AFRICAN DEVELOPMENT BANK

EGYPT

SUSTAINABLE DEVELOPMENT OF ABU RAWASH WASTEWATER

TREATMENT PLANT (ABU-RAWASH-WWTP)

APPRAISAL REPORT

RDGN/AHWS November 2017

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TABLE OF CONTENTS

I – STRATEGIC THRUST & RATIONALE ............................................................................ 1

1.1 Project linkages with country strategy and objectives ......................................................... 1

1.2. Rationale for Bank’s involvement ...................................................................................... 1

1.3. Donor coordination ............................................................................................................. 2

II – PROJECT DESCRIPTION ................................................................................................. 3

2.1. Project components ............................................................................................................. 3

2.2. Technical solution retained and other alternatives explored ............................................... 3

2.3. Project type ......................................................................................................................... 4

2.4. Project cost and financing arrangements ............................................................................ 4

2.5. Project’s target area and population .................................................................................... 5

2.8. Key performance indicators ............................................................................................ 7

III – PROJECT FEASIBILITY ................................................................................................. 7

3.1. Economic and financial performance ................................................................................. 7

3.2. Environmental and Social impacts ...................................................................................... 8

IV – IMPLEMENTATION ...................................................................................................... 10

4.1. Implementation arrangements ........................................................................................... 10

4.2. Monitoring ........................................................................................................................ 13

4.3. Governance ....................................................................................................................... 14

4.4. Sustainability..................................................................................................................... 14

4.5. Risk management .............................................................................................................. 15

4.6. Knowledge building .......................................................................................................... 15

V – LEGAL INSTRUMENTS AND AUTHORITY............................................................... 16

5.1. Legal instrument ............................................................................................................... 16

5.2. Conditions associated with Bank’s intervention ............................................................... 16

5.3. Compliance with Bank Policies ........................................................................................ 16

VI – RECOMMENDATION ................................................................................................... 16

Appendix I. Egypt’s Socio-Economic Indicators .......................................................................I

Appendix II: AfDB Portfolio in Egypt (September 2017) ........................................................ II

Appendix III: Key related projects financed by other development partners in the country ... IV

Appendix IV. Map of the Project Area ..................................................................................... V

Currency Equivalents As of October 2017

1 UA = 1.4133 USD

1 UA = 24.9531 EGP

1 USD = 17.65591 EGP

Fiscal Year

1 July – 30 June

Weights and Measures

1metric tonne = 2204 pounds (lbs)

1 kilogramme (kg) = 2.200 lbs

1 metre (m) = 3.28 feet (ft)

1 millimetre (mm) = 0.03937 inch (“)

1 kilometre (km) = 0.62 mile

1 hectare (ha) = 2.471 acres

1 feddan = 0.42 hectares

i

Acronyms and Abbreviations

ACCF Africa Climate Change Fund

ADB African Development Bank

AFD French Development Agency

CAPW Construction Authority for Potable Water and Wastewater

CPIA Country Policy and Institutional Assessment

CSP Country Strategy Paper

CSS Climate Safeguard System

COEG Country Office Egypt

DPG Development Partners Group

EA Executing Agency

EIB European Investment Bank

EPC Engineering, Procurement, and Construction

ESIA Environmental and Social Impact Assessment

EU European Union

CFRA Country Fiduciary Risk Assessment

GCF Green Climate Fund

GCWW Giza Company for Water and Wastewater

GIZ German Agency for International Cooperation

GoE Government of Egypt

HCWW Holding Company for Water and Wastewater

FM Financial Management

IsDB Islamic Development Bank

KfW (German Bank for International Development Financing)

KFAED Kuwait Fund for Arab Economic Development

M&E Monitoring and Evaluation

MHUUC Ministry of Housing, Utilities, and Urban Communities

MoIIC Ministry of Investment and International Cooperation

MIC TAF Middle Income Countries Technical Assistance Fund

MWRI Ministry of Water Resources and Irrigation

NCB National Competitive Bidding

NWRP National Water Resources Plan

O&M Operation & Maintenance

PCN Project Concept Note

PCR Project Completion Report

PIT Project Implementation Team

PRCA Procurement Risks and Capacity Assessment

PPP Public Private Partnership

PSC Project Steering Committee

UA Units of Account

USD United States Dollar

WSS Water, Wastewater and Sanitation

WB The World Bank

WWTP Wastewater Treatment Plant

VFM Value for Money

ii

Loan Information

Client’s information

BORROWER : The Arab Republic of Egypt

EXECUTING AGENCY : Construction Authority for Potable Water and Wastewater

(CAPW)

Financing plan

Source Amount (USD) Instrument

ADB 100.00 million Loan

AGTF 50.00 million Loan

Government* 237.44 million Counterpart

TOTAL COST 387.44 million *Government of Egypt contribution is in EGP.

ADB and AGTF key financing information

EIRR, NPV (base case) 29.9%, EGP 19,336 million at 10%

Timeframe - Main Milestones (expected)

Concept Note approval October, 2017

Project approval December, 2017

Effectiveness March, 2018

Completion December, 2021

Closing Date December, 2022

Loan Currency United States Dollar (USD)

Loan Type Fully Flexible Loan

Tenor TBD (Up to 25 years inclusive of Grace Period)

Grace period TBD (Up to 8 years)

Average Loan Maturity* TBD (function of the amortization profile)

Repayments Consecutive quarterly payments after grace period

Interest Rate Base Rate +Funding Cost Margin+ Lending Margin + Maturity Premium This Interest Rate will be floored to zero

Base Rate

Floating Base Rate ( 6 Month LIBOR)

A free option to fix the Base Rate is available

Funding Cost Margin The Bank funding cost margin as determined each 1st January and 1st July and applied to the

Base Rate each 1st February, 1st May, 1st august and 1st November

Lending Margin 80 basis points (0.8%)

Maturity Premium - 0% if Average Loan Maturity <= 12.75 years

- 0,10% if 12.75< Average Loan Maturity <=15

- 0,20% if Average Loan Maturity >15 years

Front-end fees 0.25% of the loan amount payable at latest at signature of the loan agreement

Commitment fees 0.25% of the undisbursed amount. Commitment fees start accruing 60 days after signature of the loan agreement and are payable on Payment dates

Option to convert the Base Rate** In addition to the free option to fix the floating Base Rate, the borrower may reconvert the fix

rate to floating or re-fix it on part or full-disbursed amount.

Transaction fees are payable

Option to cap or collar the Base Rate**

The borrower may cap or set both cap and floor on the Base Rate to be applied on part or full disbursed amount

Transaction fees are payable

Option to convert loan

currency**(Only for ADB loan)

The borrower may convert the loan currency for both undisbursed or disbursed amounts in full

or part to another approved lending currency of the Bank Transaction fees are payable

iii

Project Summary

Project Overview: The Sustainable Development of Abu Rawash Wastewater Treatment Plant

(ARWWTP) aims to protect the environment and water resources from pollution and to reduce

health risks due to discharge of untreated wastewater to the drains and canals and enhance

water re-use. The project is aligned to Egypt’s Sustainable Development Strategy: 2030 Vision,

its current five-year Macroeconomic Framework and Strategy (MFS FY14/15-FY18/19), and

the Cabinet’s comprehensive reform program. It is also in line with the Bank’s High Fives

Agenda and the Bank’s Ten Year Strategy through development of critical infrastructure and

contribution to green growth, focusing mainly on improving quality of life of people and Feed

Africa. The project cost is estimated at USD 387.4 million to be financed by ADB (USD100

million), AGTF (USD50 million), and the Government of Egypt (USD237.4 million). It will

be implemented in four years.

The main outcomes of the project are a) upgrade or improve the quality of existing primary

treatment system of 1.2 million m3 per day to include secondary treatment, and b) increase or

expand the treatment plant’s capacity from 1.2 million m3 to 1.6 million m3 per day of both

primary and secondary treatment. The treated wastewater can be used in agriculture activities

and therefore will contribute to the improvement of livelihoods and income generating for the

surrounding communities with a significant positive impact on health. The project will benefit

more than 8 million people (men, women and children) in the broader project service area

covering eastern side of the River Nile, Cairo-Alexandria Desert Road, mainly in the Giza

Governorate in the West Bank of the River Nile. Sharqia, El-Behira, Kafr El-Sheikh and

Monofia Governorates. This will result in increased incomes and food security in these

communities with increased economic off-farm activity as well. Furthermore, the project will

create more than 1,200 job opportunities during implementation and operation. In addition,

more than 4000 indirect jobs are also expected to be created in various areas, including SMEs

in tourism, agriculture, and fisheries for unskilled, semi-skilled, and skilled persons.

Needs Assessment: The Abu Rawash WWTP was designed from the onset to be developed in

phases in response to the growth of the catchment population and resulting demand for services.

