Morocco - Sewerage Engineering Project

- l k Document of tiLE Copy The World Bank FOR OFMFCIAL USE ONLY Report No. P-212f-MOR REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE KINGDOM OF MOROCCO FOR A SEWERAGE ENGINEERING PROJECT July 20, 1977 This doement has a restricted distribuion and lmy be used by recipients only In the perfonnance of their officil duties. Its contents may not otherwise be disclosed without World Bank autlhoriation.  Currency Equivalents US$1.00 DH 4.5 DH 1.00 = US$0.222 ABBREVIATIONS MI Ministare de l'Interieur (Ministry of the Interior) ONEP Office National de 1'Eau Potable (National Water Supply Authority). OCP Office Cherifien des Phosphates (Phosphate Company) RAD Rggie Autonome pour la Distribution de l'Eau et de l'Electricite (Agency for Electricity and Water Distribution in Casablanca)  FOR OFFICIAL USE ONLY KINGDOM OF MOROCCO SEWERAGE ENGINEERING PROJECT LOAN AND PROJECT SUMMARY Borrower: Kingdom of Morocco Loan Amount: $1.5 million Terms: 10 years including 3 years grace with interest at 8.00 percent per year. Project Description: The Project's objective is to assist Morocco in developing the design and planning criteria for upgrading urban sewer systems, as well as in strengthening and reorganizing the institutions in the sewerage sector, in the process of preparing a feasibility study (sewerage master plan) of the sewer system for Casablanca-Mohammedia area. The Project includes preparation of a priority project constituting the first stage of the sewerage master plan and the acquisition of oceanography equipment required to carry out the studies. The direct benefit of this Engineering Project is that it will result in a viable sewerage proposal for the Casablanca- Mohammedia region, which will reduce public health hazards and risks to fisheries deriving from pollution of coastal waters. The Project faces no special risks. A detailed work plan for the consultants will be prepared in accordance with the agreed technical terms of reference and the Govern- ment has agreed to give special attention to the technical capacity of the consultant staff so as to minimize the risk of the studies not meeting the project objectives. Estimated Cost: Local Foreign Total --------US$000-------- 1. Technical personnel 461 924 1,385 2. Other support personnel 235 - 235 3. Equipment for oceanographic survey - 140 140 4. Effluent & Soil testing - 23 23 5. General expenses 37 49 86 Sub-Total 733 1,136 1,869 Physical contingencies 73 114 187 Price contingencies 159 246 405 Total 965 1,496 2,461 This document has a restricted distribution nd may be used by recipients only in the performnace of their oflicial duties. Its contents may not otherwise be disclosed without World Bank authorization.  Financing Plan: Local Foreign Total -- ------Un$ 000- - - - --- Bank - 1,500 1,500 Government 1,000 - 1,000 Total 1,000 1,500 2,500 Rate of Return: Not applicable Appraisal Report: None  INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE KINGDOM OF MOROCCO FOR A SEWERAGE ENGINEERING PROJECT 1. I submit the following report and recommendation on a proposed loan to the Kingdom of Morocco, for the equivalent of US$1.5 million to help finance a Sewerage Engineering Project. The loan would have a term of 10 years including 3 years of grace with interest at 8.0 percent per annum. PART I - THE ECONOMY 1/ 2. A report entitled "Current Economic Position and Prospects of Morocco" (1473-MOR, dated June 30, 1977) is being distributed concurrently to the Executive Directors. 3. During the 1968-72 Plan, Morocco succeeded in accelerating the growth of its economy and in improving the situation of its external payments. Aided substantially by good crops following favorable weather in three years out of five, real GDP growth averaged 5.6 percent per annum during the five- year period. Reflecting the sustained rise in exports during the Plan period and a slower growth of imports in 1971 and 1972, the balance of payments showed a surplus from 1969 onward. These results represented a definite improvement over those of the preceding decade, during which the rate of real GDP growth had barely exceeded that of population growth, and the balance of payments had been a source of constant concern. These achievements were accompanied by an increase in private consumption averaging about 2 percent per capita in real terms during the five-year period. 4. From 1967 to 1970, the main growth determinants had been exports, tourism and investment, all of which rose substantially; in addition sizeable stocks were accumulated following the exceptionally good harvest in 1968. By contrast, in 1971-72, exports and tourism together with current govern- ment spending were the major factors to sustain economic growth. During these last two years of the Plan, the investment of public and semi-public enterprises declined, largely because the state-owned phosphate company (OCP) had completed its expansion program. Government investment stagnated after 1968. Private investors adopted a wait-and-see attitude in the face of political developments in 1971 and 1972 and in the expectation of new measures to encourage investment and exports. At the end of the 1968-72 Plan period, there was therefore an urgent need to revive public and private investment. Particularly in the public sector, absorptive capacity needed to be increased by appropriate changes in staffing and organization. 1/ This part is substantially the same as paragraphs 2-17 of the President's Report No. P-2023-MOR on a Loan to the Banque Nationale pour le Developp- ment Economique, dated May 6, 1977.  - 2 - 5. Following a long period of very slow growth in private consumption, social problems had to be tackled. Over the 1969-71 period, there had been a slow but perceptible decline in real per capita consumption for about one- third of the rural population. Wealth and income differences between cities and villages, among regions, and between rich and poor tended to widen. Un- employment remained high; it averaged in 1971, 9 percent of the country's labor force, and ranged between 12 and 16 percent in large urban centers. 