Tunisia - Fourth Highway Project

Document of FL CoP: The World Bank FILE C rc.* FOR OFFICIAL USE ONLY Repor No. P-2778-TUN REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE REPUBLIC OF TUNISIA FOR A FOURTH HIGHWAY PROJECT April 18, 1980 This document has a restieted dbtrbutofn and may be used by recipients only in the perfonnmnce of their fAcial duties. Its contents may not therwsbe be disosed without World ank uthorIadon.  TUNISIA The exchange rate of the Tunisian dinar is floating. The rate used in the report, which approximates the current rate, is: US $1.00 = TD 0.4 TD I = US $2.50 Fiscal Year for the Republic of Tunisia January 1 to December 31 Weights and Measures 1 meter (m) 3.28 feet 1 kilometer (km) 0.62 miles 1 ton 1 metric ton, or 2,208 pounds Abbreviations BDET Banque de Developpement Economique de Tunisie DPC Highway Department (Direction des Ponts et Chaussees) MTC Ministry of Transport and Communications  TUNISIA: FOURTH HIGHWAY PROJECT FOR OFFICIAL USE ONLY Loan and Project Summary Borrower: Republic of Tunisia Beneficiary: Ministry of Public Works Amount: US$36.5 million equivalent in various currencies Terms: Amortization in 17 years including a 4-year grace period, with interest at 8.25 percent per annum. Project Description: The project would improve the management of the Tunisian high- way network through better maintenance, meeting of a backlog of rehabilitation, and strengthening the institutional frame- work. It would consist of: (i) a three-year slice (1981-83) of a six-year program for improving highway maintenance, including the purchase of highway maintenance equipment; (ii) a three-year slice (1981-83) of a six-year program of road rehabilitation; (iii) training in Tunisia and overseas of highway'department staff; (iv) provision of traffic signs and laboratory and traffic survey equipment; and (v) technical assistance for project monitoring and evaluation, overall highway investment planning, and for preparation of annual work programs and of a future rural roads project. Estimated Cost: US$ Million Local Foreign Total Road rehabilitation 27.7 22.3 50.0 Equipment 6.3 10.4 16.7 Technical assistance and training 0.3 1.0 1.3 Physical contingencies 3.4 3.4 6.8 Price escalation 8.9 8.4 17.3 Total 46.6 /1 45.5 92.1 Financing Plan: US$ Million Local Foreign Total Bank - 36.5 36.5 Government 46.6 - 46.6 Export Credits _ 9.0 9.0 Total 46.6 45.5 92.1 /1 Including taxes and duties of $20.0 million. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  - ii - Estimated Disbursements: US$ Million (Bank FY) 1982 1983 1984 1985 Annual 8.2 14.3 11.5 2.5 Cumulative 8.2 22.5 34.0 36.5 Rate of Return: 80 percent. Staff Appraisal Report: Report No. 2810-TUN dated April 18, 1980  INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE IBRD TO THE EXECUT'IVE DIRECTORS ON A PROPOSED LOAN TO THE REPUBLIC OF TUNISIA FOR A FOURTH HIGHWAY PROJECT 1. I submit the following report and recommendation on a proposed loan for the equivalent of US$36.5 million to the Republic of Tunisia, to help finance part of the foreign exchange cost of a Fourth Highway Project. The loan would have a term of 17 years, including 4 years of grace, with an interest rate of 8.25 percent per annum. Financing for the remaining foreign exchange cost of US$9.0 million would be obtained in the form of export credits. PART I - THE ECONOMY 1/ 2. An economic mission visited Tunisia in June 1978. Its report entitled "Economic Position and Prospects of Tunisia" (No. 2201-TUN) was issued on November 16, 1978. This part reflects its findings and those of an updating mission which visited Tunisia in July 1979. Country Data sheets are attached in Annex I. 3. Tunisia is rather poorly endowed with agricultural resources. Much of the country is arid or semiarid. Agricultural activity is concentrated along the coast in the North but continues to play an important role in Tunisia's economic structure. The main crops are wheat and olives. These crops are subject to sharp annual output fluctuations because of irregular rainfall in the case of wheat and a natural production cycle for olives. Tunisia's most important raw materials are phosphates and petroleum. The large phosphate deposits are of low quality. Known oil reserves are rela- tively small. Industrial development, although rapid, has been hampered by shortages of industrial entrepreneurs, the small domestic market and difficul- ties in marketing Tunisian products abroad. The most important sector is services; during 1970-78 it generated about half of GDP, a quarter of that sector's contribution consisting of government services. Tourism has developed rapidly during the 1970s. Workers' remittances have become a significant item in the balance of payments, generating about 12 percent of current account receipts during 1970-78. 4. Tunisia's economy has performed remarkably well during 1970-78. Real GDP grew at an average annual rate of 8.1 percent, nearly twice as fast as during the 1960s. Per capita GNP in 1978 reached $998, which in real terms is some 67 percent above its level of 1969. Tunisia was one of the few countries in the world whose per capita GNP during 1970-76 increased at an average annual rate of 6 percent or more. 1/ Part I is identical to that in President's Report No. P-2682-TUN of December 27, 1979 for a Third Port Project.  - 2 - 5. This performance was partly attributable to improved economic man- agement, and partly to fortuitous factors. In 1969, Tunisia changed its inward-oriented investment strategy dominated by state activities. The new policy orientations, announced during the 1970s, resulted in a change towards a more open and export-oriented economy in which private initiative could play an increasing role. A number of decontrol measures were introduced, albeit slowly. Overall, the new policy orientation proved beneficial for the country. In addition, the economy benefited from favorable weather conditions resulting in good agricultural crops while the change in world market prices during 1973/74 brought sizeable windfalls as the terms of trade improved sharply. This allowed domestic savings to increase to 21 percent of GDP during 1970-78, compared with 15 percent during the 1960s. Tunisia's dependence on external financing declined from about 32 percent of investment in 1969 to 29 percent in 1978; the share was as low as 15 percent during 1973-76, when gains from the terms of trade were at their peak. The balance of payments had been in continuous overall surplus since 1967. But after 1975, this was no longer the case as the terms of trade began to deteriorate while imports continued to increase rapidly. In 1978 there was another turnaround and reserves increased in the wake of heavy capital inflows. However, Tunisia's debt service payments in relation to exports of goods and non-factor services (debt service ratio) in 1978 were still a low 10.9 percent, compared with 20 percent in 1970. 6. Rapid economic growth allowed Tunisia to make substantial social gains during the 1970s. By 1976, primary school enrollment had reached 100 percent and secondary enrollment 20 percent of the relevant age groups. Educa- tion is free through university. Public health services have been expanded, with many services provided free. A family planning program has been intro- duced and since 1973 has met with substantial success. The birth rate declined from 43.8 per thousand in 1966 to 32.0 per thousand in 1978 while the rate of natural growth declined from 3.0 to 2.6 percent in the same period. Attempts have been made to reduce regional imbalances and to improve the lot of the poor. The share of the population living in absolute poverty declined from 30 percent in 1966 to 18 percent in 1975. However, important disparities remain between income levels among individuals and regions. In coping with the social aspects of development, Tunisia faces strongly increased aspirations of its population in the face of limited natural and financial resources. 7. The most important problem for the Tunisian economy is widespread open and hidden unemployment. In 1978, about 13 percent of the labor force-- some 231,000 people--were unemployed and the unemployment rate has been rising. In addition, there is considerable hidden unemployment in agriculture which provided 39 percent of employment in 1978. If one considers that about 40 percent of this labor force does not have full time jobs, the effective overall unemployment rate is more like 25 percent. An increasing number of young people born during the high birth rate years are reaching working age and a growing number of women are joining the labor force. About half of the registered unemployed are young people seeking their first employment. These are mostly relatively educated people whose job aspirations cannot be met. 8. During 1970-78, agriculture provided more than 40 percent of total employment, 25 percent of merchandise exports and 17 percent of GDP. Food processing accounted for another 4 percent of GDP and comprised 35 percent  - 3 - of value added in manufacturing. Agricultural production rose substantially, largely as a result of favorable weather. Current policy, which emphasizes projects that make a rapid and direct contribution to production, recognizes various constraints on agricultural development: insecurity of land tenure; inadequate access to agricultural credit; inadequate extension services; insufficient agricultural education; and underutilization of irrigation investments. Under the Fourth Plan (1973-76) about $140 million was allocated to a rural development fund executed by the provincial administrations. These rural development efforts are being continued under the current Plan (1977-81). 9. During the 1960s, manufacturing production in Tunisia increased by 8 percent annually. This growth rate accelerated during 1970-78 to 10 percent annually, due partly to record years for the olive oil processing industry and to favorable developments in the textile and chemical industries. The early thrust of industrialization came from large import substitution projects. These suffered, however, from the small domestic market and shortages of experienced staff and management. Since 1970, more emphasis has been put on export-oriented private industries, particularly in food processing, textiles and mechanical and electrical industries. Foreign and domestic private invest- ment is now stimulated by a comprehensive incentive framework and facilitated by streamlined approval procedures of the investment promotion agency. Apart from finance, foreign investors are expected to contribute know-how and over- seas marketing capability. Although an agreement between Tunisia and the European Economic Community signed in April 1976 provided for duty free entry into the Community of nearly all Tunisian industrial products, import restric- tions on some of them were imposed in 1977 and 1978. The Government has estab- lished a special fund to encourage growth of small industries and industrial decentralization, and it has started a program to establish industrial estates. 