The first stage, designed as a primary treatment system, had a capacity of 400,000m3/day and

it was expanded to its current capacity of 1.2 million m3/day. However the current inflow into

the plant exceeded the capacity by more than .4 million m3/day and the current project was

supposed to be in operation as of 2015. With the increasing inflow, the quality of the effluent

also deteriorated. With increasing population and demand for food, many in the downstream

areas reverted to the use of the effluent for agriculture albeit the risks to the public health and

in contravention to the Egyptian laws. The project aims to bring down the effluent quality to

acceptable limit for reuse in agriculture and hence its design includes secondary treatment

system.

Bank’s Added Value: The Bank’s intervention in this project will add significant value to the

investment made by the Government of Egypt for this important Wastewater Treatment Plant.

This project is critical to the country considering the extent of water scarcity problems,

enhancing water quality, and treated wastewater reuse. The inclusion of the feasibility study

for waste to energy as part of the project will enable the Bank to provide technical assistance

to Egypt to find an appropriate financing mechanism including climate finance to enhance the

greening of the AWWTP. In addition, the Bank’s holistic approach, combining investment with

capacity building, is its distinct characteristic of focusing on development and sustainability.

The Bank’s intervention will contribute the much needed financial resources by GOE, as it

strives to improve environmental sustainability and quality of life in line with its Sustainable

Development Strategy: Vision 2030.

iv

Knowledge Management: The knowledge gained through the implementation of several

projects and studies in the sector in Egypt has been duly applied in designing this project. In

the same pattern, the knowledge that will be generated by this Project will be instrumental in

designing and managing subsequent phases of the Wastewater Treatment Projects generally,

and the proposed Green Sludge Facility Phase of Abu-Rawash to generate electricity from Bio-

Gas. The lessons from the design, construction and management of projects of such magnitude

will be useful to many other countries in the region. The lessons learnt and experience gained

will be documented for dissemination in workshops, discussions and seminars. Even during

construction, the Bank will encourage groups from regional countries to visit the plant for

learning purposes and knowledge dissemination.

v

RESULTS-BASED LOGICAL FRAMEWORK Country and Project Name: Egypt – Sustainable Development of Abu Rawash Wastewater Treatment Plant

Purpose of the project: To improve environmental sustainability and quality of life of people and to improve quality of water resources in

agriculture through re-use of treated wastewater.

RESULTS CHAIN

PERFORMANCE INDICATORS MEANS OF

VERIFICATION

RISKS/MITIGATION

MEASURES Indicator

(including CSI) Baseline Target

IMP

AC

T

Improved public

health and

poverty

alleviation due

to improved

sanitation and

environmental

protection

GDP health Expenditure

on water and sanitation

related diseases

Under 5 infant mortality

Rate

Reduce incidences of

waterborne diseases

> .7%

(2016)

33/1000

(2016)

17000cases

/100,000 in

2016

Less than

0.1%

(2025)

10/1000

(2037)

<3000/100000 by 2037

MoF/National statistics

1) Risk: Implementation

delays: Mitigation: Use of advance

contracting to facilitate timely

start-up of construction. The

project will be executed

through a PIT with strong

management for coordination.

In addition, an international

engineering firm will be

recruited to support the PIT in

supervision of project

implementation and

management. CAPW already

have experience in

implementing previous projects

(Gabal Al Asfar WWTP) using

the same institutional

arrangements.

2) Risk: Lack of capacity to

maintain and sustain the system

Mitigation: Adopt standard

WWTP system similar to the

other wastewater treatment

plants managed by the EA, and

by including at least 3-year

operational period during

which the contractor will

operate the plant and provide

on-the-job training to the relevant staff.

3) Risk: Continued low tariffs

unable to cover O&M costs.

Mitigation: Introduction of

cost reflective tariff system

which also allow for social

tariffs, supported by

sensitization campaigns will

mitigate such a risk.

4) Risk: availability and timely

release of counterpart funding.

Mitigation: Close follow up

with the borrower will be made

during implementation to

ensure timely allocation and

availability of local counterpart

funding.

OU

TC

OM

ES

Improve

treatment from

primary to

secondary

treatment

Secondary Treatment

Capacity (mc/d)

operational at existing plant

0million

(2017)

(only

Primary

treatment

1.2 million

(2021)

Secondary

treatment

CAPW/HCWW

Annual Reports

Increased plant

Treatment

capacity

Plant Treatment Capacity

increased by 400,000

m3/day

1.2

million

(2017)

1.6 million

(2021)

Quality of

wastewater

effluent released

from the WWTP

meets national

standard1

Suspended Solids (SS) and

Biological Oxygen

Demand (BOD5) reduced

> 178 mg/l

and 250

mg/l in 2016

20 mg/l and

20mg/l

respectively by 2021

Plant Operation Report

Environmental Agency

Report

Safe reuse of

treated

wastewater

Proportion of un-treated

wastewater used in

agriculture in the

surrounding areas (%)

100%

(2017)

< 20%

(2021)

Job creation Number of jobs directly

created through the project

(at least 27% for women)

0

(2017)

1200

(2021)

Project progress and

completion reports

OU

TP

UT

S

Upgrading of

primary WWTP

facilities to

secondary TP

Upgraded and Expanded

WWTP

0

(2017)

1

(2021)

Annual report

Preparatory

activities for

sludge

management

Feasibility study and tender

documents prepared for

sludge management with

energy production

0

(2017)

1

(2020)

Documents validated by

EA

Provision of

institutional and

technical

support

Number of on the job

training programs on E&S

& social inclusion

No. of heath & hygiene

promotion campaigns

0

0

8

(8, >50%

of women)

Annual Report

QPR and Annual report

KE

Y

AC

TIV

ITIE

S

Components:

a) Wastewater Treatment Plant Upgrading and Expansion

b) Environment, Social, Climate Change and Institutional

Support

c) Project Management and Engineering Services

Source Amount (Mil USD)

GoE 237.44

ADB Loan 100.00

AGTF Loan 50.00

Total 387.44

1 There are five quality indicators which the plant shall meet following upgrading: Biological Oxygen Demand (BOD5) < 20mg/l; Total Suspended Solids (TSS)

< 20 mg/l; Chemical Oxygen Demand < 80mg/l; Fat, Oil, Grease (FOG) < 5mg/l; Faecal Coliforms <1000 No./100ml

vi

Project Time Frame

10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12

Project Preparation

Project Appraisal

Board Approval

Signing

Effectiveness

Launching

First Disbursement

Consultancy Services (Supervision)

Bid Opening

F& T Evaluation

Contract Award

Supervision Services

Project Implementation

Contract Award

Design

Civil Works

Electro-mechanical Works

Commissioning Period

Operation and Maintenance

O & M

Institutional Capacity Building and Studies

Training and Capacity Building

Awareness, Sensitization & Promotion

Waste to Energy FS

Supervision Monitoring and Evaluation

Quarter Progress Reports (QPR) Q Q Q Q Q Q Q Q Q Q Q

Field Supervision Mission F F F F F F

Mid-Term Review M

Financial Audit (Submission) A A A A

Project Completion

PCR C

Advance Contracting Project Completion Project Closure

Egypt: SUSTAINABLE DEVELOPMENT OF ABU RAWASH WASTEWATER TREATMENT PLANT (ABU-RAWASH-WWTP)2017

Activity2018 2019 2020 2021 2022 2023

1

REPORT AND RECOMMENDATION OF THE MANAGEMENT OF THE AFDB

GROUP TO THE BOARD OF DIRECTORS ON A PROPOSED LOAN TO THE

GOVERNMENT OF THE ARAB REPUBLIC OF EGYPT FOR ABU-RAWASH

WASTEWATER TREATMENT PLANT

Management submits the following Report and Recommendation on a proposed ADB loan of

USD 100 million and AGTF loan of USD 50 million to finance the Sustainable Development

of Abu-Rawash Wastewater Treatment Plant in Egypt.

I. STRATEGIC THRUST & RATIONALE

1.1 Project linkages with country strategy and objectives

1.1.1 The Bank’s current Country Strategy Paper (CSP) 2015-2019 for Egypt is anchored

on two pillars. Pillar I: Infrastructure in support of Stabilization and Economic Recovery; and

Pillar II: Governance in support of Inclusive Growth to Reduce Poverty. The proposed

operation is in alignment with Pillar No. 1 to foster sustainable and inclusive growth, and

improve the business environment. The project aims to improve environmental sustainability

and quality of life of people and increase available water resources from the re-use of treated

wastewater in agriculture. The project objective is aligned with the Bank’s High Fives Agenda

and the Bank’s Ten Year Strategy through development of critical infrastructure and

contribution to green growth, focusing on improving quality of life of people and Feed Africa.

It fits well with the Bank’s IWRM policy as it aims to enhance the availability of good quality

water for environmental sustainability and productive purposes. The operation is also aligned

with the Bank Group’s Private Sector Development policy, particularly in promoting local

entrepreneurship.

