Tunisia - Second Water Supply Project

RESTRICTED Report No. PU-37a This report was prepared for use within the Bank and its afIiated organizations. They do not accept responsibility for its accuracy or completeness. The report moy not be published nor may it be quoted as representing their views. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION APPRAISAL OF THE SECOND WATER SUPPLY PROJECT TUNISIA May 28, 1970 Public Utilities Projects Department  OURRCT ZU Currency Unit - Dinar - 1000 millimes US1 a D 0.521 D 1 - US$1.92 D 1 million - US$1,920,000 ABERETIO%s km. - k>lometer 0.621 miles ~ .- aillimter - 0.03937 inches - liter 0.264 US gallons eecd - liters fir capita per day - cubic eter a 264 US gallons 1/sec - lit4ra per second - 22,800 US gallons per day elsec - cubic ueters per 22.8 million US gallons second per day ACROND HER - Hydraulique et Equipement Rural RDE - Regie de Distribution den Eaux Sm~I - Societe d Eeonomie et de >athematiques 4pliquees (FTrench) SIDA a Swedish International Development Authority SOGME - Societe Generale des Techniques Hydro-Agricoles (French) SNEDE a Societe Nationale d'Erploitation et de Distribution des Eaux STEG = Societe Tunisienne d'Electricite et du Gaz  TUNISIA APPRAISAL OF THE SECOND WATER SUPPLY PROJECT TABLE OF CONTENTS Page SUMMARY AND CONCLUSIONS i I. INTRODUCTION II. THE SECTOR 3 III. THE BENEFICIARY 6 A, Organization and Management 6 B. Accounting and Audit 7 C. IWater Rates and Earnings 7 D. Present Financial Position 8 IV. THE PROJEOT 10 A. Description of Project 10 B. Project Costs il C. Proposed Amount of Joint IDA/Swedish Credit 12 D. Project Design and Construction 12 E. Procurement 13 F. Disbursement 13 G. Water Rights and Land Acquisition 14 V. JUSTIFICATION 15 VI. FINANCING PLAN EMD FUTURE FINANCIAL POSITION 17 A. Financing Plan 17 B. Financial Outlook 19 VII. RECOMI4ENDATIONS 20 This report is based on the findings of1 Messrs. Alain F.D. Thys and Eric R. Williams, who visited Tunisia in November/ December 1969.  LIST OF ANNEXES Annex 1 Population and Water Consumption - Actual (1964-1968) and Projected (1969-1980) 2. Water Sales - First and Second Project Areas - Actual (1966-1968) and Projected (1969-1980) 3 First Water Supply Project - Project Costs and Status of Procurement 4 SONEDE - Loan Debt Included in Financial Projections 5 Project Description 6 Project Elements and Their Costs 7 Incremental Rate of Return in Project Areas 8 SONEDE - Income Statements - Actual (1968) and Projected (1969-1979) 9 SONEDE - Cash Flow Statements - Actual (1968) and Projected (1969-1979) 10 SONEDE - Balance Sheets - Actual (1968) and Projected (1969-1979) U1 Assumptions for Financial Tables Chart 1 Population Projection 2 Water Consumption Projections 3 Forecast of Tourist Accommodations Construction 4 SONEDE - Organization Structure 5 Work Program Map Location of Existing Systens and First and Second Project Works  TUNISIA APPRAISAL OF THE SECOND W4ATER SUPPLY PROJECT SUNMARY ANDM CONCLUSIONS i. This report appraises a project for the further improvement and expansion of water supplies in Tunisia for which an IDA Credit of US$10.5 million is proposed. With the help and advice of the Bank, the Tunisian Government has drawn up a US$58 million National Water Supply Program for 1968-1973, and has set up a national water authority to implement the pro- gram and provide more effective management of the country's network of potable water supplies. WIater resources in Tunisia are both inadequate and located at considerable distances from the main population centers and principal tourist areas. The urban population is growing twice as fast as is the overall population, and water consumption and demand are growing faster than either. A particularly critical field in this sector is the supply in the tourist areas; tourism has become Tunisia's biggest foreign exchange earner and a major provider of employment, but its pheno- menal growth in recent years cannot continue unless adequate water supply is assured. ii. The Bank has already agreed to lend US$15 million (Loan 581-TUN signed in 1969 ) for the first phase of the National Program, consisting mainly of major supply works for the most densely populated areas and re- presenting 49% of the program. The Government of Sweden is lending US$5 million for that first phase jointly with the Bank loan. This report covers the second phase. The remainder of the National Program is being financed by the national