (net) 8 10 16 6 9 10 10 - Balance on Curren. Account 9V -94 -40 -42 -101 24 Private Direct Investment 20 19 24 32 64 64 SO Official Capital f:rants 43 43 35 37 48 44 42 Public MiLT Loans Disbursements 88 81 107 157 219 167 136 - 4.0 -Repayments -45 -44 -48 69 - 60 - 61 - 86 7.1 Net Disbursements 43 37 59 88 159 106 50 14.9 Capital Transactions n.e.i. 9 14 12 -37 - 99 - 16 - 4 Increase in Net F*reien Assets (~) -19 -19 9 -78 714 -222 -135 Net Forei,-n Asset: (end year) - 4-" 152l 105' 193~/ 256-' 478 1145 19.1 GRANT AND LOAN COMMI TMENTS Actual Estimated Official Grants 4 Grant-like Loans .. .. .. .. .. 1969 19[70 1971 1972 1973 DEBT AND DEBT SERVICE Public M+LT Loans Public Debt Out. + Disbursed 485 522 609 693 862 IBRD 34 10 37 36 25 IDA 9 11 10 10 7 Interest on Public Debt 15 17 19 22 25 Other Multilateral - - - - I Repayments on Public Debt 45 44 48 69 60 Governments 64 98 83 131 74 Total Public Debt Service 60 61 67 91 85 Suppliers 23 7 5 1 5 Other Debt Service (net) 6 4 4 5 5 Financial Institutions 29 22 30 9 22 Total Debt Service (net) 66 65 71 96 90 Bonds - - - -s Total Public M+LI Loans 159 138 1 34 B urden on Export Earnings (%) Actual Debt Outstanding on Dec. 31, 1972 Public Debt Service 19.6 17.7 14.9 14.6 12.0 ACTUAL EXTERNAL DEBE: Disb. Only Percent Total Percent Total Debt Service 21.4 18.8 15.8 15.4 12.7 World Bank 52 7.5 135 12.2 TDS+Direct Invest. Inc. 23.1 21.4 18.1 19.4 16.9 IDA 28 4.0 61 5.5 Other Multilateral 2 0.4 4 0.4 Average Terms of Public Debt Govcrnments 462 66.7 714 64.4 Suppliers 54 7.8 74 6.7 Int. as % Prior Year DO+D 3.3 3.5 3.7 3.6 3.5 Financial institutions 87 12.6 112 10.1 Amort. as * Prior Year DO+D 9.9 9.1 9.1 11.4 8.5 Bonds 2 0.2 2 0.2 Public Debts n.c.i. 6 0.8 6 0.5 IBRD Debt Out. + Disbursed 18 26 39 52 68 Total Public M+L1 Debt 693 100.0 1108 100.0 " as % Public Debt O+D 3.8 5.0 6.5 7.5 7.8 as % Public Debt Service 2.7 4.2 5.4 6.5 8.6 IDA Debt Out. + Disbursed 13 16 21 28 32 as % Public Debt 04D 2.7 3.1 3.5 4.1 3.7 as * Public Debt Service 0.2 0.2 0.1 0.2 0.3 i/ Projected by tie staff of the World Bank 2/ Calculated at the rate of Dinar l=US $1.905 3/ Calculated at the rate of Dinar l=US $2.080 _,/ Calculated at the rate of Dinar l=US $2.270 not applicable not available ... not asailable separately Economic Analysis and Projections Department but included in total and EFENA CP II - nil or negligible April 8, 1974   ANNEX IY Page 1 of 5 THE STATUS OF BANK C,ROUP OPERATIONS IN TUN CSIA A. STATEMENT OF Wi.14K LOANS AND IDA CREDITS (as at March 3,, 1974) Loan or Credit US $ millions Number Year Borrower Purpose Amouni (less cancellations? Bank IDA Undis Eieht loans and credits fully disbursed 3T4 167 - GI, 1966 Republic of Tunisia Education 11.9 1.2 573 1968 Office des Ports Nationaux Tunisiens Port Development 8.5 0.1 581 1969 SONE'DE Witter Supply 15.0 5.8 60j6 1969 SNCFT Railways 8.5 603 618 1969 Soci,ete Nationale d'Investissement Development Finance Co. 10.0 0.9 200 1970 Repu'ili.c of Tunisia Water Supply 10.5 7.0 238 1971 Republic of Tunisia Population h.8 4.6 71,6 1 971 Rewu lic of Tunisia H- ghway 2L4.0 19.8 770 1 971 Banqie Nationale de Tunisie Agricultural Credit 5.0 5.0 263 1971 Repu,,lic of Tunisia Af'ricultural Credit 3.0 0.5 270 1971 Republic of Tunisia Fisheries 2.0 2.o 798 1972 Societe Nationale d'Investissement Dfvelopment Finance Co. 10.0 5.0 815 1972 STEG Pcwer 12.0 3.9 858 1972 Repullic of Tunisia Tourism Infrastructure 14.0 14.0 329 1972 Republic of Tunisia Tcurism Infrastructure 10.0 9.8 881 1973 Soci,t.t Nationale d'Investissement Development Finance Co. 1b.0 11.0 937 1973 Repul,lic of Tunisia /a Urban Planning & Public Transport 11.0 11.0 1,32 1973 Republic of Tunisia a Urhan Planning & Public Transport 7.0 7.0 Total 166.6 65.7 114.9 of which has been repaid _ 8.6 0.1 Total now outstandinv 158.0 65.6 Amount sold 3.0 of which ha- been repaid 1.5 1.5 {b Total now held by Bank and IDA 156.5 65.6 Total undisbursed 82.8 32.1 114.9 za Not yet effective /A Prior to exchange ad#stment. ri. STATEMENT OF IFC INVESTMENTS IN TUNISIA (as at March 31, 1971) Amount in us$ millions Year Obligor Type of business Loan Equity Total 1962 NPK EnFrais Fertilizer 2.0 1.5 3.5 1966 Societe Natitnale d'Investissement (SNI) Development Finance Co. 0.6 0.6 1969 COFITOUR (Tourism) Development Finance Co. 8.0 2.2 10.2 1970 Societe Nationale dtInvestissement (SNI) Development Finance Co. o.6 o.6 1973 Societe Touristique & Hoteliere RYM S.A. Tourism 1.6 