1.1.2 Egypt’s development strategy is built around the “Sustainable Development Strategy:

2030 Vision”, the five-year Macroeconomic Framework and Strategy (MFS FY14/15-

FY18/19), and the Cabinet’s comprehensive reform program. The strategy is designed to

address four key challenges: (i) a large population with growing basic needs and high social,

spatial and economic expectations; (ii) a difficult macroeconomic situation that has constrained

fiscal space; (iii) insufficient and inefficient infrastructure; and (iv) a weak business

environment that undermines competiveness, growth, and job creation. The proposed operation

responds directly to the first and third key challenges and it is identified as one of the top

priority projects in the strategy. In terms of the sector strategy, the project is well aligned with

the National Water Resources Plan through its emphasis and contribution to the safeguarding

of Egypt’s water resources and preservation of the environment and the ecosystem while

advancing socio-economic benefits.

1.2 Rationale for Bank’s involvement

1.2.1 Egypt’s future challenge will revolve around the declining water per capita availability

due to population growth, limited or dwindling water resources, demand increases, food gap,

pollution and climate change. Protecting and enhancing the quality of water in the River Nile,

canals and drainage systems is one of the several interventions to address the challenge. These

water bodies (mainly agriculture drainage) receive heavy loads of municipal waste (treated and

untreated) polluting the water quality and endangering public health. In order to address these

issues, the National Water Resources Plan (NWRP) identified measures for improvement of

water quality in the water bodies that includes increasing and enhancing the municipal

wastewater treatment plants. Among these plants, the upgrading and expansion of the Abu

Rawash Wastewater Treatment Plant has been considered among the highest priority by the

GOE as clearly indicated in Egypt’s MFS.

2

1.2.2 Since 2009, the Bank has been involved in Egypt’s water sector mainly through the

financing of the Gabal Al Asfar Waste Water Treatment Plan Phase 2 project with a similar

objective as the proposed intervention at Abu Rawash. The Bank also supported the Helwan

Waste Water Treatment Plant PPP Transaction Advisory study to enable the GoE to make

informed judgment and decisions regarding the implementation approach and financing

strategy. In view of the Bank’s recent activities in similar initiatives in the country, the GOE

submitted its financing request to the Bank demonstrating GOE’s confidence in the ability of

the Bank to provide technical support and financial resources to fund the proposed project. The

Bank’s intervention will contribute to much needed resources by GOE, as it strives to improve

environmental sustainability and quality of life in line with its Sustainable Development

Strategy: Vision 2030.

1.3. Donor coordination

1.3.1 Several development partners (bilateral and multi-lateral DPs) are supporting the water

sector in Egypt. Key sector supporters, in addition to the Bank, are the World Bank (WB), EU,

KfW, AFD, EBRD, EIB, USAID, GIZ, and the Government of Netherlands. The DPs support

includes investment operations, institutional and sector reforms, and technical assistance to

enhance capacity building. The Bank is very active and collaborates with all DPs through the

Development Partners Sub-Group on Water (sharing information, participation at water events,

periodic meetings, etc.). The main development partners active in the sector are shown in the

matrix below.

Sector or subsector*

Size

GDP Exports Labor Force

[Water and Sanitation] [1.2%] n.a [1.0%]

Players - Public Annual Expenditure (average 2007-2012)**

Government Donors

[EU]

[5%]

[UA 540 m] [UA 210 m] [World Bank] [30%]

[61%] [39%] [EBRD] [20%]

[EIB] [24%]

[AfDB] [3%]

Level of Donor Coordination

Existence of Thematic Working Groups [Y]

Existence of SWAPs or Integrated Sector Approaches [N]

ADB's Involvement in donors coordination*** [M]****

**** L: leader, M: member but not leader, none: no involvement

3

II. PROJECT DESCRIPTION

2.1. Project components

2.1.1 The project’s development objective is to protect the environment and water resource

from pollution and to reduce health risks due to discharge of untreated wastewater to the drains

and canals, and enhance water re-use. The main outcomes of the project are: a) upgrade or

improve the quality of existing primary treatment system of 1.2 million m3 per day to include

secondary treatment, and b) increase or expand the treatment plant’s capacity from 1.2 million

m3 to 1.6 million m3 per day of both primary and secondary treatment. Provision of secondary

treatment facilities is essential to meet effluent standards in Egypt and to improve the water

quality environment of the drainage system.

2.1.2 The project is composed of 3 components namely: (i) Wastewater Infrastructure

Upgrading and Expansion; (ii) Environment, Social, Climate Change and Institutional Support;

and (iii) Project Management and Engineering Services.

Table 2.1

Project Components

Component name Est. cost

(USD million)

Component Outputs

1. Wastewater

Infrastructure

Upgrading and

Expansion

377.58 upgrading the existing 1.2 million m3/d primary treatment plant

in Abu Rawash WWTP to secondary treatment;

expand the existing plant capacity by additional 400,000 m3/d to

reach a total plant capacity of 1.6 million m3/day with primary

and secondary treatments

2. Environment,

Social, Climate

Change and

Institutional

Support

0.627 capacity building to address critical shortcomings at Construction

Authority for Potable Water and Wastewater (CAPW), Holding

Company for Water and Wastewater and Giza Company for

Water and Wastewater (GCWW),

public outreach to sensitize communities, water user associations,

agricultural committees on good practices and benefits of the

project and safe re-use of effluent,

undertake studies to identify and design agricultural interventions

for the benefit of the existing communities, and

carry out feasibility study for the Sludge Management Facility for

energy production (including PPP option)

3. Project

Management and

Engineering

Services

9.235 Project Management and Engineering Supervision

M&E

Financial Management, Audit, etc.

Total 387.44

2.2. Technical solution retained and other alternatives explored

2.2.1 The design of the project is combining both the public and private sectors comparative

advantages. The government has carried out initial scoping and feasibility studies to identify

solutions to protect the environment and promote public health. As the operation of large

wastewater treatment plants involves complex process engineering and the application of latest

technology and innovation in the design for efficiency, the project has employed a design and

build approach. The technological and design risk is transferred to the private sector. The

project has also included an operator role for the first three years during which adequate

capacity is built through the hands on training within the public sector operator.

4

2.2.2 In terms of alternative techniques of wastewater treatment, the most preferred system

adopted for the project is the conventional activated sludge process. The main reasons for the

selection of the method have been due to (i) efficiency of the system to remove more than 90%

of the BOD and SS (ii) integration and utilisation of existing facility and space economically,

(iii) other large scale wastewater treatment plants in the country apply similar method and

therefore eases challenge of operation and maintenance. The other possible processes which

were rejected are shown in the table below. It is important to note that the project is

incorporating a feasibility for sludge management and energy production as a follow up project.

Table 2.2

Project alternatives considered and reasons for rejection

Alternative name Brief description

Reasons for rejection

Waste Stabilisation

Ponds

This method treats sewage in a series of

ponds. The method requires a very large

area.

The method does not allow to fully utilise the

existing plant and its space.

It requires huge area of land

Oxidation ditch

process (ODP) /

Extended Aeration

/ Sequential Batch

Reactor Methods

These methods don’t require primary

clarification to reduce organic load Suitable for lower BOD-SS loading operation; Not suitable for large scale plant application Existing primary facilities will not be utilised

Aerated Lagoons This is a mixed aerobic biological

reactor without recycling

Requires large area and power consumption is

high

2.3. Project type

2.3.1 The Sustainable Development of Abu Rawash WWTP Project is a stand-alone project

as big and complex projects in the water sector are implemented as stand-alone operations.

2.4. Project cost and financing arrangements

2.4.1 The total cost of the Project is estimated at USD 387.44 million (equivalent UA 274

million), net of taxes and duties, of which USD 237.8 million (61.4%) is in foreign currency

and USD 149.67 million (38.6%) in local costs. Table 2.3 below provides a summary of the

estimated project costs by component. These estimates are based on information provided by

the executing agency, for EPC plus 3 years operations as extracted from the updated proposals.

In addition, physical contingency of 5% and price contingency of 3% per year has been applied.

Table 2.3

Project cost estimates by component (in USD ‘000) No. Component Local

Cost Foreign

Cost

Total

% Total Base

1 Wastewater Treatment Plan Upgrading and

Expansion, with 3Y O & M

127,827 217,000 344,827 97.5%

2 Environment, Social Climate Change and

Institutional Support

571 - 571 0.2%

3 Project Management and Engineering

Services

8,410 - 8,410 2.4%

Sub Total 136,807 217,000 353,807 100.0%

Physical Contingencies 6,840 10,850 17,690

Price Contingencies 6,019 9,924 15,942

Total 149,666 237,774 387,440

38.6% 61.4% 100.0%

5

2.4.2 The Project will be financed by AfDB, AGTF and GoE as shown in the financing plan

presented in Table 2.4 below. The total Bank Group financing is USD 150 million, comprising

of AfDB loan of USD 100 million and AGTF loan of USD 50 million. These funds will be

used to finance part of component 1 of the project. GOE will contribute 62% of the total project

cost in EGP for the equivalent of USD 237.44, covering components 1, 2 and 3 of the project.

