Togo - Lome Water Supply Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 4164-TO STAFF APPRAISAL REPORT REPUBLIC OF TOGO LOME WATER SUPPLY PROJECT April 8, 1983 Western Africa Projects Department Water Supply Division This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  REPUBLIC OF TOGO LOME WATER SUPPLY PROJECT FISCAL YEAR Government January 1 to December 31 RNET October 1 to September 30 CURRENCY EQUIVALENTS Currency Unit = CFA FRANC (CFAF) 1/ US$1.00 = CFAF 340 CFAF 1 = US$0.0029 CFAF 1,000 = US$2.94 WEIGHT AND MEASURES 1 meter (n) = 3.28 feet 1 kilometer (km) 0.62 miles 1 liter (1) = 0.26 US gallons 1 cubic meter (m3) = 264 US gallons ABBREVIATIONS AND ACRONYMS BOAD Banque Ouest Africaine de Developpement CCCE Caisse Centrale de Cooperation Economique CEFIGRE Centre de Formation Internationale a la Gestion des Resources en Eau DHE Direction de l'Hydraulique et de l'Energie EDF European Development Fund FAC Fonds d'Aide et de Coop6ration GTZ Gesellschaft fUr Technische Zusammenarbeit IDA International Development Association KfW Kreditanstalt fur Wiederaufbau lcd Liter per capita per day MPW Ministry of Public Works, Mines and Water Resources OPEC Fund OPEC Fund for International Development PPF Project Preparation Facility RNET Regie Nationale des Eaux du Togo SISE State Secretariat for Industry and State Enterprises SODECI Societe de Distribution d'Eau de la Cote d'Ivoire UNDP United Nations Development Programme UNICEF United Nations Children's Fund USAID United States Agency for International Development 1/ The CFA Franc is tied to the French Franc in the ratio 50:1.  FOR OFFICIAL USE ONLY REPUBLIC OF TOGO STAFF APPRAISAL REPORT LOME WATER SUPPLY PROJECT TABLE OF CONTENTS Page No. I. THE WATER SUPPLY AND SEWERAGE SECTOR .... ..... 1 1.01 Introduction ............................. 1 1.03 Sector Organization ..................... 1 1.05 Water Resources . . 1 1.08 Piped Water Supply . . 2 1.09 Sanitation and Drainage ................. 2 1.10 Recent Investments in Water Supply .. 2 1.12 Recent Investments in Sanitation .. 3 1.13 Objectives in the Water and Sanitation Sectors . . 3 1.14 Bank Lending . . 3 II. POPULATION, SERVICES AND DEMAND ............... 3 2.01 Population Forecast . . 3 2.02 Residential Patterns in Lome . . 4 2.04 Existing Facilities . . 4 2.09 Level of Service . . 5 2.13 Future Water Consumption . . 5 III. THE PROJECT ................................... 6 3.01 Project Objectives .. 6 3.02 Project Description . . 7 Water Production Facilities . . 7 Water Distribution Facilities .. 8 Preparatory Program.................... 8 Other Components . . . .8............. 3.04 Cost Estimates .......... ............... 9 3.05 Project Financing and Borrower .. 10 3.07 Project Preparation . . 10 3.08 Implementation .......................... 10 3.09 Procurement ............................. 10 3.10 Reporting and Monitoring . . 11 3.11 Loan Disbursement . ............. 11 This report is based on the findings of the appraisal by Messrs. G. Heyland ( Sr. Financial Analyst), S. Calegari (Sanitary Engineer) and S. Katsu (Economist). The appraisal was completed in July 1982. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  IV. THE BENEFICIARY ................ 11 4.01 Background . 11 4.04 Organization and Management .... ........ 12 4.06 Operations and Human Resources Development ........................... 13 4.07 Accounting ........ ..................... 13 4.08 Billing and Collection ..... ............ 13 4.09 Audit .......... ........................ 13 4.11 Insurance ........ ...................... 14 V. FINANCE . ..................................... 14 5.01 Past and Present Financial Situation .... 14 5.05 Tariffs ................................. 15 5.09 Future Financial Performance ............ 16 5.13 Financing Plan .......................... 17 VI. ECONOMIC AND SOCIAL ANALYSIS .................. 18 6.04 Least Cost Solution ..................... 19 6.05 Connection and Standpipe Policy ......... 19 6.08 Marginal Cost and Rate of Return ........ 20 6.12 Affordability ........................... 20 6.14 Population Benefitted and the Urban Poverty Group ......................... 21 VII. AGREEMENTS TO BE REACHED AND RECOMMENDATIONS ............................... 21 7.02 Conditions of Effectiveness ............. 22 7.03 Recommendation . ......................... 22 LIST OF ANNEXES 2.1 Demand Projections (incl. Population Forecast) ................. 23 2.2 Peak Daily Demand ............................. 24 3.1 Cost Estimates ................................ 25 3.2 Implementation Schedule ....................... 26 3.3 Financing Plan ................................ 27 3.4 Estimated Credit Disbursements ................ 28 4.1 Organization Chart of RNET .................... 29 5.1 Financial Projections ......................... 30-32 5.2 Assumptions for Financial Projections ......... 33-34 6.1 AIC and IERR Calculations ..................... 35-36 6.2 Affordability Analysis at Proposed 1990 Tariff Levels ............................... 37-38 8.1 Bibliography .................................. 