water authority, Societe Nationale d'Exploitation et de Distribution des Eaux (SONEDE), with bilateral aid. iii. The proposed project is expected to cost US$19.2 million, or 33% of the cost of the 1968-1973 National Water Supply Program. The pro- ject consists of eight sub-projects to expand and reinforce the water supply systems in four regions and four cities of Tunisia which comprise all the fast-growing major tourist and industrial areas. The project would be financed by a joint IDA/Swedish Credit of US$14 million, represent- ing 73% of total project cost. The proposed IDA Credit would be for US$10.5 million and the Swedish Credit for US$3.5 million. The joint Credit would finance all foreign exchange costs, estimated at US$11.3 million, and about one-third of the local costs of works for an amount of US$2.7 million. iv. The project's main features are the construction or reinforce- ment of water transmission pipelines to supplement the fully-utilized local water resources of the coastal areas of Tunisia. Engineering studies prepared by the water authority were generally adequate.  - ii - v. International competitive bidding is to be adopted for all sup- ply and construction contracts. As in the first project loan, local bid- ders would enjoy a margin of preference of 15% or customs duty, if less, in bid comparisons with foreign suppliers. Disbursements will be divided between IDA and Sweden on a three-to-one basis. vi. The beneficiary of the proposed IDA/Swedish Credits would be SONEDE. Formed in 1968, this autonomous authority has already, with the assistance of consultants and advisers, given evidence of improved manage- ment and operating efficiency. vii. The Governnent has already covenanted to contribute US$20.3 mil- lion equivalent by way of equity towards financing the program. With the loans already approved and the proposed credits, however, SONEDE should be able to finance a major portion of the capital works from its own re- sources without calling on the full amount to which the Government is comnitted. SONEDE's rates were raised in 1968 as a condition of the first loan, and a further increase, of about 17%, appears necessary in 1973 to provide a reasonable rate of return on assets employed. There have been some problems over collection of suns due to SONEDE from the Government and another public body but these are in process of being resolved. viii. Excluding external benefits derived from tourism as well as from improved health and fire protection, the program of works financed by the Bank group and Sweden would yield internal rates of return between 11% and 1%. ix. The project provides a suitable basis for an IDA Credit of US$10.5 million to be relent to SONEDE with interest at 7%, repayable over 25 years including 5 years' grace period.  TUNISIA APPRAISAL OF THE SB2ONL WATER SUPPLY PROJECT I. LNTRODUCTION 1.01 In 1966, the Government of Tunisia asked the Bank and the Government of Sweden, represented by the Swedish International Development Authority (SIDA), for assistance in financing various water supply works. A Bank loan (581-TUN) of US$15 million (D 7.8 million) was signed in 1969, together with a Swedish Credit of US$5 million (D 2.6 million), to- wards financing the most urgently needed works (first project). This report deals with the next pbase of wiorks (second project) which was not ready for Bank appraisal at that time. 1.02 The Government's original request for assistance resulted in a visit by a Bank/Swedish identification mission in November 1966, and on the missionts advice the Government engaged technical and management consultants. The technical consultants, Societe Generale des Techniques Hydro-Agricoles (SOGETHA), drew up a program of works to enable priorities to be assessed, and this program eventually became the basis of the Govern- ment's 1968-1973 National Water Program. 1.03 The first project consisted mainly of major supply works for the most densely populated areas (Tunis and the Sahel region). The second project is principally for supply works for fast-growing tourist areas and cities not covered by the first project, together with some works post- poned when the first project was considered. Both projects are scheduled for execution over broadly the same period (1970-1973); together they con- stitute the bulk of the works required for the National Water Program. 1.04 In the management field, Societe d'Economie et de Mathematiques Appliquees (SEM