10. The development of tourism in Tunisia is relatively recent. Foreign- visitor arrivals reached 1.1 million in 1978, with an average annual rate of growth during 1970-1978 of 13 percent -- sharply higher than that of the Mediterranean tourism market as a whole. Since 1970, tourism has become a major source of foreign exchange earnings, reaching $412 million in 1978; this was slightly more than earnings from all manufacturing exports and was exceeded only by petroleum exports. The rapid development of tourism in Tunisia has created new demands on infrastructure (particularly recreational facilities), trained manpower, and related services, which have been met only partly. The Government is endeavoring to alleviate these constraints through a variety of measures including revised investment incentives, increased marketing and training efforts, codes to enforce quality standards, more stringent zoning laws, and development of recreational facilities. 11. The main objectives of the current Five-Year Plan (1977-81) are: (i) full employment of the additions to the labor force; (ii) self-sufficiency in major foodstuffs (defined as a balanced trade account for agricultural goods); (iii) increases in the standard of living; and (iv) social stability through incomes policies and wage and price harmonization. The Plan foresees an average annual rate of real GDP growth of 7.3 percent. This is somewhat  below the 9.2 percent achieved during 1970-76, mainly because the fortuitous factors prevalent during the early 1970s were not expected to continue. Investment is projected at TD 4.2 billion ($9.8 billion) in current prices during the Plan. In real terms, average annual investment would be 54 percent greater during 1977-81 than during the preceding Plan. Nonetheless, the targeted average annual rate of growth of real investment during the Fifth Plan is only 4.1 percent, as this rate is influenced by the very high invest- ment level achieved in the base year, 1976. 12. The Fifth Plan's strategy emphasizes in particular export-oriented industrial development and agricultural growth. Special attention is given to employment creation and to balance of payments considerations. Substantial investments are to be made in hydrocarbons, manufacturing, water development, transport and housing. The Plan prescribes increased domestic production and processing of Tunisia's mineral resources (phosphates, petroleum) to raise the value-added component of exports as much as possible. Private sector initia- tive is expected to dominate investment in textiles, mechanical and electrical industries, and tourism. It is in these activities that the authorities expect most employment creation to take place. Employability of the labor force is to be increased through education and training programs. Efforts towards regional development are to be pursued through establishing regional planning structures, strengthening regional administration and developing incentives for the decentralization of productive activities. The strategy proposed for the Fifth Plan does not represent any major departure from the strategy pursued successfully during the preceding Plan. 13. Tunisia's existing resource base, its institutional and infrastruc- tural framework, its good performance in the earlier part of this decade, and the desire of the authorities to support further development with appro- priate policy measures and institutions are fundamental factors pointing towards continuing rapid economic growth during the Fifth Plan. The 7.3 percent growth target is in line with the possibilities of the economy. The investment priorities formulated in the Plan are considered necessary to support the sectoral strategies. There are, however, some less favorable signs. Tunisia will have to rely increasingly on its own resources since the fortuitous circumstances of the early 1970s are unlikely to be repeated. As the resource base is relatively narrow, available resources need to be more efficiently deployed. Achieving the Plan targets presupposes the timely introduction and successful execution of measures to: (i) strengthen the absorptive capacity for investment, especially for labor intensive projects; (ii) promote exports; (iii) base economic management on an efficient price and incentive system and improve productivity; and (iv) mobilize the resources needed to realize the comprehensive social development targets while maintain- ing domestic and external financial stability. The Tunisian authorities have begun to introduce measures in these respects. To increase the absorptive capacity for investment, institutions like the Investment Promotion Agency and the National Center for Industrial Studies were strengthened. The activi- ties of the Export Promotion Center were widened to include investigations on non-traditional markets, especially in the Middle East and Japan.  - 5 - 14. Substantial efforts in domestic and external resource mobilization in particular will be of crucial importance to finance the planned level of investment. On the domestic side, there is a need for increased savings and improved financial intermediation. The Government sector, in particular, will again be called upon to contribute substantially to the savings effort. The Plan suggests that this should be done by prudent expenditure policies and increased revenue collections (selective tax increases and better tax collec- tion). Measures to this end have been taken by curtailing the growth of budgetary expenditures, increasing taxes on real estate and luxury consumer goods and making payment of taxes a pre-condition for obtaining administra- tive licences of all kinds. In addition, the public enterprise sector will have to increase substantially its contribution to public savings through better management and especially through cost-related increases in the sale prices of selected enterprises. Steps in this direction have been initiated through tariff raises on water, power and port services. Externally, Tunisia would have total financing requirements (disbursement basis) of some $3.1 billion during the Fifth Plan, of which $1.3 billion have already been obtained during 1977-78. Given the country's creditworthiness, Tunisia should be able to mobilize the remaining $1.8 billion of such financing without straining the country's debt servicing capacity (para. 16). 15. Since the early 1960s, Tunisia has obtained large amounts of offi- cial aid. A Consultative Group chaired by the Bank provided a forum for aid- coordination among major donors in the past. During 1970-78, annual loan commitments from public sources averaged $395 million, or about $47 per capita. About 50 percent of these commitments came from bilateral public sources, chiefly from France, Canada, and the Federal Republic of Germany. About 15 percent of the bilateral aid came from oil-producing countries, whose share increased rapidly from 8 percent in 1970 to 29 percent in 1978. Commit- ments from the Bank Group during 1970-78 accounted for 20 percent of total public commitments. Most aid has been obtained on relatively soft terms; in 1978 the average terms of borrowing were 5.4 percent interest and 20 years maturity, including 5 years of grace. During 1970-78, Tunisia also received annually some $40 million in grants. Loan commitments from private sources averaged $125 million a year. While direct foreign private investment has been comparatively small, it has gained momentum since 1974 following incre- ased activity in the petroleum sector and new incentives offered to foreign investors in manufacturing. Net direct foreign investment increased from $19 million in 1969 to $96 million in 1978, with most of it going to the petroleum sector. 16. At the end of 1978, total foreign debt (disbursed and outstanding) was estimated at about $2.4 billion, or 40 percent of GDP. The debt service ratio in 1978 was 10.9 percent, compared with 20 percent in 1970. This sig- nificant decline in the debt service ratio was mainly due to the sharp increase in export earnings following the changes in world market prices in 1973/74. External borrowing at the rate projected for 1977-81 (para. 14) would increase debt service obligations to around 14 percent of exports of goods and non- factor services by 1981 and 15 percent by 1986, according to current Bank projections. At these levels, the debt service burden would be manageable, particularly when seen in the light of Tunisia's long record of prudent and  - 6 - skillful balance of payments and external debt management. Tunisia is there- fore considered creditworthy for further Bank lending. PART II - BANK GROUP OPERATIONS IN TUNISIA 17. Since 1962, Tunisia has received a total of thirty-eight loans and eleven credits amounting respectively to $636.1 million and $70.1 million, net of cancellations. Annex II contains a summary statement of Bank loans, IDA credits and IFC investments as of March 31, 1980, and notes on the execution of ongoing projects. While disbursements of some loans and credits have been slower than foreseen at appraisal (as of March 31, 1980, actual disbursements on projects under execution amounted to 64 percent of appraisal estimates), on the whole project execution has been satisfactory. In a number of sectors, important institutional improvements have been achieved and autonomous agencies have been created or strengthened. 18. The Bank's lending strategy in Tunisia aims at supporting Government efforts to (a) increase employment, (b) encourage more balanced growth and distribution of income among regions and income groups, (c) promote export- oriented policies and investments, and (d) provide selective support for the development of infrastructure and for institution building in key public services. The main feature of this strategy is to cooperate with the Tunisian authorities in economic and sectoral studies addressing the main issues facing the country and providing the underpinning for the timely and well-coordinated preparation of projects, with emphasis on technical assistance. The Bank is also cooperating with the Government in its efforts to increase the mobiliza- tion of domestic and foreign resources, in part through encouraging project cofinancing; the latter is particularly important in view of the extent of Tunisia's external resource needs, the large size of many priority projects and the limited availability of Bank resources relative to the country's needs. 