Tanzania - Rural Water Supply and Sanitation Project

Document of The World Bank Report No: 22875-TA PROJECT APPRAISAL DOCUMENT ON A PROPOSED CREDIT IN THE AMOUNT OF SDR 20.8 MILLION (US$26.0 MILLION EQUIVALENT) TO THE UNITED REPUBLIC OF TANZANIA FOR THE RURAL WATER SUPPLY AND SANITATION PROJECT February 21, 2002 Water and Urban I Tanzania & Uganda Country Department Africa Regional Office  CURRENCY EQUIVALENTS (Exchange Rate Effective January 01, 2002) Currency Unit = Tanzanian Shillings (TSH) TSH I = US$ 0.001087 US$ I = TSH 920 FISCAL YEAR July 1 - June 30 ABBREVIATIONS AND ACRONYMS APL Adaptable Program Loan CAS Country Assistance Strategy DC District Council DWSP District Water and Sanitation Plan DWST District Water and Sanitation Team FARAH Financial Accounting Reporting and Auditing Handbook FMIS Financial Management Information System FMR Financial Management reports GOT Government of Tanzania ICB International Competitive Bidding IFMS Integrated Financial Management System LIL Learning and Innovation Loan NCB National Competitive Bidding NGO Non Governmental Organization NRWSSP National Rural Water Supply and Sanitation Program MIS Management Information System MOU Memorandum of Understanding MWLD Ministry of Water and Livestock Development NWP National Water Policy POM Project Operational Manual PPA Project Preparation Advance PRSP Poverty Reduction Strategy Paper RWSD Rural Water Supply Division RWSS Rural Water Supply and Sanitation SIL Specific Investment Loan SOE Statements of Expenditure TA Technical Assistance TASAF Tanzania Social Action Fund VIP Ventilated Improved Pit WATSAN Water and Sanitation Committee Vice President Callisto E. Madavo Country Director James W. Adams Sector Manager Jeffrey S. Racki Task Team Leader Alain R. Locussol  United Republic of Tanzania Rural Water Supply and Sanitation Project CONTENTS A. PROJECT DEVELOPMENT OBJECTIVE .......................................................................... 2 1. PROJECT DEVELOPMENT OBJECTIVE: ................... ....................................................... 2 2. KEY PERFORMANCE INDICATORS .......................................................................... 2 B. STRA TEGIC CON TEXT .......................................................................... 2 1. SECTOR-RELATED COUNTRY ASSISTANCE STRATEGY (CAS) GOAL SUPPORTED BY THE PROJECT ......... 2 2. MAIN SECTOR ISSUES AND GOVERNMENT STRATEGY .......................................................................... 2 3. SECTOR ISSUES TO BE ADDRESSED BY THE PROJECT AND STRATEGIC CHOICES ............. .......................... 3 C. PROJECT DESCRIPTION SUMMARY .......................................................................... 3 1. PROJECT COMPONENTS .......................................................................... 3 2. KEY POLICY AND INSTITUTIONAL REFORMS TO BE SOUGHT BY THE PROJECT .............. ........................... 4 3. BENEFITS AND TARGET POPULATION .................. ........................................................ 5 4. INSTITUTIONAL AND IMPLEMENTATION ARRANGEMENTS ....................................................................... 5 D. PROJECTRATIONALE .......................................................................... 6 1. PROJECT ALTERNATIVES CONSIDERED AND REASONS FOR REJECTION ..................... ............................... 6 2. MAJOR RELATED PROJECTS FINANCED BY THE BANK AND/OR OTHER DEVELOPMENT AGENCIES ............ 6 3. LESSONS LEARNED AND REFLECTED IN PROPOSED PROJECT DESIGN ...................... ................................. 6 4. INDICATIONS OF BORROWER COMMITMENT AND OWNERSHIP ................................................................. 7 5. VALUE ADDED OF BANK SUPPORT .......................................................................... 7 E. SUMMARYPROJECTANALYSES .......................................................................... 7 1. ECONOMIC ....... ................................................................... 7 2. FINANCIAL ........ .................................................................. 8 3. TECHNICAL .......................................................................... 8 4. INSTITUTIONAL .......................................................................... 8 5. ENVIRONMENTAL ............................................................................................... 9 6. SOCIAL .................................. 10 7. SAFEGUARD POLICIES .................................. 11 F. SUSTAINABILITYAND RISKS .................................. 11 1. SUSTAINABILITY .................................. 11 2. CRITICAL RISKS .................................. 11 3. POSSIBLE CONTROVERSIAL ASPECTS .................................. 13 G. MAIN LOAN CONDITIONS .................................. 13 1. EFFECTIVENESS CONDITIONS .................................. 13 H: READINESS FOR IMPLEMENTA TION .................................. 13 I: COMPLIANCE WITH BANK POLICIES .................................. 14  ANNEXES ANNEX 1: PROJECT DESIGN SUMMARY ............................................. 15 ANNEX 2: DETAILED PROJECT DESCRIPTION ............................................. 18 ANNEX 3: ESTIMATED PROJECT COST ............................................. 25 ANNEX 4: COST BENEFIT ANALYSIS SUMMARY ............................................. 26 ANNEX 5: FINANCIAL MANAGEMENT ............................................. 28 ANNEX 6: PROCUREMENT AND DISBURSEMENT ARRANGEMENTS ............................................. 31 ANNEX 7: PROJECT PROCESSING TIMETABLE ................................ . ,37 ANNEX 8: DOCUMENTS IN THE PROJECT FILE ................................ 38 ANNEX 9: STATEMENT OF LoANS AND CREDITS ................................ 39 ANNEX 10: COUNTRY AT A GLANCE ................................ 41 ANNEX 11: LETrER OF SECTOR POLICY ................................ 43 MAP: IBRD MAP NO. 31621  I TANZANIA Rural Water Supply and Sanitation Project Appraisal Document Africa Regional Office Water and Urban - AFTUl: AFC04 Date: February 20, 2002 Task Team Leader: Alain R. Locussol Country Manager/Director: James W. Adams Sector Manager/Director: Jeffrey S. Racki Project ID: P047762-TZ Sector(s): Water Supply and Sanitation Lending Instrument: SIL Themes (s): Rural Development Poverty Targeted Intervention: Yes X No Project Financing Data Loan X Credit Grant Guarantee Other [Specify] or Loans/Credits/Others: Total Project Cost tUS$mJ: 27.7 Co financing tUS$mI: 0.0 Total Bank Financing (US$m): 26.0 Has there been a discussion of the IBRD financial product menu with the borrower? Yes X No Borrower: Government of Tanzania Responsible agency: Ministry of Water and Livestock Development (MWLD) Implementing Agency(ies): Rural Water Supply Division Address: Sokoine Drive/Mkwepu P. 0. Box 9153 Dar es Salaam Contact Person: Mr. Bakari Mahiza (Permanent Secretary) Tel: 255-22-2120281 Fax: 255-22-2139847 Email: rwssp@africaonline.co.tz Selected Project District Councils Estimated disbursements (Bank FY/US$): FY 2002 2003 2004 2005 2006 Annual 0.60m 4.1 lm 9.39m 5.94m 5.96m Cumulative 0.60m 4.71m 14.1 Om 20.04m 26.00m Period implementation period: May 2002 - June 2006 Expected effectiveness date: 05/01/2002 Expected closing date: 06/30/2006  2 A. Project Development Objective 1. Project Development Objective: 1.1 The Project development objective is to ensure access to improved and sustained water and sanitation services in rural communities in Tanzania. This would be accomplished through the implementation of the new Rural Water Supply and Sanitation (RWSS) sector policy and the preparation of a National RWSS Program. To this end, the Project would support a decentralized and demand responsive delivery mechanism and help build the institutional foundation for implementing the National RWSS Program both at the central and local governments levels. 2. Key Performance Indicators * Decentralized and demand-based district implementation model validated and operational in up to 12 districts; * Water supply and sanitation conditions improved in about 250 communities located in up to 12 Project districts; and * National RWSS Program and Strategy endorsed by key stakeholders. B. Strategic Context 1. Sector-Related Country Assistance Strategy (CAS) Goals supported by the Project Document number: CAS Report No. 20728-TA I Date: June 30, 2000 1.1 The Project would support the CAS objective of reducing poverty and improving the health condition of vulnerable groups in rural settlements, and in particular the objectives of the Government of Tanzania's (GOT) Poverty Reduction Strategy Paper (PRSP) and the Tanzania Assistance Strategy (TAS) with regards to increase in RWSS services coverage. It would also support GOT's decentralization policy under the Local Government Reform Program; it is anticipated that, over time, funding of RWSS projects would be fully integrated within the overall intergovernmental fiscal framework. The Project would support enhanced community participation in the provision of local infrastructure, and increased participation of the private sector in service delivery. The Project would also provide sector underpinning to ongoing Community Driven Development (CDD) programs, such as the Tanzania Social Action Fund (TASAF). 2. Main Sector Issues and Government Strategy 2.1 Decentralization of implementation management: Most RWSS projects were hitherto implemented directly by the Ministry of Water and Livestock Development (MWLD) through programs supported by donors. Until 1995, schemes were also operated by MWLD and later, by default, by communities themselves. Decentralization of the provision of RWSS services is thus a new concept in Tanzania, which would require: (a) a redefinition of the role of MWLD; (b) the building of capacity at the district and community levels for planning, implementing and managing RWSS schemes; and (c) an enhanced role for NGOs and the private sector. 2.2 Redefinition of the role of MWLD: The role of MWLD would evolve towards that of: (a) a facilitator and coordinator of sector policies and investment programs; (b) a supporting agency for local governments and communities; and (c) an enabling agency for NGOs and private consultants, contractors, suppliers and operators. This would require a redefinition of MWLD mandate, as well as new skills and operational arrangements. 2.3 Capacity building at the district level: Communities would, with the assistance of NGOs and consultants active in their districts, select, design and implement RWSS projects that correspond to their needs and financial capacities. District Water and Sanitation Teams (DWST), under the responsibility of the Districts Councils (DCs), would be developed to prepare district RWSS plans, appraise RWSS projects presented by communities and assist the latter in implementing them.  3 2.4 Enhanced role for the private sector: Interface of the local private sector with districts and rural communities has so far been weak, with MWLD building facilities, supplying equipment and providing technical assistance through dedicated project teams. The role of small local firms and NGOs in the construction, supply of equipment and delivery of services (consulting and extension) would be enhanced. 3. Sector Issues to be Addressed by the Project and Strategic Choices 3.1 Implementation issues to be addressed over the life of the Project are mostly conditions under which...; * Decision making process: ... Communities, with the assistance of NGOs active in their district, would select options that correspond to their preference and willingness to pay and formulate sub-project proposals and management plans; * Sub-project appraisal: ... DWSTs would appraise sub-projects prepared by communities and approve their financing; * Cost sharing arrangement: ... The selection of options would be affected by the "per capita cost caps" imposed on GOT financial contribution, and communities would organize themselves to raise counterpart funding and fund operation and maintenance; * Financing mechanisms: ... GOT would channel funds earmarked for WSS to districts (via a sector conditional grant mechanism) and audit their use as part of its normal oversight functions; * District Council contracting: ... DCs would let and supervise, on behalf of communities, contracts such as siting and drilling of boreholes or construction of piped systems; * Community contracting: . .. Communities (village-level authorities - Mtaas) would let and supervise simple construction contracts and DWSTs would control and certify works; * Incentives to deliver: ... Specialized NGOs contracted by DCs, would promote the Project and be compensated on the basis of actual delivery of RWSS schemes; * Private sector: ... Assistance would be provided to local contractors, artisans and retailers of pumps and spare parts; * Linkages with water resource management: ... Issues such as competing demand for domestic water supply, livestock water supply, irrigation, protection of water source and the environment, health impacts of sharing domestic water sources with livestock, hygiene promotion, would be addressed as part the planning and implementation processes; and * HIV/AIDS: ... A prevention and mitigation program could be implemented as part the hygiene promotion activities supported by the Project. C. Project Description Summary 1. Project Components The Project would have three main components: 1.1 Establishment of the district implementation model (estimated at US$1.20 million): This component would initially start in the three districts of Rufiji (Coastal Region), Mpwapwa (Dodoma region), and Kilosa (Morogoro Region) and gradually expanding to about 12 out of Tanzania's 113 districts. Activities would include: (a) support to the establishment and strengthening of operational capacity (equipment support and training) of DWSTs to prepare district RWSS plans and appraise RWSS sub-projects proposed by communities; (b) support to the establishment of district RWSS Funds (a sector conditional grant system) to finance the construction of new RWSS schemes, the rehabilitation and expansion of existing systems and possibly other water related small scale infrastructure investments, and (c) the assistance to communities in the proper management and operation of these systems through appropriate hygiene education as well as promoting HIV/AIDS mitigation and prevention activities. 1.2 Construction of RWSS community sub-projects (estimated at US$21.30 million): This component would consist of sectoral conditional grants to about 250 communities located in 12 districts to improve the WSS service; this would include the construction or the rehabilitation of existing dug or drilled wells, boreholes equipped with handpumps or powered pumps, spring tapping, piped systems, household latrines and community sanitation  4 facilities. DWSTs would employ facilitation service providers (NGOs) for community facilitation and extension services and technical services providers (engineering consultants) for sub-project design and construction supervision. This component would support the set up of a network of private retail outlets for the distribution of spare parts for handpumps and of certified installation and maintenance handpumps agents in the districts. The component would also include an "innovation window" for exploring community contracting where possible, or technologies and management arrangements so far untested in Tanzania. 1.3 Institutional strengthening and development of a National RWSS Program:(estimated at US$3.55 million); This component would include: (a) the support to stakeholder consultative process on the strategy for scaling up towards a National RWSS Program; (b) technical assistance to the preparation of the National RWSS Program; (c) the development of a management information system (MIS) for tracking lessons learned from the proposed Project; (d) assistance to the restructuring of RWSS sector institutions within MWLD and the building of the capacity of key stakeholders (MWLD, NGOs, consultants, contractors, suppliers of equipment and service providers). This would include dedicated RWSS sector capacity building support to IDA-financed Tanzania Social Action Fund (TASAF) project districts; and (e) assistance to MWLD for overall management of the Project. Component Category Indicative % of Bank- % of Cost Total financing Bank- (US$ (US$ financing million) million) A. Establishment of District Institutional 1.20 4% 1.15 4% Implementation Model Development B. Construction ofRWSS Water and Sanitation 21.30 77% 19.70 76% Schemes C. Institutional Institutional 3.55 13% 3.50 14% Strengthening and Development Development of National RWSS Program D. PPA Refinancing 0.55 2% 0.55 1 3% E. Unallocated X _X ______1.10 4% 1.10 4% Total Project Cost 27.70 100.0% 26.00 100% Total Financing Needs 27.70 26.00 2. Key Policy and Institutional Reforms to be Sought by the Project 2.1 Community management and demand-based investments: Despite significant investment in the RWSS sector since the early 1970s, less than 50% of the rural population has access to a reliable water supply service. Due to poor maintenance arrangements, a significant percentage of RWSS systems are not functioning properly. Investment levels are low and support by donors has usually been provided in a fragmented fashion. Also, little emphasis has been placed on post construction operation and maintenance support to communities. The 1991 National Water Policy indicated a clear departure from the era of "free water" launched in 1967, by introducing the principle of cost sharing between GOT and communities and transferring the responsibility to operate and maintain RWSS schemes to village water committees. The revised National Water Policy developed in 2001 emphasizes: (a) a demand-responsive approach whereby communities choose service levels based on their perceived needs and ability to pay; (b) an upfront contribution to capital costs and the full financing of O&M costs by communities as a means to foster ownership of the project; and (c) implementation and management of schemes by communities with the assistance of local govemments, NGOs and the private sector. 