of the world for official onlydocuments.worldbank.org/curated/en/572471468113358621/... ·...

Document o f The World Bank

FOR OFFICIAL USE ONLY

Report No: 33397-TN

PROJECT APPRAISAL DOCUMENT

ON A

PROPOSED LOAN

IN THE AMOUNT OF EUR 3 1 .O MILLION (US38.03 MILLION EQUIVALENT)

TO THE

SOCIbTE NATIONALE D’EXPLOITATION ET DE DISTRIBUTION DES EAUX (NATIONAL PUBLIC WATER SUPPLY UTILITY)

WITH THE GUARANTEE OF THE REPUBLIC OF TUNISIA

FOR AN

URBAN WATER SUPPLY PROJECT

October 13,2005

FINANCE, PRIVATE SECTOR AND INFRASTRUCTURE GROUP (MNSIF) MIDDLE EAST AND NORTH AFRICA (MNA)

This document has a restricted distribution and may be used by recipients only in the performance o f their official duties. I t s contents may not otherwise be disclosed without Wor ld Bank authorization.

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CURRENCY EQUIVALENTS

(Exchange Rate Effective M a y 1 1,2005)

Currency Unit = Tunisian Dinar (TND) 1.258 TND = US$ 1 US$O.795 = T N D 1

1 US$ = EUR 0.8 106 (Aug 3 1,2005)

DGRE DSCR EMP ERP GEG GIS GOT IRR L L C R MAWR MDG MDT MENA M E S D NPV O & M ONAS P C N PIU PSP S I L SONEDE

ST4 ssw TND WS&S WTP WHO

FISCAL YEAR January 1 - December 31

ABBREVIATIONS AND ACRONYMS Direction GknCrale des Ressources en Eaux (Water Resources Department) Debt Service Coverage Ratio Environmental Management Plan Entreprise Resource Planning Ghdir El Gollah (location o f Tunis water treatment plant) Geographic Information System Government o f Tunisia Internal Rate o f Return Long Term Liabi l i ty Coverage Ratio Ministry o f Agriculture and Water Resources Mi l lenium Development Goals Mi l l ions o f Tunisian Dinars Middle East and Nor th Afr ica Ministry o f Environment and Sustainable Development N e t Present Value Operation and Maintenance Office National d’ Assainissement (National Sewerage Board) Project concept note Project Implementation Unit Private Sector Participation Specific Investment Loan SociCtk Nationale d’Exploitation et Distribution des Eaux (National Public Water Supply Utility) Water treatment unit 4, expansion o f Ghdir e l Gollah WTP) State Secretary o f Water (attached to MAWR) Tunisian dinar Water supply and sanitation Water treatment plant World Health Organisation

Vice President: Christiaan J. Poortman Country ManagerDirector: Teodore 0. Ah le rs

Sector Manager: Jonathan Walters Task Team Leader: Pier Francesco Mantovani

TUNISIA


CONTENTS

TN-URBAN WATER SUPPLY

FOR OFFICIAL USE ONLY

Page

A . STRATEGIC CONTEXT AND RATIONALE ................................................................. 3

Country and sector issues .................................................................................................... 3

Rationale for Bank involvement ......................................................................................... 4

Higher level objectives to which the project contributes .................................................... 5

1 . 2 . 3 .

B . PROJECT DESCRIPTION ................................................................................................. 5

1 . 2 . 3 . 4 . 5 .

Lending instrument ............................................................................................................. 5

Project components ............................................................................................................. 6

Project development objective and key indicators .............................................................. 6

Lessons learned and reflected in the project design ............................................................ 9

Altematives considered and reasons for rejection .............................................................. 9

C . IMPLEMENTATION ........................................................................................................ 10

1 . 2 . Monitoring and evaluation o f outcomeshesults ................................................................ 11

3 . Sustainablllty ..................................................................................................................... 11

4 . Critical r isks and possible controversial aspects ............................................................... 11

5 . Loadcredit conditions and covenants ............................................................................... 12

Institutional and implementation arrangements. ............................................................... 10

. . .

D . APPRAISAL SUMMARY ................................................................................................. 13

1 . 2 . Technical ........................................................................................................................... 19

3 . Fiduciary ........................................................................................................................... 19

4 . Social ................................................................................................................................. 20 5 . Environment ...................................................................................................................... 20

6 . Safeguard policies ............................................................................................................. 22

7 .

Economic and financial analyses ...................................................................................... 13

Policy Exceptions and Readiness ...................................................................................... 23

Annex 1: Country and Sector Program Background .............................................................. 24

Annex 2: Major Related Projects Financed by the Bank andor other Agencies ................. 28

T h i s document has a rest r ic ted d i s t r i b u t i o n and may b e used by recipients on ly in the per fo rmance of t h e i r o f f ic ia l dut ies . I t s contents may not b e otherwise disclosed !w i thou t W o r l d Bank author iza t ion .

1v

Annex 3: Resu l ts Framework and Monitoring ........................................................................ 29

Annex 4: Detailed Project Description ...................................................................................... 32

Annex 5: Project Costs ............................................................................................................... 39

Annex 6: Implementation Arrangements ................................................................................. 43

Annex 7: Financial Management and Disbursement Arrangements ..................................... 47

Annex 8: Procurement Arrangements ...................................................................................... 50

Annex 9: Economic and Financial Analysis ............................................................................. 63

Annex 10: Safeguard Policy Issues ............................................................................................ 92

Annex 11: Project Preparation and Supervision ................................................................... 111

Annex 12: Documents in the Project F i le ............................................................................... 112

Annex 13: Statement of Loans and Credits ............................................................................ 113

Annex 14: Country at a Glance ............................................................................................... 114

Annex 15: Map: IBRD 34059 ................................................................................................... 116

Tunisia 1 Project Appraisal Document Urban Water Supply Project October 2005

TUNISIA

TN-URBAN WATER SUPPLY


MIDDLE EAST AND NORTH AFRICA

MNSIF

I Date: October 6,2005 Team Leader: Pier Francesco Mantovani Sectors: Water supply (90%);Central government administration (1 0%) Themes: Regulation and competition pol icy (P);Water resource management (S);Pollution management and environmental health (S) Environmental screening category: Partial

Country Director: Theodore 0. Ahlers Sector ManagerDirector: Jonathan D. Walters

Project ID: PO64836 Assessment Safeguard screening category: B Lending Instrument: Specific Investment Loan

For Loans/Credits/Others:

Borrower: Societe Nationale d'Exploitation et de Distribution des Eaux (SONEDE) Av. Slimane Ben Slimane Manar I1 2092 Tunis Tunisia Tel: (216) 71-887-000Fax: (216) 71-871-000 [email protected]. tn www.sonede. com. tn Guarantor: Government o f Tunisia

Project implementation period: Start Jan 2006 End: Jun 201 1 Expected effectiveness date: January 2006 Expected closing date: December 201 1


[ ]Yes [XI N o

[ ]Yes [XINO [ ]Yes [XINO

Does the project depart from the CAS in content or other significant respects? Re$ PAD A.3 Does the project require any exceptions from Bank policies? Re$ PAD D. 7 Have these been approved by Bank management? I s approval for any policy exception sought from the Board? Does the project include any critical r isks rated “substantial” or “high”? Re$ PAD C.5

[ ]Yes [XINO

[ ]Yes [XINO

[XIYes [ ] N o Does the project meet the Regional criteria for readiness for implementation? Re$ PAD D. 7 Project development objective Re$ PAD B.2, Technical Annex 3 The Project development objectives are to:

0

0

Sustain the reliability and quality o f water service in Greater Tunis and selected urban centers, through augmentation, upgrade and renewal o f water supply infrastructure. Enhance the competitiveness and sustainability o f SONEDE operations, through modernization o f management practices and information systems, for better cost control, enhanced revenue and more responsive customer service.

Project description Re$ PAD B.3.a, Technical Annex 4 The project combines infrastructure and capacity building components:

0 Infrastructure components (Components 1 and 2) are excerpted from SONEDEs capital improvement program, i tself encompassed by GOTs 10th and 1 lth Economic Development Plans. They represent priority needs to avoid service deficits as early as 2010, and to meet 2025 demands, in Greater Tunis, Northern and Central Tunisia. Capacity building tasks (Component 3) include the development o f studies and decision- making tools and training, as well as the modernization o f information systems, to enable

0

higher performance in utility management, planning, cost control and customer service. Which safeguard policies are triggered, if any? Re$ PAD D. 6, Technical Annex 10

0 Environmental Assessment (OP/BP/GP 4.01) 0 Land acquisition & Involuntary Resettlement (OP/BP 4.12)

Significant, non-standard conditions, if any, for: Re$ PAD C. 7 N/A Board presentation: N o conditions subsist towards board presentation. Loadcredit effectiveness: N o conditions subsist towards effectiveness, subject to legal opinion as per General Conditions. Covenants applicable to project implementation: Financial covenants in the loan agreement commit SONEDE to:

Maintaining a minimum ratio o f internal cash generation against capital expenditure needs o f 30%, towards greater self-financing autonomy. Maintaining an operating ratio o f over 100% for strict cost recovery. Maintaining a debt service coverage ratio o f 1.3 or better. Satisfying standard auditing and reporting requirements.

0

0

0

0


A. STRATEGIC CONTEXT AND RATIONALE

1. Country and sector issues

Countrv context

In the four decades between 1961 and 2001 Tunisia experienced sustained economic growth, averaging over 5% per year. Hallmarks o f Tunisia’s centrally planned development approach include widespread access to education and health care, affirmative gender policies, and continued investment in manufacturing and basic infrastructure. Since the early 1 9 9 0 ’ ~ ~ structural reforms, prudent macro-economic policies and better trade integration with the global economy were embraced to maintain economic and social development momentum. Poverty continued to be reduced, from 8% o f the population in 1995 to about 4% in 2000. After a drought-related slump in 2002, the economy resumed growing at 5.5% per year in 2003’.

Under i t s Tenth Economic Development Plan (2002-2006) Tunisia nevertheless faces significant challenges to reduce unemployment from the current level o f 15%’ to improve the efficiency o f i t s social programs, and to convert i t s investment in education into a knowledge economy. Since 2004, Tunisia’s economic and social development plans are tested by the escalating cost o f o i l imports.

Water sector context and issues

Through sound infrastructure policy, Tunisia has achieved the highest access rates to water supply and sanitation services among middle-income MENA countries. By the end o f the Tenth Plan in 2006, access to safe drinking water wil l be close to universal, i.e. 100% in urban areas and 90% in rural areas (96% o n average). Similarly, 96% o f urban dwellers, and 52% o f the rural population already have access to improved sanitation (80% o n average). Two national autonomous public utilities, Socie‘tk Nationale d ’Exploitation et Distribution des Eaux (SONEDE), and Office National d ’Assainissement (ONAS), are respectively responsible for drinking water supply and sewerage across urban areas and al l but the most dispersed rural areas. As a result o f well-funded policies, good capacity planning and a culture o f operating excellence, these utilities have long ranked among the most solid public operators in the region. L o w rates o f non-revenue water losses in distribution systems, estimated at 18% on average, are indicative o f the high standard o f SONEDE’s operations, as well as o f the national pol icy priori ty assigned to demand management and conservation o f scarce water resources. Just as appreciable i s the fact that ONAS treats over 90% o f collected sewage flows, often to secondary quality standards compatible with agricultural reuse. Purposeful management and reliable tariff increases, had also, until the late ~ O ’ S , resulted in good cost-recovery Performance in both agencies.

A s of 2005, SONEDE’s operational and financial performance remains sound2. In recent years however, the outlook o f Tunisia’s successful utility model has evolved. As maturing agencies, about to substantially complete their expansion across rural areas, both SONEDE and ONAS

See Country at a Glance, Annex 14. See SONEDE’s 2004 Fact sheet in Annex 1.

I


face new structural and institutional challenges that bring into focus the opportunity for increased management performance and cost control. Both operators are impacted by creeping cost increases l inked to rural service, rigid labor structures, mounting maintenance and renewal needs, and low-retum new activities3. In addition, after decades o f expansion, SONEDE, and especially ONAS, must deal with changed macro-economic conditions which limit the Government’s abi l i ty to continue granting dependable biennial tari f f increases. They witness, by the same token, a reduction in institutional and management autonomy, including for capital program and labor management decision-making. The financial degradation i s most alarming at ONAS, where extended tari f f freezes have made operations increasingly dependent o n subsidies originally intended for investment. By comparison to ONAS, SONEDE’s financial situation i s strong, but vulnerable nevertheless due to cost increase trends which outpace recent tariffs adjustments.

Looking ahead, the water supply sub-sector faces specific challenges, including: 0 Raising the level and the quality o f service, despite aging infrastructure and increasingly

scarce water resources. This implies optimal investment strategies for resource security (North-South transfer works, desalination, new technologies) for renewing and maintaining infrastructure, and for improving treated water quality. Establishing a more efficient and responsive organization, through a combination o f decentralization, non-core business outsourcing, customer focus, and strategic management o f human resources and technology.

0 Modernizing management practices and systems to promote efficiency and cost reduction. This spans performance management, financial forecasting, and information systems, including customer service, asset management and project management applications. It also entails strengthening the cost-efficiency culture o f SONEDE. Adapting sector policies to improve SONEDE’s and ONAS’s competitiveness and sustainability, including in areas o f tar i f f regulation, management autonomy, private sector role, and selected integration o f water supply and sanitation operations.

0

0

2. Rationale for Bank involvement

The World Bank, GOT, SONEDE and ONAS share a long and successful partnership. Through eight projects dedicated to potable water infrastructure development and capacity building, the Bank has helped extend coverage across urban and rural Tunisia since SONEDE’s inception in 1968. Similarly, the Bank has supported the development o f ONAS since i ts creation in 1974 and implemented six, largely satisfactory projects. The Bank has come to expect strong technical execution from the two utilities, and selective pol icy dialogue from GOT. Renewed Bank involvement with SONEDE i s based on the premise that utility’s contribution to Tunisia’s economic and social development wil l increasingly be measured in terms o f competitiveness: SONEDE i s not only expected to supply water, but to provide higher quality service at a lower cost to the economy. In that regard, SONEDE’s technical and operational capacities are already strong, and tailored capacity building may focus o n management performance and development strategies.

Besides rural service, this includes desalination in coastal areas for SONEDE and f lood response for ONAS.

Continued support to Tunisia’s water sector i s thus justified to: 0

0

0

Strengthen, renew and modernize infrastructure systems; Enhance the competitiveness o f service and the autonomy o f operations; Promote the efficiency o f sector policies and strategies, spanning the water supply and sanitation subsectors.

The new project will invest in SONEDE’s infrastructure and quality o f service, as well as in SONEDE’s management capacity, for improved competitiveness and autonomy. The project will not seek to directly influence sector policies at the governmental level. Other dedicated sector dialogue channels are justified to that effect, towards more effective tari f f and performance regulation, tari f f structure efficiency, improved integration o f water and sewerage service for customers, and increased private sector role in the sector. All the while, as SONEDE’s operational and financial performance remains strong, the need for introducing comprehensive private sector participations in the sector may be l imited in the short term.

3. Higher level objectives to which the project contributes

Ensuring reliable water supply to domestic and industrial consumers ranks high in the development agenda o f the Government. These services have brought about economic and public health benefits, and improved living standards, contributing among other things to decrease the infant mortality ratio and eradicate epidemics since the mid-1980’s. The project will help Tunisia achieve key environmental and health M D G s by financing expansion o f good quality potable water supply services. In particular, i t supports Tunisia’s goals for the water supply sector and a slice o f corresponding investments set up in i t s loth Economic Development Plan which encompasses an increase in the level o f sector investments. A port ion o f project activities wil l also span over the period o f the 1 lth Plan, currently under preparation. Furthermore, the project contributes to two o f the three key objectives o f the Bank’s 2004 Country Assistance Strategy for Tunisia, namely (i) to improve the competitiveness o f the Tunisian economy and i ts private sector; and (ii) improve the quality o f social services, through improved delivery and efficiency o f an essential infrastructure service, water supply; and enhanced efficiency o f public expenditure in that sector.

B. PROJECT DESCRIPTION

1. Lending instrument

The project wil l use a Specific Investment Loan (SIL) to SONEDE, with a guarantee by GOT, to implement priority components o f SONEDE’s capital improvement program. The proposed loan i s a Fixed Spread Loan in Euros with a capitalized fi-ont-end fee.


2. Project development objective and key indicators

The Project development objectives are to: 0 Sustaining the reliability and quality o f water service in Greater Tunis and

selected urban centers, through augmentation, upgrade and renewal o f water supply infrastructure. Enhance the competitiveness and sustainability o f SONEDE operations, through modernization o f management practices and information systems, for better cost control, enhanced revenue and more responsive customer service.

0

Indicators will track improvements in service and management performance. Service indicators will measure gains in new connections, water sales, and avoided unplanned supply disruptions. Improved service quality may further be monitored through periodic customer satisfaction surveys under consideration by SONEDE. Capacity building activities wil l be monitored through indicators measuring i) the implementation and ii) selected outcomes o f tasks. Some of these indicators will be updated at midterm review, as specific studies and system installations are completed. (See Annex 3). For continuity, a set o f financial indicators tracked during the Water Supply and Sanitation Project (Loan 3782-TUN) wil l also be monitored.

3. Project components

To achieve these objectives, the project combines infrastructure and capacity building components:

0 Infrastructure project components (Components 1 and 2) were excerpted from SONEDE’s capital improvement program, itself encompassed by Tunisia’s loth and 1 lth Economic Development Plans (the latter in preparation). . They represent priority needs towards avoiding service deficits as early as 2010, and meeting demands through 2025. Such components are distributed in SONEDE’s Greater Tunis, Nor th and Central operating regions.

0 Less substantial, but strategic and integrated, the capacity building tasks (Component 3) include the development o f studies and decision-making tools, as well as the modemization of key information systems, to enable higher performance in utility management, planning, cost control and customer service.

Component 1: Improvements to the Greater Tunis water supply system. Under this component, the project wil l implement treatment, transmission and distribution infrastructure, to strengthen water supply capacity in the Greater Tunis area. K e y elements include the expansion of treatment and storage capacity at Tunis’s Ghdir-el-Gollah (GEG) water treatment plant (WTP) site, the rehabilitation o f a crucial transmission line from GEG WTP to Ras Tabia storage tank, and selected augmentation o f storage, pumping and distribution capacities in peripheral subsystems, including growth areas o f Momag, Bir-el-Kassa, L a Gazelle, and Borj Touil.

These improvements wil l benefit a l l population served in Greater Tunis (approx. 2.2 million), and allow an added 147,800 household connections by 2025. The project wil l install sludge


treatment for GEG WTP.in i t s entirety, thus stopping the current practice o f unpermitted discharge to a stream.

