Mauritania - Water Supply Project

The World Bank POR OFFICIAL USE ONLY MICROFICHE COPY Report No. P- 5802-MAU Type: (PM) ReprtNo. P-5802-MAU POWERS, MA! X34835 / J9 119/ AF5IN MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TN THE AMOUNT EQUIVALENT TO US$10.5 MILLION TO THE ISLAMIC REPUBLIC OF MAURITANIA FOR A WATER SUPPLY PROJECT t MAY 21, 1992 Thi document has a restriced distribution and may be used by recpients only in te performane of their offical dutes. Its contents may not otherwise be discled without Word Bank authorzation.  (April 15, 1992) Currency Unit Ougudya (UM) = 5 Khoums US$ 1.00 = UM 80.00 1 UM = US$ 0.0125 SDR 1.00 = UM 106.40 FISCAL R Govemment, SONELEC January 1 to December 31 WEIGHTS AND MASUBM Metric system ABBREVTIONS AND NM AfDB = African Development Bank BOAD = Banque Ouest Africaine de D6veloppement CCCE = Caisse Centrale de Coopdration Economique CGE = Compapie G enral des Baux PH - Direction de 1'Hydraulique Cn MHE) BiB = Eurpea Invtment Bank EPIC = Enhtprse Publique b Caractbre Industrid et Commracial FAD African Development Fund FADES = Arab Fund for Ecnmic and Social Development GNP = Gross Nadonal Product IBRD Itmerati Bank for Reconstuction and Development ICB = Int nal Competiive Bidding ]DA = nteron Development Agenc KfW = Kredleanstalt filr Wiedeaufbau LCB = Local Compeve Biddig lcd = liter per capita LRMC = Long Run Marginal Cost m3 = cubicmeter = 1000liter MCr = Ministe du Commerce et du Tranport MH = M stre de I'Hydraulique et do l'Energl SAPA = Socit Arabe de Fer et d'Acier SAL = Structural Adjument Loan SAR = Staff Appris Report SDR = Special Drawing Right SMIG = Salaire Minimum p o Garanti SNIM = Societe Nationale Industrille et Minke SONELEC = Societe Nationale dTau et d'Blectricit TA = Technical Assistace TOR = Teras of Refrce UM = Ouguiya = S Khoums (Nationa currnc) USS = United States dollar  FOR OFMICL USE ONLY WATER SUPLYXZRQY CREDIT AND PROJECTSUMMARY Borrower: The Islamic Republic of Mauritana BeneficiMr: Societe Nationale d'Eau et d'Electricite (SONELEC) Am~imt US$10.5 million equivalent Terms: Standard, with 40 years m*tity Onlending Terms As a loan to SONELEC at a 4 percent interest rate, repayable over 20 years including 5 years grae ainaging IDA US$10.5 million France US$1.0 million * SONELEC US$2.3 million TOTAL US$13.8 million Economic Rate Of Retun:, 10 percent based on amounts paid for water as a proxy for benefts. Actual ERR will be higher as non tangible benefits (consumer surplus and health benefits) have not been taken into account. Staff AeRiora : Report no. 10469-MAU * Pim being ught fom PFmch souro This document has a festricted 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.  MEMORANDUM AND RECOMENDATION OF THE PRESIDENT OF TI IlDA TO THE EXECUTIVE DIRECrORS ON A PROPOSED CREDIT TO MAURlTANIA FOR A WATER SUPPLY PROJECT 1. I submit for your approval the following report and recommendation on a proposed development credit to Maritania for SDR 7.7 million, the equivalent of US$10.5 milko, on standard IDA terms with a maurity of 40 years to help finance a water supply project. 2. C=LAtor Background. Mritaia, a desert country with a very narrow resourebase, compris over 1,000,000 km2. Thepresentpopulation (1991) is estimated atjust over 2 million and is growing at approximay 2.9 percent per annum. As a result of declining economic prospects in Mauritania's rural areas, there has been substantal migration to urban centers from all parts of the coutry, except from the Senegal valley region, where some potential for growth exists. The largtst urban centers are Nouakchott, the capital (550,000 inhabitant), Nouadhlbou, the industrial capital (60,000 inhabins), Kaedi (40,000 inhabitants) and 5 other centrs with more than 30,000 people each. The availability of safe water and of adequate urban infratuctur plays a key role in the development of Mauritnia where rapid desertification is leading to an extremely high rate of urbanization (growth rate of Nouakchott: close to 11 percent per year). Half of Nouakchott's residents are housed in provisional shelters, and water supply, santo, waste diposal and health are critical problems. Poverty is rampant. Recent household srveys indicate tbat approximately half of the urban population of Maurania is considered to have an income below the reltve poverty treshold of US$275 per year (UM 22,000). Only 18 percent of the population has direct access to clean piped water; the remainder is served by prvaed standpipes or by water vendors who resell water purchased from these standpipes. No alterntive resurces are avalable in this desert environment Ihe inadequate availability of safe water and sanitation facilities contribute to a high rate of disease among the population. Among the four leading diseses in Mauriania ree are water-elated, I.e., diarrhea, conjuncdvitis, and dysentery. These health problems are paricularly severe in the peripheral settlements of Nouakchott. 