2.2 New roles for GOT and the private sector: The disengagement of MWLD central operations from the direct identification, management, construction and operation of RWSS schemes and the development of capacities within DWSTs, NGOs, consultants, contractors and suppliers would be the key institutional reforms to be supported by the Project.  5 3. Benefits and Target Population 3.1 The main benefits of the Project would be: (a) the improvement of the WSS service to about 650,000 people living in about 250 rural communities and small towns of less than 15,000 in 12 districts; and (b) the development of an enabling environment and capacity for launching a National RWSS Program. Women and children who typically spend long hours fetching water of doubtful quality would be the prime beneficiaries of the Project. 4. Institutional and Implementation Arrangements 4.1 Project oversight. MWLD would be responsible for the overall implementation of the Project. MWLD has established a multi-stakeholder Technical Advisory Committee (TAC) consisting of representatives from the sector ministry (MWLD) and that of Health (MOH), Regional Administration and Local Government (MRALG) and selected Development Partners (donors, NGOS and private sector organisations) to oversee and review Project execution and implementation arrangements, maintain contact with other projects, facilitate sharing of experiences, and make recommendations for policy review and dissemination during the development of the National RWSS Program. 4.2 Project implementation arrangements. The Rural Water Supply Department (RWSD) of MWLD would manage the implementation of the Project by assigning dedicated MWLD staff and local technical assistance to supporting participating districts in: (a) establishing a DWST; (b) preparing a District WSS Plan (DWSP) endorsing policy principles; and (c) establishing a District WSS Fund to which the Project would make financial contributions. The RWSD would also be responsible for the day-to-day management and monitoring of Project activities including overall procurement oversight, financial management and arrangements for annual audits (Annex 5 and 6). The regional offices of RWSD would provide specialised services (support in preparation of District WSS Plans and establishment of MIS, technical oversight of implementation agents, quality assurance of sub-projects and water quality monitoring) to Project district and be compensated on an output basis. Communities would be the beneficiaries of funds and be responsible for identifying and designing sub-projects, applying for financing, operating and maintaining systems. Except in cases where communities are judged capable of contracting directly for simple construction (eg. hand dug wells, spring protection and rainwater catchment systems) as well as for sub- projects under the innovation window but outside the Project districts, the DCs would contract on behalf of communities and obtain assistance of local consultants for supervising construction in Project districts. 4.3 In order to be eligible, communities would be required to provide an upfront cash contribution of at least 5% of the estimated sub-project cost and prepare a management plan, emphasizing financial sustainability. Local intermediaries or facilitation service providers, such as national NGOs (preferably supported by international NGOs specialized in WSS) and small consulting firms, would assist communities in the above tasks in exchange for a fee proportional to the sub-project cost. DWSTs would appraise community applications according to procedures specified in guidelines agreed upon between the DC and the RWSD and attached to the DWSP. Apart from financial and technical criteria, all sub-projects would also be appraised against environmental and social criteria. A community sub-project agreement will be signed between the community and the DC confirming the respective commitments. Following approval of sub-projects for the year by the DWST, the DC shall compile the list of sub- projects for the year and prepare a consolidated budget request for submission to the RWSD; the RWSD shall, after carrying out a thorough review of the proposed sub-projects and budget, approve the proposed annual work program, and enter into a sub-project agreement with the DC on terms and conditions set out in the POM on which basis the financing of the annual work program shall take place. The transfer of funds by the Borrower from the Special Account to the respective Project District's account shall be done in accordance with the approved annual work program, as reflected in the sub-project agreement, and in accordance with procedures set forth in the POM. For sub-projects under the innovation window but outside the Project districts, the RWSD will sign the sub-project agreement directly with the beneficiary community and be responsible for supervision of the sub-project implementation. The RWSD would in parallel engage specialized consultants (local and international) for: (a) consulting stakeholders during the preparation of the National RWSS Program; (b) redefining MWLD's mandate in the RWSS sector; (c) building the capacity of implementing agents and intermediaries; and (d) putting in place a MIS for documenting lessons learned during Project implementation.  6 4.4 Project implementation schedule. Implementation of the Project is expected to take about four years. The DWSTs have been established in the first three participating districts and equipped through funds made available under a US$0.55 million Project Preparation Advance (PPA) granted by IDA; the RWSD has also been equipped. At Credit effectiveness, the RWSD would be fully operational to assist the service providers, such as NGOs and consultants; selection of the latter would be initiated soon after Project appraisal. During the first year of implementation, construction activities would be initiated in participating communities of the first three districts and active promotion, stakeholders consultation, and the identification and design of the first year investment program in the nine other Project districts. During the next 36 month period the focus would be on expanding the district implementation model and building RWSS schemes in all 12 Project districts. The strategy for scaling up to other districts and implementing the National RWSS Program would be developed based on actual implementation experience and the outcome of the stakeholder consultation during the second and third years. D. Project Rationale 1. Project Alternatives Considered and Reasons for Rejection 1.1 In order to gain experience with decentralized implementation, the use of a Learning and Innovation Loan (LIL) was initially considered. However, given the size of the country as well as the amount of preparatory work carried out, GOT considered that a Project focusing on only three districts would not provide enough lessons for scaling-up to the National RWSS Program. Also, the scope of the LIL would have not made the necessary impact on the GOT's poverty reduction agenda because the size of its "software" component would have not allowed construction of a significant number of RWSS schemes. The Project was thus expanded to be broad enough to generate sufficient experience and to build the necessary capacity and institutional arrangements for a future National RWSS Program. Combining activities under a Tanzania Social Action Fund (TASAF) was also considered but dropped because Social Action Funds, even though they enable strong community ownership, have proven to be inadequate instruments to reform sectors, develop sector institutions and sector capacity in both the public and private sectors. The use of an Adaptable Program Lending (APL) was also considered, but believed to be a better instrument to implement the National RWSS Program that should follow the proposed Project. 2. Major Related Projects financed by the Bank and/or Other Development Agencies Latest Supervision (PSR) Ratings Sector issue Project Implementation Development Progress (IP) Objective (DO) Bank-Financed Rehabilitation of infrastructure services, Urban Sector S S institutional strengthening Rehabilitation Project Social action program TASAF S S Parastatal reform Private/Public Sector S S Management Project Other Development Agencies Community water and sanitation development WAMMA Initiative S S (Wateraid) Rural water supply development (NEDA- Shiyanga/Morogoro WSS S S Dutch) Projects 3. Lessons Learned and Reflected in Proposed Project Design 3.1 The lessons learned from: (a) the review of selected bilateral and NGOs managed projects in Tanzania, carried out during the preparation of the RWSS policy; (b) regional experiences; (c) contributions made during the global RWSS conference held in Washington in May 1998; (d) results of Project preparation work; and (e) inputs from the Bank's RWSS Thematic Group can be summarized as follows:  7 * Community involvement in the design, implementation and operation and maintenance (O&M) is a key to sustainability; * Communities should apply for funding only when they have met participation criteria, and in particular collected the cash contribution to the sub-project cost; * Community willingness to pay for services is often much higher than expected; it is seldom reflected in govemments' cost sharing policies which often favour high levels of subsidies; * Communities definitively need assistance to plan facilities and training to manage them; * The local private sector usually responds well; proper packaging of construction activities should be considered to capture economies of scale; spare parts availability in the local market is a key element of sustainability of schemes that involve pumps; * Sustainability relies greatly on the capacity of WSS committees to assume their functions; training should start early in the sub-project cycle; and * More attention must be given to gender considerations, sanitation and hygiene education components so as to achieve lasting results; women have a greater role in decision making and are better empowered to facilitate community action. 4. Indications of Borrower Commitment and Ownership 4.1 GOT has demonstrated a high level of commitment during preparation of the Project. There is also a strong ownership of the National RWSS Policy, designed in a participatory manner by Tanzanians and with limited external assistance. The first three districts selected have shown their commitment to the Project by actively participating in its preparation and by substantially strengthening their DWSTs. Finally, communities have also demonstrated commitment to the RWSS program; in fact, most communities in Tanzania already have a WSS Committee and a WSS Fund in a local bank. MWLD has also taken initial steps to re-organize its RWSD to fit its new role of facilitator and coordinator by carrying out a preliminary institutional analysis aimed at restructuring the RWSD by end December 2003. MWLD successfully prepared the Project including: (a) environmental and social assessments and mitigation plans; (b) Financial Management Plans (FMP), procurement documents and Project Operational Manuals (POM); (c) detailed Project management arrangements; and (d) identification of sub-projects to be implemented during the first year. 5. Value Added of Bank Support 5.1 GOT sees the Bank, and the Water and Sanitation Program (WSP) for Eastem and Southem Africa (based in Nairobi) managed by the Bank, as partners for developing a coherent National RWSS Program, testing conditions of implementation and building a strong consensus among financiers on the approach pursued in the future. This is even more important that significant funds may be made available to RWSS through the HIPC initiative. The Bank's experience in supporting similar projects makes it a natural partner to GOT for drawing on lessons learned worldwide and effecting policy reforms. E. Summary Project Analyses 1. Economic []Cost-Benefit Analysis: ERR (NA) [ Cost Effectiveness Analysis: [X] Other 1.1 The major benefits of this Project arise from the establishment of an institutional model and the development of strategies for scaling up from a district level capacity building exercise to a National RWSS Program. At the district level, the Project would finance improvements or sub-projects identified by communities and managed by them, with the assistance of local NGOs, where necessary. Given this demand-driven approach, it is not possible to identify sub-projects and conduct the related economic analyses a priori. To ascertain the current water supply situation in beneficiary communities and assess the nature and magnitude of the benefits from a typical community-level sub-project, household surveys were conducted in three of the twelve districts (two villages per district) that would be covered by the Project. These surveys confirm that the current water supply situation is  8 difficult - households are consuming small amount of water (about 10 litres per capita per day), they are spending a significant amount of time in collecting water (often 2-3 hours per day), and suffer frequently from water-borne diseases such as diarrhoea and dysentery. 1.2 To assess the magnitude of benefits, an indicative economic analysis was conducted for various alternatives in the Kilosa district. This analysis suggests that benefits from time savings are large and are often, in themselves, sufficient to justify investments in improved water supply. Specifically, internal rates of return (IERR) and net present values (NPV) were calculated for the following improvements: spring protection, hand-dug or drilled well fitted with hand pump, shallow borehole fitted with hand pump, mechanized deep borehole, and a mechanized deep borehole with a piped scheme. Except for spring protection which resulted in a negative NPV, all other alternatives resulted in positive NPVs and in IERRs higher than 11%. The detailed discussion of the economic analysis is presented in Annex 4. 2. Financial 2.1 Financial policy for sub-projects. Communities would contribute at least five percent (5%) in cash towards the construction costs of sub-projects and cover the totality of O&M costs, in accordance with GOT's policy. Community contributions would be used primarily to finance the purchase of pumps and standposts as well as specialized maintenance by local mechanics. For new sub-projects, a ceiling of US$40 equivalent per capita would apply to GOT sectoral conditional grant towards construction costs. This figure would be reviewed during preparation of the national RWSS program; it would eventually be replaced by annual sectoral conditional grants distributed horizontally according to a formula that would take into account demands for improved WSS services formulated by community and district. The Project should prioritise investments where willingness to pay is highest, especially when there is over-subscription of the District RWSS Fund by communities. 2.2 Fiscal impact. GOT is expected to contribute 5% towards the cost of construction contracts; GOT would also finance staffing and recurrent cost associated with the RWSD and DWST personnel; its total contribution is estimated a US$1.0 million equivalent, over the four year period of the Project. GOT would not contribute to the O&M costs of the WSS schemes. Communities would also contribute an average 5% of the cost of construction contracts (estimated at about US$ 0.7 million), and finance 100% of the O&M costs of the WSS schemes. 3. Technical 3.1 Technologies used for RWSS in Tanzania are well-known and standardized. Water supply schemes would mostly consist of hand-dug wells, hand drilled tube wells, boreholes fitted with pumps, and small piped systems, fed either by gravity or by pumping. Sanitation schemes would mostly include latrines. Unit costs used for these technologies are based on similar on-going projects and have been confirmed during the preparation of the first year investment program. In accordance with GOT policy of standardizing pumping equipment handpumps, powered pumps and submersible pumps which are already installed in large numbers in the Project area would be selected. Existing handpumps (Nira AF85, SWN80/8 1, Afridev) are manufactured locally and in other countries as well. Spare parts for handpumps and maintenance services would be available to communities through a network of private zonal supply agents, district spare parts outlets and certified installation and repair technicians to be established by handpumps suppliers. The viability of solar pumping, lower-cost lifting devices, and rain water catchment systems other than those currently used by households could be tested under the "innovation window". The Project would provide training to small private contractors and operators/caretakers. RWSD would arrange for annual independent technical audits of sub-projects including designs, procurement procedures, construction quality, management arrangements by communities and private sector participation; these audits would also review implementation of the environmental management plan and achievement of social objectives. 4. Institutional 4.1 Executing agencies. The MWLD would be the executing agency for the Project. As mentioned above, its role would evolve towards that of a facilitator and a supporting agency for local governments, and the private sector.  9 Its mandate and particularly that of the RWSD would be redefined before end December 2003 and new skills and operational arrangements would be developed accordingly and restructured by the end December 2004. 