Senegal - Water Sector Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. P-6556-SE MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT IN THE AMOUNT EQUIVALENT TO SDR 63.5 MILLION TO THE REPUBLIC OF SENEGAL FOR A WATER SECTOR PROJECT JUNE 12, 1995 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 EOUIVALENTS Currency Unit = CFA Franc (CFAF) US$1 CFAF 535 (April 8, 1995) CFAF 1 million US$1,869 FISCAL YEAR January I - December 31 ABBREVIATIONS AND ACRONYMS (English/French) AfDB African Development Bank AGETIP Agency for the execution of works in the public interest AGCD Agence Gen6rale de Cooperation de Developpement (Belgian General Agency for Cooperation to Development) BAD Banque Africaine de Developpement (African Development Bank) BADEA Banque Arabe pour le Developpement Economique en Afrique (Arab Bank for Economic Development in Africa) BEI Banque Europeene d'Investissement (European Investment Bank) BOAD Banque ouest africaine de developpement (West African Development Bank) CAS Country Assistance Strategy CFAF Franc (Communaute financiere africaine) CFD Caisse fran,aise de developpement (French Development Bank) CSE Conseil Superieur de l'Eau (High Council on Water) DHA Direction de l'hydraulique et de l'assainissement (Directorate for Water Works and Sanitation) EIB European Investment Bank FIRR Financial Internal Rate of Return GDP Gross Domestic Product GNP Gross National Product IDA International Development Agency KfW Kredietanstalt fur Wiederaufbau MH Ministere de I'Hydraulique (Ministry of Hydraulics) NDF Nordic Development Fund ODA Overseas Development Administration OECF Organization for Economic Cooperation and Finance ONAS Office National d'Assainissement urbain (National Office of Urban Sanitation) PPF Project Preparation facility PFP Policy Framework Paper SDR Special Drawing Right SdE Societe d'exploitation (Private Operating Company) SGPRE Service de Gestion et de Planification des Ressources en Eau (Management and Planning Unit for Water Resources) SONEES Societe d'exploitation des eaux du Senegal (National Water Supply Company of Senegal) SONES Societe nationale de Patrimoine (National Water Company of Senegal) TOR Terms of Reference WDR World Development Report  FOR OFFICIAL USE ONLY REPUBLIC OF SENEGAL WATER SECTOR PROJECT CREDIT AND PROJECT SUMMARY Borrower: Republic of Senegal Beneficiaries: Government of Senegal (Ministry of Hydraulics), the National Water Company of Senegal (SONES), and the National Office of Urban Sanitation (ONAS) Poverty Category: Program of Targeted Interventions Credit Amount: SDR 63.5 million (US$100 million equivalent) Terms: Standard IDA terms, with 40 years maturity Onlending Terms: US$85 million equivalent of the IDA credit would be provided by the Government to SONES, of which 45 percent would be onlent at 1BRD terms (20 years including 5 years of grace, at an annual interest rate of 7. 1 percent) and the remaining 55 percent would be provided in the form of equity. SONES would bear the foreign exchange risk. The remaining US$15 million equivalent of the IDA credit would be provided to the Ministry of Hydraulics through a budgetary allocation. Financing Plan: IDA 100.0 (US$ million) CONES 653. Germany 25.5 AGCD 4.1 EIB 18.0 NDF 10.3 BOAD 11.9 BADEA 10.9 Other Financiers 20.5 Total 290.0 Financial Rate of Return: 6.2% Economic Rate of Return 14.1% Staff Appraisal Report: Report No. 14008-SE Maps: IBRD 23121 - SONEES Centers IBRD 23122 - Water Supply System 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.   MEMORANDUM AND RECOMMENDATIONS OF THE PRESIDENT OF THE IDA TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE REPUBLIC OF SENEGAL FOR A WATER SECTOR PROJECT 1. I submit for your approval the following memorandum and recommendation on a proposed development credit to the Republic of Senegal for SDR 63.5 million, the equivalent of US$100 million, on standard IDA terms with a maturity of 40 years, to help finance a water sector project. Part of the proceeds of the credit would be onlent to SONES, the new public holding company, for 20 years including five years grace period on IBRD terms, and the remainder would be made available as an equity contribution. Seven donors are providing US$146 million through parallel financing. France, Germany and the European Investment Bank (EIB) also participated in negotiations. 2. Country Background: Senegal is a medium-sized Sahelian nation with a population of 8 million, 41% already urbanized, with limited natural resources. The population growth rate is about 2.7 % p.a., slightly below the 3.1% real GDP growth rate for the period 1986-1992. Standards of living have deteriorated in urban areas. However, with the exception of the Dakar region, poverty remains mainly rural. In spite of adjustment efforts, Senegal's past economic performance was poor due to the pursuit of inappropriate policies, notably a large public sector, excessive regulation on the private sector and a real exchange rate over valuation for an extended period. These policies were exacerbated by erratic climate and adverse commodity markets. Since the devaluation of the CFA Franc in January 1994, Government took steps to improve economic management and maintain a stable macroeconomic framework conducive to private sector activity and to poverty alleviation. In the sector, Government has implemented institutional reforms to enable private participation