Tunisia - Municipal Sector Investment Project

Document of The World Bank FOR OFFICIAL USE ONLY MICROFICHE COPY Report No. 10348--TUN Type: (SAR) VEUTHEY, B/ X32371 / H4171/ EMllN Report No. 10348-TUN STAFF APPRAISAL REPORT REPUBLIC OF TUNISIA MUNICIPAL SECTOR INVESTMENT PROJECT JUNE 10, 1992 Infrastructure Operations Division Country Department I Middle East and North Africa Regional Office This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS US$1 = TD 0.92 (average 1991) TD 1 = US$1.08 FISCAL YEAR January 1 - December 31 LIST OF ACRONYMS AFH Agence Fonci6re d'Habitation (Housing Land Agency) ANPE Agence pour la Protection de l'Environnement (Agency for Environmental Protection) ARRU Agence pour la Rfhabilitation et la Rdnovation Urbaine (Urban Rehabilitation and Renewal Agency) DGCPL Direction G6n6rale des Collectivit6s Publiques Locales (General Directorate for Public Local Governments) EIA Environmental Impact Assessment ENA Ecole Nationale d'Administration (National School of Administration) ENIT Ecole Nationale d'Ing6nieurs de Tunisie (Tunisian National School of Engineering) ERR Economic Rate of Return FCCL Fonds Commun des Collectivit6s Locales (Local Governments Common Fund) FRR Financial Rate of Return GOT Government of Tunisia MDA Municipal Development Agency (Ca3sse de PrAt et de Soutien des Collectivit6s Locales) MDP Municipal Development Program MEH Ministry of Equipment and Housing MOF Ministry of Finance MOI Ministry of Interior MOP Ministry of Plan and Regional Development MSIP Municipal Sector Investment Project OFPE Office de Formation Professionnelle et de 1'Emploi ONAS Office National de l'Assainissement (National Sanitation Office) PIC Programme d'Investissement Communal (Municipal Investment Program) SNIT Soci6t6 Nationale Imobili6re Tunisienne (Housing company) SOE Statement of Expenditures SONEDE Soci6t6 Nationale d'Exploitation et de Distribution des Eaux (National Water Production and Distribution Company) STEG Soci6t6 Tunisienne d'Electricit6 et de Gaz (Tunisian Electricity and Gas Company) TCL Taxes our les 6tablissements ("patente") (Business tax) TL Taxe locative (Tax on rental income) VAT Value-added tax FOR OFFICIAL USE ONLY REPUBLIC OF TUNISIA MUNICIPAL SECTOR INVESTMENT PROJECT (MSIP1 Table of Contents LOAN AND PROJECT SUMMARY . . . . . . . . . . . . . . . . . . . . . L I. SECTOR BACKGROUND . . ....... . . . . . . .. . . 1 A. Urban Growth, Demand for Services. ....... . . . . . . . 1 B. Institutional Framework......... ..... . . . . . 2 C. Municipal Responsibilities......... . . . . . . . . . . 2 D. Municipal finance . . . . . . . ............... 6 E. Prospect for Reforms - The Municipal Development Program . . . 8 F. The Municipal Development Agency. . ......... . . . . 10 II. THE PROJECT . . . . .................... . . . 11 A. Prior Bank Experience with Urban Infrastructure in Tunisia . . 11 B. Project Origin and Rationale for Bank Involvement . . . . . . 12 C. Objectives and Description 13 D. Project cost and financing . . . . . . . . . . . . . . . . . . 15 E. Financial Impact . . . . . . . . . . . . . . . . . . . . . . . 17 F. Cost Recovery . . . . . . . . . . . . . . . . . . . . . . . . 19 III. PROJECT IMPLEMENTATION ARRANGEMENTS . . . . . 19 A. Flow of Funds .................. . . . . . 19 B. Eligibility Criteria for Municipalities and Subprojects . . . 21 C. Implementation Arrangement/Institutional Setup . ....... . 22 D. Procurement - Disbursement......... ...... . . . 23 E. Audit - Monitoring . . . . . . ......... . . . 26 IV. PROJECT JUSTIFICATION AND RISKS............ . . . . . 27 A. Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 B. Economic Justification . . . . . . . . . . . . . . . . . . . . 28 C. Environmental Aspects . . . . . . .............. 28 D. Risks and Safeguards.............. . . . . . . . . 29 V. AGREEMENTS AND RECOMMENDATIONS....... ...... . . . . . . 30 This report is based on the findings of an appraisal mission to Tunisia in November 1991 composed of Messrs. Veuthey (Sr. Urban Planner), Hovnanian (Sr. Municipal Engineer), Contreras (Sr. Financial Analyst) and Bouchaud (Economist). Mr. Bouchaud prepared the cost tables and graphics. Ms. S;mnonds typed the report. Task Manager: Bernard Veuthey (NN1IN); Division Chief, Amfr At-Khafaji (MNIIN); Department Director: Pieter P. Bottetier (MN1); Reqional Vice Prqfjdgnt, Cao Koch*Weser; Peer reviewers: Marisa Fernandez-Palacios (PBDCP), Jean Mazurele (EDINU). 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. Table of.contents (continued) Page no. FIGURES: Figure 1: Population and GDP Growth . . . . . . . . . . . . . . . . . . 1 Figure 2: Number of Municipalities by Population in 1989 . . . . . . . . 2 Figure 3: Evolution of Urban Services Coverage . . . . . . . . . . . . 4 Figure 4: Municipal Staff Distribution . . . . . . . . . . . . . . . . . 5 Figure 5: Structure of Municipal revenues and Expenditures in 1988 . . . 6 Figure 6: Evolution of Central Government Transfers to Municipalities . 7 Figure 7: MSIP, PIC and the Eighth Plan . . ... . . . . . . . . . . 15 Figure 8: Estimated Project Cost . . . . . . . . . . . . . . . . . . . 16 Figure 9: Financing Plan . . . . . . . . . . . . . . . . . . . . . . . . 16 Figure 10: Project Flow of Funds . . . . . . . . # . . . . . . . . . 20 Figure 11: Matching Grant Allocation . . . . . . . . . . . . . . . . . . 20 Figure 12: Implementation Arrangement . . . . . . . . . . . . . . . . . . 23 Figure 13: Procurement Arrangements . . . . . . . . . ... . . . . . . . . 25 LIST OF ANNEXES: 1. Responsibilities for urban services . . . . . . . .. . . . . . . . 32 2. Local government organization and their supervision . . . . . . . . . 34 3. Municipal Finance . . . . ............... . . . . . . 37 4. Municipal Staff and Training program . . . . . . . . . . . . . 40 5. MDA organization - Draft general policy statement.... . . . . . . 58 6. Financial projections . . . . . . ............. . . . . . 65 7. Project preparation procedures manual - Environmental Aspects . . . . 82 8. Financing of municipal projects. Matching grants..... . . . . 102 9. Studies included in the project . . . . . . . . . . . ....... 103 10. Schedule of disbursement . . . . . . . . . . . . . . . . . . 105 11. Monitoring indicators - Supervision schedule . . . * . . . . . 106 12. Selected documents in the project file . . . . . . . . . . . . . . 109 IBRD MAP no. 23566 XMICIPAL SECTOR INVZSTNENT PROJECT! LOAN AMW PROJECT SUMARY Borroies Republic of Tunisia amgunt: USS;S million equivalent erms&s Repayable in 17 years, including a five-year grace period, at the Bank's standard variable interest rate Descriptions The project aims at increasing the efficiency of the local authorities in decision makina- resource mobilization and allocation, and project fina and implementation; it will include the following: (a) Institutional strengthening for the municipalities and the Ministries of Interior and Finance (US$6.7 million - 3 percent of total project cost). Consultants' services, vehicles, and equipment would help develop the municipalities' managerial, financial, technical, and staff training capabilities. This component includes two main elements: (i) establishment of a training directorate within MOI to manage a training program for the Municipalities and the Regional Councils, and delivery of training; and (ii) studies bolstering the local tax reform and the improvement of municipal management. (b) Institutional strengthening for the Municipal Development Agency (MDA) (US$1.0 million - 1 percent of total project cost) (equipment, vehicles, and consultants' services). This will help restructure and strengthen MDA so that it can play a major role in the evaluation of both the projects and the municipalities it will finance. (c) Priority infrastructure investments for municipalities and regional councils (US$200 million - 96 percent of total project cost). These include: (i) upgrading of low-income neighborhoods; (ii) construction, maintenance, and rehabilitation of municipal infrastructure in existing neighborhoods including urban roads, street lighting, drainage, and solid waste collection and disposal systems; and (iii) construction and equipment of commercial facilities such as markets. These projects will be appraised by MDA according to eligibility criteria agreed with the Bank. BnLeUts: Economic benefits would mainly materialize in the form of increased land values in subproject areas. The provision of solid waste disposal facilities, marketplaces, and slaughterhouses together with sanitary precautions and sound waste disposal schemes would help reduce the negative health and snvironmental impact of existing haphazard food processing and waste management arrangements. Street maintenance subprojects would yield savings in vehicle operating costs, while helping reduce congestion-related air contamination. The paving or repair of urban streets would help reduce the production of dust particles by vehicular traffic on unpaved or broken road surfaces, with beneficial effects on air quality and health. Improving the coverage of basic services would primarily benefit low-income areas. Indirect benefits would accrue from the execution of more cost-effective projectu, the improvement of management capabilities at local level, the application of more transparent service pricing, improved institutional arrangements, and human resources development. Risks and safequards: Improving local services and municipal management nationwide is an ambitious undertaking and will require a sustained effort in the years ahead. The project is complex, and its implementation involves a large,number of agencies, many of which are institutionally weak. Risks include the possibility of: (i) inadequate project preparation capacity at the local level, resulting in slow implementation or low quality of subprojects; and (ii) political pressures undermining conditionalities introduced in MDA lending. The project would also face some financial risks as the reforms necessary to increase the resources of the municipalities may suffer delays. The project includes measures to address these risks. The proposed annual review of project implementation would lead to timely plans of action to remedy identified shortcomings. Key project instilttions would be strengthened as part of the project and are committed to achieve targets that can be monitored. - iii - -------US$MILLION------ LOCAL FOREIGN TOTAL ESTIMATED COSTS A. INSTITUTIONAL DEVELOPMENT FOR THE MUNICIPALITIES, MOI, AND MOF - Training, consultants' services 4.0 1.7 5.7 - Material, vehicles, and equipment .2 --,a LQg Subtotal 4.2 2.5 6.7 B. INSTITUTIONAL DEVELOPMENT FOR MDA - Consultants' services .1 .6 .7 - Material, vehicles, and equipment 1 L2 L3 Subtotal .2 .8 1.0 C. MUNICIPAL INVESTMENTS - Low-income neighborhood upgrading 35.0 15.0 50.0 - Municipal infrastructure 84.5 45.5 130.0 - Markets, and municipal facilities _.0. 12.0 20.0 Subtotal 127.5 72.5 200.0 TOTAL PROJECT COST* 131.9* 75.8 207.7 FINANCING PLAN Central Government 77.9 0.8 78.7 Municipalities 54.0 - 54.0 World Bank _- 23L. 75.0 TOTAL FINANCING 131.9 75.8 207.7 LOAN DISBURSEMENT SCRWDULZ (US$ MILLIONS) Bank Fiscal Year 21 21 2A 21 10 2 Annual 7.5 6.8 8.3 10.6 13.5 18.8 9.5 Cumulative 7.5 14.3 22.6 33.2 46.7 65.5 75.0 ECONOMIC RATE OF RETURN :1 Min. 12% when applicable * Includes about US$37 million for taxes and duties REPUBLIC OF TUNISIA NUICIPAL SECTOR INVESTRN PROJECT (MSIP1 I. 889=9 BACKG*UND The proposed loan would finance a Municipal Sector Investment Project (MSIP) that aims at increasing the efficiency of lonal governments (municipalities and regional councils) in planning and delivering local services, financing and implementing investments as well as mobilizing aad allocating resources. This project is part of the Government of Tunisia's (GOT) macroeconomic and institutional rp*orm Lrograms, which the Bank has been supporting through adjustment lending and a Public Enterprise Reform Loan. The MSIP will support GOT in increasing the efficiency of public sector investment by strengthening local govtrnments and financing part of their investments, and thereby increasing their contribution to the economic, social and political development of the country. A. Urban Growth, and Demand for Services 1.01 Tunisia is a highly urbanized country with about 60 percent of its eight million population living in urban areas. More than 80 percent of its GDP originates in the Tunis Metropolitan Area and three other cities along the coast (Sfax, Sousse, and Bizerte). The urban growth rate is about 3.7 percent, while population growth rate is 2.2 percent. It is projected that by the year 2000, about 7 million people will live in Tunisian cities, creating further demands on their ability to provide infrastructure and services. Fiaure 1: POPULATION AND GDP GROWTH Growth (%) 4 0 1975 1980 1985 1990 1995 2000 years - GDP at Constt Price M Total Pop. Urban Pop. - 2 - B. Institutional Framework 1.02 The municipal structure is more than a century old (the Tunis municipality was created in 1858)1 its rules and regulations were updated in 1975, in 1985, and more recently in 1991. For geographical and historical reasons (among others its heritage from the French colonization), Tunisia began its independence in 1956 with a highly centralized and powerful national administration and very weak local and regional governmental units. 1.03 The structure of GOT consists of three ti as: the Central Government and its ministr'.es and agencies, tha regional governorates, and the local governments repy)sented by the municipalities. Large municipalities have created smaller bodies called districts (arrondissements); associations of municipalities (syndicate de communes) were planned by law but are practically nonexistent. 1.04 The institutional framework of the Tunisian municipal system is controlled by GOT through the Ministry of Interior (MOI). MOI has supervisory authority for all local governments and exercises its authority at the regional level through the governorates, which are themselves divided into delegations. C. Municipal Responsibilities 1.05 The 246 municipalities vary greatly in size and population. Central Tunis, the largest city, has a population of 600,000 inhabitants, and the smallest municipality has fewer than a thousand. Half of the municipalities have fewer than 10,000 inhabitants. The municipal territories do not cover the whole country. Only urban and semi-urban areas have municipalities. An effort to widen the coverage of municipalities to the whole country has only recently begun. Fiqure 2: NUMBER OF MUNICIPALITIES BY POPULATION IN 1989 M00Iunicipalities per stratum Thousands 10000 240 100 8000 -6000 4000 2000 0.1 above aDove above above above tot.mun.& tot.mun.& 0 500 000 100 000 60 000 20 000 5 000 tot. pop. tot.nat. living In mun. pop. S8TRATA E No.of Municipalities - Municipal Population DATA 1989 -3- 1.06 Tunisian municipalities are weak governmental structures. A considerable gap persists between the role assigned to them by law and the one they are able to perform. Consequently, the economic importance of local governments remains weak. 1.07 Municipalities have two kinds of responsibilities: the development of the municipal community and the management of municipal affairs. Development of the municipal community is achieved through local-level implementation of the national development plans and the definition of a five-year Municipal Investment Program (PIC). Management of municipal affairs covers four types of activities: - collection of funds and protection of property - protection of public health and order (that includes maintenance of roads, public spaces and buildings, household garbage collection) - management of municipal territory (including road system alignment, zoning, sanitation plan) - manr.gement of civil registry. Municipalities and National Agengies 1.08 Details of the institutional framework are provided in Annex 1. The Government has recently begun a process to strengthen its local governments' decision-making procedures. Many urban services are now being carried out by central government agencies; their population coverage and cost recovery are adequate and the highest in the Maghreb countries. Because the country's size does not justify the creation of public utilities in every municipality and in view of the local governments' institutional weaknesses, GOT does not intend to devolve these responsibilities to lower levels of government. These central government agencies include the National Water Production and Distribution Company (SONEDE) for drinking water, the National Sanitation Office (ONAS) for sewer and storm drainage, the Urban Rehabilitation and Renewal Agency (ARRU) for neighborhood upgrading, and the Ministry of Equipment and Housing (MEH) for main road building and maintenance. GOT's intention is to strengthen the capacity of local governments to (a) plan and manage their own investment programs; (b) coordinate central agencies' activities in their jurisdiction; and (c) improve the few services they do perform (minor road and sewer works, refuse collection and disposal, street lighting and some community facilities). -4- 1.09 From 1975 to 1990 the provision of basic urban services has evolved as represented in Figure 3. Fiture 3: EVOLUTION OF URBAN SERVICES COVERAGE Electricity Water (SONEDE) Sewerage (ONAS) 0% 20% 40% 60% 80% 100% E 1975 $ 1989 % per urban household Municipal Structure (See details in Annex 2) 1.10 The municipal authority is vested in the council (elected), and its president, the mavor, supervises and coordinates the council's work and countersigns and ensures implementation of its decisions. Because most mayors serve voluntarily and cannot devote their full time to their post, they must delegate their authority to other council members. 1.11 The Secretary General of the municipality has an administrative role. As an official of the Central Government, i.e., MOI, remunerated from the budget, he plays the role of legal advisor to the council and is responsible, under the authority of the chairman, for nanaging municipal personnel, the municipal road system, and overseeing the col-. tion of local taxes and fees. 1.12 The responsibilities of the Municipal Council are to prepare and approve the budget and supervise municipalities' affairs. 1.13 The regional authorities consists of 23 governorates. The administrative authority is represented by the Governor, who is appointed by the President of the Republic and is under the supervision of M0I. The Governorate Councils are endowed with legal and financial status. More recently the Central - 5 - Government decided to give the Governorate Councils more financial autonomy and a more important role in the economic development of the region. To that end, it decided to assign the regional development program to the governorates. In addition, GOT started implementing a general policy of decentralization and requested public enterprises to decentralize their operations and decision-making processes. This is already quite advanced for public enterprises such as ONAS and SONEDE. Municioal Staff (See details in Annex 4) 1.14 There are about 18,000 municipal employees in Tunisia, corresponding to 4 civil servants per 1,000 inhabitants. This is a low figure by international standards (some countries, like France for example, have as many as 18 civil servants per 1,000 inhabitants). Despite the growing share of municipal receipts devoted to salaries (on average 50 percent), the municipalities continue to face inadequate staffing in numbr and quality as they employ unskilled staff and recruit few specialists as indicated in FiL.j"e 4 below. Filure 4: MUNICIPAL STAFF DISTRIBUTION 0t.A: Higher education Category A Cat.B: secomlaureate Cat.C:Seco0ndary sohool CatOD: Primary school cat.U: UnSkilled Cbregory B Category C Category D Category U I I I fili1l I I I IlII I I I I li 1II 10 50 100 200 500 1000 oo0 0000000 E Administrative staff E Workers Technical staff Health & social staff 1988 dta 1.15 The inadequacies of municipal personnel can be explained partly by the restrictive control exercised by the MOI over all recruitment of skilled staff and partly by the unattractiveness of municipal positions to civil servants. Although municipal staff are governed by the same regulations as central government civil servants, municipal positions do not offer commensurate benefits or promotion possibilities. Moreover, the institutional weaknesses of municipalities as a whole, the lack of clear definition of their powers and responsibilities, and the resultant poor intra-municipal relations make these posts less attractive. The solution applied so far by the Central Government, in the specific case of the post - 6 - of Secretary-General, has been to endow the position with more decision-making authority, greater autonomy vis-&-via the Municipal Council, and a more direct relationship with the supervisory authority. Improving municipalities' managerial capacities depends chiefly on improving the qualifications of their personnel. It is therefore essential that action he taken to create the necessary conditions for recruiting better qualified personnel and to provide basic and refresher training for the existing staff. The prceent project will address these issues. D. Municival finance 1.16 Municipal finance is administered under the strict supervision ("tutelage") of the Ministries of Interior and Finance. Smaller municipalities (i.e., those with annual budget under TD 350,000) are supervised by the governor. (See Annex 3 for details). 1.17 The current role of the municipalities in the country's economic development is almost negligible. The total budget of Tunisian municipalities represented only 1.3 percent of 1988's GDP, and their resources reached barely 5 percent of GOT's revenues. The annual average level of investments controlled by municipalities is about US$12 per capita, mostly self-financed. Twenty-two percent of municipal revenues are constituted by local tax receipts, as shown in Figure 5 below. Ficure 5: STRUCTURE OF MUNICIPAL REVENUES AND EXPENDITURES IN 1988 (TD millions) Incfrom Mun.Prop. Indirect Taxes Personnel User Fees Direct Taxes 47 Maint.& 41 Misc. Managt Contrib. 412g from CB FOOL Borrowings 41 Interest Mis. Contrib. to IB j Investment Governmt Transfer Principal Where It comes from... Where It goes... Legend Current Budget Investent Budget Source: MSIP feasibility study -7- 1.18 GOT finances almost half of municipalities' budgets through several channels. In 1988, 47 percent of their total operating budgets were financed with transfers via the Local Government Common Fund (FCCL), and 40 percent of their investments through the budgets of various ministries. The Municipal Development Agency (MDA), an agency under the supervision of MOI, provides additional investment financing in the form of loans and grants for local governmeits but has until now operated as a cashier's window for the General Directorate for Local Governments (DGCPL) of the Ministry of Interior (MOI). Under the project, the MDA will be restructured and strengthened. Figure 6 shows the Central Government transfer figures for 1985-91. Fiqure 6: EVOLUTION OF CENTRAL GOVERNMENT TRANSFERS TO MUNICIPALITIES THROUGH FCCL (TD millions) 1985 1986 1987 1988 1989 1990 1991 1 G.D.P. 6,910 7,025 7,935 8,670 8,973 9,557 10,035 2 Growth (%) 10.8% 1.7% 13.0% 9.3% 3.5% 6.5% 5.0% 3 State current revenues 1,885 2,122 2.238 2,377 2.661 2,727 2,891 4 Growth (%) 10.0% 12.6% 5.5% 6.2% 7.7% 6.5% 6.0% 5 In % of G.D.P. 27.3% 30.2% 28.2% 27.4% 28.5% 28.5% 28.8% 6 State fiscal revenues 1.371 1.622 1,639 1,761 1,926 2,081 2,184 7 Growth (%) 14.0% 18.3% 1.0% 7.4% 9.4% 7.0% 6.0% 8 In % of current revenues 73% 76% 73% 74% 75% 76% 76% 9 Municipalities current revenues 91 94 100 112 115 119 122 10 Growth (%) 3.4% 6.6% 11.7% 2.8% 3.0% 3.0% 11 In % of G.D.P. 1.3% 1.3% 1.3% 1.3% 1.3% 1.2% 1.2% 12 F.C.C.L 65 66 70 75 78 82 87 13 Growth (%) 1.1% 6.8% 6.5% 4.4% 5.0% 5.8% 14 In % of state fiscal revenues 4.8% 4.1% 4.3% 4.3% 4.1% 4.0% 4.0% Source: MSIP feasibility study and mission estimates. 1.19 In the past ten years, several reforms have taken place to define the role and composition of FCCL. GOT has asked the Director General of Taxation to present new local tax reform proposals (see calendar in Annex 3). The project would therefore assist in the implementation of these changes. More recently, GOT has approved an increase, by as much as 100 percent, in the tariffs for municipal services such as civil registry (Etat Civil), use of public space, and building permits. Drastic reforms, however, are constrained by, among others, inefficiencies in Tunisia's tax collection (evasion rates are high, particularly for direct taxation), cumbersome land registration procedures, and political considerations. 1.20 The project would support efforts leading to increasing fiscal revenue, increasing local revenue predictability and introducing revised mechanisms for establishing the amounts to be transferred through FCCL and new criteria for the allocation of those funds. -8- 1.21 These elements have been studied and discussed with the Bank in the context of the "Municipal Finance and Management in Tunisia" sector study and the project feasibility study. There is now a consensus on the need to follow the recent broad reform of taxation (VAT, direct taxes, fees, and stamp duties) with a reform of local taxes (See Annex 3 for details). During negotiations, agreement was reached that GOT would carry out a reform program to improve municipal finance. The program's objectives are to: (a) simplify the local tax regime through simplifying (i) the structure and scope of coverage of real property taxes and (ii) business taxes, indirect taxes and user charges, including, inter alia, unification of each of these taxes by sector of activity; (b) expand the scope of coverage of real property taxes and business taxes; (c) reduce the rates of real property taxes, business taxes and indirect taxes and user charges; and (d) increase revenues through improved tax collection. The Government has established a "local tax reform commission" which will present by December 31, 1992, a report outlining the principal policies and actions to be pursued. On the basis of the above-mentioned report, GOT would present to the Bank, no later than March 31, 1993, an action plan to be discussed and to be carried out thereafter. The program would also include completing by June 30, 1995, the cost recovery study to be carried out under the project and ensuring adequate transfers of budgetary funds to MDA through FCCL (an 8.5 percent annual increase for the years 1992-1996 has been decided by GOT) and directly from GOT (para. 3.01). B. Prospect for Reforms - The Municipal Development Program (MDP) 1.22 Despite its relatively small size, Tunisia has a tradition of political deconcentration and decentralization. Decentralization, broadly meaning increasing the responsibilities and resources of subnational political and administrative units, has been regarded as an officially desirable goal for Tunisia for the past quarter century. The rhetoric on decentralization, however, long exceeded action, for a variety of reasons--notably the centralist French heritage, the need to consolidate national unity after independence, the interventionist economic policies pursued in the 1960s, and the then-prevailing intellectual climate of development opinion which saw state intervention and comprehensive planning as the key elements of a successful strategy. This situation began to change in the 1970s. The main Law on Municipalities (Loi Organique des Communes), which defines the local government structure in Tunisia, was modified in 1975 and 1985. Since 1985, when the Local Government Code was amended and a general policy of strengthening local government articulated, little real progress in decentralization occurred until 1989. At that time, the creation of Regional Councils and the delegation of authority to Governors demonstrated the National Government's serious commitment to decentralize and deconcentrate decision-making by, among others, giving real authority to Government representatives, such as the Governor, and expanding the responsibilities of local governments. -9- 1.23 Although only modest progress has been made to date toward decentralization of urban services, the process is now moving forwards a cabinet- level position of State Secretary for Local Governments was created in 1989 within the Ministry of Interior (MOI). More significantly, GOT has made regional and municipal development the foundation of ite Eighth National Economic Plan (1992- 96). 1.24 MOI had already started the preparation of a municipal investment program (PIC) for the Seventh Economic Plan (1987-91) and has maintained this format for the preparation of its Eighth Plan (1992-96). The PIC is a list of investment projects for all municipalities, including financing plans for the plan period. This is already a major improvement over the previous ad hoc investment process. Nevertheless, the PIC excluded important elements such as a cost-recovery mechanism, financial and economic analyses, and maintenance obligations, which the strengthening of MDA should help bring into this process. 