Morocco - National Water Supply Rehabilitation (Fourth Water Supply) Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. P-4548-MOR MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN IN AN AMOUNT EQUIVALENT TO US$ 60.0 MILLION TO THE KINGDOM OF MOROCCO FOR A NATIONAL WATER SUPPLY REHABILITATION PROJECT April 29, 1987 This docimen' 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.  CURRENCY EQUIVALENTS lUS$ Dollar ($) - 8.40 Moroccan Dirham (DH) 1DH US$0.119 FISCAL YEAR January 1 - December 31 PRINCIPAL ABBREVIATIONS AND ACRONYMS USED LCB - Local Competitive Bidding ICB - International Competitive Bidding LIB - Limited International Competitive Bidding FA - Force Account AR - Administration de l'Hydraulique CSE - Conseil Superieur de l'Eau DRSC - Direction des Regies et Services Conc6des FEC - Fonds d'lEquipement Communal ONEP - Office National de l'Eau Potable  FOR OMCuL VS$ ONLY KINGDOM OF MOROCCO NATIONAL WATER SUPPLY REHABILITATION PROJECT LOAN AND PROJECT SUMMARY Borrower: Kingdom of Morocco * Beneficiaries: The National Water Production Company (ONEP), the sixteen water distribution companies (Regies), the R6gies' Directorate (DRSC) of the Ministry of Interior and the Hydraulic Administration (AH). Amount: US$60 million equivalent. Terms: Twenty years, including 5 years of grace, at standard variable interest rate. Onlending Terms: Same as lending terms. ONEP and Regies assuming foreign exchange and interest risks. Financing Plan: IBRD $60.0 million Equipment Communal Fund (FEC) $ 3.0 million Net Internal Cash Generation $60.8 million Government (DRSC & AH) $ 4.5 million TOTAL $128.3 million Economic Rate of Return: 18Z Staff Appraisal Report: Report No. 6087-MOR This document has a restricted distribution and may be used by recipients only in the perfance I of their oMcial duties. Its contents may not otherwise be disclosed without Worm Bank a ation.  MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE KINGDOM OF MOROCCO FOR A NATIONAL WATER SUPPLY REHABIITATION PROJECT 1. The following report on a proposed loan to Morocco for the equivalent of US$60.0 million is submitted for approval. The proposed loan would have a term of 20 years, including 5 years of grace, at the Bank's standard variable interest rate, and would support water supply rehabilitation works throughout Morocco and introduce long-term policy reforms. 2. Background. Water is scarce in Morocco and existing groundwater sources are becoming exhausted or are deteriorating in quality as a result of over-exploitation. ireated surface water is therefore brought from greater distances to supply the larger cities. Although about 802 of the urban population receives piped water, and about 302 of the rural areas has access to piped water, most of the water supply systems installed during the first half of the century need urgent repairs and rehabilitation to reduce water losses and improve the service. Sewerage services, which have not kept pace with the development of water supply, also need remedial attention and are the subject of a proposed loan for the R6gie I/ of Greater Casablanca (RAD) and six additional Regies. 3. Institutional, financial, administrative and technical limitations restrain the efficient management of the water supply sector in Morocco These limitations seriously impair the rational financial and investment planning of the sector as well as the monitoring of its development. The Government and the Bank seek to resolve these issues through policy reforms and sector adjustment measures, such as strengthening cost recovery, and fostering the development of a strong institutional framework in order to effectively contribute to the country's overall development process. This strategy is also designed to institutionalize a rational decision process for new investments in water production and distribution facilities. 