Component 2: Improvements to water supply systems in urban centers. This component addresses water production, storage, transmission and distribution upgrades in SONEDE’s northern and central operating regions to meet demand growth. In the northern region, upgrades to the Kin Draham; Ghardimaou, and Rouhia-Jedliane-Sbiba systems wil l benefit an estimated 69,000 people and allow for 5,000 new households connections. In the central region, upgrades to the Jammel, Kalaa Kbira, Nasrallah and Ouerdanine systems wil l benefit around 151,000 people and allow to serve an additional 11,000 households.

Component 3: Management capacity building. This component wil l include studies, decision-making tools, information systems and training to enhance SONEDE’S management and planning performance, including the fol lowing key tasks:

Task 3a. Corporate plan and organizational audit. This task consists o f two main steps: A Corporate Plan wil l be developed with SONEDE management’s facilitated participation, to develop awareness o f trends and future challenges in SONEDE’s market and environment, and to identify medium to long-range plans to adjust to them. A second more actionable step will consist o f an audit o f SONEDE’s organization and human resources management. An action plan will also be formulated towards implementation o f management accounting by activity.

Task 3b. Financial model. This task wil l equip SONEDE with a professional financial simulation model aimed at optimizing investment programs and borrowing, developing stronger tar i f f adjustment rationales, and setting performance and cost control goals.

Task 3c. Customer service information system. This urgently needed renewal task entails the purchase, integration and installation o f a state-of-the-art customer service software and associated servers. Although operated by SONEDE, ONAS will participate in the oversight o f the development o f this new system to manage customer relations and billing for both utilities, towards more efficient collections and more responsive customer care.

Task 3d. Human resources management information system. Under this task, an obsolete payroll system wil l be replaced with an integrated4 human resource management and payrol l system, towards introducing efficient management o f labor resources and costs. Whi le integral to the Project, Task 3d component may be whol ly funded by SONEDE.

Compatible wi th existing core Enterprise Resource Planning (Em) applications.


Local costs

US$ mill ion

Cost By Component (USD)

Summary o f Project Cost

Foreign Total costs costs

US$ mill ion US$ mill ion

1 : Greater Tunis Infrastructure 2 : Urban Centers Infrastructure

Infrastructure subtotal

15.02 10.84 25.86 5.99 3.12 9.1 1

21.01 13.96 34.96

I 3 : Management Capacity Building ~~~ ~

a. Corporate plan and organizational audit 0 0.48 0.48 b. Financial model 0 0.22 0.22 c. Customer Service information svstem 0.88 1.76 2.64 d. Human Resources management system *

Management Capacity Bui lding subtotal

Total Baseline Cost Phvsical Continnencies

0.53 0 0.53 1.41 2.46 3.87

22.41 16.42 38.83 2.16 1.60 3.76

I Total Project Costs' 28.00 19.16 47.15

are US$m 6.97, and totalproject cost, net of taxes, is US$m 40.18. Share ofproject cost net of taxes is 85%.

Local costs Cost By Component (TND) Foreign Total

costs costs



TND mil l ion TND mil l ion TND mill ion

18.77 13.55 32.32 7.49 3.90 11.38

26.26 17.45 43.70

3 : Management Capacity Bui lding a. Corporate plan and organizational audit b. Financial model c. Customer Service information system

0 0.61 0.61 0 0.28 0.28

1.10 2.20 3.30

Physical Contingencies Financial Contingencies Total Project Costs'

2.70 1.99 4.70 4.27 1.42 5.70 34.99 23.94 58.94


4. Lessons learned and reflected in the project design

Project design accounts for past project experience, including a project completed in 2003 with SONEDE and ONAS’ and a current one with ONAS and the Ministry o f Agriculture6.

0

0

SONEDE wil l be the single borrowing agency accountable for execution to simplify implementation and supervision arrangements. The new project wil l strengthen SONEDE use o f outsourcing o f non-core tasks, in particular for infrastructure design and works control. Past projects have allowed SONEDE to self-implement al l capital improvement program tasks. Limited use o f subcontracting may have reduced SONEDE’s exposure to technology and cost- optimization techniques. The new project may alter that by calling for:

o “Design-build” procurement for the GEG WTP expansion (largest subproject). o Competitively-bid diagnostic, design and works control for the rehabilitation or

renewal o f the GEG - Ras Tabia transmission l ine (2nd largest subproject). o Oversight o f Environmental Management Plan (EMP) by specialist consultants.

0 Advance design and procurement wil l be maximized to limit procurement lead times and potential delays associated with National Tender Board approval processes.

0 A material inventory system wil l be implemented for the goods acquired under the project, with separate accounting for the connections implemented under the project.

0 A Project Implementation Unit (PIU) wil l be created to coordinate project implementation, including oversight o f procurement plan and project reporting.

0 Project perfonnance ratings and financial covenants wil l be based on indicators over which SONEDE has control. Past experience shows that tar i f f increase covenants are awkward to enforce, as GOT claims they pertain to sovereign policy, and they fai l to encourage improved utility performance.

5. Alternatives considered and reasons for rejection

Successive project configurations were assessed through identification and preparation:

0 The original project concept encompassed infrastructure needs in Greater Tunis and 44 other urban centers, substantial purchases o f supplies for water savings programs, and a “sector review” across water supply and sanitation sub-sectors. Comprehensive cost assessment demonstrated that such scope vastly exceeded SONEDE’s and GOT init ial borrowing prospect o f TND 90 million.

0 In the interest o f budget, eventually capped at TND 50 m i l l i on before tax, al l but top priority infrastructure projects were retained, and water savings supplies were dropped. The sector review was also excluded from the loan, due to reluctance to justify a distinct loan for Ministry o f Agriculture, and r isk seeing pol icy dialogue objectives become performance criteria for the project. Investment in infrastructure was further optimized

Water Supply and Sewerage Project, loans 3782/3783-TUN Greater Tunis Sewerage and Water Reuse Project, Loans No. 4174/4175-TUN


by fine-tuning the ST4 treatment capacity expansion to 2 m3/sec, and postponing further expansion to 3 m3/sec. A 100% infrastructure scenario, without institutional component, was discarded as inadequate to address SONEDE’s cost-reduction, efficiency and autonomy challenges. A “no action” scenario was dismissed as leading to unacceptable service deficits, and related economic impacts, in Greater Tunis and other urban centers as early as 201 0. The original l i s t o f capacity building needs (water savings, master plans, corporate plan, tar i f f study) was narrowed, with focus sought on management performance gains.

0

0

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C. IMPLEMENTATION

1. Institutional and implementation arrangements

As borrower and executing agency o f the project, SONEDE operates under the tutelage o f the Ministry o f Agriculture and Hydraulic Resources (MAW). SONEDE features strong institutional and technical capacity, and i s a veteran o f eight Bank-financed projects. A s in the past, GOT will guarantee the loan.

As stated earlier, a new Project Implementation Unit (PIU) wil l be set up, led by a senior manager with direct report to SONEDE’s CEO, to coordinate project activities. Several departments o f SONEDE wil l be involved in the project implementation and operations, including:

0 Planning and General Studies 0 Engineering Studies 0 Purchasing 0 Construction 0 Production

0 Operations 0 Finance and Accounting 0 Information Technology 0 Organization 0 Human Resources

Implementation schedule

The project wil l be implemented over a period o f six years (2005-201 1) as shown below,. With regard to the infrastructure components, some o f the engineering studies have been carried out by SONEDE since late 2004.

ID ITaskName I I -__- - - -

Component 1 : Improvements to the Great Tunis water supply system Component 2 : Improvements of water supply systems in urban centers Component 3 : Management Capacity building

Task 3 a : Corporate plan and organizational audit Task 3 b : Financial Model Task 3 c : Customer Management IT System Task 3 d : HR IT System

63

- -- -___ __

__ . 1


Financial Aspects and Disbursements

Based on currently available information and on past project experience, in particular the recently completed water supply and sewerage project (Ln No. 3782 & 3783-TN), i t i s expected that financial and disbursement aspects o f the new loan wil l be efficiently handled by Directorate for Finance and Accounting, as per Bank procedures.

SONEDE’s accounting and financial systems and resources are well known to the Bank. Systems include accounting, finance, purchasing/warehousing applications integrated as ERP core (J.D.Edwards). SONEDE i s audited yearly by a private external auditor, and the Bank has had access to i t s audited statements for more than a decade.

2. Monitoring and evaluation of outcomes/results

The Project Implementation Unit, in collaboration with the Directorate for Planning and General Studies, will centralize project data and reporting, including performance indicators, and will track variance from project targets and project implementation plan. A result monitoring framework i s included in Annex 3.

Bank supervision wil l be more intensive during the f i rst two years o f implementation (Le,, 12 to 16 staff-weeks per year) to support SONEDE launch critical project activities, in particular for the management capacity building component.

3. Sustainability

With SONEDE’s track record o f institutional capacity, good operating practices and high cost- recovery performance, and barring an aggravation o f institutional and economic constraints, the sustainability o f project outputs and outcomes i s highly likely. Better intemal cash generation brought about by the project should also enable improved asset management.

SONEDE’s sustainability outlook as an agency is developed in the financial analysis sections (D.1). K e y management parameters towards maintaining a prudent debt ratio include: (i) labor costs and productivity, (ii) water tariffs and sales, and (iii) optimization o f investment strategies.

4. Critical risks and possible controversial aspects

Risk

Risk of delays due to procurement approval processes by National Tender Board, (NTB). NTB’s processing capacity may have stagnated in recent years.

Rating

High

Comments and/or Mit igat ion Measure

Mitigation o f this risk exceeds the scope o f the project. Project wi l l maximize advance procurement, and grouping o f tasks to minimize NTB’s review impacts. As part of procurement policy dialogue, opportunities may emerge to test (i) higher thresholds, (ii) increase o f post-reviews, and (iii) delegation o f atmroval Dower to detached NTB staff.


Risk of limited GOT progress in enacting sector policy and institutional reforms.

Risk of GOT inability to grant SONEDE necessary tariff adjustments.

Risk of institutional delays to act on performance management and organizational efficiency recommendations. The organizational audit may recommend action towards modernizing SONEDE’s structures and functions, and clarifying institutional relationships.

Management culture at SONEDE may limit the effectiveness of management capacity building components.

InsufJicient SONEDEIONAS consultation. Limited experience o f collaborating o n strategic projects may prevent the new customer service IT system f rom bringing about i t s full efficiency potential.

Project may not speciJcally target poverty.

Quality of engineering studies sey- performed by SONEDE may impact project.

High

Medium

Medium

Medium

Medium

Med ium

L o w

~

The project opts to strengthen SONEDE’s iutonomy, and not to frontally leverage the loan for pol icy reform. Policy dialogue with SOT, combining water supply and sanitation interests, i s needed in parallel. 3 v e n SONEDE’s good financial situation, and the 5% tar i f f increase granted in 2005, loan covenants may avoid specifically mandating tar i f f increases but rather a im to sustain SONEDE’s financial situation. The project will focus on developing management capacity to continuously improve the performance and cash generation, within the reach o f SONEDE’s initiative. GOT representatives will be involved in any significant organizational arbitrage.

Installing new IT systems does not transform the culture and s lu l l s o f utility managers. SONEDE’s management team will nevertheless be empowered to implement performance enhancements and monitoring, at f i rst basic, and gradually more complex. W h i l e specific needs for training and/or TA have not been assessed, unallocated funds allow to address them during the project cycle. ONAS’s input in the definit ion o f SONEDE’s new customer service IT system matters towards identifying operational efficiencies. SONEDE has of f ic ia l ly invited ONAS to actively participate in and appoint a representative for the Steering Committee which will fo l low up the development o f the new system. Target areas are selected based o f highest service deficit in 2010 and 2025. Introduction o f poverty criteria, if possible, i s not consistent with current SONEDE planning methodology. Target areas however often coincide with towns or neighborhoods of reported poverty. SONEDE’s designs may not be most innovative or optimized, but are conservatively solid, timely. and confined to standard submoiects.

5. Loadcredit conditions and covenants

Condi t ions for negot iat ion were m e t and included:


0 Early establishment o f Project Implementation Unit capacity to advance procurement o f main tasks.

0 Completion o f a Manual o f Procedures for project implementation. 0 Letter or Memorandum o f Understanding between SONEDE and ONAS, towards

ONAS ’s participation in SONEDE’s commission for the development o f specifications for the new customer service system.

N o conditions subsisted towards board presentation or loan effectiveness, subject to legal opinion as required under the General Conditions.

Financial covenants in the loan agreement commit SONEDE to: Maintaining a minimum ratio o f internal cash generation against capital expenditure needs o f 30%, towards greater self-financing autonomy. Maintaining an operating ratio o f over 100% for strict cost recovery Maintaining a debt service coverage ratio o f 1.3 or better. Satisfying standard auditing and reporting requirements.

0

0

0

0

D. APPRAISAL SUMMARY

1. Economic and financial analyses

Economic Analysis

Project benefits

The infrastructure components o f the project wil l provide safe and affordable drinking water to the growing population o f targeted areas. Planned investments are required to meet the needs o f future additional population, by strengthening, expanding or rehabilitating parts o f existing distribution systems. Through this project SONEDE will be able to secure water supply to accompany the urban development in its Greater Tunis, Northern and Central operating regions, where the population is expected to increase by 750,000 from 2010 to 2025, with Greater Tunis region accounting for 87% o f the population growth. I t is estimated that the increased supply capacity afforded by the project will allow about 164,000 new connections.

The benefits o f the infi-astructure components would at least be equal to the cost o f the alternative means that would be used to meet water needs without the project. In this hypothetical situation, households and other users would rely essentially o n the purchase o f water from water vendors at high prices and on investment in private wells and storage capacity. For quantitative purposes, the avoidance o f such costs i s assumed to be the main benefit o f the project. In addition, given the superior convenience o f house connections over buying and storing water, or pumping it, the project will allow households to consume a larger volume o f water than under the alternative, which will increase their welfare. Finally, SONEDE delivers water of much better quality than potential alternative vendors or sources, which reduces health hazards. All these benefits wil l grow as population growth materializes.

The management capacity building component will enhance the efficiency and the competitiveness of SONEDE in terms o f strategic planning, organizational effectiveness,


Scenarios :

All Infrastructure components Great Tunis component Center Region Component I North Region component

financial planning and perfomance management, customer service, and human resources management. Benef i ts o f this component will take the form o f cost savings, revenue enhancements’ and increased investment capacity. Some o f the improvements will also directly benefit SONEDE’s, as wel l as ONAS’s clients, including faster processing o f customer requests and claims (request for connection, bil l payment, claims.. .), reduced billing errors, and overall more responsive service. While theses benefits aim to be substantial, they remain dif f icult to quantify, and are therefore not accounted for in the economic NPV and IRR analysis.

Basic Scenario : Without increase in costs or decrease in benefits

5% Annual Increase in Economic Costs

5% Annual Increase in Economic Costs and 5%

Annual decrease in Benefits

IRR NPV IRR NPV IRR NPV 43.3% TND 277,543,002 43.0% TND 268,470,336 37.9% TND 129,328,100 47.1% TND 275,387,059 46.8% TND 269,807,385 41.9% TND 149,521,043 32.7% TND 19,941,031 32.2% TND 19,017,322 26.7% TND 9,160,017 23.9% TND 8,964,451 23.1% TND 8,044,150 16.9% TND 2,659,526

Methodology and results summary

Using the cost-benefit approach, the economic benefits o f the infrastructure components are calculated based on the opportunity costs o f alternative water supply. For lack any water vending services in Tunisia, the analysis used the cost o f water supply in rural areas which i s 17.4 TND/m3 as a proxy for the cost o f alternative water supply, as derived from previous water supply project with SONEDE8.

Moreover, financial costs are converted into economic costs by deducting taxes and using a conversion factor o f 0.8 to adjust for the costs o f unskilled labor and custom duties. The conversion factor i s considered to be conservative and has a negative impact on the project economic return. Tables (2) to (4) in Annex 9 show the details o f the projections o f the benefits and costs for each infrastructure component, covering the Project’s period, 2005-2009, as we l l as later planning periods up to the year 2025. The analysis i s based o n benefits and costs forecasts until 2030. The costs and benefits are assumed to be constant after 2025.

Estimates o f economic NPV and IRR for the infrastructure components are summarized in the table below. Even if benefits are l imited to the opportunity costs o f alternative water supply, the project i s largely justified, yielding an IRR o f 43%.

Sensitivity analysis shows that the overall IRR drops to 37.9% only, when benefits are reduced by as much as 5% annually and costs rise by 5% a year compared to the base scenario. Moreover al l infrastructure components appear sustainable under al l the scenarios. Taking into account benefits such as increased availability and safety o f supply, in addition to the high cost conversion factor applied to the analysis, the project yields even higher returns.

Tari f f policy

’ Including through the development of more defensible ta r i f f adjustment rationales Water Supply and Sanitation Project (loans 3782/3783-TUN)


Tunisia’s water tar i f f pol icy can be evaluated with respect to three issues: (i) the sustainability of tariff adjustments rules; (ii) the effectiveness o f the current average tar i f f to achieve full costs recovery; and (iii) the efficacy o f the tari f f structure in targeting the poor in terms o f subsidizing their necessary level o f consumption while in the same time maintaining incentives for an efficient consumption.

The tari f f structure i s proposed by SONEDE and approved by GOT and i s applied to the whole country, spanning urban and rural service. Provisional analysis suggests that the tariff-adjustment rules work reasonably well in many respects. SONEDE’s healthy financial situation i s largely due to relatively frequent tari f f revisions during the last decade, and attests to GOT commitment to the sustainability o f the national provider. However, our analysis suggests that improvements are possible through further strengthening o f the technical capability o f GOT agencies that provide advice or participate in decisions about tar i f f adjustment.

SONEDE tar i f f structure has two components: A fixed component and a variable component which i s proportional to consumption. In addition to water tariffs, revenues are also derived f rom connection rights which contribute on average to 15% o f SONEDE annual revenues. During the last decade SONEDE was able to maintain a positive net income while expanding service to less profitable rural areas. This resulted from (i) an adequate level o f average tar i f f with relatively frequent tariffs revisionsg; (ii) stable revenues from new connections; and (iii) an annual government subsidy for rural systems investment (around TND 8 million). The chart below shows that while SONEDE operating ratio” was high by regional standards during last decade, i t remained consistently below 100% during the last three years despite the 2003 tar i f f revision. This finding triggers some concerns on the sustainability o f SONEDE financial performance.

106%

104%

102%

100%

98 %

96%

..._.._..........._.__

Evolution of SONEDE Operating Ratio.