Details of ADB and AGTF financing are provided in Annex B2. The Bank appraisal mission

discussed and agreed with the relevant Ministries on the above financing and the proposed

conditions stated in Section V of this document.

Table 2.4

Sources of financing

Sources of Funds (USD '000) %

ADB Loan 100,000 25.81

AGTF Loan 50,000 12.91

GOE 237,440 61.28

Total 387,440 100.00

Table 2.5

Program cost by category of expenditure (in USD ‘000) No. Category of Expenditure Local Cost Foreign Cost

Total

1 Goods 127,827 217,000 344,827

2 Services 6,031 - 6,031

3 Miscellaneous 2,950 - 2,950

Sub Total 136,807 217,000 353,807

Physical Contingencies 6,840 10,850 17,690

Price Contingencies 6,019 9,924 15,942

Total 149,666 237,774 387,440

Table 2.6

Expenditure schedule by component (in USD ‘000) No. Component 2018

2019

2020

2021 Total

1 Wastewater Treatment Plan Upgrading and

Expansion, with 3Y O & M

63,174 125,266 109,608 46,779 344,827

2 Environment, Social Climate Change and

Institutional Support

143 143 143 143 571

3 Project Management and Engineering Services 2,102 2,102 2,102 2,102 8,410

Sub Total 65,419 127,511 111,853 49,024 353,807

Physical Contingencies 3,271 6,376 5,593 2,451 17,690

Price Contingencies - 4,017 7,152 4,773 15,942

Total 68,690 137,903 124,598 56,248 387,440

2.5. Project’s target area and population

2.5.1 The proposed Project will benefit more than 8 million people (men, women and

children) in the project service area covering eastern side of the River Nile, Cairo-Alexandria

Desert Road, mainly in the Giza Governorate in the West Bank of the River Nile. It will serve

directly Giza Governorate (including 6th of October City and indirectly Monofia, El-Behira,

6

Kafr El-Sheikh, Sharqia Governorates. The plant is located at Abu-Rawash village, which is

one of the main villages of Kerdasa District with total population of 27,564, who will benefit

from job creation and hygiene promotion. Other beneficiaries include people living in villages

downstream of the plant and along the system draining the effluent from the plant into Barakat

drain, with an estimated population of more than 407,608. This population will also benefit

from an improved environment and consequent reduction of diseases associated with untreated

wastewater.

2.6. Participatory process for project identification, design and implementation

2.6.1 Consultations regarding the project started since 2013 and continued during pre-

preparation mission in 2015, the preparation, and appraisal missions in February and

September 2017 respectively. In addition, intergovernmental consultations among relevant

institutions has been going on since 2013. Institutions consulted include CAPW, Ministry of

International Cooperation (MIC), Holding Company of Water and Wastewater (HCWW), Giza

Company, Ministry of Health, Ministry of Irrigation. DPs, namely WB, AFD, KfW, EU, EIB,

EBRD, and JICA were met. Visit to the proposed project site for infrastructure and outlet of

the drainage was carried out. Consultations and discussion with beneficiary communities

surrounding the wastewater treatment plan, beneficiaries from downstream along the drainage

and upstream of El Giza Governorate took place during the preparation of the ESIA.

2.6.2 During the consultations, community members raised their concern that as the volume

of water in the canals for irrigation is not enough, they have little choice but to use drainage

water for irrigation even for cultivating edible crops, which could lead to severe health hazards

to farmers, and consumers, at large. The issue was also raised that the Abu-Rawash WWTP

should ensure the interaction with the representatives of the local communities surrounding the

wastewater treatment plant as well as other stakeholders such as Kerdasa City Council heads.

2.6.3 The primary and secondary treatment of the wastewater at Abu Rawash will mitigate

the health hazards and help the farmers to irrigate their fields in accordance with the ‘Egyptian

Code of 2014 for the reuse of wastewater’. The project will benefit the population living along

the Barakat Drain as well as communities living downstream. Temporary and permanent jobs

will be created for the local communities. The consultations will be done quarterly during

implementation as part of the ESIA and will be supervised by the E&S focal point of the

executing agency.

2.7 Bank Group experience, lessons reflected in project design

2.7.1 The Bank has accumulated experience in the water and sanitation sector in Egypt and

across the continent. Besides, lessons learnt and experience of other development partners

supporting the water and sanitation sector in Egypt have also been taken into account in the

project. These lessons include, the need to include at least 3 years operation period after

completion of construction works. This will allow the contractors to operate the plant and to

provide on the job training to the relevant staff of the executing agency. Other lessons taken

into account are: (i) the need to address institutional issues while supporting infrastructure

development, ii) the importance of having Monitoring and Evaluation Unit specific to the

project to provide analytical content in progress reports; (iii) need to streamline and avoid

having numerous and onerous conditions precedent to effectiveness to avoid delayed

effectiveness of projects. These lessons have been incorporated and the Bank is also working

closely with the other development partners (WB, EIB, EBRD, EU, AFD, and KfD) in

implementing this programme under the Joint Integrated Sector Approach (JISA).

7

2.8 Key performance indicators

2.8.1 The key performance indicators for monitoring of project achievements are identified

and captured in the results based logical framework. The project’s main outcomes are a clean

environment and subsequent improvement in health through reduction of water and sanitation

related diseases. The main key performance indicators to be monitored during implementation

include enhanced treatment system, incremental capacity added to the treatment plant, quality

of effluent and reception by communities of information campaign regarding improved

sanitation and hygiene. The plant’s throughput will be monitored everyday using the

strategically placed measuring devises, while the quality of the effluent will be monitored using

the existing laboratory at the site. The responsiveness of health messages will be monitored

through regular surveys carried out on the concerned communities.

2.8.2 The implementing agency (CAPW) will be responsible for project implementation

and will monitor its outputs and the agreed performance indicators. The PIT shall closely

monitor progress and liaise closely with both the project consultant and the contractor to ensure

achievement of both its outputs and outcomes. Regular reporting by the PIT (progress reports,

Audit reports, and mid-term review report, etc) will keep the GOE and the Bank fully informed

of the progress. The concerned parties will take timely action to comply with the

recommendations contained in these reports.

III. PROJECT FEASIBILITY

3.1. Economic and financial performance

Table C.1: Key economic figures

EIRR 29.9% and ENPV EGP 19,336 million (at 10% base case)

NB: detailed calculations are available in Annex B7

3.1.1 The underlying assumptions for the calculation of the EIRR are provided in Annex

B6. The economic analysis of the project has been undertaken by comparing “with” and

“without project” of the various costs and benefits that will accrue to the beneficiaries of

improved and sustainable wastewater treatment system. The principal benefit of the project is

treated waste water meeting the required national health standards, which will enhance the

environmental benefits of the residents in the project and surrounding areas. The main

assumptions are: health benefits from improved sanitation services comprising improved

sewerage and faecal sludge management systems, incremental economic value of treated

wastewater representing environmental and socioeconomic benefits downstream of the

treatment plant, as well as economic value of sludge produced from the improved facilities.

On the cost side, these include investment costs, replacement costs, and other items as part of

operation and maintenance costs comprising of staff costs, energy, chemicals and repairs and

other overhead costs have been taken into account. The economic life of the investment is

estimated as 25 years, all the costs and benefits considered are net of duties and taxes. The

project’s economic rate of return is estimated at 29.9%. The value is higher than the

opportunity cost of capital of 10% and thus is considered economically viable. Sensitivity

analysis to test the robustness of the EIRR was carried out to determine the impact of adverse

variations. The EIRR changes to 26.7% assuming that investment cost increases by 20%, and

to 25.7% assuming that the benefits of the project are decreased by 20%. The analysis shows

that the project is economically viable and socially beneficial for Egypt.

8

3.2 Environmental and Social impacts

Environment

3.2.1 The project has numerous environmental benefits as it will improve the water quality

of effluent discharged and its compliance with the legal standards; decreasing the pollution of

the water resources especially in the Nile River which is the final discharge point of the treated

wastewater and reduce the waterborne related diseases in surrounding communities along main

drains and rivers. Besides, the project will create job opportunities during its construction phase

and operation phases, create various training and research opportunities and contribute to

improve the quality of life of the population especially with regards to the sanitation coverage

of Greater Cairo.

3.2.2 Overall, the project is not likely to generate major negative impacts as all construction

activities will be within the actual plant boundaries and no land acquisition will be required to

expand the WWTP. In addition, the existing capacity of the sludge lagoons facility (20 basins

with a total area of 84 ha located within 1,470 ha of a free of use land owned by HCWW will

not require any expansion. Thus, the project will not require any land acquisition, neither has

an impact on involuntary physical and/or economic displacement. According to National

Environmental Policy requirements, the project is under Category C (Black List) given its

capacity of 1.2 million m3/day. Even though the project will not generate significant adverse

environmental impacts, its scale (large-scale urban wastewater treatment plant) made it eligible

for category 1 as per the Bank Integrated Safeguard System (ISS) (category validated by the

Safeguards Department on 22 March 2015).