39 LIST OF MAPS IBRD 16715 - Water Production Facilities--Lome IBRD 16716 - Water Distribution Network--Lome  REPUBLIC OF TOGO STAFF APPRAISAL REPORT - LONE WATER SUPPLY PROJECT I. THE WATER SUPPLY AND SEWERAGE SECTOR Introduction 1.01 Togo has a land area of about 56,000 km2 and a population of approxi- mately 2.6 million inhabitants. One-third of the population (about 800,000) is urban and lives in Lome (the capital) and in 20 smaller urban centers in the regions, where populations range between 5,000 and 30,000. Lom6 is located on the Gulf of Guinea at the boundary with Ghana and has a population estimated at 356,000 in 1981, equivalent to about 14% of the total population of Togo. 1.02 The Government has been implementing water supply systems in most of the urban centers over the last decade. In Lome, the water supply system has, however, not kept pace with the increase in population. As a result, the existing production and distribution facilities are inadequate and cannot satisfy the present water demand. Water supply in rural areas is rather precarious. An important program of village wells is being realized in order to improve water supply in this sub-sector. Sector Organization 1.03 The R6gie Nationale des Eaux du Togo (RNET) is presently responsible for the operation and maintenance of urban water supply systems, e.g. in Lome and in 17 smaller urban centers. Three other centers are still not provided with water supply facilities. Rural water supply is the responsibility of the Directorate of Hydraulics and Energy (DHE) in the Ministry of Public Works, Mines, Energy and Water Resources (MPW). RNET operates under the tutelage of MPW and under additional supervision of the State Secretariat for Industry and State Enterprises (SISE). 1.04 RNET is also responsible for the operation and maintenance of the Lome sewerage system which serves a very limited area of Lome and is the only one in Togo. The implementation, operation and maintenance of public sewerage systems in the whole country would be the responsiblity of RNET. Sanitation other than sewerage is the responsibility of municipalities. Water Resources 1.05 The coastal area has a tropical humid climate with two rainy seasons (one in May-July and one in October). Lome has an average annual rainfall of 811 mm. Proceeding towards north of the country, the climate becomes drier and the annual rainfall tends to concentrate into only one rainy season. 1.06 The smaller urban centers are supplied partly with groundwater and partly with surface water requiring a complete and costly treatment. Most of the rural population is supplied through traditional sources (shallow wells,  -2- ponds, rivers) with dubious water quality and without guarantee of perennial supply. 1.07 At present, the Lome water resource is the Continental Terminal aquifer. Production facilities are boreholes located at Cacavelli, some 11 km north of Lome. They produce 24,000 m3/day which is very close to the reliable yield of this aquifer. The total capacity which theoretically could be ab- stracted from the groundwater resources (including the Continental Terminal aquifer) in the sedimentary coastal basin, is estimated at 170,000 m3/day. Therefore, the water resources situation for the coastal region can be defined as favorable and is expected to secure the water demand even in the long- term. Boreholes will be located progressively farther away from the city and consequently lead to increasing investment cost. The groundwater is corrosive with a pH of 5.5 and up to 100 mg/l of free CO2. A simple neutralization treatment is sufficient in order to bring those parameters to acceptable levels. Piped Water Supply 1.08 About 43% of Lome's population is supplied with piped water, out of which only one-third (about 53,000) are served by private connections and two- thirds (about 100,000) by standpipes. Most of the remaining population is supplied through traditional wells dug in the groundwater table, which is generally polluted. Sanitation and Drainage 1.09 A small part of the central area of Lome has a separate sewerage system built in the late 1940s with a total of only 311 connections. There- fore, the inhabitants essentially rely on on-site excreta disposal through septic tanks and latrines. The sludge is periodically removed from the septic tanks by the municipality of Lome, which, however, is not sufficiently equipped for this service. A storm drainage system also covers only part of the city. Recent Investments in Water Supply 1.10 For urban water supply, the Government investment strategy over the last decade has focussed on the smaller urban centers and has resulted in the construction of appropriate water supply facilities in 17 centers with only three remaining to be covered. For the period of 1976 to 1979, investment totalled CFAF 8.7 billion (US$25.6 million) for 12 centers financing involving both bilateral aid (FAC, KfW) and suppliers' credits. 1.11 For rural water supply, investments have been stepped up in recent years. Programs either under implementation or under preparation to be financed, among others, by EDF, UNDP, UNICEF, and USAID, are expected to result by 1984 in about 1,500-1,600 new boreholes equipped with handpumps. Even so, a recent water sector strategy paper prepared by UNDP consultants estimates that about 2,200 additional wells would be required to meet the demand for the then existing 1990 population. By 1990, a total of 5,500 water points would be required for an adequate coverage.  - 3- Recent Investments in Sanitation 1.12 For Lome, two combined interceptors discharging into the ocean both sewage and storm water collected by the existing separate systems have been built a few years ago: this represents the only investment in sanitation. A recently prepared master plan for Lome sewerage and separate storm drainage projected to the year 2000 has been presented in draft form to the Government by TECHNO-SYNESIS consultants. These master plan's proposals are technically too sophisticated and by far too expensive, and consequently it will be hard to fund their implementation. Objectives in the Water and Sanitation Sectors 1.13 The Government has fully endorsed the objectives of the International Drinking Water Supply and Sanitation Decade.