3. Responsibility for urban water supply is entusted to the Societe Nationale d'Eau et d'Electricit4 - SONELEC (the water and electricity public utility). IDA's involvement in the water sector has been through a series of public enterpriseltehnical assistance projects where progress was made to strengthen and restrucure public enterises such as SONELEC. Continued impleenotation of instittonal and financial reforms as well as leak and fraud detection are needed (i) to reach ful cost recovery and address current sectoral constraints related to the difficult economic situation of the country which have made Government arrears endemic and have led to the avoidance of tariff increases, and (d) to make opdmal use of the limited water resurces available. 4. oectObjectives Ipreposedprojectwouldimprovepublichealth and living conditons by increasing the quaity and quantity of potable water available to about 160,000 residents (25 percet of Nouakchott's population) and would assist the Govermment to strgthen SONELEC to enable it to admbis the sector more effectively. In specific terms, the project alms to: (a) to improve water supply service levels and alleviate poverty in Nouakchott by  -2- providng an adequate quantity of safe water . the poor section of the population at an affrdable price; (b) to achieve fancal discipline and accomplish financial self-sufficiency of the urban water supply subsector, leating to sustained sector development (c) to Improve sector mana,gement by strengthening the planning and appraisa capabilities of SONELEC, its financial and adminstrative departments, and its operating and maintenance procedures; (d) to foster efficient groundwater management and protect and etend the finite life of Nouakchott's ondy easily exploited water source; and (e) to improve donor coordination and induce other donors to participate in the fincng of a program securing an adequate water supply for Nouakchott in the medium term. S. Prqect PesLdgJho. Ihe proposed IDA project is a coherent set of actions, covering the first part of SONELEC's medium-term investment program for the water sector. The project covers the most urgent rehabilitation and extension works and lays the technical groundwork for the other works Included in the investment program. The project includes two hydrogeological studies; the first will involve the monitoring of the advance of the saline front tows cds the exsting Idini wellfield; the second will recommend how to manage additional water emt Xion out of the Traza aquifer, startig with the Tenadi wellfield, and wiUl include the prepartion of a long term water supply master plan for Nouakchott, after the Trarza aquifer will be exhausted. The project also includes a leak detection and repair program. Repairs will be carried out as the survey progresses. The project would finance the supply of urgendy required spare parts, materis needed for the construction of 6000 house connections and 100 standpipes and misllaneous equipment. The house connections and standpipes will be installed by SONELEC with the help of local cottractors or by direct labor. The project also includes the cnstruction of an etension of the distibution network to the northern and poorest suburbs, as well as the preparation of final design and bid documents and works supervision. In these suburbs, the population has practically no access to water, except through very expensive water vendors. Ihey will be provided with privately operated public standpipes where the population can buy water at a fraction of the prices charged by water vendors. in addition, the project includes the preparaion of bid docummens for the supply contracts and the leak detecton and repair program, ad-hoc technical assistance to SONELEC, in particular a hydrogeologist to assist in the monitoring of the salt water iusion into the Tra aquifer, managemen assis e and miscllaneous studies such as audits, a social study related to the water vending system in Maurnia, and final stdies for the Rosso water supply system. 6. 1 SONELEC, under the uelage of the Ministry of Hydraulics and Energy, will implement the project. SONELEC is developing into quite a technically capable organization, particularly in the technical aspect of its responsibilities. It has implemented several earlier wat supply projects financed by other donors in a reladvely efficient manner. It is estimated that SONELEC will implement the project over a five year 7. eMit Susib. Ihe second contrat-programme includes a proviSion for automatic semi-annual tariff increases which will not only allow SONELEC to cover its operation and mainen expenses and serice its debt, but also to finance at least 15 percent of its investment program from interally generaed funds. In addition, SONELEC will be remunerated for its coms to opera and mainain the sewerage network, a service for which it was not previously compensated.  