0.3 1.9 1973 Societe d'Eti:des & de Developpement de Sousse-Nord Tourism 0.1* 0.1* Total gross commitments 11.6 5.3 16.9 Less cancellations, terminations, repayments, and sale,3 3.1 0.4 3.5 Total commitments now held by IFC 8.5 4.9 13.4 Total undisbursed 6.9 1.6 8.5 Actual amount is$33,860  ANNEX II Page 2 of 5 C. PROJECTS IN EXECUTION - Cr. 94: Second Education Project; US$13 million credit of September 16, 1966; Closing Date: (original) December 31, 1970; (current) December 31, 1974. Physical execution of the project is almost completed. All project schools have been accepted by the government from the contractors, virtually all equipm.ent and furniture have been purchased, and most of it has been de- livered and installed. Despite early dtelays in the appointment of UNESCO experts and their counterparts in the lducational Planning Unit, an interim report, including a diagnosis of primary and general secondary educAtion and a preliminary analysis of higher education, has been prepared. However, the report does not cover vocational and technical training, education finances and management, and administration of the education system. To allow for the utilization of savings and the completion of the technical assiatance program, a further extension of the present Closing Date is likely to be re- quired. Ln. 573: Port Development Project; US':8.5 million loan of November 29, 1968; Closing Date: (original) December 31, 1972; (current) December 31. 1974. Project works have been completed at a total cost slightl, above ap- praisal estimates, due mainly to unexpected price increases and unforeseen soil conditions, which delayed construction. Savings in foreign exchange of about $0.2 million are being used to finance a ports master plan study whose execu- tion is about to begin. The Closing Dzte has been extended to permit comple- tion of the study. Ln. 581: First Water Supply Project; US$15 million loan of January 16, 1968; Closing Date: (original) December 31, 1973; (current) December 31, 1974. Cr. 209: Second Water Supply Project; US$10.5 million credit of June 30, 1970; Closing Date: December 31, 1974. The first project is proceeding well after initial delays and com- pletion is expected in May 1974, about a year later than estimated originally. The Closing Date has therefore been extended. Final project costs tire expected to be about 6 percent below appraisal estimates (but 7 percent highor in dollar terms because of devaluation). The second project is 12 to 18 months behind schedule due in part to initial delays in final design and to pipe manufacture constraints. More recently, progress has been slowed by a dispute between a contractor and the project authority. Discussions have taken place with a view to settlement of the dispute and to resumption of normal progretss on the contracts affected. Final costs are forecast to be similar to original es- timates, though about 20 percent higher in dollar terms. Because of the delays in execution, it is expected that the Closing Date will have to be extended. 1/ These notes are designed to inform the Executive Directors regarding the progress of projects in execution, and in particular to report any prob- lems which are being encountered, and the action being taken to remedy them. They should be read in this sense, and with the understanding that they do not purport to present a balanced evaluation of strengths and weaknesses in project execution.  ANNEX II Page 3 of 5 Ln. 606: Railways Project; US$8.5 million loan and US$8.5 million credit, Cr. 150: both of June 4, 1969; Closing Date of loan: (original) December 31, 1973; (current) December 31, 1975. The project has been delayed both by floods (one year) and by finan- cial difficulties (one year). It is now expected to be substantially completed by December 31, 1974. The financial problems were caused by non-payment of freight charges by the railway's largest customer, the state-controlled Sfax- Gafsa Phosphate Company; operational deficits, due to low rates and fares; and higher than estimated prices of rolling stock. The Government has taken over the Phosphate Company's pre-1973 arrears and the Company itself is expected to improve its payment record, phosphate prices having recently risen sharply. Government has also undertaken to reimburse railway losses for 1972 and 1973. A new cost-based tariff was introduced on January 1, 1974; traffic and oper- ating results, however, have not improved as expected, and continuing Govern- ment contributions to the railways and further tariff increases will be re- quired. A reallocation of the proceeds of the loan and credit permitted the placing of all outstanding orders; cost increases of about $6 million for items in the original list of goods are being financed by utilizing a Spanish line of credit. The credit has been fully disbursed; the Closing Date of the loan has been extended to the end of 1975 to permit completion of project execution. Cr. 238: Population Project; US$4.8 million credit of April 5. 