3.2.3 An Environmental and Social Impact Assessment study (ESIA) was prepared for the

project and validated by the Egyptian Environmental Affairs Agency (EEAA), which is the

principal authority that coordinates environmental management in Egypt. The validation

certificate was delivered for the project on 2 March 2016. The ESIA was reviewed by the

project team in 2017 during the preparation phase to meet the Bank’s requirements and was

approved internally by Safeguards prior the mandatory disclosure for 120 days on the Bank’s

website on May 15th, 2017.

3.2.4 The direct negative impacts identified are the common impacts related to the

construction phase and are due to the construction works and movement of machines. This

includes mainly sound pollution, dust emission, public safety and health hazards, disruption of

surface water drainage and pollution and disposal of waste. The project will not affect

negatively any sensitive or protected area. During operations, no major adverse impacts on the

environment are expected, however some environmental, health and safety issues related to

routine works such as accidental leakages, labours injury and chemical/biological hazards are

noted.

3.2.5 With regard to the cumulative impacts, after upgrading the capacity of the plant up to

1.6 million m³/day and implementing a secondary treatment, an extra sludge quantity will be

generated in addition to the sludge produced from Zenein plant (estimated at 10,800 m³/day).

The total sludge flow estimated at 39,797 m³/day will be pumped into 20 unlined lagoons

currently located in the desert.

3.2.6 In terms of residual risks and impacts, the water borne diseases affecting the

surrounding communities along the main drains and rivers will remain as long as the

agricultural farms will keep using the un-treated effluent from drains to irrigate non-authorized

crops in violation to the national Law 48/1982, Code 501/2005, Ministerial Decree

No.383/2015.

9

3.2.7 In order to mitigate the project’s negative impacts including the cumulative and

residual impacts , an environmental and social management plan including a feasibility study

for the construction of a Sludge Management Facility, an environmental awareness component,

a monitoring program and a detailed training program have been prepared. The budget for these

activities (USD 153,000) is included as part of the overall project cost.

Climate Change

3.2.8 The Abu Rawash project presents a good opportunity for accessing climate finance to

address climate issues while ensuring sustainable development with its high potential for

contributing to both mitigation and adaptation.

Gender

3.2.9 The 2015 Global Gender Gap Index2 ranks Egypt at 136 out of 145 countries

worldwide. Women have significantly lower participation in the labour force than men (26%

vs 79%) and lower literacy (65% literacy for women vs 82% of males).3 This situation is

mirrored in the project areas. Low literacy and socio-cultural dynamics limit women’s

participation and hence reduces their chances to equal opportunities. Moreover, low public

participation and illiteracy among women and children who dropped out of school has reduced

public awareness about the dangers of environmental hazards. Residents on the farms affiliated

to the wastewater treatment plant and the surrounding area currently have no access to the

sewer services and depend on decentralized sanitation facilities. The most common method for

collecting the drainage water is through the scavenge trucks. In the absence of this, women

may discharge the drainage by themselves into drains or nearby areas. This constitutes a

tremendous health hazard to women and children and burdens women with extra tasks, as they

are responsible from household chores and taking care of sick member of the households.

3.2.10 While, the project will benefit all households serviced by Abu Rawash WWTP

irrespective of their income or if the household has a male or female head, specific gender

impact is anticipated in the Abu Rawash Village where the plant is situated and along the Brakat

Drain where the treated wastewater is discharged. Three major issues have been identified: (i)

limited women’s participation, (ii) environmental hazard impact on women, and (iii) limited

access to income for improving their living conditions. The project’s interventions address

these issues through: (i) Gender-sensitive public health awareness for communities residing in

the surroundings of the plants and along the drains. (ii) Effective participation of women in

water and sanitation committees by increasing public awareness on the importance of women’s

involvement and gender-related issues. (iii) Encourage women from the local community to

work during construction and operation. Currently, female employment in the sector is 29%.

While a low parentage of women employment during the construction is envisaged due to low

capacity and communities’ acceptance, 29% of women during operations is likely to be met4.

In order to cover these activities, an estimated EGP 1.2 million has been allocated. A full gender

and social analysis is provided in annex B8.

Social

3.2.11 The project has identified the following social challenges: (i) the treated water

disposed into Barakat drain further to other drains does not comply with concerned Egyptian

or international standards for safe disposal into drains. (ii) Malpractices of the communities

resulting in environmental and health hazards. (iii) High rate of unemployment rate due to the

2 Measures disparities between men and women across countries, 3 Ahram-on line November 2015 4 The team is working toward getting a supplementary grant for increasing women’s participation in the sector through support to the

water and sanitation vocational training centers.

10

stagnation and reduction of the tourism and closure of a number of small factories and stores.

(v) Limited institutional capacity to address environmental, health, and social safeguards and

for incorporating gender and social equity needs. Refer to Annex B8 for more information.

3.2.12 The project intends to address these issues through its components. Expected impact:

(i) Positive health impact: better quality of treated wastewater will decrease the

disease burden, particularly non-communicable diseases that are predominant,

such as Hepatitis C, renal failure and kidney diseases, as well as various forms

of cancer.

(ii) Increased Employment Opportunities: It is envisaged that 1200 jobs will be

created during construction and operation, primarily related to waste water

management. In addition, more than 4000 indirect jobs (current experiences

shows more than 27% are for female) are expected to be created in various areas,

including SMEs in tourism, agriculture, and fisheries for unskilled, semi-skilled,

and skilled persons.

(iii) Positive economic impact: opportunities for micro and small enterprises; as

well as opportunities for local contractors and local suppliers of building

materials. Moreover, the improvement in health will reduce the household’s

expenditure on health treatment and reduce vulnerability.

(iv) Expanding gender diversity: encourage to increase women employment in the

sector by facilitating gender inclusion through internship program of Al Giza

WSSC and the contractor.

Involuntary resettlement

3.2.13 No resettlement is expected from the project. The ABWWTP is established on

government land. Construction of ARWWTP has been done in stages and phases. The plant

still has area reserved for the remaining planned expansion works. This land is already fenced

off and is not available or accessible to the public.

IV. IMPLEMENTATION

4.1. Implementation arrangements

4.1.1 The ABWWTP Project shall be implemented using existing institutional arrangements

incorporating lessons and experience gained from similar operations. The project will be

implemented over four years. The GOE is the borrower of the ADB and AGTF loans while

CAPW, under the Ministry of Housing, Utilities and Urban Communities (MHUUC), will be

the Executing Agency (EA). The project will be implemented using existing structures of

CAPW and taking into account lessons learnt from similar operations, particularly Gabal El

Asfar Wastewater treatment project. CAPW has the experience in the implementation of

similar projects having implemented the earlier phases of the same plant as well as other

sewerage projects. The EA (CAPW) has constituted within its Construction Department, a

Project Implementation Team (PIT), comprising a Project Coordinator, 4 Engineers (Electrical,

Mechanical and 2 Sanitary), one of whom will be experienced in procurement/contracts

management and another with expertise in M&E), Environmental/Social Specialist, Gender

and Social officer, and Project Accountant. The PIT will be directly in charge of the project

implementation. The PIT will be assisted by an experienced Engineering supervision services

consultancy firm. Recruitment of the consultancy firm is in progress and is to be finalized

before 31 January 2018. This is included as one of the undertakings of the loan. The CAPW

shall be responsible for overall coordination of the project and reporting obligations to the

Bank.

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4.1.2 In addition, and in line with GOE’s current practice of ensuring effective project

coordination across ministries, a Project Steering Committee (PSC) shall be stablished

comprising various relevant stakeholders, including HHCW, GWSC, Ministry of Environment,

Ministry of Finance, the Ministry of International Cooperation (MIC), Ministry of Health,

Ministry of Social Solidarity, Ministry of Environment, Giza Governorate, to be chaired by the

MHUUC to oversee the implementation of the project. The PSC will be responsible for the

strategic direction and coordination of the Project. See Annex B.3 for implementation details.

4.1.3 Procurement Arrangements

4.1.3.1 Procurement of goods (including non-consultancy services), works and the acquisition

of consulting services, financed by the Bank for the project, will be carried out in accordance

with the “Procurement Policy and Methodology for Bank Group Funded Operations” (BPM),

dated October 2015 and following the provisions stated in the Financing Agreement. Public

Procurement in Egypt is governed by the Law 89/1998 “the Law” which was enacted by the

decree 1367/1998, which includes the Executive Regulation (ER) of the Law. A Country

fiduciary risk assessment (CFRA) was carried out in July 2015 by the Bank and found that (i)

there are barriers to participation of foreign bidders, including mandatory Joint venture lead by

a national; (ii) there is no standard Bidding documents; (iii) all Procurement methods are not

described unambiguously and conditions under which to be used are not clarified; (iv) there is

no General Condition of contract; (v) alternative Dispute Resolution (ADR) provisions such as

Arbitration is not mandatory; and , (vi) the complaint mechanism body is not independent, has

no authority for decision and the outcome of the review is not enforceable. The CFRA

concluded that the risk for the use of BPS (Egypt’s Public Procurement system) in Bank-

financed project is Substantial. The Bank reviewed the CFRA findings during the appraisal

mission and confirmed the risk as Substantial. In light of above, Bank Procurement Policy and

Methodology (BPM) are applicable to all procurement package planed under this project.