- At the present stage of plan- ning, priority is given to water supply. Within the Decade it should be possible to accomplish an adequate water service level for all urban popula- tion: for Lome with the proposed project and a follow-up project by 1987, and for the remaining three regional centers with bilateral assistance. Also, the rural water supply requirements of 4,000 additional water points by the end of the Decade may be achieved if the international and bilateral efforts continue at the present level. For sanitation, however, the financial and managerial constraints of the country cannot cope with this sub-sector in addition to the ambitious targets for drinking water supply. Thus, only limited action is planned during the foreseeable future. Bank Lending 1.14 This project would represent the Bank's first involvement in the sector in Togo and is an excellent opportunity for establishing a mutual understanding between the borrower and the Bank, particularly in view of further sector development. II. POPULATION, SERVICES AND DEMAND Population Forecast 2.01 According to the last census of 1970, Lome had a population of 193,000 inhabitants. In 1981, the population of Lome was estimated at 356,000 inhabitants, including the population of the nearby center of Agoueve, which will be integrated in the urban development plan. The forecast of population utilized in the UNDP funded Lome Water Supply Master Plan of May 1982 is taken from the recent Urban Development Master Plan of Lome, which is a comprehen- sive document based on a socio-economic enquiry of the existing situation (carried out in 1979) and on the analysis of projected economic urban develop- ment. According to these forecasts, the population of the capital city will grow to 429,000 in 1985 and 533,000 in 1990. The projected average growth rate is about 4.5% for the period 1981-1990, while the observed average annual growth rate was 6% for the period 1970-1979 and 4.6% between 1979 and 1981. The annual growth rate of Togo's total population is about 2.6%. The actual  -4- and projected decline in the population growth rate of Lome is due to the decrease of the rural exodus towards the capital city because of the public investments in the interior of the country in line with Government's policy to favor the stabilization of the population in rural areas and other urban centers. Residential Patterns in Lome 2.02 The main features of Lome are the horizontal development, the rela- tive absence of income strata oriented residential areas and the virtual absence of slums. In Lome, a typical profile of a residential sector com- prises different types of housing ranging from high standard villas over newly constructed small apartment blocks to the traditional houses. 2.03 The continuation of present land speculation could result, in the long run, in pushing the low income population out to the suburbs. The recent Urban Development Master Plan, carried out by TECHNO-SYNESIS, recognized this trend and the added costs of a low density, space intensive urban growth, particularly in the field of urban infrastructure. Consequently, it proposed development schemes providing for densification within the existing city limits, and measures to preserve present habitat characteristics to prevent the growth of urban fringe slum areas. Existing Facilities 2.04 The present production facilities at Cacavelli consist of 12 bore- holes in the Continental Terminal aquifer from which 24,000 m3/day are abstracted by RNET at a depth of 30-40 m. Another 1,000 m3/day are abstracted from the same aquifer by industries for their own purposes. The total of 25,000 m3/day represents the limit of the capacity of this aquifer. No neutralization is provided for eliminating the water acidity. Only part of the produced water is occasionally disinfected through chlorination. 2.05 In the immediate vicinity of the Cacavelli production installations there is a research station which stores and tests different kinds of toxic pesticides over an area of about 2,500 m2. The possibility that pesticides may contaminate the aquifer can only be avoided by moving this station to a site which would pose no threat to groundwater. Government assurance was obtained during negotiations that the relocation will take place not later than by the end of 1984. 2.06 The total capacity of the four existing reservoirs is 6,700 m3 (about 28% of the present average daily production), which can be deemed as just about sufficient for guaranteeing an adequate balancing of the demand as well as the necessary safety margin. 2.07 The distribution network consists of about 260 km of pipes having diameters between 60 mm. and 600 mm. About 10% of the system dates back to the 1940s, 50% to the period 1968-1972, and 40% to 1976-1978. All connections and standpipes are metered.  - 5 - 2.08 The technical efficiency of the system, defined as the ratio between the volumes of distributed and produced water, is about 90%. This remarkable rate is due to significant improvements in recent years, including the replacement of 6 km of old transmission lines in 1980-1981 financed by FAC with CFAF 300 million (US$0.88 million), and a leak detection campaign by RNET with assistance from the consultants SAFEGE. Level of Service 2.09 Lome has a low connection rate. As of May 1981, only 7,200 domestic connections where registered of which approximately 70% are house connections for mainly upper income households. The remainder consists of courtyard connections at an average rate of 3 families per household. This means that about 52,600 persons or 15% of the total population is served by domestic connections. 2.10 Approximately 100,000 persons or 28% of the population are served by standpipes. Overall, 156 standpipes have been installed, of which 71 have been shut down and do not warrant re-opening in view of their locations. The remaining 85 standpipes are used at a ratio of about 1,200 persons per stand- pipe. This unsatisfactory situation is mainly due to the fact that RNET cannot fully recover its cost for standpipe operations. Consequently, only about 43% of the population is supplied with piped water. 2.11 More than 50% of the population is still using water from traditional wells dug in the ground water table which is heavily polluted by waste water from septic tanks and seeping pits. This kind of well is found almost in every household. Further, a very small portion of the population (about 3%) depends on rain-water collection, truck supply (stored in cisterns) or on surface resources. 2.12 Domestic piped water consumption (including standpipe consumption) accounts for 60% of total water consumption in Lomb. The remainder is divided among public institutions, (21.5%) commercial establishments (13.5%) and industries (5%). Future Water Consumption 2.13 Projections of future water consumption and required production are given in Annex 2.1 and 2.2. The main elements are summarized in the table hereunder.  -6 - SUMMARY OF FORECAST OF POPULATION AND WATER DEMAND 1981 1985 1990 Population (thousands) 356 429 533 Average Daily Production (m3/d) 24,000 29,800 40,400 Average Daily Consumption (m3/d) through House Connections 12,000 13,600 19,250 Average Per Capita Consumption through House Connnections(ldc) 228 144 134 No. of House Connections 7,200 11,800 17,700 No. of Persons Served by House Connections 52,600 94,600 143,700 Connection Rate 14.8% 22.1% 27.0% The high average per capita consumption in 1981 (228 lcd) for house connections is due to the fact that most of the present house connections are serving medium and high income households. Through this project the number of persons being served by house connections will double in about 5-6 years. Standard house connections (15 mm diameter) will be provided free of charge so that water will be made available to many low income households with low per capita consumptions. This phenomenon explains why the average per capita consumption is foreseen to decrease. III. THE PROJECT Project Objectives 3.01 The proposed project would be the most important action undertaken by the Government in the urban water supply sector within the 1981-85 Development Plan. The immediate objective of this project is to reinforce the present Lome water supply system so that the combined existing and new facilities can cope with the growing demand up to 1986/87. This goal will be reached through the following actions: (a) Optimization of the utilization of present water supply facilities; (b) Implementation of new supply facilities according to the least cost solution, resulting from the Lome Water Supply Master Plan and Feasibility Study carried out by SAFEGE Consultants in accordance with the Urban Development Plan (para 2.03);  (c) Promotion of house connections, mainly through provision of free connections; (d) Improvement of the institutional arrangements for urban water supply by appointing RNET to be in charge not only of operation and main- tenance, but also of execution and supervision of any new water supply installations, and to achieve financial viability through appropriate revenues. The long-term objective of this first Bank-assisted project in this sector is a sound basis for expanding activities on a countrywide scale, through already tested management and institutional arrangements and technical performances. Project Description 3.02 This project includes the first phase waterworks as defined in the Lom6 Water Supply Master Plan. They will largely extend the coverage of Lom6's popuiation by the piped water supply system (table in para. 2.13) and have been designed with due consideration of the necessary future extensions as defined in the Lome Water Supply Master Plan. The major project components are as follows: Water Production Facilities (a) Twenty exploration boreholes; (b) Three production boreholes (100 m3/h each) equipped with submersible pumps, to be drilled in the "Paleocene" aquifer, total average capacity: 4,000 m3/d; (c) Five production boreholes (50 m3/h each) equipped with submersible pumps, to be drilled in the "Maestrichien" aquifer - at Adeti-Kope - total average capacity: 5,000 m3/d; (d) Ductile cast iron transmission line (length: 12,870 m; diameters: 500, 400 and 300 mm), transporting water from "Paleocene" and "Maestrichien" aquifers into the Cacavelli neutralization plant; (e) Cast iron pipelines (total length: 5,665 m; diameter: 200 mm) connecting the eight boreholes with the transmission line; (f) Improvement of utilization conditions of present water field at Cacavelli; (g) Neutralization plant for pH adjustment; (h) 3,000 m3 ground reservoir; (i) Pumping station (power: 185 kW);  -8- (j) Remote control center; (k) Works' supervision. Water Distribution Facilities: (1) Reinforcement and extension of distribution network, consisting of: Ductile cast iron pipelines, diameter: 250 mm, length: 0.9 km " " "V" " 200 " 15.7 km P.V.C. " " 160 " 36.4 km it " "110 " 156.5 km Total length: 209.5 km (m) provision of 5,000 house connections and 33 standpipes; (n) Works' supervision. The existing and new water production and distribution facilities are schematically illustrated in two enclosed maps: IBRD 16715 and IBRD 16716. The project includes also the following: Preparatory Program: (o) Final design and tender documents relating to the project financed waterworks. Other Components: (p) Reinforcement of management facilities (vehicles, office equipment, etc.); (q) Training equipment; (r) Final design and tender documents for a follow-up project (to be dimensioned for coping with the additional water demand for the period 1987-1990); (s) Management study for RNET and sector structure study; (t) Feasibility study of the Lom6 sanitation system; (u) Technical assistance. 3.03 The project does not include training components and only a small technical assistance component, as other donors such as FAC, KfW, UNDP and GTZ will continue to assist RNET in these fields. A senior staff member has been assigned by RNET to assume training responsibilities and monitoring. By June 30, 1983, a training program will be established by RNET including an imple- mentation schedule and the status of agreements with donors. With the provision under the project of a management adviser, RNET's needs for technical assistance and training will be completely covered.  -9- Cost Estimates 3.04 The estimated costs of the project are detailed in Annex 3.1 and summarized in the Table hereunder. TABLE 3.1 SUMMARY OF ESTIMATED PROJECT COSTS CFAF Million US Dollar Million % of DENOMINATION Local Foreign Total Local Foreign Total Base Cost A. Preparatory Program 16 132 148 0.05 0.4 0.45 2 B. Waterworks - First Phase 1,152 4,209 5,361 3.4 12.4 15.8 8 C. Other Components 111 604 715 0.35 1.75 2.1 12 D. Base Cost: (A)+(B)+(C) 1,279 4,945 6,224 3.8 14.6 18.4 100 E. Physical Contingencies 84 267 351 0.3 0.7 1.0 6 H. Price Contingencies 587 2,206 2,793 1.7 6.5 8.2 46 Total 1,950 7,418 9,368 5.80 21.80 27.60 NOTE: The project costs are net of duties and taxes The total estimated cost of the project is US$27.6 million equivalent and includes physical and price contingencies. The foreign exchange component has been estimated at US$21.8 and includes both direct and indirect foreign ex- change costs. The cost estimates are the preliminary design cost estimates (based on end 1982 unit prices) in accordance with data contained in the Lome Water Supply Master Plan. As the soil characteristics are well known, an allowance of 6% for physical contingencies is considered adequate. Since the acidity of raw water has already been identified, adequate materials for both pump equipment and pipelines have been provided for. Price contingencies have been evaluated based on the implementation schedule illustrated in Annex 3.2. According to experience gathered for similar projects in West Africa in the CFA zone, the expected price escalation would be 12% for 1983 and 1984, and 11.5% annually thereafter until the end of the implementation period. Investments for this project would be free from import duties and taxes.  - 10 - Project Financing and Borrower 3.05 The financing plan would be as follows: US$12.0 million IDA (at usual terms and conditions) US$ 3.5 million BOAD (13 years with 4 years of grace, 11% interest) US$ 4.0 million OPEC Fund (17 years with 5 years of grace, 1% commission) US$ 4.1 million CCCE (20 years with 4 years of grace, 5% interest) US$ 4.0 million RNET Total US$27.6 million A detailed financing plan for the various project components is shown in Annex 3.3. 3.06 The CCCE would lend directly to RNET. IDA, BOAD and the OPEC Fund would lend to the Government. To facilitate loan administration, a single on- lending agreement would be executed between the Government and RNET, for the IDA, BOAD and OPEC Fund financing. An on-lending agreement providing for an interest rate of 11% and a maturity of 24 years including four years of grace would result in an appropriate mix of terms and conditions. Combined with the CCCE loan at 5%, it would result in an average interest rate of about 10%, which is close to the Bank's current lending rate. The agreement would be denominated in CFAF and the Government would assume the foreign exchange risk. The execution of such an on-lending agreement will be a condition of credit effectiveness. Project Preparation 3.07 Final design and preparation of tender documents are ready to be started by the French consultants SAFEGE. Terms of reference were reviewed by the Bank. The fees are provided for under a PPF arrangement of US$441,000. Implementation 3.08 RNET would be the implementing agency for project execution and would be assisted by consultants. It was agreed during negotiations that a team of consultants to supervise construction of works would be employed by the date on which works are initiated. Works' construction is expected to begin in late 1983 and to be substantially completed by the end of 1987. RNET itself would carry out part of P.V.C. pipeline laying as well as the construction of connnections and standpipes. It has already proved its competence in this field of activity. Procurement 3.09 (i) The supply of equipment and material as well as the construction of civil works, laying of pipelines, and installation of equipment