Somalia - Second Mogadishu Water Supply Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 3252-SO STAFF APPRAISAL REPORT SOMALIA SECOND MOGADISHU WATER SUPPLY PROJECT March 26, 1982 Energy & Water Supply Division Eastern Africa Regional Office 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.  CURRENCY EQUIVALENTS Currency Unit = Somali Shilling (So Sh) 1 Somali Shilling = US$0.07943 US$1 = So Sh 12.59 WEIGHTS AND MEASURES 1 Imperial gallon (Ig) = 1.2 US gallons (gal) = 4.55 liters (1) 1 cubic meter (cu m ) = 220 Ig, 264.2 US gal, or 1 kiloliter (K1) 1 Megaliter (Ml) = 1000 cu m 1 liter per capita per day = lcd 1 million Imperial gallons per day (Imgd) = 4,546 cu m per day = 4.546 Mld = 52.6 liters per second (lps) 1 meter = 3.28 feet = 39.37 inches 1 millimeter (mm) = 0.039 inches 1 kilometer (km) 2 = 0.62 miles (mi) 1 square kilometer (km ) = 0.386 sq mi = 247 acres (ac) = 100 hectares (ha) ABBREVIATIONS AND ACRONYMS Arab Fund = Arab Fund for Economic and Social Development EDF European Development Fund FAO = Food and Agriculture Organization FRG = Federal Republic of Germany GIBB = Sir Alexander Gibb & Partners (Africa) MMWR = Ministry of Mineral & Water Resources MCC - Mogadishu City Council MWA = Mogadishu Water Agency NWC = National Water Committee SDR = Special Drawing Rights USAID = United States Agency for International Development UK = United Kingdom of Great Britain WDA = Water Development Agency WHO - World Health Organization FISCAL YEAR January 1 to December 31  FOR OFFICIAL USE ONLY STAFF APPRAISAL REPORT SOMALIA SECOND MOGADISHU WATER SUPPLY PROJECT TABLE OF CONTENTS Page No. I. THE WATER SUPPLY AND WASTE DISPOSAL SECTOR .... ............ 1 Country Background ........................................ 1 Water Resources ..............., 1 Population . ................................................. 1 Public Health ........... ................................... 1 Sector Legislation ........................................ 2 Sector Organization ....................................... 2 Cost Recovery ............................................. 4 Manpower and Training ..................................... 4 Service Levels ............................................ 5 Sector Objectives ......................................... 5 Sector Development ........................................ 5 Possible Constraints . Previous Bank Group Projects .............................. 7 II. POPULATION, SECTOR SERVICES AND DEMAND IN PROJECT AREA .... 8 Location and Regional Development Prospects .... ........... 8 Sector Agencies ........................................... 8 Existing Water Supply and Waste Disposal Facilities .... ... 8 Population Served and Standards of Service .... ............ 9 Population Projections and Demand for Service .... ......... 10 III. THE PROJECT ............................................... 12 Genesis ......................... .......................... 12 Objectives ....................... ......................... 13 Technical Alternatives and Service Standards .... .......... 13 Description of Project Components .......... .. ............. 13 Cost Estimates ........ ............. ....................... 14 Project Financing ....... ............. ..................... 16 Implementation ........ ............. ....................... 17 Land Acquisition ....... ............. ...................... 18 Procurement ....................... ........................ 18 Disbursements .............................................. 19 Water Resource Aspects ............... .. ................... 19 Environmental and Health Aspects .......... .. .............. 20 Project and Evaluation Criteria ........ .. ................. 20 This report was prepared by Messrs. E. Greenwood, E. LaBahn and G. Steinke and is based upon information obtained during a mission to Somalia in June and July 1980. 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.  - ii - TABLE OF CONTENTS (Cont'd) Page No. IV. THE BORROWER AND THE IMPLEMENTATION AGENCY ................ 20 Organization .......... . ............................. 20 Management and Personnel ......... .. . .................................*.. 21 Scope of MWA's Activities . ................................ 22 Accounting Practices and Procedures ...... ................. 22 Billing and Collection so... ... ...*.o .. ..o .......**. .* ...* 23 Audit ...................................................... 23 Manpower Development and Training ......................... 24 V. FINANCIAL ANALYSIS ......... ............................... 24 Past History and Present Financial Position ............... 24 Tariffs . ................................................... 25 Proposed Financing .... .................................... 26 Future Performance ... ......... . ...... ............................. 28 VI. ECONOMIC AND SOCIAL ANALYSIS .............................. 28 Project Benefits .................................... 28 Least Cost Solution to...... so..... so.......o....o... a.................. 29 Rate of Return and Pricing Considerations ................. 29 Impact on Poverty Group ... ..... .......................... ......... 29 Affordability ....................................... . ..... 30 Project Merit and Risk ... .................................... 30 VII. SUMMARY OF AGREEMENTS REACHED AND RECOMMENDATIONS ......... 31  - iii - LIST OF ANNEXES 1 - Mogadishu Water Demands 2 - Description of Physical Elements of Proposed Project 3 - Project Cost Estimates 4 - Project Implementation Schedule 5 - Schedule of Disbursements from Credit 6 - Water Resources of Mogadishu Area 7 - Project Monitoring Guidelines 8 - Organization Chart of Mogadishu Water Agency 9 - Cash Flow Projections 10 - Income Statement Projections 11 - Balance Sheet Projections 12 - Notes to Financial Statements 13 - Average Incremental Costs and Internal Financial Rate of Return 14 - Selected Documents and Data Available in the Project File Maps Second Mogadishu Water Supply Project IBRD 15171 - Hydrogeology of Southern Somalia IBRD 15172 - Water Supply Facilities   SOMALIA SECOND MOGADISHU WATER SUPPLY PROJECT I. THE WATER SUPPLY AND WASTE DISPOSAL SECTOR Country Background 1.01 Somalia, with a land area of 637,700 sq km, is situated in the Horn of Africa, bordered on the north by the Gulf of Aden and the Arabian Peninsula, on the east by the Indian Ocean, and on the west and southwest by Ethiopia and Kenya. The northern and some of the eastern areas are mountainous, but Somalia is largely plateau land sloping easterly from the Ethiopian highlands to the Indian Ocean, with a broad coastal plain to the south. 1.02 Central and northern Somalia are arid and the southern part of the country, between the two perennial rivers, the Juba and Shebelli, is semi- arid, with rainfall ranging from 50 mm to 600 mm annually. Annual rainfall is irregular and drought has been widespread over the last decade. The rainy seasons are from April to June, and from September to November. The economy of the country is predominantly agricultural. With a per capita income of about US$185, Somalia is one of the least developed countries in Africa. Water Resources 1.03 Water resources in Somalia are unevenly distributed and scanty. The Juba and Shebelli rivers rise in Ethiopia and cross southern Somalia. Although generally limited in quantity and quality, groundwater is Somalia's principal source of water supply. In the Juba and Shebelli river basins, groundwater and surface water supplies are used. Fair records of surface water exist, but records of groundwater resources are deficient. Population 1.04 The population of Somalia was estimated in mid-1976 at 3.8 million, increasing at a rate of 2.3% per year. Urban population was estimated at 1.1 mi:Llion and has been growing at about 5% annually, whereas the rural popula- tion has been growing at a rate of about 1.2% per year. Mogadishu, with an estimated 584,000 inhabitants (1980), or about 45% of the urban population, is the country's capital and largest city and is growing at about 6.5% per year, whereas the rate of growth of other urban areas is estimated to be less than 4% per year. Drought and the border dispute with Ethiopia have caused a very large influx of refugees, many of whom have settled in Mogadishu. Public Health 1.05 Morbidity and mortality due to common enteric and parasitic diseases are known to be exceptionally high throughout the country, although documen- tation is extremely poor. Tuberculosis, malaria, diarrheas, dysenteries and parasitic infections directly attributable to environmental deficiencies are the more commonly observed of the important communicable diseases. Rural  -2- areas, small urban centers and fringe areas of the larger towns are par- ticularly vulnerable to these diseases, because they are often isolated and lack convenient medical facilities and the basic needs of safe water and sanitation. However, basic health services are improving and centers for treating communicable diseases are being established at the district level. Six WHO projects, two UNICEF projects, and two UNDP projects totalling about US$3.3 million are underway to further strengthen health services, to eradicate communicable disease, and to improve environmental health. These have been supplemented by a US$15.2 million USAID-financed Rural Health Delivery project for the period 1980-85. Sector Legislation 1.06 Little sector legislation exists. There is no agreement between Ethiopia and Somalia on the sharing of Juba and Shebelli waters, nor is there specific legislation in Somalia governing water ownership and rights of use. Although some unsuccessful attempts have been made to enact a water law, at present the main items of legislation associated with the water sector are: (a) a decree of April 20, 1963 providing for more effective use of cultivat- able lands and irrigation waters; (b) Law No. 26 of 1971 establishing the Water Development Agency; and (c) Decree No. 18 of April 6, 1978 concerning the "Establishment of Mogadishu Water Agency". A Presidential Decree in 1978 extended MWA's jurisdiction to include sewerage and drainage (para. 2.02). Although there is need for a national water plan, the proposed project is not affected by the lack of one. However, in the mid-1980s when water resources will be more fully utilized than at present, a water resources plan will assume greater importance (para. 3.27 and Annex 6). Sector Organization 1.07 Although six different ministries, several autonomous agencies and numerous organizations of the central Government are active in the sector, no one organization is in charge of overall planning and programming of community water supplies and waste disposal. At the central Government level, however, three organizations.