Jordan - Water Supply Project

tIzt Copy RESTRICTED cog0py Report No. P-352 This report wos prepared for use within the Bank ond its affiliated organizations. They do not accept responsibility for its accuracy or completeness. The report may not be published nor may it be quoted as representing their views. INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATIONS OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED DEVELOPMENT CREDIT TO THE HASHEMITE KINGDOM OF JORDAN FOR WATER SUPPLY PROJECTS December 2, 1963  REPORT AND RECOI2ENDATIONS OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED DEVELOPIMENT CREDIT TO THE HASHENITE KINGDOM OF JORDAN FOR WATER SUPPLY PROJECTS 1. I submit the following report and recommendations on a proposed development credit to the Hashemite Kingdom of Jordan in an amount in various currencies equivalent to $3.5 million to assist in the financing of water supply projects in the Ramallah-El Bira (Jerusalem) area, the Azraq-Irbid area, and the towns of zarqa and Nablus. PART I - BACKGROUND 2. At the time of the 1961 census, 42 per cent of the population of Jordan resided in towns. This unusually high proportion for a predominantly agricultural country is due to the influx of refugees resulting front the 1948 Palestine conflict and to the lack of employment opportunities for their in rural areas. The urban sectors of the economy (services, building and industry) have grown much more quickly over the last decade than has agriculture. The expansion of these sectors required to reduce unemployment, which is still prevalent among the refugees, is likely to increase the urban population still further. Apart fronm housing, which is generally left to private initiative, the most pressing problem facing municipal authorities has been water. In most of the towns, population has rapidly outgrown the existing supplies, which usually come from small perennial springs. In some instances this problem has been aggravated by a succession of years of drought. When the Government of Jordan submitted several proposals to the International Development Association in 1960, it gave the highest priority to a group of water supply projects. IDA has already extended a credit to assist in the expansion of the water supply system of the capital city of Airman, where the population increased from some 20,000 in the 1930's to 245,000 in 1961. Planning has now been completed for similar projects in the four next largest urban agglomerations, i.e., the Jerusalem area, Zarqa, Irbid and Nablus. 3. The preparation of these projects has taken a considerable time. They were submitted to IDA at the end of 1960. Before they could be brought to the engineering stage, extensive surveys of water resources, in particular groundwater, had to be carried out. Thereafter, studies and designs by consulting engineers and by the Central Water Authority were completed in the course of 1962. IDA missions appraised the projects in the field in July and September 1962. Negotiations with representatives of the Government of Jordan took place in lWashington in April and Yay 1963; certain remaining points were settled in further negotiations in October.  - 2 - 4. The Association has already made one credit to Jordan for the Amman Water Supply project (Credit No. 18-Jo), in the amount of $2.0 million. The amount disbursed as of October 31, 1963 was only $33,000. The delays in execution are the result of the followving factors: (a) the first consultants hired to supervise the execution of the project proved unsatis- factory and new consultants had to be selected; (b) for this reason, and subsequent to the original IDA appraisal, the project had to be redesigned and re-engineered; and (c) there have been substantial delays in reaching agreement on arrangements for the provision of management assistance to the iMuicipality of Amman. The latter problem is not yet finally resolved, but it is hoped that final agreement will be reached within the next few weeks. The present credit, along with the credit for the agricultural credit project also being submitted to the Executive Directors today, would bring IDA assistance to Jordan to a total of $8.5 million. There are no other IDA credits for Jordan under consideration at the present time. The Bank has made no loans to Jordan. PART II - DESCRIPTION OF THE PROPOSED CREDIT 5. purpose: To assist in financing the cost of expansion and improvement of the water supply systems for the Ramallah-El Bira (Jerusalem) area, the Azraq-Irbid area, and the cities of Zarqa and Nablus. Borrower: The Hasher4te 1Kingdom of Jordan. Amount: The equivalent in various currencies of $3.5 million. Term and Amortization: 50 years with no amortization during the first 10 years. From Nlay 15, 1974, one- half of one per cent of the principal amount would be repayable semi-annually for 10 years; and one and a half per cent seni- annually thereafter to November 15, 2013. Service Charge: 3/4 of one per cent per annum on the principal amount of the credit disbursed and outstanding. Payment Dates: May 15 and November 15.  Relending Arrangements The Government of Jordan would relend and Supplementary the proceeds of the credit to the Central Accord: Water Authority. The Borrower would enter into a Supplementary Accord with the Central Water Authority whereby the latter would carry out the projects and thereafter transfer to the municipal or regional entities concerned the facilities financed under the credit together with the corre- sponding liabilities, including financial liabilities. These entities would repay the credit to the Government over a period of 20 years after 3 years of grace with interest at 4 per cent per annum. PART III - APPRAISAL OF THE PROPOSED CREDIT The projects 6. Detailed appraisals of the projects (TO-357b, TO-356a, TO-387a, and TO-366a) are attached (Nos. 1, 2, 3 and 4). 7. The towms which would benefit from the projects have had an uneven development since 1948. The armistice line running through J.srusalem left the old walled city and the holy places in the Jordanian sector. After several years of deprecsion, Jerusalem is beginning to overcome the loss of its former hinterland in the coastal plain and of its status as the capital of palestine. The airport and a new highway to the Jordan Valley and Amuan have substituted new communications links for those which were cut off by the 1948 conflict. Tourism is being resumed on a large scale. Though the population has increased by only 30 per cent between l952 and 1961 in Jerusalem proper and by even less in the neighboring towns, the renewed growth is illustrated by the many new buildings and hotels which now link the adjacent urban areas of Jerusalem and Ramallah-El Bira. 8. In zarqa, on the other hand, many small industries have sprung up in the last ten years, migration from West Jordan has trebled the population and the town has been completely transformed. The cities of Irbid and Nablus, even though somewhat remote from the economic activity centered on Amman, have nevertheless doubled in population between the 1948 conflict and 1961. With Hebron they constitute the poles around which regional development can be stimulated to counterbalance the heavy concentration of population in Amman. 