Morocco - National Water Supply Rehabilitation Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 16306 IMPLEMENTATION COMPLETION REPORT KINGDOM OF MOROCCO NATIONAL WATER SUPPLY REHABILITATION PROJECT February 1997 Private Sector Development, Finance, and Infrastructure Division Maghreb and Iran Department Middle East and North Africa Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  EXCHANGE RATE Equivalent in DH of US$1 At appraisal 8,4882 At closing date (June 1996) 8,8018 FISCAL YEAR January 1 - December 31 Annual averages 1987 8.3263 1988 8.2029 1989 8.5041 1990 8.2740 1991 8.7497 1992 8.5479 1993 9.3437 1994 9.2339 1995 8.5753 1996(June) 8.8018 ABBREVIATIONS AND ACRONYMS AH Administration de l'hydraulique DEPP Direction des Entreprises Publiques et Participation DGH Direction Generale de l'Hydraulique DRSC Direction des Regies et des Services Concedes FEC Fonds d'Equipement Communal MF Ministry of Finance ONEP Office National de l'Eau Potable PU Project Unit RAD Regie de Casablanca RADEEF Regie de Fez RADEEJ Regie d'EI Jadida RADEEM Regie de Meknes RADEEMA Regie de Marrakech RADEEO Regie d'Oujda RADEET Regie de Tadla RAK Regie de Kenitra RAID Regie de Tangier RED Regie de Rabat SAR Staff Appraisal Report UDMP Urban Development Master Plan Vice President Mr. Kemal Dervis Director Mr. Daniel Ritchie Division Chief Mr. Amir Al-Khafaji Responsible Staff Mr. Fathi Ben Slimane, Sr. Financial Analyst Mr. Sergio Calegari, Sr. Sanitary Engineer  FOR OFFICIAL USE ONLY KINGDOM OF MOROCCO NATIONAL WATER SUPPLY REHABILITATION PROJECT IMPLEMENTATION COMPLETION REPORT TABLE OF CONTENTS Preface ..................................i Evaluation Summary ..................................i PART I: Evaluation of the Project by the Bank ..................................1 A. Statement/Evaluation Of Objectives .................................1I B. Achievement Of Objectives ..................................2 C. Major Factors Affecting The Project .............................. 5 D. Project Sustainability ..........................6 E. Bank Performance ............................7 F. Borrower Performance ............................7 G. Assessment Of Outcome ..........................8 H. Future Operations ............................8 I. Key Lessons Learned ............................8 PART II: Statistical Tables Table 1. Summary of Assessment Table 2. Related Bank Loans/Credits Table 3. Project Timetable Table 4. Loan/Credit Disbursements: Cumulative Actual and Estimated Table 5A. Key Indicators for Project Implementation Table 5B. Performance Indicators Table 5C. Financial Indicators Table 5D. Financial Statements Table 6A. Action Program Table 6B. Sector Program Matrix Table 7. Studies Included in Project Table 8. Project Costs and Project Financing Table 9. Economic Costs and Benefits Table 10. Status of Legal Covenants Table 11. Bank Resources - Staff Inputs Table 12. Bank Resources - Missions APPENDIX: Borrower's Contribution to the ICR 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.  . ..... |  KINGDOM OF MOROCCO NATIONAL WATER SUPPLY REHABILITATION PROJECT IMPLEMENTATION COMPLETION REPORT PREFACE This implementation completion report relates to the National Water Supply Rehabilitation Project (Fourth Water Supply Project) implemented in the Kingdom of Morocco, under Loan No. 2825- MOR for US$60 million. This loan was approved on June 2, 1987 by the Bank's Board of Executive Directors, was signed on June 27, 1987, and became effective on April 22, 1988. It was closed on June 30, 1996. The last disbursement was made on November 5, 1996. As of November 5, 1996, a sum of US$57,683,424.66 had been disbursed, thus leaving an undisbursed amount of US$2,316,575.34, which was canceled as of that same date. This report was prepared by Fathi Ben Slimane (Senior Financial Analyst, MNIPI) ;r.d Mohamed Larbi Khrouf (Consultant), and verified by Amir Al-Khafaji, Division Chief, MNIPI and Rend Costa, Project Advisor, MN I DR. The preparation of this report was started by a Bank mission on July 8-26, 1996, followed by a mission by a consultant on September 9 through October 4, 1996. Comments were received from Sergio Calegari (Senior Sanitary Engineer), and Mr. Alexander Velderman, Sanitary Engineer who supervised the project until 1992, and other staff and incorporated into the final report. The borrower has prepared its own evaluation report, a copy of which is included as an appendix to this ICR.   KINGDOM OF MOROCCO NATIONAL WATER SUPPLY REHABILITATION PROJECT (LOAN 2825-MOR) IMPLEMENTATION COMPLETION REPORT EVALUATION SUMMARY Objectives Set by Appraisal 1. The main development and implementation objectives of the National Water Supply Rehabilitation Project were to increase the productivity and the coordination of public investments in the water sector, and increase the efficiency of the facilities, essentially by: (a) developing the Government's and water supply companies' performance and capabilities to identify, prepare, appraise, and monitor projects; and (b) improving sector management and investment planning, as well as rehabilitating existing facilities. These objectives were of vital importance to Morocco. However, they were deemed very ambitious and difficult to achieve taking into account the status and number of sector institutions involved including the regies, Office National de l'Eau Potable (ONEP), and Direction Gen6rale de l'Hydraulique (DGH). 2. The SAR highlighted various risks related to the political support required for the various reforms, specifically those pertaining to organizational, financial, and managerial reforms, including: settlement of arrears, tariff adjustments, and the managerial and financial autonomy of the regies. It was considered that these risks could be minimized by frequent supervision of the project. Achievement of Development Objectives 3. The project objectives were partially achieved. Tables 6A and 6B in part 2 of the report illustrate the various reforms and measures achieved. The most important were the creation of the National Water Council and promulgation of the Water Code. In regard to the arrears, an effort was made to settle the arrears as of December 31, 1986; however, the situation deteriorated thereafter, essentially for two reasons: lack of monitoring of the collection procedure put in place, and failure to take works invoices into account. The Bank has drawn the Moroccan authorities' attention to the necessity for further and continuous actions. A second action was taken to settle the arrears as of December 31, 1992, and new procedure for collecting administrative and municipal arrears have been under implementation since 1993. ONEP is in charge on behalf of all regies to follow-up and enforce the procedure which has helped so far to reduce the arrears. 