1.25 It is generally accepted that the municipalities are underequipped to perform many of the functions within their purview, and that efficiency gains can be realized through planning, financing, and implementation of local activities closer to the end users. Since the early 1980s, GOT has increasingly sought to address constraints faced by local governments in performing their development role. This led to the preparation of a Municipal Development Program (MDP), aimed at identifying and removing constraints to local development in order to increase overall efficiency in the Tunisian economy. The MDP is being developed along the lines of the Bank's "Municipal Finance and Management in Tunisia" sector work of 1987, which led to the feasibility study for the preparation of the project. It is designed to equip local governments with adequate human, financial, institutional, and administrative resources to enable them to perform their economic and political role. 1.26 The MDP includes the following actions: (a) expansion of the role played by municipalities, together with studies intended to clarify the responsibilities of the different levels of public administration (ministries and their national agencies, municipalities, and governorates) engaged in the planning and implementation of local services and activities; (b) local finance reform (para. 1.21) to: (i) establish financing mechanisms that make the volume of resources available to local authorities easier to predict and, as a result, allow municipalities to improve the quality of their financial planning; and (ii) expand the volume of funds available to local governments by increasing transfers from the Government budget and mobilizing additional local resources. The Government has decided to increase FCCL to TD 96 million for the 1992 budget from TD 87 million in 1991 and to maintain its annual growth by about 8.5 percent, reaching about 5 percent of Government fiscal revenues by the end of the Eighth Plan in 1996; (c) establishment of efficient decision-making mechanisms for local investment by introducing appropriate planning, implementation, and - 10 - financing procedures that would ensure that local interests are adequately covered in respect of national priorities, and by endowing MDA with the capacity to oversee and implement objective criteria for the provision of credit to finance municipal investments; (d) provision of adequate management tools to the municipalities, such as better local statistics, operating manuals, and computerization; and (e) strengthening local governments' human resources, by increasing the number of local higher-level civil servants, redefining their status, identifying required training, implementing a system to meet those needs, and setting up a training directorate within MOI. The project will support most elements of the MDP through studies and technical assistance (see para. 2.09 and Annexes 4, 5 and 9). F. The Municipal Development Aqency 1.27 The Caisse des Pr&ts et de Soutien aux Collectivit6s Locales, or Municipal Development Agency (MDA), was created by Law 75-37 of May 14, 1975, as a legally autonomous administrative agency in charge of the distribution of Government funds to local governments. MDA receives most of its funds from FCCL, and has been lending to the municipalities for (a) the acquisition of goods (5 years at 4 percent interest), (b) revenue-generating investments (10 years at 4 percent interest), and (c) non-revenue-producing local infrastructure (20 years at 2 percent interest). Until its recent restructuring, MDA was in practice a cashier's window; all its decisions were in fact made by the General Directorate for Public Local Governments (DGCPL, a department of M01) which is, at the same time, the supervisory body in charge of MDA. 1.28 Since its origin, MDA had not worked properly because it was never properly staffed and structured. This has resulted in the general abandonment of MDA, to the point that the Board has not held a session for the past several years and MDA's staff has remained at three. It has lacked a proper accounting system and has had difficulties in preparing loan amortization tables in a timely manner. Loan recovery has also been slow. According to Decree 92-688 of April 16, 1992, MDA is now administered by a Board presided over by the Minister of Interior and is composed of representatives of MOI, MOF, MEH, the National Federation of Cities, and the Central Bank of Tunisia. The Board approves the program of activities, its annual budget, and its financial statements. The General Director carries out the decisions made by the Board, and generally ensures MDA's administrative, financial, and technical manaqement. 1.29 One of the main objectives of the project is to strengthen MDA in its new role of assisting the municipalities in developing their project preparation and implementation capabilities and their ability to fund their investments. Importantly, MDA would bring discipline to the sector while assisting municipalities in developing information and financial management systems. MDA would continue to be a parastatal agency with administrative autonomy. In addition to the General Manager, there will be five managers and a dozen professional staff - 11 - members. Details of the organization of MDA are given in Annex 5. During negotiations, agreement was reached that MDA would: (a) be adequately staffed, according to a recruitment plan agreed with the Bank, with professionale competent in project appraisal and, particularly, with a General Manager (see Annexes 5 and 6 for detail.); (b) carry out a training program agreed upon with the Bank and provide during the period of project implementation a rolling annual staff training program; (c) implement by June 30, 1993, as part of the project, an adequate accounting system; and (d) qperate according to its Operation Manual, to be adopted before effectiveness (see para. 3.05), especially in regard to the management of subloans and matching grants and the subloan approval procedures. 1.30 As a condition of effectiveness, MDA is management team (five managers) would be recruited and in place and the Operation Manual would be adopted. II. THE PROJECT A. Prior Bank Experience with Urban Infrastructure in Tunisia 2.01 Until now the Bank has granted five urban development loans to Tunisia. The first project (Loan 937/Credit 432-TUN, US$18 million, 1973) was a successful urban planning and urban transport project, including the rehabilitation of a suburban railway line in Tunis and the setting up of the Tunis District, a Greater Tunis planning agency. The second project (Loan 1705-TUN, US$19 million, 1979) was directed to two municipalities, Tunis and Sfax. The third and fourth projects (Loan 2223-TUN, US$25 million, 1983 and Loan 2736-TUN, US$30.2 million, 1986) initiated the institutional strengthening of ARRU and the Housing Land Agency (APH). The fifth project (Loan 3064-TUN, US$58 million, 1989) includes a line of credit to a restructured housing bank, institutional strengthening of the Ministry of Equipment and Housing (MEH), and a,land registration component. 2.02 The Bank has also financed seven water supply projects, three sewerage projects, one flood protection project, and five transportation projects, all of which have contributed measurably to Tunisian cities' infrastructure network. 2.03 The activities financed by the Bank in Tunisian cities have gradually evolved into opirations with broader objectives. From the financing of site- specific urban works, a transition has been made into assisting GOT in improving urban policies that affect other economic sectors and institutions responsible for their implementation. The fifth urban development project (FY89), which addresses housing finance policy and institutional constraints, is a good example. - 12 - Supporting GOT's current decentralization efforts and improving the efficiency of municipal activities, especially in regard to the environment, as intended by this project, would add to the evolution of the Bank's role in the urban sector. 2.04 In the urban sector, project work has been supported by extensive sector work, namely the "Housing Sector Review" (1983), the Institutional Housing Sector Review (1984), and a financial model for the housing sector (1987). In 1988, the "Municipal Finance and Management in Tunisia" sector study was completed. Finally, an informal Housing Sector Review and a Land Registration Note played an important role in the design of the housing policy endorsed by GOT in July 1988, and in the recent changes in the land registration system, which should lead to the oreparation of a new project in this sector. 3. Project Oriain and Rationale for Bank Involvement Proiect Origin 2.05 As mentioned above, the Bank has had extensive experience with municipal aspects of infrastructure projects. But more directly, the project draws on the experience in municipal development and finance in similar projects in other countries, while building on the sector work resulting in the report Municipal Finances and Management in Tunisia, March 2, 1988 (7150-TUN). This dialogue led to the formulation of the project now proposed to support the Government's MDP. A feasibility study, Prolet de d6velopoement municipal, financed under the Second Urban Transport Project, was started in April 1989. The final report was issued at the time of appraisal in November 1991. Formal project preparation was delayed for 14 months due to the nomination of two State Secretaries for Municipalities, organization of municipal elections, and a thorough review of the interim report of the feasibility study, which was subsequently endorsed by two interministerial committees. The Bank helped to prepare terms of reference for that study. Rationale for Bank Involvement 2.06 The Bank's support to GOT's urban sector activities has gradually moved beyond financing infrastructure investments to supporting changes in sector policies, to assisting in the implementation of fundamental changes in the public sector's institutional responsibilities. The project would support implementation of GOT's MDP, which intends to strengthen the local governments and increase their contribution to the economic, social, and political development of the country. This would result in making elected local governments more responsible to their constituencies, and at the same time provide these local authorities with the means to respond to their mandates, i.e., financing investments, enhancing their local revenue-raising ability and strengthening their institutional capacity to deliver iservices efficiently. Success in this endeavor will determine the viability of GOT's Eighth Plan's reliance on regional and municipal development as well as strengthen Bank's contribution to the Tunisian urban sector. 2.07 The Eighth Plan rests on regional and municipal development as the backbone of its development strategy. The Plan contemplates about US$460 million to finance the PIC. The project would finance priority investments in the PIC which have a high social, environmental, and private sector management content. - 13 - Bank participation in the project would complement the financing resources of the central and local government budgets for these investments. The municipalities' own revenues would be increased through a revamped local tax regime, and MDA would improve its financial viability by managing GOT's grants, building its equity through loan recovery and moving towards efficiency pricing in public investment financing. Investment quality would increase, as projects would be financed on technical, financial, institutional and economic criteria. Matching grants for investments would be allocated according to national priorities (e.g., the environment). C. Objectives and Description Project Obiectives 2.08 The general objective of the project is to help GOT increase the efficiency of municipalities and regional councils in decision making, resource mobilization and allocation, and project financing and implementation. As the first Bank operation directly supporting local governments, the project would focus ont (a) increasing the local authorities' ability to carry out their responsibilities in planning, identification, and follow-up of municipal investments; (b) strengthening MDA; and (c) improving the municipalities' provision of basic infrastructure and services through the financing of investments, including solid waste management and urban upgrading in existing low-income neighborhoods. Proiect Descriotion 2.09 The project would include the following components: (a) Institutional strengthening for the municipalities and for the Ministries of Interior and of Finance (US$6.7 million, 3 percent of the total project cost); (b) Institutional strengthening for NDA: this will help strengthen MDA as the primary technical and institutional agent of the Government for municipal finance and development (US$1.0 million, about 1 percent of the total project cost); and (c) Priority infrastructure investments for municipalities and regional councils (US$200 million, 96 percent of the total project cost). Details are given in the paragraphs below and in Annexes 4, 7, 8, and 9. 2.10 Institutional Strenathening for Municipalities and Ministries: This component includes consultants' services, vehicles and equipment for the municipalities and for the Ministries of Interior and of Finance. This would help develop their managerial, financial, technical, and staff training capabilities. This component includes two main elements: -14- (a) a training program for the staff of municipalities and regional councils, which includes the setting up of a Training Directorate within MOI and the financing for training sessions. As of the startup of the project, the Training Directorate would be established as a link between municipalities and training entities. This Training Directorate will call upon existing training entities such as Ecole Nationale d'Administration (ENA), Ecole Nationale d'Ing6nieurs de Tunisie (ENIT), and Office do Formation Professionnelle et de 1'EmploL (OPPE), to provide training. The Training Directorate will have the authority to assess their results, to modify the contents of their actions, and to require special activities from them. It will work jointly with the Project Coordinator to define the training program and budget which will be presented to the Bank. External technical assistance would be provided for the establishment and startup of the Training Directorate; MOI has recently started discussions with the French Ministry of Interior on this matter. (b) consultants' services bolstering the local tax reform and the improvement of municipal management. These studies would be managed by DGCPL and the Project Coordinator in consultation with the administrative servicem concerned. The terms of reference of the studies to be carried out in a certain year would be agreed with the Bank by December 31, of the previous year. See details in Annexes 4 and 9. 2.11 Strenathenina of _DA. This component will help restructure and strengthen MDA with a major role in the evaluation of both the projects and the municipalities it will finance. It will include among others: - the setting up of an accounting system by June 30, 1993; - the adoption of procedures for project appraisal and follow-up (Operation Manual); - the hiring of MDA staff including a manager experienced in financial matters and project appraisal; - staff training; and - provision of equipment and vehicles. Details of MDA's organization, staffing, appraisal procedures and policy statement are given in Annex 5. Subproject eligibility criteria are given in Annex 7. 2.12 Municipal Investments. These would include: (a) upgrading of low- income neighborhoods; (b) construction, maintenance, and rehabilitation of municipal infrastructure in existing neighborhoods including urban roads, street lighting, drainage, solid waste collection and disposal systems; and (c) construction and equipment of commercial facilities such as markets and slaughterhouses. These projects would be appraised according to eligibility criteria acceptable to the Bank (see para. 3.04 and Annex 7). These priorities are reflected in the allocation of loans and matching grants which would be decided annually by the Government according to sectorial priorities (See details in para. 3.02, Fiqure 11 and in Annex 8). 15 - D. Proiect cost and financing St 2.13 Municipal investments for the Eighth Plan (92-96) amount to about US$460 million of which the project would finance about 44 percent as shown in Figure 7. The total cost of the project is estimated to be US$208 million, of which 96 percent would be for the infrastructure investments, as shown in Figure 8 below. The proposed loan of US$75 million would finance about 36 percent of total project cost, approximately equivalent to the foreign exchange component. Cost estimates include provisions for taxes estimated to amount to about US$37 million (18 percent). The project includes municipal investments with high social and environmental aspects and excludes investments like administrative, cultural, and sporta buildings included in the PIC but financed with contributions of the ministries of Interior, Culture and Youth. Pigure 7: MSIP, PIC AND THE EIGHTH PLAN (in millions of TD) VIII th Plan: 17 500 (1992-1996 Public Invectment) PIC: 425 MSIP: 184 World Bank: 66 - 16 - Fiaure- tA ESTIMATED PROJECT COST (in US$ millions of January 1992) Component Total Local Foreign Total % % of foreign total exchange cost A. Institutional Develonent for Municipatitles. M01, MOF - Training, consultants'services 5.7 4.0 1.7 30 * Materials, vehicles, equipment 1.0 .2 .8 80 Subtotal 6.7 4.2 2.5 38 3 B. Institutional Develowment for MDA - Consultants* services .7 .1 .6 80 * Materials, vehicles, equipment .3 .1 .2 80 Subtotal 1.0 .2 .8 80 1 C. Municifal Investments - Upgrading tow-inc. neighbor. 50.0 35.0 15.0 30 * Infrastructure exist. neighbor. 130.0 84.5 45.5 35 - Market, maunicipal facilities 20.0 8.0 1?.0 60 Subtotal 200.0 127.5 72.5 36 96 TOmTAL POJECCOST 20?.7 131.91 .$.8 36 100 2.14 As is standard for a sector investment project, no price or physical contingencies have been included. Financina 2.15 The proposed IBRD loan of US$75 million would finance about 36 percent of total project cost (Figure 9). Fiaure 9: FINANCING PLAN US$ millions Percentage Central government 78.7 38 Municipalities 54.0 26 World Bank 75.0 36 .. 2071..... . 0 2.16 On average, local governments' investment subprojects would be financed as follows: (i) about 27 percent of components' cost by funds from the 3/ Includes about USS37 million for taxes and duties - 17 - local governments; (ii) 33 percent by a loan obtained from MDA; and (iii) 40 percent from matching grants from the Central Government. These percentages will vary by sector to reflect GOT priorities (see para 3.02 and details in Annex 8). B. Financial Impact 2.17 An important axis of the project rests with MDA, which would be called to assist the municipalities in developing their investment and financing capacities. MDA would be the primary vehicle for financing municipal investments and, more important, the instrument for developing the municipalities so as to enable them to fund themselves with less recourse to Government funds. The Bank loan would be made to GOT, which would transfer part of the proceeds to HDA and to MOI and MOF for the institutional development components on a grant basis. GOT will onlend the funds to MDA for municipal investments. The financial viability of the municipalities and MDA are, therefore, critical to the success of the Government's efforts to introduce financial discipline in the sector. Municipalities 2.18 The financial impact of the Government's MDP (para. 1.26), which the project supports, can be seen in Annex 6, which shows the financial outlook of the entire municipal sector to the year 2000 (pages 1 to 3). The reforms to be undertaken under the project (see para. 1.21) are projected to increase annual municipal current revenues from their current level of about TD 125 million to some TD 250 million by 2000. These enhanced revenues would allow the municipalities to increase their net internally generated funds from about TD 15 million in 1990 to more than TD 20 million by 2000. Government direct and indirect contributions to investments would rise from about TD 20 million in 1991 to about TD 45 million by 2000, while borrowings would increase from about TD 15 million to about TD 30 million, by 2000, to finance investments of about TD 100 million. The self-financing ratio2 of the sector would evolve from 14 percent in 19933 to 22 percent in 2000, by which time the municipalities would have a healthy debt-service coverage ratio4 of 1.6. To ensure the financial viability of the municipalities, during negotiations agreement was reached to have those municipalities borrowing from MDA under this :oject maintain at all times a debt-service coverage ratio of at least 1.3 (para. 3.04). Mnicipal Development Aqency 2.19 The financial impact of the project on MDA is described in Annex 6 (pages 4 to 9). HDA's funds would come from: (a) the loan charges to municipalities and their recovery (including those previously made by MDA, which were fully funded by the Government), net of debt service payments and operating V The municipatitfes' self-financing ratio is the contribution from the current budget net internalty generated funds to the investment budget. V The 1992 ratios are exceptional because the President forgave the debts owed by the municipatities for 1992. The municipatities' debt-service coverage ratio is the ratio of current revenues (net of current expenses, excluding interest expense) to debt service (principat and interest). - 18 - expenses; these funds would finance on average about 40 percent of loans made in 1993-2000; (b) FCCL allocations plus net Government transfers (about 6 percent of 1993-2000 loans); and (c) borrowings (58 percent of 1993-2000 loans). MDA's annual lending program has been estimated on the basis of the PIC (para. 1.24). The loan amounts for the first few years of MDA*s operations would be a mixture of old loans committed before its restructuring plus new loans prepared and approved since 1992. The interest rate of MDA loans would be increased with this project from the previous 2 percent to 6.5 percent in 1992, for all the loans made to municipalities, (except for sanitation, vehicles and equipment financed under a suppliers credit), and to 8.5 percent from January let, 1997; these rates would be positive in real terms based on forecasts of inflation of S percent for fthe 1992-1996 period. An understanding has been reached that the Bank would review MDA's interest rates with the Government if the inflation rate differs substantially from the forecast. MDA's net income as a percent of average equity would rise from about 1.6 percent in 1993 to about 4.0 percent by 2000, while net income as a percent of average total assets would increase from about 1.2 percent in 1993 to about 2.1 percent by 2000. These increases in net income would be due to the replacement of the old loans by the new loans. MDA's financing pattern would allow it to maintain a very conservative leverage with its debt-equity ratio oscillating between 30 percent (1993) and 52 percent (1996). MDA's debt- service coverage ratioS including loan recovery would at all times remain above a healthy 1.5. The average over the period would be 2.1. A more stringent test of debt-service coverage excluding loan recovery shows a ratio between 0.6 and 2.0, which is also acceptable. To ensure the financial viability of MDA and the protection of its equity base, during negotiations agreement was reached that MDA would: (i) maintain at all times a debt-service coverage ratio including loan recovery of at least 1.5; (ii) attain every year a self-financing ratio6 of no less than 20 percent in 1993, 30 percent in 1994, 35 percent in 1995-98, and 40 percent from 1999 (between 20 and 30 percent in the past); (iii) achieve margins between the annual revenue on average total assets and the annual expenses on average total assets of at least 1 percent from 1993 to 1998 and 1.5 percent thereafter; and (iv) charge on its infrastructure loans an interest rate of 6.5 percent during 1992-1996, and of 8.5 percent starting January 1, 1997. On equipment loans financed from suppliers' credits, MDA would charge interest at, at least, 4 percent during 1992-1996 and 6 percent thereafter. S HDA's debt-service coverage ratio is the ratio of HDA's revenues (including loan recovery) net of cash operating expenses to debt service (capital, interest, and comitment fees). HDA's self-financing ratio is the ratio of its annuat net internal cash generation (revenues not of cash operating expenses, tess working capital needs and debt service, plus loan recovery) to annaL toans to aunicipatities. - 19 - F. Cost Recovery 2.20 Under the project, the totality of Bank loan proceeds and GOT's counterpart funds, which will be onlent as subloans via MDA, will be fully recovered from the municipalities. These would in turn recover costs from end- users and other beneficiaries. The overall policy for cost recovery criteria would be included in the Operation Manual for MDA (see para. 1.29 and 3.05). Revenue-earning facilities (e.g., markets, slaughterhouses) would be directly subject to cost recovery through recourse to market value rents, user charges, and fees. The MSIP feasibility study has analyzed the provision of urban services (see Annex 1 for details) and made recommendations for the improvement of their delivery and cost recovery. In addition, under the Project, GOT will study in more detail the cost of providing urban services and their cost recovery mechanisms (see Annex 9). Under the Municipal Finance Program (para. 1.21), the Government will launch a study regarding cost recovery of urban services by December 31, 1993 and complete it by December 31, 1995 Application of the resulting reforms is estimated to increase revenues on account of direct cost recovery (revenue on charges) by a factor of 3 by 2000 (from about TD 13 million in 1990 to about TD 45 million in 2000). These enhanced revenues would increase as a percentage of total municipal current expenses (from about 12 percent before 1990 to about 21 percent in 2000) and would increase in relation to investment from about 27 percent before 1990 to about 45 percent in 2001. III. PROJECT IMPLEMENTATION ARRANGEMENTS A. Flow of Funds 3.01 The proposed US$75 million loan would be made at the standard Bank variable interest rate with repayment in 17 years, including a five-year grace period. It would be made to GOT: about US$2 million would be allocated to MOI and MOF for technical assistance; US$72 million would be onlent in local currency to MDA either for further onlending or, in the case of low-income neighborhood upgrading, for subloans and grants to municipalities; and about Us$1 million would be made available to MDA on a grant basis for its institutional strengthening. MDA would repay the Bank funds onlent to it by GOT over 17 years at the Bank rate, in effect at the time of the signing of the subsidiary agreement between GOT and MDA. GOT would bear the foreign exchange rate risk. Funds onlent by MDA to municipalities would bear interest at the rates outlined in para. 2.19 (d) and have maturities of no more than 15 years, including two years grace. GOT would also, for the Eighth Plan, finance MDA through FCCL in the amount of about US$50 million and through direct budgetary transfer in the amount of about US$50 million. Because the local resource mobilization would improve over time (local tax reform, increased cost recovery, better technical and managerial c&pacities of the municipalities), and in order to decrease progressively the Central Government transfers to the municipalities mentioned abova, MDA is expected to increase its interest rate toward market rates in the long term to enable municipalities to tap some financial resources directly from the financial markets. As a condition of loan effectiveness, a subsidiary agreement between GOT and MDA for the transfer of loan proceeds would be signed. - 20 - Durina neootiations, agreement was reached on the amount of the Governmentrs transfers to MDA both via the FCCL and directly to MDA (para. 1.21). Fiaure_10: PROJECT FLOW OF FUNDS Debt service World Bank & CENTRAL cofInanlera 3VERNMENT Loans FOOL grants DGCPL MDA transfers transfers Training & Institutional Investments strength, transfers V Loans -6Loa0ns & Debt services MUNICIPALITIES ==C> Transfers Debt service 3.02 Most of the subloans would be supplemented by matching grants from the Central Government. The matching grants vary according to the incentives that GOT wants tu give to certain types of investments. Matching grants have been defined by GOT. They are higher for non-revenue-producing projects and sero for revenue-producing projects such as markets as shown below (Figure 11). GOT will provide matching grants and loan funds to MDA for the benefit of the municipalities as follows: Fiqure I1: MATCHING GRANT ALLOCATION Sector Hatching Grant Local Revenue Borrowing Total Cost __ __ __ _ __ __ _(%) (%) (%) (%) Upgrading low- 70 18 12 100 income neighbor. Environment 45 20 35 100 Infrastructure 33 30 37 100 Commercial facil. 