19. Within this broad framework, past lending emphasized support for long-term investments in agriculture) infrastructure and social development. Lending for urban and social development, including water supply, sewerage, education, family planning, urban low-cost housing, and the Tunis planning arid public transport project has accounted for 30 percent of Bank/IDA commitments in Tunisia since 1971. Lending for transport, power and tourism infrastruc- ture has accounted for 31 percent. Agriculture and fisheries have received 22 percent of total commitments. Industrial and hotel financing, through the Banque de Developpement Economique de Tunisie (BDET), has accounted for 13 percent, and the Gafsa phosphate development project for 4 percent. 20. Projects in various stages of processing for consideration in the remaining months of this and in subsequent fiscal years include those for natural gas distribution, agricultural credit to farmers and agroindustries, agricultural development in the Northwest, population and health, vocational training, and development of small-scale, textile, and electrical and mechanical industries.  21. The Bank Group accounted for about 13 percent of total public commitments to Tunisia during 1970-78. The Bank Group's share of total debt outstanding and disbursed at the end of 1978 (including loans from private sources) was 11 percent and of debt service during 1978 was 14 percent. The Bank Group's share in Tunisia's disbursed external debt by 1986 is expected to remain unchanged at about 11 percent, and its share in debt service would decline to about 12 percent. 22. IFC has invested in NPK Engrais (a fertilizer plant), in BDET, in Compagnie Financiere et Touristique (COFIT, a company to promote and invest in tourism projects), in Societe Touristique et Hoteliere RYM (a large hotel development) and in Industries Chimiques du Fluor, which will produce alumi- nium fluoride from local fluorspar for export, and in the Sousse-Nord inte- grated tourism development project. IFC's net commitments in Tunisia total $14.5 million, as of March 31, 1980. PART III - THE TRANSPORT SECTOR General 23. Tunisia's transport network is reasonably well developed. It con- sists of 17,000 km of classified roads, 1,700 km of standard and narrow-gauge railways, five commercial ports, and four international airports. The network serves all parts of the country, but is most dense in the northeastern coastal provinces inhabited by over half of the total population. Road transport is the principal mode used for both domestic freight and passenger transport and its share of total demand is increasing steadily. In 1978, road transport services provided by public companies and private owner-operators accounted for about 90 percent of passenger traffic and 85 percent of freight traffic (excluding minerals). On the railways, apart from mineral traffic which is concentrated on about 300 km of lines in the southern part of the country, the density of freight traffic is very light. In 1978, Tunisian ports handled 11 million tons of cargo, Tunis/La Goulette being the main general cargo port and Sfax the main port for dry bulk traffic. 24. During the 1960s, traffic growth was moderate and transport invest- ments focussed mainly on minor improvements to the existing infrastructure. However, increasing diversification of the economy in this decade, particularly the emphasis on agricultural production and regional development, has since stimulated economic activity and traffic demand. High traffic growth rates in the early 1970s brought the need to upgrade key sections of the main transport network, in addition to continued rehabilitation and minor improvements to the existing infrastructure. The balanced development of the transport network, particularly through improvements to regional and local roads, evolved as an important consideration in support of rural and regional development policy. Previous transport projects financed by the Bank have supported this overall strategy and pattern of development in the sector (para. 27).  - 8 - 25. The Ministry of Transport and Communications (MTC) is responsible for the organization of the transport sector including the planning of rail, sea, and air transport, the coordination and regulation of land transport, and the establishment of transport rates. A shortage of qualified staff has resulted in deficiencies in project preparation, planning and overall coordi- nation. The Government is therefore utilizing consultant services to prepare subsectoral plans and an overall transport coordination study. These are now being reviewed as part of the preparation for the Sixth Development Plan (1982-86). 26 The Government's current objectives in the transport sector are to: (i) improve the existing infrastructure, especially by modernization and rehabilitation works; (ii) promote rural development by improving rural roads; (iii) increase Tunisia's share in international traffic; and (iv) reorganize public road transport services. While these objectives are basically sound, a proportionally greater emphasis has been given in recent years to the development of maritime and air transport, resulting in high foreign exchange expenditures and limited short-term benefits. As a result of this emphasis, allocations for highway investments were reduced in real terms during the Fifth Development Plan (1977-81). Moreover, insufficient attention has been paid to the modernization, rehabilitation and maintenance of the road network and to improving the efficiency of the existing transport system. The Bank's lending strategy in the transport sector will, therefore, continue to support the Government's efforts to: (i) rehabilitate and maintain existing infra- structure; (ii) improve and maintain rural roads; (iii) improve the efficiency of transport operations; and (iv) strengthen transport institutions and policies, including improved planning of investments. Previous Bank Involvement 27 The Bank has financed eight transport projects since 1964. In the ports subsector, the first loan (Loan 380-TUN of $7 million, 1964) provided support facilities for port operations, mainly dredging, maintenance services, and cargo handling equipment. A Second Port project (Loan 573-TUN of $8.5 million, 1969) provided continued assistance in improving port operations and in developing sound management in the port subsector. Both projects repre- sented successful attempts to develop modern port infrastructure and had an important institution-building impact (PPAR No. 1049, February 26,, 1979). However, cargo-handling productivity did not increase as expected. The Third Port project (Loan 1797-TUN of $42.5 million, 1980), will assist the Government in modernizing berth facilities at the ports of La Goulette and Sfax and in further improving the efficiency of cargo handling. In the railways subsector, the Bank Group provided assistance (Loan 606/Credit 150-TUN of $17 million, 1969) for track rehabilitation, renewal of rolling stock, and the improvement of maintenance and railway operations. The project was largely a holding operation for urgent rehabilitation (PPAR No. 2109, June 23, 1978) and was successfully implemented in spite of delays and cost increases. The project audit reports for both the ports and railway projects found improvements in financial practices, audit procedures, and operational information systems as a result of the technical assistance  - 9 - provided by the projects. A pipeline project financed through a $7.5 million Bank loan (Ln. 724-TUN, 1971) included the construction of a natural gas pipeline from El Borma on the Algerian border to the port of Gabes. It was completed in 1972. 28. In the highway subsector, the Bank has attempted to develop a balanced road network to support regional development. The First Highway project (Loan 746-TUN of $24 million, 1971) was initially designed to support the modernization of 275 km and rehabilitation of 1,900 km of the primary highway network, including resurfacing, strengthening, widening and replace- ment of 51 bridges and culverts. However, because of a higher-than-expected traffic growth in the Tunis area, the road designs had to be revised and upgraded, resulting in higher costs. The costs increased further because the project implementation period coincided with rapid worldwide inflation and higher oil prices (PPAR No. 2772, December 26, 1979). Although only 1,000 km of roads were rehabilitated, the project did contribute to improved efficiency in the Highway Department's road and equipment maintenance organization, and valuable experience was gained by local consultants in preparing feasibility studies and design work. The balance of the road rehabilitation program not implemented under the First project was included in the Government's Fifth Development Plan (1977-81). Therefore, the Second Highway project (Loan 1188-TUN of $28 million, 1976) focussed on modernization of key sections of the main highway network. Implementation of the project has been slow, mainly due to lack of local funds in the revised Plan allocations. Based on a revised project execution plan, the remaining works will be completed by the end of 1982. In addition to the modernization of the main highway network, a Third Highway project (Loan 1601-TUN of $32 million, 1978) will balance development of the highway network through the implementation of an integrated program for the improvement of 1,000 km of rural roads. The pro- ject supports the development of rural roads and finances agricultural invest- ments in the zones of influence of these roads, as part of the Government's broad policy for rural and regional development. Construction of the roads and implementation of complementary agricultural investments and extension services is proceeding satisfactorily. The Highway Subsector 29. The Road Network. The Highway Department (Direction des Ponts et Chaussees, DPC) within the Ministry of Public Works is directly responsible for the planning, administration, and maintenance of the road network. This network comprises 17,000 km of classified roads and about 14,000 km of unclassi- fied tracks. The density of the network is generally adequate, but with the rapid growth of road traffic during the past decade and a decline in total expenditures in real terms, many roads are now below standard for the traffic they carry. Narrow pavement widths result in high transport and road mainte- nance costs and contribute to the poor safety record of many roads. The proposed project would assist DPC with the rehabilitation of these roads and with upgrading its road safety program over the network as a whole. 30. Traffic and Road Transport. The vehicle fleet was estimated at 100,000 in 1977 with about 14 percent heavy vehicles. The level of motor- ization is one vehicle per 60 inhabitants, which is average compared with  - 10 - countries with a similar per capita income. The heaviest traffic volumes are concentrated along the coast between Tunis and Sfax and roads in this area have experienced rapid increases in traffic. Classified roads carry an average of 1,000 vehicles per day (vpd) with volumes increasing to over 20,000 vpd near Tunis. Road traffic has increased at almost 15 percent a year in the Tunis area and averaged about 10 percent annually nationwide throughout the 1970s. Based on these trends and taking into account expected economic growth, road traffic is forecast to increase at about 10 percent per year through 1986. 