4.2 Project management. The RWSD of MWLD would be responsible for managing the Project. International technical assistance would be provided to the RWSD over most of the Project implementation period to develop general project management and procurement capacities, the MIS and help prepare the National RWSS Program. The RWSD would in addition recruit short term consultants, as appropriate, to strengthen its technical and financial management capacities. The key implementation agencies, however, would be the participating District Councils. Support to DWST would be provided through the regional offices of the RWSD; the latter are currently being strengthened by MWLD, by mirroring the skill mix and staff profile at headquarters. Technical assistance would be provided to DWSTs by facilitation service providers (specialized NGOs) for community extension services and technical service providers (local consulting firms) for design and construction supervision. The regional RWSD office would assist participating districts to establish the DWST, prepare a DWSP and provide other specialised services, such as water quality control, on demand. 4.3 Procurement. Particular attention has been paid during Project preparation to procurement rules and procedures that would apply to District Councils, which would be responsible for most procurement, and whose capacity has been assessed as weak (Annex 6). Each participating district will therefore augment its capacity by procuring the services of a technical service provider to assist in procurement management and construction supervision. Additional support in procurement planning and management will be provided through the international technical assistance to RWSD. Detailed procedures are contained in the Project Operational Manual (POM) and the Project Procurement Manual. Districts would prepare annual service delivery and procurement plans by aggregating sub-projects presented by communities, package consulting services, construction and supply of equipment and submit them to RWSD for review. Standard procurement procedures documentation (contracts, bid evaluation forms...) are also included in the Project Procurement Manual and POM. 4.4 Financial management issues. The financial management capacity assessment conducted during Project preparation also suggests modest financial capacity at both MWLD and the participating districts. The Project would strengthen both MWLD and DC financial management systems, through technical assistance and training to ensure compliance with BP/OP 10.02 and reach Financial Monitoring Reporting (FMR) status for project monitoring purposes before credit effectiveness. MWLD would manage and report on the Special Account and arrange for its annual external audits as well as for each District Water and Sanitation Funds (DWSF). MWLD would transfer funds to DWSFs under quarterly instalments. The initial instalment would be equal to 30% of the approved annual sector conditional grant for the DWST; the DWSF would thereafter be replenished upon submission by DWSTs of statement of expenditures (SOEs). Annex 5 gives an outline of the financial management procedures, including accounting and audits which are covered in the POM. All details of financial management and formats for quarterly FMRs for project monitoring purposes were discussed and agreed on during negotiations. 5. Environmental 5.1 Steps undertaken for the preparation of the environmental assessment and mitigation plan. An environmental assessment (EA) was carried out and a mitigation plan was prepared before appraisal for the first three participating districts. Issues investigated include primarily: (a) protection and regulation of water sources; (b) protection of water intakes; (c) proper disposal of waste water and sludge from pit latrines; (d) impact of construction; and (e) over grazing near newly developed water points. Particular attention was paid to the incremental effects of increased water supplies in small towns. 5.2 Main features and adequacy of EMP. No major environmental issues associated with the Project are anticipated; environmental risks are mostly associated with the potential for future inadequate maintenance of facilities. The Project would basically involve the rehabilitation of existing schemes, development of point sources for and construction of new point or small piped WS systems and pit latrines. Groundwater mining is not envisaged, and the additional waste water generated would be disposed off safely through on-site facilities. The environmental management plan (EMP) which is part of the POM includes procedures for screening sub-projects and a checklist of mitigation measures, as well as for provisions for community education on environmental issues. The EMP is applicable to all districts that would eventually participate in the Project.  10 5.3 Timeline and status of EA. Environmental Category: B EA start-up date: 10/01/2000 Date of first EA draft: 02/15/2001 Date of final draft: 07/30/2001 Date submitted to Infoshop 09/28/2001 5.4 Stakeholder consultation. EAs were carried out in a participatory manner, involving households, village leaders and local governments officials. The draft EA report was reviewed by selected members of the Technical Advisory Committee (TAC), composed of the major stakeholders. It was publicly disclosed in leading English and Swahili newspapers in Tanzania; copies are available in MWLD, the offices of the participating District Councils, the National Library, the library of the University of Dar es Salaam and the National Environmental Management Commission (NEMC) offices. 5.5 Mechanisms for monitoring and evaluating impact on the environment. As part of appraisal of sub- projects by DWSTs an EA and an EMP would be prepared; the results of the EAs as well as the conclusions of the independent technical audits would be entered into the MIS and used as a monitoring tool. The POM includes a template for monitoring conditions at well sites. 6. Social 6.1 Key issues and social development outcomes * Ability to include the poorer segments of the communities in the Project; * Promotion and implementation of sanitation activities in parallel with water; * Coordination and support to GOT's program for preventing and mitigating HIV/AIDS. 6.2 Participatory approach - Involvement of NGOs and other civil society organizations. During Project preparation, a series of workshops were held in the first three participating districts. They brought together representatives of District Councils, NGOs, Community Based Organizations (CBOs), WSS Committees, village governments, users, local private contractors, suppliers and operators. These consultations would be replicated in other participating districts. Other workshops were organized at the national level for stakeholders from Ministries of Finance, Water and Livestock Development, Health, Local Government and Regional Administration, Community Development, Women Affairs and Children and other financiers active in the WSS sector. Selected representatives of stakeholders already constitute the TAC that has been consulted actively on the scope and details of the Project. Community WSS committees would actively be involved in the identification, design and implementation of sub-projects. Most of the community extension services would be carried out by local NGOs. 6.3 Institutional arrangement put in place to ensure social outcomes. The NGOs engaged for community extension services would be requested, and trained, to systematically include poorest segments of the community and ensure gender balance in the planning and implementation of sub-projects. NGOs would also have to adopt the Participatory Hygiene and Sanitation Transformation (PHAST) methodology in the project cycle to ensure that sanitation issues are properly taken care of. In addition, NGOs would closely work with groups that are more vulnerable to the spread of HIV/AIDs, in particular itinerant construction and extension workers. 6.4 Monitoring of social development outcomes: DWST assisted by NGOs would carry out routine participatory monitoring and evaluation (M&E) that would be reflected in the MIS. On the basis of the independent technical audits, the TAC would review the outcome of sub-projects and ensure that social objectives are met. In particular, it would verify that well off communities do not capture sub-projects, and their benefits also flow to poorer communities.  7. Safeguard Policies 7.1 Do any of the following safeguards apply to the project? Policy Applicability X Environmental Assessment X Yes No TBD Natural Habitat Yes X No TBD Forestry Yes X No TBD Pest Management Yes X No TBD Cultural Property Yes X No TBD Indigenous People Yes X No TBD Involuntary Resettlement Yes X No TBD Safety of Dams Yes X No TBD Project in International Waters Yes X No TBD Project in Disputed Areas Yes X No TBD 7.2. Project compliance: The EA and the SA were completed before appraisal. The EMP includes a checklist to ensure that each sub-project is appraised against specific environmental and social impacts and that a mitigation plan is prepared. F. Sustainability and Risks 1. Sustainability 1.1 The sustainability of the WSS service rests on two key elements: * Communities are willing and able to manage and protect WSS facilities: under the Project, communities would manage the whole project cycle; * Spare parts and maintenance services are available on the local market: private suppliers and NGOs based in the district and the region would obtain technical assistance and financial incentives to provide parts and services to communities. 2. Critical Risks 2.1 Three main risks are associated with the Project: * Limited commitment of RWSD to its new role of facilitator and support agency: the Project would keep all implementation activities at the district level and use the financial contribution as a means to avoid MWLD implementing a "supply driven" project; * Limited implementation capacity of DWST and private sector: the Project would provide DWST staff with training in planning, appraisal, management and monitoring and evaluation; to complement this, the Project would also provide training to NGOs and small consulting firms in the same fields; and * Delays in the release of counterpart funds: proper and timely budgeting procedures would be followed by RWSD.  12 Risk Risk Risk Minimization Measure Rating Project Outputs to Development Objectives * Limited commitment by MWLD-RWSD M * Transfer of most Project activities to district to its new role of facilitator and support level with support from regional RWSD office. agency to districts and private sector. * Emphasis on community financial contribution to create strong local ownership. * Plan for reorganizing RWSD to be submitted by end 2003. * Lack of commitment by District M * Wide promotion of RWSS policies and Project Councils to adhere to demand responsive rules to avoid political influences interfering in approach and resulting WSS plans. expressions of demand by communities. * TA provided to districts to integrate RWSS activities into district services development plans. Annual allocation of Project funds made contingent upon good performance during preceding year. * Insufficient capacity of RWSS M * Community leadership skills and ability for Committees to identify, develop and planning and management strengthened manage the WSS service. through technical assistance. * NGOs and private sector unable to deliver M * Technical assistance available to both NGOs extension services, construction, parts and and private sector; maintenance services in a timely manner * Adequate packaging of construction and supply because of limited capacity and low contracts; financial incentives. * NGOs fees linked to WSS delivered; initial inventories of parts pre-financed by Project. * Limited support to National RWSS Policy M * Extensive consultation with donors, through from traditional donors resulting in TAC in particular; annual joint RWSS sector limited financial support to the RWSS reviews; Program. * Coordination with donors during transition to increased financing of RWSS sector from HIPC. Project Components to Outputs * Limited District Council and DWST M * Technical assistance and training would be capacity to promote, appraise and provided to districts through regional RWSD. approve sub-projects. * Inadequate capacity of communities to M . Specialised NGOs would be engaged by formulate credible sub-projects and to districts to assist communities prepare their finance their share of capital cost. sub-projects and formulate appropriate operation and maintenance arrangements. * Insufficient capacity of MWLD-RWSD M * Exteral technical assistance would be engaged to manage project activities and M * Etra ehia sitnewudb nae comnslate pro*ce effectiel over the course of the Project to assist RWSD manage the Project and the consultative process for the development of the national RWS Program. Overall Risk Rating M Risk Rating - H (High Risk), S (Substantial Risk), M (Modest Risk), N(Negligible or Low Risk)  13 3. Possible Controversial Aspects None. G. Main Loan Conditions 1. Board Conditions * Submission to IDA of signed Letter of Sector Policy by GOT 2. Effectiveness Conditions * MWLD has finalized the Project Operational Manual (POM) satisfactory in form and substance, to the Association; * MWLD has appointed a Project accountant with qualifications and experience satisfactory to the Association; * MWLD completes the development of a simplified and customized FMRs for project monitoring purposes acceptable to the Association; * Submission of signed Memorandum of Understanding (MOU), acceptable to the Association, between MWLD and the three initial Project District Councils; and * MWLD has opened the Project Account and an initial contribution of Tshs 60 million has been deposited. 2. Other [classify according to covenant types used in the Legal Agreements] * The Borrower shall: (i) carry out the day to day implementation of the Project through the RWSD, and shall ensure that staff with qualifications and terms of reference satisfactory to the Association are maintained throughout Project implementation; (ii) ensure that RWSD implements Part A.3 of the Project under the direction of MOH in accordance with the Borrower's HIV/AIDS strategy; and (iii) maintain, throughout the Project implementation period, a TAC to act as a general oversight body with respect to Project implementation, and make recommendations for the review and dissemination of policies for the development of the Borrower's national rural water and sanitation program. * The Borrower shall carry out the Project in accordance with procedures set forth in the POM and the EMP. * The Borrower shall select Project Districts, NGOs and Sub-projects in accordance with criteria agreed with the Association, and ensure that the Sub-project Beneficiaries implement the Sub-projects in accordance with applicable procedures, as further provided in the POM. * Submission of signed Memorandum of Understanding (MOU), acceptable to the Association, between MWLD and the remaining nine Project District Councils by end December 2002; * Submission of independent annual technical audit reports not later than six months of the end of each fiscal year starting with end December 2003; * Submission of an action plan by MWLD on the restructuring of the RWSD by December 2003; * Actual restructuring of RWSD by end December 2004; and * Submission of Project mid-term conclusions and recommendations for review with IDA by end August 2004. H. Readiness for Implementation * Engineering designs for the first year investment program have been completed; * Bidding documents for the first year investment program are being completed. Procurement of construction supervision consultant and supervision consultants can be initiated soon after Board approval;  14 L Compliance with Bank Policies This Project complies with all applicable Bank policies. iX _ . ~~~~~~~~~~~~~~~~~~~-2< | in R. Locxol | Praful C. Patel giJames W. Adams r "eam L der Sector Director Country Director  15 ANNEX 1: PROJECT DESIGN SUMMARY TANZANIA: Rural Water Supply and Sanitation Project Hierarchy of Key Performance Indicators Monitoring & Evaluation Critical Assumptions O bjectives__ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ Sector-related CAS Sector Indicators: Sector/ country reports: (from Goal to Bank Mission) Goal: Reduced poverty and * Access to improved water supply and * GOT Development plans * GOT recognizes RWSS as a improved health and sanitation in rural communities * Annual national economic key factor in improved health quality of life increased by at least 3% points per survey report and poverty reduction annum. * GoT three year rolling * Social, economic and political _ _______________________ budget. stability. Project Development Outcome / Impact Indicators: Project reports: (from Objective to Purpose) Objective: Improved and sustained * Demand-based district implementation * Progress reports and * Adequate GOT MWLD access to water and model validated and operational in 12 supervision mission budgetary allocation to sanitation services in rural Project districts reports MWLD-RWSD communities * Annual stakeholder * Commitment of MWLD to * Water supply and sanitation conditions review workshop reports institutional transformation of improved in about 250 communities in * National RWSS program RWSD 12 Project districts and strategy document * Commitment by lead donors to * Level of financing finance the program * Stakeholder agreement and committed to the * Effective collaboration arnong endorsement the national RWSS program by GOT and stakeholders. program and strategy donors (donor I conference)  16 Output from each Output Indicators: Project reports: (from Outputs to Objective) component: 1. Demand-based district 1. I Fully staffed DWST and DWSP * Progress reports * MWLD-RWSD commitment implementation model completed in 12 Project districts. * Field supervision reports to its new role of facilitator validated * Participatory Mid-termn and support agency to districts 1.2 Audited and certified DWSFs evaluation report and private sector. operational in 12 Project districts. * Commissioned surveys * Commitment by districts to and audits adhere to demand responsive 1.3 preparation and Implementation of * Participating districts' approach and resulting WSS HIV/AIDS mitigation plans in 12 project annual budget and plans. districts. council reports * Terminal evaluation report 2. Construction of RWSS 2.1 250 community identified sub-projects * Progress reports * Capacity of RWSS schemes appraised. * Field supervision reports Committees to identify, * Participatory Mid-term develop and manage the WSS 2.2 250 RWSS sub-projects financed from evaluation report service. DWSF and constructed in eligible * Commissioned surveys communities. * Participating districts' annual budget and 2.3 At least 27 of service providers; (eg. I council reports NGO and I design and construction * Annual technical and * NGOs and private sector supervision consultant per district, and 3 financial audits. ability to deliver extension zonal handpump supplier s and * Terminal evaluation services, construction, parts maintenance agents) report and maintenance services in a timely manner because of 2.4 All sub-projects have undergone limited capacity and low environmental screening. financial incentives. 