0 40 60 100 - 21 - B. Eliaqbility Criteria for Municipalities and Subprolects selection Beneficiaries Entities 3.03 All local governments (municipalities and regional councils) and their agencies and enterprises would potentially be eligible to participate, provided they meet the project eligibility criteria specified in para. 3.04 below. Eliaibility Criteria 3.04 Durina neaotiations, agreement was reached with MDA on criteria to be met for financing subprojects with Bank funds. These criteria will be defined in the Operation Manual (para. 3.05). Summarized in Annex 7, they are specific to each sector and reflect the technical and financial feasibility of each subproject and the adequacy of its implementation arrangements, and its environmental soundness, in particular for sensitive subsectors such as solid waste and slaughterhouses. Revenue-generating entities must comply with cost- recovery principles. Eligibility criteria for municipalities would include (a) minimum debt-service coverage ratio of 1.3 (para. 2.18) and (b) adequate implementation capacity. Finally, agreement was reached durinq negotiations that the total amount of all grants made for a subproject for low-income neighborhoods would not exceed the total amount of all subloans made for that subproject. 3.05 A draft Lending Operation Manual was reviewed during appraisal and found acceptable to the Bank (see summary in Annex 7). These procedures would apply until finalization of MDA's Operation Manual. Adoption of the Operation Manual would be a condition of effectiveness. Pipeline Development 3.06 The appraisal mission reviewed the 1992-96 PIC, out of which subprojects have been selected for the project; thereafter MDA with ARRU's assistance has appraised and submitted to the Bank a first tranche of typical large municipal subprojects. To maintain a pipeline of investment proposals suitable for MDA financing, MDA has a technical assistance and outreach program for preinvestment studies. The program will finance services of national agencies, such as ARRU, and consultants familiar with MDA policies and requirements who will assist candidate borrowers in the preparation of planning and pre-feasibility studiea, institutional studies, coordination and quality control of feasibility and detailed engineering studies, the design of institutional development measures to be included in subprojects, and environmental impact assessments. The financing of these studies will be made as grants by MDA to municipalities if the studies do not lead to a project; if the study leads to a subproject and a subloan, its cost will be integrated into the subloan. - 22 - Bank Review of Suboroiects 3.07 The Bank will review MDA's appraisal and draft lending document before subloan approval by MDA for (a) the first two subprojects in each eligible subsector; and (b) each subloan, which, when added to any grant made for the subproject, amounts to more than US$0.5 mi'lion. For all subprojects, and prior to related disbursement or replenishment of the special account, the Bank will receive executive summaries of subprojects and beneficiaries. Sample reviews of subprojects in execution will be carried out by the Bank during supervision missions. MDA, DGCPL, and the Project Coordinator will retain all documentation for review by Bank missions. During negotiations, the above review process was agreed. C. Implementation Arranaement/lIstitutional Setup 3.08 The Borrower would be GOT and MOI would have the principal project oversight responsibility (Figure 12). Together with the MOP, the Government would identify the budgetary means necessary for the project. Under the project: - DGCPL (under MOI), with the participation of MOF for the local tax reform, would be responsible for implementing the institutional development component, establishing (including issuance of decree if required) a Training Directorate, nominating its proposed Director, and hiring two additional professional staff before loan effectiveness. - MDA, under the supervision of Mol, would be responsible for implementing MDA's restructuring, and appraising and financing the municipal investments. - Local governments would be responsible for carrying out the municipal investments and elements of the MDP. - Day-to-day project coordination and management of the studies would be the responsibility of a Project Coordinator (in place since November 1991) reporting directly to the State Secretary for Municipalities in MOI. - The consultative steering committee (Comit6 de Suivi), chaired by the State Secretary of Municipalities of MOI and including the main ministries concerned, which was created in 1989 to follow up the feasibility study, would be maintained during the life of the project to facilitate the coordination among the ministries concerned. - 23 - Pioure 12s IMPLEMENTATION ARRANGEMENT > Tutelage Ministry of- Loan processing Interio - Coordination Steering commitee - COORDINATOR D.G.C.P.1- M.D.A TRAINING& INST/TUTIONAL INVESTMENTS STRENGTH. MUNICIPALITIES 3.09 GOT would prepare and submit to the Bank, within six months following the closing date of the loan, a project completion report reviewing the extent to which planned project objectives, including costs and benefits, were achieved, and assessing the performance and contribution of all the parties associated with the project. D. Procurement - Disbursement Procurement 3.10 Responsibility for procurement would be as follows: (a) DGCPL and the Project Coordinator for the institutional development component; (b) MDA for equipment and technical assistance related to its own restructuring; and (c) the municipalities, or their designated agencies, for the municipal infrastructure investments. As it is already the case now, if need be, the municipalities will be assisted by ARRU or the regional directorate of the MEH; technical assistance will also be available from MDA. Civil work contracts would be awarded through local competitive bidding (LCO), under local procedures acceptable to the Bank, except that works costing the equivalent of US$50,000 or less, up to an aggregate of US$3 million, might be procured through negotiated contract. In addition, works costing less than $100,000 might be procured on the basis of local shopping - 24 - from at least three contractors. Since the pipeline of subprojects would be (i) dispersed over many sites across the country, (ii) committed separately for each category of civil works over a period of three years, and (iii) executed and administered by different municipalities over a four- to five-year period, it would not be feasible to aggregate the contracts into packages large enough to attract international contractors through ICB. However, interested foreign bidders would be eligible to participate. Although no large civil work contracts are expected, if any civil works contract exceeds US$3 million, it would be procured under ICB. 3.11 Equipment and material contracts estimated to cost up to US$100,000 would be obtained off the shelf after receiving quotations from at least three suppliers, and those between US$100,000 and US$1,000,000 would be awarded on the basis of competitive bidding advertised locally in accordance with procedures satisfactory to the Bank. Procurement for goods for an amount greater than US$1,000,000 is not expected to take place; in such a case, it will be carried out through ICB. Consultants financed with Bank funds will be recruited according to the "Guidelines on the Use of Consultants by World Bank Borrowers." 3.12 Prior Bank review and approval will be required for all procurement documents and contracts for the first two contracts for works procured under LCB, and for all ICB procurement. After these initial contracts, prior review by the Bank will be required for civil works contracts valued above US$1,000,000. Bank supervision missions will review subprojects committed under the free-limit threshold, with a particular focus on procurement procedures. All other procure- ment will be reviewed ex post on a selective basis. MDA, DGCPL, and the Project Coordinator will retain all procurement documentation for review by Bank missions. During negotiations, agreement was reached with GOT on all procure- ment arrangements. Figure 13 below summarizes the procurement arrangements for the project. - 25 - Ficure 13: PROCUREMENT ARRANGEMENTS (in current US$ millions) Procurement Method Total LCB Negotiated Shopping N/A7 Cost Civit Works and Goods for Municipatities - upgrading, repairs/solid 72.6 - 1.4 - 74.0 and Liquid waste (20.3) * (0.4) * (20.7) - municipal infrastructure 101.0 3.0 1.2 105.2 (37.3) (1.1) (.5) - (38.9) * facilities 18.8 - 2.0 20.8 (11.0) (1.2) - (12.2) Goods for MOLI MOF and MDA 0.5 - 0.8 * 1.3 (0.4) (0.6) (1.0) Consult. services and Training - * 6.4 6.4 for MOI, MOF. and MDA - - - (2.2) (2.2) TOTAL 192.9 3.0 5.4 6.4 207.7 (69.0) (1.1) (27 (2.2) (75.0) Figures in parentheses represent Bank financing. Disbursement 3.13 The disbursement schedule of the Bank loan would be set at seven years reflecting a slightly longer period than IBRD standard disbursement profiles for the urban sector in Tunisia because of the inexperience of the municipalities. The estimated schedule of disbursement is provided in Annex 10. The closing date of the project would be December 30, 1999. Loan proceeds would be disbursed against: (a) Civil works, equipment, and materials for: construction, improvement and rehabilitation of municipal infrastructure, including streets, parks, drainage systems, street lighting, water supply and sewerage systems, and solid waste collection, disposal, and treatment systems; (b) Civil works. equipment. and materials for: construction and upgrading of commercial community facilities: 60 percent of expenditures Z/ Consultants witt be hired foLlowing Bank guidelines. - 26 - (c) Technical assistance (i) consultancy services, fellowships, training for MOI, MDA, and municipal personnels 100 percent of expenditures; (ii) computers (hardware and software) and other data processing equipment for MOI, MOP, MDA, and municipalities: 100 percent of foreign expenditures and 80 percent of local expenditures. 3.14 The Bank will not finance the cost of land acquisition, administrative expenses, and taxes and duties. Retroactive financing of subloans would be permitted for expenditures made after appraisal (November 7, 1991) on eligible expenditures of institutional strengthening and municipal investments. Aggregate expenditures for retroactive financing will not exceed US$7.5 million (10 percent of the loan amount). Documentation of Expenditures 3.15 Withdrawal applications for contracts for technical assistance will be supported by full documentation, as well as contracts valued above US$100,000 for computer equipment. Disbursement for contracts related to civil works, equipment, and materials under municipal subprojects would be made on the basis of Statements of Expenditure (SOEs) except for those requiring prior review (para. 3.12). MDA and the Project Coordinator would be responsible for preparing withdrawal applications for submission to the Bank. 3.16 Supporting documentation for SOEs would be retained by MDA and the Project Coordinator and made available for review by Bank staff. To facilitate the disbursement of funds from the Bank loan, a special account would be established in the Central Bank of Tunisia with an initial deposit of US$3 million, equivalent to an average four-month disbursement. The Central Bank will keep a separate account and documentation to support all withdrawals and replenishment of the special account. An audit of that account will be carried out by independent auditors, and a report will be submitted to the Bank within six months after the end of each fiscal year. During negotiations, agreement was reached for a special account up to US$3 million to be opened. E. Audit - Monitorina Audits 3.17 In order to establish a clean break between MDAIs old and new operations, MOI has requested the audit of the old accounts before the new accounts of MDA are established. MDA and MOI would maintain separate project accounts, each for the components under its responsibility, and would have them audited annually by independent external auditors acceptable to the Bank. The audits would include the operations of the special account and records of SOEs. In addition, MDA would have its financial statements audited annually by independent external auditors acceptable to, and under terms of reference satisfactory to, the Bank. The audit reports for all components would be submitted to the Bank annually by June 30 for the previous year. During - 27 - negotiations, agreement was reached that prior to June 30 of each year of project implementation, MOI and MDA would furnish the Bank with separate, annual project accounts audited by independent, external auditors acceptable to the Bank; and that MDA would furnish the Bank with its annual financial statements audited by independent, external auditors acceptable to the Bank, except that the audit report for MDA*s old accounts would be ready before December 31, 1992. Monitoring and Reporting 1.18 To monitor sector progress, MOI and MDA have started to develop an information system with indicators related to service coverage and to the operational and financial performance of local governments. The system would be the basis for preparing semi-annual project performance reports using agreed formats and indicators. The Project Coordinator for the project as a whole, and MDA for individual project components, would prepare semi-annual project progress reports that would describe past achievements and compare them with appraisal projections; provide a critical assessment of problems arising during project execution; and propose remedial actions in case of unsatisfactory progrbss. The December progress reports would also include, for the following year, the proposed training program and the studies (including terms of reference) to be financed under the project. The Project Coordinator and MDA would furnish the Bank the project progress reports each year by June 30 and December 31, starting in 1993. During negotiations, the format of the performance indicators shown in Annex 11 was finalized; an understanding was reached with GOT that the Project Coordinator and MDA would furnish the Bank with project progress reports, twice each year, prior to June 30 and to December 31, starting in 1993. Annual Reviews 3.19 Based on the audit and project performance reports described above, the Ministries of Plan and Interior, and MDA, would carry out with the Bank each year by November 15 formal joint reviews of progress achieved toward reaching the objectives of the project. One of the annual reviews, two or three years into project execution, would be expanded into a comprehensive mid-term review of progress in project implementation. The reviews would provide a forum to assess project issues such as the performance of project executing agencies (including the need for training and technical assistance), progress in training activities and the efficacy of the training provided, collection performance of the local taxes, the onlending terms and financial policies of MDA, and the quality of subprojects. The review would also examine improvements in the capacities of the municipalities toward their qualifying for commercial borrowing and graduation from MDA borrowing. If necessary, the reviews would lead to the formulation of plans for remedial actions. IV. PROJECT JUSTIFICATION AND RISKS A. Benefits 4.01 Economic benefits would mainly materialize in the form of increased land values in subproject areas. The provision of solid waste disposal - 28 - facilities, marketplaces, and slaughterhouses--together with sanitary precautions and sound waste disposal schemes--would help reduce the negative health and environmental impact resulting from the haphazard food processing and waste management arrangements now prevalent in many communities. Street maintenance subprojects would yield savings in vehicle operating costs, while helping to reduce congestion-related air contamination from vehicle exhaust. In addition to its impact on vehicle operating costs and land value, the paving or repair of urban streets would help reduce the production of dust particles by vehicular traffic on unpaved or broken road surfaces, with beneficial effects on air quality and health. Improving the coverage of basic services would primarily benefit low-income areas. Indirect benefits would accrue from the execution of more cost-effective projects, the improvement of management capabilities at local level, the application of more transparent service pricing, improved institutional arrangements, and human resources development. B. Economic Justification 4.02 Eligibility criteria for subprojects costing more than US$1 million would include a minimal economic and financial rate of return (ERR) and financial rate of return (FRR) of 12 percent each. During negotiations, agreement was reached that MDA would carry out a rate of return analysis for each of the subprojects costing more than US$1 million, and that it would not finance subprojects above US$1 million with an ERR or FRR below 12 percent. C. Environmental Aspects 4.03 Potential environmental problems associated with the project concern waste disposal from slaughterhouses, households, and market facilities. Accordingly, the project has been placed on environmental screening, category B. To prevent such problems, MDA would not finance any solid waste subproject, even if the sub-borrower's request is limited to the collection system, unless an environmentally sound final disposal scheme exists or is implemented under the same subproject. Similar safeguards would be built into the eligibility criteria for marketplaces and slaughterhouses currently under preparation. In addition, the project would introduce systematic analyses of infrastructure investments by MDA. The institutional strengthening elements for the municipalities and for MDA would help them to develop their capacity to do environmental screening and in pact assessments. Subloan requests for slaughterhouses, solid waste management or sewerage subprojects will include an environmental impact assessment as part of the submitted documentation as requested by Tunisian regulations. The technical staff in MDA would include an environmental specialist to coordinate and monitor the environmental assessments submitted by the municipalities and to identify potential problems at the pre-feasibility phase of subproject preparation so that the specialist can alert the municipalities to the need for careful consideration of environmental impact at project appraisal. The Environment Impact Assessment (EIA) will be further reviewed and approved by the Agency for Environmental Protection (ANPE), which by law is the national environmental agency responsible for all environment aspects. Furthermore, MDA would include in its project preparation guidelines a manual defining environmental precautions and mitigation measures to be taken in subproject execution. Internal procedures and environment guidelines for environmental - 29 - review will be developed by MDA and ANPE and would be adopted through the Operation Manual of MDA, in a manner satisfactory to the Bank before loan effectiveness (See Annex 7 for details). 4.04 In part, the project is meant to address infrastructure shortages in established settlements. It would support limited infrastructure development in areas not previously urbanized with minimal negative environmental impact. The investment subprojects in the solid waste sector would have a positive environmental impact on beneficiary municipalities and on urban agglomerations downstream of sites where discharge treatment and controls take place. D. Risks and Safequards 4.05 Improving local services and municipal management nationwide is an ambitious undertaking and will require a sustained effort in the years ahead. The project is complex, and its implementation involves a large number of agencies, many of which are institutionally weak. Risks include the possibility of: (a) inadequate project preparation capacity at the local level, resulting in slow implementation or low quality of subprojects; and (b) political pressures undermining conditionalities introduced in MDA lending. 4.06 The project would also face some financial risks because the reforms necessary to increase the resources of MDA and the municipalities may not materialize or may suffer delays. The risk that these shortages may occur and threaten the financial viability of MDA, the municipalities or both is not large because the past practice of GOT has consistently been to reduce investments in the face of scarce financial resources while ensuring timely servicing of the debt. The municipal sector has not been an exception to this conservative practice, since funds are allocated first to cover operating expenses and debt service with the remainder for investments. In addition, monitoring of the proposed financial covenants and performance indicators would provide an early warning and compliance with covenants would ensure against financial default. While compliance with financial covenants would ensure financial viability, the size of the municipal sector investment program may vary from the one anticipated. A more detailed analysis of financial risk is in Annex 6. 4.07 The project includes measures.to address these risks. While the project would help build up subproject preparation capabilities, the scale of the. project does not entail too substantial an increcse from the past municipal investments during the Seventh Economic Plan (1987-91)--that is, about US$350 million during the Seventh Plan to about US$470 million for the Eighth Plan (1992-96). To ensure adherence to onlending conditionality, the Bank would review the larger subprojects prior to approval by MDA and subloans amounting to more than US$0.5 million prior to approving disbursements. The annual review of important project issues would lead to timely plans of action to remedy identified shortcomings. Key project entities would be strengthened as part of the project and committed to achieve targets that can be monitored. Durina negotiations, a Supervision Plan (see Annex 10) was finalized. - 30 - V. KGREEEWSM RECMMEWAIONS 5.01 During negotiations, agreement was reached on the following: (a) by March 31, 1993, the Government would present to the Bank an action plan for the improvement of the local taxes, to be carried out later on, as described in para. 1.21; (b) MDA would be staffed and operate as described in para. 1.27 to 1.29, para. 3.08; (c) project objectives and description would be as stated in paras. 2.08 and 2.09; (d) the proceeds of the loan would be used to finance subprojects and project elements as described in para. 2.09, as presented in para. 3.07, as procured in para. 3.10 to 3.12 and as %Aisbursed in para. 3.13; (e) MDA would implement an accounting system (para. 1.29), maintain its financial ratios as indicated in para. 2.19 and lend to municipalities at interest rates set at 6.5 until the end of 1996 and at 8.5 thereafter (para. 2.19), according to eligibility criteria agreed with the Bank (para. 3.04, 4.02 and 4.03) which will be defined in an Operation Manual (para. 3.05). Bank review of subprojects will be as stated in para. 3.07; (f) the Government would launch a study regarding the provision of urban services and their cost recovery mechanisms by December 31, 1993 and complete it by June 30, 1995 (para. 2.20)1 (g) the Government would implement the project according to the arrangements described and in particular establish, maintain or use a Project Coordinator, a Training Directorate, and a Steering Committee as described in para. 3.08; (h) the Project Coordinator and MDA would furnish each year to the Bank details of the training program and the studies (terms of reference included) to be financed under the institutional development program (para. 3.18); (i) the Government would establish a special account in the amount of US$3 million at the Central Bank on terms and conditions acceptable to the Bank as per para. 3.16; and (j) project accounts would be set up and audited, as stated in para. 3.17. - 31 - 5.02 The conditions of effectiveness would be as followes - adoption of MDA's Operation Manual (para. 3.05); - recruitment of MDA management team (para. 1.30); - execution of subsidiary loan agreement between Government and MDA (para. 3.01); and - establishment, including issuance of decree if required, of the Training Directorate in MOI, appointment of it. Director and two other professional staff (para. 3.08). 5.03 Recommendations Subject to the above agreements, the project is suitable for a Bank loan of US$75 million equivalent to the Republic of Tunisia for a period of 17 years, including 5 years of grace, at the Bank standard variable interest rate, c:\J\tun\reportm(*-aer.bv June 9, 1992 - 32 - ANNX I Page 1 of 2 R8PUBLIC OF TUNISXA tUNICIPAL SECTOR INVSTUMENT PROJEC RESPONSIBILITIES FOR URBAN SERVICES Sharine of capacities Production of urban services involves five categories of institutionst - ministries and public administrations; - national public enterprises (national companies, agencies, offices); - regional administrations; - municipalities; and - local operators (regional transport companies, associations, local authorities). Table 1 indicates the list of local services, relevant responsibilities for their operation and the origin of funds covering the operation of each service. As to the responsibilities involved, three possibilities are described: - direct management: the responsible institution provides funds and manages the infrastructure; - mixed managements local government is the main executing agency but programming and financing of infrastructure involve another institution; - delegated management: the institution participates in the execution or in the maintenance bf infrastructure with funds provided by the executing agency, i.e. ministries or public local governments. The involvement of municipalities in urban public services is therefore restricted to construction, operation, and maintenance of refuse collection and municipal buildings, management and control of slaughterhouses and markets, household garbage collection and disposal, street lighting, execution and management of some community facilities in the areas of sports, culture, nursery schools, and some actions in the area of environment protection. Municipalities intervene competitively or jointly with ONAS in some situations such as extension of utilities in poor neighborhoods or execution of utilities in areas not covered by ONAS. -33 -ANNE Page 2 po 2 »able 1s fi»»»» 2WE. fP2 DPJn= r MfnIstrles Watiotnet Røgiont Nuncipe- Luat orgln Ag~unus a-Inis litie qperatora Of Ahic UTILITIES Nationt. ar regional refuse cotteotlon T LcaL refu~e coimstiton LT stret Light1ig LT Uter/mtbotricity/g.s User/NlT Telecomlncation's+ + User/llT sanitation UrT/T nouuehold garbbge cottation and dinpot LT Public tranportation Uffr/MT Parking + +T Fire secufty .T Primary/S.uondary uatlon JT Univrsity ~Écation Trainn .T CiJ scatized centers Distrtet hospitals MT/U Dale health facititles culturat infrastructure NT/LT Sports infrastruture T/LT Ceanity faclitlo <Yputh Øntero> .