31. Public road transport services are provided by two national trans- port companies and several smaller regional companies. For-hire transport is limited to pick-ups and station wagons for passenger transport and to vehicles of less than 5.5 tons for freight. However, the public companies are poorly organized and the better quality of service offered by private owner- operators is such that they dominate both long-distance freight and passenger traffic. To improve the road transport industry the Government is considering a reduction in the number of regional companies and a simplification of the road user tax system, which now discriminates against road transport companies in favor of own-account transport. 32. Highway Expenditures. Highway expenditures are financed from both the capital investment budget and the annual recurrent maintenance budget. Capital expenditures, which are allocated by the Ministry of Planning, have decreased slightly in real terms over the last three years. Moreover, about 40 percent of budget allocations have been absorbed by the Tunis-Turki Freeway and the Bizerte Bridge. As a result, the rehabilitation and pavement strength- ening program started under the First Highway project, as well as priority improvements under the Second Highway project, have been delayed (para. 28). Together with implementation of the Third Highway project (rural roads), the proposed project, which would reinstate the urgent program of highway rehab- ilitation, would account for about 40 percent of planned investments in road infrastructure through 1983. 33. The recurrent maintenance budget is controlled by the Ministry of Finance. Since 1974, increases in the recurrent budget have been mainly for labor, while operating funds and funds for supplies have declined in real terms. Together with the lack of rehabilitation and pavement strengthening, the decline in expenditure on maintenance has led to a progressive deteriora- tion in the condition of the road network. To support improved maintenance operations, the Government has increased the budgetary allocations for supplies and operations in 1980 by 20 percent. Over the next few years, DPC expects to receive moderate real term increases in all recurrent budget items and road maintenance expenditures would return to levels achieved during the early 1970s. In line with these budget increases and together with increased operational efficiency, improved maintenance operations would be achieved under the project. 34. Highway Administration and Maintenance. The DPC was reorganized in 1972-73 under the First Highway Project and now consists of six headquarters divisions and a central administrative and accounting service. Staffing is  - 11 - adequate except for engineers where recruitment has proved difficult, partly because of unattractive civil service conditions. The DPC is capable of preparing small projects, but major planning studies and the preparation of large projects are carried out by consultants. Because of the increasing need for routine planli'ng ardU pi-oject preparation activities associated with annual rehabilitation and pavement strengthening operations, greater efforts are required to institutionalize these functions within DPC. This will require appropriate technical assistance and counterpart training, together with additional equipment for geotechnical studies and traffic count programs. The proposed project would continue to support DPC's planning and project preparation capabilities, which are also being strengthened under the ongoing Third Highways project. 35. DPC operates in the field through 18 road subdivisions, each of which controls several local brigades responsible for routine maintenance of the classified network. Light periodic maintenance (surface dressing) is undertaken by national brigades. 36. DPC has worked vigorously to overcome operational problems. In addition, it has built up its force account capacity for surface dressing as a minimal measure to preserve the road network. However, further improve- ments are required in the organization and operations of maintenance, such as the creation of more brigades to intensify maintenance over the entire network, the use of machines better adapted to Tunisian road conditions, and improved supervision to increase the quality of work performed. In addition, the fleet of maintenance equipment needs to be expanded and worn-out equipment renewed. Higher budgetary allocations will be required to raise the level of the maintenance effort. The proposed project would help to meet these needs and would strengthen the institutional framework for more cost-effective road maintenance operations. PART IV - THE PROJECT Project History 37. The proposed project was identified in November 1978, prepared by DPC, with the assistance of Bank preparation missions in March and June 1979, and appraised in September/October 1979. Negotiations were held in Washington in March/April 1980. The Tunisian Delegation was led by Mr. M. Soula of the Ministry of Public Works. The report "Staff Appraisal Report of a Fourth Highway Project", No. 2810-TUN, dated April 18, 1980, is being circulated separately to the Executive Directors. The main features of the loan and project are listed in the Loan and Project Summary. Annex III summarizes key events leading to Board presentation and special conditions provided for in the Loan Agreement. A map showing Tunisia's main highway network and indicat- ing the project's first year rehabilitation program is also attached.  - 12 - Project Objectives 38. The overall objective of the proposed project is to halt the deterioration of the highway network and improve its quality in accordance with current traffic requirements. Specific objectives include meeting a backlog of rehabilitation needs and increasing the quality and efficiency of maintenance operations. The project would also have an important institution- building impact through the provision of training and technical assistance to improve the efficiency of maintenance operations and to strengthen the analysis, planning, and project preparation capabilities of DPC. Project Description 39. The proposed project comprises: (i) a three-year slice (1981-83) of a six-year program for improving highway maintenance, including the purchase of highway maintenance equipment; (ii) a three-year slice (1981-83) of a six- year program of road rehabilitation; (iii) training in Tunisia and abroad, of highway department staff; (iv) the provision of traffic signs and laboratory and traffic survey equipment; and (v) 120 man-months of technical assistance to DPC for project monitoring and evaluation, overall highway investment planning, and for preparation of annual work programs and of a future rural roads project. 40. Maintenance. The principal goals for improving highway maintenance have been established in a six-year program and include: (i) reducing the average interval between surface dressings from 16 to 10 years; (ii) increas- ing the frequency of grading unpaved roads; and (iii) improving the effective- ness of crews carrying out routine maintenance tasks. The improvements will have to be gradually implemented over several years as the capacity of DPC increases in line with progressive increases in the recurrent annual budget for maintenance. The proposed project will assist DPC in improving its maintenance operations through the provision of new equipment and technical assistance in upgrading the work of the repair shops as well as the acquisi- tion of additional equipment more appropriate to Tunisian road conditions. 41. Rehabilitation Program. The normal process of gradual rehabilita- tion and betterment of the existing network has fallen behind traffic growth and a major portion of the road network is now substandard for the traffic volumes carried. Rehabilitation works will consist of pavement strengthening (with and without road widening) and road widening only, where pavement strength is adequate but traffic volumes are high. The proposed project would start with the rehabilitation of the most urgent sections (approximately 800 km) over the three-year period. A first-year program of about 215 km of high-priority roads has been prepared and will be ready for early tendering. Feasibility studies on the sections to be improved during subsequent years will be prepared on a continuing basis according to criteria and a methodology agreed during negotiations, and submitted to the Bank for approval (Loan Agreement, Section 3.04).  - 13 - 42. Annual Programs. The longer term maintenance and rehabilitation program has been defined in general terms, and a three-year action plan has been worked out. Detailed annual programs will be prepared taking into account the experience and progress of project execution during the previous year and incorporating improvements in operations and planning. Assurances have been obtained during negotiations that the Government will carry out the maintenance and rehabilitation program in accordance with the action plan (Loan Agreement, Section 3.03). By September 30 each year, draft annual operations programs for each subsequent year, consistent with the action plan, would be submitted to the Bank for review and comment. 43. Training. DPC has a satisfactory training program for equipment operators and mechanics, and is extending it to include technicians. It also plans to establish a program of continuing education for engineers. These programs need to be better organized and administered to ensure their effec- tiveness. The Government has confirmed that it will appoint a permanent training officer for these purposes. The proposed project will assist the Government in providing practical training and short courses overseas through sixty fellowships for engineers, as well as for visits of experts to Tunisia to conduct seminars on specific topics. During negotiations, assurances have been obtained from the Government that it would employ experienced training consultants to help DPC implement the training program (Loan Agreement, Section 3.02(ii)). 44. Workshop, Laboratory and Safety Equipment. DPC's management and technical capabilities are to be strengthened under the proposed project with the provision of laboratory test equipment and traffic counters. Specifically, this equipment would strengthen DPC's capacity in the analysis, design, and control of sub-projects as well as the updating and refinement of the mainte- nance program. The project would provide, for the Tunis laboratory, several pieces of equipment to test the strength and service characteristics of roads, and testing equipment for geotechnical, bitumen, concrete and soils tests for Tunis and seven regional laboratories. The project would also assist DPC to expand its highway safety program by financing replacement of road signs, assisting in accident data analysis and the preparation of studies to correct design deficiencies at high-accident locations. 