8. ~ TLesn Learned from P ID volym . The project closely follows the lessons of the ongoing projects, in particular the P.E. Rehabilitation and Technical Assistance Project (Cr. 1567-MtAU) and the Public Enteprise Sector Instition Development and Technical Assistance Project (Cr. 2167-MAU). The rehabilitation of SONELEC has been pariay achieved through the imple ion of the *contrat-programme" signed in 1989 by the Governmnt and SONELEC, which was sponsored by IDA and which was the first one in Mauritaia and was carried out within Cr.1567-MAU. The proposed project would enable the strengthening of the operational capabilities of SONELEC through continued technical assistance and the introduction of a second contrat-programme to be in effect on June 12, 1992. The problems encountered in the ongoing contrat-programme notably Government's reluctance to increase tariffs and its inability to pay its water bills, have been addressed by having the contrat- programme be an integral part of the Credt Agreement. 9. Rationale for Bank n mn. The water supply sector in Mauritania remains grossly underdeveloped. Investments have lagged behind urban growth ad coverage is inadequate. Because properly functioning ii'rastructure is essential for the alleviation of the conditions of abject poverty that characterize most of the peripheral neighborhoods of Nouakchott and is also one of the prereqtisites for economic advancement, the development of an adequate and efficienly run water and electricity utility is crucial for the growth of Maitia. It is esfimated that at least 50 percent of the beneficiaries of the project are from the poorest segment of society. Considering the poverty alleviation objectives, the wnlending rate of 4 percent and the low ROR on net revalued fixed assets in operation is justified on the grounds of keeping the water tariffs affordable. Ihis interest rate will result in water tariffs approximaely equal to the long run marginal costs. IDA's catalytic involvement has been and will be instrlmental in assistig the Government and donors to implement appropriate sector development strategies. It should also be effective in mobilizing additional externa resources. The high priority given by the Government to this project, as evidenced by the iniiaves already undertaken under the Public Eneprise Technical Assistance and Rehabilitation Project and the rapidity with which the first range of actions on tariffi and arrears have been taken, is a reflection of Government's strong commtment to insttute sound management principles and concepts. 10. Agred Actons. The major sector issue is the non-payment for water consumed by Govnent and the municipalities resulting from the country's precarious financial situation. In addWon, Goverment has been reluctant to implement the tariff increases as stipulated in the on-going contrat-programme. The result is that SONELEC remains in a prearious financial position. Agreement on the following actions and documents has been reached. (a) a tariff increase of 10 percent for both water and electricity, which was put into effect May 1, 1992; (0) settlement of the arrears due to SONELEC for water and electricity consumpion through 1991 in two steps, UM 232 million (which was settled before negotiations) and the remainder (UM 200 million) before effecdveness; (c) tariffs will be set at such that a rate of return (including financial charges) for water on net fixed assets in operation of zero percent in 1992, one percent in 1993, two percent in 1994 and three percent from 1995 onwards will be obtained;  -4- (d) a new conatprogramme which was signed on April 16, 1992 inclu45ng Gover nt commitments: (1) to allow SONE-MC to nese tariffs automtically by 7.5 percent every six months strting in Jamnary 1993; (I) to allow SONEEC to propose additional tariff inreases to take account of unforesee changes in its costs structure resulting from economic policy changes; and (Hii) ta SONELEC maintail a debt-equity rado of at most 60 percent; (e) a letter of sector policy; f an enionmenta assessment and environmental management plan; and (g) tat bid domen for the major civil works contcs will be ready before effectiveness. More specfically, conditions of effectiveness are: (a) the entering into a Subsidiary Loan Agreement between the Government and SONELEC; (b) the contrat-programme ratified and declared effective; (c) setdement of the balance of the arrears (UM 200 million); (d) the recrukment of an independent auditor acceptable to IDA to audit SONELEC's accouts; and (e) the availability of bid documents for the major part of the civil works and supply of material conacts. 