SONEDE’s tari f f structure exhibits a high level o f cross-subsidies among customers. The chart below shows that over 80% o f SONEDE’s revenue originates f rom less than 10% o f i ts customer base, which suggests a high level o f cross-subsidy o f small consumers by large consumers. This clearly shows that the current tar i f f structure does not specifically target subsidies to the poor.

Recent tariff adjustment steps include: 9.2% in 1996, 5% in 1999,7% in 2001, and 5,7% in 2003. lo Operating ratio : Ratio o f operating revenues over operating expenses (including depreciation).


. . . . . -. . I _ 'O% 1 % rota/ Customers % of Consumption

0 % OfSONEDE Revenues

0-20 2140 41-70 71-150 > 151

Distribution of SONEDE customers, revenues and volumes sold per level of tariff.

The unbalance o f the actual tari f f structure represents a risk for SONEDE and ONAS to see their large consumers switch to alternative water supplies i.e. self-provision. Disconnection risks will be exacerbated if future tar i f f adjustments further increase the burden on large consumers.

Financial Analysis

The infrastructure components o f the project wil l generate financial benefits for SONEDE from several sources, including: (i) increased water sales made possible through the investments undertaken under the project; and (ii) income f rom connection fees made possible from the new water connections due to the project.

The financial analysis o f the infrastructure components o f the project has been conducted in current terms based on net cash flows generated by each component o f the project over a 20-year period. The result o f the financial and the subsequent sensitivity analysis are summarized in the table below. The analysis shows that the envisaged investment activities are financially viable with a financial rate o f return o f 9.67% based o n the operating cash-flow minus investments realized by SONEDE. The financial viability o f the proposed overall investmefit program was estimated taking into account the cost o f financing and the leverage specific to the project.

Financial Analysis : WACC = 4.2% I I

I Basic Scenario 1 Constant Average Tarrif I I TND 30 901 958 TND 48 587 990 TND 3 501 308

The financial benefits for institutional tasks remain dif f icult to quantify; however, a preliminary analysis presented below gives some insights about the strong profitability o f the two main tasks in this component:


0 The renewal o f SONEDE’s obsolete customer service IT system should enable SONEDE to limit the risk o f system failure”, and to shorten i ts bill collection cycle which is estimated at 120 days. Given the cost o f the new system, around T N D 3.7 mil l ion, SONEDE should be able to recover the new system cost in the f i rst year after implementation by decreasing i t s collection cycle by just 7 days. I t i s thus reasonable to assume that this sub-component wil l yield a very high IRR and NPV. The introduction o f a modem Human Resources I T system should improve SONEDE’s efficiency in managing staff resources and programs, and in controlling overall labor costs. The cost o f this sub-component, TND 740,000, represents less than 0.8% o f SONEDE labor cost in 2004. Given that SONEDE labor costs have grown by more than 8% annually in nominal terms in the last four years, it i s plausible that SONEDE will be able to recover the new HR system cost through better control o f i ts labor costs.

The remaining two tasks represent relatively l o w investment costs which SONEDE should be able to recover through the efficiency gains i t wil l achieve once al l capacity building tasks are implemented.

0

Financial Assessment of SONEDE

An overall financial assessment o f SONEDE was carried out to analyze the company’s (i) financial structure, (ii) operational efficiency, (iii) long-term viability, and (iv) capacity to assume the proposed loan. Also assessed were the main risk factors which could affect the performance and viability o f SONEDE. The results o f the analysis were used to (i) make recommendations to improve the company’s financial structure and operational performance, (ii) define performance targets and financial covenants, and (iii) develop project activities supporting improvements in SONEDE’s budgeting and planning processes.

The financial assessment and the subsequent sensitivity analysis show that SONEDE credit risk and its ability to implement i t s investment program i s highly dependent o n (i) regular tariff adjustments and (ii) management’s ability to implement more reliable financial planning practices and cost control strategies.

The analysis was conducted v ia the development o f a comprehensive spreadsheet model presenting two years o f historical results and twenty years o f pro-forma projections in details. The latter were prepared on the basis o f detailed physical, commercial, operational and financial assumptions discussed with SONEDE.

The main assumptions consisted o f population and demand forecasts, investment programs, operating costs, and financing assumptions. Six projection scenarios were built: (i) a “base case scenario” with SONEDE’s most l ikely evolution; and (ii) five sensitivity scenarios targeted at estimating the robustness o f SONEDE financial projections against critical parameters. For each scenario, performance was assessed o n the basis o f the following ma in indicators:

Operational Indicators:

l1 Current software and hardware are no longer supported by vendors. SONEDE i s finding the emergency migration ofthe customer database and application onto a new server, pr ior to software modernization under Bank-financed project.


(i) (ii) (iii) (iv) (v)

(vi) Yearly capital expenditures; (vii)

Operational margin and net income margin; Cost to income ratio (including and excluding depreciation charges); Personnel productivity (employees per 1,000 connections); Structure by staff categories and evolution o f average salaries; Percentage o f investments financed from own resources;

N e t present value (NPV) and intemal rate o f retum (IRR) o f free cash flows from operations.

Financial Indicators (i) Long-term debt to equity ratio; (ii) Total debt to equity ratio; (iii) Debt service coverage ratio; (iv) Loan l i fe Coverage Ratio; (v) Current ratio.

The analysis confirms that SONEDE i s financially viable, and i s able to assume the proposed loan as long as modest improvements in performance are achieved as expected. Our analysis took into account a slowdown in additional future investments from 2008 to 2012, amounting to TND 354 m i l l i on (USD 590 million) for a total o f real TND 1560 m i l l i on (USD 2.59 billion) over a period covering 2010-2025.

Nevertheless, sources o f inefficiency and imbalances could hurt SONEDE’s financial situation. The major inefficiencies stem from (i) revenue uncertainties due to the lack o f tariff forecast capacity, the questionable forecast o f domestic consumption and the weak monitoring o f large consumers, (ii) staffing and cost strategies, (iii) a level o f indebtedness will reach i t s limits, and (iv) weak long-term investment planning.

Appropriate indicators to monitor these factors include: (9 Tar i f f increase levels and frequency; (ii) Evolution o f domestic consumption; (iii) Evolution o f water consumption for each tar i f f bracket; (iv) Staffing levels per labor category; (4 Number o f employees per 1,000 connections; (vi> Ratio o f staff costs out o f overall operating costs; (vii) SONEDE indebtedness and debt service ratios; (viii) Yearly investments and related funding.

(ix) Operating ratio (operating expenses / operating revenues).

Sensitivity analyses show that a substantial improvement in performance and large cash savings could result from better monitoring and control o f labor costs. The analysis also shows that, if SONEDE i s unable to improve i t s performance and control labor costs as planned, i t could face serious difficulties in the future in raising additional debt to finance required investments. The project addresses each o f these weaknesses either directly through capacity building or indirectly v ia strategic long-term investments. The capacity building component wil l more specifically ensure: (i) improved revenue management through the customer service component; (ii) better management o f staff resources, benefit programs, productivity and advancement, and overall labor costs through a new human resources software; (iii) strengthening SONEDE’s

Tunisia Urban Water S U D ~ V Proiect

19 Project Appraisal Document October 2005

planning process; and (iv) improving SONEDE financial planning through a new financial modeling and simulation tool.

These conclusions highlight the necessity for SONEDE to devote more attention to long-term investment and financial planning, and to monitor i t s overall operating performance. As a first step toward enhanced financial management, SONEDE has received the financial model developed for this analysis, and may use i t as budgeting and medium-term planning tool.

Fiscal Impact:

The project contributes positively on Government finances. Indeed, closer monitoring o f performance, as well as optimal investments, and more predictable revenue adjustments, will increase SONEDE taxable income and reduce any potential future need for subsidies12. The base case assumptions include stopping rural extension capital program subsidies in 2010, once the service coverage i s fully satisfactory. The net fiscal impact o f SONEDE activities i s positive and estimated at about USD 3.6 mi l l ion over the next 20 years

2. Technical

Infrastructure components are originally derived from SONEDE’s master plans, which are o f adequate quality. Independent reviews suggest that SONEDE master plans and engineering studies are based on conservative assumptions and technical designs. Priority subprojects were ranked based on the estimated severity o f water supply deficit in 2010. Subsequent design and implementation o f subprojects carry l i t t le technical risks, as they rely o n proven technology and require available or accessible construction capacities and operating skills. While a number of design packages will be provided by SONEDE for secondary infrastructure subprojects (tanks, pumping stations, mains,..), design for the most complex components (ST4 water treatment plant expansion, renewal of 1190” transmission pipeline f rom GEG to Ras Tabia) wil l be procured through competitive selection o f international design firms. The only new unit-operation introduced by the project i s the processing o f water treatment sludge, based on dewatering technology that i s well within reach o f SONEDE’s operational capacity.

The capacity-building tasks, and in particular the renewal o f information systems, are intended to introduce state-of-the-art management tools to SONEDE. Whi le the applications sought are relatively standard, their smooth integration and roll-out at SONEDE’s wil l require good planning and training. While the technical ability o f SONEDE’s managers to master and uti l ize these tools is not in question, emphasis must be placed on the need for management leadership to use them most productively.

3. Fiduciary

Experience from past Bank-financed projects with SONEDE shows willingness and a great capacity in implementing projects according to Bank guidelines.

______~ ~

l2 Subsidies wil l be needed in the h t u r e if SONEDE’s management i s no t improved.


Procurement for the proposed project wil l be carried out in accordance with the World Bank's "Guidelines: Procurement under IBRD Loans and IDA Credits" and "Guidelines: Selection and Employment o f Consultants by World Bank Borrowers", both dated M a y 2004.

A financial management capacity assessment o f SONEDE was conducted using a standard questionnaire, suggesting that SONEDE has adequate accounting and financial practices and capacities, which are audited on a yearly basis. I t s financial management systems are furthermore well known to the Bank13. Accordingly, i t can be expected that SONEDE's Accounting and Finance Directorate will efficiently perform by Bank standards o n the financial management and disbursement tasks o f the project.

4. Social

The project wil l bring social and economic benefits to existing residents and businesses in Greater Tunis and in targeted cities in the northern & central regions o f Tunisia, as well as to the population growth estimated at 750,000 by 202514. Minor social impacts may arise from permanent or temporary land acquisition required by the rehabilitation and construction o f storage tanks, wells, pipelines, and water treatment facilities.

The largest land requirements are anticipated for the construction o f the fourth module o f the water treatment plant (ST4) and for the construction o f a treated water storage tank in GEG. Bo th sites are already the property o f SONEDE.

Other more limited land acquisitions f rom public or private owners are also expected. A limited number o f people wil l be affected and no acquisition is expected to require relocation. Assets affected include small agricultural lands, trees and crops with no significant impact on population livelihood. Tested SONEDE land acquisition procedures wil l apply in ensuring due process o f compensation.

Stakeholder participation. The project wil l use standard approaches for investment in urban areas (where services and tariffs already exist and demand i s proven), and extensive stakeholder participation i s not required.

5. Environment

The project will extendrehabilitate water networks, implement potable water wells, and construct storage tanks and treatment facilities to increase water supply coverage and to provide good quality water on a continuous basis in Greater Tunis and in seven urban centers in northern and central Tunisia.

According to the Environmental Assessment (EA) carried out during the preparation stage, the project i s expected to bring significant environmental, socio-economic and public health benefits through better quality and availability o f treated water, and improvements in the sustainability of

l3 JD Edwards accounting and financial software procured under previous project (Lns No. 3782 & 3783TN). l4 Theses estimates do not account for the demographic growth slowdown identified in 2004 census results published in 2005.

Tunisia Urban Water Sutltllv Proiect


raw water sources through reductions in losses and wastage. Only limited and temporally negative impacts are expected during construction phase while some adverse impacts may result from the operation o f water treatment facilities and potable water wells in case o f defective design, implementation and operation.

Typical construction impacts are those o f dust, noise, traffic congestion, and disturbance to the residents in the project area. The proposed mitigation measures developed in the Environmental Management Plan (EMP) would mitigate most o f these temporary impacts to acceptable levels.

During the operation phase, potential negative impacts could arise through (i) disposal o f water treatment residualsMudge (sediments, minerals and other precipitates f rom the water source and chemical pollutants f rom treatment process); (ii) unsustainable pumping o f groundwater (affecting water quality and quantity); (iii) poor drinking water quality management; and (iv) lack o f adequate wastewater services. Theses issues are addressed in the EA study and relevant recommendations for addressing the actual risks are as follow:

Sludge and waste management: A specific environmental assessment will be prepared for the ST4 subproject during the implementation phase. The implementation o f ST4 will include, among others, the development and implementation o f sludge/waste management system that will address relevant issues for the whole Ghdir e l Golla treatment complex (the existing water treatment facilities in Greater Tunis). Solid waste and sludge producedtreated will be managed to comply with Tunisian solid waste management law (Law n"96-4 1) requirements.

The impact on groundwater i s expected to be minimal since the administration in charge (DGRE) i s capably monitoring aquifers, and only permits additional wells to be installed where aquifers are not being depleted. In order to qualify for financing under the Project, each new borehole must have i ts need confirmed by DGRE, along with information o n current level o f the aquifer involved and i ts evolution.

Drinking water quality: Treated water quality wil l keep o n meeting drinking water standards set by the Tunisian Government and should also meet WHO standards. Among the parameters of concern are bacteriological contamination, nitrates, nitrites, and heavy metals. In order to safeguard public health, i t i s imperative that raw and treated water at the treatment plant, storage tanks and in the network continue to be regularly tested to ensure that potable water l imits are not exceeded.

The potential water qualitv and health risks of additional water SU-P-P~V causing overloading o f sewerage, treatment and disposal systems were reviewed. I t i s expected to be minimal since most o f the planned subprojects will have limited implications for increased wastewater production. Nevertheless, the linkage between water supply and wastewater production calls for special attention to adequately address concerns about existing capacity to manage wastewater. Thus, the EMP includes provisions for a rapid EA screening/appraisal for some urban centers in order to identify appropriate mitigation measures.

In general, the developed EMP specifies the appropriate environmental management and supervision mechanisms, mitigation measures, environmental monitoring plans, training plans and budget allocation necessary to implement the mitigation measures and strengthen the


Safeguard Policies Triggered by the Project Environmental Assessment (OP/BP/GP 4.01) Natural Habitats (OP/BP 4.04)

Borrower’s capacity. The EMP wil l be closely monitored during supervision missions, and wil l be presented as part o f the progress report to be submitted by the Government.

Yes N o

rx1 [XI

6. Safeguard policies

Forests (OP/BP 4.36) Pest Management (OP 4.09) Cultural Property (OPN 1 1.03) Indigenous Peoples (OD 4.20) Land acquisition & Involuntary Resettlement (OP/BP 4.12) Safety o f Dams (OPBP 4.37) Projects o n International Waterways (OP/BP 7.50) Projects in Disputed Areas (OP/BP 7.60)

The project is determined to be an environmental screening category B and will not involve involuntary resettlement. N o major safeguards issues are expected to arise f rom the implementation o f this project. The EA study camed out during project preparation confirmed that EA safeguard policies (OP 4.01) are triggered by limited impacts that are technically and institutionally manageable. Land acquisition and involuntary resettlement safeguards (OP.4.12) are also triggered by limited land requirements.

L A

[XI [XI [XI [XI

[XI [XI [XI

[XI

Environmental assessment (OP 4.01 ): During the project preparation, an Environmental Assessment (EA) o f the project activities has been conducted by SONEDE and an EMP has been prepared to address potential environmental impacts and to design mitigation and monitoring measures.

For the sub-projects identified as having potential environmental impacts i.e., construction o f the water treatment plant (ST4) and the rehabilitation o f GEG-Ras Tabia pipeline, a specific EA will be carried out during project implementation. In addition the extension o f water distributiodtransmission networks and the construction o f boreholes for some urban centres might require a rapid EA screening/appraisal according to the Tunisian EIE regulations and procedures. Generic TORS for the preparation o f specific EA and DS were prepared and provided in annexes I1 and I11 o f the report. The sub-projects requiring rapid EA screening/appraisal are listed in the EA report. SONEDE will manage environment safeguards compliance for the project, with approvals by Agence Nationale de Protection de I’Environnement (ANEP) and monitored by the Bank

Land acquisition & involuntary resettlement (OP 4.12): As stated previously (section C.4 Social) land acquisition with minor impact and n o resettlements will occur during the project in compliance with SONEDE procedures which are known to the Bank and deemed satisfactory.


Borrower’s capacitv to im-dement the safeguard measures: Tunisia has a strong Environmental Protection Agency (ANPE) capable o f reviewing the adequacy o f environmental and social assessments, and monitoring the implementation o f consequent recommendations and plans. An Integrated Safeguards Consultant wil l be hired by SONEDE in order to assist the Project Management in preparing, implementing and supervising al l identified safeguards measures. Training activities wi l l be provided under the project in order to strengthen the capacity o f SONEDE’s national and regional staff to fulfil their environmental responsibilities.

EIA disclosure and consultation: The Borrower held initial consultations with local government agencies and municipalities about route altematives and potential impacts. N o objections were made to the project or environmental and social concems were raised during this process. The French version o f the Environmental Assessment Report including the EMP was disclosed on the World Bank Infoshop website on June 1 , 2005.

7. Policy Exceptions and Readiness

No pol icy exception i s being considered.

Tunisia Urban Water Supply Project


Annex 1

Annex 1: Country and Sector or Program Background

1. Water resources assessment: Tunisia has very limited renewable water resources, and as o f 2000, only about 408 m3/capita were available for mobilization. The scarcity o f the resource i s exacerbated by an irregular annual precipitation pattem. Normal precipitation can range from 600 mdyear in the Northern regions to less than 150 m d y e a r in the South. In a drought year, i t can be ha l f that amount. With these constraints, Tunisia's water resource management i s among the most efficient in the region.

2. Sector organization: Two ministries oversee the water and sanitation sectors. The Ministry o f Agriculture and Water Resources (MAWR, or Ministry o f Agriculture), through a State Secretariat o f Water (SSW), formulates water sector policies and strategies, and coordinates investment planning and the allocation o f the resources. The Ministry o f Environment and Sustainable Development (MESD), created in December 2004, sets policies and investment priorities for the sanitation sector.

