Morocco - Third Water Supply Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 11951 PROJECT COMPLETION REPORT MOROCCO THIRD WATER SUPPLY PROJECT (LOAN 2006-MOR) JUNE 7, 1993 Infrastructure Operations Division Country Department I Middle East and North Africa Regional Office 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.  EXCHANGE RATES Appraisal Year Average (1980) USD 1 - DH 4.2 Intervening Year Average USD 1 = DH 8.7 Completion Year Average (1990) USD 1 = DH 8.1 WEIGHTS AND MEASURES Metric Svstem British/US System 1 centimeter (cm) - 0.39 inches (inch) 1 meter (m) = 3.28 feet (ft) 1 kilometer (km) = 0.62 miles (mi) 1 square meter (m2) = 10.76 square feet (sq. ft) 1 square kilometer (km2) = 0.38 square mile (sq. mi) 1 metric ton (m/ton) = 0.98 long ton (1g. ton) 1 liter (L) = 0.26 gallon (G) GLOSSARY AH - Hydraulics Administration (Administration de l'Hydraulique) DRSC - Public Utility Directorate (Direction des Regies et Services Concedes) ONEP - National Water Production Agency (Office Nationale de l'Eau Potable) PERL - Public Enterprise Rationalization Loan RAD - Regie Autonome Intercommunale de Distribution d'Eau et d'Electricite de Casablanca RADEEF - Regie Autonome de Distribution d'Eau et d'Electricite de Fez RADEEM - R6gie Autonome de Distribution d'Eau et d'Electricitd de Meknes RADEEMA - Rdgie Autonome de Distribution d'Eau et d'Electricitd de Marrakech RADEEN - Rdgie Intercommunale d'Eau et d'Electricite de Nador RADEEO - Regie Autonome de Distribution d'Eau et d'Electricite d'Oujda RADEES - Rdgie Autonome Intercommunale de Distribution d'Eau et d'Electricite de Safi RADEETA - Regie Autonome de Distribution d'Eau et d'Electricite de Taza RADEEJ - Regie Autonome de Distribution d'Eau et d'Electricite de la Province de El Jadida RADEEC - Regie Autonome de Distribution d'Eau et d'Electricite de Chaouia (Settat) RADEET - Regie Autonome de Distribution d'Eau et d'Electricite de Tadla RAID - Regic Autonome Intercommunale de Distribution d'Eau et d'Electricitd de la Province de Tanger RAK - R6gie Autonome Intercommunale de Distribution d'Eau et d'Electricite de Kenitra RAMSA - Regie Autonome Multiservices d'Agadir RDE - Rdgie Autonome Intercommunale de Distribution d'Eau et d'Electricitd do Tetouan RED - Regie Autonome Intercommunale de Distribution d'Eau et d'Electricite de Rabat-Sale Regie - Municipal Public Utility Company UNDP - United Nations Development Program MOROCCO - FISCAL YEAR January 1 - December 31  FOR OFFICIAL USE ONLY THE WORLD BANK Washington, D.C. 20433 U.S.A Office of Director-General Operations Evaluation June 7, 1993 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Completion Report on Morocco Third Water Supply Prolect (Loan 2006-MOR) Attached is the report entitled "Project Completion Report on Morocco - Third Water Supply Project (Loan 2006-MOR)" prepared by the Middle East & North Africa Regional Office with Part II contributed by the borrower. The implementation of this large and unduly complex project took four more years than projected. However, on completion, virtually all objectives were achieved. Physical targets were met or exceeded although the number of house connections for low income consumers was less than projected, due to the high cost of connections. The financial position of the national entity is adequate but cash flow problems remain due to late payment of bills by government agencies. Overall the performance of the project is rated as satisfactory, its sustainability as likely and institutional development as substantial. The Project Completion Report's coverage and analysis of several important issues, particularly finance, is inadequate. The significant contribution contained in Part II somewhat balances these shortcomings. An audit of this project is planned. I 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.   FOR OFFICIAL USE ONLY PROJECT COMPLETION REPORT MOROCCO THIRD WATER SUPPLY PROJECT (LOAN 2006-MOR) Table of Contents PREFACE .i... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . EVALUATION SUMMARY .......................... . ii PART I: PROJECT REVIEW FROM THE BANK'S PERSPECTIVE Project Identity .1....... .. ... .. ... .. .. . . . Project Background . . . . . . . . . . . . . . . . . . . . . . . .1 Project Objectives and Description . . . . . . . . . . . . . . . .1 Project Design and Organization .... . . . . . . . . . . . . . 2 Project Implementation ...... .. . .. .. . .. .. . .. . 3 Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Sustainability ......................... . 7 Bank's Performance . . . . . . . . . . . . . . . . . . . . . . . 7 Borrower's Performance . . . . . . . . . . . . . . . . . . . . . . 8 Project Relationship ...................... . 8 Consultants' Services ...... .. . .. .. . .. .. . .. . 9 Project Documentation and Data ..... . . . . . . . . . . . . . 9 PART II:PROJECT REVIEW FROM BORROWER'S PERSPECTIVE . . . . . . . . . . . . 10 Office National de l'Eau Potable . . . . . . . . . . . . . . . . . 10 Direction des R6gies et Services Conced6s . . . . . . . . . . . . 33 Administration de l'Hydraulique . . . . . . . . . . . . . . . . . 56 PART III:STATISTICAL INFORMATION .... . . . . . . . . . . . . . . . . . 67 Table 1: Related Bank Loans . . . . . . . . . . . . . . . . . . . . . 68 Table 2: Project Timetable . . . . . . . . . . . . . . . . . . . . . 69 Table 3: Cumulative Loan Disbursements . . . . . . . . . . . . . . . . 70 Table 4: Project Costs ............. 71 Table 5: Project Costs . . . . . . . . . . . . . . . . . . . . . . . . 72 Table 6: Status of Compliance with Covenants . . . . . . . . . . . . . 73 Table 7: Missions . . . . . . . . . . . . . . . . . . . . . . . . . . 75 Table 8: Staff Inputs . . . . . . . . . . . . . . . . . . . . . . . . 76 MAP: IBRD 24486 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.   PROJECT COMPLETION REPORT MOROCCO THIRD WATER SUPPLY PROJECT (LOAN 2006-MOR) PREFACE This Project Completion Report describes the preparation, appraisal, and implementation of the Third Water Supply Project in Morocco, for which Loan 2006- MOR in the amount of USD 87 million was signed on September 28, 1981 and became effective on March 15, 1982. The original closing date of December 31, 1986 was extended three times to December 31, 1989 because of Morocco's fiscal constraints and the late transfer of loan proceeds from the Government to the executing agencies. An amendment to the Loan Agreement of March 24, 1987 reallocated disbursement percentages and canceled USD 9 million from the loan. The final withdrawal from the loan account was made on May 22, 1990. Ultimately, USD 78 million were disbursed. The Preface, Evaluation Summary, Parts I and III of the PCR were prepared by the Infrastructure Operations Division of Country Department I, Middle East and North Africa Regional Office on the basis of, inter alia, the Staff Appraisal Report, the Loan and Project Agreements, supervision reports, correspondence between the Bank and the Moroccan authorities, internal Bank memoranda, interviews with former project officers, and completion reports prepared by the Office National de l'Eau Potable (ONEP), Direction des R6gies et Services Conc6des (Ministry of the Interior), and the Administration de l'Hydraulique (Ministry of Public Works and Vocational Training). Part II of this PCR comprises these three separate reports.   ii PROJECT COMPLETION REPORT MOROCCO THIRD WATER SUPPLY PROJECT (LOAN 2006-MOR) EVALUATION SUMMARY Proiect Background and Obiectives 1. In 1980, only 25% of the rural population had access to safe drinking water. Although most of the urban population had access to public water, only 45% had house connections. The Bank's lending strategy for the water supply sector was still essentially geared towards helping the Government resolve major sector issues, shaping a strong institutional framework, and providing urban areas with safe drinking water. After 1980, the Bank shifted its emphasis towards improving the access of low-income urban dwellers to the water distribution system through house connections while expanding water supply in semi-rural and rural areas, where more than half of the population resided. 