2.5 About 30 innovative sub-projects commissioned. 3. Institutional 3.1 RWSS component of NWP updated, * Progress reports, * National RWSS Program Strengthening and adopted by all stakeholders * Participatory M&E, financially supported by Development of National and widely disseminated * Annual stakeholder Extemal Support Agencies. RWSS program developed. review workshop reports 3.2 Coordinated strategy for multi-donor * MOU between GOT and financing of national RWSS program donors developed and endorsed by all stakeholders * GOT budget extracts * Supervision mission 3.3 50% of DWST in TASAF Phase I reports. districts trained on the DOM * Act on institutional arrangements passed by 3.4 All new sector projects formulated Parliament. along MWLD policy principles and implementation Guidelines 3.5 RWSD restructured to fit new sector mandate 3.6 MIS operational in 12 Project Districts and MWLD  17 Project Components / Sub- Inputs: (budget for each (from Components to components: component) Project repors: Outputs) Component 1: District Implementation Model * Establishment and Strengthening of * US$ 0.85m * MWLD quarterly and annual * Limited District operational capacity (equipment and progress reports. Council and DWST training) of DWSTs to appraise * Bank disbursement data. capacity to promote, community sub-projects in 12 * Independent audit reports. appraise and approve districts sub-projects. * Establishment of DWSF for * US$ 0.14m community sub-projects * Hygiene Education and HIV/AIDS * US$ 0.15m prevention * Contingencies * US$ 0.06m * (US$1.20m) Component 2: Construction of Community RWSS schemes * Rural community systems * US$ 13.50m * MWLD quarterly and annual * Capacity of * Handpump Supply and Maintenance * US$ 1.24m progress reports. communities to Service * Bank disbursement data. formulate credible sub- * Design and construction supervision * US$ 4.34 m * Independent audit reports. projects and to finance TA their share of capital * Support to innovation window * US$ 0.62 cost. * Contingencies * US$ 1.60m * (US$21.30m) Component 3: Institutional Strengthening and Development of National RWSS Program * Stakeholder consultation on scaling- * US$ 0.13m * MWLD quarterly and annual * Sufficient capacity of up strategy progress reports MWLD-RWSD to * TA input into National RWSS * US$ 0.94m * Implementation support manage project Program and MIS development missions. activities and * Sector capacity building * US$ 0.41m consultative processes * Support to Private Sector * US$ 0.55m effectively. * Project management * US$ 1.27m * Contingencies * US$ 0.25m * (US$3.55m) PPA Refinancing * US$ 0.55m Unallocated * US$ 1.10m Total Project Budget US$ 27.70 million IDA Share GOT Share US$26.00m US$1.70m  18 ANNEX 2: DETAILED PROJECT DESCRIPTION TANZANIA: Rural Water Supply and Sanitation Project Project Components Component 1: Development of a District Implementation Model (estimated at US$ 1.20 million) initially in the three districts and gradually expanding to about 12 out of Tanzania's 113 districts. Activities would include: (a) support to the establishment, training, equipment and strengthening of operational capacity of DWSTs to prepare district RWSS plans and appraise RWSS sub-projects identified by communities; (b) support to the establishment of district RWSS Funds to finance the construction of new RWSS schemes, the rehabilitation and expansion of existing systems and possibly other water related small scale infrastructure investments; and (c) the assistance to DWST in the development of hygiene education and promotion of HIV/AIDS prevention and mitigation measures. * Support to Strengthening of Operational Capacity of DWSTs: Starting from the three targeted districts (Mpwapwa, Dodoma Region; Rufiji, Coast Region; and Kilosa, Morogoro Region), participating districts would obtain a combination of training and resource provision to strengthen the capacity of their DWSTs to better plan and support the appraisal of sub-projects identified by communities. Each district would be supported with dedicated technical assistance to prepare their District Water and Sanitation Plan encompassing demand forecast for services, estimated financing requirements, and rules of the game and eligibility criteria for community access to complementary financing. A dedicated training program would be organized for all participating DWSTs on the Project Operational Manual (POM), financial management, procurement planning. Facilitators in special fields would be procured to conduct the training session. Each participating district meeting obtain a minimum package of equipment to support the field operations of its DWST. This would include a cross-country vehicle, computer, radio or telephone linkage and other accessories. * Support for the Establishment of District Water and Sanitation Fund for Community Sub-projects. Each participating district would, as part of its District Water and Sanitation Plan (DWSP), open a District Water and Sanitation Fund (DWSF). The DWSF would be a dedicated sector conditional grant account from which proceed could be used to finance community identified sub-projects. TA would be provided and training organized in financial management to assist the DWST manage the DWSF. * Support to Hygiene Promotion and HIV/AIDS Prevention and Mitigation Plan: The Project would support the implementation of hygiene promotion as well as HIV/AIDS prevention and mitigation plan in participating districts. Activities would be implemented under the direction of the MOH and within the context of the national HIV/AIDS strategy. NGOs involved in community extension work would be trained in promotion techniques and equipped with appropriate training material covering hygiene, sanitation and HIV/AIDS prevention. Facilitators would be hired to design the material and assist DWST run training workshops for implementation agents. Component 2: Construction of RWSS Community Sub-projects (estimated at US$ 21.30 million) - sectoral conditional grants to about 250 communities in up to 12 districts including the construction or the rehabilitation of existing open wells, drilled boreholes equipped with handpumps, powered pumps and solar pumps, spring tapping, transmission lines, distribution systems, reservoirs, latrines and community sanitation facilities in villages and small town. The procurement of handpumps would include the establishment of private sector zonal supply agencies with spare parts outlets and certified installation and repair agent in Project districts. Facilitation services providers (NGOs) for community facilitation and extension services as well technical services providers (engineering consultants) for sub-project design and construction supervision would be financed under this component as well as an "innovation window" for exploring community contracting where possible, and untested technologies and management arrangements in Tanzania. The sub-project rules and project cycle is described below. * Grants for RWSS facilities: Eligible areas of investment would include the rehabilitation/construction of small piped systems, gravity schemes, shallow wells, spring protection, borehole drilling and sanitation facilities.  19 * Handpump Supply and Establishment Maintenance Services: This would involve the procurement of about 1,000 handpumps comprising of the predominate handpumps (Nira AF85, SWN 80/81 and Afridev) already existing in each of the respective Project districts. The procurement of handpumps would be carried out by RWSD in such a manner to ensure the establishment of private sector zonal supply agencies with spare parts outlets and certified installation and repair agent in Project district. Three business units would be established under the Project with each covering four Project districts. * Grants for Community Technical Assistance and Construction Supervision: To ensure that communities make inforned decisions, DWSTs would employ facilitation service providers (specialized NGOs) and technical service providers (local consulting firms) to assist: (a) communities in planning and management of the WSS service (leadership building, basic hygiene, proposal preparation, operation and maintenance; post construction user education and other relevant training); and (b) DWST to design sub- projects, procure works and supervise construction. * Support to Innovation Window: This sub-component would also be the applied research and development (R&D) sub-component of the Project. Depending upon specific conditions, communities may have water related needs that go beyond domestic water supply and sanitation. It is designed to test the provision of other community based, water related needs such as water for livestock (small charcos/dams), water conservation, watershed management (to assure acceptable water quality), small scale irrigation, and solid waste management. New and innovative technologies like rain water harvesting, solar pumping and cost reduction strategies as well as innovation management arrangements would be tested on this sub- component. Sub-project rules would the same for the District program with the exception that NGOs and CBOs could apply to this facility on behalf of communities or specific water user associations or groups that are outside the district programs. Subproject Component Rules Confirmation of District Participation: All participating districts would be eligible to benefit from the Project subject to meeting the following conditions: (a) contribute recurrent budget to DWST; (b) appoint qualified technical staff to manage subprojects implementation; (c) prepare a rolling district water and sanitation plan (DWSP); and (d) establishment a District RWSS Fund and submit acceptable subproject proposals and procurement plans (approval conditions are outlined below). Memorandum of Understanding (MOU) signed between a DC and MWLD may be terninated for a non performing district in accordance with the conditions of termination mentioned in the MOU and would be replaced by the next qualifying district in the Selection of Additional Districts Report (MWLD, 2001) as updated from time to time with the approval of the Association. Community Selection: In Project districts, communities will initially be selected by the DC (through the DWST) based on criteria stipulated in the POM and captured in the district-development plans; existence of WSS committee and bank account, expressed willingness of community members to contribute 5 percent of the capital cost and assume full responsibilities for O&M of the selected facilities. Where there is over-subscription the District Council could impose additional criteria such are poverty, existing water and sanitation facilities and/or ability to community to increase its contribution. Communities would be requested to submit an application form and deposit a minimum fee in their bank account. Only communities that have submitted an application would be allowed to contact the shortlist of facilitation service providers for technical assistance to prepare a funding proposal. Proposals that fully meet the appraisal criteria would be funded, on a first-come, first-serve basis. Subproject Appraisal Criteria and Implementation Process: The subproject appraisal process would be undertaken by the DC. This is strictly a technical review and its purpose is to make sure that the subproject meets all criteria, including: minimum service level (number of people per facility), environmental, technical, social, financial and institutional criteria. In addition, the WATSAN would have to be recognized by the DC and the Water Board (in the case of small towns) legally recognized. A community sub-project agreement will be signed between the community and the DC confirming the respective commitments. Following approval of Sub-projects for the year by the DWST, the DC shall compile the list of Sub-projects for the year, and prepare a  20 consolidated budget request for submission to the RWSD. The RWSD shall, after carrying out a thorough review of the proposed Sub-projects and budget, approve the proposed annual work program and enter into a Sub-project Agreement with the DC on terms and conditions set out in the POM, on which basis the financing of the annual work program shall take place; The transfer of funds by the Borrower from the Special Account to the respective Project District's account shall be done in accordance with the approved annual work program, as reflected in the Sub-project Agreement, and in accordance with procedures set forth in the POM. The DC may either contract on behalf of a Beneficiary, or permit the Beneficiary to implement its sub-project directly, on the basis of the Community Sub-Project Agreement with a Beneficiary, if such Beneficiary has the capacity to contract under the laws of the Borrower. For sub-project under the innovation window which are outside the Project districts, the RWSD will sign the sub-project agreement directly with the Beneficiary and be responsible for the appraisal and supervision of the implementation of the sub-project. Financial Policy: The investment cost of water and latrine subprojects would be financed through a community and GOT contribution of a least 10% (5 percent each) and the project providing a grant of 90 percent. In communities requesting piped system, individuals who demand a higher level of service (i.e. a house connection) would be expected to pay an estimate of 4-8 months monthly bill. The community contribution of 5 percent shall be made after subproject appraisal. For communities requesting piped systems, half the contribution shall be made before drilling (in the case of the need for pre-feasibility work) and the other half shall be paid construction. For handpump system, the community would pay the 5% contribution to the DWSF and be given a voucher to collect the pump and arrange for installation and the training of the community caretaker(s) by the certified district technician of the supply agent in the zone. The Project would initially establish a per capita subsidy ceiling, initially set at $40/capita for all systems. This figure would be reviewed during the preparation of the National RWSS Program and replaced by an annual sectoral conditional grant to districts horizontally distributed according to a formula-driven system which would take into account population, technology cost differentials, as well as community and district demand for WSS services as per the annual request submitted by communities and approved by DWSTs. Technical assistance and training for communities would be fully financed by the project. Different options would be tested for the financial policy for household latrines, including (a) a project subsidy to cover the slab and vent pipe, (b) implementation of a revolving loan fund, or (c) other innovative options that would evolve. Subsidies would be avoided but if found to be necessary, these shall be small and targeted at creating a market (training and promotion) for the latrine artisan over a limited period. Technical Design Criteria: For point sources (such as hand-dug wells and boreholes), the grants for water supply would finance a basic level of service of 20 liters per capita per day with one water point serving a maximum of 300 persons within 400 meters. In the case of small towns, the current population and demand would be used in sizing the distribution system with an estimated consumption of 0.75 cum/day for yard tap and 2.5 cum/day for standpost with 10-20% allowance for non-domestic consumption. However, the design should consider a 10-15-year population accompanied by a 5 year financial forecast and a business plan. Minimum Content of Social Process: All sub-projects would include technical assistance and community development activities to ensure adequate assistance to the community in making informed choices, organization, subproject implementation (including contracting and works supervision), funds administration, and achieving effective and sustained use of their facilities. Hygiene and sanitation promotion activities would be clearly defined in the community proposals. Linkage between Community and DC: Communities would be involved in all stages of the project cycle. Each time a task or decision that affect their sub-projects are made on their behalf by the DC, the community would be consulted or involved. Communities, represented by their WSS committees would sign-off on all official documentation pertaining to sub-project implementation (i.e. contract award, payment certificates, completion certificates). Village government will provide the necessary legal coverage (signed constitution) which will mandate WSS committee to carry out such functions.  