4. Financial performance targets as set in the SAR were too ambitious. Tables 5A to 5D show key performance indicators achieved by the regies and ONEP. It was expected that the regies would generate revenues from internal sources, exclusive of customer contributions, not less than 30 percent of their annual investments, and that ONEP would generate revenues of 15 percent in 1987, 20 in 1991, and 30 in 1992 and thereafter. ONEP was also expected to generate net revenues to cover 1.3 times its debt service for each year. In addition, the r6gies and ONEP were to keep the level of arrears at a maximum of three months of billing. The water tariff adjustments among others, are considered the key actions to reach these performance targets. During project implementation, however, these adjustments were not regularly made and the loan was suspended for more than five months in order to obtain compliance with tariff adjustments and other loan covenants, especially signature of a performance contract, and preparation of investment  ii programs. Although tariffs were adjusted several times between 1985 and 1995, the above financial performances were reached only by including customers contributions (para.6 of Part I). 5. ONEP performed satisfactorily. It strengthen its structures, put in place an appropriate methodology for identifying and executing rehabilitation works, and created a specialized directorate for this activity. ONEP also improved its managerial capacity, developed its information technology system, trained staff, adopted the new national accounting system, and signed implementation performance contracts with the State. 6. Most of the institutional actions were completed with delay, while others are still being implemented under the ongoing Fifth Water Supply Project. More autonomy was granted to regie managers in awarding contracts (1994), and the new national accounting system is still being put in place in the regies. The ongoing actions include studies of an information management system and of financial management for the regies. The study of the regies' training needs, and the preparation of performance indicators for ONEP and the regies, were canceled. DGH achieved its goals. New equipment and software designed to strengthen its capabilities is in place and all DGH staff have been trained appropriately in the use of this equipment. Achievement of Implementation Objectives 7. Most of the physical components increased in size, except the rehabilitation of networks component. The regies' subprojects were not well identified at appraisal level. It was agreed that each regie, with the assistance of the Project Unit (PU) created in the Direction des regies et services concedes (DRSC), would appraise its subprojects and its institutional capabilities and submit the appraisals to the Bank for approval and disbursement. This resulted in several changes in the scope and components of the regies' subprojects. ONEP introduced a new component, for strengthening production in the city of Ben Slimane. All the water supply master plans were completed and have provided each regie with a tool for planning and managing their water supply activities. 8. The studies carried out for DGH (Table 7 in Part II) covered other river basins in addition to the Southern Atlas basins originally planned. The environmental impact study of the M'Jara dam was also included, together with a study of cost recovery for water mobilization. The national water resources master plan was delayed until completion of all above mentioned studies. It is included in the Water Resources Management Project financed by the Bank. Major Factors Affecting the Project 9. The conditionalities for disbursing loan proceeds, the scope of the project (national rehabilitation works), and the complexity and multiplicity of institutional and sector components, combined with the regies' lack of familiarity with the Bank's procedures, largely accounted for the delays that occurred with the first disbursements. Other delays were caused by the centralized and cumbersome procurement procedures, which were reviewed late 1994 to give greater autonomy to the regie by increasing the thresholds for prior review of procurement. The daily interference of the oversight bodies, Ministry of Finances (MF) and Ministry of Interior (MI), in the r6gies management; the accumulation of arrears; the lack of appropriate tariff adjustment; and the lack of data and weak absorptive capacity of the institutions. Some r6gies were not fully convinced that they should participate in the project, for several reasons: the small amounts allocated to them, unbalanced institutional and financial covenants, and lack of knowledge of the Bank's procedures. The lack of feasibility study and particularly the absence of master plans at the time of appraisal led to poor design and identification of the subprojects. The absence of cooperation among the  regies also brought about delays in carrying out studies that were intended to benefit all of them. 10. The cost of ONEP's project components increased, except for the component related to rehabilitation of facilities. The increases resulted from essentially poor project design and evaluation of works and the addition of a new component (Ben Slimane). The regies' subprojects were reviewed and modified several times after appraisal to meet their urgent needs for rehabilitation. DGH's project components changed, several new studies were introduced. Implementation Delays 11. A.bout nine months elapsed between signature of the loan agreement and loan effectiveness. ONEP started slowly and the completion dates were behind schedule. Delays varied according to the importance of the subprojects. The increased size of components also brought about longer implementation times. The regies took longer to start their subprojects because of low absorptive capacity and the conditionalities put before them, in particular submission of a design and appraisal reports for their subprojects, and assessment of their financial performance. Some subprojects were completed by the closing date of the loan, while some others will be completed under the ongoing Fifth Water Supply Project. DGH completed its master plans and information management studies between 1992 and 1996 because of difficulties encountered to gather information related to water supply, irrigation and hydroelectricity sectors. Project Sustainability 12. The Moroccan authorities recognized the positive impact of the project on the development of the sector, the value of the rehabilitation works, and the value of planning instruments put in place. The performance agreement and protocol signed between the Government and the water companies in 1993 highlighted all commitments and obligations of concerned parties regarding financial and managerial autonomy of the water companies, as well as the performance indicators to be achieved, and this has become an adequate framework for development of the sector. However, it would have been more appropriate to better design the project, adapt its