would be procured by ICB in accordance with the Bank's guidelines for the portion of the project to be funded by IDA, BOAD and OPEC Fund. Supply and installation of equipment, civil works and pipelines would be procured in accordance with  - 11 - the CCCE's guidelines for the portion of the project to be funded by them. Eligible domestic bidders for supply and laying of PVC pipes and for civil works would be afforded a preference of 7.5% for works and 15% for goods under ICB procurement. (ii) Small contracts for purchase of equipment and vehicles, estimated to cost less than US$50,000 each, and contracts for civil works, estimated to cost less than US$100,000 each (totalling US$0.5 million in aggregate), would be procured on the basis of local competitive bidding procedures which were found at appraisal to be satisfactory to the Bank for the portion of the project to be funded by IDA, and in which foreign bidders have the opportunity to participate. Splitting of the work's construction in contracts would be based on sound technical principles, taking into account the procurement rules of co-financers. (iii) Consultants for the supervision of project works, technical assistance, preparation of the final design and tender documents for a follow- up project, and the various studies would be engaged in accordance with the Bank's Guidelines on the Use of Consultants and under terms and conditions acceptable to the Bank. A total of 213 man-months of consultants at an average unit price of US$7,650, including fees and expenses, has been provided for. Reporting and MIDonitoring 3.10 RNET will report regularly on the progress of project implementation and on the implementation of its training program (para 3.03). The physical achievements of the project will be monitored by indicators outlined in Annex 2.1. RNET will also prepare the Project Completion Report. These requirements will be agreed upon during negotiations. Loan Disbursement 3.11 The character of the project would allow for a relatively fast imple- mentation (3-4 years). However, as this is the first project in the sector, a conservative approach has been applied, consisting of adopting the disburse- ment profile of the West Africa Region for the IDA credit contribution of US$12 million. Estimated quarterly disbursements are shown in Annex 3.4. The closing date would be December 31, 1990. IV. THE BENEFICIARY Background 4.01 The beneficiary of the credit would be the Regie Nationale des Eaux du Togo (RNET), the national water authority for urban supplies. Its nucleus was created by decree in 1959 as the Lome Water Supply Authority and then extended to national responsibilities by law in 1964. A Statute from 1964 defining it as a legally and financially autonomous body was approved by decree in 1965 but never fully applied. RNET's steady development was briefly interrupted for a period of six months by a merger with the national power company, CEET, which took place in December 1979 and was revoked in June  - 12 - 1980. The preparation of a new statute clarifying RNET's status and reaffirming its autonomy, subject to the general rules applicable to state enterprises, is now underway. In the meantime, the Government has agreed to delegate to the Director General all powers necessary to assure efficient management. Respective action, in the form of a decision by RNET's Board of Directors, would be taken before the project becomes effective. 4.02 Until recently and contradictory to the above-mentioned Statute, RNET was a pure operating agency for the investments implemented and recorded in MPW-Hydraulics and Energy Directorate (DHE). For the proposed project, RNET would, for the first time, be the executing agency for large scale investments assisted by consultants and advised and generally supervised by DHE. After successful implementation of the project, RNET should be capable of coping with future sector development in terms of both investments and operation. 4.03 RNET, being responsible for operation and maintenance of the Lome sewerage system (para 1.04), will be in charge of the feasibility study of the Lome sanitation system which is one of the components of this project. Imple- mentation, operation and maintenance of public sewerage systems in the whole country can, however, only be gradually accomplished and should be considered a long-term objective. Organization and Management 4.04 RNET's policies are made, and its operations controlled by a super- visory Board of Directors composed of representatives of various ministries interested in the sector. Under the chief executive, the Director General, four departments are responsible for Projects and Works, Operations, Admin- istration, and Finance. Each is led by a director and split into smaller units in accordance with their specific tasks. The organizational structure is shown in Annex 4.1. The existing organization appears reasonable under the present conditions. With increasing activities, however, it will be necessary to establish a Commercial Department for customers' relations including meter reading, billing and collection, which are now decentralized under the 18 in- dividual operating centers. It will become mandatory to strengthen the Opera- tions Department by splitting it into two divisions, one for Lome and one for the other centers. Furthermore, some responsibilities should be shifted from one department to another, like stock control from Projects and Works to Operations or Administration. Some activities still await their establish- ment, such as internal audit, cost accounting and systematic water quality control. To assist RNET in its ongoing process of growth and improvement, a management study will be carried out as part of the project. During negotia- tions, RNET confirmed that it will afford IDA an opportunity to comment on its further organizational development. 