2. The Third Water Supply Project evolved from a long-standing dialogue on sector development. In the late 1970s, that dialogue began to focus on possible actions with a high social impact following an assessment of service deficits in cities and rural areas. The project thus aimed at providing greatly improved access to safe water for the low-income residents of the largest cities and to the population of the smaller and more remote rural centers bypassed by earlier sector investments. It also sought to continue the institutional development of the national bulk water production agency (ONEP) undertaken by the two previous projects, enhance ONEP's ability to monitor water quality and manage water supply systems, and improve the capability in the sector to plan and prepare investments, particularly in rural areas. Implementation Exoerience 3. The project was implemented in nine years rather than the five scheduled at appraisal. Over 300 contracts were awarded, including 73 on the basis of international competitive bidding (ICB) mainly for equipment. Both ICB contracts and those awarded on the basis of local competitive bidding (LCB) experienced lengthy delays as sufficient counterpart funds were unavailable because of the country's serious fiscal difficulties and mounting arrears owed to ONEP and the water and electricity distribution companies (R6gies) caused by inadequate water tariffs. There were no significant procurement bottlenecks, but the number and variety of contracts complicated project management and Bank loan disbursements. Although direct payment procedures were introduced and efforts made to set up Special Accounts, late payments to executing agencies, contractors, and suppliers continued. 4. A line of credit allocated to ONEP helped finance the construction of 38 ONEP centers, six more than originally envisaged. Twenty-two of these centers were destined for drinking water production and distribution, and 16 centers solely for drinking water distribution. ONEP also built and equipped two regional water supply systems. The first tranche of the Errachidia-Erfoud-Rissani Regional Water  iii Supply System was completed in 1985 according to schedule, whereas the two other tranches, completed in 1987 and 1989, experienced considerable delays because of lengthy negotiations with the municipalities responsible for water distribution (para. 11). Construction of another regional water supply system for Karia Ba Mohamed began in early 1983. Although operations were launched in March 1985 according to schedule, the system's water treatment plant operations had to be interrupted a number of times because of the high turbidity of the Sebou river during the rainy season. This required the construction of pre-settling facilities at the treatment plant. 5. The municipally-owned R6gies, under the tutelage of the Ministry of the Interior, and ONEP carried out a social house connection program. Implementation of this component by both the Regies and ONEP got off to a good start and was generally successful despite lengthy delays in the transfer of disbursed amounts from the Ministry of Finance accounts to the Regies and ONEP. By 1985, four Regies included in the project had fully utilized their Bank loan amount allocations. In response to requests from RED (Rabat-Sale) and RADEEMA (Marrakech), loan proceeds were reallocated in 1987 and again in 1989 to enable them to continue their more ambitious social house connection programs. By the end of project implementation, both the Regies and ONEP exceeded their original targets. 6. The Hydraulico Administration (AH) within the Ministry of Public Works, in coordination with ONEP, oversaw the drilling and equipping of 21 boreholes and 19 wells at 15 ONEP centers for carrying out pumping tests and determining the exploitable yield. This component was completed two years behind schedule, in mid- 1985, because of unforeseen delays in drilling boreholes. 7. Studies financed under the project were successfully carried out for: (a) the identification, selection, design, operation, and maintenance of water supply systems in rural areas; and (b) an updated and enlarged water supply master plan for the mid-Atlantic coastal region. A third study aimed at improving the organization of the water supply sector was not completed. Work on this study could not start until AH had finished a rural drinking water supply master plan financed by the United Nations Development Program. Therefore, it has recently been decided that recommendations on institutional changes in the sector to integrate water production and distribution in urban rural areas, as envisaged, will be part of a sector study on water resources planned for FY95. Results 8. The proportion of the population with water supply connections increased from 48% in 1981 to 65% in 1989. By the end of 1989, ONEP had installed 36,639 connections for the low-income population, or 115% of the original target. By the end of 1989, the Regies had installed 92,659 social connections, or 105% of the original target. In the Errachidia-Erfoud-Rissani region, some 262,000 rural inhabitants in 237 villages are being supplied with safe drinking water through 1,524 house connections and 250 standpipes, and in Karia Ba Mohamed, some 72,000 through 892 connections (815 private, 40 public, and 36 industrial connections, and 1 standpipe). 8ustainabilitv 9. The Third Water Supply Project followed on the main objectives of the first two projects by helping ONEP to focus on improved efficiency under an increasingly decentralized organizational structure. As a result of improved efficiency, ONEP's  iv permanent staff increased by only 9% between 1981 and 1989 compared with a twofold increase in water sales for that period. The agency's training policy focussed on skill upgrading of managers and basic training to accommodate the needs of new technicians. Now that a reasonably viable institution exists on the production side, sustainability will rest on addressing the following major issues confronting the sector: (a) further development of ONEP's distribution capacity in small villages; (b) institutional and operational strengthening of the Regies leading to full managerial and financial autonomy; (c) setting of water tariffs that are adequate to attain full cost recovery in the sector; and (d) settling of mounting arrears owed to ONEP and the R6gies and prevention of the buildup of more arrears in the future. These objectives have been supported by the Public Enterprise Rationalization Loan (PERL) and the National Water Supply Rehabilitation Project and are the goals of the proposed Fifth Water Supply Project, to be appraised in early 1993. Conclusions and Lessons Learned 10. Clearly, project complexity contributed to the lengthy implementation delays. There were many executing agencies (ONEP, the Regies, and AH) and a wide variety of components, including rural water supply and master plan studies. The number of contracts (over 300) further complicated project implementation and monitoring. The lessons are that: (a) the more complex the project, the greater the likelihood of lengthy delays in execution; and (b) overly optimistic implementation periods for complex projects should be avoided. 11. Completion of the Errachidia-Erfoud-Rissani regional water supply system experienced considerable delays due to the innovative nature of the subproject, time required for land expropriation, the local population's lack of ownership and commitment, and time required for separate water distribution agreements to ensure maintenance of public fountains in seven rural communes. The agreements were finalized in 1988 rather than in 1982, as initially planned. Moreover, water consumption in Errachidia-Erfoud was well below original targets (2 liters per capita per day instead of the planned 40 liters per capita per day) because public taps were not being used to the extent envisaged. The lesson is that some issues (e.g., sociological implications) should have been taken into account in the project design, other issues (e.g., action plan for land expropriation) should have been addressed during project preparation, and other delays (e.g., water distribution agreements with local communities) might have been avoided at the onset of project implementation had the participants been adequately informed of the legal aspects of the project and its conditionalities during the project launch seminar. The preparation of the proposed Fifth Water Supply Project includes an important social component designed on the basis of demand and capacity analyses pertaining to future water customers in rural areas. 