scope to the beneficiaries' absorptive capacity, combine work and supply of pipes in same contracts, and to provide for more private sector participation in water supply activities. Bank Performance 13. Bank's performance has improved over time. Its attention and effort were geared from the identification stage toward reaching consensus among water sector operators on the sector issues and means to overcome sector shortcomings and inefficiency. The lengthy discussions on sector development and policy ended up with a project that covers almost all the institutions involved in the water sector. The Bank should have paid more attention to target the most urgent and achievable sector development goals, and to the involvement of selected regies in project identification and preparation. On average, two supervision missions per year were carried out to oversee project implementation. However, the missions focused, beginning in early stage of implementation, more on the physical components and financial management, and progressively, put more and more emphasis on the institutional and administrative components. Borrower Performance 14. The borrower's performance varied from one beneficiary to another. The performance of ONEP and DGH during project preparation was satisfactory, while the regies performed poorly,  iv probably because they had not participated actively in the identification, preparation, and appraisal stages of the project. Assessment of Outcome 15. Even though the project started slowly and faced implementation difficulties at the early stage, it acheived basic policy and institutional reforms, and laid the foundation for further sector development. In that basis the project overall performance is deemed to be satisfactory. The r6gies, since completion of the project, now have a good planning and management tool (water supply master plans), and the quality of their financial data has been improving since the introduction of external audits, enforcement of management system study recommendations, and adoption of the national accounting system. DGH, after completion of the project, now possesses tools for planning and strategy based on its studies of water resource development plans of several river basins. Rehabilitation works have reduced unaccounted-for water and costs. Water tariffs have been adjusted frequently since 1993 and, as a consequence, the Government was able to discontinue subsidies to ONEP beginning in 1995. Future Operation 16. The berneficiaries will continue to operate and maintain project supported facilities in keeping with good operating and maintenance practices and, in particular, will ensure that leak detection programs remain in force. It is therefore, envisaged that water losses will be further reduced and network efficiency will be sustained. The project was catalytic in bringing other donors and financiers (Federal Republic of Germany and France) to participate in financing the development of the water sector through similar projects. The Bank has continued its intervention in the sector and reinforced the above activities by providing financing for the Fifth Water Supply project involving ONEP and six of the largest regies. In that respect, this project was considered a pilot project. Key Lessons Learned 17. The institutional reformns identified at appraisal were important but overly ambitious. It would have been preferable to concentrate the reforms on the largest regies and later duplicate them progressively in the other regies, and to have limited the conditionalities and agreements to those the regies were capable of achieving. The conditionalities set for appraisal, Board presentation, and effectiveness discouraged some regies from participating in the project and caused delays in implementation. 18. Other lessons include: (a) future master plan studies should be based on the most recent Urban Development Master Plan (UDMP); (b) it is desirable that cooperation among the different regies be instituted; (c) it is also recommended that the regies participate in the process of identifying, preparing and appraising the subprojects as well as selecting auditors and discussing audit reports before issuing the final version; and (d) the project did not cover studies for strengthening commercial activities in the regies, which were identified as a weaknesses of these institutions. Future projects should include such studies when appropriate, and their scope should be adapted to the beneficiaries absorptive capacity.  KINGDOM OF MOROCCO National Water Supply Rehabilitation Project (LOAN 2825-MOR) IMPLEMENTATION COMPLETION REPORT PART I: EVALUATION OF THE PROJECT BY THE BANK A. STATEMENT/EVALUATION OF OBJECTIVES Objectives Set at Appraisal 1. The main development and implementation objectives of the National Water Supply Rehabilitation Project were to increase the productivity and coordination of public investments in the water sector, and to optimize the use of water, essentially by: (a) developing the Government's and water supply companies' capabilities to identify, prepare, appraise, and monitor projects in accordance with clearly defined economic and financial criteria; (b) improving the water supply companies' performance and reducing their dependence on budgetary transfers through appropriate reforms of their structure, finances, and management; (c) upgrading the management systems of these institutions and increasing the productivity of the water production and distribution facilities; (d) rehabilitating the existing facilities to increase efficiency and reduce operating costs; and (e) improving sector management and investment planning by establishing a National Water Council, a Sector Investment Coordination Committee, and passage of the Water Code. 2. To achieve these objectives the project identified a number of technical, institutional, financial, and administrative actions representing a total estimated cost of US$128.3 million with a foreign exchange component of US$60 million, all financed by a loan from the Bank (Table 8). The technical components included the rehabilitation and/or construction of water production and distribution systems, supply of meters and leak detectors, preparation of studies for water supply master plans, study of water resource development in the river basins south of the Atlas mountains, and preparation of a national water resources master plan. 3. The institutional and administrative aspects included components to enforce the functioning of the National Water Council. They also included: (a) creation of a Sector Investment Coordination Committee; (b) a study on the optimum organization of the water supply sector; (c) creation of a permanent procurement committee in each regie; (d) technical assistance for evaluating, coordinating and helping supervise the execution of the subprojects; (e) definition of criteria for monitoring the performance of ONEP and the regies; (f) a study of an information management systems for the regies; (g) supply and installation of computer equipment for DGH, ONEP and the regies; and (h) a study of the regies' training needs. The financial aspects included study and establishment of cost accounting for ONEP and the regies, inventories of the regies assets, settlement of arrears, audits of ONEP's and the Regies' accounts by independent auditors, and adjustment of tariffs on the basis of targeted financial indicators.  