4.05 Most of the middle management positions were very recently filled by young recruits of relevant education and background, but without experience before joining RNET. Some of them have grown in their professional skills with the authority's development. The relatively short distances in the country facilitate regular meetings and seminars of headquarters staff with all outstation managers at three-month intervals which ensure a close personal liaison between the desk managers and the field staff. The dedication of the  - 13 - Director General appears to have created a general environment of motivation and job satisfaction. Operations and Human Resources Development 4.06 While operations in Lome have remained stagnant for the past years, RNET had to operate an increasing number of smaller waterworks in urban centers throughout the country (para 1.10). This extended activity created a need for skilled personnel which was not available in the labor market. RNET has, therefore, sent all engineers in charge of a center and many operators to the SODECI 1/ training center in Abidjan for courses in water supply opera- tion, and also some of the senior staff to overseas courses (CEFIGRE). Fund- ing for such training has been provided by RNET itself. A shortage is now felt particularly on the overseers' and operators' levels. RNET has largely relied on the on-the-job training approach, but a more intensive training program is envisaged in the form of technical assistance by foreign donors (para 3.03). The fact that installations and offices in and outside Lome give the impression of impeccable care and maintenance is due to the strong engage- ment of middle and senior management to train and supervise unskilled staff. The total number of employees is about 300 and is not expected to increase during the project period. Accounting 4.07 In 1981 RNET converted its Government accounting system to a commer- cial one. All fixed assets in Lome and in the centers, although legally not yet the authority's property, have been registered, valued and properly depre- ciated. A cost accounting system, as part of a management information system, is under preparation and will be introduced in 1983 with the assistance of a consultant. Billing and Collection 4.08 After a period of negligence, RNET has strengthened its efforts to bill regularly, to control payments and to take appropriate actions from reminding to disconnecting non-payers. Whereas the Government pays promptly and in full for consumption on administration premises, it is difficult for -RNET to collect the considerable amounts due by the local authorities for water taken from public standpipes. Assurance was obtained during negotia- tions that the Government will either pay or ensure the payment of these dues as from mid 1984. Audit 4.09 The Statute entitled the Minister of Economy and Finance to assign one to three external auditors (Commissaire aux Comptes) for a period of three years. Although this guaranteed some kind of external audit in the past, it was suggested to provide in the modified Statute for the Board of Directors to 1/ SODECI is a private enterprise in charge of water supply systems in the Ivory Coast.  - 14 - appoint an independent external auditor, and this on a year-by-year basis. An understanding will be sought during negotiations that an independent external auditor, acceptable to the Bank, will be appointed effective as of FY83. 4.10 A regular internal audit unit does not yet exist. Some internal audit has been carried out by an outsider who, as an audit expert, is a part- time employee of RNET. He will also assist RNET in establishing a proper internal audit unit. Insurance 4.11 RNET has insured only its car fleet. It is, however, understood and accepted that the corporation will have to insure goods supplied under the project loan. To take over the responsibility for risks like fire, theft or third party liability, which has so far been with the Government, RNET intends to build up internal risk provisions for self-insurance. This solution may be considered satisfactory and should be subject to continuous monitoring. ,V. FINANCE Past and Present Financial Situation 5.01 For the first time in its history, RNET has established a balance sheet for FY80/81, although its accounting system had not yet been converted into a commercial one. The year end's statements may be considered as RNET's opening balance. Meaningful information and reliable figures for previous periods are extremely difficult to obtain, due not only to the application of a Government accounting system but even more so to the temporary merger with the power entity (para 4.01). The effort to obtain such data may outweigh their benefit for retrospective considerations. The appraisal mission reviewed basic data and accounting policies applied and was satisfied with the results. 