4. Project Objectives. The project includes of a number of sector restructuring actions, the objectives of which are to: (i) develop the Government's and the Regies' capabilities to identify, prepare, appraise and L' Regies are public enterprises which supply water throughout Morocco, and are expected to provide sewerage services eventually.  - 2 - monitor projects which meet strictly defined economic and financial criteria; (ii) improve the performance of the water supply companies through organizational, financial and management reforms; (iii) progressively reduce the dependence on Governmental budgetary transfers of the Office National de l'Eau Pobable (ONEP), an organization unier the Ministry of Equipment, responsible for potable water production and conveyance; (iv) rehabilitate existing installations to increase the quantity of water available for distribution and reduce operating costs; (v) improve overall sector management and investment planning through the creation of a system for the planning and coordination of investments in the sectors; and (vi) establish a regulatory framework to control the use and disposal of water. 5. Project Descript on. The project, to be implemented over an eight year period, introduces policy reforms and sector adjustment measures designed to alleviate constraints facing the sector, by restructuring ONEP, the sixteen water supply Regies, the Hydraulic Administration (AH) of the Ministry of Equipment and the Regies' Directorate (DRSC) of the Ministry of Interior. The proposed project and related policy actions include the following: (i) technical restructuring, including rehabilitation and replacement of water production and distribution facilities, studies to complement existing water resources surveys and water supply master plans in major urban areas, and formulation of maintenance and investment programs for ONEP and the Regies; (ii) institutional restructuring, including the establishment of a system to develop strategies for water resources management, to regulate the extraction, use and disposal of water, and to coordinate long-term investment planning between ONEP and the Regies; a study to optimize the institutional organization of the water supply sector; development of a program to improve the procurement process in the Regies; and establishment of a corporate development plan (Contrat Plan) agreed between the Government and ONEP; (iii) financial restructuring, including introduction of new financial policies and restructuring of the financial position of the Regies, the settlement of Government's arrears to ONEP and the Regies, as well as implementation of measures to prevent future build-up of arrears, and the improvement of accounting and auditing; and (iv) administrative restructuring, including development of management information systems and training programs within the sectcr, provision of computer equipment for the Regies, ONEP and the Hydraulic Administration, and provision of technical assistance for subproject appraisal and supervision. 6. The total project cost (net of taxes and duties) is estimated at US$101.3 million, with a foreign exchange component of US$60.0 million. A breakdown of costs and the financing plan are shown in Schedule A. Amounts and methods of procurement and disbursements, and the disbursement schedule are shown in Schedule B. A timetable of key project processing events and the status of Bank Group operations in Morocco are given in Schedules C and D respectively. Two maps of the locations of the Regies and of the ONEP centers are also attached. The Staff Appraisal Report, No. 6087-MOR dated April 28, 1986, is being distributed separately. 