2 Evaluation of Objectives 4. The objectives set for the project at appraisal were very ambitious and of vital importance for Morocco. They aimed at optimizing the use of water resources and strengthening the institutions' financial and managerial performance at the national level. This project was identified at a time when Morocco was reluctant to allocate funds from its budget for new water sector investments because of several years of drought. The project covered the AH, ONEP, 11 r6gies (5 of the 16 declined to participate), and the oversight authorities DRSC in the Ml and DEPP in the MF. The above objectives and related actions and project components had predictable implementation difficulties. The appraisal report mentioned a number of risks including the political support needed to introduce and implement reforms, in particular those relating to the settlement of arrears, tariff adjustments, and the managerial and financial autonomy of the regies. It was considered that these risks could be minimized by frequent supervision of the project. B. ACHIEVEMENT OF OBJECTIVES Development Objectives 5. Sector Policy and Financial Aspects: The project partially achieved its sectoral and financial objectives (Table 6A and 6B). However, this assessment does not apply equally to its numerous components. Almost all components were completed behind schedule, and some were canceled. The law establishing the National Water Council was not passed until 1995, the Water Code was not passed until August 1995, and the external audit of the regies' accounts only started in 1991. In addition, the creation of the investment coordination committee, preparation of a national water resources master plan, and study of optimum organization for the water sector were not achieved. On the financial side, a major effort was made to settle arrears as of December 31, 1986. However, the situation suddenly deteriorated and the arrears started to build up again, for two reasons: the process was not monitored regularly and the appropriate collection procedure was not implemented, and arrears related to work invoices were not taken into account. The Bank drew the Moroccan authorities' attention to the alarming arrears situation and urged them to take the appropriate actions to overcome this problem. As a result, a second action was taken to settle the arrears owed by the administrations and the municipalities to ONEP and the r6gies as of December 31, 1992 and a new procedure for collecting administrative and municipal arrears have been implemented since 1993. ONEP is in charge on behalf of all regies to follow-up and enforce the procedure which has helped so far to reduce the arrears. Based on the latest report from the borrower, the collection reach 90 percent of the consumption billed to the administration and about 81 percent of those billed to municipalities. 6. The project financial performance targets were very ambitious. It was expected that the regies would generate annually from their internal net revenues, excluding customer contributions, 30 percent of their annual investment programs. ONEP was expected to generate 15 percent in 1987, 20 in 1991, and 30 in 1992 and thereafter. ONEP was also expected to generate net revenues covering no less than 1.3 times its debt service for each year. In addition, the r6gies and ONEP were to keep the level of arrears at a maximum of three months of billing. ONEP achieved the self-financing and debt service targets, but the regies generated negative net internal sources and only achieved their targets through customer contributions. The maximum ratio was achieved by Kenitra (60 percent) and the minimum ratio by Fes (32 percent). The arrears remained at about 12 months of billings, well above the target of 3 months. However, arrears by private consumers were  3 kept at the level of 4 months, close to the target. The water tariff adjustments were some of the main measures taken to reach these goals. During project life, however, these adjustments were irregular and the loan was suspended for more than five months (from February 16 to August 23, 1990) in order to obtain implementation of the tariff adjustments, as well as preparation of investment programs. There have been a total of 9 tariff increases ranging from 5 to 12 percent for ONEP and an average, for the regies, of 14 percent from 1985 to 1992 and above 18 percent thereafter. These increases improved the cash situation of the regies but were not sufficient to generate net operating profits except for RED, RAK, and RADEEF, which at the end of the 1994- 1995 period generated positive operating income. The cash generation ratios were achieved through customer contributions to the network and house connections. ONEP performed better than the regies, and therefore, state subsidies to ONEP (Table 5C) were canceled beginning in 1995. 7. Institutional Development: The institutional objectives were partially achieved. ONEP accomplished most of its objectives. A methodology for identifying and implementing works was developed and a specialized directorate was set up. The project enabled the strengthening of ONEP's computer capabilities through procurement of new equipment and the establishment of an appropriate information management system (SI-ONEP). Numerous training actions were carried out, benefiting 1,296 staff members. Several other activities were carried out later than initially scheduled, including signature of the performance contract between ONEP and the State, cost accounting within ONEP, and implementation within ONEP of the new national accounting system, which was adopted in Morocco in 1990. 