6. Recognizing these difficulties and problems, the Government began in 1971 to revise its development policies, paying increasing attention to social objectives. The changed orientations were reflected in the 1973-77 Plan which aimed at: (1) GDP growth of 7.5 percent per annum in real terms from 1973 to 1977, mainly through a sharp increase in public and private investment and a strategy geared strongly toward increasing exports; and (2) an improvement in the distribution of growth benefits among the different social groups and the various regions, to achieve greater equity and at the same time increase domestic demand. This improvement was to be brought about through a modest program of distributing colon lands to poor farmers, more emphasis on the development of rainfed agriculture, "Moroccanization" of some industrial and commercial enterprises, a price and wage policy designed to enable the poorest segments of the population to satisfy their essential needs, an ambitious program of low-cost housing, various measures to improve the lot of the rural poor, and increased emphasis on the development of the poorest regions. 7. In 1974 and 1975, Morocco benefitted from a large increase in the average export price of phosphate, its main export product, which provided substantial additional resources compared to the Plan's expectation. The Gov- ernment decided in 1975 to step up investment spending for the years 1975-77, and the allocations for investment by the public and semi-public sectors were increased substantially in the annual Budget Laws. Part of the additional allocations were to cover investment cost increases, and a larger part to launch expanded or new investment programs. Recent Economic Performance 8. During the first three years of the 1973-77 Plan period, Morocco's overall economic performance improved substantially as compared to the past. Gross fixed investment rose sharply and reached 24 percent of GDP in 1975 and almost 30 percent in 1976. Investments in the public and semi-public sectors contributed strongly to this increase and there was also a good response on the part of private investors to the new incentives introduced in 1973. Indus- trial growth accelerated to an average annual rate of about 11.5 percent for the first three years of the Plan compared to 6 percent in 1968-72, in large part because of the vigorous expansion of construction in response to rising investment demand. At the same time, increased emphasis was put on achieving the social objectives of the 1973-77 Plan with the implementation of an ac- celerated low-cost housing program, expanded investments in social sectors in small cities, and a program of small-scale investments in disfavored re- gions. In the face of import price rises, especially for wheat, sugar and edible oil, the Government also raised significantly price subsidies for these  - 3 - essential foodstuffs and adjusted upward legal minimum wages in agriculture and industry with a view to protecting the purchasing power of low-income groups. 9. Some weaknesses appeared, however, during this period. After the five-fold increase in phosphate exports receipts between 1973 and 1974, expected further increases in financial resources did not materialize in 1975. Due to weakening external demand, phosphate exports decreased to 13.1 million tons, from 18.7 million tons in 1974, and phosphate prices began to drop sharply in the second half of 1975, restraining the country's real capacity to save and to import. Unfavorable weather resulted in poor crops in 1973 and in 1975 and to meet domestic demand, food imports were increased substantially. In constant prices, value added by the mining and agricultural sectors returned in 1975 to levels slightly below those of 1972. Despite the fast growth of industry (excl. mining) and services, real GDP growth averaged only about 4 per- cent per year in 1973-75. As a result largely of the disappointing performance of phosphate exports in 1975, Morocco's internal and external finances came under pressure. The Treasury's accounts showed in 1975 an overall deficit twice the 1974 level, due mainly to sharply rising capital spending and insuf- ficient growth in budgetary savings. This contributed to inflationary pressure domestically; the cost of living index rose by nearly 8 percent in 1975. The current account of the balance of payments, which had shown a surplus of $105 million in 1973 and $237 million in 1974, registered a deficit of $546 million in 1975. 10. In 1976, GDP growth accelerated to 10 percent, thanks mainly to a good cereal harvest (48 percent larger than the previous years) and the conti- nued growth momentum in manufacturing, construction and services. The expan- sionary investment policies of 1973-75 continued, and the 1976 Budget Law raised further the allocations for investments in the public and semi-public sectors. Several measures were, however, taken to curb the growth of consump- tion demand, including some restraint in current budgetary spending, the suc- cessful placement last summer of a DH 1 billion ($230 million) bond issue among the Moroccan public, and the introduction of credit restraints. Never- theless, for the full year, imports registered another sizeable increase, not matched by recovery of export receipts, and the balance of payments current account reached an estimated $1.4 billion deficit, against $0.5 billion in 1975. There was a small decrease ($15 million) in the country's net foreign assets, as the current deficit was nearly covered by substantially increased net external capital inflows. Morocco considerably stepped up borrowings from Arab and commercial sources (see Annex 1, page 4), it drew on IMF facilities for a total amount of SDR 115 million in early 1976, and it obtained large grantlike inflows. Since early 1976, when Spain relinquished its control over the Spanish Sahara, Morocco and Mauritania have extended their administration to this territory, the northern part being administered by Morocco. Available information is not detailed enough to trace the impact of spending for former Spanish Sahara on government expenditures, imports and external capital in- flows, but it shows that the substantial increments in government spending and imports for the Sahara were nearly offset by grant inflows from external sources.  - 4 - 11. For 1977, the trends in consumption demand, particularly for imported consumer goods, have to be curbed further, and investment growth in the public and semi-public sectors has to be significantly slowed, in order to keep devel- opments in the internal and external financial situation under firm control. The Government has been introducing measures to restrain domestic demand. While 1977 would, with such measures, be a year of retrenchment by comparison with policies during the first four years of the 1973-77 Plan, tentative Bank estimates (Annex 1, page 3) indicate that overall performance of the economy should be satisfactory for the Plan period as a whole. They show that a rapid growth of investment (between 16 and 17 percent a year) would have been achieved, exceeding the original Plan targets for 1973-77. They also show relatively good gains in GDP (about 6 percent a year) and consumption (close to 3 percent a year per capita), despite the rather disappointing developments in real terms for the phosphate and agricultural sectors. Finally, national savings would have financed a larger share of 1973-77 investments than anti- cipated originally. A detailed review of the economy's performance during 1973-77 will be undertaken by the Bank next fiscal year, in conjunction with an assessment of Morocco's next five-year Plan (1978-82). Development Prospects 12. The Plan revisions that were introduced since 1975 have maintained or strengthened the investment programs designed to achieve the original economic and social objectives of the 1973-77 Plan. They have, in addition, greatly increased allocations for regional development, for low-cost housing, and especially for three industrial investment programs to be implemented over the next decade. These programs are a one-million ton steel mill and related infrastructure at Nador, a series of sugar mills and related irrigation devel- opment and several chemical units based partly on phosphate. Thus, the Plan revisions will have an important spill-over effect on the next 1978-82 Plan. 13. The general thrust of the Plan revisions seems justified. Indeed, the achievement of initial (especially social) Plan objectives is eminently desirable. Similarly, Morocco's economy has developed to a stage where some basic industries may find a justified place. The country in particular possesses an obvious comparative advantage in the processing of phosphates, which would tend to stabilize export earnings. Similarly, it can produce at competitive cost steel and sugar which it would otherwise import, although cost competitiveness in both cases is difficult to assess because of volatility in international prices. The Plan revisions nonetheless raise several issues of importance for Morocco's long-term development strategy and prospects. 14. The present investment level is close to the country's absorptive capacity. Although training efforts have been stepped up, it is likely that shortages of skilled and experienced manpower will continue to be a problem for some years to come. While for large industrial and infrastructure proj- ects, Morocco can use foreign services extensively, this is costly and would not be a suitable solution to meeting the needs of smaller investments in large numbers. Further, investments in steel and chemical industries will generate comparatively little direct employment opportunities for unskilled workers.  15. In addition, financial constraints may in future again restrain Morocco's overall development efforts. While there is scope for increasing phosphate exports, the prospects in the medium term are that the price of phosphate will remain stable. Hence, Morocco's real capacity to save and import would be expected to increase only moderately. The pursuit of the objectives and policies to improve consumption levels of low income groups would also restrain national savings. Thus, in spite of likely efforts to increase budgetary savings and import substitution (particularly food), for- eign exchange and national savings are likely to be constraints on investment during the next Plan period. 16. Bank projections which are preliminary, since the Government has not yet fixed the 1978-82 Plan's objectives and strategy, indicate that gross fixed investment could only grow slowly in view of limited resources available. Given the planned move into heavy industries, investment possibilities in other sectors would by necessity be limited. Assuming a real investment growth of about 3 percent per year and export growth of about 8 percent, which seems feasibile in view of market prospects and export capacity, GDP growth could probably average about 6 percent yearly during the 1978-82 period. Despite implementation of policies to restrain consumer goods imports and likely import substitution, Morocco is likely to experience a sizeable resource gap, and need relatively large inflows of external capital to cover it and to service accumu- lated debt. External borrowing requirements on a commitment basis, are tenta- tively projected to average $900 million per year in 1978-82, about two-thirds of which are expected to be met by official multilateral and bilateral sources and the rest by commercial sources. Morocco has successfully increased ex- ternal borrowings in 1974-76; loan commitments have risen to $550 million in 1974, $860 million in 1975 and an estimated $802 million in 1976. Morocco should, therefore, be able to mobilize the amounts projected for 1978-82. 