12. Loan conditionalities focussed on ONEP's working and debt service coverage ratios and did not take into account its growing investments. During negotiations, it was agreed that ONEP would be required to maintain a working ratio in the order of 65% for 1982 and thereafter. During the 1980s, ONEP's working ratio showed continuous improvement, reaching by 1984 the covenanted 65% in the Loan Agreement and in 1988 55%, its lowest level before rising to 65% in 1992. By 1990, ONEP's equity exceeded 80% of its liabilities, allowing for a positive working capital. During the project period, its debt to debt-and-equity ratio never exceeded 25% of its capital. Nonetheless, ONEP's financial contribution to investments  v deteriorated between 1987 and 1990 despite efforts under the PERL and the National Water Supply Rehabilitation Project. Towards the end of the extended project implementation period, the Government and ONEP signed a performance contract, as a condition of the PERL, specifying their respective obligations in terms of tariff levels, operating ratios, Ministry of Finance control over investments, and the Government's contribution to the investment program. At the same time, under the National Water Supply Rehabilitation Project, the working ratio covenant was changed to a cash generation covenant with a view to improving ONEP's financial performance under its heavy investment program. The lesson is that financial covenants for utilities were not successfully designed and that a working ratio (excluding depreciation) is not a valid indicator; either an operating ratio (including depreciation) or a cash generation ratio is an acceptable measure of a utility's financial performance. 13. The Bank was successful in garnering the participation of three R6gies (RAD, RED, and RAK) in the social house connection program under the Second Water Supply Project and in expanding the number of participating Regies under the Third Project. The Bank was less successful in helping the R6gies improve their financial position or operations and maintenance. At the time of project inception, it was not deemed necessary for the Bank and the Regies to enter into formal project agreements in view of the minor scope of works involved in installing house connections. However, in retrospect, it might have been wise to have included several Regies as full partners since the serious financial and managerial constraints on Rogie operations, in general, have intensified over the years and must again be resolved some 12 years later through the Fifth Water Supply Project. The lesson is that the earlier institutional and financial issues are dealt with, the better the Government and the Bank can envisage overall sector development. 14. Although AH performed well in the execution of its investigations of water resources, it was unable to avoid the considerable delays in implementing water resource master plan studies because of the participation of multiple institutions in the provision of data and discussion of reports and recommendations. The lesson is that water resource studies are politically sensitive in arid and semi-arid countries and by nature complex, and they require the input of many institutions in water supply, irrigation, and power. They can only be completed in a satisfactory way by identifying relevant institutions at an early stage, setting up an appropriate incentive structure, and creating a permanent coordination panel at the national level. 15. Project design relied heavily on ONEP's growing institutional capacity. A valuable lesson was learned from the successful testing of ONEP's capability to select and appraise subprojects financed through a line of credit. In addition, Bank support to the Social House Connections Fund in three projects has been so successful that under the Fifth Project, another replenishment will be made. Achievements under the Third Water Supply Project were indeed substantial in terms of the incremental population served, the number of new connections, and the sustainability of objectives, particularly in view of ONEP's enhanced managerial capacity. However, in the latter implementation years, a "2" rating was assigned to the "development impact" of the project. Whereas a "3" rating would have been more indicative of ONEP's financial performance, a consistently high rating for development impact would have been fully acceptable. The lesson is that the assignment of project ratings needs to be given appropriate attention.  PROJECT COMPLETION REPORT MOROCCO THIRD WATER SUPPLY PROJECT (LOAN 2006-MOR) PART I: PROJECT REVIEW FROM THE BANK'S PERSPECTIVE 1. Proiect Identity Name : Third Water Supply Project Loan Number : 2006-MOR Loan Amount : USD 87 million RVP Unit : Middle East and North Africa Country : Morocco Sector : Water Supply and Sewerage Subsector : Water Supply 2. Project BackQround 2.01 By 1980, Morocco's population was approximately 20 million, with about 9.3 million, or 47%, living in the urban areas. Overall growth in population had been at 3% p.a. for the last five years, but was expected to decrease to 2.6% over the next ten years. Whereas the rural population was increasing at 1.8% p.a., the urban population was growing at about 4.8% p.a. In rural areas, only 25% of the population had access to safe drinking water. Most of the urban population had access to public water, but only 45% had house connections. 2.02 Before 1980, the Bank's lending strategy for the water supply sector had been essentially geared towards helping the Government resolve major sector issues, shaping a strong institutional framework, and providing urban areas with safe drinking water. After 1980, Bank shifted its emphasis towards improving the access of low-income urban dwellers to the distribution system through house connections while expanding water supply in semi-rural and rural areas, where more than half of the population resided. The Third Water Supply Project grew out of an ongoing dialogue on sector development involving the Bank, the Moroccan Government, and the Office National d'Eau Potable (ONEP). The dialogue focussed on possible actions with a high social impact following an assessment of service deficits in smaller towns and rural areas.  - 2- 3. Proiect Oblectives and Description 3.01 Protect Obiectives. The project aimed at providing greatly improved access to safe water for the low-income residents of the cities and to the population of the smaller and more remote centers bypassed by earlier sector investments. It also sought to continue the institutional development of ONEP undertaken by the two previous projects, enhance ONEP's ability to monitor water quality and manage water supply systems, and improve the capability in the sector to develop water resources and to plan and prepare investments, particularly in rural areas. 3.02 Proiect Description. The original project components were: (a) a line of credit for the financing of subprojects consisting of the expansion and upgrading of about 32 water supply systems; (b) construction of, and equipment for, the Errachidia-Erfoud-Rissani and Karia Ba Mohamed regional water supply systems; (c) acquisition of laboratory and related equipment for four water quality control laboratories, water meters, including calibrated test meters, leak detection equipment, and maintenance and survey equipment; (d) technical assistance in the design and calculation of distribution networks, preparation of final designs and bid documents, setting up a management information system, improving the operation of water systems, and completing the inventory of ONEP's assets; (e) training of laboratory staff in appropriate water treatment and control techniques; (f) social house connection program for low-income customers of ONEP and the public utility companies (Regies) of Casablanca (RAD), F6s (RADEEF), Kenitra (RAX), Oujda (RADEEO), Marrakech (RADEEMA), Meknes (RADEEM), Rabat-Sal6 (RED), Safi (RADEES), Tanger (RAID), Taza (RADEETA), and Tetouan (RDE); (g) construction of, and equipment for, boreholes and wells in 24 centers for carrying out pumping tests and determining the exploitable yield; and (h) studies for: (i) the identification, selection, design, operation, and maintenance of water supply systems in rural areas; (ii) an updated and enlarged master plan, drawn up originally for the Mid-Atlantic Coastal Zone between Kenitra and Casablanca, and extended to the year 2010 for meeting the water demand of the Mid-Atlantic Coastal Zone from Safi to Kenitra, including the preparation of final designs and bid documents for the first phase construction program, and (iii) improvements in the organization of the water supply sector. 4. Proiect Design and Organization 4.01 Prior to project appraisal, ONEP prepared the initial reports needed to identify and resolve issues relating to tariff adjustments and preliminary  designs for civil works of varying magnitude and at sites throughout the country. The agency also provided data for defining the different project components. These reports were reviewed by the Bank and served as the basis for appraising the project. The project was then designed with a view giving ONEP the opportunity to sharpen its project preparation and appraisal capacity through a line of credit. The Bank appraisal mission assessed ONEP's management, its overall investment program, as well as its approach, criteria, appraisal techniques, and design characteristics used in subproject selection. ONEP would carry out a master plan study for the mid-Atlantic region, while the studies on regional water supply systems and sector organization would be entrusted to another entity. 