8. For the r6gies the main institutional developments, the regulation giving r6gies' managers greater autonomy in procurement (1994), and the adoption of the new national accounting system were implemented with delays. Some actions started late and are being continued under the Fifth Water Supply Project; these include the study of information management systems for the regies (except for RAD, which developed its own system with the help of technical assistance), and the study for a management system for the regies that includes cost accounting, assets valuation, and information management systems. The study of the regies' training needs, and the study for performance indictors for ONEP and the r6gies which would have enabled the State to monitor their activities in a uniform manner based on preset standards, was not carried out. For DGH, new computer equipment and software were provided to strengthen its managerial capabilities. DGH staff were trained in the use of this equipment. Implementation Objectives 9. The project's objectives were achieved through several changes in the design and scope of the project. For ONEP, most of the physical components were increased in size (strengthening of the production facilities at El Fourat, technical assistance, study of training needs, and the purchase and installation of computers), with only the rehabilitation of facilities other than El Fourat being downscaled. A new component was added to the project, namely the strengthening of production for the city of Ben Slimane. The project made it possible to rehabilitate 89 km of system line, inspect 11,421 km of system line, recover 4,546 m3/h after the repairing of leaks, and rehabilitate 28 chlorinating stations, and four treatmnent stations, as well as the rehabilitation of constructions in 16 centers. ONEP's operating efficiency was maintained at same level throughout the life of the project. Unaccounted for water have been maintained at about 9 percent.  4 10. Since the subprojects had not been clearly defined at appraisal, having been based on preliminary studies, it was agreed that each r6gie, with the assistance of the DRSC's PU, should appraise and evaluate its own subprojects and assess its own institutional performance, and that a water supply master plans study for each regie would be carried out by consultants. The subprojects were first defined and appraised by the Bank, then reviewed during implementation by the regies and the PU. Consequently, the regies redefined their components several times, the final version was based on the water supply master plans, which defined priority needs and proposed solutions to water distribution problems. Since the disbursement of loan proceeds was contingent on the approval of the subprojects and financial evaluation of the regies, the first disbursement did not take place until 1990. Some of the subprojects were carried out by the r6gies through force account and/or other sources of financing. 11. The project as a whole, as implemented, was slightly different from the one defined during appraisal. Some of the initially planned components were implemented, including the water supply master plans for the regies. Some other components were eliminated or modified, while other new components were added. The total actual project costs reached about 73 percent of estimated costs. 12. For DGH, additional studies covered other river basins in addition to the master plans for the southern Atlas basins originally included in the project. An environmental impact assessment of the M'Jara dam was also carried out, together with a study on cost recovery of the water mobilization. However, the national water resources master plan was delayed because the above river basins studies were completed in 1996. It will be carried out under the ongoing Water Resources Management Project financed by the Bank. 13. Rehabilitation works had a positive impact on the efficiency of production and distribution networks (Tables SA and SB). Unaccounted-for water rates improved over project life by one to six percent on average. RED maintained its rate at 21 percent. RADEEM and RADEEMA improved their rates from 41 to 34 percent and from 32 to 30 percent, respectively. The household connection rate increased from 67 percent in 1985, when 6.6 million inhabitants were served, to 77 percent in 1995 covering 8.9 inhabitants. Total connections increased from 728,000 in 1985 to 1,190,000 in 1995. However, these numbers still do not reflect the real situation. Installation of water meters in the networks, now being carried out under the Fifth Water Supply Project, will better show the improvement in efficiency. 14. The above changes in project scope and components led to: (a) postponement of the closing date by one year, from June 30, 1995 to June 30 1996; and (b) an amendment of the loan agreement to increase disbursement rates from 45, 38 and 36 percent for parts A, C and D respectively to an uniform rate of 65 percent. The total actual costs of the project at closing date reached US$94.9 million compared to US$128.3 million at appraisal of which US$49.6 representing the regies project costs, US$35.6 million representing the ONEP project costs, and US$9.7 million representing the DGH project costs. Economic Evaluation 15. The analysis of key financial data for the period 1987-95 yields an economic rate of return (ERR) of 3%. (the SAR estimated an ERR of 18.25%). Based on the data available from the most performing regies, the project's operating costs generally have varied from 3% to 12% of investment costs. These costs were considered to be constant for the period after 1995. The ERR analysis (see table 9) represents a conservative scenario based on the assumption that output of  5 water distributed will remain constant. During the period 1988-95, the output of available water for distribution for this project varied from 59% to 80% of production depending on the regie. The yield of 75% to 80% was maintained for the subsequent years. The data relating to eight executing agencies (ONEP + 7 R6gies) indicates an overall improvement in the performance of the system. However, beginning in 1993 there were no further gains in consumption (water distributed). This stagnation was mainly due to an increase in tariffs that negatively impacted water consumption of the population at large (new connections to the network covered mainly marginal users). As the current tariff structure is considered to be inappropriate, provision was made in the ongoing fifth water supply project for a study to address the issue of tariff structure. Overall, this investment provided water saving capabilities, access, and health benefits (although not quantifiable) to the population living in the project area. C. MAJOR FACTORS AFFECTING THE PROJECT Factors Generally Subject to Government Control 16. The conditionalities imposed on each regie for effectiveness and disbursement were the main reasons for the delays. Difficulties in implementation were caused by the complexity of the project design, together with the multiplicity of institutional and sector components for which the r6gies were not prepared, and the regies' lack of knowledge of Bank procedures. 17. The centralized and cumbersome procurement procedures imposed on the regies, and the interference of the oversight bodies in their day-to-day management, were among the main factors leading to their low performance in implementing the subprojects. These two problems are being addressed in the Fifth Water Supply Project. In addition, the tariff increases were not always implemented on time, and in fact were often not put into effect until the Bank insisted. Settlement of arrears for water consumption by the central and local government administrations still face some problems despite the procedures put in place in 1987 and in 1993 to keep administrative arrears at an acceptable level. The procedures lacked: measures to determine appropriate budgetary allocations for water consumption by the central and local government administrations, and measure for improving management of the meter reading, billing, and collection process for water consumption, including works invoices. 