Somalia - Mogadishu Water Supply Project

FILE COPY Dto The World Bank FOR OMCIAL US1 ONLY Rqlt No. P-2274-So REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE SOMALI DEMOCRATIC REPUBLIC FOR THE MOGADISHU WATER SUPPLY PROJECT May 12, 1978 15dumeat bm a relcted dllbW. Ed MY b weed bY rlet ouly In Ure perfema of teir icl dodo. Its e"_ti mY FnM tbrwle be dieedbe withot World Bek autwlnflo.  SOMALIA MOGADISHU WATER SUPPLY PROJECT I- CURRENCY EQUIVALENTS (CY 1977 and March, 1978) 1 US$ = Somali Shilling (So. Sh. 6.295) 1 Somali Shilling - US$0.1589 WEIGHTS, LENGTHS AND MEASURES mm = millimeter (0.03937 inches) cm = centimeter (0.3937 inches) m = meter (39.37 inches) km = kilometer (0.62 miles) 2 - square kilometer (0.386 square mile or 247 acres) m = cubic meter (220 Imperial gallons or 264.2 US gallons) 1 = liter (0.220 Imperial gallons or 0.264 US gallons) 1/sec = liters per second (19,005 Imperial gallons per day or 3 22,824 US gallons per day) m /sec = cubic meters per second (19.0 million Imperial gallons per day or 22.8 million US gallons per day) lpcd = liters per capita per day ABBREVIATIONS AND ACRONYMS AfDF = African Development Fund ENEE = Exite National Energia Electrica (National Electrical Agency) GIBB - Sir Alexander Gibb and Partners Germany = Federal Republic of Germany GTZ = Deutsche Gesellschaft fur Technische Zusammenarbeit, Gmbh (German Agency for Technical Cooperation, Ltd.) MWA = Mogadishu Water Agency MMWR m Ministry of Minerals and Water Resources PPF - Project Preparation Facility SIDAM = Somalia Institute of Development Administration and Management UK = United Kingdom USAID = United States Agency for International Development WDA = Water Development Agency WHO = World Health Organization WRDC = Water Resource Development Comittee FISCAL YEAR January 1 - December 31  FOR OFFICIAL USE ONLY SOMALIA - MOGADISHU WATER SUPPLY PROJECT Credit and Project Summary Borrower: Somali Democratic Republic Beneficiary: Mogadishu Water Agency and Somali Government Amount: US$6.0 million equivalent Terms: Standard Relending Terms: About US$5.9 million from proceeds of the credit would be onlent to Mogadishu Water Agency for a period of 20 years, including 4 years of grace, at an interest rate of 7 percent per annum. Project The Project is intended to provide a small increase in Description: production from Mogadishu's existing well field while at the same time assisting in the preparation of a larger second project. The Project consists of: (a) Water resource investigations; (b) Construction work including: the extension of Balad Road well field; the extension and modifi- cation of transmission, electric power and pumping facilities; the extension of water distribution grid and construction of about 40 additional public hydrants; and the construction of workshop and field staff quarters; (c) Procurement of vehicles and maintenance, workshop, communications, laboratory and water treatment equipment; (d) Advisory, technical assistance and consulting services. Benefits and Risks: The urban poor would be the main beneficiaries of the project. As a result of the project, water supply would be extended to an additional 29,000 urban poor in Mogadishu. The main risks would be that, because This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  of institutional weaknesses, construction may be delayed thus further extending water shortages in Mogadishu, and that operation and maintenance may be inadequate. Estimated Project Cost: US$ Thousands % of Local Cost Foreign Cost Total Cost Total Civil Works 936 1,565 2,501 32.5 Equipment 127 1,161 1,288 16.7 Expatriate Advisors 37 298 335 4.3 Project Management Unit 53 22 75 1.0 Training Component 239 396 635 8.2 Consulting Services 173 1,347 1,520 19.7 Subtotal 1,565 4,789 6,354 82.4 Contingencies Physical 234 611 845 10.9 Price 131 389 520 6.7 Total Project Costs 1/ 1,930 5,789 7,719 100.0 Financing Plan: Total Internal Cash Financing Beneficiary IDA Credit Generation Goverment Requirement US$'000 US$'000 US$'000 US$'000 MWA 5,954 854 850 7,658 WDA 46 - 15 61 Total Costs 6,000 854 865 7,719 Estimated Disbursements: US$ (Thousands) 1979 1980 1981 1982 1,950 2,550 1,050 450 1/ The Project would be exempted from taxes.  - iii - Rate of Return: 9 percent (calculated on 62 percent of project costs), Staff Appraisal "Staff Appraisal Report, Mogadishu Water Supply Project - Report: Somalia" (No. 1860-SOM) dated May 10, 1978.   INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE SOMALI DEMOCRATIC REPUBLIC FOR THE MOGADISHU WATER SUPPLY PROJECT 1. I submit the following report and recommendation on a proposed credit to the Somali Democratic Republic for the equivalent of US$6.0 million on standard IDA terms to help finance the Mogadishu Water Supply Project. About US$5.9 million from proceeds of the credit would be onlent to Mogadishu Water Agency for a period of 20 years, including 4 years of grace, at an interest rate of 7 percent. The remaining US$0.1 million would be retained by the Government for identification of the training needs of the National Water Development Agency. PART I - THE ECONOMY 1/ 2. A Country Economic Memorandum (Report 1421a-SO) was distributed to the Executive Directors on April 18, 1977. An informal updating of economic information took place in May/June 1977 and the next IDA economic mission is scheduled for June 1978. Country data sheets are attached as Annex I. 3. The Somali Democratic Republic was formed in 1960 by a merger of the former Italian Trust Territory of Somalia and the British Protectorate of Somaliland. Following a decade of parliamentary rule, the Government was taken over by the military in 1969. The Supreme Revolutionary Council, consisting of army and police officers became, in fact, the highest policy- making body until mid-1976 when it was abolished and a political party, the Somali Revolutionary Socialist Party, was formed and became the key political institution. 4. Since 1970 the Government has adhered to a program of "scientific socialism", emphasizing egalitarianism and social justice, development through the public sector, nationalization of certain foreign enterprises, and the formation of cooperatives. While the Government has always stated that there is room for private initiative in Somalia and several privately financed projects have been implemented, the main emphasis has been given to develop- ment of the public sector. The Government's development efforts have been characterized by austerity and self-reliance. 5. Somalia is located on the Horn of Africa with three thousand kilo- meters of coastline on the Gulf of Aden on the north and the Indian Ocean on the east. The topography varies from a hot and arid coastal plain, which 1/ This section is the same as that of the Technical Assistance Project.  -2- gives way to sparsely wooded savannah, to rugged mountains, agricultural plateaus and lowlands of varying fertility and rainfall. Much of the country is arid; water supplies are scattered and often unreliable, and periodic droughts bring hardship to both the people and their livestock. Only a small proportion of the land, approximately 13%, is arable. While the existence of several minerals has been confirmed, exploration is still in the early stages and commercial viability remains to be proved. Short of other known resources, Somalia's prospects center on agricultural and livestock development in which progress will depend upon careful management of scarce land and water resources. 6. With an estimated per capita income in the order of US$110 in 1976, Somalia is classified by the UN as one of the 25 least developed countries of the world. Of the total population of approximately 3 million, about two-thirds are nomads and semi-nomads, who depend on livestock for their livelihood and about 20-25 percent are farmers cultivating land along the Juba and Shebelli rivers and in the higher-rainfall North-West region. The small monetary sector of the economy provides only limited opportunities for employ- ment. Apart from the traditional export of livestock, commercial agriculture is mainly centered on the production and export of bananas, in which Italian concession holders are still important, and the production of sugar for the domestic market. The expansion of manufacturing and other service sectors of the economy is limited by the small size of the domestic market, poor infra- structure, and the shortage of capital and entrepreneurial experience. No income distribution data exist, but the Bank estimates that about 70% of the population live at subsistence levels of about US$200-250 per family of five. Social services are still very inadequate; the school enrollment ratio was until recently among the lowest in the world but took a great leap forward in the past two years. There is little economic data on Somalia. Even basic figures such as GNP, population, number of livestock, or output of major agricultural crops are only rough estimates. Therefore, it is extremely difficult to measure economic performance except in a very rough and ready manner. Political Changes and their Economic Consequences 7. The effect of recent political events on economic development policy in Somalia is bound to be rather limited because of the lack of alternative strategies to the one currently followed. However, some change was perceived in recent months as evidenced by a revision (and liberalization) of the law on foreign investment of 1960 and the reappointment of a technician as Chairman of the Planning Commission. 8. Since various state enterprises (such as the Chisimaio Meat Factory and the Las Koreh Fish Factory) were organized with Soviet assistance, the departure of Soviet technicians will cause problems in these firms and in the Planning Commission, which also received Soviet personnel. However, the real need for replacements is estimated to be substantially less than the number of departures (estimated at 200-250 civilian technicians).  -3- Development Planning Achievements 9. The long-range objectives of the Government are strongly influenced by the desire to be self-reliant. The Government is seeking to make the country self-sufficient in agriculture through both an expansion of the area under cultivation and the development of irrigation while trying to provide permanent settlement for many of the nomads and putting considerable emphasis on modernizing and mobilizing the population. Of central importance for achieving these objectives are education, rural literacy and self-help pro- grams such as those in agriculture and public works (referred to as "Crash Programs"). Finally, the Government places emphasis on developing infrastruc- ture, especially transportation and communications. 10. Since the bulk of the population is engaged in herding or in subsis- tence farming, a development strategy for Somalia must start with agriculture and livestock as a base. The major development goals of the Somali Government include self-sufficiency in foodgrains, the partial substitution of other food imports (oils, rice) and improvement of the lot of the traditional nomadic herdsmen through settlement programs and improvements in livestock production and marketing facilities. The current Plan's emphasis on irrigated agricul- ture is meant to make the country less dependent on the erratic pattern of rainfall, and assure more stable and predictable increases in output. Atten- tion is also being given to projects in rainfed agriculture (mainly through the Government-financed Self-Help Programs, the IDA-financed Rainfed Crop Production Project under the Juba-Shebelli Area Emergency Settlement Scheme and the North-West Region Agricultural Development Project) which focus on making the best use of the limited amount of rainfall. Improvements in livestock production and marketing are being promoted by the IDA-financed Trans-Juba Livestock Project designed to provide market access to the nomads in the southern part of the country and the Kuwait Fund-financed Northern Rangelands Project with emphasis on rehabilitation of the denuded rangelands in the North. The Plan continues to base its development of industry on the processing of domestic raw materials to substitute for imports. 11. The 1974-78 Five Year Plan, as originally conceived, called for investments of So.Sh. 3.9 billion and was probably overly ambitious, both with respect to financial and implementation constraints. Because of inflation, the cost of carrying out the same (physical) investment program will now require an additional So.Sh. 1 billion. A review of Plan implementation after three years shows (financial) rates of implementation of 46.2%, 40.8% and 77% in 1974, 1975 and 1976, respectively. If adjustments for investments outside the Plan (mainly drought relief and rehabilitation) were made, they would show implementation rates (in financial terms) of about 60% in 1974 and 55% in 1975. In absolute terms, annual investment therefore increased from about So.Sh. 340 million in 1973 to an average of So.Sh. 500-600 million in 1974-75 and to about So.Sh. 700 million in 1976 which suggests that annual investment in real terms is increasing. However, it also seems that an essentially financial constraint in 1974 has turned into an implementation constraint in 1976. The implementation constraint is particularly acute as the result  -4- of a sharp exodus of skilled Somalis to the neighboring oil-exporting countries. 12. The Government's achievements over the past several years have been impressive by any standard. Before the present Government came to power in 1969, the economy was stagnant and the Government often in severe financial difficulties. Today the pace of development (as measured by public investment) has quickened and a far higher level of public services is being supplied. 13. Two fields where the Government's achievements have been particu- larly outstanding have been in the settlement of nomads and in education. Within a period of less than one year beginning in the summer of 1975, more than 100,000 nomads were transported from the arid rangelands of the North and settled on unutilized agricultural areas in the South. Small harvests have already been reaped and this has encouraged both the Government and the settlers. In education, the Government has concentrated on two aspects: basic education (literacy and numeracy) for all people, young and old, to enable them to effectively participate in the social, economic and political process; and specialized manpower training as a requirement for national development. With respect to the former, the mass literacy campaign conducted in the years 1973, 1974 and 1975 at a cost of So.Sh. 100 million (US$16 mil- lion) has resulted in an increase in the adult literacy ratio from about 5 percent to about 50-60 percent, according to Government estimates. The formal primary school enrollment ratio