45. Technical Assistance. About 120 man-months of consulting services would be provided under the project to assist DPC in (i) establishing an organization and methods unit for project monitoring and evaluation, including traffic, road inventory and accident data processing; (ii) undertaking studies necessary for the planning of road maintenance, including the preparation of a highway master plan and investment program; (iii) preparing economic studies and detailed engineering for the second and third years' rehabilitation pro- grams; and (iv) preparing a rural roads project including detailed engineering for about 1,000 km of road sections. Assurances have been obtained during negotiations that the Government would employ qualified engineering and man- agement consultants to help DPC implement the technical assistance program (Loan Agreement, Section 3.02(i), (iii) and (iv)).  - 14 - Cost Estimates and Financing Plan 46. The total cost of the project is estimated at $92.1 million, includ- ing duties and taxes ($20.0 million), of which $45.5 million is in foreign exchange. The foreign exchange component has been calculated on the assump- tion, based on recent contract awards, that local contractors will win two- thirds of construction contracts after international competitive bidding. A 10 percent physical contingency allowance has been included on all project items. Price escalation has been estimated at 10.5 percent in 1980, 9 percent in 1981, 8 percent for 1982, and 7 percent for 1983, for items procured both locally and from abroad. Manpower requirements for technical assistance total 120 man-months of professional services and, based on recent rates for consulting services in Tunisia, are estimated to cost about $1.1 million. This includes short-term high-level expertise at about $10,000 per man-month and conventional consulting services at $7,500. Overseas training, including travel, is estimated to cost about $225,000. 47. The proposed Bank loan of $36.5 million would finance 51 percent of total project cost (net of taxes and duties), or 80 percent of the foreign exchange cost. The proposed Bank loan would finance the full foreign exchange cost of civil works, workshop and laboratory equipment, overseas training and the transportation cost related to it and 75 percent of the consultants services. It would also cover the full foreign exchange cost ($2.1 million) of the most urgently needed maintenance equipment. Additional road main- tenance equipment would be financed by export credits. Assurances have been obtained during negotiations that the Government would conclude export credit agreements, to be effective by September 30, 1981, to finance the foreign cost of the remainder of the maintenance equipment ($9.0 million) (Loan Agreement, Recital B and Section 5.01(a)). Assurances were also obtained that adequate funds would be provided under the Government's capital and recurrent budgets, promptly as needed, for carrying out the project (Loan Agreement, Section 3.01(b)). 48. In addition to the above capital costs, the complete highway modern- ization program includes annual recurrent costs totalling an estimated $88.7 million over the three years (1981-83), which will be financed entirely by the Government. Project Implementation 49. DPC would be responsible for the overall implementation of the project (Loan Agreement, Section 3.01 (a)). Most of the civil works would be carried out by contractors whom DPC would supervise. For surface dressing, DPC is expected to employ its own labor on force-account, which based on past experience, is the most cost-effective method in Tunisia. DPC would also procure the equipment. The Department successfully implemented the First Highway project and is continuing to implement the Second Highway and the Rural Roads projects (para. 28), the latter together with the Ministry of Agriculture and Banque Nationale de Tunisie (BNT), the leading commercial bank which finances agricultural investments.  - 15 - 50. Physical execution of the project will cover the three calendar years 1981-83. Tenders for the civil works to be executed during the first year of the rehabilitation program and for a first lot of equipment will be called in 1980. Procurement and Disbursements 51. Civil works (total estimated cost $69 million), laboratory workshop and Bank-financed maintenance equipment ($7 million) contracts will be awarded on the basis of international competitive bidding in accordance with Bank procurement guidelines, except for highly specialized road evaluation equip- ment ($0.2 million) which would be procured through negotiated contracts for purposes of standardization. Other road maintenance equipment ($14 million) will be procured on the basis of export credits. Both foreign and Tunisian contractors are expected to bid for the civil works. As far as possible, the annual programs will be grouped on a geographical basis and will be organized in lots of such a size as to encourage maximum participation of foreign and local contractors. Contractors, who would be allowed to bid for one or more lots, would be prequalified. Bids will be invited for the first group of lots in mid-1980. Technical assistance will be provided by qualified and experienced firms of consultants and experts on terms and conditions accept- able to the Bank (Loan Agreement, Section 3.02). 52. Disbursements would be 45 percent of civil works, 100 percent of the foreign cost or 63 percent of the local cost of equipment, 75 percent of the cost of consultants' services, 100 percent of foreign cost of overseas training and the full cost of transportation associated with it. Disburse- ments would take place over four years 1981-84, and the loan closing date would be September 30, 1984. Benefits and Risks 53. The proposed project represents an integrated and balanced approach to road maintenance, combining improved maintenance operations with a program of rehabilitation and pavement strengthening on key sections of the network. The maintenance and rehabilitation programs would complement each other in that improved and more cost-effective maintenance operations would reduce the need for rehabilitation works in the future, while the rehabilitation program will lower the requirements for costly reconstruction over the net- work. Training and technical assistance will strengthen the organization and administration of the road network, and raise operational efficiency as well as the level of maintenance. Foremost, implementation of the combined program would result in transport cost savings which follow from reduced road deterioration. Potential bottlenecks and high transport costs over the net- work would be avoided and improved road conditions would provide the necessary support for economic growth and the Government's policy for rural and regional development. 54. As the program covers the entire country, the associated economic benefits will be widespread and affect a large proportion of total population. The direct beneficiaries would be the private owners of cars, vans and small trucks as well as the public transport enterprises. Since competition in the  - 16 - trucking industry is keen and rates are related to costs, the benefits from the project would be largely passed on to all transport users in the form of lower transport rates as a result of savings in operating costs. Benefits would also accrue directly to the Government through more cost-effective main- tenance operations and by avoiding costly reconstruction at a later date. 55. The benefits have been estimated for an improved maintenance program which is appropriate to the capacity of the existing maintenance set-up. The scope of the program has, therefore, been dictated largely by existing and short-term physical and financial constraints. The overall program, compris- ing routine and periodic maintenance and rehabilitation, has an economic return of 80 percent. The returns on the specific road sections in the first- year rehabilitation program average over 100 percent. 56. The risk of compromising implementation of the program has been mini- mized, since the improved maintenance program has been tailored to moderate increases in the recurrent budget and to a gradual improvement in maintenance procedures in line with absorptive capacity. If implementation of the rehab- ilitation program were delayed, the economic return on these works would increase even further, but the economy would forego benefits. Because the Government is strongly committed to the program, this risk is minimal. PART V - LEGAL INSTRUMENTS AND AUTHORITY 57. The draft Loan Agreement between the Bank and the Republic of Tunisia, and the Report of the Committee provided for in Article III, Section 4 (iii) of the Articles of Agreement are being distributed separately to the Executive Directors. Special features of the draft Loan Agreement are referred to in the text and listed in Section III of Annex III. 58. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank. PART VI - RECOMMENDATION 59. I recommend that the Executive Directors approve the proposed loan. Robert S. McNamara President by Ernest Stern Attachments April 18, 1980 Washington, D.C.  17 M= 1 TAiLS 3 Page 1 of 5 TUNISIA-SCAL INdDICATOt9 DATA SHIZT TLUNISIA REFERENCZ GROUPS (ADJUSTED A S LANDAREA (TFiOUSAND S )- MOST R)CEST STIMAT) II 'L lRo16m. SANE SAME NEXT 1(1083 AGRICULTURAL 76.6 MOST RECENT GEOGRAPHIC INCOMYE INZ 1960 /b 1970 /b ESTIMATE /b REGION /c GROUP /d 1UP /e GNP PER CAPITA (US$) 210.0 350.0 860.0 1367.7 926.1 tnS.5 ENERGY CONSUMPTION PER CAPITA (KIL-RAHS OF COAL EQUIVALENT) 190.0 261.0 456.0 838.1 730.7 1646.7 POPULATION AND VITAL STATISTICS POPULATION. MID-YEAR (MILLIONS) 4.2 5.1 5.9 URBAN POPULATION (PERCENT OF TOTAL) 36.0 44.0 48.0 49.0 49.0 51.2 POPULATION PROJECTIONS POPULATION IN YEAR 2000 (MILLIONS) 9.0 STATIONARY POPULATION (MILLIONS) 14.0 YEAR STATIONARY POPULATION IS REACHED 2070 POPULATION DENSITY PER SQ. KM. 26.0 31.0 36.0 19.9 44.6 28.2 PER SQ. KM. AGRICULTURAL LAND 55.0 67.0 77.0 99.0 140.7 100.5 POPULATION AGE STRUCTURE (PERCENT) 0-14 YRS. 43.3 46.2 43.0 45.6 41.3 35.4 15-64 YRS. 52.5 50.0 53.0 51.4 55.3 56.3 65 YRS. AND ABOVE 4.2 3.8 4.0 2.8 3.5 5.1 POPULATION GROWTH RATE (PERCENT) TOTAL 1.8 /f 2.0/f 2.3/k 3.0 2.4 1.7 URBAN .. 3.8 3.6 5.2 4.5 3.0 CRUDE BIRTH RATE (PER THOUSAND) 47.0 39.0 32.0 43.7 31.1 27.5 CRUDE DEATH RATE (PER THOUSAND) 19.0 14.0 12.0 13.5 9.2 9.1 GROSS REPRODUCTION RATE 3.1 3.4 2.2 3.2 2.2 1.8 FAMILY PLANNING ACCEPTORS, ANNUAL (THOUSANDS) .. 