21 Component 3: Institutional Strengthening and Development of National RWSS Program:(estimated at US$ 3.55 million) including: (a) support to stakeholder consultative process on the strategy for scaling up towards a National RWSS Program; (b) technical assistance to the preparation of the National RWSS Program and the development of a management information system (MIS) for tracking lessons learned from the Project; (c) assistance to the RWSS sector institutional restructuring and building of the capacity of key stakeholders (MWLD, NGOs, consultants and private sector suppliers of goods and services); and (d) Project management costs. * Support to Stakeholder Consultation on Scaling-up Strategy: Given that the ultimate objective of the Project is to provide sustainable RWSS services countrywide, a strategy needs to be developed for scaling from the 12 districts to ultimately 113 districts. Based on this strategy, a "roll out" plan would have to be developed. Such a plan should be supported by all stakeholders. This sub-component would involve a series of consultative processes designed to ensure dialogue and inclusion of all stakeholders in the decision making process for the scaling-up strategy, agreement on the scope, size, financing and institutional arrangements for the National RWSS Program. A communication strategy would be prepared, including the translation of the policy into Kiswahili, identification of target groups (ranging from parliamentarians to village governments); preparation of brochures and training material, and identification of dissemination channels. This sub-component would entail the actual implementation of the communication and collaboration strategy through involving the media (radio, newspapers, and television) and other channels. The consultations would take the forms of targeted quarterly donor meetings, cross learning events, and study tours, thematic workshops on aspects of the Program or case studies, joint supervision missions , annual reviews and joint participatory evaluations of progress of the project and the preparation of the National RWSS Program. * Technical Assistance Inputs into Preparation National RWSS Program. This would include specialist inputs (local and international) into the definition of the National RWSS Program. This would entail the carrying out of a demand assessment and preparation of a longer term investment plan. Various monitoring tools and evaluation procedures would be developed for implemented under the Project. It would also include the development of a MIS for tracking implementation lessons and feedback into the formulation of the National RWSS Program formulation. Significant attention would be given to the review, discussion and formulation of a proposal for a legal and institutional framework for decentralized and autonomous community management and ownership of RWSS schemes. This would also involve the provision of input for restructuring the water sector/civil service reform (while the civil service reform addresses issues such as the restructuring of the MWLD, it is expected that the restructuring at the district level would require more detailed analysis). Specific attention would also be given to ensuring that the financing of RWSS projects is rationally integrated into the overall intergovernmental fiscal framework as this evolves under the decentralisation process. * Technical assistance for Capacity Building Of Key Implementing Agents: General Sector Capacity Building: Given the limited capacity of the various actors, a sector-wide capacity building strategy would be prepared and implemented under the Project: targeted stakeholders include communities, District Councils staff, DWST staff, MWLD staff, NGOs, engineering consultants, suppliers and contractors. It is crucial for these groups to play the roles assigned by the policy. This sub-component would entail the assessment of training needs, preparation of training materials, channels and selection of trainers. The following training packages are envisaged: (a) community level: training of water committees covering planning and management oversight of the system operation, including preventive maintenance, collection of tariffs, payments for repairs, keeping records of financial transactions, manuals and blueprints, sanctioning people for non-payment, and ensuring that repairs are undertaken; and (b) private sector and NGOs: support would be provided in three ways: training, logistical support and simplification of procedures to encourage participation of small-scale entrepreneurs. The long-term objective is to ensure that a competitive and efficient private sector is available at the district level to provide quality goods, works and services to communities. The Project would therefore seek to increase the number of providers, as well as ensure the quality and competitiveness of their work. Specifically, support would be provided to drilling contractors, drilling consultants and supervisors, hand-dug well contractors, spare parts suppliers, sanitation contractors, area mechanics, small town water system operators and providers of training and  22 community development services. The training would be contracted out by MWLD to qualified training institutes, firms or individuals in-country or in the region. Dedicated Capacity Building to TASAFProject: This would be a complement to the water component of the IDA funded Tanzania Social Action Fund (TASAF). The Project would provide a range of capacity building to selected districts under the TASAF project to strengthen RWSS planning and management of RWSS subprojects. This capacity building package would focus of RWSS sector training and equipment support to DWSTs as well as support in establishing post-construction maintenance arrangements for community sub-projects in TASAF project districts. This dedicated support is to ensure consistency in sub- project rules between the two complementary project especially in districts that the two project interface. * Support to Private Sector: The Project would earmark resources to selected local private sector firms (handpump suppliers and retailers, drilling companies, consulting firms) and sanitation artisans to establish a firm basis for sustained delivery of specialized after-sales services to communities. This would be in the form of equipment such as spare parts inventory for community handpump maintenance, operational vehicles for local implementation agents (consultants, NGOs or contractors), borehole siting equipment, drilling equipment accessories, and artisan start-up kits. These would be provided either as a grant (initial inventory) or under a lease financing arrangement (equipment) after the necessary due diligence in selecting the respective implementation agents. * Support to Project Management: part of the Project resource would be allocated to the cost of Project management. This would cover, selected staff costs for dedicated short-term technical assistance staff to augment the capacity of the RWSD, office rehabilitation, field supervision cost, office management, vehicles and their operations, office equipment and evaluation costs.  23 THE SUB-PROJECT CYCLE PROMOTION by DC-DWST| MONITORING & EVALUATION APPLICATION by Community/DC/RWSD by Community to Ai nql AUDITING COMMUNITY by DC/MWLD/Independent Audits PRE-SELECTION A by DWST O&M PROPOSAL by Community/ FORMULATION Private Sector by Community fi (TA support from N GO) SUPERVISION & COMPLETION REPORT PROPOSAI, APPRAISAL Community, DWST, others By DWST (incl.environmental screening) CONSTRUCTION & Point Phase COMMUNITY DEVELOPMENT One Step initial contribution by Community, Private Full borehole testing Sector and NGOs community Final design t contribution CONTRACTING and Phae Responsibility for Full contribution - Subproject: DC Simple Subprojects: communitils Final Selection by DC SUBPROJECT FUNDING APPROVAL DISBURSEMENT by MWLD-RWSD  24 Roles and Responsibilities of Key Actors Implementing Agent Actors Responsibilities * RWSD-MWLD Core * Director of Rural Water * Project management, leadership and Project Team Division guidance * Project Coordinator * Day to day management, coordination * Procurement Specialist * Facilitating Monitoring & Evaluation) * Project Accountant * Supporting capacity building at district and * Participatory Development community levels Specialist * Water and Sanitation Engineer + District Level * District Executive Director * Coordination/harmonization of investments Management (Chair) * Establishing linkages between * District Water Engineer (Co- communities, facilitation and technical ordinator) services providers and private sector * Community Development suppliers Officer * Letting goods/services and work contracts * District Health Officer * Managing contracts * Quality assurance and certification of works * Technical support to communities * Monitoring & Evaluation (M&E) * Environmental screening of sub-projects * Facilitation Service * NGOs, micro-finance * Project promotion Providers institutions, small consulting * Community mobilization firms * Participatory planning and design of sub- projects * Training and leadership development * Hygiene, health and sanitation promotion * Preparation of facility and management plans * Private Sector * Small national contractors (civil * Supply of goods (spare parts, construction Suppliers of Goods works and drilling), suppliers, materials, pumping equipment and services consultants (technical service * Supply of services (borehole drilling, providers), artisans, operators at survey, design, construction and system village and district level operation) * International project management support consultant * Communities * WATSAN committee, * Prepare proposals Community leaders, facility * Sub-project planning and design users * Financing facility development and O&M * Provide labour and materials * Contract operators and suppliers * Supervise works * Set tariffs and collect revenue * Operate and maintain systems * M&E * Own facilities  25 ANNEX 3: ESTIMATED PROJECT COST TANZANIA: Rural Water Supply and Sanitation Project No. Proiect ComDonent Local Foreign Total US$ (incl. cont.) ---------- million ------------ 1.0 Development of a District Implementation Model 1.1 Establishment and Strengthening of operational capacity of DWST 0.47 0.43 0.90 1.2 Establishment of RWSS Fund for sub-projects 0.08 0.06 0.14 1.3 Hygiene education and HIV/AIDS prevention 0.10 0.06 0.16 Sub-total 1.0 0.65 0.55 1.20 2.0 Construction of RWSS Schemes 2.1 Rural WSS facilities 6.25 8.35 14.55 2.2 Handpump Supply and Maintenance Service 1.35 1.35 2.3 Sub-Project Design and Construction Supervision 3.00 1.75 4.75 2.4 Support to Innovation Window Program 0.50 0.15 0.65 Sub-total 2.0 9.75 11.55 21.30 3.0 Institutional Strengthening and Development of National RWSS Program 3.1 Stakeholder consultation 0.14 0.14 3.2 Technical assistance input into preparation of National RWSS 0.25 0.77 1.02 Program and MIS systems 3.3 Sector capacity building 0.32 0.12 0.44 3.4 Support to Private Sector 0.08 0.51 0.59 3.5 Project management 0.61 0.75 1.36 Sub-total 3.0 1.40 2.15 3.55 4.0 PPA Refinancing 0.55 0.55 5.0 Unallocated 1.10 1.10 Total Project Cost 12.46 15.24 27.70 Financing Plan IDA 26.00 GOT 1.00 Benef. 0.70  26 ANNEX 4: COST BENEFIT ANALYSIS SUMMARY TANZANIA: Rural Water Supply and Sanitation Project Introduction I . The main benefits of the Project would be: (a) the improvement of WSS service to about 650,000 people living in about 250 rural communities and small towns of less than 15,000 in 12 project districts; and (b) the development of an enabling environment for launching a RWSS Program at the national level. Women and children living in rural communities who spend long hours fetching water of doubtful quality would be the prime beneficiaries of the Project. Methodology for Assessing Economic Benefits 2. The Project would finance water and sanitation improvements or sub-projects identified by communities and managed by them, with assistance from local NGOs where necessary. Given this demand-driven approach, it is not possible to know beforehand the type and level of service each community would choose for financing under the Project. Hence, it is currently not possible to conduct sub-project level economic analyses. The approach adopted was to collect baseline data on water supply situation in selected districts and to conduct an indicative economic analysis of alternative improvements in these districts. Specifically, data on the current water situation and consumption were collected in three of the twelve districts that would be covered under the Project. About 110 households were surveyed in each of the three districts of Kilosa, Rufiji and Mpwapwa. These surveys confirm that the current water supply situation is difficult - households are consuming small amount of water (about 10 liters per capita per day), they are spending a significant amount of time in collecting water (often 2-3 hours per day), and suffer frequently from water-borne diseases such as diarrhoea and dysentery. 3. For the purpose of conducting an economic analysis, the incremental quantity of water supplied under a sub-project can be divided into two parts: one part replaces the previous sources and quantity of water used, the other part is a net increase in water consumption. In this context, benefit of the first part is equal to the savings of economic costs of consumers who no longer use the former water sources. Benefit of the second part is equal to the area below the demand curve between the with-project and without-project use of each consumer. 4. In preliminary calculations, it is assumed that in current water consumption from all sources is replaced by water from improved sources provided under the sub-project. Although it is expected that water consumption would increase from its current level of about 10 litres per capita per day, the additional consumption has not been valued separately. This may lead to underestimation of the benefits from provision of an improved source. The Project is expected to help generate health benefits by reducing incidence of diarrhoea and dysentery. However, health benefits have also not been included, mainly because lack of reliable data make these exceptionally difficult to quantify. 5. In this Project, then, some of the benefits result from replacing expensive vended water with cheaper water from the sub-project. However, the majority of benefits accrue from reduction in the time spent in collecting water from sources such as streams, rivers and wells. The time saved is valued at 30 percent of the unskilled minimum wage rate to allow for differences between the minimum wage and the unofficial rates prevalent. It is also assumed that only 70 percent the time saved can actually be spent in commercially productive uses. Thus, half the time savings are valued in money terms. Summary of Benefits and Costs 6. An indicative economic analysis conducted for various alternatives in Kilosa district provides an insight into the magnitude of benefits arising from time and cost savings. This analysis suggests that benefits from time savings are large and are often, in themselves, sufficient to justify investments in improved water supply. Specifically, internal rates of return (IERR) and net present values (NPV) were calculated for the following five types of improvements: spring protection, hand-dug or drilled well with hand pump, shallow borehole with hand pump, mechanized deep borehole, and a mechanized deep borehole with a piped scheme. Except for spring  27 protection which result in a negative NPV, all other alternatives result in positive NPVs and in IERRs ranging from 11% to 32%. Sensitivity analysis were conducted for the following scenarios: (a) a 10% increase in investment costs; (b) a 20% decrease in time savings; and (c) a 30% decrease in price of vended water. This analysis shows that three of the five options are robust and result in a positive NPV under all of the above conditions. Specifically, the shallow borehole option and mechanized deep borehole options are more sensitive, with the NPV turning negative under some of the above conditions. 7. It is not realistic to expect communities to include an economic analysis in their proposals seeking sub- project financing. The DWST are also unlikely to have the skills and resources to conduct a detailed economic analysis of each sub-project submitted for financing. To ensure that these investments follow certain basic financial and economic principles, the following rules have been adopted: (a) a cap equivalent to US$40 per capita is placed on MWLD contribution to the sub-project cost; (b) a community participation of at least 5% of the construction cost of the sub-project is a pre-requisite for financing by MWLD; and (c) the commitment of the community to fully finance O&M costs is also a pre-requisite for financing by MWLD. To assess whether the investments are and remain economically viable, sub-project economic performance would be monitored and information collected on an ongoing basis; in particular an economic analysis of completed sub-projects would be carried on a sample basis as part of the annual technical audits.  