18. The Fonds d'Equipement Communal (FEC) loans initially envisaged for completing the financing of the subprojects were made available to only the one r6gie that met the required guarantees. Some studies to be carried out for DGH were delayed due to the difficulties encountered by the consultant and by DGH in gathering basic documents and data needed for these studies. Factors Generally Subject to Control of the Implementing Agencies 19. The small amounts allocated to some r6gies, as well as the lack of knowledge of Bank procedures and the size of the institutional components and conditionalities, discouraged the r6gies from participating in the project. The absence of feasibility studies and master plans for the r6gies at appraisal made it difficult to identify the subprojects with accuracy. The lack of cooperation among the regies created difficulties for RAD and RED in carrying out management studies and training for the benefit of all regies.  6 20. Regarding ONEP, the appraisal estimated cost of US$31.7 million increased by 12 percent to reach US$35.6 million. The cost of all components increased compared to the appraisal estimates, except for the rehabilitation of facilities, which decreased by about 27 percent, due to the downscaling of its scope. The cost changes were due to poor identification of the works to be carried out (rehabilitation of the El Fourat facilities), and a change in the design of several components (technical assistance, training, and computer equipment). In addition, new components were introduced based on detailed studies carried out during implementation (strengthening of production facilities for the city of Ben Slimane). As a result of these changes in project cost, the initial loan amount of US$13.8 million, was raised to US$19.5 million. Regarding the regies, the final cost was US$49.5 million compared to US$86.6 million at appraisal. For the DGH, the composition of the project changed, and several new studies were added while others were canceled. The final cost of the DGH component was US$9.7 million compared to US$10.05 at appraisal. 21. About nine months elapsed between signature of the loan and its effectiveness. The effectiveness date was postponed twice to enable the Moroccan authorities to provide the required documents (subsidiary loan agreement between ONEP and the State, ONEP-State performance contract, legal opinion, approval of the loan agreement by the prime minister), and for the ONEP board to discuss the subsidiary loan agreement. In addition, the lack of specific studies and definition of the scope of the rehabilitation works were causes for delay. 22. The regies' subprojects started late because of the conditionalities imposed. Most of the 11 regies did not have the capacity required to prepare the above reports and the PU was not able to help them in this regard. Moreover, the approval of these reports by the Bank took longer than expected. The new procurement procedures, which would have giving the regies managers more autonomy in that activity, became effective only in 1994. The cumbersome procedures in place during project implementation were a major cause of delays. Consequently some subprojects were not completed until the loan closing date, while others were not completed and were transferred to the Fifth Water Supply Project. 23. The studies for DGH, were scheduled to be completed in mid-1990, but were not completed until 1992 - 1996, The delays were due to the difficulties experienced in gathering basic census and other data from concerned administrations related to water supply, irrigation and hydroelectricity sectors, the increased scope of some studies, and the lengthy approval process of the monitoring committee. D. PROJECT SUSTAINABILITY 24. The project had a positive impact on the organizational and structural setup of the beneficiaries, on their financial and operating performance, and on the water sector in general. The Moroccan authorities are convinced of the value of the rehabilitation works and of the planning instruments put in place, as demonstrated by the follow-up of the rehabilitation actions in the Fifth Water Supply Project. The performance agreement and protocol signed between the Government and the water companies highlighted all commitments and obligations of concerned parties regarding the financial and managerial autonomy of the water companies, as well as the performance indicators to be achieved. However, it would have been more appropriate to better design the project and adapt its scope to the absorptive capacity of the beneficiaries. In addition, it would have been preferable to provide for more private sector participation in the water supply activities. Only RAD, the largest regie operating in the sector with less operational and managerial  7 performance, is currently negotiating with Lyonnaise des Eaux, a concessional contract covering the r6gie's water, power and sewerage activities. E. BANK PERFORMANCE 25. The Bank's performance in identification, preparation appraisal, and supervision was satisfactory. The preparation work started in 1983. More than four years elapsed between the loan signature date and the first identification of the project. The project at the beginning involved ONEP, and was subsequently extended to all parties involved in the water supply sector. In addition, the project at first targeted only new investments, but due to the difficulties in mobilizing the local counterpart and the impact on the national budget of the drought years, the emphasis shifted to rehabilitation, water saving, and deriving maximum benefit from the existing facilities. Accordingly, the regies were included to expand the national efforts of preventing leaks and ensuring maximum water saving. 26. However, the regies, which vary in size and have differing concerns, were not consulted enough during preparation of the project. To overcome this shortcoming, they were required after signature of the loan agreement to assess their own capacity to prepare and appraise their subprojects. They were also required to evaluate their financial performance. In addition, master plan studies to identify and prepare the subprojects were included, but waiting for these studies to be completed in order to define the subprojects delayed execution at a time when the loan was already effective. 