17. External debt and debt service would increase as a result of pro- jected borrowings. Debt outstanding and disbursed, which was $1.6 billion at the end of 1975 (20 percent of GDP) is projected to rise to a $4.5 billion (or 25 percent of GDP) by the end of 1982. Similarly, debt service payments is likely to rise from the low 6.9 percent of exports in 1975 to about 21 percent in 1982. Adding workers' remittances to exports, the debt service ratio, which was less than 6 percent in 1975, might rise to 19 percent in 1982. These projected levels for debt and debt service are high, but still within Morocco's debt carrying capacity, especially when considering the country's improved economic and social policies and its long-term export prospects, not only in phosphate rock and related products, but also in agricultural and industrial commodities for the European market. Beyond 1982, the relative burden of debt would probably tend to decline gradually as Morocco benefits from anticipated supplier's market for phosphates and its resource gap conse- quently tends to diminish. Morocco is therefore considered creditworthy for further Bank lending.  -6- PART II - BANK GROUP OPERATIONS IN MOROCCO 18. Bank and IDA lending to Morocco has supported 32 projects, finan- cing a total of $834.4 million (net of cancellations); of this total $620.5 million has been lent since the beginning of FY73. IDA credits, totalling $50.0 million, have been made available for five projects. A Third Window loan for $25 million for the third education project was approved in March 1976. IFC investments have amounted to $11.3 million. Annex II contains a summary statement of Bank loans, IDA credits and IFC investments as of June 30, 1977, and notes on the execution of ongoing IBRD/IDA projects. In some cases, delays in project implementation have been caused by management or procurement difficulties, and in 1974 cost overruns increased due to the upsurge in invest- ment activity in Morocco and the acceleration of inflation. However, overall performance has improved during the last two years. 19. Past Bank Group lending has been concentrated in the agricultural and industrial sectors, which respectively have accounted for 32 and 35 per- cent of total net commitments; the balance is accounted for by utilities (18 percent), tourism (8 percent), roads (5 percent) and education (4 percent). Apart from the transfer of resources to Morocco (Bank Group gross disburse- ments amounted to 5.5 percent of total fixed investment in 1970-74), the main objectives of lending were to foster and strengthen development institutions, provide technical assistance especially for project preparation, and increase productive capacity, particularly in order to improve the balance of payments. 20. While these objectives remain, emphasis is also being given to sup- port the Government's social development and income distribution objectives. An increasing share of Bank Group lending will be devoted to projects directly or indirectly developing the productive capacity of the lowest urban and rural income groups. 21. Past lending for agriculture has supported irrigation development, credit and, through a first operation in FY75, the improvement of the produc- tivity of rainfed farming. While continued lending for irrigation is envis- aged, greater emphasis will be given to supporting the improvement of rainfed farming, and lending will in general be focused on support to small farmers. Projects for livestock/rural development in the rainfed zones in northern Morocco, for developing production of fruits and vegetables on small holdings and for promoting integrated rural development in selected regions of Morocco are being prepared. 22. Projects in industry and tourism have as key objectives increased foreign exchange earnings or savings and the improvement of sectoral policies. A project for the construction of a large cement plant in the less developed Northeast and an eighth loan to BNDE including a small scale industry component were recently approved. Proposals for industrial lending, including the con- struction of a steel mill in northeast Morocco, are under consideration. Con- tinued lending for industry and tourism through two DFC's (Banque Nationale pour le Developpement Economique-BNDE and Credit Immobilier et Hotelier-CIH) will be proposed.  - 7 - 23. Previous lending for utilities has consisted of one loan for water supply and two loans for power. A follow up project for water supply and distribution in urban centers is under preparation, as is a sewerage project in Agadir. 24. A first urban development project is being appraised. It aims at contributing a model for coping with the problem of rapid growth of slum areas and would include a substantial social services component and an employment generation program. 25. Education is a critical bottleneck in Morocco's development. Two credits and a loan have been made to develop secondary education and teacher training, to improve technical and vocational training, and to improve facili- ties in rural areas. A fourth project with emphasis on technical education is under preparation. 26. Loan commitments from multilateral and bilateral official sources to Morocco rose from $92 million in 1973 to $425 million in 1974 and $538 million in 1975. In addition Morocco received grants totalling $40 million in 1973 and $42 million in 1974. The major sources of aid were France, Saudi Arabia, the UAE, the U.S., Germany and the Bank Group. At the end of 1976, the Bank Group's share in Morocco's outstanding and disbursed external public debt was estimated at 13 percent. The share of the Bank Group in debt service was 20 percent in 1975 and an estimated 13 percent in 1976. By 1982 the Bank Group's shares in debt outstanding and in debt service are expected to be about 17 percent and 11 percent respectively, on the basis of the assumptions made for total external borrowings for the 1976-82 period (paragraph 17). PART III - THE SEWERAGE SECTOR Introduction 27. The development of the sewerage sector in Morocco has failed to keep pace with the requirements arising from an urban population growth of over 5 percent p.a. and rapid industrialization. Existing infrastructure is essen- tially limited to collection systems for major urban centers. In rural areas, sewerage development has been limited to primitive excreta