+/LT Children facilities LT/me Coastars IS Lt PthMie park , garden, beaches Li EumCIMIcICLITIEM wholale markete, wemkiy ~ t s, nuidborhood rkets, aughtmrhoe LT RMUAL ARlISMT1 nfrastructure MT Nationl adminfstrative infrastruaturø PuIlc spce pling .T Uorkø coordination MT MD DELCPIMT nousing area Uuer Indutri ara User Tourlat erema User Rehabiltatoan Uer/lI/LT Motes: Direct Mnagmfnt Deoated anagement or intervention through detgated crd+ta T: ationat txation shared anagement (joint financing) LT: Locat taxation - 34 - ANNEX 2 Page 1 of 3 REPUBLIC OF TUNISIA MuNICIPAL SECTOR !NVESUENT PROJECT LOCAL GOVERNMET ORGANIZATIONS AND THEIR SUPERVISION Local Government organizations are subject to a threefold supervision: administrative, financial and technical. A. Administrative Supervision Local Government organizations or municipalities are subject to a double administrative supervisions the central one exercised by the Ministry of Interior, and the regional one exercised by the Governorate. Central Government supervisions The Ministry of Interior. Supervision exercised by the central Government has been reduced to the benefit of the regional level. The Ministry of Interior (MOI), and particularly the General Directorate for Public Local Governments (DGCPL), remains nevertheless responsible for: - creation and suppression of municipalities; - changes in names, boundary limits, and transfer of seats; - dissolution and/or suspension of municipal council; - dismissal and/or suspension of the chairman and deputies; - arbitration of conflicts between Governor and municipal council; - approval of council's debates concerning general and some financial and economic aspects of municipalities life; - organization of municipalities' national conferences; - provision, upon their request, of official of the central Government to undertake the functions of secretary general or responsible for the technical services. Regional Government supervision: the Governor. The Main Law on Municipalities (Loi Organique des Communes) of 1975 and the Main Law No. 85-43 of April 25, 1985 modifying the Main Law on Municipalities referred to above, strengthens the authority of the governor in relation to the central Government and transfers to him the prerogatives conceded by the 1975 law to the delegates. The governor exercises administrative supervision of the municipal council, the staff and municipal services. All decisions by the municipal council need to be approved by the governor in order to be executory (art. 42 of the 1975 Main Law on Municipalities, and art. 43.45 and 46 of the amended version of the Main Law on municipalities, decree No. 85-43). - 35 - ANNEX 2 Page 2 of 3 B. Financial Supervision Reference can be made to the Main Law on Municipalities, the Main Law on Local Government Budget and the Code of Public Accounting. All important financial actions of the local governments are subject to the approval of the supervising authority. This includes important investment projects, budget approval, financial accounts, budget procedures, budiletary transfers, establishment of municipal enterprises, local public enterprises, financial participation, borrowing, and approval of local public contracts. The financial supervision authority has the power to reject, reduce, and in some instances substitute. Supervision is performed by the Ministries of Finance and of Interior for municipalities whose revenues in title I of the budget are equal or superior to 2 million dinars (i.e., municipalities of Tunis, Sfax, Sousse, Ariana, Gabbs) and for municipalities showing a deficit in the last fiscal year. Budgets for municipalities with revenues, in Title I, under 2 million dinars, are approved by the governors. C. Technical Supervision Technical supervision is complex and involves several ministries and public enterprises. Technical supervision is exercised at the central, as well as regional, level. !lannina1programminS and implementation of urban public services: The municipalities administer the traditional municipal services; e.g., municipal refuse collection, street lighting, slaughterhouses, markets, cemeteries. They also provide household garbage collection and disposal and fire protection services. With the ministries concerned, they contribute to the execution of social infrastructure. Central Government Supervision: The Central Government intervenes in the programming and social infrastructure (hospitals, universities, sport complexes) and in the execution of some public programs with national sector enterprises, snch as AFN and SNIT for land development and construction, and ARRU for rehabilitation operations. Regional Government Supervisiont The implementation of infrastructure master plans is generally executed by the Regional Services of the Ministries and national agencies concerned such as DREN, SONEDE and STEG. Some social infrastructure of local and regional importance (post offices, primary and secondary schools, basic health centers) is managed by the Regional Councils. The regional services of the concerned ministries are responsible for their programming. Municipalities are not consulted by regional services, except for sports and cultural infrastructure. - 36 - ANNEX 2 Page 3 of 3 Kanaement of Municipal Infrastructure and Services Municipalities are responsible for the maintenance of urban refuse collection, control of slaughterhouses and markets, and all works undertaken within their boundaries. Central Government Supervisions The management and maintenance of primary infrastructure and main collective infrastructure, national roads, and primary utilities are undertaken by the Ministries concerned. Regional Government Supervisions In collaboration with their respective inistries, regional services are responsible for the maintenance of national and regional roads, as well as management and maintenance of other utilitiess water, sanitation, and electricity. Construction and development permits are also issued by the regional government. DRER convenes the regional construction and housing authorization commissions, to decide on applications transmitted by the municipalities' technical services. Piqure 1: ORGANIZATIONAL CHART OF THE REGIONAL AND LOCAL AUTHORITIES Central Prime level Minister nter!or Oher Minister I""" Ministers Governor Regional General External reports to level Secretary S 1erviCes I Regional Comtityees Governorat Delegates eServices Regional Councils! Preeldent:*"Governor' Local Level Mayors Municipal Services Districts Mun/cipal Organizat;ions **** lCouncils (unions ... ) committees- 0 - + Direct authority ==+Delegation of authority --- tutelage - 37 - - 37 ANNEX 3 Page 1 of 3 REPUBLIC OF TURISIA MUNICIPAL SECTOR INVESTIENT PROJECT MUNICIPAL FINRWCB 1. Structure. Municipal financial records are organised into a standard public accounting structure (similar to the French system) that includes current revenues and current operating expenses (under Title X), and development revenues and investments (under Title II). Annual budgets constitute a fixed program of resources and expenses which can only be changed significantly by following the same procedure required for initial approval. Operating expenses make up the bulk of costs for municipal administration. Labor costs account for more than half the current expenditures. Buildings and roads comprise the majority of direct capital investments. Municipal funds that are not expended at the end of a fiscal year are transferred to an open account and used as a Reserve Fund for the development of municipal facilities and/or to cover future deficits. These reserves have grown steadily. Key principles involved in the budgeting process are that: - budgets must be balanced overall and within each Title, and - budget authority must be renewed each year for each item in the budget. Municipal budgets are thus on a cash-basis operating on an annual cycle. While this approach may be an effective means of control, it prevents many municipalities from spending even the limited amount of development funds that they have. 2. Local governments in Tunisia obtain the majority of their revenues from five basic sources. Current revenues are obtained fromt - local taxes that include tax on rental income, business tax, hotel tax and tax on undeveloped land; and - fees and service charges for slaughterhouses and markets, land transactions, buildings, rentals, services rendered, and miscellaneous. Development revenues are obtained from: - national transfers that include formula share and reserve funds; - project specific national aid from the Ministry of Youth and Sports, the Ministry of Public Works, and the Ministry of Cultural Affairs; and - loans and grants from CPSCL/MDA, and other specific grants. - 38 - Page 2 of 3 Revenues 3. Municival Fund (FCCL). The objective of the revision of the current operation of the Fund would be to improve the allocation of the transfers among different municipalities, by including explicit criteria concerning efficient distribution (based on taxes generated in each area), fair redistribution mechanism for poorer localities and the relatively higher per capita needs of larger cities. 4. Local Taxes. The new Direction G6n6rale d'Etudes et de la R6forme Fiscale is determined to have a draft law of local taxation ready and approved by the end of 1992. The mission discussed with several commission members the main principles of the proposed reforms, that should focus on a redefinition of the base of the present tax on rental income and on improved collection efficiency, as well as on higher levels of cost recovery from beneficiaries in those cases where they can be identified. Some of the present rates need to be revised, either because they are excessive (like the "taxe locative", which is a theoretical 24 percent of the imputed rental value) or too low, such as the tax on hotels, which is not subject to either the property (residential) tax nor the tax on industrial and service activities. 5. Tax on rental income ("Taxe Locative"). There seems to be a general consensus regarding the need to transform the current "taxe locative" into a less ambiguous property tax (the present definition makes it a hybrid property/residential tax) to be applied to all properties, whether used for professional, commercial, industrial, or residential purposes. This would be a clear improvement over the current situation, where the base is limited to residential properties. In the absence of a proper fiscal cadastre, the tax would continue to be based on imputed rental values. A proposal to introduce, in addition to the property tax, a residential tax reflecting the use made of municipal services on "head" basis is also under consideration, but might face reluctance because of the additional collection costs it would imply. 6. Business tax (TCL). This tax is now paid by industrialists and service providers on the basis of the turnover of the firm, and benefits the municipalities where the parent company is located, without any consideration for the location of the production units. The revised law is likely to introduce some criteria for the objective distribution of the revenues collected, to ensure that they go to the municipalities where the local serv-ic.s are used. A revision of the rates is also needed, in particular to eliminate the ceiling. There seems to be also a consensus regarding the need to raise the current ceiling for the TCL (TD 20,000 per year) to TD 50,000 per year, but it would be preferable to eliminate the ceiling altogether and introduce a scale of declining rates. 7. User fees and contributions. Ideally, the cost of providing services should be recovered from users whenever these can be easily identified. This is the case of beneficiaries of land development, for instance, or market stands, parking, and a variety of other services. In Tunisia, there is a disparity of views concerring the recovery of land development costs through special contributions froa beneficiaries, since several concerned authorities claim that no cost recovery was carried out in the past and it would therefore be unfair to residents of newly developed areas, who are likely to belong to the poorer groups. - 39 - Page 3 of 3 8. A second issue concerning user fees is the need for flexibility for the municipalities to modify the charges for services, in particular those rendered to clearly identifiable users, such as those using market facilities, parking, etc. So far all municipal taxes and fees are established by decree and are revised only rarely, which seriously reduces the buoyancy of the related income. However, there are divergent views on the constitutionality of allowing local governments to set tax rates, but the possibility to recover the cost of services rendered through freely determined user fees does not seem to pose a problem. Specific proposals concerning other potential revenue sources such as vehicle tags, additional parking, etc., are being discussed. Improved collection efficiency 9. Collection levels for local taxes are extremely low. For instance, the actual revenue from the tax on rental income amounts only to TD 3 par capita on average (2.3 excluding Tunis). The legislation allows for punitive actions to be taken in case of non payment, but the law is rarely applied for lack of material means and political willingness. All parties agree that there is room for improvement in collection, through reassignment of responsibilities among state and local collection agencies, modernization of taxpayer rolls, simplification of publication procedures, and intensification of personnel and equipment. The MSIP feasibility study has proposed concrete actions in this respect, including possibilities to make increased use of computer technologies in the preparation of taxpayers lists and in cross-referencing different taxpayer files, as well as wider use of specific collection centers for some local taxes. This is going to be reviewed and officially proposed by the Directorate of Taxes. Table 2: PLANNING OF FISCAL REFORM 1992 1993 1994 1 1995 1996 1997 C Decision for Studies for FCCL Its evolution new kinds of Implementation it eoltin distribution II New law Indirect Studies on Possible reform 1990 Decree Decree support xes effects modification Iprearation Tax on Launching Feasibility Proposal Launching rental of reform survey / Of of income committee checking adaptation reform Reform Business committee Posalble Draft Draft law o be assigned devel VerifIcation presentation and Hotel he monitoring opment survey to Taxes of possible follow-up preparation authorities modif Ications Reform committee Reflection or creation Property o be assigned of the land taxot he monitoring on non-built sites Tax of rossible modifications Studies of Needs Tax tax collection assessment Implementation Collection method and and new of new Means proposals for mtdolomeans MasImprovements Imethodology II1- - 40 - Page 1 of 18 REPUBLIC OF TUNISIA MUNICIPAL SECTOR INVESTIMNT PROJECT MUNICIPAL STAFF AND TRAINING PROGRAM A. ackground The number of civil servants in the Tunisian municipalities is not very high; the 18,000 existing positions correspond indeed to 4 civil servants for 1,000 inhabitants, compared with 18 for 1,000 inhabitants in France. Moreover, the distribution is uneven: the number of civil servants for the three largest cities amounts to over a third of the total staff. Most of the municipalities (190 with fewer than 20,000 inhabitants) have in fact very little personnel to fulfill the tasks: between 10 (fewer than 5,000 inhabitants) and 38 (10 to 20,000 inhabitants) is the average. The municipalities with fewer than 10,000 inhabitants cannot afford to appoint one civil servant at least, to each sector of activities. Moreover the distribution is unevent administrative civil servants represent 17 percent, technical civil servants 3 percent, and workers 85 percent of the total staff. The education level is generally poor; 7% only of the civil servants have a level of education corresponding to baccalaur6at, 25% have done six years of secondary school and the education level for the remaining two thirds is very limited or non-existent. This distribution translated into figures gives the following A + B (Baccalaur6at + University training) 1,200 civil servants C (high school diploma) 4,500 civil servants D + 8 (primary school) 12,500 civil servants These figures illustrate clearly one of the main difficulties encountered by most of the Tunisian municipalities: - the civil servants' level of education is generally poor, which reduces their capacities to exercise the tasks expected from them; and - the number of managerial staff is limited at the executive level as well as at the middle management level: just over 1,000 civil servants in total, most of them being in the big cities, which leaves an average of one Category A or 8 agent for the small municipalities. In short, the number of civil servants is limited, their qualifications are poor, and the number of managers is also too low; these are conditions which do, not favor the smooth running of municipal services. B. Personnel Reauirements We have seen that there are uneven situations, main municipalities - 41 - AM 4 Page 2 of 18 like Tunis having a larger nuaber of civil servants in relation to their populations, while many small municipalities are deprived. Under these conditions, strengthening of personnel should be envisaged during the coming years. Three factors justify the need for strengthening communal staff through a recruitment plan which will be executed over the yearst - quantitative and qualitative lack of adaptation of actual staff, in relation to the needs of the current organization; - foreseeable evolution of the needs due to quantitative evolution of demand (more population, more roads, more street lights); and - necessary enrichment of municipal services, thus, municipal responsibilities. Clearly, this need for strengthening is not the same for all municipalities, as their initial situation as well as their evolution are different. A few scenarios are possible: - trimming of staff, following productivity gains made possible by better management or computerization; - "remedial" recruitment allowing municipalities to address current deficiencies by means of stabilized activities; - recruitment made necessary by development of new activities or the need of higher qualifications. It is therefore necessary to proceed by steps over the period (up to 2001)s . during the first five years (1990 to 1994 included) - reassessment of the importance of management; - stable number of staff will be maintained for the other categories of staff; . during the seven following years (1995 to 2001 included) - umber of civil servants for the different categories will vary according to increase of urban population. 1990-1994 Period During this period, the number of civil servants will be increased. Its current low number represents one of the main difficulties faced by municipalities. Recruitment of civil servants is indispensable to improving the efficiency of services. Of the 1,200 A and 3 civil servants working in municipalities, 600 are located in the five groups of municipalities with a population under 100,000 inhabitants, and 600 are located in the three main cities (staxting with Tunis). In the first case, the 600 A and B civil servants supervise 12,000 civil servants belonging to the other categories, i.e. a ratio of about 5%. In the second case, the 600 A and B civil servants supervise about 5 to 6,000 civil servants from the other categories, i.e. a ratio of about 10%. - 42 - ANNX 4 Page 3 of 18 In order to improve efficiency, this supervision ratio should reach 15%, i.e. 5% of the A civil servants and 10% of the B category. On the base of the standard organisation charts proposed for each category of municipalities, it is admitted that an average municipality belonging to this category, needs to have supervisory personnel responsible for the supervision of the units showed on the chart. An assessment of the theoretical needs in supervisory staff is obtained this way for each municipality. If this assessment is extended to all municipalities belonging to this category (by multiplying volumes obtained by the number of municipalities in the category), and if this process is then extended to all categories, an assessment of the theoretical needs in supervisory staff is obtained for all categories. Staff estimates shows that, with respect to 243 municipalities with a population under 100,000 inhabitants, the number of civil servants must triple in five years (from 577 to 1,800. With respect to the three municipalities with a population over 100,000, the number of civil servants must increase from 600 to 750. Particular attention needs to be paid to this situation as data available on Tunis and Ariana are incomplete; moreover, A and B civil servants include some civil servants who do not work in the services. Staff of the other categories (C,D and 8) remain the same, with a global number of 12,000 for municipalities with less than 100,000, and about 5,000 for the main cities. 1995-2001 Period As of 1995, the number of civil servants of the different categories will vary according to the urban population increase, to take into consideration additional tasks and needs induced by this increase. The proposed rate of increase is 4 percent, which is within the range of population increase studied by the National Institution of Statistics (INS) for the urban population until 2001. At the end of the period (1995-2001), there is therefore an increase of 30% of the staffs - for categories A and B civil servants, an increase of 800 civil servants, so that the supervisory rate remains at 15%; - for the other categories (C, D, 8), an increase of 5,300 civil servants. In 2001, the total number of civil servants amounts therefore to 25,725, i.e. - 3,356 A and B civil servants - 22,371 civil servants for the other categories (C, D, 8). These estimates are reasonable as the financial situation of municipalities is unfavorable and the recruitment needs to remain compatible with the personnel expenditures within the current budget. Even if there are civil servants in the country, it will probably be difficult to make them work for municipalities. The assumptions mentioned here do not take into consideration the aging of personnel and retirements. The DGCPL study does not give data concerning age of staff, and information gathered in a few municipalities is too incomplete to draw conclusions. Table 3: ESTINATES OF NUNICIPAL STAFF EVOLUTION (1989-2001) 1989 1990 1992l 1992 19931 1994l 1995 1 1996l 1997 l 19981 1999 2000 2001 Adinistrative A 104 148 192 236 280 324 337 351 365 380 395 411 427 8 220 313 407 500 593 686 714 742 772 803 835 868 903 Technical A 94 134 174 214 253 293 305 317 330 343 357 371 386 . 159 226 294 361 429 496 516 536 558 580 603 628 653 No Grolp 577 821 1067 1311 1555 1799 1872 1946 2025 2106 2190 2278 2369 Administrative A 108 114 119 124 130 135 141 146 152 158 164 171 178 a 229 240 252 263 275 286 297 309 322 335 348 362 376 Technical A 98 103 108 112 117 122 127 132 137 143- 149 155 161 a 165 174 182 190 198 207 215 224 232 242 251 262 272 Group 1 600 631 661 689 720 750 780 811 843 878 912 950 987 Administrative A 212 262 311 360 410 459 478 497 517 538 559 582 605 8 449 553 659 763 868 972 1011 1051 1094 1138 1183 1230 1279 Technical A 192 237 282 326 370 415 432 449 467 486 506 526 547 8 324 400 476 551 627 703 731 760 790 822 854 890 925 Total 1177 1452 1728 2000 2275 2549 2652 2757 2868 2984 3102 3228 3358 Other Categories 12000 12000 12000 12000 12000 12000 12480 12979 13498 14038 14600 15184 15791 5000 5000 5000 5000 5000 5000 5200 5408 5624 5849 6083 6327 6580 17000 17000 17000 17000 17000 17000 17680 18387 19122 19887 20683 21511 22371 (D - 44 - ANNaX 4 Page 5 of 18 C. Traininag Situation Municipalities do not have (with a very few exceptions) a service or office specifically for training. Services or personnel offices are supposed to take care of training problems, but this represents a very limited aspect of their activities. Even in large municipalities, it does not appear that there are civil servants in charge of the training function in the personnel office. In fact, personnel management appears to be mainly the administrative management of personnel files, and not a real management policy and highlight of human resources, which would include an important training component. Civil servants of the services of personnel do not know what has been done in the training area, and under what conditions some training courses are organized. They have little knowledge about the training agencies, do not know exactly what their activities are, they do not have training programs but do not recognize the need for them. The financing of training is not currently provided for, but this has not presented any difficulty until now, in view of the very limited number of organized actions and of civil servants concerned. There are no payments to be made to a training organization, but there are no funds provided in the budget for training actions. The 1985 laws include the possibility of training leave for civil servants who will be authorized to pursue several months' training in order to be entitled to promotion within their category. According to the available information, the possibility exists, but appears currently very limited. As of now, ministries' schools and public enterprises' training centers are proposing actions in different fields. Nevertheless this remains occasional and does not correspond to a coherent policy related to training of municipalities' staff. In fact, DGCPL - in the Ministry of Interior (MO) whose role is particularly important in the management of municipalities' staff - is unable to play an important role irn the definition and implementation of a training policy for municipalities' staff. Its means are far too limited; within the sub- directorate for Administrative Affairs, the personnel and training service includes one service chief and four civil servants, which prevents it from assisting in the fields concerned. Despite these weaknesses, DGCPL, with the assistance of ENA and other public enterprises, has be2n able to organize training activities during the last three years: - training session organized by STG for workers and employees in charge of the maintenance of electric utilities; - seminar for civil servants responsible for town planning regulations; - training sessions organized by ENA on civil status; and - 45 - ANNEX 4 Page 6 of 18 - training sessions organised by RNA on personnel management, public markets regulations; and health control. These training activities have benefitted a total of 2,000 civil servants. Professional training (basic as well as in-service), in fact, exists for municipal civil servants, but it is still very limited and clearly insufficient to satisfy the enormous needs. D. Main Areas for Trainine in view of the initial training and professional capacities level of the civil servants and the small number of actions set up until now, the needs for continuous learning are important in all areas. It has therefore appeared necessary to review the different sectors implied in the services activities and to indicate the main areas which seen important under the current conditions. The following tables indicate the categories of staff concerned, which are essentially the tutelle, executives, middle management, administrative employees and workers. The areas shown remain general as it is not possible neither efficient to make an exhaustive list of needs, in view of the possibility to organise one or ten training sessions, with more or less detailed contents, for civil servants at different levels. - 46 - ANNEW 4 Page 7 of 18 Table 5: TRAINING IN ADMINISTRATIVE AREAS ELJ/ EX MM AE W T Civil Status: - juridical knowledge x x civil status procedures x x - elections organization (electoral code) x x - relations with public x x x - archives and maintaining of files x x Personnel Management: - preparation of management Law x x - management of files and careers x x - remuneration calculations x x - role of training officer x - training plan establishment x x x Financial Nanagement: - public accounting principles x - budget: preparation, Implementation, follow-up x x x x - accounting operations x - public utility companies (advances, revenues) x Resources Recovery: - census and updating of files x - tax assessment x - municipal projects' cost recovery (cost price, recovery management) x x x Public Services Management: * comnercial Infrastructure management (markets, commercial infrastructure) K K - public utility management techniques x x - social infrastructure management x x - small muncipality management x x - organization of services x x NisceLaneous: - - police powers of the mayor x x x - public domain occupancy authorization K x - documentary techniques x - archives K - secretarial techniques - legal department, Insurance x - initiation to computerization K K - use of existing software (payroll, accounts, taxes) x - word processing (+ micro computers) K X - public relations x K - adninistrative correspondence K - promotion of a municipality x x x - techniques for conducting meetings K - Tunisian administrative institutions X K - functioning of municipalities X K K - municipal management explained to the electorate X - process of administrative documents x x 1/ EL w Elected; EX a Executives; HM a Middle Mlanagement; AE Administrative Employees; W uWorking; T a TuteLle. - 47 - ANNEX 4 Page 8 of 18 Table St TRAINING IN TECHNICAL AREAS ELI EX M AE W T Public Health and Order: * basic knowtedge x * maintenance of roadways and sidewalks x - operation, traffic x x * road signatting x x * operation and maintenance of vehicles x x - work organization and supervision of crew x -hygiene and security x x Wagine: - organization of circuits for refuse coLtection x x X garbage processing X x * hygiene and safety x x - operation and maintenance of vehicles x x - work organization and supervision of crew x * mosquito control x x Public Lightir&, * street Lighting plans x - network maintenace x - electric signattire, x - hygiene and safety x x * relations with concess.,nerfes x x Sanitation: - alignment of sanitation plans x * maintenance of sanitation system x - hygiene and safety x x - operation and maintnance of vehicles x x Green Areas: - maintenance of existing green areas x x * pest and disease control x x * hygiene and safety x x - operation and maintenance of vehicles x x Land Use Management: * town planning x x x - preparation of town planning docunents x x x - building permits x - topography x Studies and Projects: - needs assessment and project identification x x X * project economic and financial analysis x x * project management and follow-up - management of land use planning x Uorkshops and buf iding maintenance: - motor pool management x . - stock management x x * car mechanics and electricity x K * property maintenance and management x K * renovation of ancient buildings x x - potyvalent workers x - improvement of premises (ptumbing, masonry, electricity) X * hygiene and safety x - work organization and crew supervision x 1/EL = Elected; EX a Executives; M Middle Management; AE aAdministrative Eumployees; W Working; T uTutetle. - 48 - Page 9 of 18 in addition to those needs concerning the improvement of managers and civil servants, there is another need which seems important for the future. It concerns the basic training of civil servants who will be recruited in administrative as well as technical areas. This applies to a much more limited number of persons (about a thousand over several years), but it will allow a significant strengthening of the municipal service capacities. The staff recruited will be young graduates from secondary school, with no professional experience and no particular knowledge of the municipal environment. They should receive several months training in urban matters so that they can quickly become operational. E. Trainina Proaram for the Eighth Plan (1992-96) Training is currently limited for municipal personnel, and needs are very important due to the number of civil servants concerned and the variety of actions to be organized. Under these conditions, it is essential to set the priorities to be implemented in a two-year priority program. 