MAWR oversees several public entities involved in the sector, i.e. (i) Socie'te' Nationale d 'Exploitation et de Distribution des Eaux (SONEDE), the autonomous national public water supply utility responsible since 1968 for delivering potable water in Tunisia, including construction, operation and maintenance o f infrastructure. Whi le i t s mandate traditionally focused on urban and peri-urban areas, in recent years SONEDE has been rapidly expanding i t s operations in rural areas as well; (ii) the Direction Ge'ne'rale des Grands Travaux Hydrauliques (DGGTH), responsible for the construction o f large dams and irrigation infrastructure, and (iii) the Direction Ge'ne'rale du Ge'nie Rural et de 1 'Exploitation des Eaux (DGREE) responsible for water resources management, irrigation supply, as wel l as o f drinking water supply and sanitation in dispersed rural areas not covered by SONEDE or ONAS. In December 2004, the M E S D gained oversight o f the sanitation sub sector, including Office National de 1 'Assainissement (ONAS). ONAS was established in 1974 as an autonomous national public sewerage utility responsible for sewerage collection, treatment, and disposal in about 150 urban agglomerations, industrial and tourist zones.

3. Sector regulation: The Water Code is the main legislative text ruling the water sector in Tunisia. I t was promulgated in 1975. I t aims at preserving and managing efficiently the water resources. The code also provides for: (a) water protection and efficiency o f the usage, (b) a comprehensive framework for integrated water resource management and protection against floods, (c) establishment o f users associations; (d) penalties for violations o f the Law. Several amendments have been made to the code since 1975. Theses updates were related to the introduction o f collective management o f irrigation networks, the development o f new water resources and water pr ic ing reforms.

Autonomous agencies such as SONEDE and ONAS are committed through Contrat- Programme to achieve specific service and infrastructure goals, to be reflected in the next Economic Development Plan, and subject to planning arbitrage by Ministry of Development and International Cooperation. Their tariffs are revised periodically but not systematically, on an as-needed basis. Tariff adjustment requests are submitted to the


Access to safe drinking

water

25

Access to Households Households improved with water with sewerage sanitation connection connection

Project Appraisal Document October 2005

Annex 1

Urban Rural Overall

4.

5.

6.

100% 96% 98% 83% 82% 52% 35% n/a 91% 80% n/a n/a

oversight ministry, which has the option to transmit i t for evaluation and decision by a Comite‘ Ministe‘riel headed by the Prime Minister. Such decision does not always respect prior formal commitments to adjust tariffs.

Constraints on water services: One o f the main constraints on water supply in Tunisia i s the remoteness o f water resources from consumption centers, which results in heavy water transfer infrastructure investments and added costs. Another constraint i s related to the quality o f water resources, with high salinity exacerbating the cost o f water treatment. Despites these constraints, the Tunisian “model” for water supply and sewerage has long been successful, and the financial and technical performance o f i t s two public ut i l i t ies have been relatively strong, as reflected by many performance indicators. A substantial loss in cost-recovery and self-financing capacity has nevertheless been measured at ONAS in recent years, in response to deferred tar i f f adjustments and ambitious capital program for rural service expansion.

Similarly, as o f 2003, sewerage service was wel l developed compared to countries o f similar income level. I t is thus estimated that about 80% o f the population has access to improved sanitation, ,of which 96% in urban areas and 52% in rural areas. ONAS sewerage service areas span 144 cities and towns, equipped with 66 wastewater treatment plants in good working order, treating, where more than 90% o f the sewage collected. Whi le SONEDE and ONAS have entirely distinct operations, ONAS relies on SONEDE for billing.

Water tariffs in Tunisia: Water and sanitation tariff structures are applied uni formly across the nation. They include a f ixed part and a variable part which increases proportionally with the level o f consumption. The chart below presents the distribution o f SONEDE customers, revenues and volumes sold per category o f tariff. I t illustrates a high level o f cross-subsidies among customers. In addition to water sales, SONEDE collects revenue from the installation o f new connections. Affordability o f water service

l5 Coverage i s on track to reach 96% in 2006 by end o f Tenth Economic Development Plan (urban: loo%, rural 90%).



Annex 1

does not appear to be a critical issue, given that in 2001 the level o f water expenses for the first 20 l i ter per day represented 0.033% o f the level o f GDP/capita. Since i t s creation SONEDE was able to obtain tar i f f increases on regular basis in order to cope with increasing operating costs and an ambitious investment program. Over the past ten years, increases have taken place in 1996 (+9.2%), 1999 (+5%), 2001 (7%) and 2003 (5.7%). In July 2005 SONEDE benefited from a 5% tar i f f increase and was allowed to apply a revised tari f f structure.

40%

30%

20%

10%

0%

I 0-20 2140 41-70 71-150 > 151

Distribution of SONEDE customers, revenues and volumes sold per level of tarijj?

7. Operators performance: As suggested by key parameters listed in the fact-sheet below, SONEDE features enviable operational and financial performance as o f 2004. In particular, with the exception o f an annual GOT contribution o f TND 8 m i l l i on for capital investments in rural areas, SONEDE h l l y recovers its operating and capital expenditures through tariffs, and has a debt coverage ratio o f 3.03. SONEDE also claims an unaccounted-for-water ratio o f approximately 18% in distribution systems. Opportunities exist for improved performance, such as in particular through higher productivity (4.1 employee per thousand clients), better labor cost management (currently adding up to 48% o f operating budget) and through more widespread use o f outsourcing and technology (all designs self-performed, very limited outsourcing, obsolete information systems, limited remote control and automation). Similarly, ONAS can be characterized as not highly productive (5.4 employees per thousand customers), although already practicing outsourcing. Due to inadequate tariff adjustments and accelerated investment programs, ONAS cost recovery, asset management and operational performance have deteriorated in recent years..

8. Water operators’ challenges: The deterioration o f ONAS’s financial situation shows that the Tunisian model i s under strain, and suggests that SONEDE itself may not be immune from a drop in cost recovery and further losses o f management autonomy. There are medium terms risks to SONEDE’s healthy financial position due to (i) the burden o f expansion into l o w return market segments (non-agglomerated rural areas) and in high- cost technology (desalination), (ii) unreliable tari f f adjustments, and (iii) a l imited potential for rapid and substantial operating and investment efficiency gains due to labor rigidities and heaviness o f i t s monopolistic position.


Leverage ratio (DebtsDIquity): 42.5% Total Long Term Debt : TND 2 18.5 m

Investment Internal Financing ratio : 49%

Debt Service Coverage Ratio : 4.17

27

Capital Expenditure : TND 11 1 millions Renewal : TND 11 millions Network Extensions: TND 100 millions

Working ratio : 76.7%

Quick Ratio : 9.94


Annex 1

9. Increasedprivate sector role: The Government has become aware that further and faster reforms m a y be required to increase water sector efficiency, including a larger role for the private sector, towards reducing costs and introducing competitive emulation. Opportunities for PSPs are being considered and advanced for “greenfield” facilities, such as ONAS’s El Attar WWTP and El Allef WWTP BTOs in Greater Tunis, and a desalination BTO in Djerba. More comprehensive PSPs, such as service delegation in areas or functions currently served by SONEDE and ONAS, are not being considered in the short term. Comprehensive PSPs are in particular not readily justified in the case o f SONEDE, as the utility, while not very productive, continues to post strong operational and financial performance.

SONEDE 2004 Fact sheet (source: non-audite

Founding Date: 1968

Number o f employees : 6 948

Population Served : 8 010 000 Number o f customers : 1 876 000

Domestic : 69 % Hotels : 5% Industries : 10% Collective : 14% Stand post: 1 % Other : 1 %

Length of distribution network : 36 000 Km

Bill Collection Ratio : 99.36%

Total revenues : TND 195.2 millions Water Sales : TND 164.3 millions Connections : TND 16.1 millions Others: TND 14.8 millions.

Annual revenue growth for last decade : 6.2 % Annual growth of costs for last decade : 7.2 %

2004 statements) Total Water Production : 396 Mm3 1 Year

Surface Water : 54.4 % Ground Water : 42 % Desalination : 3.6 %

Average Consumption : 11 1 LiterPerson

Average bill : 7.3 TNDMonth Average Water Tariff 0.513 TND1 m3 Tariff Structure :

0-20 m3 : TND 0.1351 m3 21-40 m3 : TND 0.2151 m3 41-70 m3 : TND 0.4301 m3 71-150 m3 : TND 0.650/ m3 > 151 m3 : TND 0.790/ m3

Unaccounted F o r Water: 18.2 ‘YO

Total Operating Costs : TND 185.4 millions Labor costs : TND 84.84 millions Energy : TND 13.66 millions Consumables : TND 26.8 millions Depreciations : TND 50.34 millions Others : TND 20 millions



Annex 2

Annex 2: Major Related Projects Financed by the Bank and/or other Agencies

Recent Bank lending to Tunisia in this sector includes:

(0

(ii)

(iii)

The Water Supply and Sewerage Project (closed in June 2003) implemented with SONEDE and ONAS to enhance urban and rural water supply service, demand management and protection o f water resources, as well as to promote utility financial performance and institutional reform. Project performance was deemed satisfactory.

The Greater Tunis Sewerage and Water Reuse project (to close in December 2005), implemented with ONAS and Ministry o f Agriculture, to expand the sewerage network and increase sewage treatment capacity in the capital area, including preparation o f a B O T operation for a new sewage treatment plant and increase the volume and range o f effluent reuse applications. In spite o f i t s unsatisfactory rating for about one year, and a restructuring in 2003, project performance i s deemed satisfactory. A one-year extension was granted.

The Water Sector Investment Project to support water resource conservation and protection in agriculture, as well as water supply and sanitation in highly dispersed rural areas (to close in December 2006). This project is performing satisfactorily.

The water sector in Tunisia benefits also from the support o f several European Development agencies: EIB, AfD and KFW. Their main projects in SONEDE’s water supply sector for each agency are summarized in the following table.

Agency

AFD

(French Development Agency) for a total of 58 m i l l i on o f euros.

EIB (European Investment Bank) for a total of 95 mi l l i on euros.

KFW

for a total amount of 25mill ions euros

Project

0 Rural Water supply (Project 11)

0 Sahel Sfax Water Supply

Upgrading o f drinking water supply to the eastem coastal regions o f Sahel and Sfax

0 Water infrastructure in the South

Type o f project

Lending

Lending

Lending

Lending

Target issue

Increase water access in rural areas

Reliabi l i ty and quality o f water service

Reliabi l i ty and quality o f water service.

Reliabi l i ty and quali ty o f water service



Annex 3

Annex 3: Results Framework and Monitoring

1. Insuring the reliability and the sustainability o f water service in Greater Tunis and selected urban center, through augmentation, upgrade and renewal o f water supply infrastructure.

I

2. Enhance the competitiveness and sustainability o f SONEDE operations, through modemization o f management practices and information systems, for better cost control, enhanced revenue

Component One: Greater Tunis; Increase in the capacity and the rel iabi l i ty o f production, transmission and distribution systems.

Component Two : Urban centers in northern and central regions; Increase in water storage and distribution capacity in systems targeted.

Component Three: Management capacity building.

I

Results Framework

Outcome Indicators

Volume o f water sold in target

N e w connections in the areas

Water shortage events (unmet

areas.

targeted by the project.

demands, after 2009)

Client satisfaction rates, as

Duration o f bill collection cycle. Ratio o f “labor costs/ sales”

measured through periodic surveys

Results Indicators for Each Component

Component One: 0 Number o f new connections

Volume o f water sold

Component Two : 0 Number o f new connections

Volume o f water sold

Component Three: Implementation o f studies, tools,

Setting o f management performance

Indicators will be defined at mid-

and systems

objectives

term.

Use of Outcome Information

Annual Monitoring and Evaluation Report.

Consumers studies

Planning for future investment needs in the water sector.

Building up on experience on environmental impacts to prepare more environmentally friendly water supply projects.

Planning for future financial resources needs and assessing different scenarios for tariff revisions.

Use of Results Monitoring

Component One: Mon i to r i ng and evaluation Planning o f f h r e water demand and investment needs

Component Two : 0 Mon i to r i ng and evaluation 0 Planning o f future water demand

and investment needs

Component Three: 0 Mon i to r i ng and evaluation

Ac t i on plans targeting potential areas o f eff iciency improvement

0 Better f inancial and investment planning; better substantiated tari f j revision requests.

0 Cost contro l goal setting.

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Annex 4

Annex 4: Detailed Project Description

This annex offers a description of the contents o f each o f the seven project components, along with summarized rationales for including it in the project.

Infrastructure Components:

Infrastructure components to be financed in the project represent only a portion o f SONEDE’s total capital program. All the subcomponents were selected based on the inability o f existing infrastructure to fulfill the water needs by 2025, and hrther screened based estimated deficits as early as 2010.

Component 1 : Improvements to the Greater Tunis water supply system (US$24,76m). This component includes investments in water production, storage, transmission and distribution systems:

- Ghdir El Golla (GEG) water treatment plant expansion : A fourth water treatment unit, also referred to as “ST4”, wil l be added to the existing Ghdir El Golla WTP adding a 2m3/sec treatment capacity; sludge treatment (dewatering) capacity wil l also be installed for the new and the existing water treatment units; These facilities wil l be implemented through a design-build contract. Modular design o f ST4 will allow later integration o f an additional 1m3/sec treatment module, when water demand will require it (ca. 2024). GEG storage : A storage tank for treated water with a capacity o f de 10 000 m3 will be added to the Ghdir El Golla WTP site ; Ghdir El Golla-Ras Tabia transmission line: Rehabilitation and/or renewal o f 10 km o f 119Omm pipeline. Depending on the outcome o f the rehabilitation diagnostic, this “central artery” o f the Greater Tunis system, will undergo a combination o f renewal, rehabilitation and relining work. The l ine will also be realigned in certain areas where unzoned settlements were established over the pipeline.

pumping station o f 15 kW with electromechanical equipment.

pumping station o f 14 kW with electromechanical equipment and a 2,500m3 storage tank.

-

- Mornag : 5 km o f polyethylene mains less than 315 mm in diameter, and a

Borj Touil : 15 km o f polyethylene mains with a diameter less than 200 mm, a

L a Gazelle : 500m3 storage tank. Ghdir El Golla & Bir El Kassa 72-meter pressure stage: Two water storage

-

- -

tanks o f 5 000 m3.

The Greater Tunis component i s justified by both the expansion o f consumption and the need to make water supply more reliable. These objectives require the increase o f treatment, storage, transmission and distribution capacities. Thus, the project aims to treat an additional volume o f water o f 2m3/s and to allow this new production capacity to be transported and distributed. The demand forecast was calculated applying a historic growth rate o f the consumption to the future.


Annex 4

This growth rate i s 1.5%/year and the additional volume needed in 2010 i s about 1.6 million m3/year and wi l l b e o f 28.9 million m3/year in 2025. 100% o f the population i s connected, and it i s expected to remain so in the future. The local leve l o f non-revenue water i s 16%. Several works are planned based on the master plan conducted by Safege in 2001. All the area i s supplied by the GEG WTP.

The existing 5.4 m3/s capacity o f the GEG WTP (ST1, ST2 and ST3) i s insufficient to face a power shortage o f 3 hours or peak daily demands in the near future. However, the capacity o f the treatment plant project ST4 was reduced from 3 m3 (to satisfy year 2032 demand) to 2m3 (to satisfy the demand forecasted for 2022) due to the importance o f investments costs; Demand for the f i rst additional cubic meter i s foreseen in 2010.

The technical studies conducted by SONEDE on GEG storage capacity-concluded to the need for reserves to cover accidental bursts or power shortage but also to deal with the existing deficit o f storage capacity to meet demand on peak summer days.

The existing 1190” GEG-Ras Tabia transmission pipeline was built in 1950. I t i s a “central artery”of the Greater Tunis water system, but i s by now very fragile and unable to resist high pressures. Moreover, unzoned settlements have been built o n some o f i t s path, generating a major operational constraint, as well as a potential threat for the population in case o f burst. I t is estimated that in the best o f cases, SONEDE needs 48 hours to repair a break o n such pipeline. Meanwhile, this will provoke water shortages in a third part o f Tunis, and, among other consequences, an important loss of revenue for the SONEDE. Therefore, renewal o f this l ine to secure water supply and to transport the increasing volume o f water produced by ST4, i s a priority for SONEDE. A specialized diagnostic o f the pipe wil l lead to defining a solution based on a combination o f renewal, rehabilitation and relining work. Extemal expertise i s also expected to minimize project costs by optimizing choices o f pipe materials and diameters. Finally, the line will also be realigned to avoid any undermining o f habitat settlements.

Borj Touil, bordering the Nor th East o f Tunis, i s located on the coast. The ci ty i s attracting new inhabitants and has an annual growth rate o f 5.7%. The existing system i s insufficient to resist to higher pressures and to stock an increasing volume o f water or to respond to peak summer consumption levels. The level o f non-revenue water, now at 25%, is being reduced. Meanwhile, SONEDE wants to raise the proportion o f connected households from 70% in 2005 to 100% in 2025. The level of consumption i s also expected to rise due to the construction o f a new commercial area. The construction of a new storage tank and an adduction network were planned towards this end. The additional volumes o f water will allow the city to sustain the incoming economic growth.

Component 2: Improvements to water supply systems in urban centers (US$8.91 m) This component includes investments in production, storage, transmission and distribution in seven urban areas (subprojects), across five administrative governorates in SONEDE’s northern and central operating regions.


Operating Region

34

Governorates


Annex 4

Town specific subcomponents typically address improvements to water supply systems spanning several municipalities, in addition to linking surrounding villages. For instance, the Rouhia subcomponent spans in fact three small cit ies (Rouhia, Jedliane and Sbiba).

Northern region subprojects:

Urban centers (subcomponents)

N o r t h

Jendouba

Jendouba

Siliana

Ain Draham

Ghardimaou

Rouhia

The planned infrastructure improvements are as follows:

Ai'n Draham : 1,000 m3 storage tank Ghardimaou : 1, 000 m3 storage tank, drilling o f 1 new borehole, rehabilitation o f existing borehole, two borehole protection structures; electromechanical equipment (40 kW), and 12km o f cast i ron and olyethylene mains. Rouhia : Two 500 m3 storage tanks, two 250 m storage tanks, 21 km o f cast iron transmission pipelines 300-400 mm in diameter; a 200m-deep borehole; two pumping stations (14kW and 55 kW)

- P

Ghardimaou i s a poor area and its habitants are migrating to the capital. T o reduce the level o f migration, basic needs need to be better addressed. The population increase was 1.2% from 1984 and 2004 and this rate i s not expected to increase in the future. The levels o f consumption remains l o w (47.2 Vdcap) mainly due to the high level o f tariffs, and i t s growth rate i s 0.2%. The incremental volume needed to supply the additional population wil l rise f rom 57,191 m3 in 2010 to 482,562 m3 in 2025. The economy o f the area will benefit from such higher coverage. The existing water resources will be sufficient until 2010, but to reach the project targets, the volume o f water supply wil l have to r ise at an annual rate o f 3.6%.