- the National Water Committee (NWC), the Ministry of Mineral & Water Resources (MMWR), and, potentially the most important, the Water Development Agency (WDA) - have key roles in water development. 1/ The Ministry of Health (MOH), municipal water utilities and central Government bodies are responsible for activities in addition to water supply. 1.08 The NWC (formerly known as the Water Resources Development Committee) is a national advisory group consisting of representatives of the Ministry of Planning and other ministries and organizations active in the sector. Its responsibilities include advising sector organizations, principally WDA and the municipal water utilities, in project selection and budget preparation. 1/ The MMWR and WDA are mainly concerned with groundwater while surface water development is under the jurisdiction of the Department of Land and Water Resources of the Ministry of Agriculture.  The NWC was created as a coordinating body with respect to all water resource projects and, theoretically, helps to shape sector policies. However, in practice, they have usually only met in response to water supply crises. 1.09 MMWR, through its Hydrogeology Department which was established in 1978, is responsible for research and hydrogeological studies, the collection and assessment of hydrometeorological data, the design and implementation of groundwater exploration projects, and advising on water legislation. Shortage of staff has hampered its support from UNDP and reduced its effec- tiveness. However, improvement is expected in the longer term through train- ing included in UNDP and USAID technical assistance. WDA is one of four autonomous agencies under the MMWR, the other three being the Mogadishu Water Agency (MWA), and the Hargeisa and Kismayu water utilities. WDA was established in 1971 and is empowered to assist rural and urban communities through seven regional offices and a headquarters office located in Mogadishu. Shortage of staff has limited its activities to minor construction. Design and construc- tion of piped water supply systems, financed through bilateral assistance, generally are carried out by foreign consultants and contractors. Under the first Mogadishu Water Supply Project (Credit 822-SO) WDA recently carried out test drilling and, as part of a joint venture, also is participating in a contract for construction of the project's production wells. A water supply extension program for ten principal towns financed by the Federal Republic of Germany (FRG) is at-an early stage of development. 1/ 1.10 WDA is headed by a General Manager appointed by the President on the recommendation of the Minister of Mineral & Water Resources. Four major but extremely understaffed departments exist: drilling, engineering, admin- istration and hydrogeology. WDA is partially funded through Government budgets and partially through revenue-producing activities such as construc- tion for other ministries. Various development agencies are supporting WDA. The German Agency for Technical Cooperation (GTZ) is supplying training and technical assistance, and the United States Agency for International Devel- opment (USAID), under a grant to MMWR for development of national water resources, will provide WDA with commodity aid and the drilling required in several ongoing Bank Group-financed agricultural projects. 1.11 MOH's responsibility in the sector has been limited mainly to exercising control and surveillance over water quality and advising urban and rural communities on environmental sanitation. Mogadishu-s Municipal City Council has a Health Department nominally responsible for health education, environmental sanitation, port and airport sanitation, communicable disease control and training. Although MOH is attempting to assist in improving water 1/ Afgoi, Balad, Buroa, Dusa Mareb, Erigavo, Galcayo, Gardo, Garoe, Jowhar, and Merca.  -4- supply and sanitation in rural areas each of which has a hygiene office, their efforts remain primary health care and communicable disease control 1/. 1.12 Other organizations are also active in the sector. The Ministry of Agriculture, through its Department of Land & Water Resources, Settlement Agency and the Banana Board, implements irrigation schemes using surface water and/or groundwater. The Ministry of Livestock, through the Livestock Devel- opment Agency and the National Rangeland Agency, is also committed to well- drilling programs. The Ministry of Industry is involved in water development to meet irrigation water needs on its sugar plantations and to meet process water and potable water needs at various plant sites. Local government bodies are responsible for sanitation and solid waste disposal. Cost Recovery 1.13 No national water tariff policy exists. Tariffs are levied in both urban and rural areas although they normally do not reflect the full costs of providing service. In urban areas, water tariffs are determined by the individual water utilities, subject to confirmation by the Government. In rural areas, fees charged for potable water vary from region to region and according to the nature of the source of supply. A flat rate tariff is used for water for human consumption, whereas fees for water for animals are normally levied per watering and vary according to the type of animal. For irrigation water, no direct charges are levied and cost recovery is derived solely from land taxes. This has made for inefficient use of land and water which, in the Shebelli valley, has caused a decline in agricultural productivity. Manpower and Training 1.14 A severe shortage of technically-trained manpower, which derives partly from Somalia's generally low education participation rates, exists in all sectors and at all levels. The largest single factor, however, is the emigration of skilled manpower (including secondary teachers) to neighboring oil-exporting states. Other factors are the extremely low level of remunera- tion throughout the public sector (the largest single employer) and the inability to attract sufficient numbers of students to technical and vocational schools. Industrial training is provided in ten technical schools and about six vocational training institutions, which in 1978/79 had a combined enroll- ment of about 3,500 students. Relatively little change has occurred since that time. 1.15 Despite the establishment of a National Commission for Technical and Vocational Training, there is a lack of overall coordination of the various technical and vocational institutes operated by several different ministries. This lack of coordination, however, is being addressed in the Fourth Education Project (Credit 1105-SO). 1/ Only US$179,000 (less than l%) of a total of US$18.45 million scheduled as assistance to the health sector by the UN agencies (1978-81) and by USAID (1980-85) was slated for water supply and sanitation.  -5- 1.16 Problems also exist in post-secondary education. The National University in Mogadishu will not produce enough qualified graduates, particu- larly in civil and mechanical engineering, to meet Somalia's needs. In part, this is due to the low number of students who qualify for entrance into the Sc:hool of Engineering. In 1979/80, there was a failure rate of 58% in Grade XII mathematics and science examinations. 1.17 The manpower situation in Somalia's water supply and waste disposal sector follows the overall pattern of all sector organizations in suffering from shortages of technically-trained manpower. An on-the-job training com- ponent of a USAID-financed Mogadishu water supply project in the early 1970s was relatively ineffective due to the inability to retain trained staff and the lack of a self-sustaining training element. A training component in the first Mogadishu Water Supply Project is intended to address these needs in two stages, the first being an overall assessment of sector training needs and the design of a training program for MWA, the second, implementation of MWA's training program (para. 4.16). The FRG-financed, GTZ-administered project to strengthen WDA (para. 1.10), which presently is underway, has a substantial training component which includes teacher training. Attracting sufficient qualified candidates for training has been difficult. The training com- ponent of the first project is being closely coordinated with the GTZ project. The well drilling component of the USAID project also would strengthen WDA through training of WDA staff (para. 1.25). Service Levels 1.18 Approximately 20% of the rural population and 58% of the urban population (represented by the cities of Berbera, Burao, Hargeisa, Kisimayu, Merca and Mogadishu) had reasonable access to safe water in 1976. It is probable that, due to the slow pace of water system extensions and recent in-migration, this percentage has declined. There is no public sewerage in Somalia and sanitation facilities consist of individual disposal systems (septic tanks and pit latrines) serving an estimated 35% of the rural, and about 77% of the urban population (1976). Sector Objectives 1.19 The Government's objectives for the sector are now being developed through a cooperative program administered by WHO/Geneva and financed by GTZ. This program, which was initiated in 1979 at Government's request, would provide preparatory assistance and formulate a work program that would facilitate Somalia's meeting sector objectives corresponding to the recom- mendations adopted for the International Drinking Water Supply and Sanitation Decade (1980-89) at the 1978 UN Water Conference in Mar del Plata. The program also would provide the means by which improved sector coordination of projects could be achieved and would provide the basis for preparing sector proposals relative to the next Five Year Development Plan (1982-86). Sector Development 1.20 In the early 1970s USAID provided technical assistance and finance for construction of water supply systems for the cities of Kismayu and Mogadishu. The People's Republic of China provided similar assistance in the mid and late- 1970s for the construction of water supply systems in Hargeisa and Baidoa.  -6- 1.21 The Five Year Development Program for 1974-78 allocated So Sh 344 million for water supply out of a total planned public investment program of about So Sh 7.0 billion. Sector projects included were for water supply only and, with the exception of the Mogadishu water supply, were administered by WDA. About 31% of planned investment was for urban water supply projects 1/ (mainly Mogadishu, Berbera and Burao), 49% was for rural water supply compo- nents 2/ (boreholes, shallow wells and basins), while the balance of 20% was for equipment, supplies and research. Due to Somalia's drought of 1973 to 1975, poor performance in project preparation, and financial problems accen- tuated by the international energy crisis, planned expenditure levels were not achieved (total expenditures during 1974-78 amounted to only So Sh. 4.3 bil- lion while sector expenditures were So Sh 106 million). A 1976 water supply and sewerage sector study carried out as part of the WHO/IBRD Cooperative Program recommended that the balance of the 1974-78 FYDP be reformulated and suggested a revised sector investment program of approximately So Sh 534 million for the period 1976-83. 1.22 Somalia's Three Year Development Plan, 1979-81, which was launched in January 1979, was mainly a composite of projects carried over from the 1974-78 Plan, although some new projects were added. The planned expenditure, based upon 1979 price levels, was So Sh 7.1 billion of which about So Sh 0.4 billion was for the water supply and waste disposal sector. Donor assistance was committed for So, Sh 267 million, or about 68% of the total program cost for the sector. The Three Year Development Plan emphasized improving urban water supply and sanitation and gave somewhat lower priority to rural water supply and supporting research. Because of Mogadishu's high rate of population growth, its importance as Somalia's center of government and its conspicuous deficiencies in water supply and sanitation, the Government places a particu- larly high priority on sector improvements in Mogadishu. Accordingly, the Bank's ongoing first water project (para. 1.24) is in Mogadishu, directed mainly to the urban poor, living in low-cost and temporary houses. The initial phase of a Mogadishu sewerage and drainage project 3/, modified from its original scope, will serve a portion of those areas in Mogadishu which have individual water connections. 1/ Financed mainly by the FRG and IDA. 2/ Some of this was included as water supply components of agricultural and livestock projects. 3/ Funded by the African Development Fund, Islamic Development Bank and the OPEC Special Fund.  -7- Possible Constraints 1.23 The Three Year Development Plan places increased demands upon Somalia's financial and manpower resources. Donor financing is available for approximately 70% of planned water sector expenditures, but the large scale of the water supply sector program and Government's other commitments means finance may still be a problem. Moreover, without removal of the fundamental constraints on management and staffing, which are long term problems, technical assistance although necessary would not be fully effective. Previous Bank Group Projects 1.24 A US$6 million Credit was made in 1978 for the first Mogadishu Water Supply Project (Credit 822-SO) to increase the water supply capacity of the Mogadishu Water Agency (MWA), to strengthen MWA, and to assist in the preparation of the proposed Second Mogadishu Water Supply Project (para. 3.07). From the first project we have gained a fuller realization of the extent of institutional weaknesses; and of the difficulties of estimating project costs in Somalia's environment which is relatively unstable for con- tracting civil works. Finally, we have learned to schedule project implemen- tation more realistically. In the proposed project we are attempting to address these difficulties by requiring NWA to appoint additional advisors, while improved accuracy of cost estimates has been assured by basing them on bids recently received on all major contracts to be included in the project. 1.25 Four other ongoing Bank Group projects in agricultural and livestock development also are assisting sector development through significant water supply components. 1/ The first of these, the Trans-Juba Livestock Project, includes a borehole construction component being carried out by the Govern- ment's Water Development Agency (WDA) and is substantially complete. An important lesson learned in this project was the inability of WDA to provide well drilling services satisfactorily without direction and close super- vision by expatriate experts. The results of this lesson were applied in the design of the three remaining agricultural and livestock development projects having water supply components. These components are being planned, directed and supervised by expatriate well drillers and advisors while training also is being provided as a long-range benefit (para. 1.10). 1/ These projects consist of: a) the Trans-Juba Livestock Project (Credit 462-S0, February 20, 1974); b) the Northwest Region Agricultural Develop- ment Project (Credit 635-S0, July 7, 1976); c) the Central Rangelands Development Project (Credit 906-SO, May 10, 1979); and d) the Bay Region Agricultural Development Project (Credit 972-S0, December 27, 1979).  -8- II. POPULATION, SECTOR SERVICES AND DEMAND IN PROJECT AREA Location and Regional Development Prospects 2.01 The proposed project would benefit Mogadishu, the capital city of Somalia, which is located on the Indian Ocean in southern Somalia. Mogadishu, the largest urban area in Somalia, is the center of government and a principal trade center. Although the Mogadishu municipality has jurisdiction over all Benedir Province, which is an area substantially larger than the presently developed urban area, an improved water supply system resulting from the proposed project will only affect the urban area in the immediate vicinity. Sector Agencies 2.02 Water supply and, to a lesser extent, surface drainage in Mogadishu are provided by the Mogadishu Water Agency (MWA), an autonomous agency under the Ministry of Mineral & Water Resources (MMWR). A few production wells also are owned and operated by individual industries and by the military in the Mogadishu area. Sanitation and solid waste management currently is the responsibility of the Mogadishu City Council although, upon the completion of the ongoing Mogadishu sewerage and drainage project (para. 1.22), the Govern- ment intends to give MWA the responsibility for operation and maintenance of sewerage. Existing Water Supply and Waste Disposal Facilities 2.03 MWA's water supply system, most of which dates back to 1973 when the USAID project was commissioned (para. 1.20), consists of about 26 active wells, collection and supply mains, chlorination facilities, two distribution system reservoirs, a booster station and a distribution system with about 10,000 individual water connections and 250 public taps (Map IBRD 15172). 2.04 As originally planned, the 1973 improvements were sized to meet maximum-day demands of 31.5 Mld forecast for 1980. Due to a subsequent reduction in the number of production wells provided at the Balad Road well- field 1/ and the inability to achieve planned unit well yields, the wellfield only produced a maximum of 24 Mld when commissioned. Although four wells were recently replaced 2/, the failure of five of the original 19 wells and declining production at the remaining wells have reduced total production capacity from MWA's Balad Road wellfield to about 23 Mld, equal to 85% of MWA's total production capacity of 27 Mld. 1/ The Balad Road wellfield, MWA's principal source of supply, is located north of Mogadishu about 10 km inland from the coast. 2/ Three of the replacement wells are active.  - 9 - 2.05 The rapid expansion of Mogadishu since 1973 (from an estimated 350,000 to about 580,000 persons in 1980), has meant that less than 50% of the presently developed area has reasonable access to the water distribution grid and most of the population depend upon water delivery by vendors or on water transported from public taps by other means. To supplement its production from the Balad Road wellfield, MWA completed an emergency drilling program in 1980 resulting in the construction of 17 additional, low-capacity (average unit capacity less than 20 cu m per hour) wells within the city, about half of which are in service. Most of these wells serve as individual water points for domestic water users and for livestock and are not connected to the distribution grid. Due to poor siting, questionable construction practices and low well capacities, these recent additions are not expected to assist in meeting Mogadishius long-term water supply needs. To minimize possible problems of public health, production from these emergency wells will be discontinued when supplemental supplies of improved quality become available from inland areas. Eight production wells, which will be connected to the existing grid, are scheduled for construction under the first project at the new Afgoi Road wellfield and are expected to provide about 11 Mld of additional capacity by mid-L982. 