collection systems. Institutions are typically weak, lack technical expertise and an autonomous financial base for their operations. Until recently, there was no institution responsible for formulating a sewerage policy at the national level to address issues such as the establishment of appropriate effluent standards and pollu- tion control policies. It is still too early to judge whether a sewerage unit recently created within the Ministry of the Interior will be able to perform these functions (see para. 29). Urban Sewerage Practices 28. Urban sewer systems have been constructed along traditional European patterns and usually combine evacuation of waste and storm waters in a single  - 8 - network. This procedure has proved to be unsatisfactory in Morocco because of climatic conditions and is aggravated in cities built on flat lands where it produces deposition of organic matter inside the sewers causing nauseous odors and internal sewer corrosion. Recognition of this problem has recently led to the decision to construct separate waste and storm water systems in new urban developments. Such a separation allows for a design of the wastewater evacua- tion system using smaller diameter pipes, steeper slopes and pumping stations to maintain a sufficient flow of wastewaters to keep the system flushed and prevent deposition of organic matter. Under the present circumstances, the combination of increasing wastewater flows, inadequate disposal procedures and the lack of treatment facilities constitute a growing health hazard. In coastal areas, sewers typically discharge at the shoreline without the benefit of coastal interceptors or submarine outfalls. These multiple discharges into the well aerated waters of the surf zone provide adequate dispersion and aera- tion of organic wastes, but have caused severe bacteriological contamination of coastal waters around major cities which has already slowed tourism devel- opment and threatens shellfish beds and fish spawning areas. The absence of water quality standards and of controls on industrial liquid wastes is a grow- ing threat to marine life and to public health. A concerted effort to evaluate the toxicity and environmental impact caused by the discharge of untreated industrial liquid wastes is long overdue and is a necessary precondition for developing appropriate effluent standards and waste water management techniques. Sector Organization 29. The present organization of the sector is characterized by weak institutions and inadequate financial provisions. Municipalities are re- sponsible for the operation and maintenance of their sewer systems for which financing is normally provided from general municipal income. Routine expan- sions also fall under the responsibility of the municipalities and are usually carried out by force account. The design and construction of new sewer systems and major extensions to existing ones are carried out by private consultants and contractors under the general supervision of the Ministry of Public Works and are financed through government grants. The Government is aware of the inadequacy of this situation and of the need for a central institution with overall responsibility for the sector, capable of defining a national sewerage policy and coordinating development programs. Since the Government wishes to maintain responsibility for operation of water distribution and sewerage ne- works within the municipalities, it has recently formed a sewerage unit within the Ministry of the Interior, which is the Ministry responsible for supervising the municipalities. This unit is responsible for planning the develop- ment of the sector in conjunction with the Ministries of Public Works; Urban Development, Housing, Tourism and Environment; Agriculture; and Health. Among the issues under consideration, are the establishment of sewage tariffs for domestic and industrial wastewaters, most probably in the form of a surcharge on water tariffs, industrial wastewater management procedures, water quality criteria for various bodies of water, general design criteria for wastewater treatment and disposal, and the creation of autonomous municipal authorities responsible for sewerage, either as independent authorities or within existing autonomous municipal organizations (Regies) presently responsible for distri- bution of water and of electric power. In the context of the spread of urban  -9- growth across municipal boundaries, the Unit is to seek ways of coordinating the development of urban sewer systems at a regional level, as would be the case in the proposed project (see para 42). 30. The Government has become increasingly aware of the need to assign higher priority to developing the sewerage sector, in order to reduce'public health hazards and to improve water usage. The 1978-82 Development Plan under preparation, is expected to allocate a greater percentage of funds to sewerage. Studies focusing on the provision of classical discharge and treatment facili- ties are currently being prepared for Agadir (financed under Bank Loan No. 1202-MOR), Tangiers and Fez. The Agadir study would also include a preliminary evaluation of the feasibility of using treated effluent for agricultural pur- poses. If carefully developed, this approach could be applied advantageously in various areas with limited water resources. 