1) jectives - correct the most obvious deficiencies at different levels; - reach the main sectors of municipalities' intervention; - emphasize the importance of supervision; population more reduced and easier to take into account (higher level); indispensable support and relay for development of training; - increase the importance of relationships between training agencies and municipalities; - partially and gradually orient State training towards the needs of municipal civil servants. - 49 - ANNIZ 4 Page 10 of IS 2) Description of activities Activitiet Target population Duration Responsible Organism Adnnistrative Area * municipal management elected 2 days ENA - small municipatities management sec. gen. small mun. 5 days ENA - civil status agents of services 5 days ENA * personnel management heads of services 5 days ENA - accounts heads of services 5 days ENA - adinistrative reports middle management 3 days ENA - conuterization heads of services 3 days ENA * archives and docanents heads of services 5 days ENA - public relations middle management 3 days ENA - secretarial techniques executive secretary 3 days ENA Technical Area - street maintenance middle management 5 days ENIT/OFPE * household garbage middle management 5 days ENIT/OFPE * public lighting middle management 5 days ENIT/OFPE * sanitation middle management 5 days ENIT/OFPE - green spaces middle management .3 days ENIT/OFPE * property maintenance middle management 5 days ENIT/OFPE - operation and maintenance of vehicles middle management 5 days ENIT/OFPE * crew supervision middle management 5 days ENIT/OFPE - hygiene and safety middle management 2 days ENIT/OFPE - land use rights heads of services 5 days EMIT/OFPE 3) Costs Estimates Training courses All activities will be subcontracted to different schools and public enterprises (ENA, ENIT, OFPE) each in its area of competence. Costs would be negotiated with each of them. Calculations are based upon: - an average training cost of TD 35/day/trainee, costs being practically the same for all schools and public enterprises; - travelling expenses of TD 10/trainee; - accommodation expenses of TD 25/day/trainee. Except for the training of trainers, most expenses relative to this priority program will be paid in local currency. - 50 - ANNIL 4 Page 11 of 18 Training Costs Activities No. of Cost of No. of No. of Days/ Totat Trainees/ Action sessions trainees trainees Cost (TD) action Administrative Area - municipal management 30 2,100 40 1,200 84,000 - smatt municipalities 20 3,500 8 160 28,000 management - civil status 20 3.500 12 240 42,000 - personnel management 20 3,500 12 240 42,000 - Unts 20 3,500 12 240 42,000 * nistrative reports 20 3,500 12 240 42.000 * .omputerization 20 2,100 12 240 25,200 archives and documents 20 2,100 12 240 25,200 - relations with public 20 2,100 12 240 25,200 - secretarial techniques 2L 2,100 -1 2 251200 Total 210 144 3,280 10,880 380,800 Activities No. of Cost of No. of No. of Days/ Total Trainees/ Action sessions trainees trainees Cost (TD) action Technical Area - road maintenance 20 3,500 12 240 42,000 - household garbage 20 3,500 12 240 42,000 management * public lighting 20 3,500 12' 240 42,000 * sanitation 20 3,500 12 240 42,000 - green spaces 20 2,100 12 240 25,000 - property maintenance 20 3,500 12 240 42,000 - operation and 20 3,500 12 240 42,000 maintenance of vehicles - crew supervision 20 3,500 12 240 42,000 - hygiene and safety 20 1,400 12 240 16.800 * Land use rights -M 3,500 12 _IAR 42,000 Total 210 120 2,400 10,794 377,800 Total 264 5,680 21,674 760,000 Trainees supplementary expenses: Travelling expenses: 10 x 5,680 56,800 Sojourn expensess 25 x 21,674 541,850 - 51 - ANNEX4 Page 12 of 18 Training of Trainers Training of trainers is a priority action which needs to be established during project startup. One month's training in specialized foreign institutions for about 15 trainers should represent the necessary minimum. Corresponding cost is as follows: training session (25 man-month) x 4,000 TD 100,000 travel 25 x 500 12,500 daily allowance 25 x 30 x 80. 60,0 Total TD 172,000 Training of vouna graduates The priority program includes the training of about one hundred young graduates to local management. Cost estimates for this activity are based on 60 days of theoretical and practical training (on-the-job training sessions..): training 385 x 60 x 35 TD 808,500 travel 385 x TD 50/ trainee 19,250 daily allowance 385 x 25 x 60 577.500 Total 1,405,250 Summary of cost for 1992-96 oroaram: - training of municipality staff TD 1,400,000 and elected - training of trainers 172,000 - training of young graduates 1A405r250 Total TD 2,977,250 The training of young graduates would be financed solely by Government funds. The training of trainers and the retraining of municipal staff would be financed under the project. 4) Execution and Timetable One-third of these activities can reasonably be envisaged over the first two years while the remaining two-thirds would be executed over the next three years. This will depend mainly on the establishment of the training directorate and the good will of schools and public enterprises. Executing agency: MOI's training directorate, which will call on the three following entities to set up training activities and help municipalities defining their needst - ENA for administrative training - ENIT for high-level technical training - OPPE for middle-level technical training Each of these entities may call on other entities for specific - 52 - ANNEX 4 Page 13 of 18 activities. Once training units have been established, the capacity of these entities should be used in a decentralized way, ensuring that real needs of municipalities are fulfilled. F. Lonaer-tern Proaram Proposal The effect of the proposed program will be evaluated at the end of the Plan period in 1996. It is expected that a program at least equivalent to this one will be proposed and implemented for the Ninth Plan (1997-2001) - 53 - ANNEX 4 Page 14 of 18 Table 6: TECHNICAL AREAS Subject Target Population Duration Roads and Sanitation - theoretical knowledge middle managers 3/4 days - road maintenance middle managers 3/4 days - road signalling middle managers 3/4 days Public Hygiene - household garbage collection middle managers 2/3 days - garbage processing middle managers 2/3 days - mosquito control middle managers 2/3 days Environment Health - network alignment middle managers 3 days - network maintenance middle managers 3 days Public Lighting - road lighting middle managers 3/4 days - network maintenance middle managers + civil servants 3 days - electric signalling middle managers + civil servants 3 days Creen Spaces - creation and maintenance middle managers 3/5 days - product use middle managers + civil servants 3 days - infrastructure use and maintenance middle managers + agents 3 days Workshop and Buildings - facilities management responsible civil servants 5 days - stock management middle managers 5 days - mechanics, electricity concerned civil servants 5 days - building planning (plumbing) specialized workers 3/5 days - stock management and maintenance middle managers 5 days Land Use Management - planning rights service chief 3/5 days - building permit service chief 3 days - topography 5 days Studies and Projects * planning management service chief 3 days * project identification and studies service chief 3 days - project management and followup service chief 3 days Others - public markets technical executive managers 3/5 days mairtnance contracts technical executive managers 2/3 days - team management middle managers 5 days * technical reports and reviews middle managers 2 days - driving and maintenance of vehicles drivers 3/5 days * hygiene and safety middle managers 2/3 days - 54 - ANNEX 4 Page 15 of 18 Table 7: ADMINISTRATIVE AREAS Subject Target Population Duration VitaL Statistics (Etat civit) - theoretical knowledge civil servants of services 3 days - practical knoutedge civil servants of services 3 days PersonneL Management - management taw and budget forecast service chief 3 days - career management civil servants 3 days - role of training responsible and training plan training responsible (large and middle- 3/5 days size municipatities) - employment profile service responsible (large and middle- 3/5 days size municipalities) Financial Management - public accounting civil servants of service 3/5 days - accounting operations civil servants of service 3/5 days - budget diagnosis, analysis and management service chief 3 days - pubtlic utility companies responsible civil servants 2 days Adninistrative Management - fiLing techniques adweinistrative agent concerned 3/5 days - document techniques administrative agent concerned 3/5 days - insurance and ctaim service chief 3/5 days Communications - conduct of meetings executive managers 2 days - time management executive managers 2 days - administrative drafting middle managers + edninistrative civil - secretarial techniques servants 3/5 days - public relations executive managers's se:retaries 3/5 days - constituent relations managers + civil servants 3/5 days executive managers 2 days Lomputerization - introduction to computerization cfvil servants and teachers 2 days - computerization executive managers 2/3 esys - computerization and managers executive managers 2 days * existing software civil servants 3 days - wordprocessing Miscetlaneous - administrative institutions technical executive managers 2/3 days - municipalifty operation executive and middle management 2/3 days - organization of services executive managers 2/3 days - municipality management for elected officials elected 2/3 days - 55 - ANNX 4 Page 16 of 18 G. Establishment of a Training System The precise definition of a long-term program and its establishment can materialize only if a real training system is installed. This system will imply the creation of a training directorate and also different measures to be taken at the municipalities level. 1) Training Directorate The Government has decided to call on existing entities instead of creating a new structure. This implies the establishment of a light structure aimed at ensuring consistency throughout the Project. 2) Role - Coordinate the organization and implementation of priority program: . definition of actions . negotiations with training entities . management of funds . programming and follow-up of activities . assessment of training activities and possible modifications - Collaborate with training entities to adapt training activities to municipalities needs and train their trainers; - Ensure establishment and follow-up of training program for young graduates; - Provide technical assistance to municipalities (and eventually to regional structures): . establishment of training offices and strengthening of capacities for civil servants in charge of training management . selection of methods for establishment of training plans - Organize actions aimed at sensitizing elected officials and managers as to the importance of human resources, management and training on the improvement of municipalities' operation; - Define a longer-term program; - Obtain training financing. The short-term financing Ieing provided by the Project, it is necessary to establish a regular and sustained financing plan for the future, where municipalities would contribute 1 to 2% of their wage bill; - Organize distribution and complementarity of roles between training entities; - Establish "final" coordination structure. 3) Description of Activities Beginning with project startup of the Project, a training directorate should be established within the Ministry of Interior, as a link between municipalities and training entities. This training unit will call upon three entities--ENA, ENIT and OFPE--which will act on its behalf. The training directorate will have the authority to assess these entities' results, to modify the conten.s of their actions, and to require special activities from them. - 56 - ANNEX 4 Page 17 of 18 The training directorate will work jointly with the project coordinator to define the training program and budget. Funds will be managed by MDA under the authority of the training directorate. External technical assistance should be provided for the establishment and the startup of the training unit. This technical assistance should further help the unit in assessing the training entities' actions. Human Resources - head of the training unit - 2 trainers (administrative and technical) - 3 secretaries - 1 archivist Facilities - Rooms . 3 managers' offices . 3 secretaries' offices . 1 documents room . 1 meeting room - Office equipment . furniture . personal computers . copy machine . equipment for filing, archives . equipment for meeting room (video, boards, projectors) . 3 light vehicles External Technical Assistance - Training experts to facilitate project implementation - Training sessions at CNFTP (French Municipal Training Center) for trainers of the Training Unit 4) Cost Estimates (Timetable) The staff and facilities cost of the training directorate will be part of MOI's budget. The only incremental costs included in the project are as follows: - Computers TD 22,000 - Other material 55,000 - Training 46,000 - Technical assistance 82,000 TOTAL TD 205,000 5) Municipalities Level The coordination structure will have a very important role to play but municipalities must take responsibility as regard to training, particularly ins - 57 - ANNEX 4 Page 18 of 18 - selection of civil servants who will be trained; - possibilities for the civil servants to implement new knowledge and new techniques they have learned; - establishment of a service, office or agent - according to the size of the municipality - assigned to training and appearing in the organizational chart; that person's responsibility will be to sensitize elected officials, civil servants and managers on the importance of training and to make use of the existing possibilities; and - establishment of a training plan for middle and large municipalities, and a status of needs for the small municipalities which should therefore assess the situation. C:\J\tun\report\mdpsaran.1-4 - 58 - ANNEX 5 Page 1 of 7 RNPUBLIC OF TWXlISA niMPL sewCtO Inmomma PRonECT lDA ORGANIATION - DRAFT GENERM. POLICY STATfMBMW The laws now in force give the Municipal Development Agency (NDA) a vast array of attributions and a status of public, financially autonomous organisation, allowing it to become a real Fund. But practice did not allow this development. The objective of the Tunisian authorities is to make MDA more dynamic while maintaining its current status and strengthening its autonomy with respect to the central administration. This objective implies: - the establishment of a system which clearly defines the responsibilities of the central administration and MDA; - the adoption of strict procedures for project appraisal and follow- up; and - the strengthening of MDA staff and the designation of a manager experienced in financial matters and project appraisal. A. MDA. General a. Status. MDA is an administratively autonomous public organization. Its lending policy will be defined by the Ministry of Interior (MOI) in charge of its supervision. MDA has the responsibility of complying with its financial policy. b. General Objectives. MDA financially and technically supports the realization of priority objectives defined by the Government in the area of municipal development. MDA's objectives are the following: - financial assistance to municipalities, associations of municipalities, Regional Councils and related public agencies, in loans or advances for the financing of public operations; - technical assistance to municipalities to help them to identify well-conceived priority projects, assessing their technical, economic and financial feasibility and following up their execution; - with authorization of the Central Bank of Tunisia, receivivg, and managing credit lines allocated to local Government investments such as: contribution from Local Government Common Fund (FCCL); . budget transfers; credit lines from foreign lenders; - giving local governments the securities necessary to borrow from other sources than MDA and managing those credits; - 59 - ANNEX 5 Page 2 of 7 c. Fimancing Decisions. Decisions related to financing are taken at four levels with clearly defined and complementary functionst mDis - monitors the financing of FCCL contributions and MDA budget transfers; - upon NDA proposal, assesses other financing sources to lend to Local Government; - upon MDA proposal, analyzes problems susceptible to hinder the lending process in order to suggest possible solutions; - proposes transfers for each type of project and each category of municipalities, according to priorities established in the Development Plan. 2he Board: The Board is chaired by a representative from MOX designated by members who represent - MO! 2 - Ministry of Finance 2 - Ministry of Equipment & Housing 1 - Ministry of Plan 1 - Central Bank 1 - Local Government elected officials 2 The main functions of the Board are to: - assess MDA's global situation, based on a quarterly report prepared by the General Directorate, and make any decision necessary to improve its management; - establish the yearly general lending program and submit it for approval by the Ministries of Interior and Finance; - establish eligibility criteria for projects to be financed by NDA and make necessary adjustments to the list of eligible projects; - establish yearly lending schemes for each sector to be financed and each category of beneficiaries, which are submitted for approval by the Ministries of Interior and Finance; - establish NDA personnel rules and regulations and remuneration scheme; and - examine and consider loans exceeding TD 500,000. The Loan Committee. The Loan Committee is a restricted representation of the Board. It may call upon representatives from any ministry or organization it deems necessary. The Loan Committee is authorized by the Board to examine and approve loans not exceeding TD 500,000 within the yearly general program; the projects submitted to the Loan Comittee's approval are first assessed by MDA as well as their eligibility and approval criteria. Appraisal ruports are sent with two weeks in advance to the Loan Committee, together with the meeting date. The Credit Committee meeting is confirmed by a report approved by all members. - 60 - ANEX 5 Page 3 of 7 MDA General Directorate. The MDA General Director exercises managemeat functions as described in the internal rules and regulations. In addition, he has three specific responsibilitiess - preliminary assessment of projects and recommendation as to their future; - final assessment of projects and recommendation submitted to the Loan Committee or the Board with respect to projects exceeding TD 150,000; - decision with respect to loans under TD 150,000. For projects supported by Ministry of Interior or technical Ministries, decision is final only after written notification of the approval of the loan has been presented. d. HDA Financial Policy and Fiscal Status. MDA financial policy aims at maintaining a positive stable margin between average income from outstanding loans and average cost of its borrowing and other resources. This margin must allow for increasing surpluses in order to constitute appropriate loan loss provisions. MDA management establishes yearly financial statements and submits them for external audit before presentation to the Board and main lenders within the first four months following the end of the fiscal year. Accounting follows the rules applicable to commercial enterprises. Lending operations procedures follow strict rules and regulations approved by the Board. Leading conditions establish grace periods, limits of loan amounts in absolute values with respect to resources of borrowers. Loans approved by HDA must not exceed 15 years, with a two-year grace. In order to limit lending costs, MDA should be tax exempt and its contracts and official documents should also be exempt from stamp duty and registration fees. B. HDA INTERAL ORGANIZATIOW The MDA General Manager, with expertise in financial matters and project appraisal, must have 15 years' professional experience. He will set up an efficient and balanced internal organization and recruit skilled personnel. In the first phase, MDA should have a staff of about 15, including the General Manager, divided in four departments: - a General Secretariat; - a Loan Directorate, responsible for pre-appraisal and appraisal of projects to be financed, follow-up, and approval of bids; - a Financial Directorate, responsible for funding, preparation of a yearly loan program, and accounts management; and - a Studies Directorate in charge of project supervision, support to municipalities and follow-up of studies financed by MDA. - 61 - Page 4 of 7 The organization and tasks of these Directorates are as followst a. Loan Directorate This Directorate would consolidate MDA's key functions, i.e., appraisal and follow-up of projects to be financed. There will be a financial and technical staff, so that the assessment will closely integrate the technical, econor.ic, and financial aspects of the project. The Technical Division would be composed of an Assessment Service and a Follow-up Service. Appraisal Service. Its tasks would be: 1. Analysis of the project's different aspects: - justification in light of municipality priorities; - project size, according to needs; - execution and management conditions; - financial results and conformity to HDA approval criteria; - economic impact of project; - municipality's financial situation and borrowing capacity; and - project impact on local finances. 2. Updating of ratios, and project approval and eligibility criteria. 3. Participation in project follow-up and supervision. 4. Participation in Credit Committee meetings. 5. Participation in definition of sector studies or identification studies to be launched by the Studies Directorate. Follow-up service. It will be responsible for the follow-up of projects' legal, technical, and financial aspects. Its tasks would be: 1. informing borrowers of decisions on loan approval. If a loan is granted, a letter should include the loan proposal and its modalities; 2. preparing the loan agreement and its annexes, particularly the conditions; 3. preparing and circulating documents informing HDA's other Services that loan agreement has become effective; 4. monitoring of project startup in conformity with forecast, particularly previous analysis of bid and detailed documents and choice of contractors and enterprises; 5. at first disbursement, ensuring that documents are in order legally: e.g., contract signed and approved, conditions for effectiveness, work and/or public works contracts, being fulfilled; - 62 - ANNEX 5 Page 5 of 7 6. at first disbursement, ensuring that work and/or supplies contracts will technically allow project realization and achievement under the best conditions in terms of cost, guarantees, and deadlines; 7. monitoring conformity of supporting documents and updating disbursement schedule; 8. if conditions for effectiveness are satisfactory, informing the commercial bank of decision made to establish administrative documents for payment; 9. preparing and circulating documents to inform other Services and the commercial bank of actual disbursements; . 10. with respect to further disbursements, reviewing supporting documents and eventual technical monitoring of work progress; 11. at last disbursement, reviewing all project aspects retrospectively, i.e., legal, technical, and financial. b. Financial Directorate This directorate is composed of two Services: Financial Management Service and Accounting Service. Financial Management Service The purpose of this activity is the best possible management of KDA financial resources. It would include the following operationst 1. preparation of financial forecasts; 2. follow-up of accounts, short-term forecasts for resources and their use; 3. management of the treasury; 4. follow-up of loans, preparati4n of provisions to be made; 5. follow-up of management of loa, recovery; 6. follow-up of treasury operations; 7. preparation of MDA annual budget. Accouting Service This Service would be responsible for MDA general cost, and commitment accounting and budget follow-up. General Accounting - controlling of accounting documents - reporting of accounting documents - statements of HDA current account - statements of monthly balance - statements of monthly accounts - controlling oi inventories - preparation of balance sheets and social accounts - 63 - Page 6 of 7 Cmmitment Accounting - controlling of accounting documents - reporting of accounting documents - statements of monthly balance Budget - preparation of operation and investment budgets - follow-up execution of these budgets - maintaining of budget account - establishment and circulation of monthly statements outlining budget situation to General Management and Financial Management Service - inventory of furniture and equipment c. Studies Directorate The Studies Directorate has four main functionst - supervision of MDA-financed projects to make recommendations and necessary amendments in case of important deviations from forecast, and draw lessons for appraisal of future projects; - realization of studies to update project eligibility and approval criteria; - undertaking or following up economic and sector studies to help project identification; - assistance to municipalities for preparation of terms of reference or launching of identification studiam or preparation of projects and follow-up of studies carried out by municipalities with advance funds granted by MDA. d. General Secretariat Its functions ares - MDA personnel managements recruitment, training, holidays, and salaries; - purchase of necessary equipment, materials, and supplies; - reception and distribution of mail; - any other services required to ensure smooth functioning of HDA activities. e. Personnel Reauirements A minimum of 15 staff members are required - 1 Director General - 1 Loan Director, assisted by 2 Service Chiefs, these being assisted by 2 assistants - 1 Financial Director assisted by 2 Service Chiefs - 64 - ANNEX.5 Page 7 of 7 - 1 Study Director assisted by 2 study engineers - 1 Secretary General This means five higher-level staff members with a miniaus of ten years' experience, six higher-level staff members with confirmed technical and financial training and five years' experience, and four assistants with two years' university. The needs in personnel with two years of university are seven assistants (Baccalaureate + 2 years) and fi7e secretaries. Fiqure 2: ORGANIZATIONAL CHART OF MDA BOARD OF DIRECTORS Loan Committee 7Gnea Manager Loan Finance Studies Administ. Department Department Department Support Unit Appraisal Finance Project Service -Service -Monitoring Follow Accounting Municipal up Service -Service -Assistance c:1J\tun\reportlsdp&er.an - 65 - REPUBLIC OF TURIS&IA MNICIPAL SECTOR INVESTMENT PROJECT Pag 1 of 17 FINANCIAL PROJECTIONS WUNICIPAL FINANCE8 f1987-2001) <in mittna of 1/1/92 TD) TOTAM 1992- 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 1996 . ....... ...........• •.... .... .... ....•....