and has set the stage for commercial management of the sector 3. Water and Sanitation Background: In addition to rapid population growth, Senegal has seen increasing migration to urban areas, particularly to Dakar whose population of 1.5 million people (51 % of the urban population) is expected to reach 2.3 million by the year 2000. More than two-thirds of Senegal's GDP is generated in the Dakar region, where water shortages are already chronic. Sanitation is non-existent in pen- urban areas where the bulk of the poor live. Only 40% of the urban population has access to safe, piped water and another 42% has access to public fountains, now privatized. The remainder use conventional sources or rely on costly water vendors. Four fifths of the urban population are not connected to water-borne sewerage. Urban water and sewerage are under the responsibility of the Ministry of Hydraulics (MH) and managed by an autonomous parastatal, the Societe nationale d'exploitation des eaux du Senegal (SONEES). It's main concem had been the rapidly growing demand for water in Dakar. It has not focused on sanitation -with a serious health impact on the poor- nor on the competing water needs for households, industry and agriculture, particularly horticulture, currently irrigated with costly potable water. 4. SONEES, a competent parastatal, could have improved its performance further through commercial management, introduction of competition and further exploring a public-private partnership. As part of its overall strategy to disengage from commercial activities, the Government has restructured the sector during project preparation. It has created SONES, a holding company for sectoral assets which will be managed by an independent, fully private and autonomous company (SdE) to be selected through competitive bidding. Sanitation activities, previously done by SONEES, have been devolved to a separate unit under the MH, Office national d'assainissement urbain, ONAS. MH would further develop the policy and regulatory frameworks to improve environmental conditions, safeguard the interests of the poor and coordinate cross- sectoral interactions. 5. Project Objectives: The proposed project supports the second of Senegal's three step strategy for the long-term development of its water sector. The first, supported by the Eleven Centers Water Supply Project, Cr. 1554-SE (closed in 1993), helped to establish SONEES, a competent parastatal. The second,  2 supported by the proposed operation, deepens the institutional reform, makes critical investments to meet the safe water demand for the year 2000, and sets the stage for the third step. The third step would assure the long-termn sustainability of the sector and could be supported by a future operation. The overall development objectives of the proposed project are to address: (a) sustainability, by improving management, pricing, and cost recovery and reducing the Government subsidy for industrial, domestic, and irrigation water; (b) poverty alleviation and health, by increasing access to safe potable water and adequate and more affordable sanitation for the urban poor and (c) private sector participation, by engaging a private company to manage urban water supply. The specific project implementation objectives are: l. In water resource management: to formulate an integrated, multisectoral strategy for the shared use of water by households, industry, and agriculture that will be coordinated with future development projects in these sectors. 2. In institutional capacity butilding: to strengthen the capacity of (a) the Management and Planning Unit for Water Resources, SGPRE, to monitor aquifer exploitation; (b) the newly established SONES to formulate and enforce drinking water policy and oversee the private operator; and (c) the newly established ONAS to develop a strategy for urban and peri-urban sanitation improvements. 3. In urban water production and distribution: to reduce leakages in the Greater Dakar water distribution system (from the current estimated 27 to 15 percent), to increase the Dakar region's water production capacity from the current 202,000 cubic meters a day to 271,000 cubic meters, an increase of 34 percent. 4. In urban sanitation: to increase the effectiveness of the existing Dakar sewerage system, develop sanitation in secondary towns, and, promote the reuse of treated municipal wastewater for irrigation. 6 Project Description: The project has three main components: 1) Institutional Capacity Building (US$8.1 million or 3% of total base costs). To achieve better water resource management, this component would support the Ministry of Hydraulics and SGPRE in the preparation of a national water resource management strategy. To make more potable water available, it would support the newly created SONES in managing sector policy (including auditing and cost accounting). To improve sanitation services, it would support the newly created ONAS in the formulation of a national strategy for sanitation in urban and peri- urban areas. 