Mauritania - Water Supply Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 10469-MAU MICROFICHE COPY Report No. 10469-MAU Type: (SAR) POWERS, Y / X34835 / J91L1/ AF5IN STAFF APPRAISAL REPORT MAURITANIA WATER SUPPLY PROJECT MAY 21, 1992 Infrastructure Operations Division Sahelian Department Africa Region 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 aut-iorization.  CURRENCY EQUIVALENT (April 15, 1992) Currency Unit = Ouguiya (UM) = 5 Khoums US$ 1.00 = UM 80.00 1 UM = US$ 0.0125 SDR 1.00 = UM 106.4 FISCAL YEAR Government, SONELEC January 1 to December 31 WEIGHTS AND MEASURES Metric System ABBREVIATIONS AND ACRONYMS AfDB = African Development Bank BOAD = Banque Ouest Afr;caine de Developpement CCCE = Caisse Centrale de Cooperation Economique CGE = Compagnie Generale des Eaux DH = Direction de l'Hydraulique (in MHE) EIB = European Investment Bank EPIC = Entreprise Put- Iique a Caractere Industriel et Commercial FAD = African Development Fund FADES = Arab Fund for Economic and Social Development GNP = Gross National Product IBRD = International Bank for Reconstruction and Development ICB = International Competitive Bidding IDA = International Development Agency KfW = Kredietanstalt fur Wiederaufbau LCB = Local Competitive Bidding lcd = liter per capita LRMC = Lcng Run Marginal Cost m3 = cubic meter = 1000 liter MCT = Ministere du Commerce et du Transport MHE = Ministere de l'Hydraulique et de l'Energie SAFA = Societe Arabe de Fer et d'Acier SAL = Structural Adjustment Loan SAR = Staff Appraisal Report SDR = Special Drawing Right SMIG = Salaire Minimum Interprofessionnel Garanti SNIM = Societe Nationale Industrielle et Miniere SONELEC = Societe Nationale d'Eau et d'Electricite TA = Technical Assistance TOR = Terms of Reference UM = Ouguiya = 5 Khoums (National currency) US$ = United States dollar This report is based on the findings of a World Bank appraisal missicn consisting of Ms. Yvonne Powers (Financial Analyst, Mission Leader), Messrs. Johan Van Beuzekom (Principal Sanitation Engineer), Sippo Postma and John Reid (Consultants) who visited Mauritania in February/March 1992. Messrs. Sergio Calegari and Richard Verspyck are the Peer Reviewers of the operation. Mr. Peter Watson and Ms. Katherine Marshall are the managing Division Chief and the Department Director, respectively, for this operation. Mrs. Fanny Barrett and Ms. Amy Gallagher provided secretarial support in the preparation of the report.  FOR OmFCIAL USE ONLY MAUR1TANIA WATER SUPPLY PROJECT STAFF APPRAISAL REPORT Table of Contents Credit and Project Summary L. THE WATER SUPPLY. ELECIRIC1TY AND SANITATION SECTOR .... ....... 1 Geography, Climate, Population and Economy ......................... I Water Resources and Legislation .................................. 2 Water and Sanitation Sector Organization ............................ 3 Government Sector Policy, Priorities and Objectives ..................... 3 Rationale for Bank Involvement .................................. 5 Bank/Country Goals, Role and Sector Lending Strategy ................... 5 HI. SECTOR INSTITUTIONS .. 6 Background ............................................. 6 The National Water & Electricity Authority (SONELEC) .................. 6 SONELEC's Organization and Management ................ 6 Staffing and Personnel .. ....................................... 7 Technical Assistance/Training ..................... 7 Activity in Electricity ...................... 8 Activity in Water ........................................... 8 Activity in Sewerage . ........................................ 8 Issues . ............................................. 8 IAl. THE PROJECT ............................................ 9 Project Genesis ............................................ 9 Project Objectives ........................................... 9 Program and Project Description .......... ....................... 10 Part I: Nouakchott ............ .................... 10 Part H: Nouakchott ............. ................... 10 Part m: Nouakchott ............. ................... IC Part V: Secondary Centers .................................... Program Cost Estimates ...................................... The Proposed IDA Project .................................... 12 Project Cost Estimates .................... ................ 13 Readiness of the Project ................................ 14 Project Financing Plan ............. .................. 14 Procurement ............................... 14 Contract Review ............................... 15 Disbursements ............................... 15 Disbursement Profile .............................. 17 Implementation and Inplementation Schedule .......................... 17 PPF .............................. 17 Project Monitoring .............................. 17 Project Supervision ............................... 18 I 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.  IV. FINANCIAL ANALYSIS AND IMPROVEMENT MEASURES .... .......... 19 Taxes and Import Duties ............. ......................... 19 Past and Present Performance .......... ........................ 19 Billing and Collection . ....................................... 20 Tariffs .............................................. 20 Future Operations and Financial Projections .......................... 22 Insurance .................................. 22 Accounting and Auditing .................................. 22 Summary of Financial Management Actions .......... ............... 23 V. PROJECT JUSTIFICATION .................................. 