1971; Closing Date: June 30, 1976. After a slow start, resulting in a 24-month delay, there has been some progress in this project, but many problems remain. A new Director General has recently been appointed to the National Office for Family Planning and Population. Preliminary designs; have been completed and final design of project facilities is progressing well. Construction on the Tunis Maternity Hospital is expected to start in October 1974. Construction costs for the urban maternity hospitals are estimated at more than twice the amount es- timated by architectural consultants at appraisal; one maternity hospital and two rural maternity centers are being eliminated from the project. The total cost of the revised project is now estimated at more than $13 million in place of the $7.7 million estimated at appraisal. Supervision of the physical execution of the project is being intensified. Ln. 746: Ilighways Project; US$24 million loan of June 9, 1971; Closing Date: June 30, 1976. Project execution, which fell behind schedule initially due to lengthy Government procedures and changes in key personnel, is now proceeding satisfactorily. The estimated cost of the project has increased significantly, mainly as a result of dollar devaluation. One major road section may be elim- inated from the project. The Government has been requested to provide supple- mentary funds to permit completion of the other project components.  ANNEX II Page 4 of 5 Ln. 779: Agricultural Credit Project; US$5 million loan and US$3 million Cr. 263: credit, both of July 12, 1971; Closing Dates: July 31. 1975. Disbursements are behind schedule, especially for lending for dairy farms since the cost of imported cows has risen and there is competition be- tween Bank/IDA and other cheaper funds. A severe flood in March 1973 also affected project progress. Consultations are underway with a view to accel- erating the progress of the project. Cr. 270: Fisheries Project; US$2 million credit of September 24, 1972; Closing Date: December 31, 1976. After unsuccessful efforts to design a completely new and economical vessel, it was decided to concentrate on improving construction techniques, materials and design of the existing traditional inshore fishing boat. As a result of substantial cost increases due to factors unrelated to the project, the number of boats which can be procured will be reduced by about 50 percent. However, demand for boats at the higher prices remains strong as fish prices have also increased substantially. A procurement dispute delayed award of the contract for marine diesel engines; this has now been resolved. Bids have been requested for supply of boat hulls, and IDA has encouraged extension of the existing technical assistance contracts. Ln. 858: Tourism Infrastructure Project; US$14 million loan and US$10 million Cr. 329: credit, both of September 28, 1972; Closing Dates: December 31, 1977. The project experienced initial delays because of the time required to adopt legislation establishing the public land corporation which is to ac- quire land in the project zones for resale to investors. The development studies for the six project zones, being executed by consultants, are almost on schedule. Invitations for bids for some project works have been issued. A study of Government incentives for investment in tourism is underway. New heads of the National Tourist Office (ONTT) and the project unit have been appointed.  