7. Rationale for Bank Involvement. Since 1968, the Bank has been active in lending to Morocco to improve the access to a safe water supply, particularly for the low-income population in urban areas. Severe budgetary constraints in the Government have encouraged the Bank to orient sector lending towards optimization of the efficiency of existing water production and distribution facilities, before conisidering significant program  - 3 - expansion. Such an approach is reflected in both the Bank's water supply and severage sector strategies. 8. Agreed Actions. Agreement was reached on: (i) the financial, technical and economic criteria and procedures to be used by DRSC to appraise the R6gies' subprojects; (ii) the implementation of Management Information Systems and performance indicators to monitor the development of ONEP and the Regies; (iii) settlement of public arrears in the water supply sector in accordance with guidelines and a schedule acceptable to the Bank and budgetary allocations sufficient to avoid a build up of future arrears; (iv) achievement by the Regies of a net cash generation equivalent to at least 30% of those annual capital expenditures which are not prefinanced by customers' and developers' contributions, and achievement by ONEP of a net cash generation of at least 15% from 1987 to 1990, 20% in 1991 and 30% in 1992 and thereafter of its annual investment program; (v) annual updating of an investment program for ONEP satisfactory to the Bank; and (vi) annual review of the government's 5-year investment program for the water supply sector. 9. As conditions of effectiveness, (i) the Borrower will enter into a subsidiary Loan agreement with ONEP, satisfactory to the Bank; and (ii) ONEP and the Government will agree on a corporate development plan, satisfactory to the Bank. In addition, the following conditions of disbursement are proposed: (i) for the portion of the loan related to a particular Regie, approval by the Bank of the Regie's subproject and the conclusion of a subloan agreement between the Government and that Regie on terms and conditions satisfactory to the Bank. If additional funding is required for financing a R6gie's subproject, the signing of a financing agreement on terms and conditions satisfactory to the Bank between FEC and the Regie concerned would also be a condition of disbursement of the portion of the Bank loan to that Regie; and (ii) for the entire portion of the loan related to the Regies, the employment of consultants, under terms and conditions satisfactory to the Bank, to provide technical assistance for subproject appraisal and supervision, and the creation of a project unit in DRSC. 10. Justification. The institutional, financial, and administrative reforms under the project would improve the efficiency and viability of sector institutions, reduce their dependence on public financing, and foster better water resource development and overall sector management. By rehabilitating the water supply systems, the project would bring immediate relief to about 80 percent of the urban population or about 7.0 million inhabitants, as well as to commercial and industrial enterprises experiencing an intermittent water supply service. The reduction in water losses expected under the project would permit deferral of some facility expansion and better investment utilization. The project represents the least cost solution to improve the efficiency of water production and distribution facilities and would not create any adverse effect on the environment; on the contrary, leakage detection and repairs would yield health benefits through reducing the incidence of stagnant water bodies and consequent pollution risks. 