4.02 The Public Utility Directorate (DRSC) within the Ministry of the Interior collected relevant data from the Regies on the requirements for increasing the house connections of low-income customers. Installation of house connections to new low-income customers of the Regies would be carried by the R6gies themselves. Organization and implementation of works drew upon the experience gained by the Regies under the Second Water Supply Project. 4.03 The Hydraulic Administration (AH) within the Ministry of Public Works and Vocational Training was charged with carrying out the water resource development component in coordination with ONEP. It would also provide a rural drinking water master plan needed to complete the sector organization study. 5. Proiect Implementation 5.01 General. The project was implemented in nine years rather than the five scheduled at appraisal. Clearly, project complexity contributed to the delays. There were many executing agencies (ONEP, the Regies, and AH) and a wide variety of components, including a line of credit, social house connection funds, rural water supply, and master plan studies. The number of contracts further complicated project implementation and monitoring. Over 300 contracts were awarded, including 73 on the basis of international competitive bidding (ICB) mainly for equipment. Both ICB and those awarded on the basis of local competitive bidding (LCB) experienced lengthy delays as there were insufficient counterpart funds available because of Morocco's fiscal difficulties and mounting arrears owed to ONEP and the Regies, the consequence of inadequate water tariffs. Although there were no significant procurement bottlenecks, the number and variety of contracts complicated project management and Bank loan disbursements. 5.02 Civil Works. This component, partially financed by a Bank line of credit in the amount of USD 10 million, supported the construction of 38 ONEP centers, six more than originally envisaged. Twenty-two of these centers were destined for drinking water production and distribution, and 16 centers solely for drinking water distribution. The list of eligible centers was amended several times with the result that a total of 43 centers were appraised. In January 1981, the Beni Mellal, Fquih Ben Salah, and Kasba Tadla centers were transferred to the local Regie (RADEET). On the other hand, additional centers were included under the line of credit because water resources in the Taznakht, Tinghir, Sidi Allal Tazi, Midelt, Goulmima, and Missour centers were insufficient. Because of these additional centers, execution of works, originally scheduled for completion by mid-1988, was not completed until late 1989. However, by the end of 1985, the original component completion date, works for 33 centers were either completed or underway. Eleven centers for production  - 4 - and distribution and four for distribution only were completed, two for production and distribution and three distribution only were nearing completion, and two for production and distribution and 11 for distribution only had been contracted out. 5.03 Errachidia-Erfoud-Rissani Regional Water Supply System. The water transport pipes were installed in three tranches, comprising: (a) setup of the main water transport pipe for water supply of Errachidia and Erfoud; (b) the installation of the water transport pipe for the supply of Rissani by the Erfoud system; and (c) supply for villages in the Ziz Valley and the Tafilalet Lowlands. The first tranche was completed in 1985 according to schedule, whereas the two other tranches, completed respectively in 1987 and 1989, experienced considerable delays due to the innovative nature of the project, time required for land expropriation, time required for separate water distribution agreements to ensure maintenance of public fountains in seven rural communes, and the local population's lack of ownership and commitment to the project. The agreements were finalized in 1988 rather than in 1982, as initially planned. Water consumption was well below original targets (2 liters per capita per day instead of the planned 40 liters per capita per day) because public taps were not being used to the extent envisaged. The lesson learned is that some issues (e.g., sociological implications) should have been taken into account in the project design, other issues (e.g., action plan for land expropriation) should have been resolved during project preparation, and other delays (e.g., water distribution agreements with local communities) might have been avoided at the onset of project implementation had the participants been adequately informed of the legal aspects of the project and its conditionalities during the project launch seminar. 5.04 Karia Ba Mohamed Regional Water SuDplV System. Construction of the regional water supply system began in early 1983 and operations were launched in March 1985 according to schedule. However, the system's water treatment plant operations had to be interrupted a number of times because of the high turbidity of the Sebou river during the rainy season. This required the construction of pre-settling facilities at the water treatment plant. In addition, the water distribution system was expanded to allow for service to the villages located along the water transport pipes linking the Karia Ba Mohamed treatment plan with the distribution network. Works for these additional sections started in October 1988 and were completed in May 1990. 5.05 Social House Connection Program. Implementation of this component by ONEP and the Regies got off to a good start and was generally successful despite initial delays of up to eight months in reimbursing R6gies for materials and equipment. Part of this delay resulted from cumbersome administrative procedures, part from inefficiency. Subsequent delays could be attributed to urban rehabilitation projects that were lagging behind schedule. Between 1982 and 1985, ONEP installed 36,380 connections, out of an estimated 42,000. However, only 40% of these connections were for the lower-income segments of the population, mainly because of the reluctance of the rural population to borrow for house connections. It was decided to extend the implementation deadline so that the entire social house connection program could be carried out. In November 1983, the Loan Agreement was amended to extend participation to other Regies. An increase in family income ceiling and an active campaign by DRSC to promote the installation sped up the implementation of this program. By 1985, four Regies had fully utilized their Bank loan amount allocations. In response  - 5 - to requests from RED (Rabat-Sale) and later from both RED and RADEEMA (Marrakech), loan proceeds were reallocated from RAD (Casablanca) in 1986 and again in 1989 to enable RED and RADEEMA to continue their more ambitious social house connection programs. 5.06 Water Resource Development. AH, in coordination with ONEP, oversaw the drilling and equipping of 21 boreholes and 19 wells at 15 ONEP centers for carrying out pumping tests and determining the exploitable yield. This component was completed two years behind schedule, in mid-1985, because of unforeseen delays in drilling boreholes. 5.07 Rural Water SurPlv Systems Study. Moroccan authorities, with the assistance of the World Health Organization and funding from the United Nations Development Program (UNDP), launched in 1990 a rural water supply master plan study dealing primarily with water supply for dispersed rural population. The concurrent Bank-financed study of regional water supply systems was geared more to agglomerated populations and limited to the province of Ouarzazate and some 30 smaller rural agglomerations. The study experienced some delays when discussions with the Rural Infrastructure Directorate of the Ministry of Agriculture and Agrarian Reform became bogged down. 5.08 Water Supplv Master Plan Study. The updating and extension of the drinking water supply master plan for the region located between Kenitra and Safi was completed on schedule in early 1986. The study recommended the installation of a pipeline between the Oum Er R'bia River and Casablanca. The cost of the first phase of the project was estimated at USD 78 million. The Saudi and Kuwaiti funds financed the foreign exchange component for this phase, and service began in 1991. 