Togo - Lome Water Supply Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. P-3520-TO REPORT AND-RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT OF SDR 10.9 MILLION TO THE REPUBLIC OF TOGO FOR A LOME WATER SUPPLY PROJECT April 14, 1983 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 authorizltion.  CURRENCY EQUIVALENTS Currency Unit CFA FRANC (CFAF)1/ US$1.00 CFAF 340 CFAF 1,000 US$2.94 WEIGHTS AND MEASURES 1 meter (m) 3.28 feet 1 kilometer (km) = 0.62 miles 1 liter (1) 0.26 US gallons 1 cubic meter (m3) = 264 US gallons 1 cubic meter (m3) = 1000 liters ABBREVIATIONS AND ACRONYMS BOAD Banque Ouest Africaine de Developpement CCCE Caisse Centrale de Cooperation Economique CEFIGRE Centre de Formation International & la Gestion des Ressources en Eau DHE Direction de l'Hydraulique et de l'Energie EDF European Development Fund FAC Fonds d'Aide et de Cooperation GTZ Gesellschaft fur Technische Zusammenarbeit IDA International Development Association KfW Kreditanstalt fur Wiederaufbau 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 CSte d'Ivoire UNDP United Nations Development Program UNICEF United Nations Children's Fund USAID United States Agency for International Development FISCAL YEAR Government January 1 to December 31 RNET October 1 to September 30 1./ The CFA Franc is tied to the French Franc in the ratio 50:1.  REPUBLIC OF TOGO FOR OFFICIAL USE ONLY LOME WATER SUPPLY PROJECT Credit and Project Summary Borrower: The Republic of Togo Beneficiary: Regie Nationale des Eaux du Togo (RNET) Amount: SDR 10.9 million (US$12 million equivalent) Terms: Standard a Relending Terms 11 percent interest; maturity of 24 years including four years grace. The Government would bear the foreign exchange risk. Co-lenders: Banque Ouest Africaine de Developpement (BOAD) Caisse Centrale de Cooperation Economique (CCCE) OPEC Fund for International Development (OPEC FUND) Project Description: The project would increase the number of persons served by the Lome water supply system, improve the quality of water, and establish a sound policy and institutional basis for future sector development. The entire population of Lome, of which 55 percent have incomes at or below the poverty level, would benefit from the project. Financing would be provided for: (a) improvement of present production faci- lities; (b) construction of eight new water production bore- holes, 13 km of transmission.main, a neutralization plant, a ground reservoir, a pumping station and a remote control center; (c) reinforcement and extension of the distribution network through the provision of 210 km of pipelines, 5,000 house connections and 33 standpipes; (d) consultant services to carry out project preparation and other studies; (e) ve- hicles and office and training equipment; and (f) technical assistance. Benefits and Risks: The project would have an economic rate of return of 6%, based on existing covenanted tariffs, not counting consumer surplus and positive externalities such as health impro- vements. The primary benefit would be the increased availability of high quality potable water in Lome. The number of persons with direct access to water would increase by about 57,000 and an additional 24,000 would gain access to standpipes. The population in general would benefit from improved living standards and better sanitary conditions which would lead to health improvements. Reforms in the tariff structure would establish RNET's financial via- bility. The major risk which might affect the project has to do with RNET's inexperience as an implementing agency. 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.  - ii - Estimated Cost Local Foreign TOTAL ----------US$ million----------- Improvement and Construction of Production Facilities 1.7 7.6 9.3 Distribution Network, Connections and Standpipes 1.7 4.8 6.5 Project Preparation 0.1 0.4 0.5 Other Studies and Consultant Services 0.2 1.2 1.4 Vehicles, Office and Training Equipment 0.1 0.6 0.7 Base Cost 3.8 14.6 18.4 Physical Contingencies 0.3 0.7 1.0 Price Contingencies 1.7 6.5 8.2 Total Project Cost 1/ 5.8 21.8 27.6 Financing Plan IDA 1.3 10.7 12.0 BOAD - 3.5 3.5 CCCE 0.5 3.6 4.1 OPEC Fund - 4.0 4.0 RNET 4.0 - 4.0 Total Financing 5.8 21.8 27.6 Estimated Disbursements FY84 FY85 FY86 FY87 FY88 FY89 FY90 Annual 1.0 1.1 3.1 2.8 2.0 1.3 0.7 Cumulative 1.0 2.1 5.2 8.0 10.0 11.3 12.0 Economic Rate of Return: 6 percent Estimated Completion Date: June 30, 1990 Staff Appraisal Report: Report No. 4164-TO, dated April 8, 1983 Maps: IBRD 16715 and IBRD 16716 1/ The project is exempt from taxes and duties.  INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED DEVELOPMENT CREDIT TO THE REPUBLIC OF TOGO FOR A LOME WATER SUPPLY PROJECT 1. I submit the following report and recommendation on a proposed Devel- opment Credit to the Republic of Togo for SDR 10.9 million (US$12.0 million equivalent) on standard IDA terms to help finance a Lome Water Supply Project. Co-financing is expected from the French Caissse Centrale de Cooper- ation Economique (CCCE) in a loan equivalent to US$4.1 million, from the Banque Ouest Africaine de Developpement (BOAD) in a loan equivalent to US$3.5 million and from the OPEC Fund for International Development a loan equivalent to US$4.0 million. PART I - THE ECONOMY I/ 2. An economic report entitled "Togo: Country Economic Memorandum" (3416-TO) was circulated to the Executive Directors in January 1982. Its assessment of the country's economic prospects, updated by recent Bank missions, is reflected in the following paragraphs. Annex I contains basic economic data and selected social indicators. Introduction 3. Togo is a small country (56,000 km2) with a population of about 2.5 million and a per capita GNP of US$363 (1980). Phosphate mining is the prin- cipal source of foreign exchange earnings, accounting for nearly 40 percent of export revenues in 1979/80, and receipts from phosphates represent about 30 percent of Government revenues. Political stability has prevailed since 1967, when a military Government came to power. General Eyadema remains President, but the Government has gradually become entirely civilian. Togo's external policy, in the spirit of the Lome I and II Conventions, favors regional and international cooperation. Economic Performance 4. Slow growth and increasing financial disequilibria have been the main features of the Togolese economy since the late 1970s. The slow growth represents a deceleration from historical growth trends, and is the result of 1/ This section is essentially the same as Part I of the President's Report for the Second Rural Development Project in Cotton Areas, Report #P-3398-TO, November 4, 1982.  - 2 - poor performance by many state enterprises and a persistent stagnation or decline in the prices and quantities of exports. The 1974/75 boom in world phosphate prices contributed to a substantial increase in export earnings and Government revenues, and prompted the Government to adopt an ambitious Development Plan for 1976-80. Nevertheless, growth in real GDP averaged less than 3 percent per annum during the 1975-80 period, and was negative in 1981. The resource gap widened significantly through 1978 as expenditures outpaced production. Gross domestic investment rose sharply to exceed 50 percent of GDP in 1978, but declined to an estimated 28 percent in 1981, as fiscal constraints necessitated a cutback. 5. The primary sector accounts for about 26 percent of GDP, but employs 80 percent of the labor force. Growth has been limited by inadequate invest- ment, insufficient price incentives, and occasional droughts. The secondary sector accounts for about 20 percent of GDP, with most industrial development conducted by state enterprises. The recent growth in this sector is attribut- able to phosphate rock production, which has, however, experienced dramatic swings as a result of the 1974 price increase, a price decrease in 1975/76, another increase in 1980, and the shifts in demand which accompanied these price changes. Large investments in industrial projects following the 1974/75 boom in phosphate prices have failed to contribute to an increase in GDP, because of low or occasionally negative value added realized by several of the new industrial units. The tertiary sector accounts for about 54 percent of GDP. Togo has traditionally served as a regional trading center with an open- door policy. Private investors have tended to favor commerce, real estate and financial services over industrial ventures. A rapid increase in public ser- vices led to a growth in government employment from 22,500 in 1975 to 37,000 in 1978; however, financial problems necessitated restraint from 1979 on. Public Finance 6. In 1975, current revenues of the Government nearly doubled to CFAF 33 billion as revenue from phosphates tripled from CFAF 4 to 12 billion. In 1976, the first year of the third Five-Year Plan, the Government embarked upon its expansionary program just when the phosphate market weakened. However, while phosphate prices fell, demand and output rose, and -- supplemented by higher import duty receipts -- current revenue continued to rise. Although current expenditures also increased rapidly, mainly due to a rising wage bill, a sizeable surplus was left to finance both investment and debt service until 1978 when debt service obligations became overwhelming. 7. Public investment (in current prices) of the administration, state enterprises and agencies increased from CFAF 30 billion in 1975 to CFAF 88 billion in 1978, and continued at the still high but reduced rate of about CFAF 67 billion in 1980, as disbursements were made on projects being imple- mented. Although the 1976-80 Development Plan had placed more emphasis on rural development than previous plans, during implementation major shortfalls were experienced for this category while more expenditures than planned were devoted to infrastructure, tourism and industry. 8. In recent years, many state enterprises have been unable to pay the debt service on their foreign borrowings, and the Treasury has had to shoulder  - 3 - the responsibility. Arrears have accumulated as payments lagged. In 1979, Togo agreed with the IMF on a financial program, and rescheduled its debt through the Paris Club for 1979-80. A second round of debt rescheduling (for 1981-82) and a second standby arrangement with the IMF were obtained in early 1981. Even after debt rescheduling, the ratio of debt service to current revenues was about 35 percent in 1981. Because of a decline in Government revenues in 1981, a sizeable portion of the rescheduled debt service obliga- tions was not met. The financial program with the IMF was abandoned, and the debt rescheduling for 1982 through the Paris Club has been left in abeyance. The Government is currently trying to meet the preconditions for a new program with the IMF. 9. To ease these severe fiscal restraints, Government has adopted tax and customs reforms, increased the rates charged by some public utilities, limited civil service hiring and salary increases, and reduced extrabudgetary expenditures. In addition, public investments were reduced to about CFAF 35 billion in 1981 and are not expected to exceed CFAF 32 billion in 1982. Structural Adjustment 10. In parallel with efforts to reach an agreement with the IMF on a financial stabilization program and its own budgetary and tax reforms, the Government is pursuing an intensive dialogue with the Bank on the adoption of a structural adjustment program. The main elements of such a program would include: a) rehabilitation of state enterprises, b) promotion and diversifi- cation of exports through stronger incentives in the rural sector and greater value added in mining, and c) improved macro-economic management. Further action on the proposed program is now awaiting agreement between Government and the IMF on short-term stabilization measures. Prospects for the 1982-85 Period 11. In the 1982-85 period, the outlook is for average annual real GDP growth of about 3.4 percent, i.e., an increase in GDP per capita of about one percent per annum. The pursuit of less expansionary policies is expected to lead to a substantially smaller resource gap and higher domestic savings. 12. In agriculture there is a potential for increasing the output of both food and export crops, and growth is projected to be about 3 percent annually, assuming favorable weather conditions. An increase in food crop production could be achieved through wider use of modern production techniques. Cotton production is expected to increase at about 16 percent per year with continued