29.2 73.5 USERS (PERCENT OF MARRIED WOMEN) .. 8.0 18.0 .. 34.7 FOOD AND NUTRITION INDEX OF FOOD PRODUCTION PER CAPITA (1969-71-100) 122.3 98.0 125.0 90.8 104.4 102.0 PER CAPITA SUPPLY OF CALORIES (PERCENT OF REQUIREMENTS) 86.0 93.0 102.0 99.0 105.0 120.8 PROTEINS (GRAMS PER DAY) 54.0 63.O/g 67.4 63.6 64.4 80.9 OF WHICH ANIMAL AND PULSE 13.0 14.Oj 20.0 16.0 23.5 31.3 CHILD (AGES 1-4) MORTALITY RATE 29.0 20.0 15.0 15.9 8.6 5.1 HEALTH LIFE EXPECTANCY AT BIRTH (YEARS) 48.0 54.0 57.0 53.8 60.2 65.6 INFANT MORTALITY RATE (PER THOUSAND) .. 135.0 .. ,. 46.7 45.5 ACCESS TO SAFE WATER (PERCENT OF POPULATION) TOTAL .. 49.0 70.0 56.4 60.8 69.4 URBAN .. .. .. 83.4 75.7 85.1 RURAL .. .. .. 34.3 40.0 43.0 ACCESS TO EXCRETA DISPOSAL (PERCENT OF POPULATION) TOTAL .. .. .. 59.1 46.0 70.1 UR8AN .. .. 30.0 78.2 46.0 88.3 RURAL .. .. .. 26.4 22.5 33.2 POPULATION PER PHYSICIAN 1000.0 5950.0 4800.0 3677.0 2262.4 1343.2 POPULATION PER NURSING PERSON .. 730.0 1070.0 1730.6 1195.4 765.0 POPULATION PER HOSPITAL BED TOTAL 360.0/h 410.0 410.041,1 577.0 453.4 197.6 URBAN .. 280.0 230.0Zl .. 253.1 260.2 RURAL .. 930.0 1040.07, - 2732.4 1055.0 ADMISSIONS PER HOSPITAL BED .. 24.1 . 21.8 22.1 17.3 HOUSING AVERAGE SIZE OF HOUSEHOLD TOTAL .. 5.1 /1 6.0 5.8 5.3 4.7 URBAN .. 5.1 /i 5.8 5.5 5.2 4.4 RURAL .. 5.1 7 6.1 6.0 5.4 5.1 AVERAGE NUMBER OF PERSONS PER ROOM TOTAL '- 3.2 /i .. .. 1.9 1.1 URBAN .. 2.7Ti .. .. 1.b 1.2 RURAL .. 3.6 /i .. ., 2.5 1.2 ACCESS TO ELECTRICITY (PERCENT OF DWELLINGS) TOTAL .. 24.0 /i .. 45.I 50.0 b4.0 URBAN .. .. .. 67.9 71.7 85.1 RURAL .. .. .. .. 17.3  -is- ANNE 1 TABLE 3A Page 2 of 5 TUNISIA - SOCIAL INDICATORS DATA SHEET g TUNISIA REFERENCE GROUPS (ADJUSTED AyJERAGES - MOST RECENT ESTIMATE) - SAME SAME NEXT HIGHER MOST RECENT GEOGRAPHIC INCOME INCOME 1960 /b 1970 /b ESTIMATE /b REGION /c GROUP /d GROUP /e EDUCATION ADJUSTED ENROLLMENT RATIOS PRIMARY: TOTAL 66.0 100.0 100.0 85.0 102.5 101.7 MALE 88.0 120.0 118.0 103.7 108.6 110.0 FEMALE 43.0 79.0 81.0 66.0 97.1 92.8 SECONDARY: TOTAL 12.0 23.0 20.0 27.6 33.5 51.2 MALE 19.0 33.0 26.0 39.2 38.4 56.4 FEMALE 5.0 13.0 14.0 20.8 30.7 43.7 VOCATIONAL ENROL. (% OF SECONDARY) 24.0 12.0 17.0 4.3 11.5 18.3 PUPIL-TEACHER RATIO PRIMARY 61.0 48.0 40.0 32.6 35.8 27.1 SECONDARY 16.0 28.0 23.0 23.4 22.9 25.3 ADULT LITERACY RATE (PERCENT) 15.5 24.0/i 55.0 41.4 64.0 86.1 CONSUMPTION PASSENGER CARS PER THOUSAND POPULATION 11.0 13.0 18.0 16.7 13.5 53.4 RADIO RECEIVERS PER THOUSAND POPULATION 41.0 77.0 141.0 147.9 122.7 225.9 TV RECEIVERS PER THOUSAND POPULATION 0.1 10.0 27.0 36.0 38.3 102.6 NEWSPAPER ("DAILY GENERAL INTEREST") CIRCULATION PER THOUSAND POPULATION 19.0 16.0 33.0 17.9 40.0 78.5 CINEMA ANNUAL ATTENDANCE PER CAPITA 2.0 .. 2.3 2.9 3.7 3.6 LABOR FORCE TOTAL LABOR FORCE (THOUSANDS) 1400.0 1300.0/1 1700.0 FEMALE (PERCENT) 6.1 7.7 8.5 8.6 25.0 24.5 AGRICULTURE (PERCENT) 56.5 49.8 43.0 43.0 43.5 28.9 INDUSTRY (PERCENT) 17.6 21.0 23.0 23.7 21.5 30.6 PARTICIPATION RATE (PERCENT) TOTAL 27.0 23.7 23.7 26.7 33.5 33.8 MALE 50.2 44.2 44.0 46.4 48.0 51.3 FEMALE 3.3 3.6 4.0 5.1 16.8 16.3 ECONOMIC DEPENDENCY RATIO 1.4 1.8/i 1.4 1.8 1.4 1.3 INCOME DISTRIBUTION PERCENT OF PRIVATE INCOME RECEIVED BY HIGHEST 5 PERCENT OF HOUSEHOLDS .. .. 17.0 21.4 20.8 HIGHEST 20 PERCENT OF HOUSEHOLDS .. .. 42.0 48.6 52.1 57.6 LOWEST 20 PERCENT OF HOUSEHOLDS .. .. 6.0 5.3 3.9 3.4 LOWEST 40 PERCENT OF HOUSEHOLDS .. .. 15.0 15.0 12.6 11.0 POVERTY TARGET GROUPS ESTIMATED ABSOLUTE POVERTY INCOME LEVEL (USS PER CAPITA) URBAN .. .. 204.0 201.3 270.0 RURAL .. .. 97.0 134.2 183.3 ESTIMATED RELATIVE POVERTY INCOME LEVEL (USs PER CAPITA) URBAN .. .. 193.0 288.6 282.5 550.0 RURAL .. .. 193.0 170.0 248.9 403.4 ESTIMATED POPULATION BELOW ABSOLUTE POVERTY INCOME LEVEL (PERCENT) URBAN .. .. 20.0 22.9 20.5 RURAL .. .. 15.0 31.2 35.3 Not available Not applicable. NOTES /a The adjusted group averages for each indicator are population-weighted geometric means, excluding the extreme values of the indicator and the most populated country in each group. Coverage of countries among the indicators depends on availability of data and is not uniform. /b Unless otherwise noted, data for 1960 refer to any year between 1959 and 1961; for 1970, between 1969 and 1971; and for Most Recent Estimate, between 1974 and 1977. /c North Africa & Middle East; /d Intermediate Middle Income ($551-1135 per capita, 1976); /e Upper Middle Income (51136-2500 per capita, 1976); /f Due to emigration, population growth rate is lower than rate of natural increase; /g Av. 1964-66; /h 1962; /i 1966; /j 1972; /k Official intercensal (1966-75) estimate; /1 Government hospital establishments only. May, 1979  - 19 - TUNISIA ECONOMIC DEVELOPMENT DATA SIHEET Annex I Page 3 of 5 Actual Preim8. !rj~tdLGrowt1hRatL1 1972 17T6At; 1977 17W 191 819i } 1973 1S7;719B2 1978 1976 1981 1986 Share of GOP A. NATIONAL ACCOUNTS (Dinars millions; 1972 constant prices) 1. Gross domestic product 1,078.0 1,396.0 1,456.5 1,572.0 1,936.8 2,655.3 6.7 6.8 6.5 100.0 2. Gains from terms of trade - 33.2 50.8 91.1 131.6 200.4 - - - 5.8 3. Gross domestic income (1+2) 1,078.0 1,429.2 1,507.3 1,663.1 2,068.4 2,855.7 7 3 7.7 6.7 105.8 4. Imports 282.9 437.3 509.6 540.2 588.9 781.0 11.5 6.1 5.8 34.4 5. Exports-volume 270.6 310.2 327.7 328.9 413.8 570.7 3.5 5.9 6.6 20.9 6. Exports - TT adjusted 270.6 343.4 378.5 420.0 545.4 771.1 6.1 9.7 7.2 26.7 7. Resource Gap - TT adjusted (4-6) 12.3 93.9 131.1 120.2 43.5 9.9 - - - 7.6 8. Total Consunption 857.8 1,167.4 1,275.5 1,388.7 1,680.6 2,286.5 8.0 7.6 6.4 B8.3 Public consumption 150.9 218.0 241.6 267.3 336.5 485.3 9.6 9.1 7.6 17.0 Private consumption 706.9 949.4 1,033.9 1,121.4 1,344.1 1,801.2 7.7 7.2 6.0 71.3 9. Total investment 232.5 355.7 362.9 394.6 431.3 579.1 11.2 3.9 6.9 25.1 Fixed investment 214.0 341.9 368.3 403.2 430.0 575.0 12.4 4.7 6.0 25.6 10. National Savings 209.4 241.9 218.2 272.5 370.8 540.1 3.7 8.9 7.8 17.3 11. Domestic Savings 201.7 248.0 237.2 283.0 387.8 569.2 5.3 9.4 8.0 18.0 12. GDP at current prices (USS millions) 2,259.0 4,448.5 5,007.0 5,908.2 8,836.8 16,109.8 18.5 14.7 12.8 13. Fixed investment at current prices 448.4 1,Z96.6 1,503.5 1,814.0 2,192.9 4,596.4 29.0 10.5 15.9 (USS M) 14. Fixed investment/GOP (current) 19.8 29.1 30.0 30.7 24.8 28.5 - - - B. SECTOR OUTPUT (Distribution in percentages; 1972 constant prices) 1. Agriculture 23.8 20.8 18.5 18.0 16.5 14.6 2.9 1.6 4.0 2. Industry 23.5 23.7 25.0 25.5 26.4 28.3 6.7 8.7 8.0 3. Service 52.7 55.4 56.5 56.5 57.1 37.1 7.8 7.1 6.5 C. PRICES (1972 ' 100) 1. Export price index (incl. NFS) 100.0 181.2 197.9 228.0 312.8 387.7 16.0 11.5 4.4 2. Import price index (incl. NFS) 100.0 163.7 171.4 178.5 246.7 286.9 13.1 8.5 3.1 3. Terms of trade index 100.0 110.7 115.5 127.7 126.8 135.1 2.6 2.8 1.3 4. GDP deflator 100.0 136.6 147.5 156.4 206.3 244.7 8.1 8.6 3.5 5. Average exchange rate (dinars per S) .4772 .4288 .429 .4162 .4034 .4034 0. SELECTED INDICATORS (Computed at 1972 constant prices) 1973-76 1977-81 1982-86 1. ICOR 3.2 3.6 3.4 2. Import elmsticity 1.48 1.16 0.8 3. Average national savings rate/GDY 18.0 16.5 17.7 4. Marginal national savings rate/GDY 9.3 20.2 21.5 5. Imports/GOY 28.2 31.0 27.9 6. Investment/GDY 21.3 22.4 20.6 7. Resource gap/GDY 6.6 10.8 8.0 E. PUBLIC FINANCE (General Gov't) 1972 1976 1977 (as S of GDP at current prices) 1. Current revenue 21.5 25.3 27.0 2. Current expenditure 17.8 19.3 20.0 3. Current surplus 3.7 6.1 7.D 4. Capital expenditure 6.1 8.1 11.1 5. Loans and advances (not) 2.4 2.1 4.1 F. LABOR FORCE 1972 1976 1978 (in thousands) 1. Total labor force 1450 1671 1782 2. Employment 1277 1440 1522 2.1 Agriculture 589 593 595 2.2 Industry 344 437 484 2.3 Services 344 410 443 3. Unemployment 173 231 260 2/ 1I' Staff estimates Includes 29 thousand Tunisians that left to work abroad.  - 20 - llff A 91V 0 VINIMOU0iS1TAC1 o lf 5 Aettw, Prelim. Projts 1 1969 1972 1976 1977 1978 1979 ltl 19i6 A. SUMMARY OF BALANCE OF PAYMENTS 1. Exports (incl. NF5) 287.8 567.1 1,311.1 1,511.7 1,802.0 2,332.7 3,026.9 5,487.2 2. Imports (incl. NFS) 346.2 592.8 1,669.8 2,035.7 2,316.9 2,774.2 3,268.0 S,5S7.4 3. Resource balance -58.4 -25.7 -358.7 -524.0 -514.9 -441.6 -241.1 -70.2 4. Net factor service income -45.9 -22.7 -58.2 -42.9 -7.2 -55.9 -97.8 -222.6 1. Net investment income -24.4 -43.0 -73.9 -93.9 -132.2 -184.9 -233.5 -369.1 2. Workers' remittances - 21.9 62.0 143.0 168.3 216.3 235.6 264.7 354.3 3. Net other servicet income -43.4 -41.7 -127.3 -117.2 -91.3 -106.6 -129.0 -207.7 5. Net current transfers 7.9 6.1 -0.5 -0.9 - - - - 6. Balance on current account -96.4 -42.3 -417.4 -567.8 -522.1 -497.4 -338.9 -292.6 7. Private direct investment 19.0 36.7 102.6 92.3 96.1 110.0 137.5 221.4 8. Official grants 43.6 37.3 53.2 47.3 38.2 40.0 38.0 30.0 Public M&LT loans 9. Disbursements - 92.4 139.8 224.4 643.3 636.0 599.8 537.1 714.5 10. Amortization 45.0 71.9 65.7 68.6 103.1 160.8 261.2 -526.8 11. Net disbursements 47.4 67.9 158.7 554.7 532.9 439.0 275.9 187.7 12. Short-term capital and errors and omissions 5.2 -22.4 59.9 -183.2 -110.1 - - - 13. Changes in reserves -18.8 -77.2 43.0 56.7 -35.0 -91.5 -112.5 -146.3 increase) 14. Net foreign exchange reserves -4.0 192.1 304.5 247.8 282.8 374.5 545.8 1,389.4 B. GRANT AND LOAN COHHITMENTS 1. Official grants 43.6 36.7 102.6 92.3 96.1 2. Total public M6LT loans 172.8 187.7 774.5 888.6 592.5 2.1 IBD 34.4 36.0 60.0 77.5 67.0 2.2 IDA 8.5 10.0 4.8 - - 2.3 Other aultilateral - 1.0 95.8 36.4 12.3 2.4 Goverrments 71.2 106.0 454.8 341.4 251.2 2.5 of which centrally plwnned 2.6 Suppliers 23.2 7.3 16.3 69.2 2.7 Financial institutions 29.1 27.5 118.8 364.1 262.0 2.8 Other 6.4 - 24.0 - - C. MEHDRANDUM ITEMS 1. Grant elment of total comitzsnts .. .. 34.6 23.8 18.3 2. Average interest (percent) .. .. 5.0 6.2 7.2 3. Average maturity (years) .. .. 20.8 16.4 14.1 1/ Staff estimtes - Nil or less than half of unit shnm ElENA CPIIB Not available September 1979  -21- ANNEX 1 Page 5 of 5 pages TUNISIA DEBT AND CREDITWORTHINESS Actual 1969 1973 1974 1975 1976 1977 1978 MEDIUM AND LONG-TERM DEBT (millions of US dollars) 1. Total debt outstanding (DOD; end of period) 501.6 826.4 938.9 1,038.9 1,175.2 1,780.1 2,359.1 2. Including undisburbed - 768.3 1,306.3 1,518.5 1,764.2 2,435.6 3,331.6 4,067.9 3. Public debt service 60.4 88.7 91.5 101.6 104.6 143.7 201.4 1. Interest 15.4 27.7 30.7 35.1 38.7 53.9 95.0 DEBT BURDEN (percentage) 1, Debt service ratio 21.0 12.4 7.3 7.6 8.0 9.4 10.9 2. Debt service and direct investment income ratio 22.0 14.8 7.3 8.7 9.9 10.8 12.6 3. Debt service/GDP 4.6 3.2 2.6 2.4 2.3 2.8 3.4 4. Public debt service/Government revenue 19.2 13.9 10.9 9.2 9.3 10.5 5. Total DOD/GDP 37.9 29.7 26.7 24.2 26.3 35.4 39.6 TERMS (percentage) 1. Interest on total DOD/total DOD 1/ 3.3 4.0 3.7 3.7 3.7 4.6 5.3 2. Total debt service/total DOD 1/ 13.0 12.7 11.1 10.8 10.0 12.1 11.3 DEPENDENCY RATIOS FOR M&LT DEBT (percentage) 1. Gross disbursements/imports (including NFS) 26.7 19.6 11.6 12.3 13.4 36.1 23.6 2. Net transfer/imports (including NFS) 9.2 8.2 4.2 5.8 7.2 24.6 15.3 3. Net transfer/gross disbursements 34.6 42.1 36.4 46.8 53.5 77.9 65.0 EXPOSURE (percentage) 1. IBRD disbursements/Total disbursements 6.4 13.8 16.3 14.1 11.3 7.3 5.7 2. Bank Group disbursements/Total disbursements 10.2 17.3 20.6 20.7 15.2 8.2 5.9 3. IBRD DOD/Total DOD 3.6 8.5 9.4 10.5 10.9 9.4 8.0 4. Bank Group DOD/Total DOD 6.3 12.9 13.9 15.9 16.3 13.2 10.9 5. IBRD debt service/Total debt service 2.6 9.1 12.0 13.7 16.0 14.9 13.3 6. Bank Group debt service/Total debt service 2.6 9.6 12.4 14.1 16.6 17.3 13.6 EXTERNAL DEBT (disbursed only) Outstanding. Dec. 31. 