> Fiscal revamf..: Taxe locative 14.5 13.7 14.8 16.0 17.3 18.6 20.1 21.7 23.4 25.3 27.3 86.8 tCL - 10.4 9.1 9.6 10.0 10.5 11.1 11.6 12.2 12.8 13.4 14.1 52.8 iN 4.5 5.5 5.9 6.3 6.7 7.2 7.7 8.3 8.8 9.5 10.1 33.8 Others 0.9 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Total fiscal r*vnuss 30.3 28.3 30.3 32.3 34.5 36.9 39.4 4.3 45.0 48.2 51.5 173.4 FCCL 50.8 53.8 61.9 67.2 72.9 79.1 5.8 93.1 101.0 109.6 118.9 366.9 Taxes 22.9 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Rvesam an chargs 12.9 22.5 24.1 25.8 37.6 29.5 31.6 33.8 37.1 40.9 44.9 138.6 Others 7.7 19.6 21.0 22.4 24.0 25.7 27.5 29.4 32.4 35.6 39.2 120.6 Current rmvumes Titt* 1 124.6 124.2 137.3 147.7 159.0 171.2 184.3 198.5 215.6 234.3 254.6 799.5 Exp~nss Titt* I: söterfie 55.7 59.6 63.7 68.2 73.0 78.1 83.5 89.3 95.6 102.3 109.5 366.5 other prating exp~nes 45.0 48.1 51.5 55.1 59.0 63.1 67.5 72.2 77.3 82.7 88.5 296.2 internt expenses * 2.6 3.0 0.0 4.2 6.3 7.7 8.8 9.7 11.1 12.5 13.9 27.0 Expwe Titta 1 103.3 110.7 115.2 127.5 138.3 148.9 159.8 171.3 184.0 197.5 211.8 689.7 Grass Internatty genertad fda 21.3 13.5 22.1 20.2 20.7 22.3 24.5 27.2 31.6 36.8 42.7 109.8 Lass toan repayment " 5.7 2.9 0.0 6.1 8.0 11.1 13.6 16.0 18.4 19.9 21.2 38.8 det internatty generated funds 15.6 10.6 22.1 14.1 12.7 11.2 10.9 11.2 13.2 16.9 21.5 71.0 Borrowings *- 14.5 15.8 26.1 39.9 29.1 27.8 25.6 26.9 28.2 29.6 31.1 148.5 Govrmet contrfhutions to invstuffts "" 12.0 14.0 7.4 20.1 24.8 21.8 20.8 21.6 22.5 23.4 24.3 94.9 FRCL 6.2 6.5 7.2 7.7 8.1 8.6 9.2 9.7 10.2 10.8 11.4 40.8 Rense 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 others (P4ES8C 0.0 0.0 8.9 17.7 20.0 13.7 9.6 10.0 10.4 10.8 11.3 69.9 Total rources 48.3 46.9 71.7 99.5 94.7 83.1 76.1 79.4 84.5 91.5 99.6 425.1 Lass: nat savinl,ino.Re 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 ItvesiGents 48.3 46.9 71.7 99.5 94.7 83.1 76.1 79.4 84.5 91.5 99.6 425.1 Rvue an chargs ~s of Expo titt 1 12.5 20.3 20.9 20.2 20.0 19.8 19.8 19.7 20.2 20.7 21.2 20.1 ~eveu an char.s as % of Investments 26.7 48.0 33.6 25.9 29.1 35.5 41.5 42.5 43.9 44.7 45.1 32.6 Dat service coverage ratto <t~aas) 2.9 2.8 Nu 2.4 1.9 1.6 1.5 1.4 1.4 1.5 1.6 1.7 Financing pattern <: salf-finning 32.3 22.6 30.8 14.2 13.4 13.5 14.3 14.1 15.6 18.5 21.6 16.7 sorrouing 30.0 33.7 36.4 40.1 30.7 33.5 33.6 33.9 33.4 32.3 31.2 34.9 Overmeant 37.7 43.7 32.8 45.7 55.9 53.1 52.0 52.0 51.0 49.2 47.2 48.4 1rwetmets 100.0 100.0 199.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 • Sea pag. 4. ltm Intrest an tons and an CPRC tons *o ~c tnt fme. fIn tost versin figur~ should b Identicall. $ mo. page 5, fItem Loan feuovery ud CL ton rcvery. (ffigures shld tch In test versan se pag 5. Itam Lon. 0lurs. Whould mch In tost vrsolnl « See pag 5, Item Gvrnmnt transfeor. (Figur^s shutd mtch In tut vrstng 31-iay-92 - 66 - ANNEX 6 Page 2 of 17 Municipal Finances 1987-2001 Assumptions Used for Preparing Financial Proiections The following assumptions were used to prepare the forecast finances (1992- 2000) of the Tunisian municipal sector. 1. "Taxe Locative" Doubling of the yield over approximately eight years taking into account the evolution of the tax base. 2. EgZ Conservative growth at about 5 percent per annum based on the TCL*s link with public revenue. 3. "Taxe H8telibre" (THI Almost doubling of TH's yield over a ten-year period taking account of the planned doubling of hotel capacity by the year 2000. TAXATIOl 4. EGCL Allocation of FCCL's funds, after 1996, would be made entirely to municipal sector. Annual growth factor is estimated at about 8.5 percent. 5. Revenue on charges and others Conservative growth assumption at 7 percent p.a. due to the modification of taxes and fees as well as to the future contribution of the revenue- earning projects. EXPENDITURES 7. Salaries Taking into account the hiring needs spelled out in the Feasibility Study. 8. Other operatina expenditures Taking account of the needs following the analysis of the Feasibility Study. 9. Interest expenses The interest on past loans are calculated on the amortization tables up to 1989, and a gross estimation for 1990 and 1991. For new loans, a valuation - 67 - ANNEX 6 Page 3 of 17 is based on the new conditions of the proposed credit for MDA, namely (i) rates of 6.5 percent (1993-96), and 8.5 percent (1997-2000) for 10-year and 15-year loans, and (ii) rates of 4.0 percent (1993-96) and 6.0 percent (1997-2000) for vehicles and equipment (7-year loans) financed under supplier credits. 10. Loan reayments same as 9 above, calculated in constant annuity. 11. Borrowings A 65 percent increase in 1992 followed by a 50 percent increase in 1993 due to new com.ng foreign loans and then a gradual decrease over the rest of the Eighth Plan (1992-96) for a total of TD 148.5 million. 12. Government direct and indirect contribution to investments Consist of Government transfers through MDA, FCCL and others; they are estimated to hover between TD 40 million and TD 50 million per year (except for 1992 - TD 23 million) through the whole Eighth Plan, with a total contribution of TD 205 million. 13. Reserves Changes in reserves have been assumed to remain at zero. 14. Investments Steep annual increases in 1992 and 1993 when it will reach TD 99.5 million, and then slight decreases for the rest of the Eighth Plan to ensure the PIC goal of approximately TD 425 million. 382 Forecast Income Statements 1993-2001 383 (in thousand 111192 TD) 384 385 Revenue 387 Interest on loans 1,492 3,770 5.318 6.615 7.645 9.238 10.799 12.323 57.201 388 Interest on CPSCL loans (1992) 2,579 2,402 2,231 2.066 1,907 1.754 1,607 1,466 16,015 389 Commitment fee 150 109 104 96 101 106 111 117 893 390 interest on short-term Inv. 49 222 452 731 769 727 671 592 4,215 391 Total revenue 4,270 6,504 8,106 9,509 10,422 11,826 13,189 14,498 78,323 392 Expenses 393 Financial expenses: 394 *Interest on borrowings 1,291 2,963 4,558 8,292 7,393 7,828 8,007 8,018 46,447 395 Commitmint lee 483 354 210 69 233 143 75 23 1,589 396 Tol financial expenses 1,774 3,317 4,866 6.362 7.626 7,970 8.082 8,039 48.036 397 Net francial ncome 2,496 3,187 3,240 3,147 2,796 3,855 5,107 6,459 30,287 396 General expenses: 399 *Slaies 331 461 522 522 522 522 522 522 3,924 400 -Ban*ng srvies 74 85 93 99 105 110 115 120 800 401 "Other geera expenses 165 231 261 261 261 261 261 261 1,962 402 *Losses on studies 120 87 83 77 81 85 89 93 715 403 Tot. general expenses 690 864 960 959 968 977 986 996 7.401 0 404 Depreciation charge 50 50 50 80 50 30 30 30 370 a 405 Loan loss provision 149 170 187 199 209 219 229 239 1,601 406 Total expenses 2,663 4,401 6,063 7,599 8,854 9,197 9,328 9,304 57,408 407 Net Income 1,607 2.103 2,043 1,910 1.568 2,629 3,861 5,194 20,916 408 409 RATIMS 410 Revenue on average tot. assets (i) 3.22% 4.01% 4.38% 4.65% 4.76% 5.16% 5.55% 5.90% 411 Expenses on average tot. assets J%) 2.01% 2.71% 3.28% 3.72% 4.04% 4.02% 3.93% 3.78% 412 Margin (%) 1.21% 1.30% 1.10% 0.93% 0.72% 1.15% 1.63% 2.11% 413 Revenue as % of average equIty 4.17% 6.23% 7.74% 9.19% 9.87% 10.49% 10.88% 11.03% 414 Net financial Inc. as % of avrge equity 2.44% 3.05% 3.09% 3.04% 2.65% 3.42% 4.21% 4.91% 415 Net income as % of average equity 1.57% 2.01% 1.95% 1.85% 1.49% 2.33% 3.19% 3.95% 418 Net Income as% of average assets 1.21% 1.30% 1.10% 0.93% 0.72% 1.15% 1.63% 2.11% O 422 Forecast Sources and Uses of Funds 1993-2001 423 (in thousand 1/1/92 TD) 424 425 426 Sources 427 Net Income+ Non-Cash Charge 1,806 2.323 2,280 2.188 1,828 2.878 4.121 5,463 22.887 428 +Fkancdaepenss 1,774 3,317 4,866 6,362 7.626 7,970 8.082 8,039 48,036 429 Gross Internal Cash Generation 3.580 5,840 7,146 8.550 9.454 10.848 12.203 13,502 70.922 430 -N*Ikg cataneeds 99 143 137 125 106 29 10 -3 647 431 -Debt svtice: 'Pr*W 0 0 1.471 2,721 8,971 8,971 8,971 8,971 40,074 432 dInterest 1.291 2,963 4.656 6,292 7,393 7,828 8,007 8,016 46,447 433 'conmllnMent ee 483 354 210 69 233 143 75 23 1,589 434 *Loanrecovery 91 2.244 5,535 8,166 10,830 13,380 15,107 16,559 71,912 435 +CPSCL bar coveiy 6,000 5,800 5,600 5,400 5,200 5,000 4,800 4,600 42,400 436 Net Internal Cash Generation 7,798 10.223 11,807 12.909 8.781 12,258 15.047 17.655 96,478 437 Short-term resources -220 990 4,443 9.045 14,628 15,377 14,539 13.423 438 Govenment transfers 12.700 14,200 8,300 4,300 13.000 13,000 13,000 13.000 91,500 439 FCOCL 8.611 9.730 10,995 12,424 13,480 14,626 15,869 17.218 102,953 440 LT. debts 32,200 23,200 23.100 22,500 0 0 0 0 101,000 441 Future LT. debts 0 0 0 0 14,000 10.000 8.000 6,000 38,000 442 Total Sources 61,090 58,343 58,645 61,178 63,889 65,261 56,455 67,296 502,156 443 Uses 'o 444 Loans 39,900 29.100 27,800 25,600 26.880 2R,224 29,635 31,117 238.256 1 445 Government transfers 20.100 24.800 21,800 20,800 21,632 22,497 23.397 24,333 179.360 446 Fixed assets 100 0 0 150 0 0 0 0 250 447 Short-term Investments (borrowings) 990 4.443 9,045 14.628 15,377 14.539 13,423 11.846 448 Total Usee 61,090 58,343 58,645 61,178 63,889 65,261 66,455 67,296 F02,156 449 450 RAMOS 451 Debt servcov.without loan recovery 2.02 1.70 1.13 0.94 0.57 0.64 0.72 0.79 0.80 452 Debt sev.cov.with loan recovery 5.45 4.13 2.88 2.44 1.54 1.73 1.88 2.04 2.10 453 Loan Fkmncing Pattern LN): 454 Not Internal cash generation 19.54% 35.13% 42.47% 50.43% 32.67% 43.43% 50.77% 56.74% 40.49% 455 FCCL + Net govement transfer 3.04% -2.99% -9.01% -15.92% 18.04% 18.17% 18.46% 18.91% 6.33% 456 LT debts (present & future) 80.70% 79.73% 83.09% 87.89% 52.08% 35.43% 28.99% 19.28% 58.34% 457 Short-term Investments -3.03% -11.87% -16.55% -21.81% -2.79% 2.97% 3.77% 5.07% -4.97% O 0 458 Total loans 100% 100% 100% 101% 100% 100% 100% 100% 100% 0 o- 463 Forecast Balance sheets 1993-2001 464 (in thousand 111192 TD) 465 466 467 Assets 468 Fixed assets: 469 'Grmss fixed assets 250 250 250 400 400 400 400 400 470 'Cumumltve depreciation 00 130 180 260 310 340 370 400 471 Total not fixed assets 170 120 70 140 90 60 30 0 472 LT. assets 473 *Los 65,909 92,765 115,030 132,465 148,514 163,358 177,887 192,444 474 *CPSCL Amns 82978 77,178 71,578 66,178 60,978 55,978 51,178 46,578 475 'Loan bapmvisbn -264 -434 -621 -819 -1,029 -1,248 -1,477 -1,716 476 Total LT. assets 148,623 160,509 185,988 197.823 208,464 218.088 227,587 237.306 477 Current assets: 478 'Cash 205 348 486 610 716 746 756 753 479 *Short-term invetments 990 4,443 9,045 14,628 15,377 14,539 13,423 11,846 480 Total current assets 1.195 4,791 9.530 15,238 18,093 15,285 14.179 12,599 481 Total Assets 149,987 174,420 195,586 213,201 224,647 233,433 241,796 249,905 482 Equity ad Uatlties 483 Equity 484 *CPSCL trnr 88,978 88,978 88,978 88,978 88,978 88,978 88,978 88,978 485 FCL 16,231 25,961 36,956 49,380 62,860 77,486 93,355 110,573 486 Net government transfer 4,600 -14,200 -27,700 -44,200 -52,832 -62,329 -72,726 -84,060 487 'Accumulated profits 2,178 4,281 6,325 8,234 9,802 12,431 16,293 21,487 488 Total equity 103,787 105,020 104,559 102,392 108,809 116,566 125,899 136,978 489 LT. debts 46.200 69,400 91,029 110,809 115,838 118,868 115,897 112,926 490 Total EquIty and Liabilities 149,987 174,420 195,588 213,201 224,647 233,433 241,796 249,905 491 492 RATIOS: 493 Asset compositIon (%): 494 -Loans 99.09% 97.18% 95.09% 92.79% 92.80% 93.43% 94.12% 94.96% 495 -Liquidity 0.80% 2.75% 4.87% 7.15% 7.16% 6.55% 5.86% 5.04% 496 Debt/Equity 30.80% 39.79% 46.54% 51.97% 51.58% 50.060 47.93% 45.19% 497 498 LOANS 499 New loans 39,900 29,100 27,800 25,600 26,880 28,224 29,635 31,117 500 Cumulative new loans6,000 95,100 122,900 148,500 175,380 203,604 233,239 264,356 z 501 New loan recovery 91 2,335 7,870 16,035 26,866 40,246 55,353 71,912 502 New loans not of recovery 65,909 92,765 115,030 132,465 148,514 163,358 177,887 192444 503 Total outBtandia lans year-end 148,887 169,943 186,608 198,643 209,492 219336 229,065 239,022 - 71 - ANNEX 6 Page 7 of 17 Municipal Development Agency (MDA) Assumptions Used for Preparing Financial Projections The financial projections were prepared in constant 1992 Tunisian dinars, at the exchange rate of US$1 = TD .92. INCOME STATEMENTS 1. Revenues (a) Interest on loans: calculated mid-year at the following rates and weights: Loan Years to Years Interest Weight Interest Weight type maturity grace rate (%) rate (%) period 93-96 97-2000 I 7 2 4.0% 17.0% 6.0% 17.0% II 10 2 6.5% 15.0% 8.5% 15.0% III 15 2 6.5% 60.0% 8.5% 68.0% IV1 20 1 2.0% 8.0% - - Interest on CPSCL loans: estimated at 3 percent. The weights reflect the proportion of each loan type expected to be made. (b) Commitment fee: calculated at mid-year at 0.75 percent on undisbursed loan amounts. (c) Interest on short-term investment: reflects interest earned on excess liquidity invested at an estimated rate of 5 percent. When negative, reflects interest paid on short-term borrowings. 2. Expenses (a) Financial expenses: interest on borrowings and their commitment fees. Borrowings include: (i) the proposed US$72 million IBRD loan expected to be disbursed over the period 1992-1996, at an estimated 8.5 percent for a 17-year period including 5 years of grace; (ii) a US$10 million loan following the same conditions and characteristics 1/ Represents previous comitment of CPSCL for 1992. - 72 - ANNEX 6 Page 8 of 17 as IBRD loan; (iii) a US$16 million Islamic Development Bank (BID) loan expected to be disbursed over the period 1993-96 at 2 percent for a 15-year period including 3 years of grace; and (iv) a US$27 million suppliers credit at 2 percent interest for a 20-year period including 3 years of grace expected to be disbursed over a 2-year period (1992-93). Future borrowings expected to be needed starting in 1997, were assumed to be obtained at IBRD terms for an amount of US$41 million. (b) General exoensess Salaries have beer calculated per year on the following basess 1993 1994 1995 1996 1997 1998 1999 2000 2 General Secretariat 5 5 5 5 5 5 5 5 5 Loan Department 8 15 19 19 19 19 19 19 19 Studies 6 8 10 10 10 10 10 10 10 Financial Dept. 8 13 14 14 14 14 14 14 14 Others 11 12 12 12 12 12 12 12 12 m.................I...... Mwn..jWIM 9 I Avg. annual per 8.7 8.7 8.7 8.7 8.7 8.7 8.7 8.7 8.7 capita cost (TD 000) Total cost (TD 000) 296 435 487 487 487 487 487 487 487 # of projects/ 10 11 12 12 12 12 12 12 12 /loan dpt. staff/year Bankina Services were calculated at 0.5 per thousand of outstanding loans at year-end. Others, which include utility expenses, were estimated at 50 percent of salaries. (c) Losses on studies were estimated at 3 per thousand of new loans. (d) Depreciation charoes were estimated at 20 percent of year-end gross fixed assets. (e) Loans lose provision was estimated at 1 per thousand of outstanding loans at year-end. SOURC AND APPLICATION OF FUNDS 3. Sources (a) Debt Service requirement was estimated as per the borrowings under para 2.(a) above. - 73 - ANNEX 6 Page 9 of 17 (b) Loan renapment was estimated as per the table under para 1. (a) above for new loans plus CPSCL's estimated repayment schedule. (c) PCCL contributiongs total FCCL funds would grow at 8.5 percent per annum; however, FCCL allocations to the MDA is expected to grow at an annual factor of 13 percent during the Eight Plan (1992-96) and then at an annual factor of 8.5 percent. (d) Government transfers: Direct transfers from the Government to MDA expected to be at the level of TD 50 million for the Eighth Plan (1992-96) and TD 65 million for the Ninth Plan. (e) Long-Term Debt: according to the borrowings under para 2. (a) above. 4. uae (a) Loans: the PIC is estimated at TD 425 million for some 745 projects, which is an average project size of TD 570,000. The loan amounts shown in the Sources and Uses of Funds statements correspond to disbursements on loans. Disbursements on approved loans are expected to take place over some times while some will be disbursed quickly during, say, one year, a few bigger loans may take as long as four years. However, it has been assumed that as disbursements on new loans pick up speed, disbursements on old CPSCL loans will compensate for those slow disbursements in the first few years of operation of MDA. (b) Government transfers: Transfers from MDA to the municipalities expected to be at the the level of TD 94 million for the Eighth Plan and to grow at an annual factor of 4 percent during the Ninth Plan. (c) Short-Term Investments - Total sources - loans - MDA transfers to the municipalities. It is expected that of the funds made available to MDA in the first years of its operations, a portion will not be allocated to loans to municipalities as the MDA builds up a portfolio of loans and as it acquires experience. 5. palance Sheets (a) CPSCL loans at year-end 1992 have been estimated at TD 88,970,000. This amount has been considered as the initial equity of the MDA. (b) Cash balances were calculated at one month of financial expenses and one month of general expenses. - 74 - ANNEX 6 Page 10 of 17 Municipalities and Municival Develorment Aaencv Financial Risk Analysis 1. MDA and the municipal4ties would be subject to some financial risks that can be conceptualized in relation to size and mode of operations and to deviations from the assumptions used in assessing their financial viability. 2. The size of operations may differ from the one that has been anticipated as a result of delayed project implementation or decreases in the availability of FCCL and other Government transfers to both MDA and the municipalities. Those variations would, under ceteris paribus conditions, increase the commitment fees on MDA's borrowings and reduce MDA's loans and would also result in a lower level of municipal investments than anticipated. 3. The deviations from the assumptions used in preparing financial projections that may impair MDA's or the municipalities' financial viability ares reduced municipal revenues as a consequence of reduced amounts of cost recovery from investments, reduced MDA revenues resulting from charging lower loan rates than anticipated, or higher than expected operating costs. Higher operating costs may result, for example, from a longer start-up period of MDA operations requiring the assistance of consultants. Deviations from the assumptions can also come from lower government contribution to investments or lower borrowings than anticipated, or both. 4. To test the robustness of the financial projections and of the proposed covenants, the projections for the period 1993-2000 were subjected to strain under the following simulations: Case 1: Reduced Government direct and indirect transfers. This simulation examines MDA and the municipalities' behavior assuming that FCCL and Government transfer amounts would increase by only one-half the estimated amounts in the financial projections presented in the preceding pages, or the base case. Case 2: Reduced municipal revenues. This simulation examines the behavior of municipal- finances under the assumption of no increases in their revenues on account of direct cost recovery (revenue on charges). Case 3: Reduced MDA revenues vs. reduced municipal exoenditures. In this simulation, the current average loan interest charge of about 3 percent is maintained until 1997 when it will reach 5 percent. The impact of this assumption on both MDA and municipal finances is reviewed. Case 4: Higher operating costs. This simulation looks into the effects that increases in operating costs of the municipalities (by 10 percent) and of the MDA (by 200 percent) would have on their respective finances. Case 5: Reduced borrowings and lending Proqram. This case presents the effects of a reduction of MDA borrowings by 20 percent resulting in a decrease of its lending program to the municipalities by 25 percent . The impact of the changes on the financial viability of both MDA and the municipalities are examined. - 75 - ANNEX._6 Page 11 of 17 Case 6: Reduced Government transfers (case 11 and reduced borrowinas Lease 1l: This case presents the simultaneous effects ofs (a) reduced Government direct and indirect transfers to both MDA and the municipalities, and (b) reduced borrowing and lending program for MDA and thus borrowings from the municipalities. This case may be more realistic than the base case; although it is less ambitious in terms of a municipal investment program, it is more financially sound. 5. The criteria used to evaluate the effects of the above simulations consist of the following indicators: For municipalities - financing pattern (percentage of investments) - debt service coverage ratio - revenue on charges as percentage of expenses title 12 and investment costs. Por MDA - financing pattern (percentage of loans) - debt service coverage ratio (without and with loan recovery) - revenue and expenses on average total assets and their differential (margin) - net income as percentage of both average total assets and average equity - debt/equity ratio I/ Title 1: recurrent expenditures Including salaries, other operating costs and interest rates. - 76 - ANNEX 6 Page 12 of 17 6. The results of the simulations are as follows: Case 1: Reduced Government direct and indirect transfers 506 CASE 1 507 Parameters: 508 FCCLbasecase: 8,611 9,730 10,995 12.424 13,480 14.626 16,869 17.218 102.953 609 raise (%) base case: 13.01% 13.00% 13.00% 13.00% 8.50% 8.50% 8.50% 8.50% 610 raise (%) case 1: 6.50% 6.50% 6.50% 6.50% 4.25% 4.25% 4.25% 4.25% 511 FCCLcasel: 8.116 8.643 9,205 0.803 10.219 10,654 11,107 11,579 79,324 512 Govt transfers source (base case) 12,700 14,200 8,300 4,300 13.000 13.000 13.000 13,000 91,500 513 raise (%) base case: 13.39% 11.81% -41.55% .48.19% 202.33% 0.00% 0.00% 0.00% 514 raise (%) case 1: 6.70% 5.91% -83.10% -96.39% 101.16% 0.00% 0.00% 0.00% 515 Government transfers source (case 1) 11.950 12.656 2,139 77 156 156 156 156 27.444 516 Govrmnt transfers use (base case) 20.100 24.800 21,800 20.800 21,632 22.497 23,397 24,333 179.360 517 raise (%) base case: 171.62% 23.38% -12.10% -4.69% 4.00% 4.00% 4.00% 4.00% 618 raise (%) case 1: 85.81% 11.69% -24.19% -9.17% 2.00% 2.00% 2.00% 2.00% 519 Government transfers use (case 1) 13,750 15,358 11.642 10.574 10,785 11.001 11,221 11.448 95,777 520 Control vaiab: 521 Flnancing pattern: 522 Net Int. cash genert. 20.22% 37.34% 45.32% 54.37% 35.60% 45.37% 51.76% 56.78% 42.32% 523 FOL + Not goarnment transfer 15.83% 20.42% -1.07% -2.71% -1.53% -0.68% 0.14% 0.93% 4.61% 624 LT. debts (present & future) 80.70% 79.73% 83.09% 87.89% 52.08% 35.43% 26.99% 10.28% 58.34% 526 Short-term Investments -16.50% -37.48% -27.34% .38.97% 13.85% 19.87% 21.11% 23.01% -6.08% 526 Total loans 100% 100% 100% 101% 100% 100% 100% 100% 100% 627 528 Debt serv.cov.w/but loan recov.(times) 2.17 1.89 1.25 1.05 0.62 0.67 0.73 0.79 0.85 529 Debt serv.cov.with loan recov (times) 5.60 4.32 3.01 2.55 1.58 1.76 1.90 2.04 2.15 530 531 Revenuelavrge tot, assets (%) 3.36% 4.17% 4.46% 4.73% 4.73% 5.10% 5.48% 5.83% 632 Expensesavrge tot. assets (% 1.97% 2.57% 3.04% 3.42% 3.74% 3.79% 3.79% 3.74% 533 Marain 1.39% 1.60% 1.42% 1.31% 0.99% 1.31% 1.69% 2.09% 634 535 Net Income as % of tot. assets 1.39% 1.60% 1.42% 1.31% 0.99% 1.31% 1.69% 2.09% 538 Net Income as % of equIty 1.79% 2.42% 2.38% 2.40% 1.91% 2.52% 3.20% 3.87% 637 Sa3 Debt/equity ratio 29.74% 37.06% 43.06% 47.47% 48.19% 47.82% 46.80% 45.14% In this case, conpared with the base case, MDA receives less Government direct and indirect transfers (-TD 88 itlfon - -45X) but distributes even tess, in percentage, to the mauntcipaLitfes (-TD 84 miflon = -47%) and at a more advantageous pace. Therefore, its financial situation would ioprove over the period 1993-2000 as seen with its net income (+20 percent) and its short-tena investment (from 4.97 percent to 5.08 percent of the total amount of the loans). However, a differentiation has to be made bfore and after 1997 at which point targe-scate, short-term borrowings as high as 21 percent of loans to the municipalities would be necessary to finance them if they happened to stay at the original level of TD 238 miltion. - 77 - ANNEX 6 Page 13 of 17 Parameter(MTD) Got contrib.to Invest.(base case) 7.4 20.1 24.8 21.8 20.8 21.6 22.8 23.4 24.3 94.9 Growth rate (basecase) 171.62% 23.38% -12.10% -4.59% 3.85% 4.17% 4.00% 3.85% Growth rate (case 1) 85.81% 11.69% -24.19% -9.17% 1.92% 2.08% 2.00% 1.92% Got ontrib.to invest.(case 1) 7.4 13.8 15.4 11.6 10.6 10.8 11.0 11.2 11.4 58.7 FCLtiel Wase case) 7.2 7.7 8.1 8.6 9.2 9.7 10.2 10.8 11.4 40.8 Growth ratel 1 (base case) 6.94% 5.19% 6.17% 6.98% 5.43% 6.15% 5.88% 5.56% Growth rate II (case 1) 3.47% 2.60% .09% 3.49% 2.72% 2.58% 2.94% 2.78% FCCL title II (case 1) .2 7.5 7.6 7.9 8.2 8.4 8.6 8.8 9.1 38.3 Othe-(OP+ES&C)Oasecase) 8.9 17.7 20.0 13.7 9.6 10.0 10.4 10.8 11.3 69.9 Growth rate (base case) 98.88% 12.99% -31.50% -29.93% 4.17% 4.00% 8.85% 4.63% Growth rate (case 1) 49.44% 6.50% -3.00% -59.85% 2.08% 2.00% 1.92% 2.31% Others(OP+ES&C)(casel) 8.9 13.3 14.2 6.2 2.1 2.1 2.2 2.2 2.3 4.7 Control varfables Financing pattern (%) Self-financing 30.8 15.9 16.1 17.6 19.0 118.9 20.9 24.6 28.5 19.7 Borrowings 36.4 45.1 36.9 43.6 44.7 45.3 44.6 43.0 41.2 41.2 Government transfers 32.8 89.0 47.1 38.8 36.3 35.8 34.5 32.4 30.2 39.1 Investments 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 DOebtserv.cover.ratio(times) ERR 2.4 1.9 1.6 1.5 1.4 1.4 1.5 1.6 1.7 Revenue on charges as % ofExpensesTitlel 20.9 20.2 20.0 19.8 19.8 19.7 20.2 20.7 21.2 20.1 Revenue on charges as % of Investments 33.6 29.2 35.0 48.3 55.1 56.9 58.7 59.4 59.5 38.5 Investments (MTD) 71.7 88.5 79.0 63.8 57.3 59.4 63.2 61.8 75.4 360.3 Total TransfersNMTD) 23.5 34.5 37.2 24.8 20.8 21.3 21.8 22.3 22.8 140.8 Total Transfers Qase case) (TD) 23.5 45.5 52.9 44.1 39.6 41.3 43.1 4S.0 47.0 205.6 The drop in MDA transfers (-TD 36 milion = -38%) and Goverment direct and indirect transfers (-TO 29 mittion = *26%) would have a direct impact on the Eighth Plan (1992-96) investment program (PIC), which would decrease by 15 percent at TD 360 million white share of Governent transfers in investments would pass from 48 to 39 percent. Otherwise, the aain indicators remain essentiaLly the same. Case 2: Reduced municilal revenues 1992- -MtUNIIPAtLn (CASSk) 1992 1993'. 1994 18 95 ; 1997 1990 1999 2(00 .1896 Revenueoncharge (basecase) 24.1 25.8 27.6 29.5 31.6 33.8 37.1 40.9 44.9 138.6 Growth rate (base case) 7.05% 6.98% 6.88% 7.12% 8.96% 9.76% 10.24% 9.78% 0.3 Growth rate (case 2) 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.0 Revenue on charge (case 2) 24.1 24.1 24.1 24.1 24.1 24.1 24.1 24.1 24.1 120.5 Controlvaabe Financing patter(96* Sell-financing 30.8 12.7 10.1 7.5 5.0 2.2 0.2 0.2 0.9 18.0 Borrowings 36.4 40.8 31.9 35.8 37.3 38.6 39.5 39.6 39.5 38.6 Government tranters 82.8 46.6 58.0 58.8 57.7 59.2 60.3 60.2 69.6 60.6 Investments 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Debteerv.cover.ratlo(times) ERR 2.2 1.6 1.3 1.2 1.1 1.0 1.0 1.0 1.5 Revenue on charges as % of Expenses Title 1 20.9 18.9 17.4 16.2 15.1 14.1 13.1 12.2 11.4 17.5 Revenue on charges as % of inveiments 33.6 24.6 26.4 31.0 85.1 34.6 33.7 82.2 30.6 29.6 Not Internaly generated funds(MTD) 22.1 12.4 9.2 6.8 3.4 1.6 0.2 0.1 0.7 52.0 Investments(MTD) 71.7 97.8 91.2 77.7 6M.8 .7 71.5 74.7 78.6 407.0 This case demonstrates how important it is for the masicipatitfes to continue increasing their revenues. Indeed, with an about TD 20 million decrease passed on their net internally cash generation, mnicipalities would finance wfth thefr own resources an even tower part of a smatter PIC (13 percent of TD 407 miLlion) then the base case C17 percent of TD 425 million). The debt service coverage ratio would be below the threshold of 1.3 from 1996 and decreasing. This would require a stow-down in the PIC, less borrowing and more Government transfers, which in fact seems very unlikely, since they already exceed the level of 50 percent. - 78 - ANNEX 6 Page 14 of 17 Case 3: Reduced MDA revenues vs. reduced municipal expenditures 506 CASE 3 507 Parameters: 508 6.50% 15ans 8.50% 15ans 8.50% 15ans 509 Average loan Interest charge base case: 6.50% loans 8.50% loans 8.60% loans 510 4.00% 7ane 6.00% 7ans 6.00% 7ans 511 2.00% 20ans 512 3.50% l5ans 5.50% 15ans 6.50% 15ans 513 Average loan interest charge case 3: 3.50% loans 5.50% loans 5.60% loans 514 2.50% 7ans 4.50% 7ans 4.50% 7ans 515 2.00% 20ana 518 Control Variable: 517 Financing pattern: 518 Net I. cash generaL 17.82% 29.89% 35.31% 40.47% 21.17% 30.02% 35.59% 39.85% 30.68% 519 FCCL + Net government transfer 3.04% -2.99% -9.01% -15.92% 18.04% 18.17% 18.46% 18.91% 6.33% 520 LT. debts (present & future) 80.70% 79.73% 83.09% 87.89% 52.08% 35.43% 26.99% 19.28% 58 34% 521 Short-term Investments -1.31% -6.62% -9.39% -11.85% 8.71% 16.38% 18.95% 21.96% 4.84% 522 Total loans 100% 100% 100% 101% 100% 100% 100% 100% 100% 523 524 Debt serv.cov.w/out loan recov.(times) 1.63 1.17 0.72 0.58 0.33 0.37 0.40 0.44 0.48 525 Debt serv.cov.with loan recov (times) 5.06 3.67 2.57 2.15 1.35 1.50 1.62 1.73 1.84 526 627 Revenueavrge tot assets (%) 2.71% 2.95% 3.06% 3.15% 3.12% 3.36% 3.60% 3.81% 528 Expenseslavrge tot. assets (%) 2.02% 2.74% 3.34% 3.84% 4.24% 4.28% 4.27% 4.21% 629 Margin 0.70% 0.21% -0.28% -0.69% -1.12% *0.92% -0.87% -0.40% 530 631 Net Income as % of tot. assets 0.70% 0.21% -0.28% -0.69% -1.12% -0.92% *0.67% -0.40% 532 Net Income as % al equity 0.90% 0.33% *0.50% -1.40% -2.45% *2.02% -1.44% -0.83% 533 534 Debtlequity ratio 30.94% 40.36% 47.76% 54.07% 54.52% 53.94% 52.76% 50.93% This case clearly shows what MDA cannot afford. Indeed, at such interest rates, net Income would be negative starting in 1995 (more than TO 7 mittion losses for the period 1993-2000) as wett as short-term resources from 1997, which would thus become short-term borrowings for TO 7 mittion, as high as 22 percent of the total amount of loans in the year 2000. The equity would not reach TO 110 mittIon in 2000 against TO 140 mittion In the base case. To compensate for such a situation, MDA would have either to tower drasticatty its tending program to the municipalities or to obtain additional contributions from the Government. 1992- :MUNICIPAUIE(AS ) . '.1992' '1993 ) sti4 1885 :-. 1198., . 0 199 3898 :19 *si 000 -1998 Parameters(MD Interestexpenses (basecase) 0.0 4.2 6.3 7.7 8.8 9.7 11.1 12.5 13.9 27.0 Interest expenses (case 3) 0.0 3.6 4.0 5.3 5.6 6.2 7.2 6.1 9.0 19.3 Financing pattern (Wk Self-financing 30.8 14.7 14.7 16.3 16.8 17.0 18.6 21.6 24.7 17.9 sorrowfngs 36.4 39.9 30.3 32.7 32.7 27 32.2 81.1 30.0 34.4 Government . 