4.1.3.2. Procurement Risks and Capacity Assessment (PRCA): the assessment of procurement

risks at the Country, Sector, and Project level and procurement capacity of the Executing

Agency (EA), were undertaken. The outcome of these assessments have informed the decisions

on the procurement regimes (BPS, Bank or Third party) being used for specific transactions or

groups of similar transactions under the project. The appropriate risks mitigation measures have

been included in the procurement PRCA action plan proposed in Annex B5, Para. 5.3.8.

4.1.3.3 Executing Agency Procurement Capacity Assessment/ The Construction Authority for

Potable Water and Wastewater (CAPW), will have the overall responsibility of overseeing the

implementation of the project. To meet the objective of the Bank’s procurement policy, the

mission has carried out an assessment of CAPW’s procurement capacity and noted that CAPW

has adequate capacity in procurement management. CAPW is already familiar with Bank rules

and procedures through the implementation of current Helwan Study and Gabal Al Asfar

Project. It was agreed that CAPW will use their own –Projects Department to complete the

process of finalizing the contract with the intended awarded contract under close monitoring

from the Bank. The implementation of the Project will use existing arrangements incorporating

lessons and experience gained with other similar Projects and a qualified engineering firm will

be recruited for works supervision including contract management and supervision during the

operation period. CAPW will be provided with hands-on training and support from the

procurement officer at COEG, as part of the project launching and during the implementation

of the activities.

4.1.3.4 Independent Procurement review of the construction contract

The main procurement package to be financed from the ADB loan will be the construction of

the wastewater plant. The GOE launched in Jan 2013 an open invitation to companies

12

worldwide in order to express interest in prequalifying for the upgrading and expansion of Abu

Rawash wastewater treatment plant (WWTP) in West Cairo (GIZA) based upon a PPP

contractual arrangement of 20-25 years’ duration. The bidding process was governed by Law

67 of 2010 (the Law regulating Partnership with the private sector in infrastructure projects,

services and public utilities) which stipulates transparent bidding and contract implementation

conditions and prescribes award to the Most Economically Advantageous Bid (VFM). .

The Bank and GOE agreed to engage an Independent Procurement Review (IPR) specialist in

order to look into the feasibility of the Bank’s concurrence with GOE’s decision to negotiate

the contract with the winner.

The Independent Consultant recruited by the Bank examined the proceedings of the

prequalification and bidding processes and confirmed that there were no irregularities that

could taint compliance with the law or the integrity of these processes. The outcome of the

competition does represent evident “Value for Money” for the Bank and the GOE while

ensuring a “fit for purpose” procurement arrangement that will save valuable project

implementation time considering the urgent need of ending the contamination of the Nile as a

result of the discharge of the current poorly treated effluent into its fresh waters which is

forcing a shutdown of numerous potable water treatment plants downstream the Nile.

4.1.3.5 In light of the foregoing, the Bank concluded that the bidding process was compliant

with internationally accepted practices and the Bank Procurement Policy principles (VFM,

FfP). In order for the Bank to finalize the review of bidding process, in line with the advance

contracting procedures and the BPM, GOE shall use the standard contract incorporated in the

AfDB version of the Multilateral Development Banks’ Harmonized Standard Bidding

Document for Design, Supply and Installation and Commissioning of Plant for Bank’s Prior

review and approval at each stage of the implementation process for the main procurement

package. In addition, further details on the change of membership of the recommended Joint

Venture will be provided.

4.1.4 Financial Management

4.1.4.1 The financial management (FM) of the project will be based on the existing systems

of CAPW. These systems were assessed in accordance with the Bank FM policies and

procedures and covered each FM component adequacy: budgeting, accounting, internal

control, treasury management, financial reporting and external auditing. In assessing the FM

capacity, the team used the country fiduciary risk assessment (CFRA) conducted in 2015 and

the financial management performance of Bank-financed projects executed by CAPW, namely

Gabal Al-Asfar Project (loan of 53 M€) and Helwan Study Project (grant of 0.6 MUA). The

assessment concluded that the current applicable FM systems are well developed and capable

of managing the project resources with an overall moderate risk level. Some mitigating

measures are required to enable these systems to meet the Bank requirements on project

reporting and auditing.

4.1.4.2 CAPW has experience with similar projects financed by the Bank and adequate

budgeting and treasury processes including the newly introduced electronic payment system.

As a public service authority, its internal control environment imposes clear segregation of

duties, prior authorization of commitments and ex-ante controls of payments. However, there

is no internal audit function based on internationally accepted audit standards and risk-based

approach and the cash-based accounting system in place is largely manual and should be used

with some improvements to provide the project with the adequate and timely financial

information. Therefore, CAPW will assign, as part of the project implementation team, a

financial management officer with adequate qualifications and previous experience with donor

funded projects acceptable to the Bank to handle the day-to-day financial activities of the

13

Project and ensure timely recording of all project transactions and adequate filing of project

documents. CAPW will provide to the Bank, on 1st of August of each year, the necessary

evidence (through the corresponding budgetary allocations) on the availability of the

counterpart funds needed to carry out the project. Using a simple application, allowing

automated compilation of project financial statements and reports, CAPW will submit quarterly

financial reports for the project and annual financial statements duly audited by an external

auditor covering the entire project components and sources of funds.

4.1.5 Audit: The executing agency (CAPW) financial statements are audited by the

Accountability State Authority (ASA, formerly CAO), which is the Egyptian Supreme Audit

Institution. The audits are technically conducted in compliance with INTOSAI standards and

are prepared within six months of the end of the fiscal year. However the ASA reports are

treated as confidential according to the current legislation in Egypt and cannot be

communicated to the Bank. Therefore, an independent private auditor acceptable to the Bank

will be recruited to audit the project annual financial statements in compliance with the Bank

standard TOR for audit of investment operations. The audit fees will be paid by GoE once the

audit reports are accepted by the Bank. The external auditor report shall include all project’s

components and activities, cover all sources of funds (the Bank, co-financiers funding and

CAPW own resources) and be submitted to the Bank no later than six months after the end of

each Egyptian fiscal year (i.e. before 31 December).

4.1.6. Disbursement Arrangements: Disbursement of the Bank (ADB) and AGTF loans

will be made using the Direct Payment Method of disbursement, in accordance with Bank rules

and procedures as laid out in the Disbursement handbook. The Bank will issue disbursement

letters, which provide specific guidelines on key disbursement procedures and practices.

4.2. Monitoring

4.2.1 M&E of the project will be carried out as a regular management function by the

Project Steering Committee (PSC) and the PIT based on the baseline data and indicators

defined in the result based logical framework. The M&E Expert who is also a member of the

PIT will be fully responsible for collecting and analysing data for reporting. In addition, Bank

supervision missions will be undertaken twice per year and the Bank will undertake desk

supervision quarterly, providing feedback and following up on progress reports. A mid-term

review will be undertaken during the second year of implementation. The PIT/CAPW will

prepare quarterly Progress Reports, annual technical and financial audits. Upon completion,

CAPW will prepare and submit to the Bank a project completion report (PCR).

Table 4.1

Key Milestones Timeframe Milestone Monitoring process/feedback loop

December 2017 AfDB Board of Directors Loan approval

January 2018 Sign contract with

Engineering Consultant

Signing contract of Engineering Supervision Consultant

January 2018 Signing of Loan

Agreements

Loan Agreements signed between GoE and AFDB/AGTF.

February2018 Award of construction

contract

Signing of construction contract

March 2018 Loan Effectiveness Launching mission; Loan conditions approved by the Bank

March 2018 Construction start Construction commences. Monthly construction

supervision reports; Bank’s comments on the annual and

quarterly reports; Supervision missions

June 2019 Mid-Term Review Assessment of progress/performance, restructuring if

needed

December 2021 Project completion Commissioning of construction

December 2021 Project completion Report Project completion mission

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4.3. Governance

4.3.1 The 2014 Presidential elections paved the way for Egypt’s restored stability following

three years of difficult political transition. The new constitution was ratified in January 2014

and presidential elections were organized in May 2014 paving the way for Egypt’s economic

rebound and stability. The electoral constituencies’ law was approved in December 2014 and

constituted the final legal step before the next parliamentary elections. The forthcoming

elections will represent the final milestone of the political roadmap set forth in July 2013.

Meanwhile, the GoE has been deploying efforts to restore security and implement critical

policy reforms to further consolidate economic and political stability. At sector level, water

sector governance has been evolving through sector reforms aimed at streamlining and

strengthening sector institutions, with separation of roles and responsibilities for policy setting,

regulation and service provision. The Bank in collaboration with development partners will

remain engaged to support government to deepen and consolidate sector reforms.