11. Enviental Aseet. Ihe proposed project will contribute to xending the fnite life of the non-renewable goundwater resources of the Tram fossil aquifer through funding of more efficient groundwater management practices, groundwater monioring and tchic assisance programs. Full consideration has been given to mimizing any poial iwpact at aU stages of the project cycle. The proposed repair program for the distribution network wi increase pressres in the distbution system and minimize the poteni for pollution of the system during low pressure periods. The increased water system pressure wil also allow the exnion of the distibution system into the distant periphery areas of the city where many of the poorer sections of the population live. The center of Nouachott is equipped with a sweage system. A study is proposed for the safe re-use of treated sewage for irrigation, which will ameliorate the present suation where untreated sewage is used to irrigate food crps. The soil and groundwater conditions in the low population density areas are conducive to waste water disposal by individu istallations ines, seepage pits). An envronm impact study of the project was carried out by SONELEC for the first tme, with the assistance of an environ seialist. The report will be made available to the public for review, and is included in the Project File. The coopation that this project will necessitate among the various Government services involved wil contribute substantially to strengthening the Government's capabilities in deang with evir e and public health coN erns. 12. Pzggo wectbie canxtigrm. Since approximately 160,000 of Nouakchott's poorest inhabitants wM be served by the project, the project wiUl have a sbtant poverty aleviation impact, not only through improvements In their living conditions, but also by a reduction in the price they pay for water. As well, safe driing water is one of the most important basic human needs and is indispensable for sustaining and enhancing life. Social and economic benefits also are to be gained from access to a clean and reliable supply of water. The project will also contbute baaly to improving te management of a public utflity and to improvw endI tl management.  -5- 13. to=BeR s. The proposed project is justified by the universally recognized fact that the provision of an adequt quantity of safe water is a basic necessity for the maintenance of good health and productivity. Ihis justification is enhanced by the fact that the additional inhabitants that will be served - approximately 60,000 througb household connections and 100,000 through standpipes - belong to the poorest segments of Nouakchott's population. For these people, the project will have a substantial poverty alleviation impact, not only through improvements in their living conditions, but also by substanaly reducing the price that they pay for water (water vendor rates can be ten times or more the SONELEC tariff). In addition, the provision of adequate infrastructure, including water supply, is a prerequisite for economic development. In particular, the supply of water to the capital city of Nouakchott, will lift constraint on urban development. Ihe project will also improve the efficient allocation of a rare national resource, water", and it will promote wate conservation and reduce wastage. Moreover, if the project would not be realized by 1996, according to groundwat exts, salt water intrusion could permanently damage the Idini wetlfield and substantilly reduce the fuure water resources available for Nouakchott. Thus the project will contribute to avetng a major environmental problem. Lastly, the project has enhanced donor coordinaton as a result of close cooperation with prospective cofinanciers during preparation and makes an effective contribution toward the development process in Mautania 14. Rlak. The risk of not implementing the physical components of the project within the set time frame is small. SONELEC has demonstrated that it is capable of implemening similar size inwestment projects. Additionally, SONELEC will be assisted by consultants in project design and supervision, and technical assistance will be provided to strengthen its project management capacity. However, the risk of not achieving the institutional and financial objectves within the set time fama is not negligible. The precarious economic and tigbt financial situation of the country will make the reappearance of arrears to SONELEC possible, nwithstadingGovernment assurances dtat fiture