11. Risks. The risks, which are considered minimal, relate to possible delays in the Government's performance of institutional, financial and administrative reforms in the sector. The government has so far however, expressed its full commitment to the implementation of such reforms.  -4- 12. Recommendation. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank and recommend that the Executive Directors approve this loan. Barber B. Conable President Attachments Washington D.C. Aprii 29, 1987  SCHEDULE A Estimated Project Cost ^': ComPonent Local Foreign Total US$ Million --- Rehabilitation of Production Facilities 2.9 3.3 6.2 Rehatilitation of Pumping Stations 3.3 3.4 6.7 Supply of Pipes and Materials 14.2 12.6 26.8 Pipelaying 8.2 5.0 13.2 Distribution Reservoirs 10.4 5.9 16.3 Supply, Repair & Installation of Equipment 7.2 11.0 18.2 Studies, TA & Training 4.4 10.1 14.5 Total Base Cost (January 1987) 50.6 51.3 101.9 Physical Contingencies 5.1 5.2 10.3 Price Contingencies 12.6 3.5 16.1 Total Project Cost 63.3 WA 128.3 a' Includes taxes and duties of US$27.0 million. Financing Plan: Sources: Local Foreign Total . . US$ Million IBRD - 60.0 60.0 Equipment Communal Fund (FEC) 3.0 - 3.0 Net Internal Cash Generation 60.8 - 60.8 Government 4.5 _ 4.5 Total 68.3 60. 128.3  SCHEDULE B PROCUREMENT METHOD (Total costs of proposed project componeuts includi* coutingeucies) Project Elements LCB ICB LIB FA OTHER TOTAL (US$ Million) A. Rehabilitation Works 1. Civil Works 25.2 25.2 (8.5) (8.5) 2. Supply of Pipes 34.2 34.2 (15.0) (15.0) 3. Pipelaying and 9.2 9.8 19.0 Rehabilitation Works (3.2) (3.5) (6.7) B. Equipment 1. Supply & Repair 3.3 25.1 0.2 28.6 (2.0) (14.1) (0.1) (16.2) 2. Computer 3.5 3.5 (2.0) (2.0) C. Studies, TA and Training 17.8 17.8 (11.6) (11.6) TOTAL 37.7 59.3 3.5 9.8 18.0 128.3 Bank Financing (13.7) (29.1) (2.0) (3.5) (11.7) (60.0) Note: Figures in brackets are the respective amounts financed by the Bank Loan. DISBURSEMENTS Category Amount X of Expenditure to (US$ Million) be financed Civil Works 8.5 36% of total exp. Supply of Pipes 15.0 47% of total exp. Pipelaying 6.7 38% of total exp. Supply & Repairs Equipment 16.2 100% of foreign exp. & 54% of local exp. Computer 2.0 62% of total exp. Studies, TA, Training 11.6 100% of foreign exp. & 50% of local exp. TOTAL 60.0 Estimated IBRD Disbursements (in US$ Million) IBRD Fiscal Year 1988A- 1989 1990 1991 1992 1993 1994 1995 Annual 5.40 7.80 11.40 10.80 9.00 7.80 5.40 2.40 Cumulative 5.40 13.20 24.60 35.40 44.40 52.20 57.60 60.00 ~' Includes an initial deposit of US$2.5 million to the special account and retroactive financing of US$1.0 million.  -7- SCHEDULE C KINGDOM OF MOROCCO NATIONAL WATER SUPPLY REHABILUATION PROJECT Timetable of Key Project Processing Events (a) Time taken to prepare: Three years (b) Prepared by: Government with IBRD asEistance (c) First Bank Mission: February 1984 (d) Appraisal Mission Departure: September 1985 (e) Negotiations: March 31-April 7, 1987 (f) Planned Date of Effectiveness: September 15, 1987 (g) List of Relevant PCRs and PPARs: First Water Supply Project (PCR and PPAR No. 3721 dated December 16, 1981)  SCHEDUILE STATUS OF BANK OPERATIONS IN fl"E KEINGOM OF MOROCCO A. STATEMENT OF BANK LOANS AIO IDA CREDITS (As of March 31. 1987) Loan or Amount (less cancellations) Credit USS Milli _n &NiUTr Y=r Bnrrower Purges% Bank fla UndisbArse Thirlv nine Loans fully disbursed 1452.05 Five Credits fully disbursed 45.16 1416 1977 Kingdom of Morocco Agriculture 38.0 0.33 1602 1978 Kingdom of Morocco Agriculture SO.O 27.64 1681 1979 Kingdom of Morocco Education 88.0 31.98 1724 1979 Kingdom of Morocco Water Supply 49.0 3.93 1757 1980 Kingdom of Morocco Agriculture 44.0 7.39 1848 1980 Kingdom of Morocco Agriculture 24.0 14.15 1943 1981 CIH Tourism 100.0 15.71 1944 1981 Kingdom of Morocco Urban