28 ANNEX 5: FINANCIAL MANAGEMENT TANZANIA: Rural Water Supply and Sanitation Project Description of the Project and Institutions 1. RWSS Project would largely operate on a decentralized basis through the transfer of agreed annual sector conditional grant to selected District Councils (DCs) to finance community RWSS sub-projects in initially three districts and expand progressively to 12 districts. In parallel, the Project will help build the necessary capacity at central and local government level to prepare and launch a National RWSS program. MWLD through its Rural Water Supply department (RWSD) would have overall responsibility for guiding, supervising, monitoring, evaluating and reporting on project activities. MWLD would also implement the institutional strengthening and preparation of the National RWSS program component, while DCs, and in special cases, communities would implement the community RWSS activities. The RWSS Project would be used to support the development of a financial management system that complies with BP/OP 10.02 on financial management. Financial Management Assessment 2. The financial management assessment carried out by the Financial Management Specialist during the appraisal mission, revealed that generally, the MWLD finance department and the treasuries of the three initial districts have sound accounting system of formal rules for financial management and guidelines for control of public finances. Many of these rules have recently been updated and strengthened. These are well documented in the Local Government Finance Act, 1982 which was amended by the Local Government Act, No.6 of 1999; the Local Government Financial Memorandum; Local Financial Accounting Manual; and the new Public Finance Act, 2001 which replaced the Exchequer & Audit Ordinance of 1961. Subsequently, there have been on going initiatives to enhance financial management at both central ministries and local authorities through the Public Financial Management Reforms Programme (PFMRP) and Local Government Reform Program (LGR). This also includes the implementation of computerized government accounting systems using the platinum accounting package at all central ministries, departments and 28 Local authorities and Districts (Phase I) through the Integrated Financial Management System (IFMS). About 6 out of the 12 Project districts are involved in the IFMS Phase I. All 12 district will be covered under Phase II of the program. Implementation of IFMS has enabled the ministries and departments through the MOF to have an effective expenditure controls system. The implementation of the new Public Finance Act which became effective July 01, 2001, and ongoing arrangements by the office of Accountant General-MOF to prepare the guidelines and regulations and train all accountants, auditors and accounting officers entrusted with public finances would facilitate the operation of best practice in the financial control. A satisfactory project accounting and financial management manual describing the accounting system, procedures, internal controls, chart of accounts and roles and responsibilities of the key staff responsible for IDA finances has been developed. Therefore the project financial management system is adequate for the project to be presented to the Board. Accounting and Financial Arrangements 3. There is little IDA experience in Tanzania for implementing such a decentralized project except for the TASAF project. All experiences, especially in the, Water, Agriculture, Education and Health sectors, have only achieved partial decentralization with implementation control vested in the centre. Due to the lack of capacity at the district level, adequate arrangements and resources in the areas of capacity building, monitoring and supervisory roles of MWLD offices have been included as components of the project to ensure effective implementation at the district level. 4. The Project Operational Manual (POM) details the funds flow arrangement from the centre to the districts. The District's consolidated budgets for the appraised and eligible subprojects derived from community proposals would be reviewed for completeness and approved by the MWLD. The MWLD will sign an annual sub-project agreement with the DC aggregating all approved community sub-projects. All financial transfers to Project districts will be on the basis of the annual sub-project agreement with the Project district and will be treated as sector conditional grants. The MWLD would then release funds in tranches straight to Project district bank accounts opened specifically for RWSS sub-projects for the payment of eligible expenditure agreed to in the annual sub-  29 project agreement. Communities would however maintain their contributions in their own (WATSAN) account until such time that the district will request the payment of their contribution to the approved sub-project. The initial instalment would be equal to 30% of the approved annual sector conditional grant for the DWST; the DWSF would thereafter be replenished upon submission by DWSTs of statement of expenditures (SOEs). The objectives of these procedures are to ensure consistent reporting from the districts, the roles and responsibilities of the centre, the districts and the communities. The Districts would maintain simple but adequate books of accounting to enable them record; account and report on all financial resources received and disbursed at the Districts. Simplified reporting formats (included in the POM ) have been developed for use by the districts. 5. The Project districts would submit financial reports and all supporting documentation to the MWLD as described in the POM, in order to receive subsequent disbursements for their subprojects. This would be submitted on a monthly basis. MWLD would then consolidate all these reports into one comprehensive financial statement on the project. MWLD would be responsible for the preparation of the annual financial statements of the project. The financial statements would be prepared in accordance with International Accounting Standards and with requirements of the World Bank FARAH handbook. The financial statements would include at least statements of sources and uses of funds by category, uses of funds by project activity, reconciliation of special account, a balance sheet and accompanying notes. Disbursement at the district level, financial management and control of funds shall be in accordance with the Local Authority Financial Memorandum of 1997 and in conformity with financial management guidelines outlines in the POM and project financial manual. Project management team staff (finance and or procurement) should undertake regular visits to the districts as needed, to review the accounting and procurement documentation and records to ensure compliance with the project agreements and its governing procedures. External Audit Arrangements 6. The annual financial statements of the project would be audited by an independent auditor acceptable to the Bank appointed in sufficient time to carry out the audit; and would be audited in accordance with international standards. The Bank has a standard TOR for audit which is already incorporated in the financial manual. There shall be two annual project audits undertaken each year: one for activities up to June (interim audit), and the other at the end of the calendar year (final audit). Where the traditional disbursement procedure is followed, the auditors shall provide opinions on: (i) the project financial statements which includes: statement of sources and utilization of funds, appropriate schedules classifying project expenditures by components and loan categories showing yearly and cumulative balances and variances and notes to the financial statements, (ii) statement of expenditures, and (iii) the special account. If in the future the GOT opt to used Report-based disbursement method and with the necessary amendment to the Project's legal agreement, the auditors shall provide two separate opinions for Special Account and Financial Monitoring Reports (FMRs). In addition, the auditors should review the Districts project accounts. The auditors would also prepare a management letter to outline any weaknesses identified during the audit and make recommendations for improving them. By virtue of Government of Tanzania law, the Controller and Auditor General (CAG) who is the Government auditor is also responsible to audit all government projects funds that are managed and implemented by the ministries. Therefore CAG becomes automatically the external auditor for this project. Audited financial statements and a copy of the management letter would be prepared and submitted to the World Bank within 6 months of the close of each Fiscal Year. Financial Monitoring Reports (FMRs) 7. The initial assessment revealed that notable technical assistance and training is required to ensure that the Project would be able to produce the full set of FMRs for project monitoring purposes by project effective date. Using PPA resources, a consultant has been engaged to ensure compliance by the due date. The Project will integrate all reports into the Financial Management Information System (FMIS) but will follow the existing or traditional disbursement procedures as outlined in the World Bank Disbursement Handbook until such time that the GOT decides to move to FMR-based disbursement system. The FMRs would contain: (i) summary of sources and uses of funds; (ii) uses of funds by category and project activities; (iii) output monitoring (physical progress reports); and (iv) reconciliation of statement of special account. The action plan to enable the Project to move to the next step and become fully compliant for FMR-based disbursement was agreed during negotiations.  30 Agreed Financial Management Action Plan * During negotiations: agreement was reached on a simplified and customized project FMRs that would be used for both project monitoring purposes and disbursement; * Before the project is effective: a qualified project accountant has been recruited and an additional two Ministry' qualified accountants has been assigned on a full-time basis to assist the project accountant; * Before the project is effective a simplified and customized project FMRs satisfactory to the Bank has been developed. Provided the above step are implemented, it is envisaged that project should be FMR ready project monitoring purposes by Project effectiveness. The decision to adopt periodic report based disbursement procedures would be made in consultation with a Bank Financial Management Specialist who would: * review experience to date with the quality of withdrawal submissions, operation of the Special Account, SOE submissions and documentation retention in the field, and the general effectiveness of project management and accounting staff, * ensure that the Special Account has been reconciled and any outstanding issues resolved; * review supervision reports to assess implementation progress and issues arising on financial management; * review any available audit information, as well as any other financial reports, with a view to forming an opinion on the reliability of project accounts; and * review the FMRs format designed under platinum computerized accounting package.  31 ANNEX 6: PROCUREMENT AND DISBURSEMENT ARRANGEMENTS TANZANIA: Rural Water Supply and Sanitation Project A. Procurement General 1. Procurement of works and goods would be carried out in accordance with Guidelines: Procurement under IBRD Loans and IDA Credits (January 1995 edition revised January and August 1996, September 1997, and January 1999). Bank's Standard Bidding Documents for works and goods under International Competitive Bidding (ICB) and National Competitive Bidding (NCB) and Standard evaluation forms would be used where applicable. For small works contracts, other simpler versions of documents acceptable to the Bank would be used. These simpler versions would be included in the Project Operational Manual (POM). Selection of consultants would be carried out in accordance with Guidelines: Selection and Employment of Consultants by World Bank Borrowers (January 1997 edition revised September 1997 and January 1999). Bank's Standard Request for Proposals and evaluation forms would be used where applicable. Implementation Arrangements 2. Procurement for goods, works and consulting services of the sub-projects would be carried out by the DWSTs; they would be responsible for appraising sub-projects prepared by the WSS Committees and for packaging contracts for services, works and goods of similar nature to achieve economies of scale. DWSTs would be responsible for the entire procurement and contract management process. In accordance with new Public Procurement Act, procurement at district council would be conducted following procedures outlined in Local Government Financial Memorandum (1997). The Procurement Manual (PM) has been prepared to supplement the Financial Memorandum. In accordance with the Financial Memorandum, District Executive Director (DED) approves contract of value up to TShs 2.0 million (US$ 2,000 equivalent). Above TShs 2.0 million, the approval has to be made by the District Council Tender Board. No external approval is required. 3. Procurement capacity in the District Councils has been rated weak under the procurement capacity assessment of the implementing agency. The RWSD has recruited a Procurement Specialist whose role would be to train DWST staff in procurement, contract management, and filing and recording systems. DWSTs would also be responsible for selection of consultants who would assist them preparing designs and technical specifications and cost data, drafting of bidding documents and supervising construction. 4. As part of capacity building, DWSTs would include selected members of the WSS Committees in specific procurement steps, such as bid opening, bid evaluation and contract management, so that procurement responsibilities could be transferred for simple construction such as hand-dug wells, spring protection and construction of latrines. 5. The RWSD would be responsible for procurement of limited number of vehicles, handpumps for community water sub-project and office equipment for its headquarters and regional offices and for the selection of consultants. The RWSD has assigned one of its senior staff to be responsible for day to day management of the Project, who would report directly to the Director, and a Senior Engineer to deal with procurement under the Project. The latter is already conversant with IDA procurement procedures, but would receive further training during the Project. The procurement capacity of the RWSD at headquarters is considered adequate for the type of procurement it is expected to carry out under the Project.  32 Scope of Procurement 6. Procurement under the Project would involve the following: (i) Sub-Projects: (estimated to cost US$15.60 million) they would mostly consist of bore-hole and hand-dug well constructions, pumping equipment, water supply and distribution systems for small towns, protection of springs, household water catchment facilities and latrines. Contracts would be packaged by DWSTs to regroup services, works and goods of similar nature. Procurement procedures are specified in the POM; no ICB is envisaged. (ii) Goods: (estimated to cost US$2.85 million) would consist of limited number of vehicles, equipment (including handpumps) and office supplies for the RWSD and DWSTs. RWSD would package contracts in a rationale manner for ICB or NCB procurement. The RWSD annual work plan would specify the procurement plan and budget for goods. DWSTs would also procure a limited amount of goods as specified in their annual work plan to be approved by RWSD. ICB is envisaged under the handpumps and maintenance services procurement. (iii) Consultant Services contracts (totalling US$7.00 million) would be awarded to firms, individuals and NGOs. About US$ 1.0 million would be used by RWSD to engage an international firm to assist them to develop a FMS, a MIS, procurement arrangement, stakeholder consultation, and the preparation of the national RWSS program. An additional US$ 5.35 million would be used by DWSTs to build their capacity and engage NGOs and local consulting firms to assist communities prepare sub-projects, technical designs and supervise construction, and for capacity building and training activities. An estimated US$ 0.65 million would be allocated to overall sector strengthening and training activities. (iv) Incremental Operating Cost: An estimated amount of US$ 0.60 million, out of which the Bank would contribute US$ 0.50 million, is included in the Project cost for paying incremental RWSD recurrent costs such as field supervision expenses, office management (eg. communication) and vehicle operations associated with the Project. Procurement Notices 7. A General Procurement Notice (GPN) would be published in the UN Development Business and in a daily national newspaper of wide circulation after negotiations. The GPN would be updated annually for outstanding ICB and large consultancy services. Specific Procurement Notices (SPN) would be required for goods and works contracts to be procured under ICB and NCB and for consultant contracts. SPNs would be published in a daily national newspaper of wide circulation. Specific notices would also be posted at the district and community levels, for sub-projects. 8. The RWSD would also publish annually in national and local newspapers a "Promotional Procurement Notice (PPN)" in a format included in the POM to promote business opportunities to local contractors and suppliers. The PPN would indicate the likely dates at which bid documents would be made available. Procurement Plans 9. A global procurement plan covering the entire Project period and a specific procurement plan for the first year of implementation including contract packaging, estimated cost; type of contract; procurement method; and procurement schedule would be submitted to IDA for review before Credit effectiveness. The detailed procurement plan for the first year was agreed upon during negotiations. By April I of each year, RWSD would prepare and submit to IDA a specific procurement plan for the particular year as part of annual work plan. The appraisal document of each approved sub-project would include a detailed procurement schedule for completing the sub- project.  33 Procurement Methods 10. Sub-projects: Since contracts of more than US$ 300,000 equivalent are not expected, civil works contracts would be procured through NCB according to the Guidelines. Contracts estimated to cost below US$ 50,000 equivalent per contract, up to an aggregate amount of US$ 1.0 million may be awarded after solicitation of quotations from at least three qualified domestic contractors in response to a written invitation. The invitation shall include a detailed description of the works, including basic specifications, the required completion date, a basic form of agreement acceptable to the Association, and relevant drawings, where applicable. The award shall be made to the contractor who offers the lowest price quotation for the required work, and who has the experience and resources to complete the contract successfully. Contracts estimated to cost more than US$50,000 but less than US$300,000, up to an aggregate of US$13.0 million may be awarded on the basis of National Competitive Bidding in accordance with the provisions of paragraphs 3.3 and 3.4 of the Guidelines. Direct contracting could be used after approval of the Bank. 11. Goods: To the extent possible, the contracts for goods would be grouped into packages estimated to cost more than US$100,000 equivalent and would be procured through ICB by the RWSD. Preference for domestically manufactured goods would apply. Contracts estimated to cost less than US$100,000 equivalent would be procured through NCB prescribed according to the Guidelines. Contracts estimated to cost less than US$30,000 equivalent, up to aggregate amount of US$ 750,000 would be procured through IAPSO in accordance with the Guidelines or through shopping procedures by soliciting at least three quotations from different suppliers, in accordance with the Guidelines and the June 9, 2000 Bank Memorandum "Guidance on Shopping". 