1978 (millions of US dollars) Amount Percent 1. IBRD 189.4 8.0 2. IDA 67.4 2.8 3. Other multilateral 62.6 2.7 4. Governments 1,247.7 52.9 5. Suppliers 110.2 4.7 6. Financial institutions - 661.4 28.0 7. Other 20.3 0.9 8. Total public M&LT debt 2,359.1 100.0 9. Total public MELT debt (including undisbursed) 4,067.9 172.4 DEBT/PROFILE 1. Total debt service 1979-1983/Total DOD end of 1978 (percent): 86.3 1/ DOD at the end of previous year - Nil or less than half of unit shown EMENA CPIIB Not available April 1980  - 22 - A. STATEMENT OF BANK LOANS AND IDA CREDITS (as of March 31, 1980) ANNEX II Page 1 of 8 Loan or Credit US $ Million Number Year - Borrower Purpose Amount (less Cancellation) Bank IDA b/ Undis. Twenty-four Loans and Credits Fully Disbursed 139.4 60.5 238 1971 Republic of Tunisia Population 4.8 1.5 858 1972 Republic of. unisia Tourism Infrastructure 14.0 4.0 937 1973 Republic of Tunisia Urban Planning & Public Transportation 11.0 1.5 989 1974 SONEDE Water Supply 23.0 1.8 1029 1974 Republic of Tunisia Hotel Training 5.6 2.3 1042 1974 Compagnie des Phosphates et Chemin de Fer de GAFSA Phosphate Development 23.3 3.5 1068 1974 Republic of Tunisia Irrigation Rehabilitation 12.2 5.4 1088 1975 Republic of Tunisia Urban Sewerage 28.0 16.7 1155 1975 Republic of Tunisia Education 8.6 8.3 1188 1976 Republic of Tunisia Highways 28.0 24.6 1189 1976 Banque de Developpement Economique de Tunisie (BDET) Development Finance Co. 20.0 0.8 238-1 1976 Republic of Tunisia Population 4.8 1.1 1340 1976 Banque Nationale de Tunisie Agricultural Credit 12.0 6.1 1355 1976 Societe Tunisienne de l'Electricit6 et du Gaz Power 14.5 0.6 1431 1977 Republic of Tunisia Irrigation Development 42.0 23.0 1445 1977 SONEDE Water Supply 21.0 18.8 1504 1977 BDET Development Finance Co. 30.0 13.1 1505 1977 Republic of Tunisia Small-Scale Industrial Project 5.0 4.7 1601 1978 Republic of Tun'isia Rural Roads 32.0 32.0 1675 1979 Republic of Tunisia Urban Sewerage 26.5 26.5 1702 1979 Societ6 Nationale d'Exploi- Fifth Water Supply tation d.'Eau 25.0 25.0 1705 a/ 1979 Republic of Tunisia Second Urban Development 19.0 19.0 1746 a! 1979 Republic of Tunisia Second Fisheries 28.5 28.5 1796 a! 1980 Republic of Tunisia Southern Irrigation 25.0 25.0 1797 a! 1980 Office des Ports Nationaux Third Port 42.5 42.5 TOTAL .. 636.1 70.1 336.4 Of which has been repaid .. 61.3 4.7 Total now outstanding .. 574.8 65.4 Amount Sold 14.4 of which has been repaid 7.6 6.6 Total now held by Bank and IDA b/ .. 568.2 65.4 Total Undisbursed 333.8 2.6 336.4 a/ Not yet effective b/ Prior to exchange adjustment.  - 23 - ANNEX II Page 2 of 8 B. STATEMENT OF IFC INVESTMENTS IN TUNISIA (as of March 31, 1980) Amount in US $ Million Year Obliqator Type of Business Loan Equity Total 1962 NPK Engrais Fertilizers 2.0 1.5 3.5 1966 Soci6te Nationale d'Investissement Development Finance Co. 0.6 0.6 1969 COFIT (Tourisjp) - Development Finance Co. 8.0 2.2 10.2 1970 Societe Nationale d'Investissement (SNI) now (BDET) Development Finance Co. 0.6 0.6 1973 Societe Touristique & H8telibre RYM SA. Tourism 1.6 0.3 1.9 1973 Societe d'Etudes & de Developpement de Sousse-Nord Tourism - 0.0 0.0 1975 Soci6te d'Etudes & de Developpement de Sousse-Nord . Tourism 2.5 0.6 3.1 1974 Industries Chimiques du Fluor Chemicals 0.7 0.7 1978 BDET Development Finance Co. 1.3 1.3 Total Gross commitments 14.1 7.8 21.9 Less cancellations, terminations, repayments and sales 5.8 1.6 7.4 Total commitments now held by IFC 8.3 6.2 14.5 Total undisbursed .. -- 0.5 0.5  - 24 - ANNEX II Page 3 of 8 C. PROJECTS IN EXECUTION 1/ Cr. 238: Population Project; US$4.8 million credit of April 5, 1971; Date of Effectiveness: December 29, 1971; Closing Date: (Original) June 30, 1976; (Current) December 31, 1980. Cr. 238-1: Population Project: US$4.8 million Supplemental Credit of October 13, 1976; Date of Effectiveness: March 21, 1977; Closing Date: (Original) December 31, 1979; (Current) December 31, 1980. After many delays, the maternity hospitals in Sousse, Tunis and Sfax are now about to be commissioned. The construction of the fourth hospital at Bizerte is likely to be completed by the end of 1980. Twenty-five of the 29 maternal and child health/family planning centers have been completed; three will be completed in mid-1980. The center at La Hafsia may have to be deleted from the project because the Government has been unable to obtain a suitable site. Ln. 858: Tourism Infrastructure Project; US$14 million loan of September 28, 1972; Date of Effectiveness: June 29, 1973; Closing Date: (Original) December 31, 1977; (Current) June 30, 1980. The project has entered its final implementation stage. About 95 percent of project work is completed. The remainder is expected to be completed by mid-1980. Total project cost, including price escalation allow- ances, is still estimated at TD 31.5 million. Of the total Bank financing of $24 million (including the fully disbursed credit 329-TUN of $10 million), about 85 percent has been disbursed. Ln. 937: Tunis District Urban Planning and Public Transport Project; US$11 Cr. 432: million loan and US$7 million credit, both of October 5, 1973; Date of Effectiveness: September 24, 1974; Closing Date: (Original) December 31, 1976; (Current) December 31, 1980. The project has been completed except for construction of a bus depot which is expected to be ready by the end of 1980. The project helped establish and strengthen the Tunis District, the first regional planning authority in Tunisia. Work carried out by the District in the housing and transport sectors has been instrumental in bringing about substantial changes in public programs and policies, such as the adoption of measures to encourage the use of buses and restrain the use of private cars. The project also assisted the public transport company Societe Nationale des Transport (SNT) in 1/ These notes are designed to inform the Executive Directors regarding the progress of projects in execution, and in particular to report any prob- lems which are being encountered, and the action being taken to remedy them. They should be read in this sense, and with the understanding that they do not purport to present a balanced evaluation of strengths and weaknesses in project execution.  - 25 - ANNEX II Page 4 of 8 renewing its bus fleet and railway rolling stock, improving its organization and finance, and upgrading the maintenance of its vehicles with the construc- tion of a new bus depot. In parallel, the city of Tunis adopted a new traffic plan with a one-way street system, reserved bus lanes and restricted parking zones, which contributed substantially to the improvement of bus services in Greater Tunis. This, combined with an increase in the SNT bus fleet, and improved bus maintenance has led to an increase in the use of SNT transport facilities by about 27 percent above the level which would have been achieved in the absence of the project. Ln 989: Third Water Supply Project; US$23 million loan of May 29, 1974; Date of Effectiveness: September 24, 1974; Closing Date: (Original) June 30, 1979, (Current) June 30, 1980. Ln. 1445: Fourth Water Supply Project; US$21 million loan of July 5, 1977; Date of Effectiveness: January 30, 1978; Closing Date: December 31, 1982. All the water production facilities programmed under the third project are now in operation. As a result of this major increase in water production, water supply services in Sfax have substantially improved. The remaining loan amount will be disbursed for works in the city's distribution network. Execution of the works included in the fourth project has slowed down. Contracts for the two remaining items under the project, a water treat- ment plant and a pumping station, are expected to be awarded by mid-1980. Having increased the average water rates last year by about 44 percent, the borrower's financial situation is expected to remain satisfactory for the next two years. Ln. 1029: Hotel Training Project; US$5.6 million loan of July 17, 1974; Date of Effectiveness: November 4, 1975; Closing Date: (Original) October 31, 1978; (Current) October 31, 1980. The hotel schools at Hammamet and Sousse Nord are now open. The practice hotels attached to the schools are both to open later in 1980. Requests for disbursements of the remaining funds should be received by May 1980. Ln. 1042: Gafsa Phosphate Project; US$23.3 million loan of October 1, 1974; Date of Effectiveness: March 14, 1975; Closing Date: (Original) June 30, 1979; (Current) December 31, 1980. Underground mining operations using the longwall method were in- tended to supply phosphate rock to the Sehib washing plant which was commis- sioned at the end of 1979. Following the initial failure of the related underground mining tests to reach satisfactory production levels, the company has hired experienced consultants whose services are financed by the unused portion of the Bank loan. The services include: (i) 6 months' technical assistance in further testing the longwall method, (ii) a feasibility study on open pit mining of an alternative deposit from which the supply of rock to the washing plant could be supplemented, and (iii) the design and implementation  - 26 - ANNEX II Page 5 of 8 of an improved cost control system. Early longwall test results are encourag- ing and it is now likely that this method can be introduced in the Sehib mine during the next four to six years. The washing plant is currently adequately supplied from a small open pit operation. A substantial phosphate price increase this year alleviates the tight financial position of the company resulting from uncompetitive production cost and excessive loan financing in previous years. Recent management changes may further contribute to the improvement of the company's operations. Ln. 1068: Irrigation Rehabilitation Project; US$12.2 million loan of December 31, 1974; Date of Effectiveness: September 18, 1975; Closing Date: June 30, 1982. Progress in construction and rehabilitation works in the Medjerda sub-project area continues to be satisfactory, except for water supply to farmers on which a common decision is expected by SONEDE and OMVVM, regard- ing the latter's contribution to the investment costs. Enforcement of the Agrarian Reform is progressing