31. The proposed loan would be the first direct Bank Group operation in the sewerage sector and should lead to the preparation of a sewerage project for which the Government has requested Bank financing. UNDP funds for Morocco have been fully committed and there are no other readily available sources of foreign exchange within Morocco, to finance these urgently needed studies on -which the Government places high priority. As mentioned above (paragraph 30), the Bank is financing a sewerage study for the city of Agadir as part of a tourism development project for that city. Future Bank operations for urban development would also contain sewerage components. PART IV - THE PROJECT 32. The proposed engineering project was identified in November 1976. The terms of reference were discussed and a draft proposal agreed upon in Morocco in April 1977. Negotiations were held in Rabat in June 1977. The Moroccan delegation was led by Mr. Belkoura of the Prime Minister's Office. The Project Area 33. The Casablanca-Mohammedia area is the largest urban and industrial center of Morocco. Its present population is close to 2 million (about 30 percent of the total'urban population) and is growing at an annual rate in excess of 4 percent. About one quarter of this population is estimated to live in urban slums, the growth of which has been fueled by migration from rural areas. In 1972, approximately half of the industrial establishments in Morocco employing more than 10 worke'rs were located in this area, accounting for some 40 percent of total industrial employment. From the viewpoint of wastewater pollution, the principal industries are paper, fertilizers, detergents, brewe- ries, chemicals, cement, food and pharmaceuticals. The presence of all the above factors renders this area particularly-suitable to serve as a model for developing technical approaches'and institutional and financial policies that could subsequently be replicated in other cities.  - 10 - 34. Potable water for the project area is supplied by the Office National de l'Eau Potable (ONEP). ONEP is a public sector agency under the supervision of the Ministry of Public Works responsible for bulk supply of drinking water throughout Morocco. Distribution of drinking water in the Project Area is the responsibility of the Regie Autonome pour la Distribution de l'Eau et de l'Electricite (RAD), an autonomous municipal agency. For the area as a whole, it is estimated that 70 percent of the population is connected to the water distribution systems; the remainder, including those living in slum areas, have access to drinking water through vendors and public taps. 35. Sewerage in Casablanca and Mohammedia is the responsibility of the two municipalities. Central Casablanca is served by an integrated sewer net- work covering an area of about 150 km2 and totalling some 1,000 km of sewers. Other peripheral areas, including the coastal zone between Casablanca and Mohammedia, are served by poorly defined networks which have been haphazardly constructed in response to population growth. Most of the sewers are of the combined type and suffer from heavy deposition during dry periods with the inevitable generation of bad smells and bacterial growth. In general, the slum areas around Casablanca have not been connected to the sewer network due to their rapid growth and unfavorable topographical conditions. There is no sepa- rate accounting for sewer charges, which are levied through a sewerage and garbage collection surcharge included in property assessments; funds to cover operational and maintenance costs of the sewerage system are allocated from the municipal budget. 36. Untreated industrial and domestic wastewaters which are discharged together with stormwaters into the Atlantic Ocean at the shoreline by means of numerous trunk mains and minor sewers are causing severe bacteriological contamination of the coastal waters, visible nuisances and obnoxious smells in the protected areas of the Casablanca harbor. As a consequence, the attractive coastal area remains largely underdeveloped since bathing on beaches of the region is hazardous. Also, at the request of the Ministry of Health, fishing has been forbidden in most of the surf zone. Project Objectives 37. The primary objective of the project is to assist Morocco in the development of design and planning criteria for upgrading urban sewer systems in the Casablanca-Mohammedia area. The Project would lead to the establish- ment of design criteria for wastewater collection, treatment and disposal facilities; monitoring of receiving waters and industrial wastewater effluents; development of domestic and industrial wastewater management practices and of technical criteria for wastewater reclamation for agricultural and industrial purposes and for possible use of sewage solids for soil conditioning; creation of regional autonomous sewerage authorities; and establishment of adequate sewerage charges for industrial and domestic wastewaters. The project would thus directly assist the Government in implementing its long range program to reorganize the sewerage sector. The scope of the project is intended to cover the technical, financial and institutional aspects typical of urban sewerage development over the medium-term. As such, it would provide the basis of  - 11 - future studies and development projects to extend sewerage facilities both in Casablanca and in other urban centers in Morocco. Project Description 38. The project would provide for two studies and the acquisition of technical equipment as follows: (i) Preparation of a feasibility study of the sewer system for the Casablanca-Mohammedia area, including analyses of water consumption and wastewater testings, projections of population, wastewater flows and pollutant loadings; an oceanographic survey to determine the ecological effects of exising proce- dures for marine disposal of wastewaters; a technico-economic analysis of wastewater reclamation for irrigation use and of sewage utilization for soil conditioning; and preparation of a sewerage master plan for the area, including construction cost estimates and recommendations for a phased construction. (ii) Detailed preparation of a priority project constituting the first implementation stage of the sewerage master plan, includ- ing preliminary designs and detailed construction cost esti- mates for high-priority structures, financial projections for the operation of the regional sewer system covering a ten year period, proposals for the organization of the entity respon- sible for the operation of the regional sewer system and for sewer charges, and terms of reference for an oceanographic baseline study of the coastal waters, for an in-depth survey of industrial wastewaters and for a feasibility study for reclaiming wastewaters for irrigation. (iii) Acquisition