32.8 45.5 55.0 51.9 50.5 50.3 49.2 47.3 45.3 47.7 Investments 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Debt serv.cover.ratlo (mes) ERR 2.5 2.1 1.8 1.7 1.6 1.6 1.7 1.8 1.9 Revenue on charges as % ofEpenseeTiel 20.9 20.3 20.2 20.1 20.2 20.1 20.6 21.2 21.7 20.3 Revenue on charges as % of Investments U3.6 25.8 28.7 34.7 40.3 41.2 . 42.4 43.0 43.3 32.1 Net internally generated fundpiDM ) 22.1 14.7 14.1 18.0 13.2 13.9 16.3 20.5 25.6 77.1 Invegiments(M1ID 71.7 100.1 06.1 64.9 78.4 62.1 87.6 95.1 103.7 431.2 At first glance, the municipalities would improve their situation because of the decline In debt service, which would allow them to increase the,r Investments by about TO 6 milion over the Eighth Plan (1992-96). But MDA's overall poor situation, which woAld probably lead to a net reduction of its tending program, would surely lead in return to a worsening of the munIcipalIties' financial position. - 79 - ANNEX 6 Page 15 of 17 Case 4: Higher operatina costs CASE 4 607 Parameters: 508 509 Salaries & other expenses base case: 496 692 783 783 783 783 783 783 6.886 510 Salaries & other expenses case 4: 1,488 2.075 2,349 2.349 2,349 2,349 2.349 2.349 17,657 511 512 Control variabe: 513 Flhancing pattern: 514 Net Int. cash general. 18.76% 29.67% 35.82% 42.89% 25.11% 35.85% 43.18% 49.12% 34.08% 515 FCCL + Net government transfer 3.04% -2.99% *9.01% -15.92% 18.04% 18.17% 18.46% 18.91% 6.33% 516 LT. debts (present & future) 80.70% 79.73% 83.09% 87.89% 52.08% 35.43% 26.99% 19.28% 58.34% 517 Short-term investments -0.24% -6.40% -9.90% -14.27% 4.77% 10.54% 11.36% 12.68% 1.77% SI8 Total loans 100% 100% 100% 101% 100% 100% 100% 100% 101% 519 520 Debt serv.cov.w/out loan recov.(times) 1.41 1.23 0.84 0.73 0.45 0.51 0.58 0.65 0.63 621 Debt serv.cov.with loan recov (times) 4.84 3.66 2.60 2.22 1.41 1.60 1.75 1.90 1.93 522 523 Revenuelavrge tot. assets (%) 3.18% 3.97% 4.34% 4.61% 4.72% 5.14% 5.55% 5.93% 524 Expenseaavrge tot, assets (%) 2.79% 3.62% 4.22% 4.82% 4.94% 4.92% 4.84% 4.70% 625 Margin 0.40% 0.34% 0.12% -0.01% -0.22% 0.22% 0.72% 1.22% 626 527 Net hicome as % of tot. assets 0.40% 0.34% 0.12% *0.01% -0.22% 0.22% 0.72% 1.22% 528 Net income as % of equity 0.51% 0.54% 0.21% -0.02% -0.48% 0.48% 1.48% 2.42% 529 530 Debtequity ratio 31.18% 40.58% 47.82% 53.78% 53.76% 52.61% 50.78% 48.27% In this case, MDA would have to deal with very low net income, even negative in 1996 and 1997. Starting In 1997, it would need short-term bL. rowings to maintain Its level of Loans at TD 238 mition (for about 2 percent of this amount). However, we can notice that MDA would still be able to service its debt: the debt service coverage ratio with Loan recovery being above 1.9 times on average for the whole period. 1997--1992,: MUIQP CASi4) , 99; 199 1984 1995. 190 1997 . 1998 189) 200 -1988 63.7 68.2 73.0 78.1 83.5 89.3 95.6 102.3 109.5 366.6 Otheropeat.exp. asecase) 51.5 55.1 59.0 63.1 67.5 72.2 77.3 82.7 8.5 296.2 increase 10% 10% 10% 10% 10% 10% 10% 10% 10% 10% Salafes (case 4) 70.1 75.0 80.3 85.9 91.9 98.3 105.2 112.5 120.4 403.2 Otheroperat.exp.(case4) 56.7 60.8 64.9 69.4 74.3 79.4 85.0 91.0 97.3 325.8 C"ntrol variables affD) F1nancing paar (Y6,: Self-financing 17.6 2.0 (0.6) (4.2) (6.9) (7.8) (6.1) (2.1) 2.2 1.3 Borrowings 43.4 45.8 35.7 40.3 42.0 42.5 42.0 40.5 39.0 41.4 Government 39.0 62.2 64.9 63.9 64.9 65.3 64.1 61.6 58.9 57.3 Investments 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Debt ees.cover.rstlo(times) ERR 1.2 1.0 0.8 0.6 0.8 0.9 1.0 1.0 0.9 Revenue on charges as % of Expenses ie l 19.0 18.5 1&2 16.1 18.1 18.0 18.4 18.9 19.4 18.3 Revenue on charges as % of investments 40.0 29.6 33.9 42.8 51.8 53.4 55.2 680 56.2 38.6 Net Iaternally generatedamds(MMTD) 10.6 1.8 -0.5 -2.9 -4.2 -4.9 -4.1 -1.6 1.7 4.7 Investmeints(MTD) 60.2 67.2 61.5 69.0 81.0 63.3 67.2 73.0 79.8 35&8 This case highlights the iIportance of operating costs as related to the financial position of the municipalities as well as their overall fragility in the face of unforseeable circumstances. Indeed, this 10 percent increase would result, starting in 1994, in increasingly negative nat internally generated funds over the Eighth Plan (TO 5 million compared with TO 71 miition in the base case) and would seriously impalr their capacity to reiniburse their debt: debt service coverage ratio under 1 from 1995 to 1998 with an average of 0.9 for the Eighth Plan (1992-96). - 80 - ANNEX 6 Page 16 of 17 Case 5: Reduced borrowings and lending Proaram 50 CASES 49 507 Parameters: 506 Borrowings (base case) 32.200 23,200 23.100 22.500 14,000 10.000 8.000 6.000 139,000 509 Lans (base case) 39.900 29,100 27,800 25,600 26,880 28,224 29,635 31.117 238,256 510 Borrowings (case 5) 25.760 18,560 18,480 18,000 11.200 8,000 8,400 4,800 111,200 511 Increase borrowings 80% 80% 80% 80% 80% 80% 80% 80% 512 Loans (case 5) 29,925 21,825 20,860 19.200 20,160 21,168 22,226 23,338 178,692 513 Increase loans 75% 75% 75% 75% 75% 75% 75% 75% 514 Control varabl: 515 Financing pattern: 516 Net int. cash generaL 27.33% 45.52% 52.72% 60.92% 41.26% 51.99% 59.34% 65.36% 49.56% 517 FOCL + Net government transfer 4.05% -3.99% -12.01% -21.23% 24.05% 24.23% 24.62% 25.22% 8.45% 516 LT. debts (present & future) 86.08% 85.04% 88.63% 93.75% 55.56% 37.79% 28.79% 20.57% 62.23% 519 Short-term Investments -17.12% -26.57% -29.33% *32.66% -20.87% .14.01% -12.76% -11.14% .2.29% 520 Total loans 100% 100% 100% 101% 100% 100% 100% 100% 98% 521 522 Deb sery.cov.w1but loan recov.(times) 2.54 1.97 1.27 1.04 0.63 0.70 0.79 0.87 0.90 523 Debt ser.cov.with loan recov (times) 6.82 4.79 3.19 2.62 1.63 1.81 1.97 2.12 2.26 524 525 Revenuelwge tot. assets (%) 3.35% 3.99% 4.32% 4.56% 4.69% 5.04% 5.37% 5.67% 626 ExpenWse tot. assets (%) 1.77% 2.43% 2.95% 3.37% 3.66% 3.61% 3.51% 3.37% 527 Marmin 1.58% 1.57% 1.36% 1.19% 1.03% 1.42% 1.86% 2.30% 52 629 Net income as % of tot. assets 1.58% 1.57% 1.36% 1.19% 1.03% 1.42% 1.86% 2.30% 530 Net Inome as % of equity 1.95% 2.25% 2.19% 2.10% 1.89% 2.58% 3.26% 3.87% 531 532 Debtlequity ratio 28.11% 34.36% 40.75% 46.01% 45.52% 44.00% 41.91% 39.29% In this case, MDA would slightly Increase its net income by TD 2 million over the period) and appreciably its short-term investments to approach TD 40 million at the end of the period, which represents the capacity for MDA to increase its tending program to the municipalities if their debt capacity will permit it. Otherwise, ail other indicators would also fare better and NDA would took stronger. 5 al4Nie MLn8(CA8Us5) 1993 21893 1994 199 1996 1997 1898 1999 2000 -19M Parameteas Borrowngs(basecase) 26.1 39.9 20.1 27.6 25.6 26.9 28.2 29.6 31.1 148.5 decrease of borrowings -25% -25% -25% -25% -25% -25% -2F% -25% -25% -25% Borrowings(casss) 19.6 29.9 21.8 20.9 19.2 20.2 21.2 22.2 23.3 111.4 Control variables Fnanigaram )* Self-financing 33.9 16.1 16.0 17.6 20.0 20.6 22.7 25.9 29.1 20.0 Borrowings 30.0 33.3 24.5 26.4 26.1 28.1 25.4 24.5 23.5 28.1 Government 36.1 50.6 59.5 55.9 53.9 53.4 51.8 49.6 47.4 51.9 Investments 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Debtserv.cover.ratlo(times) ERR 2.5 2.1 1.9 1.8 1.6 1.8 1.9 2.0 2.0 Revenue on charges as% ofcoenestlel 20.9 20.3 20.1 20.0 20.0 20.0 20.4 21.0 21.5 20.2 Revenue on charge as % of11liments 87.0 28.7 31.0 37.4 43.0 43.7 44.6 45.1 45.3 35.0 Net Internally generated furds 22.1 14.5 14.2 13.9 14.7 15.9 18.9 23.4 28.8 79.4 knveletts(MTD) 65.2 89.9 88.9 78.9 73.5 77.4 83.1 90.6 99.2 396.4 its this case, the municipalities' net internally generated funds would increase by 12 percent over the Eighth Plan (1992-96) coupared with the base case, white the investment program would decrease by 7 percent (from TD 425 million to TD 396 million). This would increase self-ffnancing (in relative and absolute value) and the part of Government transfers Crore than 50 percent of investments) if these happened to remain at the same level. Otherwise, the debt service coverage ratio would improve. - 81 - ANNEX 6 Page 17 of 17 Case 6: Reduced Government transfers (Case 11 and borrowings (Case 51 507 PArameters: 508 Borrowings (base case) 32,200 23,200 23,100 22.500 14,000 10.000 8.000 6,000 139.000 S09 Loans (basecase) 39,000 29,100 27.800 25,600 26.880 28.224 29.635 31.117 238,256 510 Government contribution (base case) 21.311 23.930 19.295 16,724 28,480 27,628 28,869 30,218 194.453 511 Transfers to munioalitles (bas ase) 20.100 24,800 21,800 20,800 21.632 22,497 23r397 24.333 179,360 512 Borrowings (case 6) 25,760 18,560 18,480 18.000 11.200 8.000 6,400 4.800 111.200 513 Loans (case 6) 20,925 21,825 20,850 19,200 20,160 21.168 22,226 23,338 178,692 514 Government contribution (case 6) 20.068 21.299 11.344 9,680 10.375 10,009 11,262 11.734 106,768 516 Transfers to municipaltles (case 6) 13,750 15,358 11,642 10,574 10.785 11,001 11,221 11,446 95,777 516 Control variable: 517 Fiancing patrn: 51 Net Int. cash generat. 28.23% 48.48% 58.31% 66.18% 45.17% 54.58% 80.65% 65.41% 52.00% 519 FCCL + Net government transfer 21.10% 27.22% *1.43% *3.61% *2.04% -0.91% 0.18% 1.24% 6.15% 520 LT. debts (present A future) 86.08% 85.04% 88.63% 93.75% 55.56% 37.79% 28.79% 20.57% 62.23% 521 Short-term Investments .35.08% .60.72% -43.71% -S5.54% 1.31% 8.53% 10.37% 12.79% *22.43% 622 Total loans 100% 100% 100% 101% 100% 100% 100% 100% 98% 523 524 DeW serv.cov.w/out loan recov(times) 2.73 2.21 1.42 1.18 0.69 0.74 0.61 0.87 0.08 525 Debt serv.cov.with loan recov (times) 7.01 5.03 3.35 2.76 1.69 1.85 1.99 2.12 2.33 520 527 Revenue/age tot, assels (%) 3.49% 4.17% 4.41% 4.65% 4.66% 4.98% 5.30% 5.60% 528 Expenseslawe tot. assets (%) 1.74% 2.29% 2.72% 3.07% 3.36% 3.40% 3.38% 3.32% Sa Margin 1.76% 1.88% 1.69% 1.58% 1.31% 1.59% 1.92% 2.27% 530 531 Net Income as % of tot, assets 1.76% 1.88% 1.69% 1.58% 1.31% 1.59% 1.92% 2.27% 632 Net Income as % at equity 2.16% 2.63% .59% 2.61% 2.25% 2.74% 3.27% 3.79% 533 634 Debt/equity ratio 25.16% 31.83% 37.43% 41.64% 42.25% 41.84% 40.84% 39.25% In this case, MDA would be stronger than ever, although its size would slightly decrease (total assets would pass from To 250 million to TO 230 million over the whole period 1993-2000), its short*term investment would increase tremendously from TO 12 million to TD 40 million over the period, representing MDA's capacity to support a more ambitious municipal lending program. Otherwise, MDA would be able to finance on its own resources up to 52 percent of Lower loans (-25 percent in comparison with the base case) and higher short-term investments (+240 percent), white the share of Goverrsnent direct and indirect transfers and the share of long- term debts would remain basically unchanged. er 1992. Borromings(basecase) 261 39.9 20.1 27.8 25.8 26.9 28.2 29.6 51.1 148S decrease of borowings -25% -25% *25% -25% -25% -25% -25% -25% *25% Gwrmwinge(case) 19.6 29.9 21.8 20.9 19.2 20.2 21.2 22.2 23.3 111.4 TotaTransTers(basecase) 23.6 45.5 59 44.1 39.8 41.3 41 45.0 47.0 20.6 demes of ransers 0% -24% -30% -44% -47% -48% -49% -50% -51% Total Transfers (case 1) 23.5 34.5 37.2 24.8 20.8 21.3 21.8 22.3 22.8 1408 Control varibe Firwairg pattrng Self-financing 33.9 18.4 19.4 234 26.8 27.8 30.5 34.6 368 23.9 Borowings 30.0 37.9 29.8 35.1 35.0 a5.1 34.2 32.7 31.1 33.8 Government 30.1 43.7 60.6 41.5 38.1 37.1 35.3 32.7 30.4 42.5 InvestAts 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Debtagry.cotlr.ratiotOimg) ERt 2.5 2.1 1.9 1.8 1.8 1.8 1.9 2.0 2.0 Revenue on chargeas % of80penseThiel 20.9 2.3 21t 20.0 20 20.0 2LX4 21.0 21.5 2L2 RnueM charges ae% ofiweerment 7.0 3.7 87.7 49. 57.7 68.9 ft0 3 69.9 41.8 Net Internaly genratedfundsmD) 22.1 14.5 14.2 13.9 14.7 150 189 28.4 28.8 79.4 2nvetnts WIT 85.2 79.0 T1h 65. 54.8 67.4 61.8 7.8 75.0 331.8 in this case of a reduced investment program (TO 332 million for the Eighth Plan) at a higher rate of self- financing (24 percent instead of tess than 17 percent in the base case) to the detriment of Goverranent transfers (42 percent instead of 48 percent in the base case), municipalities would strengthenen their financial situation: higher gross and not internally generated funds (+ 12 percent), higher revenue on charges as percentage of expenses and of investments and better debt service coverage ratio, always equal to or above 1.8 with an average of 2.0 over the Eighth Plan. A realistic case. c:\j\tun\report\ldpsaran.6 - 82 - ANX 7 Page 1 of 20 REPUBLIC OF TUNISIA MUNICIPAL SCTOR XIUVESlENT PROJECT 1. PROJRCT PEPARATION PROCEDURES MNRUAL A. Summary of Procedures There are two steps in loan processings - the municipality prepares a preliminary document which is then examined by RDA. During this first stage comes the agreement in principle on the award of the loan; - the municipality prepares a detailed document, with possible external support; the document is assessed by MDA and results in a loan contract. Disbursements are made for expenses incurred and are monitored by MDA. Loan repayment is handled by MDA. This procedure is summarized in the table hereunder and involves eight steps as follows: B. Procedures Steps a) Preparation of Preliminary Loan Document The preliminary document is prepared by the municipality and presented to MDA. The documents contains - a loan request letter endorsed by the Municipal Council; - a technical document comprising a brief note of project presentation and justification (study of requirements), a summary estimate of project costs, a draft financing plan (own funds, loan, subsidies..) succinct graphic documents (e.g., layout, site plan); and potential environmental issues; and - the municipality's financial data for the last three fiscal years. b) Analysis of the Preliminary Loan Document The document is analysed by the MDA Appraisal Section which - verifies that project is in conformity with eligibility criteria; - examines the size of the project with respect to municipality's needs and financial viability; - 83 - ANNBX 7 Page 2 of 20 - makes recommendations to the Director as to the amount and possible modifications to the project; and makes sure that an agreement on transfers exists in principale. On the basis of these recommendations, the Director makes a decision as to the amount and defines the type of detailed documents to be presented for the next step of the procedures - for small projects: detailed preliminary design with estimates; - for average-size projects: detailed preliminary design with cost effectiveness comparison between two alternatives; - for large projects: detailed preliminary design with cost effectiveness comparison among three alternatives; - for slaughterhouses, solid waste management and sewerage projects: environmental impact assessment studies. MDA may assist the municipality in preparing terms of reference for the studies. This may entail prefinancing a contract with a consulting firm C. Detailed Loan Document preparation The document is prepared by the municipality with possible external support. In this case, the municipality signs a contract with a consulting firs and request NDA the disbursement of funding the studies. When the document is completed, it is presented to MDA. The detailed document includes: - a technical document; and - a financial document. 4) Project AWorMisal The project is technically, economically and financially assessed by the HDA Appraisal Division2. The assessment verifies whethers - size of the project is compatible with the needs to be met; - technical modalities are relevant; - management and execution modalities are satisfactory; 1. A fund for prefinancing project studies has been created in MDA. It may finance detailed execution studies and Is granted without interest. 2. The Appraisal Division includes financiat and technicat capacities, which allows for an assessment that closely integrates att technical, adknistrative, economic, and financial aspects of the project. - 84 - ANNEX 7 Page 3 of 20 - financial results of the project are acceptable; - financial capacities of municipality are compatible with expenditures involved; - economic results of the project are positive; and - environm(-tal issues properly dealt with; When the assessment is completed, the Assessment Division proposes its recommendations to the MDA Director who makes the decision on loans not exceeding TD 150,000 and to the Loan Committee for loans exceeding TD 150,000. e) Loan Aqreement The municipality is informed of the loan decision by letter specifying the subprojects retained in conjunction with the financing, and possible further recommendations. The decision is then followed by the preparation of a loan document, including disbursement calendar, effectiveness, and other conditions. The loan document is signed by the HDA Director and the Municipality Mayor. This loan document: - sets uo parameters for the credit operation; - indicates the conditions for funds release; and - indicates annual repayment schedule and yearly amounts. f) Invitation to bid After the loan is signed, the municipality prepares the execution documents with eventual external support. Competitive bidding is launched by the aunicipality, after consulting with MDA. The municipality examines the submissions and awards the bid. g) Loan Disburseseats The first disbursement request is made by the municipality and takes place at the start-up of the works. MDA ensures that the bid conforms with the purpose of the loan and the legal stipulations. The first tranche is disbursed according to the planned schedule and can represent expenditures corresponding to 30 percent of the contract. In case of a very short implementation period, the loan can be disbursed in one tranche. - 85 - ANNEX 7 Page 4 of 20 Tranches are disbursed upon request from the municipality, after supporting documentation related to work progress, settled accounts, and accounts to be settled has been presented to MDA. h) ISan Repayment MDA sends the maturity notice and handles the municipality's accounts. The following Table summarises the first eight phases of the procedure. - 86 - AXNE 7 Page 5 of 20 ALLOCATION PROCEDURE AND LOAN DISBURSEMENT Responsibility 1. Preliminary loan document Municipality - municipality data - letter of loan request * technical documents, environmental issues - brief note of project presentation and justification * project cost estimation - outline of financing plan (subsidies Included) * simple graphical docunentation 2. Analysis of preliminary loan document MDA - project compliance with ADA intervention areas Assessment Division * project brief justification in regard of needs * conformity with unit cost List defined by MDA - compatibility with municipalities' financial resources - necessity to prepare EIA MDA + ANPE - conctucton MDA + Municipality - loan amount definition MDA + Municipality - contract possibility for pre-financing of stidies MDA - assistance possibility for detailed studies TORs 3. Preparation of detailed Loan document - possible contr.ct with "external support" for detailed Municipality + Ext. support study Municipality to MDA - possible disbursement request for detailed study Municipality - subsidy confirmation Municipality i Ext. Support - technical file preparation 4. Assessment of detailed file MDA * relevance of project Assessment Division - relevance of technical choices tNPE - guarantee for project implementation and management * relevance of economical impact * project compatibility with municipality's financial capacity - review of EIA - conclusion * loan decision 5. Loan agreement - loan agreement announcement to municipality MDA to Municipality - loan contract MDA + Municipality 6. Competitive bidding - Implementation studies and bidding documents Municipality (+ Ext. Support) invitation MDA - invitation to bid Municipality - launching and opening of bidding documents 7. Loan disbursement - Request for first disbursement by MDA Municipality - Disbursement of first tranche MDA - Request for other disbursements by MDA Municipality - work progress reports - settled or to be settled accounts - control of justifying documents MDA * granting of other disbursements MDA 8. Loan repayment - maturity notice Is sent MDA * management of municipality accounts MDA - closing of operation MDA - 87 - ANNEX 7 Page 6 of 20 II. EVELUTION CRITRI Project approval is based on the following general criteria: - projects should correspond to effective demand and municipality priorities; - projects should select solution presenting optimal cost- effectiveness and economic justification; - economic rate of return should be demonstrated (over 12%) for py.ojects generating quantifiable revenues and with total cost over US$1 million; - internal rate of return should be computed for productive facilities with total cost over US$1 million (over 12%); - environmental impact taken care of; - cost recovery from beneficiaries should be ensured for investments generating resources; and - borrower should demonstrate sound financial viability, managerial performance, and maintenance of investments or take necessary measures to improve these areas (strengthening of own resources or subcontracting to a concessionary company). These general criteria are developed for each type of investment described hereunder, as well as specific criteria which might apply. A. Weighborhoods to be rehabilitated Al. Criteria a) Two kinds of criteria are applied to all neighborhoods to be rehabilitated. (i) Exclusion criteria Minimum rate of occupancy: 100 inhabitants per not hectare, excluding the right of way reserved for primary infrastructure and common infrastructure (those which are not reserved for the neighborhoods' population such as secondary schools, hospitals, city halls); this criterion would, if the case arises, be replaced by two ratios: density of households per not hectare (>18) and density of housLug per net hectare (>15); - 88 - ANNEX 7 Page 7 of 20 Number of demolitions with relocation and compensation below 5 percent of housing, in conjunction with the restructuring of the neighborhood; Part of primary infrastructure to be supported by operating expenses under 30 percent of the total expenditures of the municipal infrastructure. (ii) Eligibility criteria Infrastructure costs, including physical and price contingencies, as well as the costs of studies, and services by the implementing agency on behalf the municipalities, will be less than 3,000 TD per lot, which will deterwine the level of infrastructure to be executed; Secondary infrastructure expenditures calculated on the basis of reimbursement conditions of CPSCL loans to the municipalities will not exceed the equivalent of 5 percent of the beneficiary residents' average income, with the understanding that the municipality will, if the case arises, decide to charge those expenditures by adjusting them among the unpopulated lots, individual housing, and collective housing; and The amount of expenditures to be supported by t- nicipality will be compatible with its investment capacity, and the loan amount compatible with its loan capacity. b) In addition, the selection criteria below will be applied to more densely populated neighborhoods that can benefit from exceptional subsidies of up to 70 percent of the cost: (i) size of the neighborhoods to be rehabilitated > 200 housings or 1,200 residents; and (ii) not density per hectare > 20 housing units; and (iii) infrastructure costs below 2,500 TD per lot. A2. Aspects to be considered for criteria set up (i) Physicial aspects: neighborhood access'.aility: conditions %nd practicability of access, conditions of feeder roads in variois networks; existing infrastructure on site: internal roads (development and layout), rain and wastewater drainage, receptacle and collection of domestic waste, electricity and public lighting; - 89 - ANNEZ 7 Page 8 of 20 percentage of servicing connection; size of neighborhoods, conditions of constructed buildings, and occupation rate par housing (neighborhood population/number of housings); (ii) Socic-economic aspects: Land statuss percentage of building owners, land owners with and without titles, percentage of bare lots owned by individuals and by the state; neighborhood dynamisms percentage of housing units being built/percentage of undeveloped areas; and urban growth dynamism: population of squatter areas/aunicipality population, municipality growth rate compared with national urban growth rate. B. Establishment of Urban Roads and Drainaqe a) Pre-Screeain of suboroiects (i) UAradina Works should be related to the most downgraded roads, those with heavy traffic needing a reinforced pavement, and unpaved roads lined with houses on at least 20% of its length; in case of displacement, the resettlement should be included in the subproject; and (ii) The proposed road(s) should be marked on a suitable map of the area, showing whether sanitation and water distribution networks exist or works to be executed within the next five years. b) Proect Desiem (i) Engineering standards (regarding size of roads, thickness of layers, materials) should be adapted to the class of road proposed; right- of-way should be limited, respectively to 15 a for access roads, 9 a for feeder roads, and 6 m for tertiary streets; (ii) Safety measures (traffic light, signs, equipment for cross-section roads, pedestrian crossings) should be part of the design; (iii) Drainage systems should be included in the study; and (iv) Cost estimates for subprojects should be based on unit prices obtained from recent contracts. - 90 - ANNE 7 Page 9 of 20 c) Project igstiicat For roads to be rehabilitated, justification criteria can be limited to the observation of the site conditions. Concerning the upgrading of existing urban roads, justification will includeg () Existing volume of average daily traffic by type of vehicle should be measured and estimates produced for traffic after project implementation; (ii) Estimate of transport cost savings per unit of present traffic (passengers and merchandise) should be provided! (iii) Preliminary estimates of other benefits that may accrue from the proposed subproject (such as increase in land value) should be produced, as well as other social address indicators such as average distance to educational, health, or administrative facilities; (iv) For subprojects costing over US$1 million, the methodology of project preparation and analysis should be justified; the economic rate of returns should be acceptable in regard to the cost of capital; and (v) measures should be taken within the subproject in order to insure maintenance. d) Road Maintenance An appropriate maintenance program should be implemented in accordance with specific plans. Agreement should clearly assign responsibilities of various parties (Regional Department of the inistry of Equipment, Technical Department of the Local Government) to insure maintenance, involving contracts with private companies to implement maintenance works. Funds allocated for maintenarce could be expressed with regards to particular type of roads in terms of absolute amount allotted per km and p.a., or in terms of physical description of maintenance equipment such as patching units, road-rollers, loaders, motor- graders, trucks, and spreaders. e) Cost Recovery Cost recovery procedures should be established. For neighborhood upgrading, cost recovery will be done indirectly through a tax increase spread over a 20-year period, since the forms of quantifiable goals will be considered in conjunction with the local tax reform. - 91 - Page 10 of 20 C. Severase and Solid Waste C1. Sewerae and Waste Water Disposal a) Pre-Screening of subproiects (M) The sewerage subproject would cover a site outside the purview of ONAS; (ii) The condition of the existing sewerage facilities, the estimates per capital and total water consumption, the number of water and sewerage connections in previous years, and the quality of services should be taken into account in conjunction with the study; (iii) The proposed network should be marked on a suitable map of the area, showing that water distribution is existing or should be undertaken by SONEDE at the same time; and (iv) New sewer connections should constitute a well-organized network, linke. to existing network, a semi-autonomous waste water disposal, or a technically affordable system. b) Project Desian (i) Engineering standards should be adapted to the proposed system; feasible alternatives to provide the project area with sewerage, and ways of improving and expanding the existing sewerage system should be discussed; (ii) Cost estimates of the selected alternatives and economic comparison of these alternatives should result in the selection of the proposed scheme, preparation of detailed cost estimates, and programming of the proposed scheme. C) Prolect Justification (i) For a treatment plant costing over US$1 million, a financial analysis should be included, taking into account the marginal cost of sewerage expressed as a cost per cubic meter of liquid waste to be treated or re-used, including the cost of operation and maintenance; (ii) Satisfactory arrangements ensuring good execution, project supervision, and efficient operation and maintenance system should be addressed, including the measures taken to meet the needs (involvement of the private sector or other Agencies, or staffing, recruitment, and training of technical departments); - 92 - ANNX. 7 Page 11 of 20 (iii) To forecast future water consumption, numbers of water and sewerage connections over a 10-year period and the percentage of population served per house connection should be assessed; and (iv) The economic rate of return should include an environmental assessment and social indicators such as health improvement. 