payments will be made within legal time limits. The impact of this risk is minimized by covenants allowing the Assciaon to suspend disbursements in case payments are more than 90 days in arars. Equally, tarff increases are unpopula measures for the Government to takle; the introduction of automatic semi- annual tariff increases supported by appropriate covenants wil encourage the Government to honor its commntma 15. R2MMend2t;Ons. I am sadsfied that the proposed credit would comply with the Aricles of Agreement of the Association and recommend that the Execudve Directrs approve it. Lewis T. Preston President Atacmnts . Washington, D.C. May 21, 1992  -6- ScheduleA WATER SUPLY ESTIMATED PROJECT COSTS lProjaest Co$ EtmM=e UMm mviion uUS$ millol Hydrogeological monitoring of the Idini wellfield 20 0.25 Hydrogeological study for the Tenadi wellfield 80 1.00 Leak detection and repair program 168 2.10 Rehabiitation of the distribution network 80 1.00 Supply of urgendy required spare part 16 0.20 Supply of materis for connections and 80 1.00 standpipes Purchase of miscellaneous equipment 24 0.30 Construction of house connecton and standpipes 20 0.25 Expansion of the distrbuion system 3 3.80 Final design and works supervision 30 0.38 Study of Rosso water supply 29 0.36 Preparation of tender documents for Part 1 8 0.10 Technical assistance, and miscellaneous stdies 40 0.50 Subtotal 899 11.24 Physical contingencies 133 1.66 Price contingencies 70 0.90 TOTAL 1102 13.80 Amounts may not add up because of rounding.  -7, Schetul B Page 1 of 2 MAUREfANIA WATE3R SUP=LY RQTh PRMQCMENT METHO(DS (US$ millions) Procurement Method Total Project lElement ICB LCB cost Civil works and pipe 4.7 1.3 0.3 6.3 construction (4.7)11 (4.7) Supply of materia and 3.8 - 0.5 4.3 equipment (3.8) (0.4) 2v (4.1) Consultant and TA - 3.1 3.1 (1.6) 3 (1.6) TOTAL 8.5 1.3 4.0'4 13.8 (8.5) (0.0) (2.0) (10.5) Noe: 1/ Figures in parese ar the respective amounts financed by the Bank credit 21 Includes propriory spae paut. 3/ ProcurWed n accordance with Word ank guideline. 4/ Figures may not add up due to rounding.  - 8- Scbedu!e, B Page 2 of 2 MAUREAIrAA WATER SUPPLY PROECT DISBURSEMENIS Category Amount of Credit % of expnditure US$ million to be financed 1. Civil Works/Pipe construction 4.00 100 2. Supply of materials and equipment 3.50 100 3. Studies, TA and training for SONELEC 1.50 100 4. Rimbursement PPF 0.50 l 5. Unallocated 1.00 l TOTAL 10.50  -9- WATER SY POJX Tmetable of Koyt Pmcessg Ev (a) Time taken to prepare: 6 months (b) Prepared by: SONELEC and consultants, and IDA - Ms. Powers and Mr. Van Beuzekom (c) First IDA mission: October 1991 (d) Apprais mission dqparure: Febnrary 15, 1992 (e) Negotiatiors: April 30, 1992 (f) Planned Date of Effectiveness: October 1992  PAGE 1 Schedule D Run Time: 05/18/92 at 14.57.43 MAUR ITMNI A Status Of Bark WP Operations In MAIRITANIA PFDBR25 - Sumnary Stateent Of Loans und IDA Credits (LOA data as of 4//2 - MIS data as of 05/16/92) y CoMuntry Country: MAURITANIA Awurit In USS milion (less canoeliations) Loan or Fiscal Undls- Closing Credit No. Year Borrower Purpose Bank IDA bursed Date Credits 20 Credits(s) closed 134.12 015670-rA 1885 MUALRITANIA PULIC ENT TA & RENA 16.40 1.99 12/31/92(R) C157104rA 1985 ARITMANIA SMALL SALE IRRIGATI 7.50 4.35 06/30/98 C15720-4TA 1985 MAURITMANIA lOt 11 5.25 3.92 12/31/91 C1B580W rA 1986 MAURITANIA LIVESTOCK 11 7.80 8.23 06/30/95(R) C18850WMTA 1988 MAIMITANIA DEVELOP. MWT 10.00 3.83 12/31/94 C1943 W TA 1989 MAURITANIA EDUC.SECTOR RESTRUCT 18.20 9.37 06830/94 C20930-TA(S) 1990 MARITANIA AG SECAL/IRRI6 IGiRO 25.00 15.32 12/31/95 C2180-ITA(S) 1990 MAURITANIA P.E. SECTOR ADJ 40.00 23.18 12/31/92 C21B70-iTA 1990 MAURITANIA P.E. SECTOR INST DEV 10.00 6.98 06/30/98 C21662-MTA(S) 1992 MA.RITANIA P.E. SECTOR ADJ 2.50 2.60 12/31/92 C23a1104TA 1992 MAURITANIA POP HEALTH 15.70 10.17 08/30/98 TOTAL nuebr Credits a 11 158.15 93.92 LoOM 3 Loam(s) ciosed 148.00 All closed for MAURITANIA TOTAL ruder LaMs . 0 TOTAL*" 146.00 292.27 of which repaid 119.85 6.58 TOTAL held by Bark & IDA 28.15 285.70 AmLmut sold 683.35 of which repaid 63.35 TOTAL unrl6bursed 93.92 Notes: * Not yet effective ** Not Yet signed *Total proved, Repayments, and Outstanding balanco represent both active and Inactive Loans and Credits. R) Indicates formally revised Closing Date. S) Indicates SAL/SECAL Loans and Credits. The Net Approesd and Bark Repayments are historloal value, all others are market value. The Silning, Effective, and Closing dates are based upon the Loan Department off ical data end are nDt taken from the Taisk Buzget file.  I MAP SECT16N .  IBRD 16452R rfw|AURITANIA A F R I C A MAURITANIA . 5. ~~~~~MOROCCO _PAVED ROA0S __ PAVED ROAOS UNOER CONSTRUCTON 2O C - LATEIRUEARTH ROAOS 7