ANNEX II Page 5 of 5 Ln. 648: Third Development Finance Company Project; US$10 million loan of December 24, 1969; Closing Date: (original) December 31, 1973; (current) June 30, 1974. Ln. 798: Fourth Development Finance Company Project; US$10 million loan of February 9, 1972; Closing Date: March 31, 1976. Ln. 881: Fifth Development Finance Company Project; US$14 million loan of February 20, 1973; Closing Date: March 31, 1978. Disbursements under Ln. 648 are almost complete; those under Ln. 798 are slightly behind schedule, while disbursements under Ln. 881 are ahead of schedule. Business greatly exceeded projections in 1973 and is continuing at an accelerated rate. Persistent problems are the substantial amount of arrears of hotel borrowers and the lack of valid mortgage security for certain sub- loans; these are being closely watched. The dependence of BDET (ex-SNI) on the Government and the IBRD is expected to be reduced by BDET's raising con- siderable funds from local and other foreign sources and by discussions in progress on Government-BDET financial arrangements. A request for a sixth loan is under consideration. Ln. 937: Tunis District Urban Planning and Public Transport Project; US$11 Cr. 432: million loan and US$7 million credit, both of October 5, 1973; Closing Dates: December 31, 1976. Due to delays in appointment of consultants and in recruitment of Tunisian staff for the Tunis District, the loan and credit for this project have not yet become effective. As the offer of the Tunisian supplier fell within 15 percent of the international reference price agreed with the Bank/ IDA, the public transport company (SNT) has decided to award him the contract for supply of project buses.   ANNEX III Page 1 of 3 TUNISIA - THIRD WATER SUPPLY PROJECT LOAN AND PROJECT SUMMARY Borrower: Societe Nationale d'Exploitation et de Distribution des Eaux Guarantor: Republic of Tunisia Amount: $23.0 million equivalent Terms: Amortization in 25 years including 5 years of grace Interest standard Project Water supply for Sfax including drilling wells, trans- Description: mission pipeline, reservoirs and expansion of distribution system; improvement of supply to and distribution in adja- cent villages of Agareb, Mahres and Menzel Chaker; national program of distribution network extensions; supply to 62 rural centers; and study of economic costs of distributing potable water with different salinity levels. Estimated Cost: ($ million) Foreign Local Total Sfax: Headworks 1.4 1.4 2.8 Transmission 7.6 6.4 14.0 Distribution 1.6 1.4 3.0 Adjacent Villages 0.5 0.3 0.8 Extensions 2.1 1.9 4.0 Rural Centers 1.6 1.3 2.9 Salinity Study 0.2 0.5 0.7 Design and Supervision 0.6 1.0 1.6 Physical Contingency 2.2 2.0 4.2 Price Escalation Contingency 6.4 2.2 8.6 24.2 18.4 42.6  ANNEX III Page 2 of 3 Financing Plan: ($ million) Total SONEDE requiirement for funds 1974-78: 92.7 /1 Net Internal Cash Generation 32.5 Borrowings: Proposed Loan 23.0 Other Loans 3.8 Consumer Contributions 9.9 Government Contributions 23.5 Total Sources: 92.7 /1 Excluding residual financing for earlier IBRD/IDA projects. Estimated ($ million) Disbursements: Calendar Years 1974 1975 1976 1977 1978 1979 Annual 0.3 1.0 5.2 8.7 6.0 1.8 Cumulative 0.3 1.3 6.5 15.2 21.2 23.0 Procurement i) Pipe, equipment and materials Arrangements: (a) International competitive bidding for Sfax transmission pipe (one contract) and pipe for all other project works (three tender calls). (b) International competitive bidding for equipment contracts exceeding $30,000; for those over $115,000 prior approval of bidding documents and awards made in consultation with the Bank. (c) Equipment contracts under $30,000 awarded follow- ing SONEDE's usual procedures subject to aggre- gate limit of $300,000. (d) Flow regulating devices costing $300,000 in total from present suppliers. ii) Civil works (a) International competitive bidding for Sfax transmi,ssion pipe installation (two contracts).  ANNEX III Page 3 of 3 (b) Local advertising and competitive bidding for pipe installation in Sfax and adjacent villages. For contracts over $230,000 prior approval of bidding documents and awards made in consultation with the Bank. (c) Negotiated contracts with specialized contractors, or SONEDE personnel, for pipe installation under national program of extensions and in rural centers. Domestic manufacturers to receive preference of 15 percent or customs duty applicable, whichever is lower, in evaluat- ing bids. Consultants: i) For detailed design and preparation of tender docu- ments for Sfax component, and for assistance in supervision of project works. ii) For salinity study. iii) In accordance with guidelines on Uses of Consultants by the World Bank and its Borrowers. iv) Retroactive financing of up to $200,000 for consult- ants' services, after May 1, 1974. Appraisal Report: No. 369a-TUN, dated May 6, 1974.