Morocco - Casablanca - Rabat Bulk First Water Supply Project

F-TURN TO | RESTRICTED REFORTS DESK Report No. PU-96 WITHIN FRLE COPY ONE WEEK I This report is for official use only by the Bank Group and specifically authorized organizations or persons. It may not be published, quoted or cited without Bank Group authorization. The Bank Group does not accept responsibility for the accuracy or completeness of the report. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION APPRAISAL OF THE FIRST WATER SUPPLY PROJECT, MOROCCO CASABLANCA - RABAT BULK WATER SUPPLY June 15, 1972 Public Utilities Projects Department  CURRENCY BQUIVALENTS Currency Unit - Moroccan Dirham (DH) = 100 francs US$1.00 - DH 4.66 (as of January 1, 1972) DH 1 - US$0.21 DH 1,000,000 - US$214i,550 MEASURES AND FW1JIVALENTS 1 millimeter (mm) - 0.04 inches (in) 1 meter (m) - 3.28 feet (ft) 1 kilometer (km) - 0.62 miles (mi) 1 square meter (m2) - 10.8 square feet (sq ft) 1 hectare (ha) - 10,000 square meters or 2.47 acres (ac) 1 square kilometer (km2) - 0.386 square miles (sq mi) 1 liter (1) - 0.26 US gallons (gal) '. cubic meter (m3) - 35.3 cubic feet (cu ft) 1 million cubic meters(KM3)- 811 acre feet (ac-ft) 1 cubic meter per second (m3/sec) - 31.5 million cubic meters per year or 22.8 million US gallons per day (Mgd) or 35.4 cubic feet per second (cusecs) liters per day (l/d) liters per capita per day (1/cd) PRIiNCIPAL ABBREVIATIONS AND ACRONYIMS USED REI - Regie des Exploitations Industrielles ONEP - Office National de l'Eau Potable RAD - Regie Autonome Intercommunale de Distribution d'Eau et d'Electricite de Casablanca RED - Regie Autoriome de Distribution d'Eau et d'Electricite de Rabat-Sale RAK - Regie Autonome de Distribution d'3au et d'Electricite de Kenitra SAD - Societe Marocaine de Distribution d'Eau, de Gaz et d'Electricite, Rabat-Paris COMTEC - Compagnia Tecnica di Progettazione, Rome SAFEGE - Societe Anonyme Frangaise d'Etudes et de Gestion, Paris SENA - Societe d'Economie et de Math4matiques Appliquees, Paris TANS - Tippetts-Abbett-McCarthy-Stratton, New York FISGAL YEAR Jan. 1 - Dec. 31  MOROCCO APPRAISAL OF THE FIRST WATER SUPPLY PROJECT CASABLANCA-RABAT BULK WATER SUPPLY TABLE OF CONTENTS Page No. SUMMARY AND CONCLUSIONS .... ............... .............. . i-iii I. INTRODUCTION .................................. 1 II. THE SECTOR .......................... ............... 2 A. Background . ........................ 0-0 ................ 2 B. Organization and Administration ................ 3 III. THE PROJECT .. . .. . . ........... . 4 A. Description of the Project .....oec..t ...... .............. 4 B. Cost Estimates ... ... ... .*.,. ..... ..... ..................... 5 C. Construction Schedule .-0- . ... . . 7 D. Amount of Proposed Loan .6*.. .... ....... 7 E. Procurement .......... ...................... 8 F. Disbursement .. .... .o.o. .................... . 8 G. Administration of the Project ............... 9 H. Ecological Implications .... .... . . . . . . . . ...... . ..... 9 IV. JUSTIFICATION ................... ....... ....... .............. 10 Ao Demand .. .......... . . ... .* ... *...... ..... 10 B. AlternativesConsidered ....o .....0 ........... 10 V. THE BENEFICIARY ...................... 12 A. Structure and Functions ............... .. 12 B. Audit ' E E...........'.... 13 C. Staff and Management Systems ........ ..0 ... 14 D. Accounting System ... ............................. 14 This report is based on the findings of Messrs. Williams, Rietveld, Al-Khafaji, Delvaux and Westmeier, who visited Morocco in September/ October 1971.  TABLE OF CONTENTS (Continued) Page No. r, VI. FINANCES ........ .................. .. .... 15 A. Present Position ......................... 15 B. Billings ......... $..00... ..... .................. 0........ 17 C. Tariffs .... o......... ........... .................. 0... 17 D. Financial Proections and Financing Plan ............. 19 VII. AGREEMENTS REACHED AND RECOMMENDATIONS .. .................. 22  MOROCCO APPRAISAL OF THE FIRST WATER SUPPLY PROJECT CASABLANCA-RABAT BULK WATER SUPPLY LIST OF ANNEXES Annex 1 Existing Facilities, Water Production 2 Existing Facilities, Water Distribution 3 Technical Details of Project 4 Summary of Cost Estimates and Proposed Allocation of Proposed Bank Loan 5 Project Cost Estimates - Detailed Cost Estimates 6 Procurement 7 Estimated Schedule of Disbursements 8 Projected Demand in the Coastal Zone Rabat-Casablanca (including Distribution Losses) 9 Utilization of Water Resources in the Coastal Zone 10 Economic Analysis 11 REI - General Income Statements 1968-70 (All Activities) 12 REI - Balance Sheets 1967-70 (All Activities) 13 REI/ONEP - Income Statements for All Water Activities - Actual (1968-70) and Projected (1971-85) 14 REI/ONEP - Cash Flow Statements (Water Activities) - Actual (1968-70) and Projected (1971-85) 15 REI/ONEP - Balance Sheets (Water Activities