The Rouhia subcomponent was selected because o f i ts already existing deficit in water supply. The demand forecast was calculated based o n past water consumptions, the future growth o f the population and the economy estimated for the area, the rate o f non-revenue water and the proportion o f households connected. The growth rate o f the population i s 3.9% and i t i s expected to decrease to 2.3% by 2025. The additional demand for water supply to satisfy will be 294,426 m3 in 2010 and will reach 806,440 m3 by 2025. An industrial zone i s being developed in the area. Besides the need to increase water resources supply, there i s an urgent need to replace part o f the supply networks as the existing ones are very o ld and can only bear a very l o w level o f pressure. A technical analysis o f two different water sources i s under way. The less expensive (including a wel l and an adduction) o f the two wil l be tested, if the well produces enough water, the problem wil l be solved. Otherwise, the second alternative, including another pumping system for the existing wel l and a second adduction wil l be built.


Operating Region

35

Governorates Urban centers (subcomponents)


Annex 4

Kairouan

Sousse

Monastir

Monastir

Center

The region o f Ain Draham i s mountainous and networks are subject to frequent breaks. The infrastructure o f production and distribution i s old and leaking and needs to be replaced. The tourism industry i s increasing, due to the proximity and the economical growth o f the coastal ci ty o f Tabarka and to the political will to reduce the migration o f the population to bigger cities. The population increases by 2.3% per year. Defici ts in water supplies wil l appear in 2010. The volume o f water needed by then i s estimated to be 79,990 m3 and reach 95 1,186 m3 in 2025. The proportion o f population connected to the network will be increased from 85% in the area to 100% in 2020 by the project according to SONEDE's development plan.

Nasrallah

Kalaa K b i r a

Jammel

Ouerdanine

Central Region subprojects

Itemized infrastructure improvements are as follows:

- Nasrallah : One 500 m3 storage tank, 6.9 km o f 200" cast i ron pipeline;

Kalaa Kbira : 7.5 km o f cast i ron and polyethylene pipelines for transmission

- Jammel: One 25kW pumping station including power supply and

retrofit o f existing borehole with new power supply and 35kW electromechanical systems.

and distribution purposes;

electromechanical equipment; 15 km o f various transmission and distribution pipelines (various diameters and materials: cast iron, concrete, polyethylene). Ouerdanine : One 2500 m3 storage tank; one pressure regulation tank.

-

The Nasrallah subcomponent was designed to increment water production. The demand forecast, based o n the history o f consumption, the level o f non revenue water and the hourly and daily peak consumptions, i s expected to increase by 2.5% from 2006 to 2010 and by 4% from 2010 and 2025. If nothing i s done, there will be a deficit o f water in 2010, the additional volume needed i s 15,100 m3/year and will reach 359,300 m3/year in 2025. The existing well which i s supplying al l the water i s functioning more than 22 hours per day during the summer, and withdrawals cannot be increased any hrther. The level o f salt o f the water i s 1.8g/l and rising. An additional source to supply water i s thus necessary; Both water quality and capacity are thus expected to improve.

In Kalaa Kbi ra the whole production and distribution system has to be renewed, as it i s old and largely built with asbestos-cement piping. The history o f the demand measurements is very short; and shows an average increase o f water consumption o f 4.5% from 1999 to 2003. The level o f



Annex 4

non-revenue water i s low (approx. 13.5%) and therefore the consumption growth i s not l inked to a reduction in water leakage reduction. The additional new population wil l raise overall consumption by 71,985 m3/year in 2010, volume that wil l reach 1,3 million m3/year by 2025. T o that end the needs have been calculated with an average growth yearly rate o f 2%. Part o f the project aims to supply a new neighborhood located uphill with higher pressure levels.

In Ouerdanine, the demand forecast is based on the population growth plus an additional volume due to the improvement o f living standards. Water consumption grew at an average annual rate o f 4.9% from 1999 to 2003 and there are already deficits o f water supply. The non-revenue water loss in the distribution system is slightly below 15%. The additional volume needed to satisfy the population demand wil l be 23,271 m3/year in 2012 and wil l reach 459,404 m3/year in 2025. The growth rate i s expected to decrease from 2% in 2003 to 1.3% in 2025. Parts o f the distribution network were built with asbestos-cement pipes, which are now old, fragile and frequently breaking. The existing storage tank i s leaking. Demand estimates for the project are thus realistic.

The city o f Jammel, located in the Sahel area, has no water resources o f good quality. The annual average consumption grew by 4.5% from 1998 to 2003 and i s expected to decrease by 0.5% every five years from 2005 and reach 2.5% in 2025. The existing infrastructure for water supply i s sufficient until 2015; however, difficulties are rising due to the development o f the settlements in upper parts o f the city. Non-revenue water represents 16% o f the water produced and efforts are being made to further reduce it. The area wil l benefit from both an increase o f the coverage and water o f better quality.

Component 3: Management capacity building

The capacity building contents o f the project i s focused for greater impact o n achieving gains in management performance. Starting with a strategic planning exercise and an organizational audit (task 3a), the project will provide SONEDE with new tools and systems to improve i t s performance in three o f its most strategic domains, i.e.:

investment strategies and debt control (task 3b), customer service and revenue optimization (task 3c), and human resources management, including labor cost control (task 3d).

0

0

0

This component may include additional training, study and planning activities, not currently identified.

Training costs may include training fees, tuition and registration costs, travel, lodging and parodies, and seminar organization logistic costs.

Task 3a : Corporate Plan and Organizational Audit (US$480 000) This task consists o f two steps: A Corporate Plan will be developed by a consultant, with SONEDE management’s facilitated participation, to develop a common understanding o f trends and h t u r e challenges in SONEDE’s market and environment, and to identify medium-to-long range plans to adjust to them. This activity should enable SONEDE to identify and plan for



Annex 4

necessary transformations in order to maintain competitiveness in the coming 15 to 20 years. Potential focus topics may include:

0 Growth in water demands and servicing rural areas; 0 Responsiveness to the needs o f different categories o f customers; 0 The willingness and the ability to pay o f customers, and the social orientation o f

SONEDE commercial strategy; 0 The institutional framework and potential development o f private sector participation ; 0 Optimization o f water resources management through the introduction o f new

technologies; Evaluation o f the regionalization process and identification o f potential improvements; Long te rm human resources strategy; Asset management policy;

The deliverable report wi l l include selected priority action plans.

A second more actionable step, wil l consist o f an audit o f SONEDE’s organization and human resources management. I t will assess how SONEDE fulf i l ls its various functions, how information i s processed, and how certain functions can be outsourced. I t will also review opportunities to streamline and optimize job descriptions towards higher staff productivity. An important corollary outcome o f this component will be an action plan toward codifying SONEDE activities for full implementation o f management accounting capabilities.

Task 3b : Financial model (US$220 000) This task wil l equip SONEDE with a professional financial simulation model aimed at optimizing investment programs and borrowing, developing stronger tar i f f adjustment rationales, and setting performance management goals. Without the project, SONEDE’s investment path may decrease due to foreseen financial difficulties. Besides, the project aims to address and improve SONEDE’s financial situation. Forecasting investment capacities and revenues will help reduce costs and adapt the evolution o f tariffs. This will also serve to develop business plans and scenarios which may substantiate negotiations for tar i f f increases with GOT.

Task 3c: Customer service information system (US$ 2.7m): This urgently needed renewal entails the purchase, integration and installation o f a state-of-the-art customer service software and associated servers. Although operated by SONEDE, the application i s to be jo int ly defined by SONEDE and ONAS, to manage customer relations and billing for both utilities, towards more efficient collections and more responsive customer care.

The project will renew the commercial system to improve the quality o f service o f the SONEDE, and boost efficiencies whi le improving service. The existing commercial system consists o f an o ld billing system that cannot be improved due to obsolete software and hardware. If this system collapses SONEDE and ONAS may lose several months o f revenues. Clients will benefit f rom a better and faster service, billing and communication in case o f claim, etc. SONEDE will be able to reduce billing errors, collection cycles and revenue losses, by ensuring a better fol low up o f its clients’ situation and consumptions.



Annex 4

The system wil l be competitively bid, among intemational suppliers o f commercial software, based on terms o f reference designed by a jo int SONEDE-ONAS taskforce, supported by consultants. Suppliers may preferably rely on Tunisian integrators to adapt and implement the system at SONEDE headquarters and in its operating regions.

Task 3d: Human resources management information system (US$ 530,000). This task wil l allow the replacement o f an obsolete payroll system, with an integrated, ERA-compatible HWpayrol l system, towards introducing efficient management o f labor resources and costs at SONEDE. This component,will be financed by SONEDE but managed and monitored as an integral part o f the project.


Local costs

TND mill ion

Cost By Component (TND)

39

Foreign Total costs costs

TND mil l ion TND mil l ion


Annex 5

2 : Urban Centers Infrastructure Infrastructure subtotal

Annex 5: Project Costs

7.49 3.90 11.38 26.26 17.45 43.70

3 : Management Capacity Building a. Corporate plan and organizational audit b. Financial model c. Customer Service information system d. Human Resources management system *

Management Capacity Building subtotal

0 0.61 0.6 1 0 0.28 0.28

1.10 2.20 3.30 0.66 0 0.66 1.76 3.08 4.84

Total Baseline Cost Physical Contingencies Financial Contingencies

~

28.02 20.53 48.54 2.70 1.99 4.70 4.27 1.42 5.70

I Total Project Costs' 34.99 23.94 58.94

Local costs

US% mill ion

Cost By Component (USD) Foreign Total costs costs

US$ mil l ion US% mi l l ion

I 3 : Management Capacity Building



15.02 10.84 25.86 5.99 3.12 9.1 1

21.01 13.96 34.96

a. Corporate plan and organizational audit b. Financial model c. Customer Service information system

0 0.48 0.48 0 0.22 0.22

0.88 1.76 2.64 d. Human Resources management system * 0.53 0 0.53

Management Capacity Building subtotal I 1.41 2.46 3.87

Total Baseline Cost Physical Contingencies Financial Contingencies Total Project Costs'

22.41 16.42 38.83 2.16 1.60 3.76 3.42 1.14 4.56

28.00 19.16 47.15



Annex 6

Annex 6: Implementation Arrangements

Project Management Responsibilities

SONEDE wil l be responsible for the management and implementation o f the project and for subsequent operation and maintenance o f the facilities and systems installed. The responsibility o f implementing the various project components i s assigned to competent divisions o f SONEDE. In particular:

0 The Directorate for Engineering Studies will be responsible for preparing or supervising the preparation o f design documents for infrastructure projects (components 1 and 2). The Directorate for Construction, and its regional representations, will implement the infiastructure component (components 1 and 2) Management capacity building studies and technical assistance (component 3) wil l be implemented by private consultants, under the responsibility o f the relevant hnct ional unit, i.e.:

o The corporate plan study and organizational audit (task 3a) wi l l be supervised by the Planning and General Studies directorate.

o The Financial Model (task 3b) will be supervised by the Directorate for Finance and Accounting,

o The Customer Service system (task 3c) wil l be supervised by the Directorate o f Operations, in conjunction with Directorate o f Information Systems. Their counterparts at ONAS are expected to participate in both conception and implementation.

o The Human Resources management system (task 3d) wil l be supervised by the Directorate o f Human Resources, and the Directorate o f Information Systems.

0

0

A dedicated Project Implementation Unit (PIU) will be established to guarantee the coherence, quality and timeliness o f project activities. The PIU will be headed by a duly qualified senior SONEDE manager, albeit part-time. H e will be supported full-time by two junior engineers and an administrative staff. The PIU will:

Steer the Project, and supervise component implementation by relevant directorates, towards ensuring the coherence, quality and timeliness o f project activities. The PIU should be entrusted with sufficient authority for effective supervision o f functional directorates and management o f Project schedule. Monitor and document progress and compliance o f a l l Project activities, including procurement, implementation, and disbursement activities. Monitor Project impacts, in particular through the routine gathering o f performance indicators. Manage communications with the Bank, and with other institutions and administrations involved in the Project. The PIU wil l be responsible for t imely preparation, consolidation and transmission o f required reports (quarterly, progress reports, annual reports, audit reports, . . .).



Annex 6

Due to the volume o f studies and procurement activities scheduled in advance o f Project effectiveness, PIU capacity i s required to be established prior to negotiations.

Project Monitoring and Supervision

Fulfillment o f the key performance indicators wil l be monitored along with the execution o f the project and the PIU i s expected to play a major role in both monitoring and supervising the project. Bank supervision wil l also be needed, which will require significant resources, particularly in the f i rs t two years o f implementation. In addition, the launch o f management capacity building components wil l require attentive P I U and Bank supervision, for TOR finalization, implementation and follow-up. On average, three supervision missions per year wil l be needed with approximately 25 staff weeks for each year, i.e. 125 staff weeks for the whole project implementation period

Project Implementation and Schedule

SONEDE will use i t s own resources for engineering design and construction supervision o f routine works, but wil l rely on foreign expertise for complex works such as ST4 water treatment plant design, and for the rehabilitation o f the GEG-Ras Tabia transmission line.

At appraisal, f i rs t year procurement packages o f the project are partly completed, or at final design stage and expected to be completed by the fourth quarter o f 2005. Substantial advance procurement, potentially conducive to retroactive financing i s in fact planned prior to loan effectiveness, and is assumed in project implementation schedule. Satisfactory Project implementation thus requires that: (i) SONEDE establishes a competent PIU capacity as soon as possible; and (ii) SONEDE provides counterpart hnding on a timely basis.

A detailed implementation schedule has been developed for the project by SONEDE, which is summarized in the following pages. I t reflects that some project-related activities, including engineering studies, are underway since 2004. Advanced procurement is expected to selectively begin as early as June 2005. Activation o f consulting, supply, and construction contracts i s expected in January 2006.

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Annex 7

l(3) Goods and Equipment j 100% o f foreign expenditures, and 80% o f j 12..29 ~ I local expenditures i

I

Annex 7: Financial Management and Disbursement Arrangements

TUNISIA: TN-URBAN WATER SUPPLY

Disbursement Arrangements.

The Loan wil l be disbursed during Project implementation over a period o f six years. Managing the project funds and al l related financial transactions, including preparation and submission o f disbursement applications with summary sheets, and/or statements o f expenditure (SOE) and supporting documentation will be the responsibility o f SONEDE. However, payments made for expenditures prior to the Loan signature date but after July 9, 2005 in an aggregate amount not to exceed the equivalent o f Euros 4 million, wil l be reimbursed to SONEDE upon presentation o f a withdrawal application. The allocation o f Loan proceeds by expenditure category i s summarized in the table below:

Table C: Allocation of Loan Proceeds in Millions

I - I ' Amount Of the ' % of Expenditures to be Financed ~

Category i Loan Allocated i i 1 (equivat;;)million 1 I

i ~ (1) Treatment Works (Tumkey, design-build) ~ i

1

80% I i 1 1.22 i

8 (4) Consulting services and training I

2.38 i I I i

I 96%

I i C i i... .__________I__..___ ~ (5) Front End fee i @j Premia for interest rate caps and interest rate , ~ collars

'Amount due under Section 2.04 o f the !Loan Agreement ]Amount due under Section 2.09 (c) o f the

i 0 I Loan Agreement

, i i 0.1

_--_______ +-- -- I

The proceeds o f the loan would be disbursed in accordance with the traditional Disbursement procedures o f the Bank and will be used to finance project activities through the disbursement procedures currently in use : i.e. withdrawal applications for direct payment, for special commitments and/or reimbursement accompanied by appropriate supporting documentation or using Statement o f Expenditures (SOEs) in accordance with the procedures described in the Disbursement Letter and the Bank's "Disbursement Manual ". Under existing disbursement procedures , the PIU will be also permitted to submit withdrawal applications for direct payment accompanied by supporting documentation. As projected by Bank's standard disbursement profiles, disbursements would be completed four months after closure .



Annex 7

Special Account (SA): SONEDE has opted not to use a Special Account.

Use of Statement of Expenditure (SOEs): All applications to withdraw proceeds from the loan wil l be fully documented, except for : (i) expenditures o f contracts with an estimated value equivalent to U S $ 1,500,000 or less for goods; (ii) U S $ 1,500,000 or less for works and Turnkey installations; (iii) U S $ 100,000 equivalent or less for consulting f i rms, and (iv) U S $ 50,000 or less for individual consultants and training expenditures which may be claimed on the basis o f certified Statements o f Expenditures (SOEs) . Documentation supporting expenditures claimed against SOEs wi l l be retained by SONEDE and wil l be available for review when requested by Bank supervision missions and project auditors. All disbursements will be subject to the conditions of the loan Agreement and the procedures defined in the Disbursement.

Financial Management

SONEDE will .be responsible for managing the project funds and al l related financial transactions. SONEDE operates as an autonomous public entity and the systems in place are based on the principles and procedures o f the business law o f The Republic o f Tunisia. I t issues year-end financial statements that are audited by external independent auditors. The financial management capacity assessment conducted between project pre-appraisal and appraisal confirmed that the financial risk for this ninth Bank-financed project to be implemented by SONEDE i s low. The only relevant activity required prior to declaring the project effective i s the finalization o f a Manual o f Procedures, encompassing disbursements and financial management.

Project reports

Biannuallv: SONEDE wil l generate the progress reports relating to the project and submit them to the Bank comprising :

Financial Report: to include a cash f low statement, beginning and ending project cash balances and an expenditure report comparing actual and planned expenditures in addition to, if applicable, Special Account reconciliation statements. Also, a narrative report explaining al l variances that exceed 15% when compared to plan and proposed corrective actions should be included as annex to the financial reports.

Physical Progress Report: to include narrative information and output indicators linking financial information with physical progress.

Procurement Report: providing information on the procurement o f the goods, works, services, training and selection o f consultants showing procurement performance against plan, including information on al l authorized contract variations.

These reports should be remitted to the Bank within 45 days from the end o f the period. The proposed reports format and presentation will be discussed and agreed upon with the Borrower.

Updated table excerpts o f this information will be made available upon request by the Bank, including upon supervision missions.

Annuallv:

1) Audited Project Financial Statements (PFS) wil l be submitted to the Bank. The PFS wil l include:



Annex 7

(i) Statement o f sources and utilization o f funds, indicating funds received from various

(ii) Appropriate schedules classifying project expenditures by component and activity,

sources, and project expenditures.

showing yearly and cumulative balances.

2) Audited Entity Financial Statements (EFS) wil l be submitted to the Bank too. EFS will include the respective: (i) Income Statement, (ii) Balance Sheet, (iii) Cash Flow Statement and (iv) Attached notes.