has risen from less than 15 percent of the relevant age group a few years ago to approximately 34 percent at present, and universal primary education may be reached by the mid-1980's. A script, introduced by the Government in 1972, made the writing of the Somali language possible for the first time, and this removed one of the major constraints to progress in the field of education. With respect to manpower development, the Government is concentrating on the training of high- and middle-level personnel in its principal development sectors--agriculture and livestock. Recent Economic Performance 14. Poor rainfall in 1973 and a virtual absence of rain during 1974 and the first half of 1975 led to widespread crop failures. The drought hurt ex- ports of livestock and bananas, the two largest earners of foreign exchange, and resulted in large imports of maize, sorghum, rice and sugar. The entire central and northeastern parts of the country were affected, as well as a large part of the population, mostly nomads. In 1976, the Somali economy ex- perienced a further slight recovery from the effects of the serious drought of 1973-75, mainly on account of continued expansion in Government expendi- ture, which contributed to substantial increases in overall investment and consumption. 15. Since 1973, production and exports of bananas have continued to de- cline and export volume in 1976 amounted to 72,500 metric tons, only 54 percent of the 1972 level. It is expected to have fallen further in 1977, partly be- cause of a disruption in exports to the Middle East on account of a commercial dispute. Because of a flood which seriously affected growing areas in late 1977, recovery of production and exports of bananas may be delayed further.  -5- A partial recovery in output of local food grains was evidenced by increases in marketed quantities in 1976/77 when the Agricultural Development Corpora- tion purchased 54,000 tons of grains, up from 45,000 tons the previous year, but only 55 percent of the predrought level. 16. Somalia's manufacturing sector consists of a few relatively large- scale public-owned enterprises and a large number of small private enterprises. In 1973, the public sector accounted for about 80 percent of value added in industry then estimated at US$20 million. Most of the industries are agro- based, depending upon locally produced raw materials. After making strong progress in the period 1968-70, industrial production stagnated from 1971 to 1973 but appears to have picked up since. Several investments were made in the latter period such as a brick factory, a flour and pasta mill, grain mills, and a corrugated carton factory. Existing plants, especially the sugar complex and the textile factory were expanded and modernized. Also, increased fishing capacity is contributing to the improved performance of the fish factory. Construction has started on a 500,000-ton oil refinery financed by Iraq. Shortages of technical and managerial staff and in some cases lack of domestic inputs have resulted in underutilized capacity and the recent depar- ture of Soviet technicians is aggravating this problem in specific industries. 17. Somalia's fiscal performance has continued to be encouraging, and budgetary savings will remain an important goal of the Government. Together with the many self-help projects, the country's efforts to help finance its investments provide evidence of commitment to self-reliance. Since 1971 when the Government succeeded in reversing a ten-year history of budget de- ficits, a surplus has emerged every year (approximately $5.2 million in 1976). However, the increasing supply of Government services nation-wide and the recurrent cost implication of recent large public investments will make it increasingly difficult for the budget to generate substantial savings. 18. To raise Government revenues will probably require a reform of the tax system and identification of new sources of revenue, including measures to mobilize remittances of Somalis working abroad. In addition, ways of improving efficiency in parastatal enterprises are necessary to turn them into larger and growing sources of public savings. A World Bank mission recently studied state firms and discussed its findings with the Government. Further assistance to Somalia in this matter is being contemplated. 19. Somalia's balance on goods and services has been in deficit since Independence. The gap has grown from US$18.6 million in 1970 to US$110 million in 1976 and US$154.2 million in 1977, largely as a result of rapid growth in merchandise imports. Imports (f.o.b.) have risen steadily from US$56.8 million in 1971 to US$153 million in 1976 and US$193.5 million in 1977. 1/ The Government's comprehensive import licensing system can only have a limited impact, since development-related imports (which are not actively 1/ Foreign trade statistics for 1976 have been revised downward but still remain provisional; data for 1977 are preliminary estimates based on returns for the first 10 months.  -6- limited) already accounted for 40% of the total in 1974 and undoubtedly account for a higher share at present while another non-compressible import, food, accounted for a further 35-40 percent. Exports jumped from US$31.9 million in 1970 to US$85.3 million in 1975 but have stagnated at about US$80 million in 1976 and 1977. Also, increasing banana prices more than offset a marked decline in volume exported in 1975 and 1976 but prices stopped rising in 1977 and export receipts actually dropped. The overall balance of payments in 1977 is likely to show a small surplus (in the range of $7-8 million) as has been the case in the last two or three years because of large transfers and net capital inflow. 20. In view of Somalia's poverty, external assistance has played a major role in the financing of investment for the development of the country. Somalia joined the Arab League in 1974 and mounted a major effort to attract commitments of funds from the OAPEC countries. The large inflows of external capital and transfers from 1975 onward indicate that the effort has been successful. Due to political events, the source of foreign assistance has recently changed from the socialist block (except for China which maintains a large program) towards Arab bilateral and multilateral institutions (con- tinuing the trend started in 1975) and Western countries, several of which have had substantial assistance programs for a number of years. 21. The public external debt of Somalia as of December 1976 (outstanding and disbursed) was approximately US$277 million. Although a large share of this debt is on fairly soft terms, the debt service ratio has increased from 3.4 percent in 1972 to about 9 percent in 1977, and will probably continue to increase because of increased amounts of aid. Somalia's export prospects are rather poor because of the concentration on two primary products -- livestock and bananas -- both of which face problems in expanding production in the long run. Livestock is subject to cyclical droughts which decrease export sup- plies and competition from the Sudan and Ethiopia, and even Australia and New Zealand are to be reckoned with in asssessing Somalia's future market position in Saudi Arabia. Banana exports have fallen because of both supply (drought, floods, poor marketing practices) and demand (increasing competition from multinationals in both Italy and the Middle East) problems. Diversification efforts have been attempted in hides and skins and fisheries with limited success but are bound to receive a setback with the withdrawal of Soviet tech- nical assistance which was especially important in all aspects of fisheries and processing of fish. Therefore, in view of the country's poverty and uncertain export prospects, assistance should be provided on the softest terms possible and contain provisions for local currency financing. PART II - BANK GROUP OPERATIONS IN SOMALIA I/ 22. Starting in 1965 IDA has made 14 credits totalling about US$96 mil- lion of which about 45 percent have been made for transportation development, 1/ This section is the same as that of the Technical Assistance Project.  -7- including construction of three trunk roads and a new deepwater port and associated extensions at Mogadishu. IDA credits were also made for live- stock development in FY74, for a development finance company project in FY77, and for education in FY71, FY75 and again earlier in this fiscal year. Lending for agriculture commenced in FY76 with two credits for a Drought Rehabilitation Project and a North-West Region Agricultural Development Project. No Bank loan or IFC investment has been made to Somalia. Annex II contains a summary statement of IDA credits as of February 28, 1978 and notes on the execution of ongoing projects. Performance on ongoing projects gen- erally has been satisfactory. However, as the pace of development continues to rise, absorptive capacity constraints are likely to become increasingly evident; especially in the field of agriculture where projects are rather complex and implementation experience is limited. Therefore, in preparing and appraising new projects, particularly close attention will have to be paid to implementation capacity and the adoption of measures to ease this constraint when necessary. 23. We plan to direct our future efforts on the country's directly pro- ductive sectors, agriculture and livestock, and also on education and trans- portation. While agriculture and livestock offer potential for development, most rural development activities are only at the beginning stage. Moreover, agricultural development in Somalia is particularly difficult because most of the people in rural areas are nomadic. For these reasons, we plan that much of our future lending will be in the agriculture and livestock sectors, and this will be complemented with near equal attention on education. In the near future we intend to seek Board approval for an Agricultural Extension and Training Project, a Central Rangeland Livestock Project, an agricultural project for the Bay region. In addition to these sectors, we plan to support the Government's industrial development efforts (and assist in the formula- tion of an industrial development policy) through our country economic work and future DFC projects. We also plan to continue assistance, scheduled to begin with the proposed Mogadishu Water Supply Project, to the water supply sector. 