Only) - Actual (1967-70) and Projected (1971-85) 16 Principal Water Tariffs in Towns Served by REI/ONEP 17 REV/ONEP - Sectional Operating Income Statements (Projected) 1971-85: I - Production (Coastal Zone)  Annex 18 REI/ONEP - Sectional Op3erating Income Statements (Projected) 1971-85: II - Distribution - Small Coastal Centers and Interior 19 REI/ONEP - Sectional Operating Income Statements (Projected) 1971-85: III - Production (Interior Cities) 20 Assumptions for Financial Projections Charts 1 Construction Schedule 2 Production Demand - Forecast and Average Yearly Production Capacity for the Urban Areas between Casablanca and Kenitra 3 Population and Per Capita Demand 4 REI/ONEP Organization Structure Maps 1 Morocco - Water Supply Systems 2 Project Area  MOROCCO APPRAISAL OF THE FIRST WATER SUPPLY PROJECT CASABLANCA-RABAT BULK WATER SUPPLY SUMMARY AND CONCLUSIONS i. This report covers the appraisal of the first water supply project, Morocco, providing bulk water supply for the 120 km long Kenitra-Rabat-Casa- blanca section of Morocco's Atlantic coast (see Map 2) for which a Bank loan of US$48 million equivalent is proposed. The proposed lending would be the Bank's first investment in this sector in Morocco. Existing sources of sup- ply will meet the needs of the major urban complex of Casablanca only until 1976, and of Rabat-Sale only until 1974.. Because available water resources in this area are limited to certain major rivers, the rising demand stemming from rapid urban growth, industrialization and higher living standards can be met only by a major project for the whole coastal zone. Casablanca and Rabat-Sale contain between them 87 per cent of the population of the zone, which is increasing at 5 per cent a year. ii. The project is the first stage of a long-term master plan for water production and distribution in the area, and comprises (a) a large dam on the Bou Regreg river, 10 km upstream from Rabat, with an intake, tunnel, pumping station and treatment plant; (b) nearly 90 km of pipeline to Casa- blanca; (c) rehabilitation and improvement of an existing well field (near Rabat) and its 136 km coastal pipeline. In addition, the project includes engineering and management consultants' services and training of local per- sonnel. The dam is being constructed by the Government through its Public Works Ministry; the rest of the project will be the responsibility of the new national water authority. Studies for the corresponding expansion of the water distribution systems are underway. iii. Bulk water supply in this area has until now been mainly provided by a government agency, Regie des Exploitations Industrielles (REI), but this service was only one of several major activities -- some highly unprofitable -- of that authority. REI was further hampered by limited financial and man- agerial autonomy. It has now been reorganized into a national water author- ity, Office National de l'Eau Potable (ONEP), which will concentrate its ef- forts on bulk water production in the whole country and water distribution in some parts of the country. However, to permit effective management and operation of ONEP, consistent with the Government's intention of improving public enterprises generally in Morocco, more progressive policies will be adopted for management controls and staffing. Measures to this end are being studied by the government, and implementation of a program of reforms is a condition of the proposed Bank loan.  - ii - iv. An alternative project, showing a marginally lower estiwated cost, was investigated; but since it would have utilized water resources available for agriculture (unlike those of the Bou Regreg) the Government preferred the present project. As the cost advantage was uncertain, and the alternative provided a less satisfactory basis for a strong bulk supply authority, the Bank accepted this preference. v. The total estimated cost of the project is US$104.9 million equiv- alent, including contingencies. Contracts have been, or will be, awarded on the basis of international competitive bidding; materials and equipment re- quired for this project are not produced in Morocco and therefore no local preference is needed. No preference will be given to any foreign bidder. The project is likely to attract only foreign bidders except for some minor works. vi. The estimated foreign exchange cost of the proposed project would be financed by a Bank loan of US$48 million to ONEP. Part of the project (about US$6.2 million equivalent) is not eligible for Bank Group financing since it was not contracted on the basis of international competitive bid- ding, or else is already financed by USAID (design of the dam). Total lend- ing would amount to 45.8 per cent of the project cost (excluding the ineli- gible portions). The balance of cost would be financed from internally generated funds of ONEP and government grants. Retroactive