4.3.2 As regards procurement within the project, CAPW has internally inbuilt checks and

balances to ensure transparency and fight corruption. Procurement is carried out by an

independent Committee of 12 people, comprising staff of the Authority and from other

Government organizations and ministries including Ministry of Finance. The Committee

undertakes its evaluation according to set rules and procedures, and submits its

recommendations to the Chairperson of CAPW for approval. The Chairperson approves

contract awards on behalf of the Minister of MHUUC. For the proposed project, a reputable

engineering consultancy firm will be recruited to assist with supervise construction works. In

addition, a provision has been made under the project for an annual audit to be carried out

covering all aspects of project implementation. In addition, the PIT will include an expert with

adequate experience in procurement and contract management.

4.4. Sustainability

4.4.1 To ensure technical sustainability, the project includes a requirement for the

consortium of contractor to operate and maintain the plant for three years following

construction. Both the consultant and the consortium of contractors will be mandated to train

additional counterpart staff of the executing agency and the operator, on all aspects of the

project’s O&M to promote technology transfer. In addition, the proposed project is similar to

other treatment plants managed by the executing agency.

4.4.2 In order to ensure financial and economic long term sustainability of the sector, the

water and wastewater policy is targeting continued progress towards cost recovery in service

provision through user charges. Currently it is estimated that the recurrent cost of the project

(operation and maintenance) will be approximately EGP 91 million per year. For the existing

facilities, the costs are met through Government subsidies. The recently approved tariff

adjustment (effective August 2017) shows GoE’s commitment to set the sector on solid

foundation of cost recovery. In this regard, GOE is committed to implement a program of tariff

adjustments for WSS services in order to ensure sustainability of service provision including

investment. These adjustments will also take into account the social nature of services and the

needs of the poor. The government plans to reach O&M cost recovery in the short term (up to

two years), O&M cost plus replacement (medium term) and full cost recovery as its long term

plans. In this regard, the government continues to demonstrate its commitment by issuing

required decrees, as done recently with Prime Minister’s decree number 1730 of 2017 to ensure

financial sustainability of water and wastewater service delivery and reduce dependency of

sector institutions on Government subsidy.

4.4.3 One of the challenges of the water sector in Egypt is the need to protect and enhance

the quality of water in its river, canals and drainage systems. The water bodies receive heavy

15

load of municipal waste deteriorating the water quality and endangering public health. The

GoE has in the past two decades invested more than 60 billion EGP and is currently updating

its NWRP 2017-37, with an investment plan of requiring more than EGP 885 billion. The

NWSP has identified measures for improving water quality in the water bodies that includes

increasing and enhancing the municipal wastewater treatment plants to curtail pollution of

water bodies. The proposed project is part of GoE long term plans and is a manifestation of the

government’s commitment to the development of the sector.

4.5. Risk management

The following risks shall be monitored and the required mitigating measures will be taken.

RISKS MITIGATION MEASURES (rating)

1. Project

Implementation

delays

The project will be executed through one contract, which is at advanced stage of

procurement/contract negotiations. Use of advance contracting will facilitate timely

start-up of construction. Constant and continuous supervision and monitoring by an

engineering consultant who will be hired by the EA. The EA will be required to (i)

adopt best practice in contract management, and (ii) strictly follow-up contract

execution. Besides, the EA already has experience in implementing similar big

projects (example Gabal Al Asfar project) using the same procurement/contractual

arrangements. (Medium)

2. Low tariffs: unable

to meet O&M costs

GOE committed to introduce cost reflective tariff system which will allow for social

tariffs, supported by sensitization campaigns. With Prime Minister’s decree number

1730 of 2017, effective August 2017, tariff has been increased with the objective to

reach O&M recovery in the short term and full cost recovery in the long term.

(Medium)

3. Limited technical

capacity to operate

and maintain

infrastructure

The EA adopting standard systems with the other similar wastewater treatment

plants managed by the EA, and by including at least 3-year operational period during

which the consortium of contractors will operate the plant and provide on-the-job

training to the relevant staff. Incorporate on the job training and capacity building of

CAPW/GWWC personnel to operate and maintain the facilities. (Low)

4. Availability and

timely release of

Counterpart

funding

The GoE will be providing significant financing for infrastructure activities.

Government is committed to implement this project of “national interest”.

Designated as a “National project”, the GoE is committed to implement the project.

In addition, close follow up with the borrower will be made during implementation

to ensure timely allocation and availability of counterpart funding. (Medium)

4.6. Knowledge building

4.6.1 The knowledge gained through the implementation of several projects and studies in

the sector in Egypt has been duly applied in designing this project. In the same pattern, the

knowledge that will be generated by this Project will be instrumental in designing and

managing similar projects in the sector in the future. The results from the proposed studies and

other surveys, including the socio-economic impact study will inform the stakeholders on how

to put the acquired knowledge attributes into practical use for better results-oriented

achievements and sustained benefit flows.

4.6.2 With the current trend of population growth in major cities in Africa, many institutions

continue to grapple with the mammoth problem of managing wastewater in their countries.

Management of wastewater has direct impact on the quality of the environment and especially

on water resources. The project is therefore expected to generate considerable interest and

knowledge, on how to resolve problems associated with management of large volumes of

wastewater. The lessons from the design, construction and management of projects of such

magnitude will be useful to many other countries in the region. The lessons learnt and

experience gained will be documented for dissemination in workshops, discussions and

seminars. Even during construction, the Bank will encourage groups from regional countries

to visit the plant for learning purposes and knowledge dissemination. Bank supervision

16

missions, quarterly and annual progress reports, mid-term review, audit and completion reports

will provide an opportunity to capture knowledge on relevant aspects of the project. This will

include its design, implementation modalities, procurement, as well as operations and

management, which will be available for analysis and will be shared both within the Bank and

with other development partners as well as authorities in RMCs.

V. LEGAL INSTRUMENTS AND AUTHORITY

5.1. Legal instrument

The Project will be financed by an ADB and AGTF loans.

5.2. Conditions and undertakings associated with Bank’s intervention

5.2.1 Conditions Precedent to Entry into Force of the Loan Agreement: The entry into

force of the Loan Agreement shall be subject to the fulfilment by the Borrower of the provisions

of Section 12.01 of the General Conditions Applicable to Loans and Guarantee Agreements of

the ADB.

5.2.2 Conditions Precedent to First Disbursement of the Loan: The obligation of the

Bank to make the first disbursement of the loan shall be conditional upon entry into force of

Loan Agreement in accordance with 5.2.1 above.

5.2.3 Undertaking:

The Borrower undertakes to:

(i) Provide evidence acceptable to the Bank of having recruited an Engineering

Supervision Consultant by 31st January 2018, to support in the contracting

process between CAPW and the contractor, review the design, and supervise the

construction; and

(ii) Implement the Project in accordance with national legislation and the

Environmental and Social Impact Assessment (ESIA), and report to the Bank

on a quarterly basis in a form acceptable to the Bank on the implementation of

the ESIA.

5.3. Compliance with Bank Policies

This Project complies with all applicable Bank policies.

VI. RECOMMENDATION

Management recommends that the Board of Directors of the Bank approve the proposal for an

ADB loan of USD 100 million and AGTF loan of USD 50 million to the Arab Republic of

Egypt for the purposes and subject to the conditions stipulated in this report.

I

Appendix I. Egypt’s Socio-Economic Indicators

Arab Republic of Egypt: Selected Economic Indicators, 2011/12–2016/171/

2011/12 2012/13 2013/14 2014/15 2015/16 2016/17

Prel. Proj.