Auditing Arrangements

SONEDE wil l issue an audit report no later than six months after the end o f each year. The external audit report shall encompass al l project related activities and shall be in accordance with internationally accepted auditing standards e.g., International Standards o n Auditing (ISA). The annual audit report o f the project accounts shall include an opinion on the project financial statements. Also, the audit report shall include a separate opinion on the different Special Account transactions reconciling opening and year-end balances. In addition to the audit reports, the auditor wil l prepare a "management letter" identifying any observations, comments and deficiencies, in the system and controls, that the auditor considers pertinent, and shall provide recommendations for their improvements. The external independent auditor should be acceptable to the Bank and his Terms of Reference will be prepared and submitted for the Bank's no objection, at least nine months prior to the end o f the project fiscal year. Moreover, SONEDE wil l remit to the Bank no later than six months after the end o f each year, its entity audit.

Bank Supervision

The project wil l be supervised every four months for the first eighteen months, then every six months thereafter. Bank supervision missions will consist o f visits to SONEDE to review financial management practices, procurement methods, payment procedures and documentation, in addition to f ield visits to the project sites and other agencies concerned.

Risk Assessment

Country Risks. The Country Financial Accountability Assessment (CFAA) dated June 2004 concludes that the overall Public Finance Management (PFM) risk in Tunisia is low, though there are some concerns regarding the absence o f legal framework for budget preparation and accounting. Heavy reliance o n applied practices could, in the long run, make it dif f icult for decision makers to operates because procedures are not clearly stated. I t i s more o f a system risk. This particular PFM risk does not affect the project since SONEDE operates as an autonomous entity from the Government public finance system. SONEDE presents the capactiy to manage in an efficient manner the funds received from the Bank.

Project Risks. The project r isk from a financial management perspective i s considered l o w as SONEDE i s a very experienced entity which has in place procedures and systems to prevent financial irregularities.



Annex 8

Annex 8: Procurement Arrangements

General

Procurement for the proposed project wil l be carried out in accordance with the World Bank "Guidelines: Procurement under IBRD Loans and IDA Credits" May 2004, and "Guidelines: Selection and Employment o f Consultants by World Bank Borrowers", May 2004, and the provisions stipulated in the loan Agreement.

National Competitive Bidding (NCB) wil l be carried out with procedures acceptable to IBRD which allow: (a) an explicit statement to bidders o f the evaluation and award criteria; (b) national advertising with public bid opening; (c) sufficient t ime for bidders to submit bids (a minimum o f thirty days); (d) no preference margin to domestic contractors; (e) foreign bidders to participate in N C B if they so wish; and (0 contract award to be made to the qualified bidder whose offer i s substantially responsive and lowest evaluated. The methods to be used for the procurement under this project, and the estimated amounts for each method, are summarized in Table A. The threshold contract values for the use o f each method are set in Table B.

.

Overall, the Tunisian procurement legislation for goods and works i s in l ine with the Bank's guidelines for procurement and the country has adequate control organizations. However, substantial divergences exist in the procedures for the selection and employment o f consultants which, fol lowing local legislation, are based o n open competitive bidding. Under the project, Tunisian implementing agencies would apply the Bank's procedures.

NCB Provisions and Conditionalities

Except in the cases provided for below, goods and works shall be procured under contracts awarded o n the basis o f paragraphs 3.3 and 3.4 o f the guidelines and paragraphs below. Contracts o f goods and works procured under the National Competitive Bidding procedure shall comply with the following:

(9 any prospective bidder from a country eligible under the Guidelines who proposes to provide goods produced in or services supplied from any such country shall be eligible to bid for such contracts;

(ii) Tenders wil l be advertised with n o less than twenty-eight (28) days for bid preparation;

(iii) Government-owned enterprises in the Beneficiary's country m a y participate only if they can establish that they (i) are legally and financially autonomous, and (ii) operate under commercial law. N o dependent administrative agency o f the Beneficiary or sub-Beneficiary shall be permitted to bid or submit a proposal for the procurement o f goods or works under the Project;

(iv> Bidders wil l be allowed to deliver their bid by hand or by mail;



Annex 8

(v> Bids shall be opened in public; that is, bidders or their representatives shall be allowed to be present. The time for the bid opening shall be the same as for the deadline for receipt o f bids or promptly thereafter; and shall be announced, together with the place for bid opening, in the invitation to bid;

(vi) Prospective bidders shall be allowed to submit two envelopes provided the two envelopes are opened at the same time;

(vii) Bids shall be evaluated based on price and on other criteria disclosed in the bid documents and quantified in monetary terms, and no provision for preferential treatment for national companies shall be applied;

(viii) The contract shall be awarded to the bidder having submitted the lowest evaluated responsive bid, and no negotiation shall take place; and

(ix) The procedures shall include publication o f evaluation results and the award o f contract and provisions for bidders to protest. These provisions will also specified in Schedule 4 o f the loan Agreement.

Project Management

SONEDE would be the principal agency responsible for overall coordination o f procurement under the project including the management capacity building component. SONEDE has good experience in implementing Bank-financing projects and a good number o f staff will be involved in different steps o f procurement. However because several management units are involved in the process, a central Project Implementation Unit (PIU) will oversee Project implementation.

Procurement of Works

Civ i l works to be financed under the project will cover mainly the design, construction and installation, and rehabilitation o f water infrastructure facilities. These contracts are expected to add up to an aggregate o f about US$15.1 m i l l i on equivalent. In addition one contract for the design and installation o f a water treatment plant, will be bided on a turnkey basis, estimated value o f this contract i s about 12 mi l l ion US$, because o f the complexity o f the work it i s recommended to use the “one step” approach for the bid. C iv i l works contracts above 5 mil l ion US$ will be awarded on the basis o f International competitive bidding, contracts equal or below 5 mi l l ion US$ will be awarded on the basis o f National Competitive Bidding (NCB) procedures, subject to the provisions listed above, and the use o f sample bidding documents acceptable to the Bank. Template N C B bidding documents have been prepared by borrower for Bank review.

Procurement o f Goods

The project would finance purchase o f pipes (polyethylene, cement, cast iron), valves, gates and fittings. The total value o f goods i s estimated at U S $ 12.4 mi l l ion equivalent. NCB may be used for contracts estimated to cost less than U S $ 1.5 million, while shopping based on price



Annex 8

quotations obtained from a minimum o f three suppliers can be used for small quantities o f goods, provided that the value o f the goods does not exceed US$75,000.

Selection of Consultants

Services wil l consist o f approximately US$4.0 million equivalent o f studies, and wil l be implemented by national and international consultants. Consultants' services with an estimated contract amount exceeding US$200,000 wil l be advertised in the United Nations Development Business website and in at least one national newspaper, seeking expressions o f interest. For such contracts the Bank's Standard Request for Proposals (SRP) will be used, and the selection of consultants will be addressed through competition among qualified short-listed f i r m s in which the selection will be based on Quality and Cost Based Selection (QCBS). The selection method wil l be based on quality and cost (QCBS) for a l l contracts above US$200,000 equivalent. In the case o f assignments to cost less than US$200,000 equivalent, the short l i s t o f consultants may comprise entirely national consultants if a sufficient number o f qualified firms are available at competitive costs. However, if foreign firms express interest, they will not be excluded.

The selection methods for contracts estimated to cost more than US$lOO,OOO, but less than US$200,000 equivalent wil l be either Quality Based Selection (QBS) or based o n Consultants' Qualifications. Below these thresholds, and with the exception o f the employment o f consultants through single source for reasons critical to the project, the selection method may be o n the basis of Consultants' Qualifications. Individual consultants wil l be selected and employed in accordance with paragraphs 5.1 to 5.4 o f the Guidelines. The need for Sole Source contracts is not anticipated but, if justified, they wil l be awarded in accordance with the provisions o f paragraphs 3.9,3.10, 3.1 1,3.12 and 3.13 o f the Guidelines.

As agreed at appraisal, a Project Operational Manual will be prepared including procurement and financial procedures, as wel l as the detailed procurement plan for the first eighteen months.

Assessment of SONEDE capacity to implement procurement activities

An assessment o f the procurement capacity o f SONEDE was carried out by the Bank during pre- appraisal, and i s f i led in the project documents. The agency i s already familiar with Bank's requirements because o f their experience with eight previous projects. Our evaluation indicates that the overall procurement risk i s low; however the appointment o f a PIU coordination unit i s desirable for a successfwl implementation o f the project.



Annex 8

Table A: Project Costs by Procurement Arrangements

Amounts in TND millions and (US$ million equivalent)


Procurement Method Prior Review Threshold 1. ICB and LIB (Goods) All 2. NCB (Goods) $ 1,500,000 3. ICB (Works) Al l 4. NCB (Works) 1,500,0000 5. ICB (Non-Consultant Services) N / A

[Add other methods ifnecessa y]

54

Comments


Annex 8

Procurement Plan

I. GENERAL

1. Project information

Country : Tunisia Borrower : SONEDE Project Name : Urban Water Supply Project Project Number: PO64836 Project Implementing Agency: SONEDE

2.

3.

4.

Bank’s approval Date o f the procurement Plan [Original : 29/09/05 ; Revision 1 :. . .]

Date o f General Procurement Notice: posted on August 12/2005 under number 662 dated September 16 2005 Period covered by this procurement plan: 2 year

IL Goods and Works and non-consulting services.

2. Prequalification. Bidders for 1 contract (Water Treatment Plant ST4) shall be prequalified in accordance with the provisions o f paragraphs 2.9 and 2.10 o f the Guidelines.

3. Proposed Procedures fo r CDD Components (as per paragraph. 3.17 o f the Guidelines : N/A

4. Reference to (if any) Project OperationaYProcurement Manual: Under preparation

5. Any Other Special Procurement Arrangements: 0 Advanced procurement

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Selection M e t h o d Pr ior Review Threshold Comments Competitive Methods (Finns) 100,000 Single Source (Firms) 50,000


Annex 8

III. Selection of Consultants

1. Prior Review Threshold: Selection decisions subject to Prior Review by Bank as stated in Appendix 1 to the Guidelines Selection and Employment o f Consultants:

2. Short list comprising entirely o f national consultants: Short l i s t o f consultants for services, estimated to cost less than $ 100,000 equivalent per contract, may comprise entirely o f national consultants in accordance with the provisions o f paragraph 2.7 o f the Consultant Guidelines. 3. Any Other Special Selection Arrangements:

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Annex 8

Contract Value Threshold

(US$ thousands)

$EU TTC

> 5.000.000 < 5.000.000

Power supply (STEG)

> 1.500.000

Table B: Thresholds for Procurement Methods and Prior Review,

Procurement Contracts Subject to Method Prior Review

(US$ millions)

$EU TTC

ICB Prior review NCB > 1 500 000

Single source Prior Review o f sample contract

PrR works = 27,702,377 ICB Prior review

Expenditure Category

1. Works and Turnkey installations

2. Goods

3. Services a. Firms

c. Individuals Consultants

Total prior review

< 1.500.000 < 75.000

NCB Shopping

> 1 500 000 Post review

I PrR Goods = 13,487,093

M> 100.000 M< 100.000 M> 50.000 M< 50.000

QCBSIQBS QBSICQ

Individuals

I I I Total PrP = 146,211,798

Prior review Post-review Prior review Post Review

PrR Etudes = 5,022,328

Total value of contracts subject to prior review (PrR): 46.21 1 U S $ m i l l i on (including taxes and contingencies)

Overall Procurement Risk Assessment: L o w

Frequency of Procurement Supervision: In addition to the prior review supervision to be carried out f rom Bank offices, the capacity assessment o f the Implementing Agency has recommended six months supervision missions to visi t the field to carry out post review o f procurement actions.



Annex 9

Annex 9: Economic and Financial Analysis

A. Economic Analysis

I. Methodology

The analysis i s based on the assessment o f the economic value o f the benefits and costs o f the infrastructure components, using the cost-benefit methodology. While the institutional components are expected to have significant benefits, their accurate evaluation i s elusive, and i s not quantitatively accounted for in this analysis.

The economic analysis i s thus confined to the three infrastructure components, (North, Center and Greater Tunis), which are assessed separately on the basis o f their individual economic profitability. The analysis extends over the period 2005-2030, which coincides with the full depreciation o f some o f the infrastructure financed by the loan. Bo th benefits and costs are projected for the same period. Benefits and costs are assumed to be constant after 2025.

Benefits of Infrastructure components: The targeted population wil l derive benefits from the Project at least equal to the cost o f altemative means o f meeting i ts water needs. Without the Project a large number o f households would not be connected to the water distribution system, and supply capacity would fal l short o f an ever expanding population. In this hypothetical situation some households would be deprived o f piped water and would need to rely o n alternative sources o f supply. The major benefit o f the Project i s therefore to avoid the cost o f altemative supply, in addition to the hygiene and safety superiority o f piped water as opposed to water sought from other sources. The altemative to the project considered in this analysis i s the purchase o f water from vendors, the use o f shallow domestic wells i s excluded because o f high water tables in those cities. The cost that would be avoided thanks to the project i s the cost o f water purchased from vendors to which should be added the cost o f installing, operating and maintaining household storage tanks. These benefits are estimated for the additional population that would be deprived from pipe water if the Project i s not implemented. I t i s important to stress that they should be considered as a minimum value o f the true benefits since they omit the quality and commodity advantages o f direct access to drinking pipe water. An additional benefit i s that households wil l generally consume much larger quantities o f water under the Project, given the greater accessibility and lower cost o f pipe water as opposed to vendors’ water.

Cost of the Project: The Lnfrastructure components o f the project give r i se to two cost components, investment and O&M. These outlays are adjusted so as to reflect economic as opposed to commercial values. Investment financial costs are converted into economic costs by deducting taxes and using a conversion factor o f 0.8 to adjust for the costs o f unskilled labor and custom duties. The conversion factor i s considered to b e conservative and does have a negative impact on the projects economic return. Regarding O&M cost, they are considered to represent 10% o f economic investment costs.



Annex 9

Estimating the IRRs of the Project Infrastructure components: The different steps and results obtained by applying this methodology are shown in tables (2), (3), and (4) o f this annex respectively for the Great Tunis, Center and North. Most o f the background information used i s provided in the feasibility studies that have been carried out for each infrastructure component. A summary o f the main justifications developed in the feasibility study are also presented in this annex.

R o w (1): The connected population after the completion o f the project i s the staring point for estimating the benefits o f the project.

Rows (2) and (3): Annual cumulative increase in water consumption with and without the Project: The quantity in the situation without the Project represents the total quantity o f water that new households would have to purchase from water vendors. This quantity wil l grow each period as the number o f households that would be denied the benefits o f pipe water will increase. Obviously, per capita consumption wil l in this case be lower than if these households had access to SONEDE water. The present analysis makes the assumption that they would buy only 30 l i ter per habitant per day which represents less than 30% o f their potential consumption with the project.

R o w (4): Cost o f altemative source o f water without the project: expenses on purchases o f water f rom water vendors account for a major share o f this cost. Information collected from rural areas estimated the economic cost o f altemative water supply at 17.4 TND/Cubic meter. For the purpose o f this analysis, this estimation i s used to asses the economic benefits o f this project.

Rows (5) and (6): Adjusted costs o f the Project: First Costs are estimated at constant 2005 values. In the basic scenario they don’t include any adjustment for inflation. Inf lat ion is introduced in the sensitivity analysis. As previously stated, a conversion factor o f 0.8 i s used to adjust before taxes financial costs and to estimate the economic costs.

11. Results Summary

Estimates o f economic NPV and IRR for the Infrastructure components are summarized in table 1. Even if benefits are l imited to the opportunity costs o f altemative water supply the project is largely justified, yielding an TRR o f 43%.

Sensitivity analysis shows that the overall IRR remain high; varying between 43% and 37.9%, even if benefits are reduced by as much as 5% annually and cost rose simultaneously by 5% each year compared to the base scenario. Moreover al l the infkastructure components are self sustainable under al l the scenarios Taking into account other types o f benefits, such as larger volumes o f water and safer and more hygienic supply, in addition to the high costs conversion factor applied to the analysis the project would yield even higher retums.


Scenarios :

65

5% Annual lncrease in Economic Costs and 5%

Annual decrease in Benefits

Basic Scenario : Without increase in costs or decrease in benefits

5% Annual lncrease in Economic Costs

IRR NPV IRR NPV IRR NPV


Annex 9

All Infrastructure com onents 43.3% TND 277,543,002 43.0% TND 268,470,336 37.9% TND 129,328,100 Great Tunis com onent 47.1% TND 275,387,059 I 46.8-1 TND 269,807,385 1 41.g~ol TND 149,521,043

3 2 . 7 1 TND 19,941,031 32.2% TND 19,017,322 26.7% TND 9,160,017 -1 Center Re ion Com onent I North Region component I 23.9%1 TND 8,964,451 I 23.1%1 TND 8,044,150 I 16.9%[ TND 2,659,526

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Annex 9

Tariff Policy Tunisia's water tar i f f pol icy can be evaluated with respect to three issues: (i) the sustainability o f tar i f f adjustments rules, (ii) the effectiveness o f the current average tar i f f in supporting SONEDE to achieve full costs recovery and (iii) the efficacy o f the tar i f f structure in targeting the poor by subsidizing their necessary level o f consumption while maintaining incentives for efficient consumption.

The tar i f f structure is proposed by SONEDE and approved by GOT and is applied to the whole country, spanning urban and rural service. Provisional analysis suggests that the tariff-adjustment rules work reasonably well in many respects. SONEDE healthy financial situation mainly due to a relatively frequent tar i f f revision during the last decade i s a testimony to the Government commitment to the sustainability o f the national provider (See charts below). However, our analysis suggests also that improvements are possible through further strengthening o f the technical capability o f the government agencies that provide advice or participate in decisions about tariff adjustment. Moreover, recent delays in tar i f f revisions trigger some concern about the reliability o f current adjustment rules.

SONEDE tar i f f structure has two components; a fixed component based o n the size o f the connection and a variable component which i s proportional to the volume o f consumption. The variable component consists o f f ive increasing blocks-tariffs. The minimum fixed fee, or the subscription fee, i s about 3.3TND per three months ($ 2.6 US). The average volumetric tar i f f for domestic uses in the country stood at about 0.510 TND in 2004. The chart below illustrates the evolution o f the level o f the f ive blocks and how the government less reluctant in increasing the level o f prices for the three highest blocks.

Revenues are also accounted for from connection rights which in average contribute to 15% o f SONEDE annual revenues. Users can get a credit to pay their new connection during eight years. Connection fees are also set and revised on a periodic basis by the GOT.

I 900 ........................................................................ I 800

700

600

500

400

1 ................................................ +Block 1 -Block 2 -A- Block 3

..................................................... +Block 4 +Block 5

........................

1 300 +..A ...................................................... I 200 .................... * _._______ .... .wA?.-.E7.7*.:?--

e/m----y-A * .....................................................