2) UJrban Water Supply (US$207.5 million or 84% of total base costs). To increase the produiction of safe drinking water for Dakar, this component would rehabilitate physical works and also expand water production and transport through the use of boreholes, treatment works, pipelines, clean water storage, and the building of a remote control and management system. It would improve and extend urban water distribution through network rehabilitation, renovation, and expansion (including new pipes, larger water meters, and new connections to low-income households). It would finance logistical support (consulting services for final studies, bid documents and supervision of works); building a pilot plant and conducting environmental impact studies of the long-term water needs in Dakar. It would also provide necessary laboratory equipment and rehabilitate office facilities. 3) Urban Sanitation (US$32 million or 13% of total base costs). Tlis component would finance connections to the existing sewer system in Dakar, treatment and reuse of pern-urban municipal sewage for irrigation; preparation of sewerage masterplans for 19 secondary cities; a rainwater sanitation project in the St. Louis area; and the sewerage and urban drainage in the Ru tisque area. TIhe remaining 2% of base costs result from the refinancing of two PPF (project preparation facility) advances, representing US$2 million. Schedule A presents the estimated costs and financing plan, whlch are also discussed in detail in the following paragraph. Schedule B summanrzes the proposed procurement arrangements and the estimated disbursements. Schedule C gives the timetable of key project processing events. Schedule D shows the status of Bank Group operations, the summary of IFC investments, and a note on portfolio implementation issues for Senegal. 7. Project Financing: The urban water sector program's total costs have been estimated at US$290 million and many donors are financing it: France (CFD) (US$65.7 million), Germany (KfW) (US$25.5 million), Belgium (AGCD) (US$4.1 million), IEB (US$18 million), NDF (US$10.3 million), BOAD (US$11.9 million), BADEA (US$10.9 million). SONES would provide US$23.1 million, or 10 percent of potable water investments, which will be generated through revenues of water sales. Other donors, still to be confirmed, will be providing the remaining US$20.5 million for Phases II and III. IDA will provide US$100 million equivalent, bringing the FY95 commitment for Senegal to US$195 million, which is within the agreed envelope  3 for FY95-FY98. It will be distributed as follows: US$85 million to SONES, 45% as a loan on IBRD terms and 55% as equity. The loan/equity breakdown has been determined taking into account three constraints: (a) an adequately capitalized public holding company, (b) financial equilibrium of the potable water sector by about the year 2003 (cumulative cash shortfall/surplus equal to zero or positive), and (c) politically and socially sustainable tariff increases, required to achieve such financial equilibrium. The need to maintain tariffs within an affordable range in the early years of the project (1995-1998) when efficiency gains are not yet fully realized will create a temporary cash shortage, which commercial banks have agreed to finance. The potable water sector would generate all the counterpart funds and carry the debt service for water supply investments. US$15 million of the IDA credit would be passed on to the Ministry of Hydraulics through a budgetary allocation for strengthening the Conseil Superieur de l'Eau, CSE, ONAS and SGPRE, and for executing projects and studies for water resource management and urban sanitation. 8. Implementation will extend over five-years, 1996-2000, divided in to three distinct phases of 2, 1.5 and 1.5 years respectively, to ensure that new investment follows improvements in sector management expected from the new private-public partnership. Each phase is complete in itself and consists of a coherent set of components. Phase I will (i) formulate a national water resource management plan; (ii) prepare a strategy for urban sanitation development; (iii) reduce water leakages and increase safe drinking water production capacity; and (iv) improve cost recovery. Phase II will increase drinking water storage, and implement rainwater sanitation for the St. Louis area. Phase III will implement investments in sewerage and sanitation. SONES would manage the urban water production and supply components. The private company, SdE, would be contracted by the Government to assume technical and commercial management of the urban water supply service. In order to implicate the private operator in reducing water leakages and to secure continuity in this effort, the SdE would finance and implement renewal of the distribution network as part of its affermage contract. The SdE, will also be closely associated for the preparation of tender documents, bid evaluation and supervision of works for the rehabilitation of the distribution network. The Government would manage the implementation of the institution building components (strengthening the CSE, SGPRE, SONES and ONAS). The Ministry of Hydraulics would oversee the implementation of the urban sanitation component by ONAS. 9. Sustainability of the urban water sector would be ensured through (a) deepening institutional reform and involving the private sector with improved management efficiency; (b) improved pricing and cost recovery, and phasing out of costly potable water for irrigation use, thus ensuring financial viability and water supply sector equilibrium in the year 2003; (c) a long-term strategy for water production and shared used of water resources; and (d) the definition of long-term investment needs. 