Output and prices

Real GDP (market prices) 2.2 2.1 2.2 4.2 3.8 4.0

Consumer prices (average) 8.6 6.9 10.1 11.0 10.2 18.2

Public finances

General Government2/

Revenue and grants

21.1 21.9 23.7 21.9 20.3 25.5

Expenditures (incl. net acquisition of financial assets) 31.1 35.3 36.7 33.5 32.0 33.1

Overall balance -10.0 -13.4 -12.9 -11.5 -12.0 -10.0

Primary balance -4.9 -6.3 -5.8 -4.8 -4.4 -1.8

Gross Debt 74.6 84.8 86.3 89.0 94.6 93.8

External 9.3 10.8 9.9 8.0 7.7 10.1

Domestic 65.3 74.0 76.4 81.0 86.8 83.7

Budget sector3/ Revenue and grants 18.3 19.0 20.8 19.1 17.6 22.9

Expenditures (incl. net acquisition of financial assets) 28.4 32.0 33.9 30.6 29.4 30.5

Of which: Fuel subsidies 5.8 7.0 6.6 4.0 3.0 2.6

Of which: Food subsidies 1.8 1.8 1.7 1.7 1.5 1.4

Monetary sector Credit to the private sector 7.1 9.8 7.4 16.7 14.2 8.3

Reserve money6/ 5.1 20.4 14.8 33.3 -1.6 16.1

Broad money (M2) 8.3 18.4 17.1 16.4 18.6 16.7

Treasury bill rate, 3 month (average, in percent) 13.4 13.4 10.9 11.4 11.8 19.7

External sector

Merchandise trade balance -11.3 -10.8 -11.2 -11.7 -11.0 -12.5

Current account -3.7 -2.2 -0.8 -3.7 -5.5 -5.2

Capital and financial account (incl. errors and omissions) -3.7 1.1 0.9 5.5 4.6 1.7

Foreign direct investment (net in billions of USD) -3.7 3.6 3.8 6.1 6.7 9.4

Gross international reserves (in billions of USD) 15.2 14.5 16.3 19.5 17.1 22.0

In months of next year’s imports of goods and services 2.7 2.5 2.7 3.6 3.1 3.7

Financing gap (in billions of USD) … … … … 0.0 16.3

Memorandum items: Nominal GDP (in billions of Egyptian pounds) 1,656.6 1,843.8 2,101.9 2,429.8 2,777.8 3,434.1

Nominal GDP (in billions of USD) 275.8 285.4 301.5 330.2 … …

GDP per capita (in USD) 3,347 3,370 3,478 3,710 … …

Unemployment rate (period average, percent) 12.4 13.0 13.4 12.9 12.7 12.3

Poverty rate (percent) n.a. 26.3 … … … …

Populations (in millions) 82.4 84.7 86.7 89.0 90.2 92.3

Sources: Egyptian authorities; and IMF estimates and projections. 1/ Fiscal year ends June 30. 2/ General government includes the budget sector, the National Investment Bank (NIB), and social insurance funds. 3/ Budget sector comprises central government, local governments, and some public corporations. 4/ Includes multilateral and bilateral public sector borrowing, private borrowing and prospective financing (in 2011/12). 5/ Debt at remaining maturity and stock of foreign holding of T-bills.

II

Appendix II: AfDB Portfolio in Egypt (September 2017)

Sectoral

% Source of Finance

Bank Approval

Date Effective

Age (years)

Closing Date

Approved Amount (UA m)

Total Disbursed

(UA m)

% Disbursed

Suez Thermal Power Plant

ADB-L 15-Dec-10 8-Oct-12 4.43 30-Nov-17 327.30 240 74%

Ain Sokhuna Thermal Power

ADB-L 22-Dec-08 19-Aug-09 7.53 30-Jun-17 296.10 284.14 97%

Alcazar Energy Egypt Solar I

ADB Priv 4 Sept

2017 12.74 0 0

Delta for Renewable Energy ADB Priv

4 Sept 2017 12.74 0 0

Shapoorji Pallonji Energy Egypt

ADB Priv 4 Sept

2017 13.44 0 0

Egyptian Refining Company

ADB Priv 17-Mar-10 21-Jun-12 4.72 15-May-16 128.17 128.17 100.00%

Egyptian Refining Company sub convention loan ADB Priv 17-Mar-10 21-Jun-12 4.72 15-May-16 16.02 16.02 100.00%

Sub-Total – Power (6) 48.1% 807 671 83.2%

Airport Centre of excellence

MIC TAF 16-Apr-15 29-May-

15 1.82 31-Dec-19 1.2 0.0002 0.00%

Sub-Total - Transport (1) 0.1% 1.2 0.0002 0.0%

Actuarial modelling study for implementation of national health insurance system MIC TAF 18-Aug-16 20-Sep-16 0.53

31 Dec 2017 0.18 0.11 59%

Support to Parliament: Building Capacity and Mainstreaming Inclusive Growth and Decentralization MENA TF 11-Jun-14 11-Jun-14 2.78 30-Sep-17 1.96 0.07 4

Rx Health Care Fund (Equity)

ADB Priv 19-Oct-16 N/A 14.33

Supporting the Upgrading of Informal Settlements MIC TAF 2-Nov-16 12-Feb-17 0.13 31-Mar-19 0.40 0.00 0.00%

Sub-Total – Social (4) 1.0% 16.87 0.18 1.05

Green Growth: Industrial Waste Management and SME entrepreneurship Hub MENA TF 15-May-13 19-Dec-13 3.25 30-Sep-17 1.39 0.8 57.3%

Restructuring of the Nasser Social Bank – Phase 1 MIC TAF 11-Oct-16 9-Feb-17 0.00 30-Jun-18 0.40 0.10 25.22%

Support to Micro, Small & Medium Enterprises in Organic Clusters Project MENA TF 20-Feb-13

29-May-13 3.80 30-Dec-17 1.39 1.39 100%

Sub-Total - Finance (3) 0.2% 3.17 2.29 72.3%

Gabel El-Asfar Wastewater Treatment Plant ADB-L 7-Oct-09 28-Jun-10 7.51 31-Dec-17 44.08 36.7 84%

Sub-Total – Water & Sanitation (1) 2.64% 4.08 36.7 84%

III

Franchising Sector Support Program ADB-L 25-Feb-09 14-Jun-10 6.72 15/12/2017 28.74 20.38 70.91%

Navisat - Transaction Advisory services for procurement of NAVISAT system NEPAD-IPPF 4-Mar-13

19-May-13 3.83 30-Jun-17 1.07 0.09 8.41%

Strengthening the Rule of Law: Effective and transparent delivery of justice and rule-making MENA TF 11-Jun-14 25-Sep-14 2.49 31-Aug-17 1.72 0.10 5.82%

Support to EAPD

MIC TAF 30-Apr-15 3-Jun-15 1.81 31-Dec-17 1.20 0.74 61.7%

Strengthening of INP MIC TAF 8-May-15 11-Dec-15 1.29 25-Feb-18 1.20 0.76 63.6%

Modernization of CBE’s Clearing and Settlement Depositary System MIC TAF 10-Jul-15 1-May-16 0.91 30-Dec-17 0.89 0.02 1.8%

Economic Governance and Energy Support Program ADB - L 15-Dec-15 4-Jan-16 1.23 31-Dec-16 360.82 360.82 100.00%

Emergency Humanitarian Assistance for Alexandria flood victims

EMERGENCY GRANT 9-Nov-15 15-Nov-15 1.36 31-Dec-17 0.72 0.72 100.00%

Building Capacity and Institutional Strengthening of Ministry of International Cooperation MENA TF 30-Dec-15 21-Apr-16 0.94 31-Dec-19 3.132 0.19 6.07%

Economic Governance and Energy Support Program- Phase II ADB - L 13-Dec-16 31-Dec-17 360.82 360.82 100%

Strengthening capacity of Administrative Control Agency to combat corruption MENA TF

23 May 2017

2.55 0 0

Sub-Total – Multi Sector (11)

45.62% 763.86 744.64 97.6%

Feasibility study and CB for use of RE for pumping irrigation water

MIC TAF 1-Mar-15 27-Oct-15 1.42 31-Mar-18 0.80 0.12 14.6%

National Drainage III ADB-L 17-Jun-15 1-Jun-16 0.83 31-Dec-21 41.17 4.55 11.71%

National Drainage III Technical Assistance MIC TAF 1-Feb-16 31-Aug-16 0.58 31-Dec-21 0.40 0.039 10%

Sub-Total – Agriculture & Irrigation (3) 2.53% 42.37 4.7 11.10%

SUBTOTAL: 29 (7 public sector loans + 5 private sector loans (4 loan + 1 equity) + 17 grants (9 MIC TAF; 6 MENA TF; 1 NEPAD-IPPF; 1 Emergency Relief)) 1,677 1,460 87.1%

IV

Appendix III: Key related projects financed by other development partners in the

country

Name of Project Financier(s) Amount

USD million

Year to be

commissioned

Sustainable Rural Sanitation services for

Results (P4R)

WB 550 2015

Improved Water and wastewater Services

Programme (IWSP)

KfW, EIB, AFD, EU &

GoE

391.6 2012

Integrated Sanitation and Sewerage

Infrastructure Project

WB, Netherlands, GTZ

& GoE

201.5 2012

Kashinar Drainage Depollution Project EU, EIB, EBRD 600 2015

Water Sector Reform Programme (WSRP) EU 60 2012

Fayoum Expansion Depollution and WWTP

Project

EU, EBRD, EIB 525 2017

Kafr El Sheikh Wastewater Expansion Project EU, EBRD, EIB 205 2017

Alexandria East Sludge Facility AFD 62

Gabel Asfer Wastewater Treatment project –

Phase II – Stage II

AfDB 66.5

El-Rahawy Drainage Sanitation project Kuwait Fund for Arab

Economic

Development

140 2016

Exchange Rate used for Euro = 1.25 USD

V

Appendix IV. Map of the Project Area

Location of Abu-Rawash Wastewater Treatment Plant on the geographical map (Greater Cairo Map – Scale 1:100,000)

Satellite Image for Land Cover and Land Use.