24 General .................................. 24 Least Cost Solutio .................................... 24 Institution Building .................................... 24 Beneficiaries and Benefits ................................... 24 Affordability .................................. 25 Financial Justification .................................... 26 Economic JustificationlRate of Return. ............................. 26 Environmental and Public Health Aspects . ........................... 26 Risks ................................... 28 VI. AGREEMENTS REACHED AND RECOMMENDATIONS ..... ............ 29 LIST OF ANNEXE 1. Map of Mauritania 2. Map of the Trarza Aquifer 3. Organization Chart of SONELEC 4. Project Costs 5. Financing Plan 6. List of Contracts 7. Disbursement Profiles 8. Water Demand 9. Project Implementation Schedule 10. Supervision Plan 11. Water Tariff Structure 12. SONELEC Financial Tables Page 1: Balance Sheet Page 2: Income Statement Page 5: Sources and Application of Funds Stateme'4 13. Financial Assumptions 14. Monitoring Ind-cators 15. LRMC Calculations 16. New Contrat-programme 17. Environmental Management Plan 18. Draft Executive Summary of the Environmental Assessment Report 19. List of Documents in Project File  MAURfrANIA WEATE SUPPLY PRO JECT STAFF APPRAISAL REPORT Credit and Project Summary Boffower: The Islamic Republic of Mauritania Executing Agec: Societe Nationale d'Eau et d'Electricite (SONELEC) Credit Amount: SDR 7.7 million (US$10.5 million equivalent) Tenns: Standard IDA terms with a maturity of 40 years Onlending as a loan to SONELEC at a 4 percent interest rate, repayable over 20 years Irma: inclueing 5 years grace Proiect Qkiectives: The project is the first part of SONELEC's mid-term investment program in the water sector. The project covers the most urgent rehabilitation and extension works and lays the technical groundwork for the other works included in the investment program. The project's main objectives are to secure a safe and reliable water supply for Mauritania's urban centers while fostering an efficient groundwater management and to protect and extend the finite life of Nouakchott's only water source. It also aims at improving the population's standard of living, promoting economic development through the provision of water supply infrastructure, and at the same time reducing the sector's dependenc-y on the Government budget. The Government's strategy is to improve the management of the urban water supply subsector by entrusting it to a strong and financially independent parastatal, 'SONELEC". The project's institution and capacity building components aim at strengthening SONELEC's technical, financial and managerial capability by achieving a financial discipline, improving billing and collection operations, setting tariffs at an appropriate level to assure the corporation's financial equilibrium, by optimizing the efficiency of its technical installations, and by promoting water conservation and reducing wastage. The Nouakchott water supply component will enable SONELEC to meet the demand till the year 2000 and will enhance a more equitable distribution of the scarce water, ease access for the poor to a piped water supply system, lift constraints to urban development and prepare the grounds for sustained sector development. In the sewerage subsector the project will strengthen SONELEC's capability to operate and maintain the facilities, introduce cost recovery measures and help plan for future development. It contributes to pollution control and prevents the deterioration of the environment. D2esrjgdo: SONELEC's investment program is subdivided in five parts, the first four zovering Nouakchott and the fifth covering the secondary centers:  ii Part I: Studies, network expansion and repairs Part II: Rehabilitation and construction of reservoirs Part m: Expansion of production system Part IV: Expansion of distribution system Part V: Water systems for secondary centers The IDA project consists of a coherent set of actions, assembled as part I of this investment program which are independent of the remainder of this plan. They include the monitoring of the salt water intrusion in the existing Trarza aquifer and a study to establish a groundwater management plan for the exploitation of the new Tenadi wellfield, further from the advancing saline front. The project also includes a program for leak detection, a repair and rehabilitation program of the existing distribution network, upgrading of the existing installations, an extension of the distribution system to the northern part of the town in order to supply some of tne poorest parts of the population with water through privately operated standpipes. Lastly the project includes studies and technical assistance to prepare future parts of the program. Justification: The proposed project is justified by the universally recognized fact that the provision of an adequate quantity of safe water is a basic necessity for the maintenance of good health and productivity. This justification is enhanced by the fact that the addii0onal inhabitants that wit! be served - approximately 60,000 through household connections and 100,000 thio-igh standpipes - belongs to the poorest segments of Nouakchott's population. for these people, the project will have a substantial poverty alleviation impact, not only through improvements in their living conditions, but also by substantially retucing the price that they pay for water (water vendor rates can be ten times or more