24. To facilitate the development and implementation of the Associa- tion's growing operational program in Somalia, we recently established a one-man resident mission. The mission represents the Bank Group in its contacts with Government thus facilitating an efficient and smooth day-to-day working relationship and assists in coordination of the cofinancing efforts in accordance with the strategy outlined above. 25. Although the situation in the Horn of Africa is a cause for concern, the impact of the recent events on our operations has not been much. Only one project, i.e., North-West Agricultural Development Project, was affected in the sense that the management consultants invoked "force majeure" and left the project area in February 1978. However, since the troop withdrawal in March 1978, the conditions in Northwest Somalia are quickly returning to normalcy  -8- and the Government intends to proceed with implementation of the Project until new management consultants are appointed. 26. Implementation of other projects is proceeding generally sat- isfactorily,although some are affected by shortages of qualified staff, administrative and other factors which sometimes slow project implementa- tion. PART III - THE WATER SUPPLY AND SANITATION SECTOR Water Resources 27. Water resources in Somalia are unevenly distributed and scanty. There are only two perennial rivers, the Giuba and the Shebelli, which origi- nate outside Somalia and traverse the southern part of the country. Although generally limited both as to quantity and quality, ground water is Somalia's principal source of water supply. Population Served 28. Based on information collected during a water supply and sewerage sector study made in 1976 under the WHO/IBRD Cooperative Program, 20 percent of the rural population and 60 percent of the urban population had reasonable access to water supply service in 1975. Public sewerage exists only in Mogadishu where service is restricted to hotels, offices and a relatively small residential population (about 3,000) located in the central portion of the city. The system is old and a project to extend this system and also provide storm water drainage was recently appraised by the African Development Fund. The remaining urban population is served by individual disposal systems. Public Health 29. There are few reliable statistics on specific water-borne and sani- tation-associated diseases although morbidity and mortality due to common enteric and parasitic diseases are known to be exceptionally high throughout the country. Tuberculosis, malaria, various diarrheas, dysenteries and para- sitic infections directly attributable to environmental deficiencies, are the more commonly observed of the important communicable diseases. A recent study revealed that 40 percent of the infant children examined were suffering from gastroenterit is. Organization 30. Although several different agencies are involved, no agency is in charge of overall planning and programming of community water supplies and sanitation in the country. At the central Government level, there are mainly three organizations in the sector, i.e., the Ministry of Minerals and Water  -9- Resources (MMWR), the Ministry of Health and the Water Resources Development Committee (WRDC). Local government agencies are responsible for both water supply and sanitation but, except for a rudimentary waste water system in Mogadishu (see para. 28), only water supply is currently provided. Autonomous water agencies exist in three major cities, i.e., Mogadishu, Hargeisa and Chisimaio. 31. Responsibilities of MMWR are carried out by the Water Development Agency (WDA) and the Mogadishu Water Agency, which are the principal organiza- tions in the sector. WDA provides technical assistance to both rural and urban communities through seven regional offices and a headquarters office in Mogadishu. Although WDA has many responsibilities, its activities have been confined largely to the construction of tube wells, provision of public standposts for small communities, and watering points for the nomadic popula- tion. It also contracts out construction of tube wells to private and quasi- governmental organizations. WDA is partially funded through Government budgets and partially through revenue-producing activities. It is empowered to recover project costs from municipalities, may borrow funds for its opera- tions from the Government and from external sources with prior approval of 1MWR, and may contract its services to cooperatives or clients outside of Government channels. WDA is headed by a General Manager who is appointed by the President of Somalia. 