10. Lessonsfrom Previous IDA Involvement: The Eleven Centers Water Supply Project (Cr. 1554-SE) helped transform a Government Department into a parastatal, SONEES, a technically effective agency with excellent procurement performance: bidding is done on schedule and contracts concluded without problems and below the appraisal costs. Continuing issues that were not well resolved, include: (i) insufficient autonomy of SONEES; (ii) irregular payment of water bills by Government agencies; (iii) an inadequate tariff policy to ensure long-term sustainable financial viability; (iv) lack of coherent planning of maintenance of existing facilities and new investments for the long-term water supply to Dakar; and (v) little attention to sanitation. IDA delayed the proposed project, originally appraised in 1991, for lack of progress in addressing these key institutional issues. A consensus has now been reached with Government on sector reform, building upon and extending successful western Africa experiences reviewed in the 1994 World Development Report: e.g. Guinea, where water supply is owned by a state enterprise and operations leased to a private operating company since 1989; and C8te d'Ivoire, where an urban water supply concession was given to a private consortium, which receives no operating subsidies and self-finances investments. The lessons of the Lima and Buenos Aires operations have also been taken into consideration 11. Rationale for IDA Involvement: The proposed operation fits within the overall Country Assistance Strategy discussed by the Board on February 16, 1995. Senegal is maintaining the momentum on the  4 implementation of its reform program, allowing IDA to increase commitments in FY95 to reflect its satisfaction. As the CAS discussion emphasized the need for change with both the power and water sectors this operation supports the Government's efforts to redefine and focus its role away from commercial activities and to improve the competitiveness of the economy. On the water side, continuation of support is necessary to deepen sector reform, ensure financial discipline through a private operating company, and help consolidate cofinancing. On the sanitation side, IDA support will help define a strategy and investments to address the growing pen'-urban low-income population. The proposed operation is part of a comprehensive long-term water sector development strategy to improve the competitiveness of the economy by reducing the costs of inputs and to reduce poverty through safe water and sanitation provision for low-income households. 12. AgreedActions: (i) The Government has met the conditions of negotiations by providing the following documentation and by taking the following actions: (a) settled its arrears with SONEES accumulated to December 31, 1994; (b) provided a sector action plan with a time table to reduce water consumption of Government agencies, acceptable to IDA, consisting of: (1) rehabilitating water meters and reducing water leakage; (2) rationalizing water use; (3) budgeting annual water consumptions based on historic data; and, (4) initiating an administrative procedure for schedule payment of water bills; (c) provided an irrigation action plan with a time table, acceptable to IDA, aimed at phasing out the use of potable water for irrigation, including an increasing block rate structure and the provision of alternative, less costly water; (d) provided evidence that the financing of Phase I of the proposed project has been secured; (e) adopted the concept of progressive annual tariff adjustments in real terms with underlying assumptions of the financial projections; (f) prepared a draft letter of Sector Policy, acceptable to IDA; (g) established SONES, under conditions satisfactory to IDA, and appointed its General Manager to participate in negotiations; (h) organized a two-day information workshop for the prequalified candidates to review the bidding documents to select a private operator (SdE); (i) provided: (1) the evaluation of SONEES' operating equipment to be passed on to the SdE; and (2) the masterplan of the rehabilitation and extension of the distribution network, which are to be included in the bidding documents, mentioned sub (h); (j) committed itself to following measures to bridge the temporary cash flow deficit of SONES: (1) 50% of IDA financing as new equity of SONES; (2) sale of operating equipment to the SdE; (3) rescheduling of existing sector debts; and, (4) commercial bank loans. (ii) During negotiations, Government agreed to the following: (a) the proposed onlending IBRD terms; (b) to ensure that SONES furnishes the audit report for 1994 of SONEES to IDA before July 31, 1995; (c) to ensure that SONES not later than June 30, 1996, establish a monthly cashflow model for the purpose of managing cash, acceptable to IDA; (d) to confirm that, unless agreed by IDA, SONES would produce, for each of its fiscal years, commencing from the fiscal year 1996, funds from internal sources or from any other private commercial sources, equivalent to not less than 10 percent of SONES' annual average capital expenditures incurred, or expected to be incurred, for that year, the previous fiscal year, and the three next following fiscal years; (e) to ensure that SONES would not incur any debt, unless the next revenues of SONES for the fiscal year immediately preceding the date of such incurrence or for a later twelve-month period