12. Selection of Consultants: All consulting services contracts costing more than US$100,000 equivalent for firms would be awarded through Quality and Cost Based Selection (QCBS) method. Consulting service contracts estimated to cost less than US$100,000 equivalent for firms may be awarded through the Consultants' Qualifications selection method. For contracts of a routine nature estimated to cost less than US$100,000 equivalent such as design and supervision of civil works for community subproject, the Least Cost Selection (LCS) method may be used. Individual consultants would be selected in accordance with provisions of paragraphs 5.1 to 5.3 of the Guidelines. In exceptional cases, Single-Source selection may be used in accordance with provisions of paragraphs 3.8 to 3.11 of the Guidelines. Shortlists for contracts costing less than US$ 100,000 equivalent may consist of national firms only in accordance with provision of paragraph 2.7 of the Guidelines provided that a sufficient number of qualified firms (at least three) are available at competitive costs. However, if foreign firms have expressed interest, they should not be excluded from consideration. The use of NGOs would be in accordance with the provision of paragraph 3.14 of the Guidelines. Bank Review 13. Table B presents the prior review thresholds. Each contract for goods estimated to cost US$100,000 equivalent or more as well as the first two contracts per district estimated to cost below US$100,000 would be subject to prior review as per paragraph 2 and 3 of Appendix 1 of the Guidelines. Other contracts would be subject to post review in accordance with paragraph 4 of Appendix I of the Guidelines. Contracts for civil works under community sub-projects estimated to cost US$ 300,000 equivalent or more (if any) would be subject to prior review in accordance with the procedures of paragraphs 2 and 3 of Appendix I of the Guidelines. The first two contracts of value US$50,000 equivalent or more each per District would be subject to prior review. 14. For Consultants services, all terms of reference and single source contracts would, regardless of contract amount, be subject to prior review. Contracts estimated to cost US$100,000 equivalent or more for firms would be subject to prior review in accordance with procedures set forth in paragraphs 2 and 3 of Appendix I of the Consultants Guidelines. With respect to each contract for employment of individual consultants estimated to cost US$50,000 equivalent or more, the qualification, experience, terms of reference, and terms of employment of the consultants would be submitted to IDA for prior review. Other procurements subject to IDA review would include: training as well as exceptional extensions to non-prior review contracts raising their values to levels equivalent or above the prior review thresholds. All consultancy services not subject to prior review would be subject to post review in accordance with procedures set forth in paragraph 4 of Appendix l of the Consultants Guidelines.  34 B. Disbursement 15. Disbursements and withdrawal procedures are detailed in the World Bank Disbursement Handbook (1992 edition). All disbursements are subject to the conditions of the Credit Agreement and the procedures defined in the Disbursement Letter. The proposed IDA Credit of US$ 26.0 million would be disbursed over four years with an expected Project Completion date of December 31, 2005 and a Closing Date of June 30, 2006. The proposed allocation of Credit proceeds is shown in Table C below. Use of statements of expenses (SOEs) 16. All applications to withdraw proceeds from the Credit account will be fully documented except for expenditures against contracts (i) with an estimated value of US$300,000 or less for works; (ii) US$100,000 or less each for goods and consulting firms; (iii) US$50,000 or less each for individual consultants; and (iv) all community sub-projects, training and incremental operating costs, which may be claimed on the basis of certified Statements of Expenditure (SOEs). Documentation supporting expenditures claimed against SOEs will be retained at MWLD and will be available for review as requested by IDA supervision missions and project auditors. Special Account 17. To facilitate disbursements of eligible expenditures for goods works and services, the Government will open a Special Account in a commercial bank to cover part of IDA's share of eligible expenditures to be managed and administered by MWLD. The authorized allocation of US$ 1,500,000 for the Special Account will cover an estimated four months of eligible expenditures financed by IDA. Initially, the authorized allocation will be limited to US$ 750,000 until the aggregate amount of withdrawals from the credit account plus the total amount of all outstanding special commitments entered shall be equal to SDR 4 million. Replenishment of funds from IDA will be made upon evidence of satisfactory utilization of the advance, reflected in the Statement of Expenditure (SOE) or on full documentation of payments above the SOE thresholds. MWLD will be responsible for submitting monthly replenishment applications with appropriate supporting documents for expenditure. to the extent possible, all of IDA's share of expenditures should be paid through the special account. If ineligible expenditures are found to have been made from the special account, the Government will be obligated to refund the cost and submit evidence with the next request for replenishment. In addition, if the Special Account remains inactive for more than six months, the government may be requested to refund to IDA the amounts advanced in the Special Account replenishment applications with appropriate supporting documents for expenditure. To the extent possible, all of IDA's share of expenditures should be paid through the Special Account.  35 Table A: Project Costs by Procurement Arrangements (US$ million equivalent) Procurement Cons. Other2 Expenditure Category ICB NCB Services Method N.B.F. Total Cost 1. Community Subprojects 0.00 14.50 0.00 1.10 0.00 15.60 (0.00) (13.00) (0.00) (1.00) (0.00) (14.00) 2. Goods 1.35 0.75 0.00 0.75 0.00 2.85 (1.35) (0.75) (0.00) (0.75) (0.00) (2.85) 3. Consultant Services and Training 0.00 0.00 6.25 0.75 0.00 7.00 (0.00) (0.00) (6.25) (0.75) (0.00) (7.00) 4. Incremental Operating Costs 0.00 0.00 0.00 0.60 0.00 0.60 (0.00) (0.00) (0.00) (0.50) (0.00) (0.50) 5. PPA Refinancing 0.00 0.00 0.00 0.55 0.00 0.55 (0.00) (0.00) (0.00) (0.55) (0.00) (0.55) 6. Unallocated 0.00 0.00 0.00 1.10 0.00 1.10 (0.00) (0.00) (0.00) (1.1 0) (0.00) (1.1 0) Total 1.35 16.35 6.25 4.85 0.00 27.70 (1.35) (13.75) (6.25) (4.65) (0.00) (26.00) 1/ Figures in parenthesis are the amounts to be financed by the IDA Credit. All costs include contingencies 2/ Includes shopping, IAPSO, direct purchase, direct contracting and selection of consultants N.B.F. = Not Bank-Financed (includes government expenditures) Table B: Thresholds for Procurement Methods and Prior Review Expenditure Category Contract Value Procurement Contracts Subject to Threshold (US$) Method Prior Review (US$) 1. Community Sub-projects > 300,000 ICB All contracts > 50,000 but less NCB First two contracts per district. Ex-Post than 300,000 thereafter < 50,000 At least 3 quotations Ex-Post 2. Goods > 100,000 ICB All contracts < 100,000 NCB First two contracts per district. Ex-Post thereafter < 30,000 Shopping/IAPSO Ex-Post 3. Consulting Services and Training Firms > 100,000 QCBS All contracts < 100,000 CQ /LCS First 2 contract per district. Ex-Post thereafter < 100,000 SSS All contracts Individuals > 50,000 IC All contracts < 50,000 IC Ex-Post (except TOR, shortlist, and I contract) Total value of contracts subject to prior review: US$ [TBD] Note: Regardless of threshold, the Bank would require to review all TORs. Overall Procurement Risk Assessment: Weak  36 Frequency of procurement supervision missions proposed: Once every 6 months (includes special procurement supervision for post-review/audits) Table C: Allocation of Loan Proceeds Expenditure Category US$ million Financing Percentage (1) Community Subprojects 14.00 100% of amounts disbursed (2) Goods (Vehicles and Equipment) 2.85 100% of foreign expenditures 100% of local expenditures (ex-factory cost) and 90% of local expenditures for other items procured locally) (3) Consultants' Services and Training 7.00 100% (4) Incremental Operating Costs 0.50 100% of foreign expenditures 90% of local expenditures (5) PPA Refinancing 0.55 100% (6) Unallocated 1.10 Total Project Costs 26.00 Total 26.00 Notes: (a) the term "foreign expenditures" means expenditures in the currency of any country other than that of the Borrower for goods or services supplied from the territory of any country other than that of the Borrower. (b) the term "local expenditures" means expenditures in the currency of the Borrower or for goods or services supplied from the territory of the Borrower.  37 ANNEX 7: PROJECT PROCESSING TIMETABLE TANZANIA: Rural Water Supply and Sanitation Project Timetable step Key Dates Original Plan Actual 1. Concept Review 08/30/00 08/30/00 2. RVP/ROC/OC Sign-off 3. PID to Infoshop 08/31/00 08/31/00 4. PID received by Infoshop 12/13/00 5. Begin Preparation 01/01/01 01/29/01 6. Decision Meeting 10/01/01 10/01/01 7. Authorization to Appraise/Negotiations (in principle) 10/10/01 10/01/01 8. Update PID to Infoshop 09/14/01 9. Update PID received in Infoshop 09/14/01 10. EA received in Infoshop 09/28/01 11. Begin Appraisal 10/22-30/01 11/27-12/07/01 12. Send Notice/Issue Invitation to Negotiations 12/27/01 12. Begin Negotiations 11/11-15/01 01/29-30/02 13. Obtain Clearance of Documents 14. Bank Approval I _ _ 01/30/02 _ 03/21/02 15. Effectiveness 05/01/02 Prepared by: Rural Water Supply Division of the Ministry of Water and Livestock Development Preparation Assistance: N/A Bank staff who worked on the project included: Name Bank Unit Speciality A. Brown AFTUI Sr. Sanitary Engineer A. Locussol AFTU I Team Leader - Pr. Water and Sanitation Specialist M. Kaniaru LEGAF Counsel S. Gaginis LOAFG2 Disbursement Officer S. Gulyani AFTUI Economist W. Gichuri INFWP Community WSS Economist M. Sabai/M Koen AFMQK Financial Mgt. Specialist/Sr. Financial Mgt. Specialist R. Kayani/ P. Tegwa AFTQK Lead Procurement Specialist/ Procurement Specialist S. Omar Fye/A. Dalfelt AFTES Sr. Environmental Specialist K. Ivarsdotter AFTES Sr. Social Development Specialist P. San Juan AFTUI Program Assistant Peer Reviewers P. Dongier SDV Sr. Private Sector Development Specialist J. Sara AFTU2 Sr. Water and Sanitation Specialist R. Verspyck AFTU2 Pr. Water and Sanitation Specialist  38 ANNEX 8: DOCUMENTS IN THE PROJECT FILE TANZANIA: Rural Water Supply and Sanitation Project A. Project Implementation Plan Draft Project Implementation Plan Draft Project Operational Manual B. Bank Staff Assessments Back to Office Reports Financial Management Assessment Procurement Assessment Project Information Document C. Other Documents/Studies carried out by MWLD Draft National Water Policy (MWLD, 2001) Draft Project Concept Note Draft Project Operational Manual (MWLD, 2001) Initial RWSS District Assessment Report (MMK Consult, 1999) Supply Chain Study (SKAT, 1999) Social Assessment Study (Binamungu, 2001) Environmental Assessment study (Ako, 2001) Draft Training Strategy Report (Ross Kidd, 2000) District Operational Manual (Ross Kidd, 2001) DWSTs Trainer's Guide (Ross Kidd, 2001) Financial Management Manual (Fumbuka, 2001) Data Collection and Economic Analysis (Kulindwa, 2001) Draft Preliminary Institutional Assessment Report (Kiragu, 2001) First Year Investment Program for Mpwapwa, Kilosa and Rufij i (Don Consult/Netwas, 2001) MWLD Water Supply and Waste Disposal Design Manual (MOW, 1997) Draft Rural Water Policy (Mujwahusi, 1999) District Profiles (RWSD) Selection of additional Project Districts Report (RWSD, 2001) Experiences for RWSS Projects in Tanzania MWLD Annual Reports (1996, 1997, 1998)  39 ANNEX 9: STATEMENT OF LOANS AND CREDITS TANZANIA: Rural Water Supply and Sanitation Project Difference between expected and actual Original Amount in USS Millions disbursements Project ID Project Name FY IBRD IDA GRANT Cancel. Undisb. Orig. Frm Rev'd No. of closed projects: 98 P002804 Agric Research 1998 21.8 9.5 4 P057187 FIDP II 2000 27.5 18 13.6 P002789 Human Resource Dev I 1998 20.9 3.4 0.6 P058627 Health Sector Development Program 2000 22 15.6 -0.6 P046872 Lake Victoria Env 1997 10.1 0.4 0.2 P046837 Lake Victora Env. 1997 15.1 5.9 0.7 P073397 Lower Kihansi Environmental Management 2002 6.3 6 0.4 P002753 Nat Ext Proj Ph.ll 1997 31.1 7.4 10.2 2 P049838 Prvatization 2000 45.9 34.7 16.4 P060833 Public Serv Ref Prog 2000 41.2 31 -7.1 P071012 Primary Education Development Program 2002 150 100 -41.7 P002757 Railways Restructur 1991 76 11.3 3.6 12.9 1.8 P002770 Roads II 1994 170.2 107 118.6 43.2 P050441 Rural & Micro Fin Svc 2000 2 1.5 1.3 P069982 Regional Trade Fac. Proj. - Tanzania 2001 15 14.7 2.2 P065372 Social Action Fund Project 2001 60 49.1 4.2 P002822 Tanzania PSAC I 2000 190.8 111.2 -67.7 P047761 Tax Administrabon 1999 40 26.5 15.9 P002797 TZ Songo Songo Gas Dev. & Power Gen. 2002 183 183 P038570 TZ:River Basin Mgm.Smal 1997 26.3 8.6 6.9 P002758 Urban Sector Rrehab 1996 105 25 19.1 Overall result Result 1250.1 10.1 11.3 762 110.1 47 Active Projctie Closed Projects Total Projecsb Total Disbursed (IBRD and IDA): 363.10 2,928.20 3,291.34 of which has been repaid: 0.61 599.90 600.53 Total Undisbursed (IBRD and IDA): 761.56 1.39 762.95  40 Tanzania Statement of IFC's Held and Disbursed Portfolio As of 10/31/2001 (In US Dollars Millions) Held Disbursed FY Approval Company Loan Equity Quasi Partic Loan Equity Quasi Partic 1996/99 AEF A&K Tanzania 0.21 0 0 0 0.21 0 0 0 1997 AEF Aquva Ginner 0.68 0 0 0 0.68 0 0 0 1998 AEF Blue Bay 1.45 0 0 0 1.45 0 0 0 2001 AEF Boundary Hil 0.2 0 0 0 0.2 0 0 0 1996 AEF Contiflora 0.35 0 0 0 0.35 0 0 0 1998 AEF Drop Zanziba 0.32 0 0 0 0.32 0 0 0 1997 AEF Hort. Farms 0.3 0 0 0 0.3 0 0 0 1998 AEF Maji Masafi 0.32 0 0 0 0.32 0 0 0 1996 AEF Milcafe 0.18 0 0 0 0.18 0 0 0 1994 AEF Moshi Lthr 0 0.19 0 0 0 0.19 0 0 1999 AEF Musoma Fish 1.5 0 0 0 1.5 0 0 0 1997/99 AEF Pallsons 0.33 0 0 0 0.33 0 0 0 1995 AEF Tanbreed 0.7 0 0 0 0.7 0 0 0 1996 AEF Zainab Grain 0 0 0 0.76 0 0 0 2000 AEF Zan Safari 0.7 0 0 0 0.7 0 0 0 1997 DATEL 0 0.48 0 0 0 0.48 0 0 1994 Eurafrican Bank 0 0.73 0 0 0 0.73 0 0 1996 IHP 0.94 0.6 0 0 0.94 0.6 0 0 2000 IOH 2.5 0 0 0 2.5 0 0 0 2000 NBC 0 10 0 0 0 3.44 0 0 1993 TPS (Tanzania) 6.13 0.87 1.04 0 6.13 0.87 1.04 0 1991/97 TPS Zanzibar 0 0.03 0 0 0 0.03 0 0 1994 Tanzania Brewery 0 6 0 0 0 6 0 0 1998 Tanzania Jubilee 0 0.29 0 0 0 0.29 0 0 1994 ULC Leasing 0.38 0.95 0 0 0.38 0.76 0 0 Total Portfolio: 17.95 20.14 1.04 0 17.95 13.39 1.04 0 Approvals Pending Commitment Loan Equity Quasi Partic 2001 AEF 2000 Indust 1600 0 0 0 2000 NBC 30000 0 0 0 1998 TTCL 0 20000 0 0 Total Pending Commitment: 31600 20000 0 0  41 ANNEX 10: COUNTRY AT A GLANCE TANZANIA: Rural Water Supply and Sanitation Project Tanzania at a glance 9/24/01 Sub- POVERTY and SOCIAL Saharan Low- Tanzania Africa income Development diamond- 2000 Population, mid-year (millions) 33.7 659 2,459 Life expectancy GNI per capita (Atlas method, US$) 270 480 420 GNI (Atlas method, US$ billions) 9.1 313 1,030 Average annual growth, 199440 Population (I%) 2.6 2.6 1.9 Labor force (%) 2.6 2.6 2.4 GNI Gross per pnmary Most recent estimate (latest year available, 199440) capita \ / enrollment Poverty (% of population below national poverty line) 51 Urban population (% of total population) 33 34 32 Life expectancy at birth (years) 45 47 59 Infant mortality (per 1,000 live births) 85 92 77 Child malnutrition (% of children under 5) 31 .. .. Access to improved water source Access to an improved water source (% of population) 54 55 76 Illiteracy (% of population age 15+) 24 38 38 Gross primary enrollment (% of school-age population) 67 78 96 Tanzania Male 67 85 102 Low-income group Female 66 71 86 KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1980 1990 1999 2000 IEconomnic ratios' GDP (US$ billions) .. 4.3 8.8 9.0 Gross domestic investment/GDP .. 26.1 15.3 17.7 Trade Exports of goods and services/GDP .. 12.6 13.6 14.7 Gross domestic savings/GDP .. 1.3 3.3 8.7 Gross national savings/GDP .. 5.9 2.9 8.6 i Current account balance/GDP .. -17.9 -12.3 -9.2 Domestic * k Interest payments/GDP .. 1.1 0.7 1.4 savings Investment Total debt/GDP .. 151.2 91.9 78.7 savings Total debt service/exports 23.5 34.2 15.7 15.3 Presentvalueof debtGDP .. .. 53.1 29.1 Presentvalueof debt/exports .. .. 373.5 189.2 Indebtedness 1980-90 1990-00 1999 2000 200044 (average annual growth) GDP .. 2.9 3.6 5.1 6.2 Tanzania GDP per capita .. 0.1 2.4 1.3 4.0 Low-income group Exports of goods and services .. 9.3 18.6 18.4 1.7 STRUCTURE of the ECONOMY 1980 1990 1999 2000 Growth of investment and GDP (%) (% of GDP) Agriculture .. 46.0 44.8 45.1 20 Industry .. 17.7 15.4 15.8 10 . Manufacturing .. 9.3 7.4 7.5 o Z _ Services .. 36.4 39.8 39.1 .10 97 98 99 o0 Private consumption .. 80.9 89.8 84.8 .20 General govemment consumption .. 17.8 6.9 6.6 GDI O-GDP Imports of goods and services .. 37.5 25.6 23.8 (average annual growth) 1980-90 1990-00 1999 2000 Growth of exports and imports ('%) Agriculture .. 3.2 4.2 3.4 50. Industry ,. 3.1 5.4 7.2 25 Manufacturing .. 2.7 3.8 4.6 , / Services .. 2.7 5.4 5.8 _ 2 5 > ' Y8 99 co Private consumption .. 2.2 5.2 -0.9 9 9 General govemment consumption .. 2.5 -1.5 5.0 _50 Gross domestic investment .. -1.4 -1 .5 75 - Exports *- Imports Imports of goods and services .. 0.9 8.7 0.1 Note: 2000 data are preliminary estimates. 