2.06 No public sewer system exists in Mogadishu and water-borne waste disposal is limited to only a few institutions such as hospitals and military installations. Even in the latter instances, waste disposal is inadequate and groundwater pollution is occurring. 1/ There are no regulations relative to sanitation and the extent of waste disposal facilities to be provided is left to the discretion of the householder. In practice, householders generally have elected to use on-site, individual waste disposal systems consisting mainly of a covered soakage pit. These units, although simple in design and construction, are relatively expensive (average cost reportedly is about So Sh 6,000) and difficult to maintain. This problem will be addressed by the low-cost sanitation component under the proposed project (para. 3.09). Population Served and Standards of Service 2.07 Very little socio-economic statistical information is available for Mogadishu. No public health indicators relating specifically to the incidence of water-related disease in Mogadishu are available (para. 1.05). However, due to the size of transient populations (estimated at 70,000 to 80,000 persons in 1980) and the lack of housing and facilities for water supply, sanitation and solid waste disposal available to these populations, the risk of disease is known to be high. 2.08 About 510,000 persons (or 87%) were estimated to be served by public water supplies in Mogadishu in 1980 - about 50,000 persons (10%) of these through individual connections and an estimated 460,000 persons (90%) directly from public taps or from water vendors. The balance of the population relies upon private or institutional well supplies. 1/ Pollution has occurred in Mogadishu but not at the Balad Road wellfield, MWA's principal source.  - 10 2.09 MWA's water system is only partly metered and satisfactory records of production and consumption are limited to the period 1974-76 when most water meters were still operative and when water production capacity still exceeded demand. Although most borehole supplies are individually metered, only about half of these meters operate. Due to faulty customer meters and an insufficient stock of replacement parts, only about 70% of MWA water sales are metered. 1/ Because of MWA's inability to meet water demands, the inland and southwesterly areas of the city are frequently without water and the affected areas are growing. Many public taps are continuously dry and house- holders in these areas have had to buy water from vendors at relatively high prices, reaching a price level of So Sh 150 per cu m (US$45 per thousand US gal) by late in 1981. Despite this, water quality is not monitored and only the Balad Road supply is disinfected. Although there have been no recent reports of ill effects caused by poor water quality, such reports were frequent before 1973 when aquifers underlying the city were Mogadishu's sole source of supply. 2.10 The proposed project would further supplement Mogadishu's present sources of supply and all consumers would benefit. It would have a substan- tial impact on the low-income group by increasing the availability of water and improving pressure and quality. The population served is expected to increase from 700,000 persons (in 1983) upon full utilization of the first project to 870,000 (in 1987). Similarly, average per capita supply is expected to increase from 41 lcd to 51 lcd during the same period. Further, it would reduce the cost of water service to consumers without individual water connec- tions, since they would have increased opportunities to purchase water directly from public taps, rather than depend upon water vendors who levy higher water charges. 2.11 Only institutions have access to sewers in Mogadishu while the remaining population depends upon on-site waste disposal systems. The ongoing sewerage and drainage project (para. 1.22) was designed to provide sewer service to a portion of areas (totalling about 15 sq km) which have individual water connections. Population Projections and Demand for Service 2.12 The most recent census was taken in 1975 and the next full census is scheduled for 1985. Migration of nomads from inland areas, resulting from droughts and the Ogaden war, have made population projections for Mogadishu even more uncertain. Although a UN-assisted census survey recently was undertaken, the results of this survey are not yet available. For these reasons, MWA's engineering consultants (Sir Alexander Gibb & Partners) were unable to improve on projections of Mogadishu population which they had previously developed in 1977 during the preparation of the first project. These projections, based upon a natural rate of increase of 3% compounded annually and an annual net in-migration of 20,000, are: 1/ The problem of metering was less severe in 1977 when the first project was appraised and, consequently, system improvements mainly were limited to increases in water supply capacity.  - 1i - Mogadishu Population Estimates 1976 1980 1985 1990 Most Probable Population 445,000 584,000 784,000 1,015,000 Growth Rate,, % - 7.0 6.5 6.1 2.13 The proposed project is relatively insensitive to these forecasts, since a lower population growth rate would only enable a slightly better water supply service, which is in any case of a low standard (para. 2.10), and a higher than forecast population in growth would worsen the already poor service, requiring supplementary works to be undertaken more urgently than presently envisaged. 2.14 Demand forecasts, which are an extension of the consultants' earlier work, have been prepared based upon the following main categories of consump- tion: residential; government and institutional; and commercial and indus- trial (Annex 1). Growth of consumption is constrained by MWA's limited supply capacity and, although the completion of the first project will help, this problem is not expected to be resolved until the commissioning of physical components of the proposed project now scheduled for mid-1984. In recognition of the seriousness of the present deficiency in supply capacity, a moratorium on new water connections is in effect which limits new private connections to no more than 70 per year. 2/ 2.15 As the consultants' forecast of future water consumption appears high, Bank staff prepared a revised forecast on the assumption that growth in sales for the period 1980-84 is likely to be constrained by the supply capacity of the system. Future increases in water tariffs are unlikely to depress consumption significantly since a large proportion of the water supplied (52% in 1979) is used by Government and institutions. The forecast also assumes that the ongoing sewerage and drainage project (para. 1.22) would have little effect on water consumption. Unaccounted-for-water, the difference between consumption and production, has been assumed to be at about 20% of production although confirmation of this is not possible due to MWA's incomplete metering 1/ The project is designed to meet water demands projected for the year 1987. 2,' Based upon Supplemental Letter of June 30, 1978 of Credit 822-SO.  - 12 - records. This comparatively low level of losses is acceptable in a system of this age and size and further efforts to reduce losses significantly would be impracticable and uneconomic. Annual demands have been projected for the period through 1992. They appear reasonable and closely approximate similar estimates through 1985 which were made during the appraisal of the first project. III. THE PROJECT Genesis 3.01 Water supply studies for Mogadishu date back to 1963 when, with USAID assistance, investigations to supplement inadequate local sources of supply were begun. These and succeeding investigations carried out late in the 1960s culminated in the construction of MWA's Balad Road wellfield and the replacement of Mogadishu's deteriorating water distribution system in 1973. These improvements, also financed by USAID, were designed to meet Mogadishu's water needs through 1980 but, due to the failure of several production wells at the Balad Road wellfield and increases in water demand, the need for fur- ther additions soon became apparent (para. 2.04). 3.02 The Government first expressed interest in Bank Group financing of a Mogadishu water supply project in 1975 when water demands were approaching supply capacity. A project to increase water production capacity through the extension of Mogadishu's Balad Road wellfield was originally envisaged but, due to declining yield and deterioration of water quality, it was recog- nized that effective augmentation would have to be preceded by water resource investigations to identify the optimum locations and yields of other, more suitable alternative sources of supply. The first project (Credit 822-SO), which was prepared by Sir Alexander Gibb & Partners (Gibb), in the employ of MWA, was designed as an interim project to assist in the preparation of the proposed project through the inclusion of investigations of groundwater resources of the Afgoi-Balad Mogadishu triangle (Maps IBRD 15171 and 15172). These investigations were completed in November 1979. A March 1980 report by the Institute of Hydrology (UK) summarizing the results of the investigations and Gibb's "Stage II Final Report of Feasibility Study for Mogadishu Water Supply Expansion" (May 1980) formed the basis of the appraisal. 