ended prior to the date of such incurrence, whichever is the greater, shall be, for the year 1996, at least 0.8, for the year 1997, at least 0.9, for the year 1998, at least 1.3, and for the year 1999 and thereafter, at least 1.4 times, the estimated maximum debt service  5 requirements of SONES for any succeeding fiscal year on all debt of SONES, including the debt to be incurred; (f) to ensure that SONES would maintain its annual expenditures on personnel to an amount in constant 1995, equivalent to not more than CFAF 500 million for the year 1996, CFAF 510 million for the year 1997, CFAF 520 million for the year 1998, CFAF 530 million for the year 1999, CFAF 540 million for the year 2000, CFAF 550 million for the year 2001, CFAF 560 million for the year 2002 and CFAF 570 million for the year 2003; (g) to take all necessary measures to increase , annually, the tariff of water, except for water for market gardening, starting January 1, 1996, so as to allow SONES to achieve a targeted financial equilibrium in the water supply sub-sector by December 31, 2003; (h) not later than October 31 of each year, commencing October 31, 1996, review the updated financial projections, and if necessary, readjust the annual tariff increase, so as to permit the realization of the targeted financial equilibrium referred to in para. 8.1(g) above. For the purposes of the preceding, the increase of water tariff, in 1996 and 1997, shall be across the board to all tariff categories; (i) not later than July 1, 1997, prepare and furnish to IDA: (a) a proposal on a new tariff structure for water, except for market gardening, to be implemented as of January 1, 1998; (b) a proposal on a mechanism to apply the annual percentage increase of the water tariff differentially to the various tariff categories, excluding market gardening; and (c) subject to approval from IDA, implement these proposals; (j) to ensure that SONES and ONAS prepare their financial statements in accordance with international accounting standards, have their accounts audited in accordance with international auditing standards by independent auditors acceptable to IDA, and SONES and ONAS submit their certified copies of their financial statements and audited accounts to IDA within six months after the close of its fiscal year; (k) to ensure that the Ministry of Hydraulics, SONES and ONAS report quarterly to IDA on the progress of each project component and on the evolution of specified monitoring indicators, and that SONES and Govermnent would take all reasonable, remedial action (after discussion with IDA) needed for the proper execution of the project, efficient management of the institutions, or the meeting of set targets of performance; (1) to ensure that the Ministry of Hydraulics, SONES and ONAS prepare and furnish to IDA not later than six months after the closing date or such later date as may be agreed for this purpose between Government and IDA, a completion report on the execution and initial operation of the project components, the cost of, and benefits derived or to be derived from, the project, the fulfillment by SONES, ONAS and the Government of their obligations under the Credit Agreement, and the project's success in accomplishing the project objectives; (m) to ensure that SONES and ONAS furnish for IDA's review and comment, their annual capital and operating budgets; (n) to organize, jointly with SONES and ONAS, a Project Launch Workshop not later one month after the effectiveness date; (o) to organize not later than December 31, 1997, June 30, 1999, and December 31, 2000, a comprehensive project review involving the Ministry of Hydraulics, SONES, SdE, ONAS and related donors. (iii) As a condition of Board presentation, Government submitted to IDA the signed letter of Sector Policy, satisfactory to IDA. (iv) Effectiveness of this Credit will be subject to the following conditions: (a) the Subsidiary Loan Agreement has been executed on behalf of Government and SONES; (b) the establishment of SdE, under the terms and conditions acceptable to IDA, and the Government having entered into the affermage contract with SdE and the concession contract with SONES, both under the terms and conditions satisfactory to IDA;  6 (c) Government having increased the tariff for water by 3 percent in real terms and applied the increase as of July 1, 1995, except for the market gardening sub-sector; (d) the establishment of ONAS and the entering into the Implementation Agreement for purpose of managing the urban sanitation component; (e) the adoption of the Environmental Mitigation Plan, satisfactory to IDA; (f) SONES having entered into agreements with commercial banks, under terms and conditions acceptable to IDA, to provide a line of credit in an aggregate amount equivalent to US$30.5 million, to finance the temporary cash shortfall of the water supply subsector; (g) the appointment of an external auditor on the basis of a multi-year contract for the purpose of carrying out auditing of the institutional capacity building, urban water supply, and, urban sanitation parts of the Project; (h) cofinancing agreements having been executed on behalf of Government and cofinanciers, and all conditions of effectiveness and initial disbursement of funds thereunder (except the effectiveness of IDA's agreement) having been satisfied; and (i) the adoption by Government of an implementation manual, satisfactory to IDA. 13. Poverty Category: The proposed project is a poverty-targeted intervention, geared toward improving: accessibility of safe drinking water to those who do not have it, and sanitation in targeted poor fringe areas of Greater Dakar. It is estimated that the project will provide, for the first time, a safe water supply to approximately 750,000 inhabitants. 