'The diamonds show four key indicators in the country (in bold) compared with its income-group average. If data are missing, the diamond will be incomplete.  42 Tanzania PRICES and GOVERNMENT FINANCE 1980 1990 1999 2000 Inflation I%) Domestic prices (% change) 40 Consumer prices 30.2 35.8 7.9 5.9 30 Implicit GDP deflator .. 20.2 10.3 5.4 20 Government flnance 10 (% of GDP, includes current grants) o Currentrevenue .. 11.4 10.6 10.7 95 96 97 99 99 oo Current budget balance ., -1.1 0.5 -0.5 - GDP deflator : CP Overall surplus/dericit .. -3.8 -3.3 -5.8 TRADE (UJS$ millions) 1980 1990 1999 2000 Export and Import levels (USS n-ll.) Total exports (fob) ,, 352 541 600 zoDo Coffee .. 85 77 84 Cotton .. 75 28 38 1,500 Manufactures . 73 22 34 Total imports (cif) . 1,297 1,631 1,592 1. Food .. 59 200 176 sao Fuel and energy .. 174 104 95 Capital goods .. 540 710 770 o 94 9s 98 97 98 98 0o Export price Index (1995=100) .. 75 84 83 Import price index (1995=100) .. 92 84 85 aExpots *fImports Terms of trade (1995=100) .. 82 99 98 BALANCE of PAYMENTS (US$ millions) 1980 1990 1999 2000 Current accountbalance to GDP(%) Exports ofgoodsandservices 673 519 1,195 1,327 Emports of goods and services 1,21 1,557 2,244 2,1483 Resource balance -548 -1,038 -1,049 -819 Net income -14 -186 -66 -43 * *0 Net current transfers 22 461 34 35 I I Current account balance -540 -764 -1,081 -827 -20 Financing items (net) 474 748 1,223 1,176 Changes in net reserves 66 16 -143 -348 J3 -. Memo: Reserves including gold (USS rillions) .. 124 776 950 Conversion rate (DEC, local/US$) 8.2 195.1 744.8 800.4 EXTERNAL DEBT and RESOURCE FLOWS 1980 1990 1999 2000 (USS millions) Composition of 2000 debt (USS rill.) Total debt outstanding and disbursed 5,322 6,438 8,053 7,104 IBRD 198 243 16 11 62s2 IDA 242 1,250 2,594 2,593 96 Total debt service 161 179 196 213 IBRD 20 44 8 6 ' 2593 IDA 2 14 43 51 Composition of net resource flows Official grants 485 677 737 763 2795 Officlalcreditors 219 208 177 111 Private creditors 99 4 -13 -11 B Foreign direct investment 0 0 183 193 - w 24 Portfolio equity 0 0 0 0 s70 World Bank program Commitments 109 537 159 272 A - IBRD E- Bilateral Disbursements 69 187 199 142 a-IDA D-Other muitlatera F- Private Principal repayments 5 32 30 37 C - IMF G - Short-term Netflows 64 155 169 105 Interest payments 17 26 21 20 Net transfers 47 129 148 85 Development Economics 9124/01  43 ANNEX 11: LETTER OF SECTOR POLICY TANZANIA: Rural Water Supply and Sanitation Project   THE UNITED REPUBLIC OF TANZANIA MINISTRY OF FINANCE P O Box 9111, Telegram: "Treasury", Dar Es Salaam DAR ES SALAAM Telephone: 2111174/6, Fax 2110326, Telex: 41329 (All Official communications should be a' 6 FEB 2002 addressed to the Permanent Secretary to the Treasury and not individuals). In rcply please quote: Ref. No.. .TYC/A3/40/O1 1' Februarv, 2002 Re N .............................. James W Adams, Country Director (Tanzania and Uganda), World Bank Country Office, DAR ES SALAAM Dear Mr. Adams, LETTER OF POLICY ON RURAL WATER SUPPLY AND SANITATION 1. I am writing on behalf of the G3overnment of the United Republic of Tanzania to requcst a credit of USS 26 million from the International Dcvclopment Association (IDA) in support of the Proposcd Rural Water Supply and Sanitation Project (RWSSP). The Project Development Objective is to ensure access to improved and sustained water and sanitation services in the rural commrunities of Tanzania. The project would support a decentralized and demand responsive delivery mechanism and help build the institutional foundation for implementing National RWSS Progranune both at the central and local government levels. Background 2. The Government of the U'nited Republic of Tanzania (GOT) has ideiitified rural water supply and sanitaLion services as one of its pillars for poverty alleviation and rural development strategy. 'This letter of sector policy represents the essential elements of the Rural Water Supply and Sanitation (RWSS) component of the newly formulated National Water Policy. Sanitation is hereby defined narrowly as excreta management and hygiene promotion. The RWSS principles ind specific elements below seck to ensure convergence between provisions for services under thc Local Govemment Services ACL (1982) and the Medium Term Strategic Plan of the Ministry of Water and Livestock Development - MWLD (2001-2006). Thc specific policies are integrated into the National Water Policy and include the Water Resources Management and the UJrban Water and Sewerage Components.  RIJRAL WATER AND SANITATION AT A GLANICE 3. Despite significant invesLment in the RWSS sector since the early 1970s, less than 50%' of the rural population has access to a reliable water supply and sanitation services. About 80% of Tanzania's 30.0 milJion population live in rural areas. Due to poor maintcnance arrangemcnts, a significant percentage of RWSS systems are not functioning properly. Investment lcvels are low and support by donors has usually been provided in a fragmented fashion; also, little emphasis has been placed on sustainability. The 1991 national water policy indicated a clcar departure from the era of "free watcr" launched in 1967, by introducing thc principle of cost sharing between GOT and communities and transferring the responsibility to operate and maintain RWSS schemes to village water committees. The new National Water Policy (2001) emphasizes: * A demand-responsive approach whereby communities choose service levels based on their perceived needs au-d ability to pay; * An upfront contribution to capital cosLs and the full financing of O&M costs by communities as a means to foster ownership of the project; and * Implementation and management of schemes by communities with the assistanice of local goveriunenits, NGOs and tht; private sector. OVERALL POLICY OBJECTWVE 4. The overall policy objective of the GOT is to reduce poverty through improved public health, quality of life and support or economic activities in rural areas of Tanzania. 'T'he GOT will create the enabling environiient and appropriate incentives for the delivery of reliablc, sustainable and affordable watcr supply and sanitation services by shifting from the "provision of RWSS services' to the "facilitation and financing of RWSS services." According to the MWVLD's Medium Tenn Strategic Plan (2001-2006), Lhe expected outcome will be to improve water and sanitation scrvices by at least 3.0% per year raising water supply coverage to 60% with 80% of the systems functioning at all times and over 60% of schemes run by autonomous user enitities by 2006. It is also the wish of the GOT to raise coverage for RWS services countrywide from 50% to 90% by year 2025 within the contcxt of the GOT's Development Vision 2025. The CGOT will develop a National Rural Water Supply and Sanitation Program (NRWSSP) based on the lessons leamt from the implementation of the various projects and programs in the country by June 2003. When the NRWSSP is available, it is the wish of the government to then restructure the RWSS services fTom project approach into an overall Sector-Widc Approach to Planning (SWAP) aimed at establishing an enabling environment foT all actors to recognize and agree on the adoption of a common approach and best practices lo achieve imTiproved sector performance, more effective usc of resoutrces. and increased resource flows into the sector.  CORE SECTOR PRINCIPLES 1. Efficiency Principle Water is an economic good and shall bc managed and priced accordingly Appropriatc safely nets should howevcr be esLablished to protect thc poor and vulnerable groups 2. Subsidiaritv Principle Management of RWSS services should be focused at thie lowest appropriate level. Financial support for RWSS services shall be provided to Local Govenmments that implement policies anid programs aimed at maling RWSS operations sustainable 3. Integration Principle A holistic approach to the use of water resources, eender mnainstreaming and complementary hygiene promotion should be employed in sector planning and investment decisions SPECIFIC OBJFCTIVES o District RWSS Plans: The (;(I) will assist Local Governments prepare district RWSS Plans that meet Financial. economic and equity objectives. u Decentralization of RWSS Services: The GOT will decentralize to Local Governments, the ownership of assets and the responsibility for deciding oni RWSS rehabilitation/extension programs and establish appropriate cost recovery arrangements. Management of the day-to- day operations of the system will however he carried out by a designated Community Water User Entity and/or tbe private sector instead of a Local Government Department. * Incentives for Sustainable RWSS Operations: the GOT will support the financing and upgrading of RWSS services in Local Governments that focus on upgrading of technical quaiity and sustainable operations and maintenance and in particular sub-contracting of operaLions to small private operators for piped schemes and to community caretakers for point sources. O Promotion of Private Sector Participation: The GOT will put in place a regulatory framework and an incentive environment for private sector participation (PSP) and assist Local Govemmients in designing affordable and sustainable PSP solutions. 3  KEY RWSS POLICY El;EMENTS Efficiency Principle: 5. Appropriate Financial Policy and Cost Recovery: Water resources are finite and should tlherefor-e be managed as an cconomic good. Approaches to financing of RWSS that ensure susLainability of serviccs will guide sector dccisions and practices. The GoT's financial policy for RWSS sub - sector is for communities to pay at least 5 percent cash contribution to the investillellt cost and 10() percent cost recovery for O&M. A subsidy cciling estimated at $40 per capiLa for RWSS sub-projects has been set. and will be reviewed on an annual basis. Idcally, Local GovernmenTs should prioritize investniients where willingness to pay is highest. and ther-efore higher levels of cost recovery from communities will be encouraged, especially when there is over-subscription by communities to the District RWSS Fund. Pricing of water supply shall include costs of abstraction, production, transmission aned distribution. Pricing should be translated into customer friendly WSS user charges and cost recovery strategies that reflect in the short-temi the O&M costs and gradually movc to cover deprcciation and systems expansion costs over time. 6. Improved Planning and Implementation of RWSS Programs based on Community Demand: The GOT will move away from top-down, supply driven sector development and shift towards demand-responsive sector developmenit and management. This approach will ensurc greater choicc for communities of RWSS services and encourage more demand-responsive approaches to financing that reflect users willingness-to-pay for scrvices. 7. Water and Sanitation and Safety Nets for the Poor: Given the importance of water to basic life functions and survival, appropriate and equitable safety nets shall be introduced in the design and managemcnt of RWSS services to ensure minimal survival supplics to the poor and vulnerable groups. This shall however be designed within a broad context of sound sustainable operations and through the community management process. Subsidiarity Principle: 8. Decentralized RWSS Services: All RWSS services shall operate under a Tegine of decentralized management. District Watcr and Sanitation Teams (DWSTs) with multi- disciplinauy staffing will be established in all designated district councils of Tanzania to guide the development of District Water and Sanitation Plans, appraisal of community sub-projects, supervision of construction and certification of works. Districts will establish District Water and Sanitation Funds (DWSFs) out of which communities will apply for financial support and technical assisTancc to implement their projects. The supervision of the DWST and the DWSF will be under the appropriaLe districT council sub-committee responsible for water and sanitation activities and will act as the approving board for appraised sub-projects. 9. Delegated Management of System Operations: Water User Entities shall operate on the basis of strict separation of assets ownership and management of systems operations. Ownership of assets under this policy element shall appropriately be vested in a Local Government or a legally registered Water User Entity. A Water User Entity could be a Water Company or a 4  Trustee or a Water User Association or a Water Committee, which is legally registered. rhis will allow the establishment for operationally independent and financially accountablc community systems. 10. Private Sector Participation: The GOT endorses private sector participation in productive and commercial activitics (including RWSS services) as the over-arching instrument for economic ancd social growth. Private sector participation, including options for upstream community planning support services, drillilng and construction services and downstream services such as management and service contracts, will be explored for the management of RWSS systems. Each private sector involvement will however be appraised on its own merit and opportunities for economies of scale factured in. The GOf recognizcs the role of Non- Goverrnmental Organizations (NGOs) and CommLuity Based Organizations (CB3Os) in community extension work and as providers of 1i1e-line support to the rural poor. This support should however be coordinated Lhrough appropriate govemranee afrangemcnts betwecn thc Local Governments and the NGOs to allow for sustainabic partnership and support in system operations. 11. Regulation and S(akeholdcr Participation in Management: The GOT shall put in place a regulatory mechanism for ensuring technical quality assurances and economic operations of all RWSS systems. The Central Government through MWLD shall sign a Meinorandum of Understanding with the Local Governuiment specifying the roles and responsibilities of each party and the commitment to prepare appropriate annual service delivery plans. All Local Governments and their associated Water User Entities shall enter into an agreement that specifies technical, commercial and financial objectives of the community sub-project. Such agreements shall be reviewed penrodically. 12. Institutional Development and Capacity Building: The GOT through the lead technical agency - Ministry of Water and Livestock Development (MWLD), will as a matter of policy move gradually away from services provision and become a facilitator for services provision in, the sector. This will involve new roles and responsibilities for the MWLD (policy dcvelopment and overall water resources management, technical and commercial quality assurance facilitation and mobilization of resources, and training), the Local CTovernments (planning and management oversight of WateT User Entities) and private sector and NGOs (managemtnt of systems operations and delivery of goods and services). The new roles and responsibilities will in the short to medium term stretch existing institutional capacities and the human resources base of the sector. The GOT through the MWLD) will facilitate the acceleration of an institutional and capacity building efforts in technical, Jegal, financial and economic management of the RWSS sector. Integration Principle: 13. Comprehensive Water Resources and Demand Management: Comprehensive water resources management shall be the framework of all RWSS developmenit in Tanzania. All projects/programs and later the National RWSS Program shall meet the basic test for efficiency in the use of water resources. Demand management through appropriate pricing shall become standard practice in Tanzania. Pricing, allocation rights from Basin Water Offices to Village  Govemments or WUEs as well as comprehensive promotion of conservation practices shall be enforced. 14. Integration of Sanitation and Environmental Management: WastewaLer anid excreta management shall go hand in hand with water supply development. All water supply schemes shall be evaluated against considerationis of wastewater management and septage treatment in the WUE area of operation. These considerations as well as a developmenit of a coinpreheiisivc cnvironimental impact assessmenL will be an essential part of thc quality assurance arrangements. 15. Consideration for Gender Issues: Gender consideration will be mainstreamed in all RWSS acTivities in the sector. The MWALD, the local Govermment and designated Waler User Entities, shall as a mattcr of policy reflect gender considerations in their operational strategies. 16. Promotion of Hygiene and Bcbavior Change: Relevant hygienc promotion lor positive behavior transformation as wcll as H1JV/AIDs prevention and mitigation measures shall he factored in the operational practice of all WUE., operations. Appropriate linkages with Ministry of Health, and other relevant ministries, existing programs, and other private sector and media groups will be encouraged to maximize mnessage and process delivery. CONCLUSION 17. The GOTI will ensure compliance with the above policy reforms. A Technical Advisory Committee will be established bringing together all key RWSS stakeholders to guide the implenmentation and provide appropriate forum for ainual reviews of the implementation of these policies and stratcgics. In the process, the GOT will develop within the MWT,) a credible Management Information System (IlS) to track developments in the sector and accurnulate best practices for the implementation of the National RWSS Program. Yours sincerely, PERMAN SECRETARY 6  ./ 6ANDA2 -F--- -- - - - - - 36 384 ( re- t Lake Victoria N TM mop oear,es pdcoT0p p, dbyfheMrp D-sgo, L Ther W_rd Book Lake Vic - ~ ~ ~ ~ ~ NTh. ko-olono, color, d--oooti-osrdooyothorirbrr-oho sooorh op dortoply, orhepot fThe Wor/d ok ,/ --v' e S_ Bukoba Musam_ "N N, r-o4omoYi-dnsoltegytosorritorrolr / ( ~~~~~~KAG MR |' tRWANDA c / MARA N KENYA 2 ''' !! 'J A f Z t t ' ~~~~~~~~~~~~~~Natron f x, /10 BURLJN DI/ NtX (; , Arusha4 Moshi, / i S .J I SHINYANGX h hinyanga ce IKLk - - /40N | \ 9SHINAO - L / a iY"'/ N6 A )K OMA .ono . -' .oi / . KI_ ; __ L' ANJARO 4 K A RU'yAy ARUSHA K >