Algeria - Water Supply and Sewerage Rehabilitation Program Project (APL)

Report No. PID8531 Project Name Algeria-Water Supply and Sewerage Rehabilitation Program (APL) Region Middle East and North Africa Region Sector Water Supply & Sanitation Adjustment Project ID DZPE68238 Borrower(s) Government of Algeria Implementing Agency TBD Environment Category B Date PID Prepared October 13, 1999 Projected Appraisal Date April 2000 Projected Board Date September 2000 1. Country and Sector Background Main Sector Issues : The fundamental issues in the urban WS&S sector in Algeria are: A water shortage problem that has been aggravated by a succession of droughts: Cities regularly suffer from shortages of drinking water. Many areas have water supply systems that only function one day in five; even Algiers itself has a water system which at best delivers water to customers every other day. Inefficiency of services delivery and low cost recovery: Of the 1.2 billion m3 of water produced each year, some 45-50 percent leaks out to waste. Weak and cumbersome institutional framework: The present institutional framework is not well structured and not conducive to efficient sector operation. There is no clear division of responsibilities and well-defined accountability. Water resources pollution: The pollution of water resources has reached critical levels all over the country. Only one fifth of the wastewater flow is deemed to be treated prior to its discharge water shortage. A decaying sanitation infrastructure and an inefficient management of WWTPs: Most of the existing wastewater treatment plants (WWTP) are not in operation. In addition, the municipalities, which are responsible for the sewerage service provision, lack the technical, managerial and financial resources needed to efficiently plan, invest and operate the sewerage infrastructure. Government strategy: The government's strategy recognizes that it is an extremely complex challenge to be able to provide the level and quality of water and sanitation services that the country needs. In 1995 the Government issued a new water policy that encouraged the rational use of water (through the creation of Basin Agencies as elements of a decentralization strategy) and set the objectives of corporatizing the water enterprises, in order to  make them financially autonomous, while at the same time bringing in private participation in sector operations. In effect, the Water Code of 1983 was amended by special law of 06/06/96 regarding: (a) permissions to be given to private operators-concessionaires to invest in water supply and sewerage facilities; (b) the introduction of cost recovery in the operation of public water utilities; and (c) the requirement that urban centers of more than 100,000 inhabitants have water and sewerage treatment plants. Because of the political difficulties in the country, the Government however made little progress in implementing the new policy. Legal amendments have also been made in order to change the water code to allow private sector participation in the management of urban water distribution systems, as well as foreign investment participation. As part of its sector restructuring and PSP policy, the Government has also created a Holding for the whole water sector (July 1998), the function of which is inter-alia to proceed with the financial and managerial restructuring of the utilities in view of their autonomy and corporatization. In order to implement the above strategy, specific actions are needed at the sector's institutional and operational level, including: Implementing a service improvement program: leak repair for UFW reduction and preventive maintenance and quality service delivery; Strengthening the sector institutional/regulatory framework and capacity: to enable the development of stronger and better coordinated sector institutions that can discharge their obligations more efficiently; Promoting private operation and management: in order to restore service quality and efficiency in the sector; Implementing a sound regulatory framework: in order to clarify the responsibilities of the numerous sector institutions and agencies, and eliminate overlaps and grey areas; Restructuring current inefficient tariff structure for water and sanitation services and seeking financial viability based on cost recovery: this would give the right market signal, especially in attracting future private capital in the sector; Strengthening the human resource capacity for all aspects of sector management and operations: through technical and managerial training; 2. Objectives The development objective of the first phase (APL1) of the proposed program is to improve management and delivery of water supply services for Algiers and Constantine, and to rehabilitate major components of the sewerage system in Algiers. The first phase also includes actions to prepare the implementation of the subsequent phase (APL2). This objective is in line with those of the Government of Algeria (GOA) strategy for sector reforms for water supply and wastewater services. Project components: 3. Rationale for Bank's Involvement Component Category Indicative Costs (US$ in million) 1. Water supply and -2-  sewerage rehabilitation Physical 123.00 77% 2. Customer services management Services 8.00 5% 3. Engineering and work supervision services Consultants' 21.00 3% 4. Preparation of 2nd phase rehabilitation services Consultants' 5.00 3% 5. Training and logistical support Miscellaneous 3.00 2% Total estimated cost 160.00 100% Bank financed 115.00 72% The World Bank has been actively involved in water sector development initiatives in Algeria, and has developed a supportive working relationship with the Government of Algeria. Bank assistance has supported the investment program for the sector. The Bank's strategy is to maintain its lead role in assisting the GOA to achieve the goals outlined in its strategy. Furthermore, based on its international experience with PSP in infrastructure, and the water and wastewater sectors in particular, the Bank should be well positioned to advise the Government on PSP and the appropriate option to consider. The proposed Bank operation will help in improving sector management and ensuring financial sustainability for sector services. 