slowly, especially in the Medjerda area. In Nebhana, the land consolidation program is developing well and farmers have been settled on nearly 60 percent of the total area. OMVVM continues to encourage large owners to improve cultivation of land and marked progress has been reported in the distribution of medium- and short-term credit. Progress in construction and rehabilitation of irrigation, drainage and road networks continues to be satisfactory. Ln. 1088: First Urban Sewerage Project; US$28 million loan of February 18, 1975; Date of Effectiveness: August 15, 1975; Closing Date: (Original) December 15, 1979; (Current) December 15, 1981. The project suffered considerable delay as a result of a number of factors, some beyond the control of the project entity, ONAS. As a result, considerable cost escalation occurred, chiefly in local cost components. However, all components of the project are now under construction and project completion is expected by the end of 1981. One of its major benefits will be release of land for development around the Lake of Tunis, which until now has been impossible because of the pollution of the lake waters by untreated sewage. Consultants financed under the project have produced a land-use plan for the area, and acquisition of the land by Government is in progress. Ln. 1155: Third Education Project; US$8.9 million loan of August 13, 1975; Date of Effectiveness: March 1, 1976; Closing Date: (Original) June 30, 1980; (Amended Project) March 31, 1983. Implementation of this project was delayed following a change in education priorities in Tunisia. The project was subsequently amended to reduce the number of ITM centers to be equipped under the project, increase the facilities to train teachers for ITM, and increase technical assistance. The total cost of the amended project is estimated at $11.3 million and the Bank loan has been decreased by $0.3 million to $8.6 million, representing the full foreign exchange cost of the amended project. Implementation of the project is proceeding satisfactorily; construction of extensions to one  - 27 - ANNEX II Page 6 of 8 teachers' college has commenced and the four other extensions are under design. Equipment procurement for the teachers' colleges and the ITM centers is proceeding satisfactorily. Ln. 1188: Second Highways Project; US$28 million loan of January 26, 1976; Date of Effectiveness: June 16, 1976; Closing Date: (Original) December 31, 1979; (Current) December 31, 1982. Civil works of Lot 10 of the Tunis-Bizerte highway are complete and in progress on Lot 9 on the same route. Works are behind schedule although quality is generally satisfactory. Construction is in progress on Lot 6 in Nabeul. Construction works of Lots 5, 7 and 11 have not started yet due to lack of local financing and problems with expropriation. The local financing issue has been discussed with the Ministries of Public Works and Planning and a satisfactory physical and financial execution plan now exists for the remaining items. The final report of the transport coordination study has been submitted but the Government is still discussing some of the recommenda- tions with the consultants. Ln. 1189: Sixth Development Finance Company Project; US$20 million loan of January 26, 1976; Date of Effectiveness: June 7, 1976; Closing Date: June 30, 1980. Disbursements are about 6 months ahead of the schedule projected in the appraisal report. BDET has shown consistent improvements over the past three years in the key areas of management effectiveness, arrears recovery, financial practices and resource mobilization. The institution plays an increasingly important role in financing industrial development, extending about one-third of all term credit available to the industrial sector in Tunisia. Ln 1340: Second Agricultural Credit Project; US$12 million loan of November 23, 1976; Date of Effectiveness: July 19, 1977; Closing Date: December 31, 1980. About 52 percent of the loan amount is disbursed and more than 80 percent is committed. Under the small farmer category, lending to production cooperatives which meet the income criteria applied to small farmers has been taken up. Prospects are good for the early commitment of funds for service cooperatives. Commitments of funds to commercial farmers and agro-industries are progressing satisfactorily but subloan applications of farmer associations for the establishment of date palm plantations have not yet been approved. Ln. 1355: Second Power Project; US$14.5 million loan of January 12, 1977; Date of Effectiveness: May 4, 1977; Closing Date: June 30, 1981. The Project has been completed and the seven gas-turbines have been commissioned. Measures are being taken to overcome difficulties in operating the turbines, which have arisen due to excessive use and lack of spare parts. The consultants for the energy pricing study have been selected. It is expected that the study will be completed by the end of 1980.  - 28 - ANNEX II Page 7 of 8 Ln. 1431: Sidi Salem Multi-purpose Project; US$42 million loan of July 5, 1977; Date of Effectiveness: July 31, 1978; Closing Date: June 30, 1984. For the project as a whole, progress in implementation continues to be satisfactory. The land reform and consolidation program is underway. The Sidi Salem dam is expected to be completed on schedule. The relocation of the railroad is suffering some delays, but traffic has not been interrupted during the last rainy season. Construction of the Medjerda-Cap Bon inter- connection canal started one year behind schedule, but is proceeding well with the assistance of the People's Republic of China. Ln. 1504/1505: Industrial Finance Project consisting of Seventh Loan to Banque de Developpement Economique de Tunisie (BDET) and a Pilot project for assistance to SSI; Loans of $30.0 million to BDET and of $5.0 million to the Government, of January 25, 1978; Date of Effectiveness: October 13, 1978; Closing Date: December 31, 1981. The start up of the project suffered from difficulties in finalizing legal arrangements concerning the SSI Pilot Project component, which delayed effectiveness by about six months. Nevertheless, commitments under the loan to BDET have built up rapidly after effectiveness and disbursements are in line with appraisal estimates. Under the project, BDET is giving priority in its financing to projects which are located in the least developed regions, sponsored by new entrepreneurs, characterized by high labor intensity or export-orientation. Although with some delay, commitments have also begun under the SSI pilot project showing that the commercial banks' initial reluc- tance to utilize Bank funds for SSI financing is being overcome. Considerable progress has been made by the Tunisian authorities toward setting up a network of Tunisian and foreign technical assistance experts, specifically catering to the needs of SSI, as agreed under the project. Ln. 1601: Rural Roads Projects; US$32.0 million loan of July 24, 1978; Date of Effectiveness: April 30, 1978; Closing Date: June 30, 1984. Road construction in the first three of the provinces to be covered under the project is progressing satisfactorily, and works have now begun in a fourth province (Nabeul). The Government wishes to accelerate imple- mentation of the project, so as to complete the works by end-1982. Ln. 1675: Second Urban Sewerage Project; US$26.5 million loan of April 13, 1979; Date of Effectiveness: August 31, 1979; Closing Date: December 31, 1984. Consultants have been contracted and detailed design is proceeding. Tenders have been called for the first civil works, and construction is expected to begin in mid-1980.  - 29 - ANNEX II Page 8 of 8 Ln. 1702: Fifth Water Supply Project; US$25.0 million loan of May 31, 1979; Date of Effectiveness: October 19, 1979; Closing Date: December 31, 1982. The physical execution of the project is progressing well and according to schedule. SONEDE has already approved five urban and thirteen rural sub-projects for a total investment cost of $16.2 million. Ln. 1705: Second Urban Development Project; US$19.0 million loan of May 31, 1979; Planned Date of Effectiveness: May 31, 1980; Closing Date: December 31, 1983. Staffing of the project units and preparation of tender documents are progressing satisfactorily. Effectiveness is pending receipt of official documents after Bank commented on drafts. Ln. 1746: Second Fisheries Project; US$28.5 million loan of July 20, 1979; Planned Date of Effectiveness: May 31, 1980; Closing Date: June 30, 1985. Loan effectiveness is pending receipt of the legal opinion. Bids for port infrastructure are being evaluated. Tender documents for boat engines and hulls have been finalized. Ln. 1796: Southern Irrigation Project; US$25.0 million loan of February 8, 1980; Planned Date of Effectiveness: May 8, 1980; Closing Date: June 30, 1986. Loan effectiveness is pending formal establishment of implementation authorities and preparation of legal opinion. Bank is reviewing bidding documents for well drilling. Tender documents for procurement of pipes and equipment are being prepared. Ln. 1797: Third Port Project; US$42.5 million loan of February 8, 1980; Planned Date of Effectiveness: May 8, 1980; Closing Date: June 30, 1985. Loan effectiveness is pending finalization of cofinancing arrange- ments and preparation of legal opinion. The civil works contracts for La Goulette and Sfax have been signed.  - 30 - ANNEX III TUNISIA: FOURTH HIGHWAY PROJECT Supplementary Project Data Sheet Section I: Timetable of Key Events (a) Time taken by the country to About 11 months, from November prepare the project: 1978 to October 1979 (b) The agency which prepared the project: Ministry of Public Works (c) Date of first presentation to the Bank: November 1978 Date of first Bank mission to consider the project: November 1978 (d) Departure of appraisal mission: September 24, 1979 (e) Negotiations completed: April 4, 1980 (f) Loan effectiveness planned: August 31, 1980 Section II: Special Bank Implementation Actions None. Section III: Special Conditions (a) Implementation of the maintenance and rehabilitation program accord- ing to a three-year action plan agreed upon between the Government and the Bank (para. 42). (b) By September 30 each year, submission to the Bank for review and comment updated annual plans of operations, consistent with the three-year action plan, to be carried out in each subsequent year (para. 42). (c) Agreement on the methodology for evaluating road sections to be rehabilitated and submission of feasibility studies (para. 41). (d) Export credit agreements for the financing of the part of the road maintenance equipment not financed by the Bank, to be effective by September 30, 1981 (para. 47).  'BRD 14732R FfORUARY 1980 TUNISIA - i? # d i t e r ra n e a r--S ---.-FOURTH HIGHWAY PROJECT FIRST YEAR REHABILITATION PROGRAM . - Reha6litotion program - aPved-roads : H />>1; Et M