5.02 The past was characterized by RNET's activities as a distribution entity. A small capital of CFAF 252 million (US$741,000) was sufficient for its few operational assets. Its working capital was mainly financed by suppliers' credits, delayed payment of dues and bank overdrafts. The Govern- ment financed all production and distribution systems and, after completion, handed them over to RNET for operation. Since RNET did not have to cover depreciation or debt service for these investments, the relatively low tariffs were adequate to cover operating expenditures. They would have provided for a comfortable financial cushion if billing and collection had not become subject to relaxed attitudes causing accounts receivable to slip to 17 months equiva- lent of billing. Sporadically, Government helped with subsidies. By and large, RNET started its new era with retained earnings higher than its capital but with serious lack of cash. 5.03 After its separation from the power entity and under new management, RNET took strict measures to improve its situation supported by the Government which approved an overdue tariff raise of 30%, effective January 1982, and committed itself to a policy of full cost recovery in the future. Several measures, including another tariff increase, to be implemented during the next  - 15 - few months are expected to make water supply operations financially viable. Moreover, the Government agreed to transfer all urban sector investments into equity which RNET valued and provisionally accounted for as Government investment subsidies in its balance sheet for FY80/81. As their net value is in the order of CFAF 10 billion (US$29.4 million), it is assured that RNET's future capital will reflect this amount. 5.04 At present, a clear improvement of the financial situation is re- corded. Prompter billing and stricter collection, along with increased public relations efforts, has reduced the receivables from OFAF 844 million to below 500 million. Bank overdrafts have disappeared and gradually cash accu- mulates. Accounts payable and other liabilities, i.e. taxes and social secu- rity contributions could be considerably reduced. The income before taxes for FY81/82 is expected to still be negative by CFAF 93 million, compared to an operational loss of CFAF 345 million in 80/81. Whereas last year the loss was reduced by subsidies of CFAF 288 million to CFAF 57 million, no further Government subsidies can be expected at present nor in the future. A new tariff increase of again about 30% is envisaged for 1983 and from then onwards RNET is expected to be financially viable. Tariffs 5.05 RNET's tariff structure is simple and does not distinguish between consumer groups. All connections are metered, and each consumer pays a basic rate for the first 10 m3 and a moderately higher one for all exceeding con- sumption. Tariffs in Lome and in the other urban centers are the same in spite of the higher supply cost in the interior. The Government has decided to maintain this system of cross-subsidization between Lom6 and the smaller urban centers. 5.06 The Government adopted the conclusions of a tariff study, carried out in 1982 by consultants SAFEGE, that commercial and industrial consumers should pay considerably higher rates to keep the supply for basic needs of the popu- lation at a reasonable and affordable level. The medium-term tariff policy will establish a third tariff category for higher consumption and increase it progressively over time to the extent that these consumers pay the long-term marginal cost price. The rate structure (in CFAF/m3) might then develop as follows, subject to adjustments as needed: Until 1981 1982 1983 1984 1985 0-10 m3 70 90 90 100 120 This rate will also apply to the admin- istration, including standpipe supplies. 10-30 m3 ) ) 135 150 180 ) ) 30 and ) 80) 100 more ) ) 160 200 250  - 16 - Also commercial and other big consumers will benefit from the lower basic rates, but the structure has the advantage that no categorization of consumers will be necessary. The periodical adjustment of water tariffs according to the above scheme would be a covenant in the loan agreement. 5.07 Public standpipe supply for the poorest section of the population will continue. However, RNET intends to increase speedily the number of house connections with the two-fold benefit that the comfort and quality of supply improves for the consumers and that RNET will generate additional revenues. It was decided to waive the fee for normal domestic connections of CFAF 75,000 (US$220) and provide them free of charge. Their cost will be recovered through the water rates. Eligible consumers would then deposit CFAF 25,000 (US$74) for the risk of default and subsequent disconnection. 5.08 Xoreover, based on a recommendation of the tariff study, the Govern- ment decided to introduce a tax for those industries which extract their water directly from the groundwater table. It is justified by the fact that addi- tional groundwater sources for the growing public demand have to be tapped in farther distances thus causing higher marginal cost to the economy in gener- al. Assurances were obtained during negotiations that legislative action in this respect be taken no later than by January 1984. Any industrial utilizer of ground water would be obligated to install a suitable meter, according to RNET's standards. RNET's employees would be allowed to enter the premises to read such meters. The Government will also take action to prevent any extraction of water which would adversely affect the groundwater table. Future Financial Performance 5.09 Financial projections for the years until 1990 are shown in Annex 5.1. Assumptions are outlined in Annex 5.2. Salient features of RNET's finances are summarized in the following table: SUMMARY OF RNET'S FINRNCES FISCAL YEAR i98