4) Cost Recovery See above para. B (e): Urban roads and drainage; in addition, the cost of individual connection will be recovered directly from the beneficiairies over a maximum period of 5 years. C2. Solid Waste Disposal a) Pre-Screenina of Subprojects (i) The proposed location of solid waste (SW) disposal AT an existing public sanitary landfill to be improved, a new site to be developed, or a recycling plant to be built should be marked on a suitable map of the area; (ii) The capacity of the SW disposal should be related to the volume of SW collection, the nature and quality of households refuse, or other sources (industry, tourism, construction); and (iii) The report should include a diagnosis of the weaknesses and requirements of the existing sanitary landfill with a view to improving its administrative, technical, and financial management; the involvement of the private sector should be considered; b) Project Desiqa (M) Engineering standards should be adapted to the proposed system; feasible alternatives should be discussed (e.g., location of landfills, recycling of refuse); (ii) The environmental impact and measures to alleviate health hasard should be detailed, and clearance from the National Environmental Protection Agency should be obtained; and (iii) Cost estimates for the selected alternatives and economic comparison of these alternatives should result to the selection of the proposed subproject. - 93 - A=Nx 7 Page 12 of 20 C) Project Justificatio (i) For SW disposal with a total cost over US$1 millior a financial analysis should be included, taking into account the marginal cost of refuse to be treated or re-used, including the cost of operation and maintenance; (ii) The environmental issues and social indicators such as health improvement should be assessed; (iii) Satisfactory arrangements, such as good execution, subproject supervision and efficient operation and maintenance system should be addressed including the measures to meet the needs, such as the involvement of the private sector company or specialized local/regional agencies; and (iv) In forecast of future volume of SW to be treated, reuse over a 10 year period should be related to the capacity of the SW disposal. d) Cost Recovery Cost recovery procedures should be explained: (i) For recycling plant, at a miniaum, operating costs should be recovered from the sale of the final product, in the same conditions as detailed under chapter D2 para. b2; and (ii) For sanitary landfill, at minimum operating costs should be recovered from the users, according to the nature and quality of refuse. D. Street Lightin. open spaces (gardens) and Community Facilities Dl. Street Lightin@ Since street lighting on existing urban road network is a priority for security reasons, subproject approval could be obtained without further justifications. The project design should include the following information: (M) a description of the existing distribution system and the percentage of population serviced, or of streets lit; (ii) the proposed network should be marked on suitable map of the area; (iii) cost estimates should be based on unit prices obtained from recent contracts and should include the equipment needs in the electrical substation and spare parts for operation and maintenance; and - 94 - ANX 7 Page 13 of 20 (iv) STEG, the Public Utility Agency, should agree on the electrical diagram and on the type and quality of equipment to be ucluded in the substation; if necessary, STEG will be in charge of implementing the works in the substation and will provide a cost estimate of the equipment. Moreover, the report should detail measures taken or to be taken to insure proper maintenance, preferably by contracting a private company. Cost Recovery. See para. B (s) Urban roads. D2. Green and Recreational Areas The costs of these subprojects should be usually less than US$0.5 million and therefore, should be appraised more rapidly. a) Pre-Screemina of Subproiects (i) the proposed location should be marked in a suitable map of the area, showing that the facility is accessible by foot or collective transport; and (ii) the report should give the status of the existing facility of the same type, its number, and its location in the city. b) Proiect Desian (M) An engineering study should detail the proposed infrastructure; and (ii) Cost estimated of the subproject should be based on unit prices obtained from recent contracts. C) Proieat Justificatn (i) Local Government should justify the subproject, based on unsatisfied social and sanitary criteria; (ii) The proposed subproject should represent the least-cost solution to satisfy the needs; and (iii) The means to operate and maintain the infrastructure should be assessed with involvement of the private sector if needed. d) Cost Recovery Municipality needs to recover most of the cost of the subproject, including operation and maintenance, from users through entrance fees and/or leasing of food and drink booths. - 95 - NMX 7 Page 14 of 20 R. Productive Facilities W1. Presentation a) Descriptive Memorandm (i) A general description of the area, and the local economic activities, characteristics and social/geographic/demographic features; and (ii) A description of facilities of the same kind already in existence, their sise, capacity, and service levels (e.g., number of animals slaughtered per week, number of days open, number of butcher shops/stalls). b) Analysis of Demand (i) A projection of annual demand over a period of 5-10 years (depending on the type of project) based on data from the following studies: - past and future trends in terms of population served by the project; and - past and future trends in terms of consumption of the service offered by the project (e.g., meat consumption. volume oi products in cold storage); (ii) Distribution of projected demand among the existing facilities of the same type and the infrastructure proposed by the project, when pertinent. C) Detailed 2echnical Study of the Project (i) Description of the nature of the project, its location and its objective within the framework of Communal Development; (ii) Location plan on an appropriate scale; (iii) Maps, sections of buildings (scale: 1:100); W.B.: It is recommeaded that standard plans be used whenever available. (iv) Technical specifications of the equipment; and (M) Cost estimatet - land; - site preparation (earth moving, etc.); - 96 - ANNEI 7 Page 15 of 20 - civil engineering; - plumbing, electricity, woodwork, etc.; - equipment and facilities. d) Financial Analysis of the Project (M) Projected operating costs (including personnel), maintenance costs, and project receipts over a period of 10 years starting from entry into operation of the project. If the project is an expansion of an existing operation, this financial projection should be carried out for the c&eration as a whole; and (ii) Calculation of the financial IRR for ojects costing more than US$1 million. e) Study of the rental andlor selline orice of the service The prices proposed by the borrower for renting and/or selling the service to the private sector should be analyzed in accordance with the characteristics and structure of the prices resulting from competitive bidding and should ensure 100 percent recovery rate. f) imct of the Project on the Municipality's financial situation Estimate of direct effectst debt service and possibly management and maintenance costs not covered by the Municipality's operating budget. Indirect effects (e.g., road maintenance costs, garbage collection co3ts). g) Project Execution Schedule An estimated schedule must be drawn up for the civil engineering works, the calls for bids and award of contracts, and the supply and assembly of project facilities. h) Units and personnel of the contracting authority responsibl* for execution of the aroiect Identification of the unit/agency and the number of technicians and their qualifications, either already on board or required: 1. for the project construction phase; 2. for project management and maintenance. Within this framework, a description will be given of the procedures and proposal for the collection of revenues. Priority should be given to project leased to the private sector; - 97 - ANB 7 Page 16 of 20 N.B. i Requirements in terms of personnel and/or technical assistance for earlier phases will also have to be identificd where pertinent. 3. On the basis of the data coatained in the above-mentioned dossier, MDA would prepare a project appraisal report, designed to ascertain that: (a) the project feasibility study (essentially parts B, C, D, E, and F) is based on a reasonable foundation; (b) the project execution procedures (essentially parts 0, 8, and 1) are practical in the light of the borrower's deadlines; and (c) the eligibility and approval criteria have been met and that the alternative selected is in fact the lowest-cost solution. 32: General Zligibility and approval Criteria for Subproiect Size of investment Categories: Small (A) Medium-sized (B) Large-scale (M) less than US$ 0.5 million US$0.5-US$1 million over Us$1 million a) ligibility criteria (for all investment, size, categories) * Nature of Proects Construction or improvemant of slaughterhouses, cold storage facilities, wholesale markets, and local markets; construction and development of Nsouks"; construction of bus terminal owned by the municipality, caf6s, public ovens, public steam baths, swimming pools, and tourism facilities. * Saturation of Caoacity 7 years with possibility of extension. * Technical Studv Detailed preliminary engineering, with detailed cost estimate. b) Auoval Crit-ei 1. For sise categories A and 3 (all trees of prolects) Annual receipts (rental and/or any other charges for services rendered) shall be sufficient to: - 98 - AM 7 Page 17 of 20 (a) cover all annual operating expenditures (e.g., personnel, equipment, energy, water supply) and regular and special maintenance; and (b) cover the larger of project depreciation or amortisation of the subloan, with effect from the start of operations. 2. For qred&2tive facilities imorovine the environment such as slaughterhouses, euistina saks and markets The same criterion as above, except for (b)s coverage of at least 50% of the larger part of profit depreciation or amortisation cost of the subloan. 3. Fbr sise category C. all tyes of proiect, in marticular slaughterhouses and cold storaae facilities Economic rate of return on the project higher than 12% per annum. - 99 - ANNEX 7 Page 18 of 20 RpULC OF TWrSIA WMUICIPAL SECTOR INVBSMEaNw PROJBC III. ENVIROMMENTML ASPECTS A. Environmetal Problems in the Project Cities and Municipalities 1. Many municipalities in Tunisia are faced with adverse environmental conditions resulting from, among otherst (a) uncollected garbage and open dumping and burning of solid waste; (b) unsanitary public markets and slaughterhouses; (c) dumping of animal waste from slaughterhouses into waterways; (d) inadequate sanitation and dumping of sewage into waterways; and (e) lack of proper drainage, causing stagnant water, and flooding. 2. These conditions have been brought about mainly through high national population growth, rising urbanization, and a lack of commensurate investment in basic infrastructure and municipal services. Rural life styles, such as the dumping of garbage and human waste in open waterways, are no longer acceptable in the cities with their higher population densities. 3. Existing infrastructure facilities are inadequate to meet the demand for services from the ever-increasing urban population. The capacity for service delivery has been further diminished because many of the systems are old and dilapidated and are unable to operate at peak efficiency. The increase in demand for services has also outpaced the ability of the national and especially local governments to provide additional capacity. The result is that levels of service are deteriorating and problems relating to environmental pollution and public health are increasing. S. Incorporation of Environmental Concerns in the Project Design 4. The MSlP comprises a large number of small-scale infrastructure engineering and municipal service components in a wide range of cities and municipalities throughout the country. It offers a good opportunity to local governments to make a significant impact in improving environmental protection. The problems in the areas of public health, sanitation, drainage and solid waste management, are all within the scope of the proposed project. Other aspects of environmental protection such as noise control and atmospheric pollution are beyond the scope of MSIP, although a minor impact in these areas may be achieved through improved traffic management procedures. 5. Environmental concerns would be taken into consideration in the formulation of investment programs under the project. As part of project preparation, the local governments would under the guidance of MDA and ANPSt (a) undertake a careful assessment of the possible environmental impact of each project component. This should include an evaluation of the effects and actions that one sector may have on another. For example, improved drainage may not be fully effective if solid waste - 100 - ANNEX 7 Page 19 of 20 collection is neglected, and road rehabilitation-may have a limited life if the area is subjected to frequent flooding due to inadequate drainage; (b) give careful consideration to the location and site selection criteria for high-risk facilities with the potential for causing pollution. These include solid waste disposal sites and slaughterhouses; c) provide alternative sites and adequate compensation to squatters and other residents displaced through the project; (d) obtain locational and design clearances from the responsible regulatory agencies, such as ANPE, for facilities such as landfills and slaughterhouses; (e) ensure that the project design includes adequate and effective safeguards to ritigate pollution problems; (f) develop, introduce, and monitor operational and management plans for facilities such as markets, slaughterhouses, and solid waste disposal sites to ensure that pollution and environmental damage do not coccur as a result of day-to-day activities; and (g) introduce a system of regular and routine maintenance to keep facilities in good operating condition. This would include activities such as drain cleaning and septic tank emptying. MDA would require the submission of an environmental assessment and its approval by ANPS as an eligibility criterion of the investment proposals submitted by the local governments during the appraisal of the subprojects. 6. Public markets and paving/rehabilitation of urban roads are expected to account for a large part of the investments under the project. The emphais will be on the rehabilitation of dilapidated public market facilities and attention will be given to providing: water supply for wet sections (fish and meat); drainage, refuse collection, storage, and removal; public toilets; and traffic management. 7. Landfill site and slaughterhouse investments have the largest potential for causing pollution and other negative impacts on the environment. The landfills and slaughterhouses will be designed to mitigate pollution, e.g., slaughterhouse designs will include facilities for the treatment and disposal of waste products and animals condemned as unfit for human consumption. Proper sanitary landfill methods of operation will be introduced and facilities designed accordingly; site drainage, fencing to control wind-blown litter and for security, and leachate control ;ystems will be provided. Detailed operational and management plans will be prepared for each landfill site showing the sequence of tipping, compacting and covering of cells. The provision of suitable material for covering and capping will be included in the operational plan. 8. To the extent that the environmental problems reflect weaknesses in the system in place in the country as a whole, system-wide solutions would need to be sought. First, although local and national governments are beginning to - 101 - ANx 7 Page 20 of 20 take a greater interest in the environmental impact of investment projects, the procedures to conduct a full environmental impact assessment are not necessarily in place. MDA with the help of ARRU and ANPE would develop environmental assessmect guidelines to be used in the review of subprojects in collaboration with ANPE and the Bank based on the Bank's Environmental Assessment Sourcebook. This would be carried out through a series of workshops for which the involvement of staff from ENTEM would be sought. Staff from the ANPE are expected to participate in these workshops. These guidelines would also provide a basis for local governments to conduct environmental assessments of their own investments and would be part of the environment training under the Municipal Training Program. 9. The prevalence of open dumping reflects the fact that sanitary landfil1 techniques and practices ire not well known in Tunisia. There is a severe thorta,e of skilled designers, managers, and operators able to effectively introduce this system, particularly in the provincial areas. A sub3tantial training program in the planning, design, construction, and operation of sanitary landfills is therefore urgently required. C. The Environmental Impact of the Project 10. Given the above provisions, the project is expected to have a positive environmental impact. There are significant health benefits to having clean and sanitary conditions at public markets and slaughterhouses for the preparation, handling, storage, and display of food for human consumption, particularly fish and meat. Slaughter-house improvements financed under the project would provide humane and sanitary facilities for the slaughter of animals for human consumption, reduce the incidence of illegal and backyard slaughtering, and enhance public health standards through more rigorous seat inspection and safer preparation, handling and storage practices. Improvements in flood control and drainage systems funded under the project should reduce flooding, damage to private property and infrastructure, and disruption to economic activities and social life. And, the proper disposal methods allowed by project-financed landfill investments should result in reduced air pollution frrm burning and possible contamination of groundwater. c:\j\tun\report\dpsar.an7 5/22/92 - 102 - REPUBLIC OF TUNKIIA MUNIC!IA SECTOR INVESTNENT PROJECT .. LOCAL GOVEyiMENTSBPROJEC? FINANCING of whickhBank's ____ ___ inanced by _ _ _ __ renancin7 Total- - Project coponents Cost Local revens Matching grants Borrowhgs. % of U38 M -tot- - ca! % USSM % USM M USS M USSM cost (19.5 29% , , 34J3 35% 41.i 37% *3.9 43.9' ~34% Roads & dralnage 75.0 30% 22.5 33% 24.8 37% 27.8 27.8 37% Public lighting 14.1 30% 4.2 33% 4.6 37% 5.2 5.2 37% Park. 5.6 30% 1.7 33% 1.9 37% 2.1 2.1 37% Sewerge 9.4 30% 2.8 33% 3.1 37% 3.5 3.5 37% Solid waste 12.2 20% 2.4 45% 1.5 35% 1.1 1.1 35% Watersappy 3.3 20% 0.7 45% 1.5 35% 1.1 1.1 35% Q.igi.g "20.4 40%, 8.~0 0% 0.0 60% 12.0 12.0 60% SUBTT* i ' $0.0 37%~ $4.1 40% 80. 3% 454 1.7 $6%~ B. TECHNICAL ASSISTANCE_______ Total haCerlban CatGv. enen - 103 - ANNx 9 Page 1 of 2 REPUBLIC Op TUNISIA MUNICIPAL SECTOR INVESTNENT PROJEC! INSTIMTIOMAL STRENhNING STUDIES INCLUDED IN THE PROJECT 1. Conditions for FCCL Revise FCCL allocation criteria to reduce DGCPL 30 atlocation resource disparitles and take Into HOF account needs of local governmnts Coordinator 2. Locat tax reform Implementation of the recawundations of DGCPL, HOF, 100 the couission Coordinator 3. Urban services provision Review cost recovery practice and DGCPL, HOF, 150 and cost recovery regulations, and propose measures for its Coordinator, simplification and Improvemont mOP 4. Procedures manual - Update, distribute municipat guidettnes DGCPL 70 - Develop internal procedures guldeltnes that have been tested in 5 pilot mnicipalitles 5. Municipal performance DeveLop periodical fottow-up indicators DGCPL 100 chart for municipal management 6. Reform of psLic local Simptify and woodernize current DGCPL 50 accounting and budgetirn regulations Coordinator 7. Napping of nwicipaLlties Provide municipalities with easy to use MDA 1,000 photos, maps, plans Coordinator 8. Municipalities data bank Develop financial data bank for MA 150 investment appraisal, locat tax reform Coordinator and P1C preparation 9. Hunicipal project manual Prepare guldetines for municipal project HA 150 identification, preparation, execution, Coordinator monitoring and completion. OP T.TA.... ....... ......... - 104 - ANNX 9 Page 2 of 2 INSTITUTIONAL STRENGTNENING COmPONENT SUNMARY OF COST (in thousands of TD) .....n.. ... . ... ....... Project Etnt 00CPL Training Coord nator D(.AR* U0F CPSC. TotaL Diretor ..cl . _ _ _ _ _ _ _ _ .....__ . . . ...___ ..__ __ <~a~ c > ..._ _ . _ .......... 1. Technicat 80 150 30 50 20 400 730 Assistance 2. Management 72 84 25 90 30 110 411 Tralning 3. Computer 90 140 40 80 30 130 510 4. Other Equipment 50 100 29 40 26 360 605 5. Mapping 1,mo 1,000 S___t_ta___,292_474 ¼ 24 :: 6O 106 3$0,256 6. MunicipaL Staff 1,400 1,400 Tralning 7. Training of 1,400 1,400 Young Graduates 8. Training of 172 172 Trainers 'srtotl: 2,972 _____ ____ __________ L7 9. Studies 400 100 300 800 A1,.692 3,446 124 26.. 06 ,3 7,02 * Direction Générale des Affaires Régionales (MOI) c*: 1' Iun\reDortid saren.an91 - 105 - ANNEX 1.0 REPUBLIC OF MUISIA MUWICIPAL SRCTOR INVESTMENT PROJECT ESTIMMTE DISSURSEMEM BCHEDULE IBRD Semester Estimated Cumulative Cumulative Estimated Fiscal Disbursement Total Disbursement Disbursement Year USS million US$ million Percentage Percentage 1993 First semester 0.8 0.8 1% 1% Second semester 6.8 7.5 10% 9% 1994 First semester 3.0 10.5 14% 4% Second semester 3.8 14.3 19% 5% 1995 First semester 3.8 18.0 24% 5% Second semester 4.5 22.5 30% 6% 1996 First semester 53 27.8 37% 7% Second semester 5.3 33.0 44% 7% 1997 First semester 6.0 39.0 52% 8% Second semester 7.S 46.5 62% 10% 1998 First semester 10.5 57.0 76% 14% Second semester 83 65.3 87% 11% 1999 First semester 6.0 71.3 95% 8% Second semester 3.8 75.0 100% S% c:\j\tan\report\mdpsaran.10 - 106 - Page 1 of 3 REPULC OF TUNISI MIUNCIPAL JWCTOR INVESTMENT PROJECT MONITORING INDICATORS l- -.-...-.....-... 99- -94 '19 -99 197 9 -99 20' 1996* . .. .......... Revenue on charges os % of Expenses Title I 20.2 20.0 19.8 19.8 19.7 20.2 20.7 21.2 20.1 Røvene on charges as % of Invest. 25.9 29.1 35.5 41.5 42.5 43.9 44.7 45.1 32.6 Døbt service coverage ratio (times) 2.4 1.9 1.6 1.5 1.4 1.4 1.5 1.6 1.7 Financin Dattern (X): sef-financing 14.2 13.4 13.5 14.3 14.1 15.6 18.5 21.6 16.7 gorrowings 40.1 30.7 33.5 33.6 33.9 33.4 32.3 31.2 34.9 Government 45.7 55.9 53.1 52.0 52.0 51.0 49.2 47.2 48.4 investments 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Revenueleverage total assets ( ) 3.22 4.01 4.38 4.65 4.76 5.16 5.55 5.90 Expenseslaverage total assets ( ) 2.01 2.71 3.28 3.72 4.04 4.02 3.93 3.78 Margin (%) 1.21 1.30 1.10 0.93 0.72 1.15 1.63 2.11 Revenues % X of average equity 4.17 6.23 7.74 9.19 9.87 10.49 10.88 11.03 Net fin. Inc. as % of avrge equity 2.44 3.05 3.09 3.04 2.65 3.42 4.21 4.91 Net income is % of avrge equty 1.57 2.01 1.95 1.85 1.49 2.33 3.19 3.95 Net income as % of avrge tot. assets 1.21 1.30 1.10 0.93 0.72 1.15 1.63 2.11 Debt serv. cov. w/out toan recov. (times) 2.02 1.70 1.13 0.94 0.57 0.64 0.72 0.79 0.80 Debt serv. cov. with tom recov. (times) 5.45 4.13 2.88 2.44 1.54 1.73 1.88 2.04 2.10 Loam Financin Pattern (: Net Internal cash generation 19.54 35.13 42.47 50.43 32.67 43.43 50.77 56.74 40.49 FCCL + Net goverrent transfer 3.04 -2.99 -9.01 -15.92 18.04 18.17 18.46 18.91 6.33 L.T. døbts (present & future) 80.70 79.73 83.09 87.89 52.08 35.43 26.99 19.28 58.34 Short-term Investuentt -3.03 •11.87 -16.55 -21.81 -2.79 2.97 3.77 5.07 -4.97 Total tons 100.0 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 Asset conwosition (X): Loans 99.09 97.18 95.09 92.79 92.80 93.43 94.12 94.96 Liquidity 0.80 2.75 4.87 7.15 7.16 6.55 5.86 5.04. Debt-equity 30.80 39.79 46.54 51.97 51.56 50.06 47.93 45.19 80 165 230 230 230 230 230 230 No. of trainina ssistons for current 66 66 66 66 anfiina stoff* No. of trainees tvoun araduates) 100 100 100 100 * Furhe n to - -d - ieve *Further Indicator* to b* devetoped per municipati ty. governorete, sector, tevet. - 107 - Page 2 of 3 REPUBLIC Op TUNISA KUMICIPAL BECTOR INVESTMENT PROJECT NONITORING INDICATORS 1. Conditione for CCL allocation x 2. Implementation of local tax x x x x reform 3. Urban services provision and cout X X X recovery 4. Procedure manual X X 5. Kunicipal performance chart X X 6. Reform of public local accounting X X X and budgeting procedurea 7. Mapping X X X X 8. Municipal data bank X X 9. Municipal project manual X X - 108 - Page 3 of 3 REPUBLIC OF TUNISIA MUNICIPAL SECTOR INVSTMENT PROJECT SUPERVISION SCHEDULS Pho ~ Date Days Mi saton Cosposition Areas of Concentration 1 Nov 92 10 Manag/Finan specialist Loan effectiveness; staffing, equipment, organiz- Training Specialist a: on of MDA. Training program, review of municipal Municipal specialist projects prep/appr., visit to municipat'ties. 1 Feb 93 10 Manag/Finan Specialist Staffing equipment and organization of MDA; training Training Specialist program; tax studies; procedures manual; review of Municipal Specialist municipal projects, prep./appr. 1 Jun 93 10 Manag/Finan Specialist Training program; prep. tax studies; review of Training Specialist municipal projects, prep./appr.; visit to Municipal Specialist municipalities. 2 Oct 93 10 Manag/Finan Specialist Review of municipal projects prep./appr. Training Specialist Review of local tax action plan; training program Municipal Specialist Review of MDA and project accounts; audit reports 2 Feb 94 10 Manag/Finan Specialist Review of municipal projects prep./appr. Municipal Specialist Local government management study 2 Jun 94 10 Manag/Finan Specialist Review of municipal projects prep./appr. Municipal Specialist Local goverment management study 3 Nov 94 10 Manag/Finan Specialist Review of municipal projects prep./appr. Municipal Specialist Review of local tax action plan Training Specialist Review of MDA and project accounts; audit reports. 3 Apr 95 10 Manag/Finan Specialist Review of municipal projects prep./appr. Nunicipal Specialist Local govt management study; visit to municipalities 4 Oct 95 10 Manag/Finan Specialist Review of municipal projects pre./appr. Municipal Specialist review of local tax action plan review of MDA and project accounts; audit reports. 4 Apr 96 10 Nanag/Finan Specialist Review of municipal projects prep./appr. Municipal Specialist Visit to municipalities 5 Oct 96 10 Manag/Finan Specialist Review of municipal projects prep./appr. Municipal Specialist Review of local tax action plan, training program Training Specialist Review of MDA and project accounts; audit reports. 5 Apr 97 10 anag/Finan Specialist Review of municipal projects prep./appr. Municipal Specialist Visit to municipalities 6 Oct 27 10 Manag/Finan Specialist Review of municipal projects prep./appr. Municipal Sptufatist Review of local tax action plan Review of MDA and project accounts; audit reports 6 Apr 98 10 Manag/Finan Specialist Review of municipal projects prep./appr. Municipal Specialist Visit to municipalities 7 Oct 98 10 Manag/Finan Specialist Review of municipal projects prep./appr. Nunicipal Specialist Review of MDA and project accounts; audit reports Training Specialist Preparation of completion report 7 Apr 99 10 Hanag/Finan Specialist Review of municipal projects prep./appr. Municipal Specialist Preparation of completion report 8 Oct 99 10 Manag/Finan Specialist Review of municipal projects prep./appr. Nunifcpal Specialist Review of local tax action plan Training Specialist Review of HDA and project accounts; audit reports. -AMM - 10 -md - 109 - ANNEX 12 REPUBLIC OF TUNISIA MUNICIPAL SECTOR INVESTMENT PROJECT SELECTED DOCUMENTS IN THE PROJECT FI&Z Selected documents and data available ir. project filet 1. Finances et Gestion Municipales en Tunisie. Rapport et Annexes. EM2IN. May 1987. 2. Municipal Finance and Management in Tunisia EM2IN. Report no. 7150-TUN. March 1988. 3. Séminaire sur les BAr.ques de Développement Local dans les Pays du Maghreb. EM2IN, EMTIN, EDI. Avril 1988. 4. Projet de Développement Municipal. Etule de Factibilité. SIDES, Groupe Huit, BREEF. - Rapport Initial. Mai 1989. - Rapport Intermédiaire, 2 Volumes. Décembre 1989. - Projet de Rapport Final. Juillet 1991. - Rapport Final. Octobre 1991. IBRD 23566R MEDITERRANEAN' T U N I S l A aT.a.a.rka a MUNICIPAL SECTOR s INVESTMENT PROJECT A°M'"' S .doub. 8 a GOVERNORATE DENSITIES: q". lnhabitnts / kilometers squared KGulf f Homofomeat l 0-50 r Kairouan% 51 -200 \ 201 -500 hdia 501 + Kanenöe POPULATION IN PRINCIPLE CITIES: "'i' Population in 1989 TUNIS AREA POPULATION APROX. 1,500,000 ac 200,001 - 350,000 50,001 - 200,000 E-Homma 25,001 - 50,000 0- 25,000 J-•drnd, Täamåoune SALT LAKES SELECTED CITIES GOVERNORATE CAPTALS - . GOVERNORATE BOUNDARIES by~Th A.. ~.0 31- ® NATIONAL CAPITAL d 0*2 , 'd"å",s.0» å,woIlofTheWorf~fänk INTERNATIONAL flf ~ my BOUNDARIES 25 IGLOMETERS MAY 1992