3.03 The first project, which includes a modest increase in water supply capacity, also has attempted to develop MWA through the provision of advisors and consultants for training, and for the design and implementation of account- ing systems and tariff studies. Although progress in this institutional development effort has been slower than anticipated, advisor posts were filled beginning in 1979, while the accounting consultants have completed their assignments, and the work of tariff and training consultants is underway. Contracts for all major water supply additions have been awarded and work on these contracts is approaching completion. Efforts under the first project to  - 13 - improve the organization, management and general effectiveness of MWA would be continued and strengthened under the project (paras. 3.05, 3.07(d), 4.10, and 5.04). During the course of the first project, in addition to a fuller realization of difficulties in the implementation of physical components of the project (para. 1.24), a clearer perception of the length of time required, and of the problems of effecting institutional reforms in the Somali environ- ment, has emerged. The second project, and the Association's continued involvement in the water sector, would provide an opportunity to overcome these difficulties and to achieve significant institutional improvements. 3.04 Construction work under the first project is expected to be com- pleted by mid-1982, about two years behind schedule. Slippage in project implementation has been caused mainly by administrative delays by MWA and by the Government. These delays, together with a change in the siting of proposed production wells and the resulting need for additional transmission main capacity, have caused a cost overrun of about US$7 million. Assurances have been received from the Government that it will provide additional funds to complete the project. In addition the Government recognizes the importance of the proposed project to Mogadishu and has given it a high priority. Objectives 3.05 In summary, principal objectives of the project are to: (a) con- tinue efforts being made under the first project to strengthen MWA as an institution through the continuation of the employment of advisers and the development and achievement of financial goals; (b) increase MWA's firm production capacity by 31 Mld to about 57 Mld; (c) extend Mogadishu's existing water distribution system; (d) develop an appropriate program for meeting Mogadishu's future needs for sanitation; (e) assist in preparation of a future Mogadishu water supply project; and (f) provide for its detailed engineering design. Technical Alternatives and Service Standards 3.06 The proposed project represents the least costly of several tech- nical alternatives (para. 6.02). The majority of future consumers will be resident in low-cost and temporary houses located in peripheral areas of the city. Water service to most of these consumers would be from public taps. Description of Project Components 3.07 The project consists mainly of distribution system extensions and an extension of source of supply works associated with the new Afgoi Road wellfield being developed under the first project (Annex 2 and Map IBRD 15172), the preparation of.a future water supply project, and a continuation of institution building. Components consist of the following: (a) Civil works including: (i) test drilling in support of water resource investigations for a future Mogadishu water supply  - 14 project; (ii) an extension to MWA's Afgoi Road power generating station; (iii) an extension of source of supply works at the Afgoi Road wellfield consisting of access roads, fencing, pro- duction wells, observation wells and collector mains; (iv) distri- bution system reservoirs; (v) a treated water pump station and (vi) trunk mains, distribution mains and public taps; (b) Mechanical and electrical equipment including: (i) a diesel- drive electric generator set; (ii) transformers and switchgear; (iii) power supply lines and appurtenances; (iv) pumping plant for wells and boosters; and (v) chlorinators; (c) Miscellaneous equipment and supplies including: i) vehicles, ii) workshop, tools and equipment; iii) office furniture and equipment; iv) customer meters; and v) other miscellaneous equipment and supplies; (d) The services of expatriate advisory staff; and (e) Consulting services for: i) accounting assistance; ii) water resource investigations and engineering design of a future Mogadishu water supply project; (iii) low-cost sanitation studies; and (iv) construction supervision of the proposed project. 3.08 Water resource investigations included in the first project have indicated that the sustainable yield of groundwater underlying the Afgoi-Balad- Mogadishu triangle approximates 25 million cu m per year. Current demand forecasts indicate that this would be sufficient to meet Mogadishu's total water supply needs until the early 1990s at which time supplemental supplies from new sources 1/ would be required. Unfortunately, little detailed information is available concerning these possible supplemental supplies. Additional water resource investigations are included in the proposed project to optimize investment planning required for a future water supply project (Annex 6). 3.09 A low-cost sanitation component also is included in the project in view of Mogadishu's sanitation needs and to maximize the benefits of improved water supply. This component would complement the ongoing Mogadishu sewerage and drainage project (para. 1.22). Cost Estimates 3.10 The estimated project cost exclusive of duties and taxes and interest during construction, is So Sh 532 million (US$42.3 million). Foreign exchange costs would amount to US$33.4 million equivalent, or 79% of total project costs. A summary of the project cost estimates (Annex 3) follows: 1/ These new sources consist of a surface water supply from the Shebelli River and groundwater from coastal areas located to the northeast and southwest of the Afgoi-Balad-Mogadishu triangle.  - 15 - Summary of Project Cost Estimates (US$1.0 = So Sh 12.59) So Sh (millions) US$ (millions) Total Local Foreign Total Local Foreign Total % Civil Works 48.2 207.8 256.0 3.8 16.5 20.3 49 Plant, Equipment & Supplies 5.9 47.4 53.3 0.5 3.8 4.3 10 Advisory Staff 3.1 9.6 12.7 0.2 0.8 1.0 2 Consulting Services Accounting ) Water Resource Investigations) 0.8 12.4 13.2 0.1 1.0 1.1 2 Low-Cost Sanitation Studies ) Construction Supervision 0.2 9.3 9.5 0.0 0.7 0.7 2 Design (Future Project) 0.2 15.8 16.0 0.0 1.3 1.3 3 Base Costs 58.4 302.3 360.7 4.6 24.1 28.7 68 Contingencies Physical 11.8 64.8 76.6 1.0 5.1 6.1 14 Price 41.2 53.6 94.8 3.3 4.2 7.5 18 TOTAL PROJECT COSTS 111.4 420.7 532.1 8.9 33.4 42.3 100 Rounded off to millions: 111 421 532 9 33 42 3.11 The cost estimates are based on bids received from contractors on five main contracts (three civil works contracts and two mechanical and electrical plant contracts) late in 1981. Although the two plant contracts are being retendered in conformance with European Development Fund procurement procedures, the cost estimates for these two components are based on the pre- viously received bids which appear to be reasonable. Base costs are expressed in January 1982 price levels. Allowances for physical contingencies have been added for the various project components, ranging from 10% to 30% for civil works, 15% for plant, equipment and supplies, 20% for engineering, and 10% for advisors and accounting consultants. Annual price contingency factors (shown below) were applied to base costs and to physical contingencies. Similar price contingencies have been used for both civil works and equipment. The Government has waived duties and taxes on all imported goods and services required for the first project and a similar waiver would be provided on the proposed project. Price Contingencies (%) Period Local Foreign 1982 30 8.5 1983 25 7.5 1984 20 7.5 1985 15 7.5  - 16 - 3.12 Consultants charges, which are likely to be time-based, are tabulated below by component. Estimated base costs and average man-month costs, including salary costs, fees, international travel, and local subsistence cost, together with required efforts in man-months, are shown below. All of these charges are reasonable when considered in the light of working and living conditions in Somalia and the high level of expertise required. Base Cost Average Cost Component US$ million Man-months US$/man-month Engineering design 1.27 133 9,500 Construction supervision 0.77 84 9,000 Water resource investigations 0.54 44 12,300 Low-cost sanitation studies 0.45 48 9,300 Accounting 0.07 6 11,200. Project Financing 3.13 Approximately 90% of the project costs, including 100% of the foreign exchange costs, would be co-financed by IDA, the Arab Fund for Economic and Social Development (Arab Fund), and the European Development Fund (EDF). The proposed IDA credit of SDR 13.4 million (US$15 million) would cover about 35% of the project total costs and 40% of the foreign costs. The IDA credit would be used to help finance civil works contracts, advisors, technical assistance (accounting services and water resource investigations) and engineering. Arab Fund finance of US$17.5 million equivalent would be used to help finance the cost of civil works contracts, advisors and engineering. IDA and the Arab Fund would jointly finance one of the civil works contracts and foreign costs associated with advisors and supervision of construction. EDF finance of about US$5.5 million equivalent would be used to finance the two main plant contracts, a supply contract and low-cost sanitation studies. Remaining finance would be provided from a Government loan and from MWA's internal cash generation. As a condition of credit effectiveness, all conditions precedent to the effectiveness of the Arab Fund agreement and the EDF agreement must be met. The project financing plan, expressed in millions of US$, is summarized below. Proposed Financing Sources MWA Internal Project IDA Arab Cash Allocated to: Costs Credit Fund EDF Government Generation MWA 41.7 15.0 17.5 5.0 0.9 3.3 Government 0.6 0.0 0.0 0.5 0.1 0.0 Total Costs 42.3 15.0 17.5 5.5 1.0 3.3  -17 - 3.14 To help provide for the prompt availability of local funds for the proposed project, it was agreed at negotiations that the Government would open a special bank account for the Project in the name of MWA and deposit an initial amount of So Sh 6 million by September 30, 1982 and deposit the remainder of the So Sh 12.5 million (US$1 million) Government loan (para 3.13 and 5.07) promptly when requested. Implementation 3.15 Detailed engineering design, which is being financed under the first project, began in October 1980 and was substantially completed by September 1981. Bids were received and awards of the three civil works contracts are expected by mid-1982. The awards of the two main plant contracts are expected to be delayed until late in 1982 following retendering according to EDF procurement procedures. The completion of construction and the commis- sion of plant are expected by mid-1984 (Annex 4). This is reasonable compared with the first project in which implementation was delayed by a need for information from the water resource investigations. 