5.09 Water Supnlv Sector Organization Study. The Ministry of Economic Affairs entrusted ONEP with lead responsibility for implementing the first phase, which consisted of updating and revising the 1975/1976 tariff study. This was completed in 1983. The second phase was never undertaken. It was to have made recommendations on institutional changes in the sector to integrate water production and distribution in urban and rural areas. Work on this study could not start until AH had finished a rural drinking water supply master plan. Therefore, it has recently been decided that recommendations on institutional changes will be part of a sector study on water resources planned for FY95 (para. 10.02). 6. Results 6.01 Proiect Costs. The actual project cost was USD 137 million compared with USD 169 million estimated at appraisal resulting in a 19% underrun. This difference is attributable to devaluation of the Moroccan dirham by 50% in relation to the US dollar. Lower final costs for some components, e.g., less external assistance used by ONEP than initially planned, easily offset higher costs for others, such as an increase in the number of centers financed under the sector loan, the need to construction pre-settling facilities at the Karia Ba Mohamed water treatment plant, and acquisition of equipment for additional ONEP centers.  6.02 Disbursements. Disbursements consistently remained well behind forecast amounts (30% in the early 1980s), partly because of the delays in project startup and partly because of lengthy delays in the transfer of disbursed amounts from the Ministry of Finance accounts to the R6gies and ONEP. A new procedure of direct payment by the Treasury to the R6gies' accounts was introduced in 1985. Efforts were also made to set up Special Accounts. Nonetheless, payments to executing agencies, contractors, and suppliers continued to be late. By the first closing date, December 31, 1986, only 35% of the loan amount had been disbursed. By the fourth and final closing date, December 31, 1989, over 1,100 separate withdrawals from the loan account had been made, with an average withdrawal of about USD 67,000. 6.03 Achievement of Physical Targets. The proportion of the population with water supply connections increased from 45% in 1980 to 65% in 1989. By the end of 1989, ONEP had installed 36,639 connections for the low-income population, or 115% of the original target, and the Regies 92,659 social connections, or 105% of the original target. In the Errachidia-Erfoud-Rissani region, some 262,000 rural inhabitants in 237 villages were supplied with safe drinking water through 1,524 house connections and 250 standpipes, and in Karia Ba Mohamed, some 72,000 were supplied through 892 connections (815 private, 40 public, and 36 industrial connections, and 1 standpipe). However, water consumption in Errachidia-Erfoud- Rissani was well below original targets (2 liters per capita per day instead of the planned 40 liters per capita per day); public taps were not being used to the extent envisaged because the sociological implications had not been taken into account in the project design. The preparation of the proposed Fifth Water Supply Project, to be appraised in early 1993, includes an important social component designed on the basis of demand and capacity analyses pertaining to future water customers in rural areas. 6.04 Economic Justification. The proposed regional water supply subprojects represented the least-cost solutions based on discount rates from 8% to 12% for providing the population in the project areas with adequate safe water. Subprojects refinanced under the line of credit were subject to least-cost alternative eligibility criteria applied by ONEP. Reevaluated economic rates of return are unavailable because ONEP now needs to develop criteria for ex-post project evaluation. Since ONEP did not reach projected sales in the regional projects, economic rates of return for Errachidia-Erfoud-Rissani and Karia Ba Mohamed waterworks were lower than foreseen. 6.05 Financial Performance. Loan conditionalities focussed on ONEP's working and debt service coverage ratios and did not take into account its growing investments. During negotiations, it was agreed that ONEP would be required to maintain a working ratio in the order of 65% for 1982 and thereafter. During the 1980s, ONEP's working ratio showed continuous improvement, reaching by 1984 the covenanted 65% in the Loan Agreement and in 1988 55%, its lowest level before rising to 65% in 1992. By 1990, ONEP's equity exceeded 80% of its liabilities, allowing for a positive working capital. During the project period, its debt to debt-and-equity ratio never exceeded 25% of its capital. Nonetheless, ONEP's financial contribution to investments deteriorated between 1987 and 1990 despite efforts under the PERL and the National Water Supply Rehabilitation Project. Towards the end of the extended project implementation period, the Government and ONEP signed a performance contract, as a condition of the PERL, specifying their respective obligations in terms of tariff levels, operating ratios, Ministry of  - 7 - Finance control over investments, and the Government's contribution to the investment program. At the same time, under the National Water Supply Rehabilitation Project, the working ratio covenant was changed to a cash generation covenant with a view to improving ONEP's financial performance under its heavy investment program. 6.06 Environmental Impact. The project had nothing but a positive impact on the environment by contributing to improved environmental health conditions. The provision of water distribution systems replaced wells in rural areas contaminated by seepage from septic tanks and pits; sewerage connections in urban areas and septic tanks in rural areas were made compulsory for project beneficiaries. The installation of better designed standpipes with adequate drainage reduced levels of stagnant water, while greater numbers of low-income urban and rural dwellers, as well as livestock, had access to safe drinking water. There was no adverse effect on wetlands or biodiversity, nor was resettlement necessary. 7. Sustainabilitv 7.01 The Third Water Supply Project followed on the main objectives of the first two projects by helping ONEP to focus on improved efficiency under an increasingly decentralized organizational structure. As a result of improved efficiency, ONEP's permanent staff increased by only 9% between 1981 and 1989 compared with a twofold increase in water sales for that period. The agency's training policy focussed on skill upgrading of managers and basic training to accommodate the needs of new technicians. Now that a reasonably viable institution exists on the production side, sustainability will rest on addressing the following major issues confronting the sector: (a) further development of ONEP's distribution capacity in small villages; (b) institutional and operational strengthening of the Regies leading to full managerial and financial autonomy; (c) setting of water tariffs that are adequate to attain full cost recovery in the sector; and (d) settling of mounting arrears owed to ONEP and the R6gies and prevention of the buildup of more arrears in the future. These objectives have been supported by PERL and the National Water Supply Rehabilitation Project and are the goals of the proposed Fifth Water Supply Project. 8. Bank Performance 8.01 The Bank was instrumental in improving relations among sector institutions and initiating and following up on discussions of sensitive issues such as arrears, tariffs, division of responsibility, inter-agency collaboration, and water rights. It also continued to assist ONEP in upgrading its management systems and cost accounting with a view to improving investment planning procedures. Particular attention was given to ONEP's financial management capacity as conditionalities focussed on its working and debt service coverage ratios. The lesson learned that the Borrower with Bank assistance can achieve financial objectives by complying with covenants geared to particular circumstances. Another lesson was learned from the willingness of the Bank to test ONEP's capability to select and appraise subprojects financed under a line of credit, which was highly successful. 