financing would amount to US$4.0 million equivalent for expenditure since May 1, 1971 on the dam and appurtenances, plus design of the treatment and transmission facili- ties. vii. Because the project has a low initial load factor, the Government wishes to postpone the earning of a financial rate of return of 7% or over until 1981. It has increased bulk tariffs in the project area by an average of about 15% as from January 1, 1972, and a further increase would, on pro- jections, be necessary about 1981 to meet the rate of return requirement men- tioned above. As part of its campaign to keep living costs down, the Govern- ment has kept retail water rates unchanged for over 10 years; even before the recent bulk rate increase, retail rates in the project area had become insuf- ficient to finance network expansion. An adjustment (of varying amount, de- pending on locality) in retail tariffs will thus be needed. In centers in the interior of Morocco, where ONEP is both the production and the distribu- tion agency, tariffs would require an increase of some 40% merely to cover operating costs, and will need government subsidy if not increased. The Government has agreed to commission a general rate study, to be completed by December 31, 1973, which would, inter alia, establish real costs of service and the tariff adjustments required nationally. viii. The Government has no option but to proceed with this large invest- ment if it wishes to avoid serious water shortages and consequential health hazards in the coastal zone within the next few years. With present retail water tariffs in Casablanca and Rabat (approximating DH 0.70/M3), unchanged for the last 10 years, the projected incremental revenues from water sales provide no measure of the importance to Morocco of avoiding these shortages. Yet even at these tariffs, which are so low as to cause serious finiancial  - iii - problems for the distribution agencies and which will have to be raised in due course in the light of the study referred to above, the rate of discount which equalizes the streams of revenues and costs attributable to the project would approximate 6%. This rate would increase to about 10% if the average retail price of water, following the tariff study, were raised to, say, DH 1.00/M3, in order to restore the financial position of the distribution companies. A tariff of this order of magnitude is not expected to influence the volume of water sales. ix. On the basis of the agreements reached, the project is suitable for a Bank loan of US$48 million equivalent for 25 years including a grace period of about 5 years.   MOROCCO APPRAISAL OF THE FIRST WATER SUPPLY PROJECT CASABLANCA-RABAT BULK WATER SUPPLY I. INTRODUCTION 1.01 The Moroccan Government has applied to the Bank for assistance in financing the foreign exchange costs of the first stage of the Casablanca- Rabat Water Supply Project. 1.02 Preparation of the project began in 1967 when the Government re- quested the UNDP to finance urban water supply studies including: (i) A master plan up to the year 2000 for the Atlantic coastal zone between Casablanca and Kenitra, the feasibility studies for the first stage of the plan; and (ii) A master plan up to the year 2000 for the remaining urban centers in Morocco. UNDP agreed to this request in January 1968. The World Health Organization (WHO) and Regie des Exploitations Industrielles (REI), the government water supply authority, were respectively the executing and counterpart agencies, assisted by consultants, Compagnia Tecnica di Progettazione (COMTEC), Societe Anonyme Francaise d'Etudes et de Gestion (SAFEGE) and Societe d'Economie et de Mathematiques Appliquees (SEMA). 1.03 Bank staff carried out a first identification mission to Morocco in September 1968, and have since followed closely the preparation of the master plan and the project. In April 1971 a Bank mission including ex- perts in hydrology and the design of dams reviewed the WHO/UNDP feasibility study on the first stage of the project. An appraisal mission composed of Messrs. Williams, Rietveld, Al-Khafaji, Delvaux and Westmeier visited Rabat in September/October 1971. This report is based on its findings and on in- formation obtained during various visits from the Moroccan Government, and its water agencies and consultants, as well as from the UNDP/WHO study.  - 2 - II. THE SECTOR A. Background 2.01 Morocco is bounded by the Mediterranean Sea on the North, the Atlantic Ocean on the West and the narrow fertile strip of Algeria in the Northeast; elsewhere the country borders on the Sahara. Morocco's total land area is about 440,000 km2 (172k000 sq. miles), about four-fifths that of France, but only about 75,000 kmL is cultivable. 