14. Environmental Aspects: The project is rated B. An analysis undertaken by MH, shows that (a) a 37% increase in safe water supply in Dakar would contribute to improved health, as polluted sources for drinking water are reduced, especially in the peri-urban fringe areas where water-borne diseases caused by contaminated water are endemic; (b) mining of the ground water-reserve aquifers would be reduced by monitoring over-pumping and a study of recharge of depleted aquifers, including artificial recharge; (c) waste water would be treated and disposed of as water is supplied to new consumers in low-density areas where soil conditions are conducive to septic tanks or seepage pits; (d) sewerage and sanitation master plans for 19 centers will be prepared. An education program to raise environmental awareness and systematic consultation with local communities potentially affected by construction are included. No resettlement is foreseen. 15. Program Objective Categories: The proposed project would help: (a) reduce poverty by improving public health through safe and reliable water supply for the urban poor and the expanding peri-urban areas, and create low-level employment; (b) bring in private sector participation to manage water and mobilize private sources of finance; and (c) protect the environment by strengthening future water resources management and improving sanitation in urban areas. 16. Project Benefits: The proposed project would help deepen the reforms of the water sector, by improving its management, financial accountability, and resource allocation capacity. This would help keep water shortages in the Dakar region within manageable levels until a longer-term solution could be effected. It is estimated that 1.8 million people would benefit from the project, which would reduce the water deficit and make distribution more equitable and reliable. By providing a steady supply of potable water, the project would relieve one of the major hardships borne by those living in poverty. In peri-urban areas, women, who are traditionally charged with the family water supply duties, would realize substantial savings and effort of time. Under the proposed project, the Rufisque population (estimated at 150,000), would also benefit from improved sanitation and so would the population of 19 other urban centers recently provided with a safe piped- water supply. Sewerage and sanitation master plans would be prepared to improve sanitation services to a total population of 735,000. Construction activities under the project, moreover, would create about 15,000 person-years of temporary employment. 17. Risks: The proposed project poses four primary risks. (a) At the institutional level, it is uncertain that: SONES will assume responsibilities from SONEES in an effective and timely manner. To address this  7 risk, capacity building for SONES would include: (i) water sector planning and development; (ii) project management and implementation; (iii) selection of appropriate water supply and sanitation technologies; and (iv) performance monitoring, including maintenance audits; (b) at the financial level: whether the objective of sector equilibrium in 2003 will be met within the established timeframe given the country's precarious economic and fiscal situation remains difficult. To address this risk, (i) a politically and socially sustainable tariff policy would be applied to achieve sector financial equilibrium by the year 2003, and key performance indicators would be used during project supervision, with clear targets; (c) at the private sector level: whether there will be a sufficient interest from several private companies, given the complexity of the Dakar situation and the introduction of renewal of the distribution network as part of the affermage contract. To address this risk, two upfront actions were taken before negotiations, namely: the creation of SONES, and, the information workshop for the prequalified firms. In addition, as a condition of effectiveness, Government would enter into an affermage contract, stisfactory to IDA with the private operator; and (d) at the private operator level: whether the lowest bid for SdE will be sufficiently low to allow for financial viability of the water sector at a tariff level acceptable to the Senegalese authorities. This issue has been addressed through (i) the capacity building program devised for SONES, (ii) the actions adopted in order to ensure sufficient interest from different private companies and (iii) measures aimed at minimizing the risks of non-payment or late payment of water bills by Government. 