3.16 MWA would be responsible for overall administration of the proposed project through their Project Management and Planning Unit (PMPU) which was formed for implementation of the first project. Based upon the experience of the first project, however, MWA will continue to require considerable support from its consultants and expatriate advisors. MWA has retained Gibb (para. 3.02) as engineering consultants on the proposed project and this is acceptable. Engineering services to be provided consist of the supervision of construction, assistance in preparation of, and the detailed design and documentation for a future water supply project. It was agreed during negotiations that MWA would retain engineering consultants whose qualifications, experience, and terms and conditions of employment are acceptable to the Association. 3.17 Due to their previous participation in the water resource investi- gations under the first project, MWA plan to retain Gibb, in association with the Institute of Hydrology (UK), to direct the water resource investiga- tions included under the proposed project as part of the preparation for a future project. This is acceptable. Other consultants would be retained to assist MWA in carrying out the low-cost sanitation component to be financed by the EDF (para. 3.13). 3.18 MWA will be responsible for maintenance and operation of the project upon completion. Present standards of maintenance and operation by MWA are not satisfactory and the extension of the MWA system under the first and proposed projects will place increased demands on MWA training provided under the first project. Increased emphasis on technical advisors under the proposed project is designed to meet this need (para. 4.06).  - 18 - 3.19 Before completion of the proposed project, substantial progress should be made on the preparation of a future Mogadishu water supply project (para. 3.17). Substantial efforts also are necessary at this time by the Government to facilitate timely completion of planning for extensions of the MWA water system, particularly those extensions associated with the develop- ment of the Shebelli River as a source of supply (para. 3.28). Land Acquisition 3.20 Land will be needed by the project as sites for reservoirs, wells, access roads, and pipeline alignments. Since most of the land concerned already is owned by the Government, any land acquisition costs are likely to be negligible. Land required for extension of the Afgoi Road wellfield is either within or adjacent to a military reservation, however, and special permission for its use would be required. It was agreed during negotiations that the Government would promptly acquire all land and rights of way'required under the project. Procurement 3.21 General. The project includes five main contracts (three civil works and two plant) and one or more minor goods contracts totalling about US$36.5 million including contingencies, or about 86% of total project costs, to be financed by IDA, the Arab Fund and the EDF. 3.22 Works. IDA and the Arab Fund would each separately finance one civil works contract and jointly finance the remaining civil works contract. These three contracts, for which prequalification was required, are estimated to total about US$30.6 million, about 72% of total project costs, including contingencies and would be awarded on the basis of international competitive bidding in accordance with Bank Group procurement guidelines. 3.23 Goods. Power plant, pumping plant and associated equipment together with vehicles, tools and miscellaneous equipment and supplies, totalling about US$5.9 million equivalent including contingencies and to be financed by the EDF, would be grouped in two main plant contracts and one or more minor supply contracts and procured according to EDF competitive bidding procedures. 3.24 Contract Review. Bid documents relating only to the two civil works contracts, which have an estimated total value of about US$16.8 million and are to be financed by IDA either wholly or jointly with the Arab Fund, would be subject to the Association's prior review. Remaining contracts for physical components are to be financed by the Arab Fund and the EDF and therefore would not be subject to the Association's review.  - 19 - Disbursements 3.25 Retroactive finance of up to US$100,000 equivalent is proposed for payments made after March 1, 1982 to finance the initial cost of consulting services for water resource investigations. 1/ The Credit would be disbursed to meet selected portions of the project costs as follows: a) for civil works: (i) 100% of total expenditures for well construction and test drilling, and (ii) 32% of total expenditures for construction of roads, mains and other wellfield works and the construction of reservoirs, a pump station, trunk mains and other works in Mogadishu; (b) 40% of foreign expenditures for advisors; (c) for consulting services: (i) 100% of foreign expenditures for accountants, (ii) 50% of foreign expenditures for construction supervision, and (iii) 100% of foreign expenditures for water resource investigations and design engineering. Any undisbursed funds remaining from the Credit at the end of the project would be cancelled. The proposed closing date for the Credit would be December 31, 1985. This allows a period of about 18 months after the scheduled completion of project facilities and approximately 6 months after the scheduled completion of detailed engineering for the future Mogadishu water supply project. 3.26 A schedule of disbursements, which differs from average country-wide and region-wide disbursement profiles, is shown in Annex 5. A disbursement period 24 months shorter than the country-wide average has been assumed, which is mainly due to the advanced state of procurement. Water Resource Aspects 3.27 The findings of the water resource investigations included under the first project indicate that substantially all of the region's groundwater is derived from recharge from the Shebelli River during high river stages. The investigations also concluded that: a) the sustainable yield of groundwater bodies located within the Afgoi-Balad-Mogadishu triangle (Maps IBRD 15171 and 15172) is about 25 million cu m per year, and b) in order to maximize safe yield, total annual production would have to be carefully regulated throughout the basin. (As an example of this, to avoid overdraft, annual production from MWA's existing Balad Road wellfield would have to be reduced from present levels of about 8.4 million cu m to about 4.4 million cu m. Similarly, production from wells in and immediately adjacent to Mogadishu should be discontinued). Present indications are that such a production rate would be sufficient to meet Mogadishu's average water demands through the early 1990s. After that time, MWA would have to secure supplemental supplies directly from the Shebelli River and/or from more distant groundwater sources. 1,/ Although these water resource investigations are required for a future project, since their duration exceeds that of the construction works under this project it is essential that they be started as early as possible so that they are completed during the supervision of construc- tion works.  - 20 - 3.28 Although uninterrupted abstractions from the Shebelli River would not be possible due to the intermittent nature of its flow 1/ and the lack of suitable reservoir sites that would permit provision for adequate carryover storage, the river represents a potentially important source of supply for conjunctive use with MWA's groundwater supplies. However, numerous problems 2/ need to be resolved before the Shebelli River can be developed as an effective source of supply for Mogadishu (Annex 6). Environmental and Health Aspects 3.29 The project would have a significant, though non-quantifiable, environmental impact through improvements in public health anticipated through: a) provision for more ready access to public water supplies to consumers presently dependent upon water vendors or distant public taps; b) abandonment of local, interim sources producing water of doubtful quality; and c) prepara- tion of a future project having low-cost sanitation as a principal component. No adverse environmental impact would result from the project. Project and Evaluation Criteria 3.30 The progress of the project would be monitored through semi-annual and annual reporting requirements covering: (a) physical and technical progress; (b) cost estimates, expenditures and disbursements; (c) water consumption; (d) management and staff development; and (e) financial opera- tions. 