32. Mogadishu Water Agency (MWA), an autonomous entity established in 1967 and recently placed under the Ministry of Minerals and Water Resources, is responsible for water supply to Mogadishu. It is possible, however, that the scope of MWA's operations would be extended to include construction and operation of sewerage and drainage facilities in Mogadishu (see para. 49). MWA is headed by a General Manager who is appointed by the President of Somalia and is given considerable freedom to conduct MWA's affairs. No sig- nificant additions to water supply capacity have been completed since comple- tion of a USAID project in 1973 and construction activities have been limited mainly to the extension of the distribution grid and new service connections. Annual budgets are approved by the Ministry of Finance while major capital expenditure projects are approved by the State Planning Commission. 33. Ministry of Health's responsibility in the sector has been limited mainly to exercising control and surveillance over water quality and guiding local communities in environmental sanitation. The water Resource Development Committee is a national advisory group consisting of representatives of the Ministries of Interior, Mineral and Water Resources, Livestock, and Director General of Planning and Coordination. The Committee is instrumental in helping to shape sector policies and functions as a coordinating body with respect to all water resource projects. It advises sector agencies, princi- pally WDA and local governments, in the selection of projects and in budget preparation. 34. Other Ministries also are active in the sector. The Ministry of Agriculture implements projects which involve the construction of tube wells and dug wells, the Ministry of Livestock provides watering points in rural  - 10 - areas for nomads, and the Ministry of Defense constructs wells for military reservations. However, none of these organizations has the capability of independently planning and implementing water supply projects and must depend upon WDA, expatriate advisors, or consultants for such expertise, generally on a project by project basis. The Objectives of the Water Supply Sector 35. Government's development objectives for the sector are expressed only in general terms and are not articulated in specific plans. These objectives are to provide adequate, reliable and safe water for domestic use and water for livestock, industry and agriculture (1) at modest prices throughout the country; and (ii) within reasonable access to all potential users. Sector Investment 36. The Five-Year Development Program (FYDP) for 1974-78 allocated So.Sh. 139 million (US$22 million) for water supply out of a total planned public investment program of So.Sh. 3.9 billion (US$614 million). Due mainly to the drought, but also affected by the international economic crisis and the poor state of project preparation, total investment and investment in the water supply sector each achieved only about 50 percent of planned ex- penditure levels. The 1976 WHO/IBRD sector study (para. 28) recommended that the balance of the 1974-78 FYDP be reformulated and an alternative sector investment program comprising So.Sh. 534 million (US$84.8 million) at 1976 price levels was proposed for the period 1976-83. Based upon past experience, this proposed level of investment is unlikely to be achieved due to Govern- ment's limited absorptive capacity. 37. Despite the relatively large proportion of population currently provided water service in Mogadishu (see para. 28), the Government places a high priority in the early expansion of the city's water supply system because of its high rates of growth of population and water demand, its importance as Somalia's center of government, and the current extent of the city's water supply deficiencies. Bank Group participation has been pro- posed primarily to assist with long-term institutional improvements within the sector. 38. Initially, it was thought that MWA's existing well field could be expanded to develop whatever additional supply capacity was required. However, in 1977 it became apparent that production from this well field could not be significantly increased and future increases in demand instead must be met from as yet unidentified sources of supply. Comprehensive water resource investigations are needed to identify suitable sources. Assuming these investigations could begin shortly, a project including long-term water supply improvements could not be appraised before 1979. Since Mogadishu faces serious water shortages which cannot be relieved until a major addi- tion in supply capacity is completed, it was decided to divide MWA's capital spending program into two separate phases. The first of these, the proposed Project, would