18. Recommendation: I am satisfied that the proposed credit would comply with the Articles of Agreement of the Association and recommend that the Executive Directors approve it. James D. Wolfensohn President Attachments Washington, D.C. June 12, 1995   8 Schedule A Page 1 of 2 REPUBLIC OF SENEGAL WATER SECTOR PROJECT ESTIMATED COSTS * (US$ MILLION) A. Summary of Project Costs % Foreign % Total Base Project Component Local Foreign Total Exchange Costs percentage of total Phase 1 Institutional Capacity Building 1.2 6.6 7.9 84 3 Urban Water Supply Drinking Water Production 40.6 109.1 149.8 73 60 Water Supply and Distribution 3.6 10.1 13.7 74 6 Engineering, Studies, Supervision 2.2 4.6 6.7 68 3 Subtotal Urban Water Supply 46.4 123.8 170.2 73 69 Urban Sanitation Sewerage/Urban Drainage 1.6 10.0 11.6 86 5 Subtotal Phase 1 49.3 140.4 189.7 74 77 Phase 2 Institutional Capacity Building 0.1 0.4 0.5 73 - Urban Water Supply Drinking Water Production 3.1 9.3 12.4 75 5 Water Supply and Distribution 2.9 8.4 11.2 75 5 Engineering, Studies & Supervision 0.1 0.9 1.0 91 - Subtotal Urban Water Supply 6.0 18.6 24.7 76 10 Urban Sanitation Sewerage, Urban Drainage 2.1 13.6 15.7 87 6 Subtotal Phase 2 8.3 32.6 40.9 80 16 Phase 3 Institutional Capacity Building 0.1 0.3 0.4 77 - Urban Water Supply Water Supply andDistribution 2.1 6.7 8.7 76 4 Engineering, Studies, Supervision 0.5 1.0 1.6 66 1 Subtotal Urban Water Supply 2.6 7.7 10.3 75 4 Urban Sanitation Sewerage, Urban Drainage 1.0 3.3 4.3 76 2 Subtotal Phase 3 3.7 11.3 15.0 75 6 PPF Refinancing - 2.0 2.0 100 1 Total Baseline Costs 61.3 186.3 247.6 75 100 Physical Contingencies 6.1 18.4 24.6 75 10 Price Contingencies 8.1 9.9 17.9 55 7 Total Project Costs 75.4 214.6 290.1 74 117 *Costs are net of duties and direct and indirect taxes.  9 Schedule A Page 2 of 2 REPUBLIC OF SENEGAL WATER SECTOR PROJECT B. Financing Plan (US$ million) Source of Funds Total % Total IDA 100.0 34.5 SONES 23:1 8 CFD 65.7 22.7 Germany 25.5 8.8 AGCD 4.1 1.4 EIB 18.0 6.2 NDF 10.3 3.6 BOAD 11.9 4.1 BADEA 10.9 3.7 Other Financiers 20.5 7.1 Total 290.1 100.0  10 Schedule B Page 1 of 2 REPUBLIC OF SENEGAL WATER SECTOR PROJECT A. Summary of Proposed Procurement Arrangements* (US$ Million) Procurement Method (US$ Million) Procurement Method International National International Other N.B.F. Total Competitive competitive Shopping Bidding e Bidding Civil Works 73.5 4.5 - - 154.2 232.2 (64.8) (4.0) (-) (68.8) Goods and Equipment 19.8 1.0 - 12.6 33.4 (19.5) (1.0) (--) (20.5) Studies, Capacity building - - - 8.7 13.8 22.5 and Training (8.7) (-.) (8.7) - - 0.0 2.0 2.0 PPF Refmiancing (0.0) (2.0) ( (2.0) 93.4 5.4 0.0 10.7 180.6 290.1 (84.3) (5.0) (0.0) (10-7) (100.0) Note: Figures in parenthesis are the respective amounts financed by IDA are net of duties and direct and indirect taxes. Numbers may not add up due to rounding.  11 Schedule B Page 2 of 2 B. Disbursements Estimated Disbursements of IDA Credit by Semester * (in US$ million) Bank FY nd Disb per snester Cumnulative % Semester Disbursenents Phase 1 Phase 2 Phase 3 1996 1st semester 2.0 2.0 2 2nd semester 15.5 17.5 17 1997 1st senester 15.5 33.0 33 2nd semester 16.0 49.0 49 1998 1st senester 16.0 - 65.0 65 2nd semester - 8.0 73.0 73 1999 Ist saneser 8.0 - 81.0 81 2nd semester 4.1 1.7 86.8 86 2000 Istsenmester 4.1** 1.7 92.6 92 2nd semester 3.8 96.4 96 2001 lst semest 3.6 100.0 100.0 t Costs are not of duties, direct and indirect taxes. * Payment for works completed during Phase 11. Amount of Percent of Expenditure Dlsbunement category Credit to be financed (USS million) 1. Civil works (a)under partBoftheproject 64.10 90% (b) under part C ofthe project 0.20 90% 2. Goods and equipment (a) under part A of the project 0.20 100% (b) under part B ofthe project 12.10 100% of foreign; 90% of local (c) under part C of the project 6.70 100% of foreign; 90% of local 3. Consultant's Services (a) under part A ofthe project 5.60 100% (b) under part B of the project 0.90 100% (c) under part C ofthe project 1.70 100% 4. PPF refinancing 2.0 100% 5. Unallocated 6.5 TOTAL 100.0 *Costs are net of duties and direct and indirect taxes  12 Schedule C REPUBLIC OF SENEGAL WATER SECTOR PROJECT TIMETABLE OF KEY PROJECT PROCESSING EVENTS 1. Time taken to prepare Project: 7 years 2. Project prepared by: Government with IDA assistance' 3. First IDA mission: June 1989 4. Reappraisal mission: February 1995 5. Negotiations: June 1995 6. Planned date of effectiveness: February 1996 7. List of relevant ICRs: Eleven Centers Water Supply Project (Cr. 1554-SE) (Report No. 13833) Dakar Container Port Project (Cr. 1459-SE) (Report No.12327) i This report was prepared as a joint effort by a team including: Mr. Jan Janssens (Sanitary Engineer, Task Manager), Ms. Yvonne Powers (Financial Analyst), Mr. Torbjorn Damhaug (Water Resource Management Specialist), Mr. Claude Sorel (Private Sector Development Specialist), Ms. Thelma Triche (Regulatory and histitutional Reform Specialist), Messrs. Matar Fall and Michel Kerf (Consultants), Mr. Francois-Marie Patorni (Principal Water and Management Specialist), Ms. Fanny Barrett, Ms. Isabelle Denervaud and Mr. David Schisler (Project Assistants). The Lead Advisor is Mr. Richard Verspyck (Principal Water/Sanitation Specialist) and the Peer Reviewers are Messrs. Alain Locussol (Senior Sanitary Engineer), Klas Ringskog (Principal Water Supply Specialist), and Ms. Letitia Obeng (Senior Water/Sanitation Specialist). Mr. Jean-Louis Sarbib is the managing Director, and Mr. Alberto Harth is the managing Division Chief for the operation. Technical support was provided by Ms. Caroline Moisson.  