2.02 Morocco's population is estimated to be 15 million, of which about 65% live mainly in the fertile rural areas; urban population is heavily con- centrated in the six major cities, Casablanca, Rabat-Sale, Marrakech, Fes, Meknes and Tangier, which have a total population of about 3 million. The general population growth rate is estimated to be 2.6% annually with an urban growth rate, including migration from rural areas, of 5%. Since Morocco's fertile areas are limited, it can be expected that rural migration to the cities will continue. Per capita Gross Domestic Productioni in 1970 was equivalent to US$200. 2.03 The country is broadly divided into four climatic zones; the coastal areas, the interior plains, the mountains and the desert. The interior plains and the coastal zone have a mediterranean climate, with the interior having greater seasonal and diurnal temperature variations. The summers are hot and dry. Spring and fall rains are generally feeble and irregular with the main precipitation concentrated in the few winter months. Because of the seasonal rainfall, storage - either natural or artificial - is required. 2.04 The development of Morocco's major surface water resources is the responsibility of the Hydraulic Department of the Ministry of Public Works. This department also has the important task of allocating the scarce water tesources between agriculture, which traditionally has had priority, and the growing needs of urban communities. 2.05 Many urban or village water supply systems date back from the Middle Age. The medina of Fes in particular, the ancient imperial capital, enjoys water and sewerage systems in earthenware pipes which were started in the 11th century. During the French protectorate these ancient systems were replaced by modern installations. Today Morocco has some 125 piped water supply systems to wnich most urban middle class and lower middle class housing is connected. Parts of the medinas and shanty towns have to rely on public pumps sometimes located at great distances. In villages, water is still often provided through ancient wells, sometimes modernizecd with a pump. In the last 10 years investment in additional production and distribution capacity has been insufficient and, except in the large urban centers, main- tenance has been poor. Backlogs in water supply exist throughout the coun- try, but there is little knowledge about their dimensions. At a rough es- timate, present supply might account for 70-80% of demand in the Rabat- Casablanca zone and for some 60% in the interior. Organized sewerage systems exist only in the large cities, but are generally insufficient. Morocco has no major sewerage treatment facilities.  - 3 - 2.06 The future trends of potable water demand and the resulting invest- ment required both in the Rabat-Casablanca coastal zone and the rest of Mo- rocco are being investigated under a UNDP study executed by World Health Or- ganization (WHO) (see paragraph 1.02). This study will be completed in 1972. The Government is preparing a national water supply investment program for its five year plan 1972-1977, mainly on the basis of the WHO study. It is expected that this program will result in increased investments in the whole sector, which would eventually eliminate the present deficiencies in supply. 2.07 In the project area, the Atlantic coastal zone, the possibilities of further exploiting ground water sources are almost exhausted. According- ly, the Government started construction of the large Bou Regreg dam near Rabat in 1971, which is to become the major future source of urban water sup- ply and which, with its treatment and transmission facilities, is by far the largest single item in the ONEP countrywide 1971-1977 investment program of about US$170 million. B. Organization and Administration 2.08 The structure of the community water supply sector is complex due to the multiplicity of authorities involved. The largest water production and transmission organization has hitherto been the Regie des Exploitations Industrielles (REI) but was recently replaced by Office National de l'Eau Potable (ONEP), the proposed borrower (para 2.10), a government agency. REI also had other functions, which will temporarily be continued by ONEP (see section V). The second most important production and transmission agency is a private concessionaire, the French Societe Marocaine de Distribu- tion d'Eau, de Gaz et d'Electricite (SMD), which is the major supplier for Casablanca. In addition, in several cities including Casablanca, Rabat, Fes and Tangier, distribution agencies ("autonomous regies") meet part or all of their needs from their own production facilities. 