3.31 Suitable monitoring indicators have been developed (Annex 7). It was agreed that, within one year of project completion, MWA will submit a comple- tion report to the Association, based on an outline to be agreed with the Association. IV. THE BORROWER AND THE IMPLEMENTATION AGENCY 4.01 The Borrower would be the Government of the Somali Democratic Republic who would relend the SDR 13.4 million (US$15 million) IDA Credit to MWA, the project implementation agency, on the terms stated in para. 5.07. Organization 4.02 MWA was established to provide public water supplies in Mogadishu in 1967 shortly before the signing of a loan agreement by the Government, MWA and USAID. In 1970, together with Kismayu Water and Electric Utility, 1/ Streamflow records of the Shebelli River at Afgoi indicate that, for three months (January through March) of a typical year, uninterrupted absttactiotns could not be assured. 2/ Principal of these problems are the need for: a) water rights legisla- tion; b) the establishment of a Shebelli River development authority; c) the registration of Shebelli water users; and d) the allocation of water rights.  - 21 - MWA was merged into the National Water Agency (NWA). In 1971 NWA was replaced by the Water Development Agency (WDA) and MWA was reestablished and became responsible for Mogadishu water supply operations. In 1978, a law was passed which officially established MWA as an autonomous agency of the Government subject to the general supervision of the Ministry of Mineral and Water Resources (para. 1.06). An organization chart for MWA is shown in Annex 8. Management and Personnel 4.03 MWA is headed by a Director General (also referred to as General Manager) who, together with MWA's Directors, is appointed by the President on the advice of the Minister of Mineral and Water Resources. Most other staff are recruited through the Ministry of Labor and Social Affairs. MWA's salaries and wages are on the same scale as those of the Government civil service, but MWA's staff receive additional professional responsibility and accommodation allowances, which is the practice for employees of autonomous agencies. Government ministries, with the approval of the Office of the President, allocate key personnel to Government departments and autonomous agencies. 4.04 MWA has four departments each headed by a Director (Annex 8). The departments are responsible for: (i) water supply operations and maintenance; (ii) finance and administration (including accounting, purchasing and person- nel); (iii) project planning and management; and (iv) sewerage and drainage. The latter department is presently monitoring the progress of the ongoing sewerage and drainage project but, with the exception of carrying out the low-cost sanitation studies, it is unlikely to have any operational respon- sibilities for some time (para. 4.09). 4.05 MWA's management performance during the implementation of the first project has so far been weak, as evidenced by such matters as delays in procurement and in the appointment of personnel and consultants, and inadequate provision for the repair and replacement of water meters. Further- more, staff morale and motivation seem low and there appears to be a lack of disciplined effort. However, this condition appears to extend to other parts of the Government service and it seems unlikely that there is an immediate and completely satisfactory remedy. 4.06 In the case of MWA, the retention and appointment of advisors and the implementation of a training program are expected to bring about improve- ments in the longer term. During the last three years MWA has had three General Managers. The present General Manager, formerly MWA's Director of Finance and Admininstration, was appointed in July 1980. Under the first project, to strengthen MWA's management capability, it was agreed that MWA would appoint a Technical Advisor and a Financial Advisor having experience, qualifications, duties and responsibilities acceptable to the Assocation to support the Director of Technical Operations and the Director of Finance and Administration in carrying out their duties. It was further agreed that the employment of such advisors would be extended until Government and the Association agreed that the advisors were no longer required. Following some delays, both advisors were appointed and are helping to improve MWA's financial and technical operations. The need for expatriate advisors to  - 22 - support MWA continues to be important and during negotiations it was agreed that the covenant under the first project should be extended to also include the appointment, by December 31, 1982, of a Management Adviser to assist the General Manager and an additional Technical Advisor to provide support in the effective development and management of MWA's water resources and, possibly, to provide assistance in the carrying out of low-cost sanitation studies. The costs of these advisors are included in the project. 4.07 Under the first project, it was also agreed that the Government would establish and maintain a Project Management and Planning Unit (PMPU) to monitor and report on the progress of the project, to process payment certifi- cates and disbursements for the project, and to participate in the planning, design and supervision of construction. It was also agreed that MWA would employ a duly qualified, experienced and competent person as the head of the PMPU. The foregoing requirements have been met and it was agreed during negotiations that they would be repeated for the the proposed project. Also, to ensure the continuation of MWA's management capability during project implementation, it was agreed during negotiations to repeat the covenant under Credit 822-SO under which future appointments to the positions of General Manager, Director of Technical Operations, Director of Finance and Admin- istration and head of the PMPU will only be made after the Association has been given a reasonable opportunity to comment on the qualifications, experience and competence of the persons proposed to fill the positions. It was also agreed that this covenant would be extended to cover the position of Director of Sewerage and Drainage. 4.08 MWA's manpower is adequate in number, and has declined slightly over the last three years. Although there is a need to improve management, operation, maintenance and accounting skills through training, the current number of MWA staff appears adequate to meet short-term needs (paras 4.10 and 4.16). Scope of MWA's Activities 4.09 The Government intends that MWA would eventually take over the operation of the sewerage and drainage project which it plans to construct through the Ministry of Works. Project implementation has been postponed, however, because of projected cost overruns and a possible change in project scope is being considered (para. 1.22). To help ensure that MWA does not extend the scope of its activities without adequate plans, it was agreed during negotiations that the covenant under the first project whereby MWA will not extend its activities outside water supply without informing the Associa- tion of the managerial, staffing and financing effects and without giving the Association a reasonable opportunity to comment thereon, would be repeated. Accounting Practices and Procedures 4.10 MWA's financial reporting and accounting is on a cash basis. Cash outlays are not adequately classified between capital and operations nor are adequate data maintained on creditor levels or inventories. Inventory records are maintained in quantity only. The first project provided for the appointment of accounting consultants to design and assist in implementing a commercial accounting system, conduct staff training and identify additional staffing  - 23 - needs. After appointment delays, the consultants started their assignment in January 1980 and completed the accounting system design and the preparation of an accounting manual by October 1980. After considerable difficulty in attracting a Financial Advisor, one was eventually appointed in April 1980 and he is expected to be able to carry out the required training and implement the accounting system without further assistance from the accounting consultants. However, he has been hampered in his task by MWA delays in approving the system design proposed by the consultants, by the long delivery period for printing forms and by staff shortages and turnovers. Nevertheless, some progress has been made and full accounting staffing is expected shortly. MWA have prepared a training and implementation program and it is now expected that the system will be in operation by mid-1982. During negotiations it was agreed that the accounting system would be implemented by December 31, 1982. MWA may need further accounting assistance and it was therefore agreed during negotiations that MWA will employ by December 31, 1982, or such other date as the Association may agree, accounting consultants whose selection, qualifi- cations, experience and terms and conditions of employment are acceptable to the Association. Billing and Collection 4.11 Meters are installed for recording and billing all water supplied to consumers, but metering is not fully effective (para. 2.09'. Meters are read monthly and meter readers are employed at seven district offices. Bills are prepared at the Head Office for sales to Government, embassies, and public taps and at district offices for private consumer sales. All bills are checked at the Head Office and deliveries are made by hand. Disconnections are made if bills are unpaid within about two months of the billing date. The accounting system for billings has worked reasonably well, but improvements are expected when the consultants' recommendations are implemented. 