13 Schedule D Page 1 of 4 STATUS OF WORLD BANK OPERATIONS IN SENEGAL STATEMENT OF IBRD LOANS AND IDA CREDITS (LOA data as of 3/3/95 - MIS data as 4/18/95) Loan/Credit No. Fiscal Year Purpose IDA Undis- Closing bursed Date 59 Credits closed 750.75 C18550-SN 1988 Irrigation IV 33.60 1.54 06/30/95 C18680-SN 1988 Industry Sector 30.00 21.04 (R) C 18840-SN 1988 Municipal Housing Development 46.00 20.12 06/30/98 C19100-SN 1988 TA Development Management 17.00 6.64 03/31/95 C19920-SN 1989 Small Rural Ops. 11 16.10 7.34 06/30/95 C21070-SN 1990 Ag. Research II 18.50 7.65 (R) C22550-SN 1991 Population Health 35.00 16.99 06/30/98 C22660-SN(S) 1991 Transport Sector SECAL 65.00 50.47 12/31/95 C23690-SN 1992 Public Works and Employment 39.00 38.83 12/31/95 C24730-SN 1993 Education V 40.00 41.83 12/31/97 C22661-SN 1994 Transport Sector SECAL 3.73 4.17 06/30/96 C25821-SN(S) 1995 Economic Recovery Cr. 3.20 .00 06/30/99 C26810-SN(S)* 1995 Private Sector Adjustment 40.00 18.83 06/29/95 12/27/95 06/30/96 Total number Credits 13 390.13 235.45 TOTAL/I 1,140.88 of which repaid 35.21 TOTAL held by IDA 1,105.67 TOTAL undisbursed 235.45 * Not yet effective. /1 Total Approved, Repayments, and Outstanding balance represent both active and inactive Credits. (R) Indicates formally revised. Closing Date (S) Indicates SAL/SECAL Loans and Credits. The Net Approved and Bank Repayments are historical value, all other are market values. The Signing, Effective, and Closing dates are based upon the Loan Department official data and are not taken from the Task Budget File.  SENEGAL STATEMENT OF IFC INVESTMENTS AS OF JANUARY 31, 1995 (in Millions US Dollars) Original Gross Commnitments Fiscal Years Obligor Type of Business IFC IFC Partic Totals Held by Held by Undisb.incl. Committed Loan Equity IFC Partic Partic 1967 a/ Societe Industrielle d'engrais Fertilizers 1.70 1.01 .76 3.47 - - - 1972/74/76 a/ Bud Senegal, S.A. Food and agribusiness - .84 - .84 - - - 1974/85 a/ Societe Financiere Senegalaise Development financing - .34 - .34 - - - 1980 a/ Societe Hoteliere du Bara Tourism 3.00 - - 3.00 - - - 1980 Banque de l'Habitat du Senegal Capital markets - .46 - .46 .46 - - 1982/88 Industries Chimiques du Senegal Fertilizers 37.00 .14 - 37.14 7.05 - .45 1986 African Seafood, S.A. Food and agribusiness 3.29 .82 - 4.11 .14 - .14 1987 a/ Societe de Teinture, Blanche Textiles 3.20 - - 3.20 - - - 1990 Africamer S.A. Food and agribusiness 3.45 - - 3.45 1.01 - - 1994 Societe Generale de Credit Capital markets - .16 - .16 .16 - 1994 Societe des Exportateurs Food and agribusiness .19 - - .19 .21 - - b/ Total gross comnitments 51.83 3.77 .76 56.36 Less cancellations, terminations, repayment & sales 43.56 3.01 .76 47.33 c/ Total commitments now held 8.27 .76 - 9.03 9.03 - .59 Total commitments held and pending commitmnents Total undisbursed commitments .45 .14 - .59 a/ Investmnents which have been fully cancelled, terminated, written-off, sold redeemed, or repaid. b/ Gross conmmitments consist of approved and signed projects. c/ Held commitments consist of disbursed and undisbursed investments.  REPUBLIC OF SENEGAL Action Plan to Improve Implementation RATINGS FY CREDIT NAME DEVELOP- IMPLEMENT- DISBURSE- PROBLEMS AND PROPOSED ACTIONS NO MENT ATION MENT OBJECTIVES PROGRESS LAG (04119/95) 1988 Cr. 1868-SE INDUSTRY S S 44% Disbursements slowed down in 1993-94 because: i) of cautious SECTOR attitudes of banks participating to the line of credit (80% of the project proceeds), before and after the devaluation of the CFAF; and ii) certain components-not essential to the project-became clearly questionable. Following a mid-term review carried out in early April 1995, the project is presently being restructured. Restructuring aims at elimi- nating inactive components needed to be amended to take into account the devaluation of the CFAF. 1988 Cr.1884-SE MUNICIPAL S S 38% Several sub-components have not been executed on schedule due to HOUSING lack of counterpart funds and management and procurement issues. The problems are now resolved. Delegated contract management will be signed with AGETIP regarding 2 components included in the Action Plan. 1988 Cr.1910-SE TECHNICAL S S 34% Delays in implementation of some components occurred because of ASSISTANCE their complexity. In particular, audit of the Civil Service Wage bill DEVEL.MGMT. where Govt. needs to consult all interested parties and the Household Budget Survey took longer than expected. Several consultants will start work soon. The next supervision in May 1995 will assess if the project should be extended for one year. 1989 nCr. 1992-SE SMALL RURAL S S 31% Following suspension of disbursements in October 1992, the Govt. and OPS. II the project's co-financiers - IFAD and IDA - undertook a comprehensive review and adopted an action plan to restructure the project. Key to this plan is the entrusting of project execution responsibilities to the beneficiary-stakeholders and the use of an independent (AGETIP-like) agency to manage project implementation. The legal agreement has been amended accordingly, and procedures are underway to lift suspension. 1991 Cr.2266-SE TRANSPORT S S 63% Slow disbursement is due to i) one year delayed effectiveness; (ii) lack SECAL of counterfumds causing implementation delays; and iii) cancellation of the second tranche adjustment (US$6.5 million). Counterpart funding problems are resolved for the moment. Disbursements are expected to accelerate during 1996 and 97, and the closing date remains December _______ _______ ______ _______ __ ___ _______ ______31, 1997. eDu ce  RATINGS FY CREDIT NAME DEVELOP- IMPLEMENT- DISBURSE- PROBLEMS AND PROPOSED ACTIONS N