2.09 Water distribution is performed by the autonomous regies in the larger cities (above 100,000 inhabitants), and by the municipal or provincial administrations or REI (until it was replaced by ONEP - see para. 2.10) in the medium and small centers. REI was the distributor in over 80 of these commu- nities. The autonomous regies and REI managed their operations more efficient- ly than the local administrations. In the project area, water distribution re- sponsibilities have been shared by the local regies of Casablanca, Rabat and Kenitra 1/ (which also distributed electricity), the municipality of Sale, and REI (see Annex 2). ONEP and SMD are subordinate to the Ministry of Public Works, while the Ministry of Interior has control over the other distribution 1/ Regie Autonome Intercommunale de Distribution d'Eau et d'Electricite de Casablanca - RAD. Regie Autonome de Distribution d'Eau et d'Electricite de Rabat - RED. Regie Autonome de Distribution d'Eau et d'Electricite de Kenitra - RAK.  - 4 - agencies; and the policies of the two Ministries have not always been co-ordi- nated, leading to disputes over alternative courses of action. In rural zones the development of water supply is shared by the Ministries of Interior and Agriculture. 2.10 The Government decided to improve the water supply sector organiza- tion by establishing a new national water authority, ONEP, to take over the water functions of REI. ONEP was created in April 1972 and will operate and develop the major water production facilities. Where it now has distribution functions in centers adjoining cities, it will wherever possible transfer those responsibilities to the cities. This adjustment should be more effi- cient and more economical for maintenance and development. However, the oper- ation and development of water supplies in medium and small communities dis- tant from any major city will be more effectively handled by ONEP. ONEP is also scheduled to take over SMD's Casablanca installations in 1977; the SMD concession was originally granted for 50 years (expiring in 2002), but the Government has the right to withdraw it after 25 years, on payment of compen- sation. Between 1972 and 1985, ONEP's share of total supply in the project area will grow from about 30% to about 90%. III. THE PROJECT 3.01 The project is the first stage of the Government's master plan, up to the year 2000, for bulk water production and distribution in the Atlantic coastal zone between Casablanca and Kenitra (see Map 2). It will cover the increasing demand of the urban population in that area for the next ten years (2.3 million people in 1970 rising to 3.7 million in 1980 and representing about 20% of Morocco's total population). The project's main elements are the Bou Regreg dam, where the transmission system (including a treatment plant) originates, and 90 km of transmission lines to Casablanca. The dam site is located near Rabat and its reservoir will submerge the small Grou dam, built in 1969 as a temporary measure to overcome water shortages ex- pected in Rabat in that year. Construction of the Bou Regreg dam, which is expected to take three years, was started in June 1971 to prevent water shortages in the whole zone in 1974-1975. 3.02 The project also includes the rehabilitation of the Fouarat system, which consists of the Mamora well field near Kenitra, a 136-km pipeline to Casa- blanca via Rabat, and the Oued Mellah treatment plant near Mohammedia (see An- nex 1 and Map 2). A. Description of the Project 3.03 The project consists of the following principal elements (see also Annex 3 and Map 2):  - 5- (i) Bou Regreg Scheme (a) the first phase of a dam on the Bou Regreg River, down- stream of its confluence with the Grou River and about 10 km upstream of its mouth at Rabat; the dam will im- pound a reservoir of 600 million m3 (ultimately 1,500 million m3); (b) a transmission system consisting of: an intake tower at the Bou Regreg reservoir, a 3-km tunnel, 2.5 km of pipeline and a pumping station to convey raw water to the treatment plant; and an 84-km treated water pipe- line to Casablanca with an initial capacity of 2.4 m3/ sec (by gravity); (c) expansion from 1 m3/sec capacity to 4 m3/sec of an existing water treatment plant now serving the tem- porary Grou dam, together with housing and training facilities for ONEP personnel. (ii) Fouarat Scheme Rehabilitation (see paragraph 3.02). (a) relocation of boreholes; (b) construction of new feeder connections; (c) miscellaneous works to improve the efficiency of the system. (iii) Consultants' Services (a) the services of engineering and management consultants for design, construction, supervision, operation, train- ing and water and sewerage tariff studies. The manage- ment assistance would cover all aspects of operation, including accounting, maintenance and organization. B. Cost Estimates 3.04 The estimated costs of the project are given in Annexes 4 and 5 and summarized below.  In Di- (mil i.o) ' If JS3 (mi I 1l)) .i' Toll. Ittew Loecal Foreign Yotal. [ca3 FOrTiTot1- Proj, eCo MEW WORKS 1. C;vil Works a) DBoui Re,greg Dam 66 54 120 14.1 11(2 :. y b) Intake and Tunnel 12 12 214 2.5 2.6, t'v.0 c) Pumping Station 4 2 6 (*8 0.5 1.3 :1 d) Treatment Plant 12 9 21 2.5 2 I 4.3 e) Pipelines 52 4LI 98i 1D..') 2.2