4. Description - Algiers water supply rehabilitation - Algiers sewerage rehabilitation - Constantine water supply rehabilitation - Algiers WS customer services management - Constantine WS customer services management - Algiers water rehabilitation planning and engineering - Constantine water rehabilitation planning and engineering - Algiers sewers rehabilitation final design and bidding documents - Preparation of second phase rehabilitation for Algiers, Constantine Annaba and Oran - Training and logistical support 5. Financing Total ( US$m) Government 45 IBRD 115 IDA Bilateral Agencies (Unidentified) 0 Multilateral Institutions (Unidentified) 0 Total Project Cost 160 6. Implementation The following institutions would be involved in the final preparation and - 3 -  coordination of the project: Le Ministere de la Privatisation et des Participations de l'Etat, Le Ministere de l'Equipement et de l'Amenagement du Territoire, Le Ministere de l'Interieur , des Collectivites Locales et de 1'Environnement, Le Holding de l'Eau, Les Gouvernorats du Grand Alger et de Constantine, The water and sewerage utilities of Greater Algiers and Constantine. The implementation institutional framework and implementing agencies have yet to be defined. A Project Management Unit (PMU) should be established to coordinate the implementation of project components and to implement sector-wide activities. The appropriate overseeing institution and the administrative location of the PMU would be decided during project preparation. The execution of rehabilitation activities should be handled by Provincial Executing Unit (PEU) such as the DHW (Provincial Water Directorate), under the Provincial Governorates. Project oversight and policy guidance: Accounting, financial reporting and auditing arrangements: The PMU would establish and maintain a Financial Management System (FMS) for the project, which would centralize all data generated by an adequate FMS created at the local level and maintained by the executing agencies. Accordingly, the FMS would reflect account policies and control procedures that would facilitate timely and transparent reporting in accordance with the Bank's Financial Accounting, Reporting, Auditing Handbook, and Project Financial Management guidelines. Borrower's capability to adopt LACI procedures would be determined during project preparation. Independent auditors acceptable to the Bank would audit the accounts each fiscal year in accordance with Bank guidelines. The PMU would ensure that all project accounts are furnished to the Bank within six months of the end of each fiscal year, in such scope and detail as the Bank may reasonably request. To record funds flow and disbursement against eligible expenditures, the executing agencies would open a Special Account at a commercial bank to be operated by the PMU. Monitoring and evaluation arrangements: The PMU together with the PEUs would be responsible for monitoring progress against agreed performance indicators specified in Annex 1. They will submit semi-annual project management reports (PMRs) and financial management reports (FMRs) summarizing project implementation and the utilization of project funds for Bank scrutiny. They would cover implementation status; deviations, if any, from the implementation plan; problems and constraints and corrective actions being taken; and updated disbursement and commitment tables. The PMU would prepare a detailed mid-term report to serve as the basis for a Project Mid-Term Review. The PMU would also prepare and submit an Implementation Completion Report (ICR) to the Bank within six months of the Closing Date of the Loan. 7. Sustainability -4-  The sustainability of the project would be ensured through an adequate institutional framework and a clear legally-binding plan for implementing reforms in terms of: (i) the involvement of private sector to provide water supply and sewerage services; (ii) the attainment of full cost recovery; and (iii) the strengthening of the operational capacity of the water and sanitation services. 8. Lessons learned from past operations in the country/sector Lessons learned from previous Bank financed project for the sector are the following: Public service utilities in Algeria need to strengthen: (i) their project implementing capacity; (ii) their institutional and operational capacity; and (iii) enhance management and operations through private sector participation. The utilities' full financial sustainability can only be achieved through adequate financial management and MIS systems, customer management, water and sewerage tariff adjustments, as well as full autonomy. Urban water supply projects should not be supported by the Bank without proper commitment of the Borrower to carry out their objectives within a clear strategic framework for sector development. Therefore, lending in the sector should be directly linked to the implementation performance of ongoing projects. Components of previous projects were too large, complex and not always focused, and too difficult to implement and manage, given the institutional and implementing capacity in the country. Project implementation of previous operations was seriously hampered by poor procurement procedures and by lack of coordination between the supply of equipment and the construction of civil works. Therefore, in future Bank- financed operations, the Borrower should be assisted by qualified consultants to coordinate the operations of civil works and equipment, and to carry out construction and installation design. The Bank should insist on appropriate project performance indicators related to implementation and sustainability to ensure effective project monitoring and evaluation. The proposed project takes all these issues into consideration. In effect, the project would include PSP to assist the beneficiaries to strengthen their institutional and managerial capacity. The Bank will focus on sector infrastructure rehabilitation, and commitment to specific conditionalities on the institutional and cost recovery aspects will be requested from the Government prior to Loan approval (see conditions for APL1 loan effectiveness and triggers for APL2 in section F 3.). 9. Program of Targeted Intervention (PTI) N 10. Environment Aspects (including any public consultation) Issues Mitigation of failures in sewerage treatment. Sludge disposal process. General mitigation plan to be prepared, financed and implemented. - 5 -  Normal mitigation measures of adverse effects of major civil works in the urban environment to be implemented and monitored. 11. Contact Points: The InfoShop The World Bank 1818 H Street, N.W. Washington, D.C. 20433 Telephone: (202) 458-5454 Fax: (202) 522-1500 Task Manager A. Amir Al-Khafaji The World Bank 1818 H Street, NW Washington D.C. 20433 Telephone: (202) 473-2817 Fax: (202) 477-0348 Note: This is information on an envolving project. Certain components may not be necessarily included in the final project. Processed by the InfoShop week ending December 24, 1999. - 6 -  Annex Because this is a Category B project, it may be required that the borrower prepare a separate EA report. If a separate EA report is required, once it is prepared and submitted to the Bank, in accordance with OP 4.01, Environmental Assessment, it will be filed as an annex to the Public Information Document (PID) . If no separate EA report is required, the PID will not contain an EA annex; the findings and recommendations of the EA will be reflected in the body of the PID. -7-