include water resource investigations and facilities for a  - 11 - limited increase of production from the existing well field. The second phase would provide a long-term solution through provision for additional supply capacity located elsewhere. In order to speed up preparation of the second phase, an advance of $0.5 million from the Bank Group's Project Preparation Facility is being used to finance a portion of the water resource investiga- tions. PART IV - THE PROJECT 39. A Report entitled, "Staff Appraisal Report, Mogadishu Water Supply Project -- Somalia" (No. 1860-SOM), dated May 12, 1978 is being distributed separately. A Credit and Project Summary appears at the beginning of this report and a Supplementary Project Data Sheet is given in Annex III. The Project was prepared by the Government with assistance of consultants, and appraised by an IDA mission in September 1977. Negotiations were held in Washington, D.C. from April 10 to April 18, 1978. The Somali delegation was headed by Mr. Abdurahman Nur Herzi, Economic Advisor to the President of Somali Democratic Republic. Project Objectives 40. The objectives of the proposed Project are: (a) to provide a modest addition to MWA's water supply capacity, (b) to provide improved water service to Mogadishu's urban poor, (c) to carry out water resource investigations as part of preparation required for a proposed Mogadishu Phase II water supply project, (d) to strengthen MWA through training, consultancy and advisory services, and (e) to assess training needs of the water supply sector. The objectives are in conformity with Somalia's sector objectives and the Bank's goals of encouraging optimum development of Somalia's water resources and helping Somalis to start long-term, sector-wide institutional improvements in the water supply sector. Project Description 41. The proposed Project comprises the following: (a) Water resource investigations including the drilling of test holes and boreholes, the retention of consultants, and the furnishing of associated advisory services for this purpose; (b) Construction work including: (i) the extension of existing Balad Road well field; (ii) the extension and modification of Balad Road well field collector mains and transmission main; (iii) the extension and modification of power plant and elec- trical supply grid at Balad Road well field; (iv) the provi- sion of standby pump set at existing city booster station; (v) the extension of existing water distribution grid and construction of about 40 additional public standposts; and (vi) the construction of workshop and field staff quarters;  - 12 - (c) Procurement of the following equipment: (i) vehicles and main- tenance equipment; (ii) tools and workshop equipment; (iii) communications equipment; and (iv) laboratory and water treatment equipment; (d) Support of advisors to be appointed by MWA to Directors of the Technical Operations and Finance Departments (see para. 47); (e) Support of Project Management and Planning Unit (see para. 46); (f) Training component to strengthen the water supply sector (see para. 48); and (g) Consulting services for: (i) engineering design and supervision of construction for Project; (ii) engineering design for the second phase; (iii) accountancy and financial management; and (iv) tariff studies. Project Cost Estimate 42. The estimated total cost of the Project, net of interest during construction, is So.Sh. 48.5 million (US$7.7 million equivalent). Foreign exchange costs would amount to US$5.8 million or 75 percent of the total expenditures. The Project would be exempted from taxes and duties. Project costs are outlined below. US$ Thousands Civil Works 2,501 Equipment 1,288 Consultants and Advisors 1,930 Training Components 635 Physical and Price Contingencies 1,365 Total Project Costs 7,719 43. Cost estimates are based upon preliminary Project design and are expressed in terms of mid-1978 price levels. An allowance ranging from 10 percent to 20 percent was added to baseline costs for physical contingencies. Annual price contingency factors ranging from 6 percent to 8 percent for foreign costs and 8 percent to 11 percent for local costs were applied to baseline costs and physical contingencies. Financing Plan 44. The proposed IDA Credit of US$6 million equivalent would be used to finance all foreign costs (totalling $5.8 million) and a small portion of local costs ($0.2 million) and would cover about 78 percent of the total Project costs. These would include costs associated with the water resource  - 13 - investigations and that portion of these costs paid by advances from the PPF. The advances would be reimbursed from the Credit when it becomes effective. The local cost financing is justified in view of the country's poverty. The allocation of the proposed Project costs between MWA and WDA and the related financing sources would be as follows: Internal Cash Total Financing Beneficiary IDA Credit Generation Government Requirement