8.02 The Bank was successful in garnering the participation of three R6gies (RAD, RED, and RAK) in the social house connection program under the Second Water  -8- Supply Project and in expanding the number of participating R6gies under the Third Project. The Bank was less successful in helping the Regies improve their financial position or operations and maintenance. At the time of project inception, it was not deemed necessary for the Bank and the R6gies to enter into formal project agreements in view of the minor scope of works involved in installing house connections. However, in retrospect, it might have been wise to have included several Regies as full partners since the serious financial and managerial constraints on Regie operations, in general, have intensified over the years and must again be resolved some 12 years later through the Fifth Water Supply Project. The lesson is that the earlier institutional and financial issues are dealt with, the better the Government and the Bank can envisage overall sector development. 9. Borrower Performance 9.01 ONEP performed competently, proving that it could benefit from a line of credit. It also increased its experience in building rural water supply systems. RED (Rabat-Sale) continued to stand out in achieving its targets for social house connections while all R6gies except RAD (Casablanca) and RAK (Kenitra) made significant progress. AH performed well in the execution of its investigations for water resources but was unable to avoid the considerable delays in implementing master plan studies because of the participation of multiple institutions in the provision of data and discussion of reports and recommendations. The lesson learned is that water resource studies are politically sensitive in arid and semi-arid countries and by nature complex, and they require the input of many institutions in water supply, irrigation, and power. They can only be completed in a satisfactory way by identifying relevant institutions at an early stage, setting up an appropriate incentive structure, and creating a permanent coordination panel at the national level. 10. Proiect Relationship 10.01 The Bank continued to foster the close relationships it had forged with ONEP and AH under the first two projects. Since ONEP had already developed into a competent institution in the field of water supply production, the success in expanding the social house connection program under the Third Project allowed the Bank to begin to focus on the Regies, which became the rationale for the ongoing National Water Supply Rehabilitation Project. Closer ties between the Bank and the Regies under the National Water Supply Rehabilitation Project has culminated in a serious dialogue on future Bank financial support for their managerial and financial restructuring and eventual full autonomy, which will be the main focus of the Fifth Water Supply Project. 10.02 The relations between ONEP and AH were further strengthened, whereas ONEP and the R6gies still need to rationalize their responsibilities for water resource management in some regions of the country. In fact, because of the recent drought and increased demand for drinking and irrigation water, there is an urgent need in Morocco for comprehensive water resource development planning including environmental planning and management at the national level. The Government acknowledges that a rational approach to water resource management is critical to the country's overall development and that continued participation of the Bank is needed as a development catalyst, both at the micro level for water distribution and at the macro level to assist in addressing intra-sectorial  - 9 - issues. The upcoming (FY95) water resource management study will analyze and recommend solutions to longer-term problems related to the scattered responsibility for water resource management and lack of economic criteria for resource allocation among competing demands for agriculture, industry, and human consumption. It is envisaged that the study's recommendations and allocation procedures will then be carried out through a follow-on Water Resource Management Project, scheduled for FY96. 11. Consultants' Services 11.01 The consultants engaged by ONEP on behalf of the Government for the rural water supply systems study, am well as those engaged by AH, performed satisfactorily. In addition, ONEP set up a cost accounting system with the assistance of a consultant recruited through UNDP. His services were fully satisfactory. 12. Proiect Documentation and Data 12.01 Documentation and data contained in the Bank's files were generally adequate insofar as the components implemented by ONEP were concerned, whereas information on AH's implementation experience in carrying out the water resource development component was scant and the quantitative results of the social house connection program implemented by the Regies were missing. The completion report submitted by ONEP furnished supplemental information, and those submitted by DRSC and AH adequately bridged informational gaps.   - 10 - MOROCCO THIRD WATER SUPPLY PROJECT (Loan 2006-MOR) PART II: PROJECT REVIEW FROM BORROWER'S PERSPECTIVE OFFICE NATIONALDE L'EAU POTABLE   - 11 - OFFICE NATIONAL DE L'EAU POTABLE THIRD WATER SUPPLY PROJECT (LOAN 2006-MOR) Project Completion Report Table of Contents I. Introduction II. Project Preparation and Appraisal 1. Background 2. Project Objectives 3. Project Description III. Project Implementation 1. Startup 2. Implementation Schedule 3. Procurement 4. Costs and Disbursement IV. Results of Operation 1. Project Role 2. Project Results V. Financial Results VI. Institutional Results 1. Organizational Development 2. Staff Development and Training Policy VII. Summary Annexes (see following page)  - 12 - Annexes 1. Project Implementation Schedule 2. Estimated and Final Project Cost 3. Cost per Project Component 4. Project Cost per Category 5. Inventory of Withdrawals by Category/year 6. List of the Centers Affected by Social Connections 7. List of the Centers Affected by the Sector Loan 8. ONEP - Actual and Planned Operating Account, 1981-1989 9. ONEP - Actual and Planned Operating Account, 1981-1989 10. Organizational Structure  - 13 - MOROCCO THIRD WATER SUPPLY PROJECT (Loan 2006-MOR) GENERAL INFORMATION Country: Kingdom of Morocco Project Beneficiary: Office National de l'Eau Potable Monetary Unit: Dirham 1981 US$1 = DHS 4.20 1989 US$1 = DHS 8.14 Fiscal Year: January 1 to December 31   - 14 - MOROCCO THIRD WATER SUPPLY PROJECT (Loan 2006-MOR) I. INTRODUCTION This report describes the appraisal, implementation, and completion of the ONEP component financed by the Third Water Supply Project of the World Bank (Loan 2006-MOR). The original loan amount was USD 87 million, of which USD 45.76 million were allocated to ONEP. The loan was signed on September 28. Its initial closing date was December 31, 1986, which was extended three times, i.e., to December 31, 1987; December 31, 1988; and December 31, 1989. During project implementation and upon ONEP's request, the initial loan amount was reduced from USD 45.76 million to USD 30.49 million. The final amount disbursed to ONEP was USD 30.44 million. II. PROJECT PREPARATION AND APPRAISAL 1,. Background Prior to the Third Water Supply Project, the World Bank financed two other water supply projects: * The first project focused on the first tranche of the Bou-Regreg conveying complex, which supplies potable water to the area between Kenitra and Casablanca on the Atlantic coast. ONEP was the project executing agency. * The second project focused on the second tranche of the above project, for the potable water supply of Greater Agadir, as well as on the installation of potable water connections for low-income populations in the three cities of the Kingdom. Project execution agencies were ONEP and the water supply distribution agencies of Kenitra, Rabat-Sale, and Casablanca. * The third project was identified by the World Bank in collaboration with the Moroccan authorities. This project continued the development of the potable water sector and potable water connections and targeted the low- income population. The Hydraulics Administration, water supply distribution agencies, the Ministry of Agriculture and Agriculture Reform, as well as ONEP participated in project preparation.  - 15 - 2. Proiect Oblectives The project focused on a number of priorities in the potable water sector in order to * facilitate low-income population connections to the public potable water supply system; * construct two regional supply systems and 32 smaller production and distribution centers to increase water supply, and improve ONEP's activities in project planning, evaluation, implementation, and maintenance; * enhance ONEP's main laboratory by equipping its regional laboratory, creating a water quality control network that could be developed throughout the Kingdom; * assist ONEP in strengthening its institutional capacity; and * examine the organization of the water supply sector to improve investment planning procedures. 