27. Only 11 of the 16 regies had any motivation to participate in the project because of the eligibility criteria, the conditionalities for disbursement, and the amount allocated to each of them. The other r6gies implemented their subprojects with financing from other sources. Moreover, the Bank's appraisal of the subprojects was superficial, leaving the regies to appraise their institutions and subprojects with the assistance of DRSC's PU. The regies did not, however, have the experience needed to carry out such appraisals, while the PU, with only two experts (an engineer and a financial specialist) for all rdgies, was not able to handle this workload. Even though the Project Unit was staffed with local specialists the two experts were not recruited until October 1989, i.e, more than two years after signature of the loan agreement. Since appraisal by each regie was a condition for disbursement and it took time for the Project Unit and the regies to familiarize themselves with the preparation of these reports, the first report was not approved by the Bank until the end of 1989, more than two years after loan signature. 28. There were two supervision missions per year, on average, to monitor the project. But because the missions concentrated at the beginning on the implementation of physical components, review of financial statements, enforcement of tariff increases, and submission of external audit reports, the focus on institutional and administrative components, including the cost accounting,, the training studies, establishment of the investment coordination committee, and the creation of the procurement committees improved overtime. The Bank's comments and follow-up to the regies reports were prompt except in a few cases. Most of the reports were reviewed quickly and sent back with comments to help the beneficiaries improve the quality of the reports. F. BORROWER PERFORMANCE 29. ONEP's performance was satisfactory. It developed the capability and expertise needed to appraise and prepare projects. The regies, on the other hand, were not accustomed to working with  8 the Bank and did not participate actively in appraisal. Performnance varied from one regie to another, ranging between satisfactory and unsatisfactory. DGH's performance was satisfactory. However, it should be noted that in the institutional and financial aspects the beneficiaries did not fully meet their commitments, especially in the first years of implementation. The tariffs were not adequately adjusted to enable the regies to achieve their financial performance until 1993. As in the past, water supply activities continued to generate operating losses and the financial covenants were achieved because of consumers' contributions (para.6). The a priori control of the two oversight bodies remained the major constraints for improving the operation and managerial accountability of the regies. It is only with the Fifth Water Supply Project that the Government agreed to sign a performance agreement with the regies aiming at developing tools for more managerial autonomy. G. ASSESSMENT OF OUTCOME 30. Even though the project experienced difficulties in early stage of implementation of project components were canceled, modified or not completed by the closing date, it did enable the beneficiaries to identify and solve some of the problems in the water sector and prepare follow-up projects. The project helped to establish external audits for the regies, set up a national audit committee, and facilitate enactment of the audit accounting codes, which resulted in a modernized national accounting system being used by all regies, and ONEP starting in 1994. It also established the practice of internal audit in the regies, provided the regies with master plans, reduced unaccounted-for water through leak detection programs, and modernized operational practices. It also enforced water tariff adjustment, especially as of 1993, which increased the sector's cash situation and enabled the cancellation of state subsidies to ONEP. Also as a result of the project, DGH now has master plans for developing the water resources of the major river basins, which will form the basis of a national water resources master plan to ensure optimum utilization and distribution of available water among the various users. H. FUTURE OPERATION 31. The project has helped the beneficiaries to develop preventive and curative operating and maintenance activities through continuous leak detection and replacement of obstructed and broken water meters. The beneficiaries will continue to operate and maintain project supported facilities in keeping with good operating and maintenance practices and, in particular, will ensure that leak detection programs remain in force. It is therefore, envisaged that water losses will be further reduced and network efficiency will be. sustained. The project could therefore be considered a pilot project for development of the water supply sector in Morocco. The project has encouraged other donors to participate in financing the development of the sector through similar projects. The Federal Republic of Germany and France have been the major cofinanciers in the sector, The Bank has identified two follow-up activities and prepared the ongoing Fifth Water Supply Project involving ONEP and six of the largest regies, as well as the Second Sewerage Project for RADEEF to reinforce the above operations. I. KEY LESSONS LEARNED 32. The institutional reforms identified at appraisal were important but ambitious. It would have been more appropriate to focus on the largest regies as a first action and extend the reform to other regies in a subsequent project. It would have been more appropriate also to adapt project  9 scope to the beneficiaries' absorptive capacity. The project enabled the regies to become familiar with Bank procedures for preparation and appraisal of projects. However, the requirement that the regies appraise their own investments was too ambitious. The magnitude and number of conditionalities for appraisal, Board presentation and effectiveness were the cause of delays. 33. The master plan studies should have been based on the latest urban development master plan (UDMP); otherwise the master plan studies will not be accurate. In the case of RED, the use of outdated master plans created problems. The master plan study was completely reviewed and redone to take the new UDMP into account. Some regies entrusted the master plan study to consultants and then canceled the contract because of the absence of an UDMP. 34. The project was able to overcome the lack of coordination and cooperation among the various regies by having RAD and RED monitor and follow-up management study that would benefit all the regies. RAD and RED, however, faced problems in sharing the financing of the study, and in coordinating with the other rdgies to obtain agreement on planning and study recommendations. In future projects, terms of reference for such operations should be prepared before appraisal. 