of oceanography equipment for installation in a naval vessel provided by the Government, to carry out oceano- graphic surveys related to the preparation of the feasibility study. The project would be completed by October 1979. Information on the Project appears in the Loan and Project Summary and in Annex III. There is no sepa- rate appraisal report for this engineering Project, but a detailed descrip- tion of the studies is given in the technical terms of reference presented in Annex IV, a Technical Appendix. Feasibility Study 39. The feasibility study would include the collection of basic data relating to the Casablanca-Mohammedia sewer systems and wastewater charac- teristics, thereby permitting specific identification of issues and areas requiring further analysis. It would analyze the economic and environmental advantages of constructing separate wastewater collection systems in various parts of the Project area. It would lead to the preparation of a regional  - 12 - sewerage master plan to provide an overall framework for future sewerage devel- opment in the project area. Major activities would be the determination of the quantities, composition and variations of domestic and industrial wastewater flows and an oceanographic study of the impact of present sewerage practices on the marine environment. In order to carry out the oceanographic study, the Government has agreed to make available for at least 30 effective working days a fully manned naval vessel which would be equipped under the Project (Section 3.02(b), draft Loan Agreement). The vessel thus equipped would subsequently be available to carry out an ocean monitoring program (see para 40), as well as other oceanograhic surveys required in Morocco. A better knowledge of these parameters, is essential to establish appropriate measures for controlling pol- lution and proposing adequate treatment of wastewaters. These studies would also underpin analyses of the advantages of wastewater reclamation and use of sewage solids (see para. 41). The consultants in conjunction with the Sewerage Unit in the Ministry of the Interior (para 29) would be responsible for devel- oping work methodologies which could be adopted and implemented elsewhere in Morocco. The sewerage master plan, drafts of which would be submitted to the Government and the Bank for review and comment, would form the basis for future policy discussions. Preparation Study 40. Following the completion of the above study, the Project envisages preparation, to Bank standards, of a high priority project which would consti- tute the first phase of the Sewerage Master Plan and which would include the construction of treatment facilities, submarine outfalls and expansions of the sewer network. Particular attention would be given to evaluate institutional and financial aspects and to identify legislative action and training needs. The Government has agreed to consult with the Bank on the conclusions of the feasibility study and thereafter, to provide the consultants with the institu- tional and financial assumptions required to carry out the preparation of the first stage project (Section 3.02d(ii), draft Loan Agreement). The study would also include the preparation of terms of reference for two specialized studies to be carried out in the Project area: (i) an oceanographic base-line study to be used in establishing a monitoring program of ocean water quality in the vicinity of the submarine outfalls and (ii) an in-depth study of the main industrial polluters to determine appropriate in-plant measures, pollution standards and industrial sewerage charges. 41. Possibilities for wastewater reclamation for irrigation and use of sewage solids for soil conditioning would be studied with a view to future implementation. At present, while wastewater reclamation for irrigation appears economically attractive because of the scarcity of water in the Casablanca Region, such a program could not be implemented due to lack of adequate controls over industrial liquid wastes. The design of the treatment facilities to be proposed would allow the addition of reclamation facilities at a later date. These, however, would not replace the need for ocean disposal of wastewaters as agricultural use of reclaimed waters would only be seasonal. This staged approach should provide sufficient time to Government to implement adequate industrial wastewater management procedures and establish a reliable monitoring of industrial effluents. The engineering project would also in- clude the preparation of terts of reference for a pilot wastewater reclamation  - 13 - facility to serve a well-chosen watershed where industrial liquid wastes are considered to be free of toxicants and substances likely to inhibit biological treatment processes. Project Execution 42. The Ministry of the Interior, through its recently created Sewerage Unit, and the Prefecture of Casablanca which has direct control over the two municipalities of Casablanca and Mohammedia, would have primary responsibility for the execution of the project which would be carried out by a firm of exper- ienced and qualified consultants selected on terms and conditions acceptable to the Bank. The hiring of these consultants would be a condition of effec- tiveness of the proposed loan (see Section 5.01, draft Loan Agreement). It is expected that the feasibility study could be completed by the end of 1978, which would permit the preparation of the first-stage project to be completed before the end of 1979. A report entitled, "Supplementary Information to Consultants" specifying details on preparation, submission and evaluation of proposals, work schedules, award of contract, and other details pertaining to the execution of the studies has been reviewed and agreed upon. Invitations to submit proposals would only be sent to a short list of consultants prequali- fied by the Government with the agreement of the Bank. 43. During project execution, the consultants would submit bi-monthly progress reports to the Government, which in turn would submit them to the Bank. Their final reports would be submitted in draft to permit review by the Govern- ment and the Bank and incorporation of their comments into the final report. 