3. Prolect Description ONEP's project components include the following: 3.1 Provision of 37,650 potable water connections for the low-income population in smaller centers within ONEP's jurisdiction. The operation's goal was to increase the population's potable water supply from 45% to 65% in 1985. According to this plan, households who wished to be connected to the public water supply system and who complied with World Bank eligibility requirements were granted easier payment options. 3.2 Improvement of the production and water supply distribution system in smaller ONEP centers. Thirty-two centers were initially selected, according to criteria set forth by the World Bank. 3.3 Construction of two main water supply transport systems described below: * the Errachidia-Erfoud-Rissani water supply transport system at 320 1/s, which supplies not only the above regions but also the rural populations of the Ziz Valley and the Tafilalet Lowland; * the Karia Ba Mohamed water supply transport system at 30 1/s, which supplies the city as well as the rural population living along the water transport pipe. The laying of these main transport pipes allowed ONEP to obtain first-hand experience in the rural water supply. 3.4 Acquisition of equipment for four regional laboratories to improve control of water quality, research equipment, and leak detection so that water production and distribution facilities could be appropriately maintained and water meters be purchased.  - 16 - 3.5 Technical assistance to ONEP and professional training to * improve the design and calculation of water distribution networks and the preparation of detailed studies and bidding documents; * establish an improved cost-accounting system; * complete the inventory of ONEP's fixed assets; and * familiarize laboratory staff with appropriate water treatment and control methods. 3.6 Realization of two studies, namely * the study on the updating and extension of the potable water supply master plan for the region between Kenitra and Casablanca on the Atlantic Coast (to be extended from Kenitra to Safi), as well as on the preparation of detailed projects and bidding documents for the first stage of the construction program; and * the sector study on the reorganization of the potable water supply sector. III. PROJECT IMPLEMENTATION 1. Startup The loan agreement was signed in September 1981. According to the initial project schedule, works should have started in early 1982 and be completed in late 1985. There were no particular problems in launching the works: * in 1981, for the centers financed by the sector loan; * in May 1982, for the connections for low-income population; * in January 1983, for the regional water supply transport system of Karia Ba Mohamed; and * in October 1983, for the regional water supply transport system of Errachidia-Erfoud-Rissani. Despite the fact that project works started on schedule, completion was delayed for the following reasons: * the list of centers financed by the sector loan was modified, and * the water supply transport system of Errachidia-Erfoud-Rissani was complex in nature. 2. Implementation Schedule Initial and actual implementation schedules are compared in Annex 1 and explained hereafter.  - 17 - 2.1 Connections for Low-Income Population By the end of 1985, the target goal of 37,650 individual connections to the water supply system had to be achieved. Since some ONEP centers were retransferred to RADEET (Beni Mellal, F.B. Saleh, and Tadla) in January 1981, however, ONEP installed only 31,750 connections. From 1982 to 1985, the ONEP had to install another 9,500 standard connections. Therefore, a total of 41,000 connections were installed, representing: * 80% of connections for the low-income population, and * 20% of standard connections. The total number of water supply connections increased from 48% in 1981 to 65% in 1985, improving the overall water supply. By the end of 1985, ONEP installed: * 14,520 connections for low-income populations, representing 46% of the target (31,750), and i 21,860 standard connections representing 230% of the target (9,500). Taking all connections installed between 1982 and 1985 into account, 36,380, or 90% of the planned total were put into place, and by late 1985, the supply rate reached 60%, approaching the initial target. The overall goal was achieved within the planned time frame, even though only 40% (instead of the planned 80%) of all the connections were for the low- income population. This reflects the population's willingness to pay cash for being connected to the water supply network. In view of the beneficial aspects of connections for the low-income population and for water savings, it was decided to extend the implementation deadline in order to carry out the entire program. Thus, at the end of 1989, 36,639 connections for the low-income population, or 115% of the target were installed. Annex 4 shows the list of participating centers. 2.2 Sector Loan In order to improve the production and supply of potable water, it was initially planned to establish 32 centers. By the end of 1985, the status of the works was as follows: * the works for 15 centers, 11 of which were designed for production and distribution, were completed (more than 50% of the total); * the works for 5 centers, 2 of which were designed for production and distribution, were being completed (about 16% of the total); and * the works for 13 centers, of which 2 were designed for production and distribution, were contracted out (about 40% of the total).  - 18 - It should be mentioned that the original list of centers had to be modified for the following reasons: * In January 1981, the Beni Mellal, Fquih Ben Salah and Kasba Tadla centers were transferred to RADEET, the Beni Mellal agency. * Water resources at the Taznakht, Tinghir, Sidi Allal Tazi, Midelt, Goulmima, and Missour centers were insufficient. The final list includes 38 centers, of which * 22 centers are destined for drinking water production and distribution; and * 16 centers are destined solely for drinking water distribution. The works for all the centers were completed by late 1989 (see list of centers affected by the sector loan in Annex 5). 2.3 Reaional Water Transport Pipes 2.3.1 Errachidia-Erfoud-Rissani Considering the drilling test results, the flow rate reached 200 1/s instead of the initially planned 320 1/s. Two additional drillings had to be carried out to satisfy the planned flow rate. The water transport pipes were installed in three sections: * The first section entailed the laying of the main water transport pipe based on the Erfoud dwellings for water supply of the Errachidia and Erfoud centers. Works for this tranche started in October 1983, and operations began in October 1985. * The second tranche entailed the installation of the water transport pipe for the supply of Rissani by Erfoud. Works for this tranche started in June 1986 and were completed in July 1987. * The third tranche entailed supply for Ksours (the rural villages) in the Ziz Valley and the Tafilalet Lowlands. Works for this tranche started in January 1988 and were completed in August 1989. In addition, the water supply networks of Errachidia, Erfoud, and Rissani were extended. The first tranche was completed according to schedule, while construction of the two others were considerably delayed for the following reasons: * project complexity and the fact that it was ONEP's first experience in rural water supply;  - 19 - * it was necessary to cross through palm groves in order to service Ksours, which required a considerable amount of time for land expropriation; * the definition of project management made it necessary for more time to be allocated to the study, which concluded that seven water supply agreements should be arranged with seven rural communes, requiring the services of a caretaker to manage the standpipes. These agreements were finalized in 1988 rather than 1982, as initially planned. The project has reached its objectives: in addition to the urban centers, 237 Ksours were supplied with 250 standpipes. By the year 2000, 262,000 inhabitants should benefit from this project. 2.3.2 Karia Ba Mohamed Construction of the water treatment center on the Sebou river (30 1/s output) began in early 1983, and operations were launched in March 1985. The project could be realized with a slight delay. However, it should be noted that during initial operations, the station had to be closed a number of times as the Sebou river was exposed to unexpected currents during the rainy season. Pre-settling was necessary in order to maintain the MES flow at 2 g/l. In addition, the water supply distribution system was expanded to allow for service of the villages located along the water transport pipe linking the treatment center with the Karia Ba Mohamed station. Completion of these additional sections was delayed because works did not start until October 1988 and were completed in May 1990. 