35. Regarding the audits, the rdgies were not involved in the selection of the auditors, the follow-up, and discussion of the audit reports before publication of the final version until 1993. Currently, the regies are invited to attend the meeting of the DRSC audit committee, which hires auditors and discusses the audit reports with the regies. 36. The Procurement Committee was not able to resolve the problem of the slow contract award procedures. Contracts exceeding DH 500,000 are still subject to approval by the oversight bodies. Approval of evaluation reports and contracts still takes considerable time; for example, it took one year for approval of the contract for the Casablanca master plan study. 37. A Special Account was not opened for this project because of Treasury procedures for opening and operating such accounts. These procedures are cumbersome and lengthy and requires several clearances before the accounts can be accessed and replenished.   ICINGDOM OF MOROCCO NATIONAL WATER SUPPLY PROJECT (LOAN 82S-MOR) STATISTICAL TABLES TABLE 1: SUMMARY OF ASSESSMNT A. Achievment of objecdves Subatanllal Par,d Neliudblk Not applcable Maco policies E l E E Sectorpolicies 0 Q Q Fianl objecives 0 El El "ondd*veloEl 0E El3 Physical olectives El El El Povety reduction ED OJ E El Gender isse El El l (ZI Otber soCKsil objecves E 0 Enviromental ojecEives E E Public secor managemni El El E Private sctor deveIopant 0 E 0 0 Other OOae B. Project sustabinahty Likely UnlYily Uncertoln 0 l3 El C- Bank performane Highly Safi factory Defident satuifactory Identification EJ 12 El Preparationasistance, IZ 0 App-ais 0l El Supervion 00 El D. Borrower performance Highly Satisfat0oy Deficient satisfactory ipreparatioo l 0Z El lnpleretaion 13 12 0 Covenant oompliance O 0 E Operation (if applicable) E E E E. Asessmet of outcome Highly Sa1tsfactory unsaisfactory Highl satlsfacto.ry unsattifactory o E l 0 E  TABLE 2: RELATED BANK LOANS/CREDM LoaxCkwdJta & IP.ae Yea f Sb*u mlk ______ Preceding Opeatons Loan 850-MOR Construction of frs twanche of production facilies in Ctal 1972 Ccaplced in 1980 First Water Supply Atlatic Coast (betwee Kenitra and Casablanca). It includes PPARN* 3721 du 16 Projet extension of edsng traent plant; construction of dam; pomping dec 1981 staion; mains; institutional strngthening. Loan amount was USS 48 millions Loan 1724-MOR Construction of additional facilities to increae poduction capcity 1979 Cmpleted 1987 Second Water in the Atantic Coast. Construction of prduction facilitiae in Grand PPARN N 725 du 8 Supply Projet Agadir. Revolving fiuds for ocil nections. Further action for juin 1990 insitutional strtePrn of ONEP ( management_ finnce etc...). Loan amount was USS 49 millions Loan 2006-MOR Construction of regional wster supply systems, as wel as in the 1981 Completed in 1989 Third Water Supply mid-size town.. Strengthening of the Revolving funds for social PCRN '*** du Project connections for ONEP and 3 Regies. Strengthening ONEP's juin 1993 structue. Loan amount was U1S$ 87 millions Loan 2825-MOR ntroduce policy reforms to stgthen the sector, rehabilitation and 1937 Completed in juin National Water improvement of the efficiency of the exiding production and 1996 Rehabilitation distribution systems; strengthen the financial policy of the sector to Project increase cost recovery,Loan amount was US$ 60 millions Loan 3664 & 3665- Rehabilitation, extension et renforcement of water distribution 1993 Under MOR system of ONEP and six Rgies (RAD-Casablanca, RADEEF-Fes, implementation Fifth Water Supply RADEM-Meknae, RADEEMA- e RAK-Kenitra et RED- Project Rabat Salt). Stegthening of managerial capability as wall as the efficiency of these institutions. Loan amount is USS 128 millions & US$ 32 mins Loan S-7-MOR Sewarage study for the Great CasablancaEtude cdasaiiemet du 1977 PCR 14 of June First Swarage Grand Casablanca 1984 Project Loan 2826-MOR Master Plan Studies for 9 large cities and r6habilitation of 1987 Under Great Casablan sewarage net works of Casablanca. Loan amount is USS60 millions implementation Sewarage Project Loan 4010-MOR R&habilitation and extension of sewarage networks in Fes. 1996 Under Second Sewarage Construction of treatment plant in F&s Provision for equipment for implmentation Project monitoring pollution. Tchnical Assistance, to improve and strengthen RADEEF's institutional, financial and technical structure for new sewerage activities Loan amount is US1 40 millions. CFD cofinaing amount is US$ 23,6 millions. Loan 2272-MOR To improve among others FEC's capacity to finance sewerage and Pilot Project water supply sysms; taining of FEC' staffto improve their Municipal lending capacity management. development Funds "FEC" Loan 3616/17- Technical Assistance to improve Municipal capacity to invest in MOR water and sanitation sctors First Project for Municipal Finance -  TABLE 3: PROJECT TIMETABLE Planned Actual Identification Jan -1983 Preparation Sept-1984 Sept- 1985 Apraisal Mission Feb-1987 Loan Negotiation 13-April- 1987 13-April- 1987 Board Approval 02-June- 1987 Loan Signature 27-juil-1987 Loan effectiveness 27 Oct-1987 22-April-1988 Closing Date 30-june-1995 30 june-1996 Projet Completion  Table 4 LOAN/CREDIT DISBURSEMENT: CUMULATIVE ESTIMATED AND ACTUAL 100 Disbursements 2825-MOR _ 90 SO--SAR - Profile -Actual 80 70 60 40 4.5 30 20 0 r- 00 00 O 00 0fi0 X,f00 00 0 X $ millions FY 87 FY 88 FY 89 FY 90 FY 91 FY 92 FY 93 FY 94 FY 95 FY 96 Appraisal estimate 5.40 13.20 24.60 35.40 44.40 52.20 57.60 60.00 60.00 60.00 Actual 0.00 1.39 2.01 7.67 15.71 23.92 32.45 46.72 54.84 57.68 Actual as % of estimate 0 11% 8% 22% 35% 46% 56% 78% 91% 96% Date of final disbursement 31 october 1996  Tabi- Pe 11A : buS.I.- d. pvrrMddmd E40A* RAI) RED RADEEMA RAID RADEEM I I RAK RADEEr RADEM R.b,kP. 97 1 97 17 ffy $7 17 n 87 ry 07 P,d.,d, (M.3) Saw P.Wit P. la -de, mw 4.0 1 1.7 LS ILO 0.7 0.0 6.1 IA 20.3 0.0 10.6 16.8 -A 1.7 SaW bW d. rONEP bw 161,7 tn? 72.5 SU 35.0 393 tS.O_ 30 0 14.5 22.6 I" 4.1 110 14.2 OW - bnft %W 165.7 174.4 57.6 75.0 50.6 66.6 35.6 39.9 27.9 21A 31.6 34.8 18.1 22.0 20.7 2D.9 16.0 20.9 9.7 12.3 9.1 15.9 %W diW M=3 110.6 119A 47.1 59.4 31.6 ai 26.3 27.6 18.9 16.2 20.1 23.1 12.7 I&2 9.5 ILI 12,0 153 5.3 7.1 6.3 its MM3 35.1 SO 9.9 15.6 19A 21.5 9.4 123 8.9 4.9 its 11.6 5.4 111 11.2 2.3 4.0 5.0 4.0 4.4 2a9 5.1 len % 33*3% 313% 17.D% 2D.11% 37.3% 32.3% 26.4% 30.9% 32-0% 22.9% . 36.4% 33.5% 30.0% 17.3% 34.1% 42.1% 25.0'A 23.9% 41.0% 363% 31.3% 311% wava-, mdam U 5,069 2,677 !923 2334 2
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4 -b. d*ab 101 102 - 25 917 E= 1  Tabkeau N SB: Evvbio.f dos Do..A. Statistiq.a 93.th MDE RED RADELEF RADEEAM R4ID RADEEM RAAMS RADE.EO RAE RADEET RADEE ____________________________ 1915in 1995 198 1945 19*7 1995 1955 1993 195 1995 197 1 i5n95 1995 19n5 599 19*5 1991 1in1 1995 19*5 1995 oplIoa 0o000 25020 3158.0 990.0 1412.0 602 0 912.0 522.0 6900O 39560 594.5 371.0 469.0 302.0 48000 299.0 367.0 221.0 544.0 234.0 322.0 179.0 231.0 -.k pw bfrbmam