9. The towns which will benefit from the projects have no nearby sizeable source of surface water. The present supply comes from small springs and deep wells and the increase in population coupled with the successive years of drought have rendered it quite inadequate. In many instances, munici- palities have to resort either to rationina water or to hauling it by truck in the summnler months of peak demand. Individual rain water cisterns provide a meager and uacertain additional supply.  - 4 - 10. The projects involve thie development of new sources; in the case of Ramallah-El Bira and Irbid, more distant springs so far unexploited (for Irbid, a spring floing to waste in the desert will be capped and the water pumptdd over 137 kilometers through a reclaimed pipeline); in the case of zarqa and Nablus new aquifers. The main components of the projects involve in each case: collection works, transmission mains, pumping facilities, reservoirs and accessories. In all except Ramallah-El Eira, they also include the improverment or expansion of the existing distribution system. 11. The projects would be carried out by the Central Water Authority (the Government agency responsible for the development of water resources). In zarqa, Irbid and Nablus, after the facilities have been commissioned, they would be handed over to the respective municipalities which are responsible for the administration of the existing systems. In the case of the Jerusalem area the various water resources available have to be pooled to meet long- range requirements and this has led the government of Jordan to consider the establishment of a Tjater Board which would eventually take over the facili- ties covered by this part of the project as well as the present separate sources and distribution systems of Ramallah and El Bira. It will also take over all future sources of water which may be developed in this area (in- cluding Jerusaleia Municipality). The Jerusalem pMnicipality may at its opFion join the Water Board at any time; in any event, it will agree to purchase wiater in such amournts and at such prices as will makc this part of the project financially viable. (See Section 204(a)(i) of the Credit Agreement.) These municipalities have agreed in principle to these arrange- ments, and formal undertakings will be obtained before the credit is made effective. In the case of Irbid the operation of the water transmission main froma Azraq will remain the responsibility of the Central Water Authority. 12. Various steps will be taken to ensure satisfactory operation of the new facilities. The Central VWater Authority will assist all the municipali- ties and the Water Board in the operation of their water systems, will employ management consultants, and make their services available to the entities wihich will eventually operate the projects. It will also establish a department responsible for providing management assistance on a continuing basis. Under the proposed credit funds would be provided for the employment of such management consultants and of engineering consultants to design and supervise the execution of the works, which are expected to be completed in about three years. Finally, in the case of the Water Board, the Association will be consulted before the General Manager of the Board is nominated or changed. 13. The total cost of the projects is estimated at $5,214,000 equivalent, of which $3.14 million would be in foreign exchange. The proposed credit of $3.5 million would cover two-thirds of the total cost. As in the case of the Amman project, the larger part of the remaining cost would be covered by loans from the Punicipal Loan Fund of the Jordan Development Board and the balance would be met from revenues. The local loans would bear interest at 4 per cent and would be repaid in eight equal annual installments after one or two years of grace, except in the case of Nablus where amortization will be escalated over twenty years after three years of grace. The proceeds of the IDA credit would initially be relent by the Government of Jordan to the  Central liater Authority, but after the works are completed the Authority's financial liabilities would be transferred to the Water Board and the municipalities. The proceeds of the IDA credit relent to them would bear interest at 4 per cent per annum and would be amortized over twenty years after three years of grace. 1. Water rates to be collected by the Water Board and the municipalities would be set high enough to yield revenues sufficient to cover operating expenses, repayments on long-term debt to the extent that these exceed depreciation, and normal year to year extensions and a reasonable part of the cost of future major expansions. It is not expected that the new rates, which in the case of Irbid and Nablus involve sizeable increases, will exceed the consumer's ability to pay. 15. All contracts for major items of equipment and works financed out of the proceeds of the proposed credit would be awarded on the basis of international competitive bidding. 16. The present per capita consumption of water in Jordan is very low. It is about 30 liters per day in the main towns, falling to about 10 liters in smaller towns and refugee camps. The services provided by the proposed projects would substantially relieve the chronic water shortage which has deeply affected living conditions in the main towns of Jordan, prevented the imo.provement of sanitary conditions and obliged the municipalities to resort to expensive makeshift solutions during the periods of peak demand. They should also help to reduce water-borne diseases, the incidence of which is now very high. In the case of the Jerusalem area the new facilities are urgently required if tourism, a major source of income, is to expand further. In all towns they would facilitate industrial expansion. The projects would be financially self-liquidating. Economic Situation 17. A report on recent developments in the economy of Jordan (AS - 98b) was distributed to the Executive Directors on October 29, 1963 (R 63-126). 18. In recent years Jordan has raintained a fairly satisfactory rate of growth without serious inflationary pressures. The industrial sector is still very small. In agriculture, production of "cereals, whicll is largely dependent on erratic weather, has not improved, but production of fruits _