Development 20.0 11.83 2006 1982 Kingdom of Morocco Water Supply 87.0 53.51 2037 1982 SNOE DFC 70.0 18.20 2038 1982 Kingdom of Morocco OFC (SSI) 30.0 22.66 2082 1982 Kingdom of Morocco Agriculture 24.0 20.1S 2109 1982 Kingdom of Morocco Mining 9.S 6.12 2110 1982 Kingdom of Morocco Forestry 20.5 15.53 2114 1982 ONAREP Oil Shale 8.2 0.82 2149 1982 Kingdom of Morocco Education 38.0 20.75 2217 1983 Kingdom of Morocco Agriculture 30.0 27.00 2245 1983 CIH Housing Devt. 60.0 38.24 2253 1983 Kingdom of Morocco Agriculture 42.0 40.19 2254 1983 Kingdom of Morocco Highways 76.6 54.81 2271 1983 ONAREP Oil Exploration 65.2 12.59 2272 1983 Kingdom of Morocco Village Infrastr. 16.0 9.77 2479 1985 Kingdom of Morocco Voc.Training 27.1 16.94 2487 1985 Kingdom of Morocco Elec.8 Mec.Ind. 25.1 20.61 2508 1985 Kingdom of Morocco Jerada Coal Min. 27.0 24.02 2572 1985 Kingdom of Morocco Health 28.4 28.40 2590 1986 Kingdom of Morocco Agr.Sec.Adj. 100.0 9.75 2656 1986 Kingdom of Morocco Agriculture 46.0 46.0 2657 1986 Port Authority Port of Casa. 22.0 22.0 2664 1986 Kingdom of Morocco Education 150.0 99.96 2731 1986 CNCA Agric. Credit 120.0 97.66 2779 1987 Kingdom of Morocco Voc. Training' 22.3 22.30 Total 3009.95 45.16 of whi-h has been repaid S84.67 _.40S Total now outstanding 2425.28 41.76 Amount Sold 20.11 of which has been repaid 20.11 0.0 0.0 Total now held by Sank and IDA 2405.17 41.76 Total undisbursed 840.23 S. STATEMENT OF IFC INVESTMENTS (As of March 31. 1987) USS Million Fiscal Year Lon Eu=it t 1985 Frumat Food & Food Processing 7.8 7.8 1963/1978/1984 SNOE Development Bank 54.3 1.5 55.8 1976 Marrakech Cement Cement Factory - 1.2 1.2 1977/1980 Temara Cement Cement Factory 2.0 3.4 5.4 1980 SOMIFER Copper Hining 4.3 2.3 6.6 1981/1983 Casablanca Cement Cement Factory 1.9z 2.j I1.9 Total comnitments now held by IFC 81.3 10.4 91.7 Total Undisbursed 1.S Not yet effective.  - ^- 8i' a- MOROCCO NATIONAL WATER SUPPLY REHABILITATION PROJECT REGIES L'Lg REGIES 0) HEADQUARTERS OF REGIES 0 PROVINCE CENTERS SERVED BY REGIES KENITRA( MOUNTAINS Sole c. ISOHYET RABAT CT) Temoro 0 L RIVERS AND WADIS Skhiroat0 Mohomr-sedi.Q '- FES PROVINCE CAPITALS* CASABLANCAO I. RAAT NATIONAL CAPITAL 17LI| AN - |--- PROVINCE BOUNDARIES* Azemmouf ' / -em INTERNATIONAL BOUNDARY EL JADIDAi;,, !n --*nINTERNATIONAL BOUNDARY (AFPROXIMATE) ( SETTATo5 Khemnsi /cKHC *Nome of p,owince s the some as Ouolidia, /OKHO S.d; El Boroui name of prosince cop.iol. t Bennour -SAFI Youssoufio la' 0 Sebt Gzouli FL KELAA , _/ Chemjol DES SRARHNA Tomonor- ) |' ESSAOUIRA i MARRAKECH K''- ; r ~"~<z~ - QOUARi 0t 1 100 290 30 AGADIR Ln g n KILOMETERS MAt elloul . TIZNIT oTATA 12 I  IBRD 19448 36- TANG$ l I r~ (>TETOUAN AsiIoh O e I,_ / AL HOCEIMA NADOR Laroche 0 ...4'CHAOUEN R | Ej EN Ksai- El '<ebir TAOUNATE NAT-Q. / A * RADEETA 4lTRAq A\ TAZA JRi KHEMISSET\ MEKNES\ SO.) ,Sefrou 7 : IfRANE OULEMANE ' ,KHENiFRA\ I / OKHOURIBGA Tsbo lo 0Fkih Ben Saolh ( it7 0 AppROXIMATE 8OUNtb4,R G02 320- oAZILAL , :<O tERRACHIDIA I .0- ) A L G E R I A OUA#ZAZATE ' ! JANUARYV1988  36- 2 MOROCCO NATIONAL WATER SUPPLY REHABILITATION PROJECT ONEP CENTERS A NATIONAL HEADQUARTERS A REGION HEADQUARTERS 0 ONEP CENTERS VI REGION BOUNDARIES KENI MOUNTAINS ISOHYET RABAT 1 RIVERS AND WADIS Ain el Aoud FES PROVINCE CAPITALS* CASABLANCA Aouzfuka RABAT NATIONAL CAPITAL CASABNAf PROVINCE BOUNi,AIRIES* | .LA -n. INTERNATIONAL BOUNDARY .,Bermech | INTERNATIONAL BOUNDARY 'APPROXIMATE) EL JADIDA B ( E! GAmedt ' : SETTATo / |Nane of pro,nce s5 thr sonle os Oul" dio -320 o SAV I tE8n~' /' NDES SRARHNA X oSidi Bou OthmcneJ TomanorG *. ~~~~~~~Sidi Rohhol MARRAKECH o ESSAOLJIRA I * Ch,choouo In m r TornouIe OukalmndGnQ 0 Tornudont \eTaliouine s, 0 100 200 300 AGADIR A 0 T 1 KiIOMfIE8S _ I 0 C T n_a GB oug o>S TIZNIT ., ,, OIATA 12