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Evolution Of SONEDE Tariff Structure in Tunisian Millimes (1/1000 TND)



Annex 9

During the last decade SONEDE was able to maintain a positive net income while expanding its services to less profitable rural areas. This was a result o f (i) adequate level o f average tari f f with relatively frequent tariffs revisions, (ii) stable revenues from new connections and (iii) annual government subsidy for rural systems investments (around TND 8 millions, less than 10% o f SONEDE investment program). The chart below shows that while SONEDE operating ratio16 was high by regional standards during last decade, it remained consistently below 100% during the last three beside 2003 tari f f revision. This last element triggers some concerns with regard to the sustainability o f SONEDE financial performance.

110%

108%

106%

104%

102%

100%

98%

96%

I

Evolution of SONEDE Operating ratio

SONEDE tar i f f structure exhibits a high level o f cross subsidies among customers due to the increasing blocks feature. The chart below shows that more than 80% o f SONEDE consumers are subsidized. In fact given that SONEDE 2004 average cost was around 0.47 TND/Cubic meter (excluding the cost o f new connections and depreciations), al l the consumers in at least the f i rst three blocks o f the tariff structure are paying less than the average cost. This clearly shows that the actual tari f f structure i s not very efficient in targeting the poor and in conveying the true value o f water to a large share o f SONEDE customers.

Operating ratio : Operating revenues/Operating expenses including depreciations. 16


I

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Annex 9

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..........................................................................

..................................................................

30%

20%

lo??

PA

Distribution of SONEDE customers, revenues and volumes sold per level of tariff.

B. Financial Situation and Sustainability

I. Project Financial Cost-Benefit Analysis

The financial analysis compares the project costs with the project benefits. All costs and benefits are expressed in current terms and are incremental in nature, valued as the difference between the costshenefits “with the project” and “without the project”. The analysis was carried out over the period o f the average expected l i f e o f the investments o f 25 years. The estimation o f the W A C C i s based on the assumption that the project wil l be 90% financed by the bank loan for which the interest rate have been considered constant at 7%. The detailed financial analysis in this Annex presents the present values (PVs) o f the financial flows and the NPVs and FRR for al l the infrastructure components

For the financial benefits from the Infrastructure components, SONEDE will have the increased sales revenue due to the ability to meet increased demand in addition to the revenues generated f rom connections fees. On the cost side, SONEDE will have the outlays for the project’s capital cost and capital investments beyond the project period estimated in the feasibility studies. The infrastructure components costs include the increase in maintenance and operating spending as estimated in the financial forecast.

The table below summarizes the results o f the financial costs-benefits analysis for the infrastructure components. The analysis shows that the return o n the north region component i s l o w but s t i l l higher than the W A C C under the basic scenario. However, the sensitivity analysis shows that a l l the returns are dependent o n the frequency o f the increase in tariffs. A more detailed risk analysis o f SONEDE i s presented in this annex.

Financial Analysis : WA CC = 4.2% I I

I I I Basic Scenario I Constant Average Tarrif

TND 30 901 958 TND 48 587 990 TND 3 501 308 (TND 269 147)



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The financial benefits o f the capacity building component are dif f icult to estimate, however the preliminary analysis presented below gives some insights about the strong benefits and the profitability o f the main tasks in this category:

The renewal o f customer management IT system should enable SONEDE to shorten i t s bi l ls collection cycle which is estimated at 120 days. Given the cost o f the new system, around TND 3.7 Millions, SONEDE should be able to recover the new system cost in the first year after implementation by decreasing the bills collection cycle just by 7 days. Therefore, i t i s reasonable to assume that this task will yield a very high IRR and NPV. The renewal o f Human Resources IT system should improve SONEDE efficiency in managing i t s human resources and in better monitoring i t s labor costs. The cost o f this task, TND 740,000, represents less than 0.8% o f SONEDE labor cost during 2004. Given that SONEDE labor costs has grown by more than 8% annually during the last decade, it i s reasonable to assume that SONEDE wil l be able to recover the cost o f this task through a better monitoring o f the evolution o f i t s labor costs.

The two remaining management capacity building tasks (Corporate plan and organizational audit; Financial model) represent relatively l o w investment costs which SONEDE should be able to vastly recover through efficiency gains it wil l achieve once al l the institutional components are implemented.

11. Financial Assessment of SONEDE

Objectives

A general financial assessment o f SONEDE was carried out to analyze the company's financial structure, operational efficiency, long-term viability, and capacity to assume the proposed loan. The assessment was carried out on the basis o f audited historical and pro- forma financial statements, using commercial, operational and financial ratio analyses, measured in absolute terms and against relevant industry standards. The main risk factors which could affect the performance and viability o f SONEDE were also analyzed.

The results o f the analysis were used to: (i) propose recommendations to improve the company's financial structure and operational performance; (ii) define performance indicators and financial covenants; and (iii) identify activities to improve SONEDE's budgeting and planning process. In addition, SONEDE has been sent the financial model developed for the purpose o f this analysis as one o f their key budgeting and medium-term planning tools.

Conclusion

The financial assessment and the subsequent sensitivity analysis show that SONEDE credit risk and its ability to implement i ts investment program i s highly dependent o n the



Annex 9

promptness o f tari f f adjustments and (ii) the ability o f the management to implement more reliable financial planning practices and cost control strategies.

Methodolom

The World Bank project team in coordination with SONEDE’s financial and accounting department developed a comprehensive spreadsheet model presenting in detail two years o f historical results and twenty year projections. The model i s coherent with the presentation and accounting rules employed by SONEDE in the preparation o f i t s accounting statements with three exceptions:

the reintegration o f the provisions for bad debts were made in SONEDE balance sheet but not taken into account in the revenues o f SONEDE;

the tax effect o f subsidies (which cannot be depreciated for tax purposes) were taken into account in the tax calculation and but not as additional artificial revenues;

the advance billing o f new clients connected to the network were regarded as long-term debt and not integrated in the revenues, but in the cashflow.

These three exceptions tend to show more conservative results than SONEDE’s, although the financial robustness o f the forecast i s s t i l l proven.

The model was prepared based o n detailed commercial, operational and financial assumptions discussed with SONEDE. The main assumptions consisted in consumption forecasts, investment programs, operating costs and financing estimates. I t i s to be noted that f h r e investments - not yet planned by SONEDE - were assumed for the long-term operation o f the company in order to assess the evolution if its borrowing and investing capacity and to better reflect reality: additional investments totaling U S D 2.59 bi l l ion (real TND 1.56 billion), were therefore scheduled on the period 2010-2025.

Six projection scenarios were built: (i) a “base case scenario” with SONEDE’s most likely evolution; and (ii) five sensitivity scenarios targeted at estimating the robustness o f SONEDE financial projections to critical parameters. For each scenario, the performance o f the company was assessed on the basis o f the fol lowing main indicators:

Operational Indicators

0

0

i) Operational margin and net income margin; ii) Cost to income ratio (including and excluding depreciation charges); iii) Personal productivity (employees per 1000 connections); iv) Structure o f staffing and evolution o f average salaries; v) Percentage o f investments financed from own resources; vi) Yearly capital expenditures; vii) Net present value (NPV) and internal rate o f return (IRR) o f free cash f lows from operations.

F in an cia1 Indica tors

i) Long-term debt to equity ratio; ii) Total debt to equity ratio;



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iii) Debt Service Coverage Ratio; iv) Loan L i f e Coverage Ratio; v) Current ratio.

Assumptions

Estimate of Weighted average cost of capital

Table 1 Estimated Weighted Average Cost o f Capital for Tunisia in local currency

On the basis o f SONEDE average leverage and IBRD cost o f debt, the weighted cost o f debt for SONEDE i s approximately 1.8%. The weighted average rate (TMP) o f bonds equivalent to Treasury bonds (B,T,A) for the last adjudications (in YO per year) o f 10- and 12-year bonds were used to approximate the Tunisian risk-free rate, which i s around 8%.

These assumptions lead to a WACC o f 7% in TND and 6% in U S D equivalent (with a cost o f debt o f 5.5%, a r isk free rate o f 3.5% and an ERP o f 10%).

Base Case Scenario Assumptions

The assumptions used in the model were aimed at constructing a realistic base case scenario, from which sensitivity analyses could be carried out to assess the effect o f more extreme assumptions. The main assumptions were therefore based o n the existing performance o f SONEDE and the efficiency gains the company plans to achieve. The impact o f less radical cost-saving or revenue-increasing measures was assessed separately (see sensitivity analyses). Assumptions for 2003 were defined o n the basis o f SONEDE’s audited results. Assumptions for the years 2004 were prepared on the basis o f SONEDE’s audited results with approximation regarding the accounting adjustments; and the medium-term investment planning i s based on a five-year business plan. Assumptions for later years were prepared from discussions with SONEDE’s financial specialists and cross-checked with relevant people in the company. The base case consumption and tariff forecast assumptions are presented in Table 2, cost assumptions in Table 3, accounting and financial assumptions in Table 4 and macro-economic assumptions in Table 5.



Annex 9

1. Assumutions related to consumution

Domestic Water Consumption Annual Increase in number of customers Number of consumers per household Consumption Ildaylinhabitant

Increase in the number of rooms

Consumption Ildayloccupied room

Increase in the number of Industrial consumers Consumption Cubic Meter/day/lndustrial Consumer

Increase in number of public entities Consumption Cubic Meterldaylpublic entities

Increase in the number of Municipalities Consumption Cubic MeterldaylMunicipaiity

Increase in the number of commercial customers Consumption m3ldaylcommercial customer

65 000

Tourism activities

Administration

Commercial Activities

Tarif de la premiere annee Tarif de laseconde annee Periodicit6 de I'augmentation an@) Montant de I'augmentation du tarif moyen

Table 2 - M a i n base case Ta r i f f and consumption forecast assumntions

mill TDNlm3 mill TDN/m3

2. Hwothbses relatives aux charaes Strateaie RH - details

Achat d'eau brute /volume produit par SONEDE Taux d'accroissement annuel des achats d'eau brute en YO Stabilisation de i'achat d'eau brute par SONEDE a

Prix moyen d'un branchement (TND) Coot des fournitures d'un branchement (TND) Nombre de branchement entretenus (2003) Prix du ml d'extension Coot unitaire achat d'eau brute par m3 eau produite Coot unitaire produits chimiques par mJ eau produite Coirt unitaire Bnergie par m3 eau produite

Gains de productivitb 2% Avantages en nature / Masse salariale Taux d'accroissement annuel des salaires Transfert annuel des effectifs occasionnels jusqu'er Baisse annuelle des effectifs occasionnels Salaire agent occasionnel (TND, base 2003) Salaire moyen statutaire (TND, base 2003)

Table 3 - M a i n base case Costs assumptions



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4. Hypotheses comptables et diverses

Taux effectif d'imp6t sur les benefices

Augmentation annuelle des "Produits financiers" Augmentation annuelle du solde des "Gains et pertes ordinaire Provisions clients et autres risques YO Revenus Variations des stocks Delai de recouvrement des creances clients Delai de reglement du credit fournisseurs Dettes ONAS / Ventes d'eau et redevance fixe Clients crediteurs & Compte d'attente (% Clients debiteurs) Autres passifs courants (% Charges du personnel) Accroissement des immobilisations financieres nettes Autres actifs courants (hors exploitation) Provisions pour risques et autres passifs non courants Produits accessoires en YO (ventes eau et redevance fixe) Part des produits accessoires indexee sur ventes eau

Table 4 - M a i n base case accounting: and financial assumptions

3. Macro Economic Assumptions

Inflation Annual appreciation rate of koweitian Dinar Annual appreciation rate of US dollar Annual appreciation rate of Euro Annual appreciation rate of Swedish Krona Annual aooreciation rate of Islamic Dinar

Table 5 - M a i n base case macro-economic assumptions

IV. Results of the Financial Assessment

Base Case Scenario

Based on the assumptions used in the base case scenario, SONEDE appears financially viable and able to assume the proposed loan. Nevertheless, SONEDE's indebtedness needs to be closely monitored from the beginning o f the reimbursement period - starting 201 1. Indeed. a serious pressure i s put on key financial ratios for the years to come, such as the operating ratio and the current ratio. SONEDE high investment phase is coming to an end, especially between 2008 and 2012. The new strategic investments that have been identified wil l be completed over the next five years. In the meantime SONEDE has to prepare for a new phase focusing almost exclusively on maintenance and increased operating performance. SONEDE's ability to shift from one phase to the next will be key to the financial viability o f the company.

SONEDE i s experiencing a phase o f high investments - whether to increase water production and transportation capacity or to modemize its operations.

SONEDE needs to prepare a new phase o f investment consolidation and performance improvement as o f today. The components o f this project related to business management



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will help SONEDE in this transition and are o f paramount importance for the envisaged investments (components 4 and 5 o f the envisaged project). On the long run, SONEDE wil l need sufficient investment capacity to invest in maintenance and operational performance. Additional investments for this purpose could start to be implemented from 2015 on, as shown in Table 7.

Endettement I Passif

Table 6 - SONEDE indebtedness over total l iabil i t ies

Investments in real TND

160.0

140.0

120.0

g 100.0 I- -

80.0 e! 'E 60.0

40.0

20.0

0.0

0

Table 7 - Tota l annual investments planned bv SONEDE



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Our base case assumptions, based o n SONEDE's operating targets, imply some improvement in SONEDE's operating efficiency related to staff costs but leave substantial room for further progress (see Sensitivity analyses in section V below for an impact o f further improvement in each o f these parameters on key results). I t i s to be noted that the tari f f increase assumptions 5% every two-year - or 37 T N D mi l l ime every two-year - have a significant impact o n the volatility o f these key ratios.

Operational margin 22 5% 21 9% 24 6% 23 5% 22 2% 21 6% 24 4%

Cost to income (wio depreciation) 77 5% 78 1% 75 4% 76 5% 77 8% 78 4% 75 6%

Employees I 1000 connections 3 3 3 3 3 3 3 3 3 2 3 1 3 1 % of investment financed by own resources wio contributions 32% 24% 48% 36% 72% 57% 51%

Net income margin 3 4% 0 8% 3 4% 18% 0 5% -1 3% 12%

Cost to income (with depreciation) 94 9% 96 9% 94 7% 96 2% 97 6% 98 8% 95 4%

% of investment financed by own resources with contributions 58% 42% 60% 50% 89% 76% 7 1 %

Operational margin 2010 2021 2012 2013 2014 2015 201 6 23 9% 26 5% 19 4% 15 9% 15 7% 18 7% 18 5%

Net income marsin 0.8% 2.9% -0.4% -3.3% -3.9% -0.1% -0.4% Cost to income (w/o depreciation) 76.1 % 73.5% 80.6% 84.1 % 84.3% 81.3% 81.5% Cost to income (with depreciation) 96.3% 92.7% 99.0% 102.0% 102.4% 98.5% 98.8% Employees / 1000 connections 3.0 2.9 2.9 2.8 2.8 2.7 2.7 % of investment financed by own resources wlo contributions 61% 42% 41% 33% 27% 48% 52% % of investment financed by own resources with contributions 80% 59% 57% 48% 42% 63% 67%

TABLE 8: SONEDE'S KEY OPERATIONAL RATIOS, BASE CASE 2005-2016

However, i t i s to be noted that additional amount o f debt i s required to finance on-going investments; we have taken into consideration three future loans o f respectively TND 110,150 and 150 mi l l ion in 2012,2016 and 2020.

Long-term debt / liabilities 16.0% 19.4% 23.1% 26.3% 28.6% 28.2% 27.3% Debt / Liabilities 29.9% 32.7% 35.8% 38.1% 41 .O% 40.9% 40.3% Leverage 42.6% 48.6% 55.7% 61.6% 69.5% 69.3% 67.6% Current ratio 1.3 1.3 1.2 1.3 1.4 1.3 1.3 DSCR w/o contributions 4.86 2.36 3.38 1.96 2.71 1.68 1.44 DSCR with contributions 5 16 3.69 4.02 2.48 3.23 2.04 1.73 LLCR 5.16 4.04 3.22 2.61 2.30 2.36 2.52

201 0 201 I 201 2 2013 2014 2015 2016 Long-term debt / liabilities 25.7% 23.9% 23.3% 24.0% 25.2% 25 0% 26.3% Debt / Liabilities 39.6% 38.1% 38.2% 39.8% 41 .O% 41.4% 42.8%

Current ratio 1.1 1 .o 1 .o 0.9 0.8 0.8 0.8 DSCR w/o contributions 1.62 1.36 1.47 1.39 127 1.70 1.78 DSCR with contributions 1.89 1.62 1.75 1.67 1.57 2.01 2.08 LLCR 2.78 3.19 3 39 3.33 3.20 3.39 3.18

TABLE 9: SONEDE'S KEY FINANCIAL RATIOS, BASE CASE 2005-2016

Leverage 65.7% 61.6% 61 7% 66.0% 69.5% 70.6% 74.8%

These ratios highlight the pressure o n SONEDE's debt service ratio which results from its large debt necessary to finance on-going and forecast investments.



Annex 9

As a result, the Project wil l address directly or indirectly each o f the identified weaknesses and impose to SONEDE monitoring indicators and targets beyond what i t plans to achieve: (i) manage operational expenses - especially wages; (ii) optimize investment planning; (iii) improve revenue management; (iv) increase financial management capacity; and (v) an improved overall business organization to improve the company’s performance and monitor the quality o f the service. These targets are used as Project monitoring indicators.