2.4 Acauisition of Miscellaneous Eauipment There were no particular problems with the purchase of equipment. For this project component, the following 67 contracts for a total of DH 29 million were concluded: i maintenance material: 49 contracts of DH 16,259,000 * laboratory material: 8 contracts of DH 2,382,588 * technical material: 6 contracts of DH 2,787,000 * water meter equipment: 4 contracts of DH 7,602,000 2.5 Technical Assistance Due to the exorbitant price for consultancy, ONEP did not solicit external assistance as initially planned, but carried out the tasks through its own means: * With the assistance of a consultant recruited through PNUD-OMS for short-term missions, a cost-accounting system was set up and which became operational in January 1987. * Fixed assets for which inventory was completed in 1989 were reconciled. 2.6 Studies The study on the updating and extension of the potable water supply master plan for the region located between Kenitra and Safi was completed on  - 20 - schedule. Its results concluded that, in the first stage, Casablanca should be supplied similar to Oum Erbia. The respective project was ongoing and service was supposed to start in early 1991. Within the framework of the present project, the study on the organization of the potable water sector could not be carried out, as all required conditions (according to the definition of a rural potable water supply master plan) could not be satisfied. The study was delayed, and should be undertaken within the framework of the National Water Supply Rehabilitation Project (Loan 2825-MOR). 3. Procurement In this project, 323 contracts were concluded, 73 of which were launched through international competitive bidding (ICB), totalling DH 214 million, or 40% of the total project cost. It should be mentioned that ICB contracts require long delays and bid packages do not always attract foreign enterprises. As a result, only a few foreign enterprises participated in project realization. Project management was also difficult, as the final contracts varied in nature. 4. Costs and Disbursements The table in Annex 3 presents the positive and negative differentials between planned and actual costs for each project category. The positive differentials apply mainly to the "connections for the low- income population" and "technical assistance" categories, because technical assistance was not provided as planned (para. 2.5), and material for the center was not delivered for the connections for the low-income population. The negative differentials apply to the "sector loan" and "regional water transport pipes" components as the number of centers increased from 32 to 38 on the sector loan list, and the water distribution centers and pre-settling facilities of the Karia Ba Mohamed treatment station were expanded for regional water transport pipes. The total project cost amounts to DH 527 million, exceeding the initial estimated project cost of DH 434 million by 20%. The disbursement cycle was influenced by project completion delays. Only 46% of the loan proceeds were disbursed on June 30, 1986, the initial loan closing date, which had to be postponed three times. During the first semester of 1990, the final withdrawal of funds took place. It should be mentioned that the actual amount withdrawn was only S30.44 million. In fact, by ONEP request, part of the loan was cancelled (with a revaluation of the US dollar) to decrease the loan amount from $45.76 million to $30.49 million (Annex 1: Disbursements). IV. PROJECT RESULTS The main project objectives were reached as the results were rather satisfying.  - 21 - ONEP was able to implement the planned program for the most important project element: water connections for the low-income population. By 1985, 90% of all connections were set up, 60% of the population were supplied with potable water. Between 1985 and 1989, additional connections were installed and the supply rate reached 115%, which represents a distinctive improvement in water supply. As for the Errachidia-Erfoud water transport pipe, 262,000 inhabitants were serviced through special connections and 250 standpipes in 237 Ksours. Hence, water supply in this region was considerably improved. The same positive results apply to the Karia Ba Mohamed center. Due to this project, the center's output exceeds demand during peak periods and obtains a 76%-efficiency rate. In December 1989, 892 connections (815 private, 40 public, and 36 industrial connections, and 1 standpipe) supplied 7,200 inhabitants with water. V. FINANCIAL RESULTS Annex 6 shows ONEP's working accounts (specifying the amount of water sold), corresponding receipts and expenditures) for the fiscal years 1981-1989. Throughout the entire decade, the gross working ratio has shown continuous improvement; by 1984, it surpassed the ceiling stipulated in the loan agreement. Due to the annual tariff increases set forth by the Government, ONEP's receipts have increased and the ratio has dropped below 66%, reaching its lowest level of 55% in 1988. It should be mentioned that in 1981, ONEP was not granted the DH 5 million working subsidy, envisaged during project appraisal. (ONEP's balance sheet is given in Annex 7). Given ONEP's activities, major installations are needed, such as treatment center, pumping station, etc.; its assets are composed of more than 70% in fixed assets and less than 30% in current assets for the expense account. The latter one indicates that payments of arrears owed by agencies, administrations, and municipalities have been substantial. Despite actions taken within the project on the public enterprise reform loan to alleviate debt, the problem still persists. Capital assets exceed 80% of ONEP's liabilities, allowing for a positive working capital. In addition, ONEP's debt ratio throughout the decade was very satisfactory, as it did not exceed 25% of its capital assets. The Agency's debt carrying capacity is, therefore, considerable. VI. INSTITUTIONAL RESULTS 1. Development of the Organization As ONEP focussed on improved efficiency, its organizational structure became increasingly decentralized. Since 1981, major developments have occurred to facilitate the completion of all tasks. Annex 8 shows the organizational structure.  - 22 - 2. Staff Development and Training Policy ONEP's permanent staff increased by barely 9% from 2,993 in 1981 to 3,276 in 1989. In addition, ONEP's training policy focussed on training existing staff in order to increase management efficiency and improve the quality of the service. It should be noted that prior to project startup and throughout its initial phase, ONEP concentrated on basic training to accommodate the needs of new technicians. Since 1983, ONEP has offered a program of continuing education in order to * familiarize its staff with their tasks (through methodical, short-term courses in modular format); * improve the knowledge of its administrative staff (through medium- and long-term training, which provides access to promotion); * inform and sensitize professionals and technicians concerning current problems and new methods (through short-term courses and seminars). Since ONEP has increased its productivity by 50% between 1981 and 1989, the above policy appears to be an effective one. VII. CONCLUSION The project has, in general, reached its objectives. The "connections for the low-income population" program was achieved, and improved potable water supply for the low-income population considerably. Since 1987, ONEP has used a standard cost-accounting system. Inventory of the Agency's fixed assets was completed in 1989. However, the water sector organizational study could not be implemented within the scope of this project, as all the conditions for such a study could not be satisfied. Therefore, this study will be carried out within the framework of the National Water Supply Project.  TIIRD WATER PROJECT LOAN 2006-MOR IMPLEMENTATION SCHEDULE __________________________________________________________ 1981 1982 1983 | 1984 | 1985 1 1986 | 1987 | 1988 | 1989 1. Sector Loanl Peasibility Studies ______________ Appraisal (ONEP) Detailed prajct and bidding documents - - Procuranat __ _____________ l Implementation __ __ ____________ 2. Regioal Water Supply System 2-1. Karia Da Moanmed Daailed project ad bidding document _ _ _ . Procurmant ____ Implementation - - - - - _ - Pipeline and Station - Villages and sludge removal 2-2. Erchidia Erfoud Ddaild Pioject and Bidding documents _ * Procurement - 1st Phas - 2nd and 3rd Phases 3. Community Connections