44. Although no formal training component is included in the project, two experienced sanitary engineers have been designated to work closely with the consultants, one in the Sewerage Unit of the Ministry of the Interior who would be principally responsible for issues that require consideration at the national level, and the second in the Casablanca Prefecture who would be mainly concerned with issues affecting the Project area. From the day to day exposure to the work of specialists, these engineers would receive training in the various fields covered by the studies. It is also expected that the execution of the project would allow for a more precise identification of training requirements. Project Costs 45. The total project cost is estimated at $2.5 million including physical and price contingencies. The proposed engineering loan would finance foreign costs estimated at $1.5 million, with the local costs being provided by the Government. A breakdown of total project costs is presented below.  - 14 - US$ Thousands Local Foreign Total Percent Technical Personnel Project Manager - 30 man-months 28 238 266 10.8 Engineers and other technicians - 207 man months 433 686 1,119 45.4 Other Support Personnel Administrative - 24 man-months 71 - 71 2.9 Clerical - 72 man-months 164 - 164 6.7 General Equipment for oceanographic surveys - 140 140 5.7 Effluent soil testing - 23 23 0.9 International travel - 23 23 0.9 Local transportation 18 11 29 1.2 Office rental and supplies 16 6 22 0.9 Reports and miscellaneous 3 9 12 0.5 Sub-total 733 1,136 1,869 75.9 Physical contingencies 73 114 187 7.6 Price contingencies 159 246 405 16.5 Total 965 1,496 2,461 100.0 The estimated cost covers 237 man-months of technical personnel, including the project manager, engineers and technicians, and 96 man-months of supporting administrative and clerical local personnel. The average cost of consultant services for technical personnel would amount to $5,480 per man-month includ- ing the consulting firm's overhead and profit. Physical contingencies of 10 percent and price contingencies based on an annual cost escalation of 12 per- cent have been included. Procurement and Disbursement 46. The consultants would be paid on a man-months basis. Oceanographic equipment would be procured on the basis of quotation obtained from at least three international suppliers, local or foreign. The loan would be disbursed against 100 percent of foreign expenditures. It is expected to be fully dis- bursed by the end of 1979, according to the following schedule of estimated disbursements:  - 15 - US$ Thousands through Jan. 1,1978 July 1, 1978 Jan 1,1979 July 1,1979 Dec. 31,1977 June 30,1978 Dec. 31,1978 June 30,1979 Dec.31,1979 Period 150 400 500 300 150 Cumulative 150 550 1,050 1,350 1,500 Project Justification and Risk 47. The Project would make a major contribution in assisting the Govern- ment to achieve its long range objectives of strengthening and reorganizing the sewerage sector both through the preparation of a priority project for possible Bank financing and through studies leading to the establishment of appropriate technical standards, financial policies and institutional arrange- ments. The studies would provide Government with a viable sewerage proposal for the Casablanca-Mohammedia area and with data and recommendations on sector planning, tariff policy, industrial wastewater management and water quality criteria. These measures are essential to reduce the public health hazards and the risks to fisheries deriving from the growing pollution of coastal waters. At the central Government level it would outline the objectives of the Sewerage Unit established in the Ministry of the Interior and improve the project analysis and policy formulation capacity of this Unit. At the muni- cipal level it would provide recommendations for strengthening the management and the technical and financial capacity of sewerage authorities. The Govern- ment is interested in this Project and its full support will be needed for implementing the proposals of the sophisticated studies. The Project faces no special risks. A detailed work plan for the consultants will be prepared in accordance with the agreed technical terms of reference and the Government has agreed to give special consideration to the technical capacity of the consul- tant staff so as to minimize the risk of the studies not meeting the project objectives. PART V - LEGAL INSTRUMENTS AND AUTHORITY 48. The draft Loan Agreement between the Kingdom of Morocco and the Bank, the Report of the Committee provided for under Article III, Section 4 (iii) of the Articles of Agreement, and the text of a resolution approving the proposed loan are being distributed to the Executive Directors separately. 49. Features of the Agreement of special interest are summarized in Annex III. The hiring of consultants for the Project is a condition of loan effectiveness. 50. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank.  - 16 - PART VI - RECOMMENDATION 51. I recommend that the Executive Directors approve the proposed loan. Robert S. McNamara President Attachments Washington, D.C. July 20, 1977  *4 9 44 S~~~~~1 z; ; UZ; ; ^ MzN 4 PW. 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El 13 7L t t % V I I I S I V va  ANNEsXI ~~hmount.iVi1flhiTUI DTAflr Page 3 of 4 Pages Actual Prolected 1968- 1973 - 1973- 19 78 - 16 92 17 1-967 1972 1975 197_6 1977 192! 1972 1975 1977 1982 197 97 1 7 NATIONqAL ACCOUNTS At 1975 Prices & Exchange ~~~Aveage Annual Growth Rates As Percent of GDY Gross Domestic Prodc 3,380 6989 7",953" 18,7640 9,4!1712,670 5. 4.5 62 61 16. 0.30. Gains from Terms of Trade 9) -326 -616 - -546 .786 -978 - - - - -6.5 -9.7 - Gross Domestic Income 5,054- 6,373 7,953 841 i8 8,-6306Y 1,6-92z - 27- 77% 63 - 2TJ16X77 T ioo o too.o Import (imcl. NFS) 1,501 1,850 2,996 ~ 3,789 3,126 3,860 4.3 17.4 11.1 4.3 29.7 29.0 37.7 Exports (import capaLcity) -_1.336 -1, 786 -&.Qi.