4 12 Outstanding accounts have deteriorated to an unsatisfactory level and, at the end of 1980, were equal to about 111 days annual sales compared to about 80 days at the end of the previous year. This is mainly due to the slow payment of Government accounts which accounted for 72% of receivables at December 31, 1980. During negotiations, it was agreed that Government would reduce its indebtedness to MWA to a level not exceeding 60 days annual sales by September 30, 1982 and would not permit future indebtedness to exceed this level. Audit 4.13 There are no private audit firms in Somalia. Audits of Government departments and agencies are conducted by the Magistrate of Accounts (MOA) who is responsible to the Presidency of the Supreme Revolutionary Council. MOA's audit of MWA-s accounts has been largely concerned with the examination of records relating to receipts and disbursements, with the verification of cash and inventories, and with compliance with Government laws and regulations. These audits are of a satisfactory standard. 4.14 Commercial audits are conducted by a special department of MOA known as the State Autonomous Agencies' Audit Department. When MWA is able to prepare commercial accounts, in 1982, the audit requirements will be more  - 24 - complex and involve the expression of an opinion on the annual financial statements. Probably only limited reliance could be placed on this part of the audit work because of the lack of trained auditors in MOA's office. Therefore, the reliability of commercial accounts will primari'ly depend uponi MWA developing an effective commercial accounting system. 4.15 MOA's audit performance would be reviewed annually by Bank missions to ensure that audits are of an acceptable standard. In the meantime, GTZ has earmarked DM 1.2 million (US$0.65 million) to cover studies to recommend steps for improving accounting and auditing in Somalia. It was agreed that the covenant under the first project requiring that MWA have its accounts audited annually by auditors acceptable to the Association would be repeated. Audited accounts would be submitted to the Association not later than four months after the end of MWA's fiscal year. Manpower Development and Training 4.16 The first project includes a substantial training component, the primary objectives of which are to strengthen MWA's operational and main- tenance performance and to enable MWA to develop a permanent training cap- ability. Under the first project it was agreed that, by January 31, 1979, Government would employ training consultants to assess water supply sector training needs and to prepare and carry out a training program for MWA. Due to delays in appointing the consultants, they did not commence their work until June 1981. However, a draft report on the training program was submitted in March 1982 and a second report covering the assessment,of sector training needs is expected shortly. V. FINANCIAL ANALYSIS Past History and Present Financial Position 5.01 MWA's accounting records are prepared on a cash basis and are inadequate for the determination of MWA-s financial performance and position (para. 4.10). Although MWA's revenue growth has been constrained by limited production capacity, available information suggests that MWA-s revenues between FY1977 and 1980 were adequate to cover cash operating expenses and debt service as well as finance a small amount of capital spending and inventory additions. However, if it had been possible to measure MWA's annual rate of return performance on revalued assets in recent years, the rate of return would have been negative. Accumulated cash of So Sh 10.5 million (US$0.84 million) at December 31, 1980 appears more than adequate to meet current liabilities. 5.02 MWA's fixed assets consist largely of assets constructed under the USAID project completed in 1973 at a cost of So Sh 68.5 million and, although records of additions since then are inadequate, they probably have not exceeded 18 % of the cost of the USAID project. MWA does not maintain fixed asset records and part of the accounting consultants' work (para. 4.10) was to develop procedures for establishing such records. Fixed assets have been revalued taking into account the recent devaluation of the Somali shilling and  - 25 - the General Index of the Mogadishu Consumer Price Index published by the Central Statistical Department of the Ministry of National Planning and, during negotiations, it was agreed that, for the purpose of the rate of return covenant, fixed assets will be revalued December 31, 1981 at a replacement cost of So Sh 371.28 million less accumulated depreciation So Sh 150.09 million. Although revaluation methods will be refined in future, the foregoing method of establishing a value for fixed assets at December 31, 1981, espe- c.ially in view of the large increments to assets after that date, is accept- able. During negotiations it was agreed that future revaluations of fixed assets would be made annually on the basis of a price index satisfactory to the Bank and MWA which would take into account fluctuations in the replacement value of these assets as well as fluctuations in the value of the Somali shilling. Tariffs 5.03 MWA's tariff for water supplies was at a uniform metered rate of So Sh 3 (USd24) per cu m 1/ (US$0.90 per thousand US gal) and remained unchanged since MWA commenced operations in 1973 until May 1981 when the uniform metered rate was increased to So Sh 4.50 (USd36) per cu m. There is a minimum water charge of So Sh 10 (US$0.40) per month and a fixed meter rental charge of So Sh 2.50 (US$0.20)per month. About 23% of the quantity of water sold by MWA is through public taps. The concessionaires who operate public taps are allowed a commission of So Sh $2.25 per cu m (US$0.68 per thousand US gal) and the net cost of water to them is So Sh 2.25 per cu m. The concession- aires pay the costs of maintaining the public taps. Much of the water pur- chased from public taps is distributed to consumers by vendors at prices varying according to the distance the water is carried, but substantially higher than the public tap price of So Sh 4.50 per cu m (para. 2.09). It is not considered practical to impose controls over the price charged. However, the proposed project would increase the number of public taps and, thus, the quantity of water sold directly to consumers through public taps, which would tend to reduce the price to these consumers. 5.04 It was recognized at the time of appraisal of the first project that changes to the present tariff would be needed to take into account MWA's long-term financial needs and long-term marginal water supply costs. Under the first project, MWA was to employ consultants to complete a study by September 30, 1979 to recommend such changes to MWA-s tariff structure and level as were considered necessary. The study was delayed because of lack of information about the cost of MWA's future capital spending as well as lack of MWA staff to assist the consultants in their task. However, local consultants were appointed in the latter part of 1981 and, with some preliminary guidance from Bank staff, have prepared a draft report. Completion of the study would be a condition of Credit effectiveness. The covenant under the first project concerning the employment and timing of the consultants appointments would be rescinded. It was agreed during negotiations that the covenant under the 1/ Some recent water rates for other countries in the Eastern Africa Region, expressed in USJ per cu m, are: Burundi 28w; Kenya (Mombasa) 48i and (Nairobi) 474; Lesotho 38i; Malawi (Blantyre) 55i; and Sudan 40&.  - 26 - first project requiring that, before taking any action to modify the level or structure of MWA's tariff, both the recommendations of the study and the Association's comments were to be taken into account by Government and MWA would be repeated. 5.05 To ensure that MWA earns a reasonable rate of return on its net fixed assets, taking into account the low income level in Mogadishu, it was agreed during negotiations that MWA would maintain its tariff at levels sufficient to provide a minimum annual rate of return on average revalued net fixed assets of not less than 2% in 1983 and 1984, 3% in 1985 and 1986, and 4% thereafter. It was further agreed that, before October 1 each year, MWA should, on the basis of its forecasts, review the adequacy of its tariffs to produce the foregoing annual rates of return and furnish to the Association the results of its review and promptly take such measures as may be required to meet the rate of return requirements. This covenant would replace that under Develop- ment Credit Agreement 822-SO, which requires that MWA will not reduce its tariff below the current level and will maintain the tariff at a level no less than is adequate to cover cash operating expenses and depreciation or debt service, whichever is the larger. The following table indicates the nominal tariff increases that would be required if adjustments were made annually to meet the minimum rate of return requirements. The 1983 tariff increase is largely required to meet the increases in MWA's costs caused by recent high inflation in Somalia and the devaluation of the Somali shilling. Average tariff per m3 1982 1983 1984 1985 So Sh 4.50 8.90 11.84 15.04 US dollars 0.36 0.71 0.94 1.19 Nominal increase, % 96 33 27 Proposed Financing 5.06 Forecast 1982-88 cash flow projections, income statements and balance sheets are presented in Annexes 9, 10 and 11 followed by explanatory notes in Annex 12. It is estimated that MWA's capital requirements during the project disbursement period 1982-85 would amount to So Sh 782.6 million (US$62.1 million). During this period, it is expected that capital spending to complete the first project would amount to So Sh 92.5 million (US$7.3 million), about 12% of total capital spending and additions to working capital. Under the tentative financing plan shown below, MWA would provide 14% of its capital requirements from internal cash generation, 41% from loans and 45% from equity.  - 27 - Proposed Financing Plan, 1982-1985 So Sh US$ Requirements -----millions