the SONELEC tariff). In addition, the provision of adequate infrastructure, including water supply, is a prerequisite for economic development. In particular, the supply of water to the capital city of Nouakchott, will lift constraints on urban development. The project will also improve the efficient allocation of a rare national resource, "water" and it will promote water conservation and reduce wastage. Moreover, if the project would not be realized by 1996, according to groundwater experts, salt water intrusion could permanently damage the Trarza aquifer and substantially reduce the future water resources available for Nouakchott. Thus the project will contribute to averting a major environmental problem. Lastly, the project has enhanced donor coordination as a result of close cooperation with prospective cofinanciers during preparation. Therefore the project makes an effective contribution toward the development process in Mauritania. RiskA: The risk of not implementing the physical components of the project within the set time frame is small. SONELEC has demonstrated that it is capable of implementing similar size investment projects. Additionally, SONELEC will be assisted by consultants in project design and supervision, and technical assistance will be provided to strengthen its project management capacity. However, the risk of not achieving the institutional and financial objectives within the set time frame is not negligible. The precarious economic and tight financial situation of  iii the countzy will make the reappearance of arrears to SONELEC possible, notwithstanding Government assurances that future payments will be made within legal time limits. The impact of this risk is minimized by covenants allowing the Association to suspend disbursements in case payments are more than 90 days in arrears. Equally, tariff increases are unpopular measures for the Government to take; the introduction of automatic semi-annual tariff increases supported by appropriate covenants will encourage the Government to honor its commitment. Estimated Project Cos The project is the first part of SONELEC's mid term investment program for the water supply sector. The total project cost is estimated at UM 1102 million (US$13.8 million) as detailed in the following tW ', and expressed in April 1992 prices. (Ihe estimated cost of the whole investment program is UM 7811 million (US$ 97.64 million)). Proiect Cost Estimates UM million USS million Hydrogeological monitoring of the Idini wellfield 20 0.25 Hydrogeological study for the Tenadi wellfield 80 1.00 Leak detection and repair program 168 2.10 Rehabilitation of the distribution network 80 1.00 Supply of urgently required spare parts 16 0.20 Supply of materials for connections and standpipes 80 1.00 Purchase of miucellaneous equipment 24 0.30 Construction of house connections a1Ad standpipes 20 0.25 Expansion of the distribution system 304 3.80 Final design and works supervision 30 0.38 Study of Rosso water supply 29 0.36 Preparation of tender documents for Part I 8 0.10 Technical assistance, and miscellaneous studies 40 0.50 Subtotal 899 11.24 Physical contingencies 133 1.66 Price contingencies 70 0.90 TOTAL 1102 13.80  iv Financing Plan The financing for the project is secured by IDA in the amount of UM 840 million (US$10.5 million, 76 percent) and SONELEC's participation of UM 192 million (US$2.3 million, 17 percent). Financing is actively being sought from the French for balance (US$1.0 million, 7 percent). As regards the rest of the program, the Giovernment is approaching interested co-financiers. Interest has been indicated by the African Development mank (AfDB, US$15 million), the Caisse Centrale de Cooperation Economique (CCCE, US$25 million), the European Investment Bank (US$3 million) and the FED (US$3 million). SONELEC will finance at least 15 percent towards the program out of internally generated funds. A tentative financing plan for the program is attached in Annex 5. Estimated Il)A Disbursements (in US$ mnilion) Jj_________________ FY93 FY94 FY95 FY96 FY97 ~~iuadve A^2.3 4.6 2.4 1.0 0.2 ;Cumu ,ative 2.3 6.9 9.3 10.3 10.5 Economic Rate of Return: 10 percent based on the amounts paid for water as a proxy for benefits. Actual ERR will be higher as non tangible benefits (consumer surplus and health benefits) have not been taken into account. MRP: IBRD 16452R  MAURlrANIA WATER SUPPLY PROJECT STAFF APPRAISAL REPORT I. THE WATER SUPPLY. ELECTRICITY AND SANITATION SECTgR Geograhy. Climate. Population and Economy 1.1 Mauritania, a nation located in northwest Africa, is a bridge between Arab Africa to the north and sub-Saharan Africa to the south. Two distinct regions are apparent in the country. The northern region covers two-thirds of the land and is part of the Sahara. Its terrain consists of sand dunes and rocky plateaus, with altitudes ranging from approximately 450 m in the north to about 180 m in the south. The smaller southern region is composed of the Sahel and the northern portion of the Senegal River valley, known locally as the Chemama. The overage altitude in this region is about 91 m. Except for a few oases in the desert, the alluvial riviar valley soils provide the country's only arable land. Mauritania's rivers, all tributaries of the Senegal River, are located in the southwestern part of the country (see map in Annex 1). 1.2 Daytime temperatures in the desert are usually above 380C (100lF) for the six hottest months of the year, whereas in the cooler season the daytime desert temperature is about 24