The revenue structure o f SONEDE also indicates a strong reliance on (i) the number o f annual new connections; (ii) a stable leve l o f other revenues and (iii) maintaining l o w bad debts in domestic revenue consumption.

mio TND I 2003 2004 2005 2006 2007 2008 2009 Revenues from water sales 157.6 164.2 182.5 189.2 208.8 215.8 236.8 New connections and works 16.9 16.7 16.4 16.7 16.9 17.2 17.5

Other revenues 5.9 4.8 5.3 5.4 5.9 6.1 6.6 Capitalized expenses I works 0.0 0.4 1.2 1.2 1.2 1.2 1.2

Total revenues 180.4 186.2 205.4 212.4 232.8 240.3 262.0

mio TND

Revenues from water sales New connections and works Capitalized expenses /works

2010 2011 2012 2013 2014 2015 2016

244.3 266.5 274 5 298.0 306.4 331.3 340.1 17 7 18.0 18 2 18.5 18.8 19.1 19.4 1.2 1.3 1.3 1.3 1.3 1.3 1.4

Other revenues 6.7 7.3 7.5 8.0 8.2 8.8 9.0 Total revenues 270.0 293.1 301.5 325.9 334.8 360.6 369.9

TABLE 10: SONEDE’S REVENUE STRUCTURE, BASE CASE

Management category (%) Technical staff (%) Unskilled workers (%)

Management category Technical staff Unskilled workers

Non-statutory staff

Total staff costs (incl. benefits)



Non-statutory staff


14 5% 14 3% 15 0% 15 3% 15 3% 15 3% 15 4% 16 0% 15 8% 16 3% 164% 16 5% 16 7% 16 8% 69 4% 699% 687% 683% 682% 680% 678%

654 854 937 978 995 1,011 1,026 942 945 1,014 1,049 1,074 1,099 1,123

4.077 4,177 4,277 4,377 4,430 4,478 4,522 1,123 1,023 923 823 773 723 673

84.84 89.05 95.83 101.21 105.62 110.09 114.66

2010 2011 2012 2013 2014 201 5 2016 15 4% 15 4% 15 5% 15 5% 15 6% 15 6% 15 6% 17 0% 17 1% 173% 174% 17 6% 17 7% 17 9% 67 6% 674% 672% 670% 669% 667% 665%

1,040 1,053 1,066 1,077 1,088 1,099 1,108 1,146 1,168 1,190 1,210 1,231 1,250 1,269 4,561 4,596 4,627 4,654 4.678 4,698 4,715

623 573 523 473 423 373 323

119.28 124.00 128.78 133.65 138.60 143.63 148.74

TABLE 11: SONEDE’S HR ASSUMPTIONS, BASE CASE

The targets proposed for each monitoring indicator l isted above are as follows:


Information Source : DPEG

Number of Customers (Thousands) Population served (Thousands) Total Number of Employees

Permanents Temporary

Number of emplyees / 1000 connections Water Produced (Millions of m3) Water Sold (Millions of m3) UFW (%)

79

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

1,118 1,187 1,250 1,305 1,361 1,419 1,477 1,548 1,623 1,706 6,365 6,560 6,718 6,876 7,030 7,201 7,338 7,480 7,630 7,760 7,356 7,744 7,507 7,301 7,395 7,350 7,244 7,119 7,110 7,038 5,195 5,360 5,420 5,405 5,738 5,804 5,786 5,773 5,825 5,865 2,161 2,384 2,087 1,896 1,657 1,546 1,458 1,346 1,285 1,173 6.6 6.5 6.0 5.6 5.4 5.2 4.9 4.6 4.4 4.1

305.8 322.3 310.5 307.8 319.1 327.2 338.6 350.3 373.4 373.4 223.2 237.5 230.4 229.3 245.4 255.4 255.8 271.6 285.1 301.0 27.0% 26.3% 25.8% 25.5% 23.1% 21.9% 24.5% 22.5% 23.6% 19.4%


Annex 9

SONEDE ‘s revenue structure and level o f revenues indicate that a close monitoring o f (i) the number o f new connections per year (domestic new connections 65,000 and overall new connections 70,000) and o f (ii) high-consumption customers is needed; The level o f receivables shhould be reduced; Distribution network efficiency should be maintained at a level o f 85% (current overall efficiency); The number o f SONEDE employees per staff category i s limited to Table 11; ideally management staff category should trend towards 15% for executives and 18% for first-line supervisors in stead o f 20% in the long-term; Indebtedness ratio (debthabilities) should not exceed 40% at any time; Forecast DSCR including contribution payments for works (subvention des tiers) should not fal l below 1.3 at any time during the loan l i fe in the base case scenario, as updated from time to time; Investment plan not to exceed th’e levels indicated in Table 7.

SONEDE financial statements are detailed in at the end o f this Annex.

V. Sensitivity and R i s k Analyses

Two types o f sensitivity analyses were conducted to assess the resp ctive impact o f changes in (i) SONEDE’s operational performance and (ii) SONEDE’s market environment. A Monte Carlo analysis on the most sensitive parameters was performed as well.

As shown in Table 12 below, the performance o f SONEDE over the last ten years have been improving and sets positive operational trends, although i t i s likely that the increase in consumption will progressively slow down.

Changes in Operating Performance

As explained above, the base case scenario strongly relies o n the ability o f SONEDE to monitor i t s operational costs. The sensitivity analyses below will show that the monitoring o f (i) staff costs; (ii) investment planning, (iii) bad debts are o f particular


Annex 9

importance for SONEDE future financial viability; and SONEDE’s financial situation could become fairly tense if expected performance improvements were not achieved.

For each sensitivity analysis, we measured the impact on results over the next 20 years. A summary o f the sensitivity analyses that were conducted i s attached in Table 5 o f the attachment.

Staff costs. The productivity o f SONEDE’s staff has improved over the last four years (see Table 12 above). However, if the underlying assumption that SONEDE is going to further improve its productivity (at a rythm o f 2% per year) in years to come i s not fulfilled, significant cash savings and performance improvement wil l be jeopardized as shown in Table 13 below. Due to the increasing leverage o f the company, negative trends regarding the monitoring o f staff costs are extremely sensitive, hence the strategic importance o f the human resources management component o f the project.

Scenario de base

TABLE 13: SENSITIVITY ON STAFF COSTS

N e t w o r k performance. SONEDE has achieved excellent levels o f network performance. If these levels were to decrease the financial ratios would decline, but not drastically, as illustrated below. However, long-term sustainability o f the company’s technical and financial performance would be impacted.

TABLE 14: SENSITIVITY ON NETWORK PERFORMANCE



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Changes in Market Environment

In order to assess the sensitivity o f SONEDE’s financial health to unexpected changes in i t s environment, the following sensitivity analyses were conducted:

0 Lower tariff increases; 0

0

Lower number o f new connections; Deeper depreciation o f the Tunisian Dinar against the USD$ and the Euro.

L o w e r tariff increases. The scenario that most weakens the financial robustness o f SONEDE is the lower tari f f increase sensitivity. All assumptions and factors being equal, the decrease in tar i f f augmentations f rom 5% every two-year to 3% every two-year results in serious financial stress for SONEDE, as illustrated in Table 15.

Scenario de base

TABLE 15: SENSITIVITY TO DECREASE IN REVENUES DUE TO SLOWER TARIFF INCREASES

In such a case, SONEDE would hardly be able to face the reimbursement o f i ts debt in 2014, or would have to cut on maintenance and operating costs to do so. This highlights the extreme dependency o f SONEDE o n the tar i f f increase decisions and the paramount importance o f SONEDE delivering a high-quality and cost-efficient service to justify such increases.

L o w e r n u m b e r o f n e w connections. Our base case scenario assumes that 70,000 new connections are established every year, among which 65,000 domestic connections. If this forecast happened to be reduced by 46% to 35,000 new domestic connections yearly, SONEDE would be fairly affected as indicated in Table 16 below. This highlights the need for SONEDE to carry out detailed demand studies as without such analysis, one crucial assumption o f its medium-term forecasts cannot be established with sufficient certainty.

‘


enannee2014

1.27 Min. DSCR wlo subvention tiers

82

enannee2014

0.91


Annex 9

Scenario de base

enannee2014 enannee2014

TABLE 16: SENSITIVITY TO DECREASE IN REVENUES DUE TO LOWER DEMAND

Depreciation of the Tunisian Dinar. The base case scenario assumes a 1% annual depreciation o f the TND against the USD and the Euro. This level i s conservative regarding the recent weakening o f the dollar both against the Euro and the TND, but lower than previous experience. Our sensitivity analyses indicate that sustainable future TND erosion (see Table 17) could jeopardize SONEDE finances. In fact, i t s revenues and costs are more robust to depreciation when i t i s associated with inflation. In such circumstances, higher tar i f f adjustments would be necessary to keep servicing SONEDE financial commitments. Obviously, SONEDE could hedge this r i s k by borrowing in the least volatile currency relatively to the TND.

Scenario de base

I I

I I I enannee2014 Min. LLCR I 2.30 0.56

TABLE 17: SENSITIVITY TO MACRO-ECONOMIC PARAMETERS

These sensitivities show that SONEDE i s quite vulnerable to external shocks. This result confirms the importance for SONEDE to improve performance to provide a more comfortable financial cushion with which to resist shocks and to conduct regular demand studies and large consumers follow-up that wil l allow reducing uncertainty o n fbture demand levels.

Risk An alvsis A Crystal Ba l l analysis was conducted to analyze the risk that k e y results and ratios are much lower than our base case indicated. We defined probabilistic distributions for the following key variables (in accordance with distributions used in the economic analysis):

. Personal productivity: lognormal distribution (p=2%, a=2%);



Annex 9

. Tariff increase: uniform distribution between 3% and 6%; . Increase in water demand: lognormal distribution (1 Oth percentile=30,000 and 90th percentile = 73,400, truncated); . Exchange rate and inflation: lognormal distribution.

A Monte Carlo simulation then allowed u s to estimate a statistical mean, median and a percentile distribution o f likely values for the fol lowing key variables: . Minimum DSCR and LLCR;

. Maximum operating ratio.

TABLE 18: RESULTS OF MONTE-CARLO ANALYSIS

The results o f the analysis (see Table 18) indicate that the r isk that any o f these indicators fa l l below an acceptable threshold i s fair ly minimum with regard to the minimum LLCR, and minimum DSCR including the contributions, as:

There i s a 91% chance that L L C R stays above acceptable levels (1.3) and 96% above the critical threshold o f 1 .O;

There i s a 46% chance that DSCR stays above acceptable levels (1.3) without restructuring and 87% above 1 .O.

0



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However, the maximum operating ratio level becomes critical (Le. above 100%) in 97% o f the cases. This means that there i s a good chance that SONEDE will need to face a situation o f temporary financial distress. However, SONEDE disposes o f several key variables that are able to substantially mitigate this risk:

Use o f advance consumption revenues;

Smoothing the planned amounts o f investments when needed;

A significant potential to reduce operational Performance volatility given the organizational components o f the proposed project.

If such considerations are used in the above scenarios, the probability to default o n debt i s substantially reduced to 4%. This explains why we believe SONEDE is capable o f assuming the proposed loan even if, in the above analysis, i t s mean key financial ratios appear tense.

0

0

0

Finally, the analysis confirms the importance for SONEDE o f controlling i t s operational performance in order to be able to finance planned investments, as otherwise the additional debt requires i s very l ikely to become above SONEDE's capacity to borrow.

VI. Budget and Long-term Planning

Systematic Use of Medium-term Financial Projections

The sensitivity analyses presented above indicate that the amount o f cash that wi l l be available in future years for financing investments varies greatly with SONEDE's operational performance. SONEDE is highly sensitive to the tariff increases, the percentage o f unpaid bills, its personnel productivity, the amount o f planned investments, and the increase in water demand. A better performance than planned could lead to additional cash savings available for investments, and would help reduce SONEDE's sensitivity to market shocks and would facilitate the raising o f long-term finance to fund investments. To the contrary, a lower performance would inevitably require additional funding to be found to finance forecast investments. In that case however, SONEDE could face substantial difficulties in raising additional funding. Hence, if SONEDE did not achieve the performance target i t set up for itself, part o f i t s investment plan could well be threatened and would have to be postponed.

This conclusion highlights the potential benefits o f better using the medium-term financial projections which SONEDE produces as part o f its current planning process for operational and investment decision making and performance monitoring, in particular to (i) assess the impact o f improving some o f its operational indicators on i t s ability to self- finance investments and (ii) monitor regularly its achieving performance targets.

Longer-term Investment Projections with their Financing Sources

Again, this speaks in favor o f preparing long-term investment plans, with their forecast financing and an analysis o f the impact on SONEDE's key ratios. Doing this would al low SONEDE to assess early enough its capacity to finance the investments planned and, if



Annex 9

needed, to take the required corrective actions to improve i t s performance. I t would also contribute to better manage SONEDE cash and use optimal leverage on short- and long- term finance.

In view o f these two conclusions, SONEDE i s taking steps to strengthen its planning process and department and to devote closer attention to improving operating performance by creating an ad-hoc entity. Component 5 o f the Project includes specific measures to support these efforts and efficiency targets have been added to traditional financial covenants as monitoring indicators.


Annex 9

SONEDE's financial summary

Base case scenario Table I: Income statement

Montants en mi0 TND I 2003 2004 2005 2006 2007 2008 2009 20

I 187.525 187.570 207.455 214.327 231.077 238.276 256.559 Revenus (A) 175.329 180.936 195.380 202.032 218.280 225.259 242.995

Ventes d'eau et redevance fixe 158.395 164.260 178.937 185.424 201.506 208.317 225.884 -Part des guantitds achetees a w e s des privds 0% 0% 0% 0% 2% 2% 2% - Part des quanfitds pmduites par ia Sonede

Branchements et travaux divers Production d'immobilisations (e) Autres produits d'exploitation

~. .. 100% 100% 100% 1W% 98% 98% 98%

16.934 16.676 16.444 16.608 16.774 16.942 17.111 6.299 0.440 1.153 1.176 1.187 1.199 1.211 5.896 6.195 10.921 11.120 11.610 11.818 12.353

I 177.9031 181.8061 196.4191 206.1871 225.5961 235.3341 244.7131 0.000 0.000 0.000 0.000 9.794 9.794 10.055

Achats consommes (D) Achats d'eau Achats de materiels de branchement. Achats de produits chimiques Autres achats Variation de stocks

Consommation d'energie ( G ) Charges de personnel (E) Dotations aux Amortissements et aux Provisions ns

30.08296 3 743

11 432 4 328 9 670 0 910 13.66

84.842

24.623 4 19081 3 29753 3 85001 9 10513 4 17947

14.96 89.050 35.317

27.452 28.438 29.224 30.274 31.361 4.573 4.926 5.182 5.569 5.977

11.398 11.626 1 1.859 12.096 12.338 4.776 5.048 5.211 5.499 5.797 6.605 6.738 6.872 7.010 7.150 0.100 0.100 0.100 0.100 0.100 15.73 16.63 17.165 18.114 19.093

95.831 101.212 105.618 110.090 114.656 40.033 42.191 45.721 48.628 50.743

Autres charges d'exploitation (H) 16.697 17.859 17.372 17.719 18.074 18.435 18.804 d l 9.621 5.764 11.036 8.140 5.481 2.941 I 1.847

Produits financiers (I) 8 505 7 338 7.336 7 336 7.336 7 336 7 336 Charges financleres et pertes de change (J) 6.712 6.987 7.390 10.703 13,064 15.592 16.079 Solde des gains et pertes ordinaires (K) 2 193 1876 1976 2 076 2 176 2 276 2 376

Imp6t sur les benefices (K) 7 185 5 443 5 831 3 082 0 868 0 000 2 466 I 13.607 7.990 12.958 6.850 1.930 -3.039 5.480

Corrections comptables pour calibrage 1127

Monfants en m o TND 2015 2020 2025 I 345.564 426.449 496.899

Revenus (A) 329.326 407.783 476.110 Ventes d'eau et redevance fixe

- Part des qoantites achetees aup& des priv6s -Part des quantites produites par la Sooede

Branchements et travaux divers Production d'immobilisations (B) Autres produits d'exploitation

311.162 388.693 456.046 9% 8% 7%

91% 92% 93% 18.164 19.090 20.064 1.286 1.351 1.420

14.952 17.315 19.369

11: Charges d'exploitation (D+E+F+G+H) I 340.341 393.402 455.1401 Achats d'eau dessalee aupres des prives 54.606 57.865 59.618 Achats consommes (D) 37.558

Achats d'eau 8.269 Achats de mat6riels de branchement. 13.894 Achats de produits chimiques 7.243 Autres achats 8.052 Variation de stocks 0.100

Consommation d'energie ( G ) 23.858 Charges de personnel (E) 143.635 Dotations aux Amortissements et aux Provisions n, 59.508

44.458 51.900 10.965 13.646 15.341 16.937 9.162 11,402 8.890 9.815 0.100 0.100

30.178 37.556 168.997 196.989 68.523 83.263

Autres charges d'exploitation (H) 21.176 23.380 25.814 1 1 5.222 33.048 41.759

Produits financiers (I) 7 336 7 336 7 336 Charges financieres et pertes de change (J) 16.011 17.793 15.567 Solde des gains et pertes ordinaires (K) 2 976 3 476 3 978

Imp6t sur les benefices (K) 0000 11 730 16877 Corrections comptables pour calibrage

IV : Resultat net de I'exercice (IV-K) I -0.48 I 14.341 20.63



Annex 9

Base case scenario Table 2: Balance Sheet

Montanis en mio TND

Actifs non courants 886.582 962.708 1,052.028 1,113.213 1,160.879 1,180.651 1,178.31! lmmobilisations corporelies et ncorporelies brutes 1 353 980 1,463 350 1,603 503 1,717 679 1,821.866 1,901 065 1,960 27;

lmmobiiisations corporeiles et incorporelles nettes 843 284 919812 1,008631 1,069316 1,116483 1,135755 1,13292: lmmobiiisations financieres 43 298 42896 43396 43896 44396 44896 45391

Amortissements (y compris des subventions tiers) 511 696 533 538 594.871 648 362 705.383 765 311 827.35<

Actifs courants Stocks Clients et comptes rattachbs Autres actifs courants (debiteurs divers) Tresorerie actif

Total actifs

197.364 200.206 193.050 201.812 237.022 227.619 238.43: 15.179 16.941 17.041 17.141 17.241 17.341 17.44' 89.134 95.617 80.293 83.027 89.704 92.572 99.86. 16.919 17.016 17.216 17.416 17.616 17.816 18.011 76.132 70.632 78.499 84.228 112.461 99.890 103.11!

1,083.946 1,162.914 1,245.077 1,315.024 1,397.902 1,408.270 1,416.751

Cauitaux uroures 760.277066 782.319406 799.646446 813.613877 824.875156 832.036448 845.25048! Capital et fonds de dotations (incl. subvention pgm rural) 341.283 344.203 352.203 360.203 368.203 376.203 384.20: Reserves et primes likes au capital 93.31 1 98.830 98.830 98.830 98.830 98.830 98.83( Autres capitaux Rropres bruts (dont financement tiers) 319.262 330.317 343.817 357.317 370.817 384.317 397.81;

Amortissement des subventions tiers -11.300 -22.600 -33.900 -45.200 -56.50( Autres capitaux propres nets (dont financement tiers) 319.262 330.317 332.517 334.717 336.917 339.117 341.31. Report B nouveau 6.422 8.969 16.096 19.863 20.924 17.886 20.90(

Passifs non courants Emprunts et dettes assimilees Avances sur consommation Autres passifs non courants Provisions pour risque et perte de charge

172.897157 133.686 29 944 9 641

-0.374

Passifs courants 150.772 Fournisseurs et comptes rattaches 36.976 ONAS 40 522 Clients crediteurs, Compte d'attente et autres passifs courant: 50.076

225.5316500 183.386 31.868

9.922 0.355

155.063 37.960 45.610 43.336

288.058 238.1 70

33.896 15.630 0.361

157.372 49.205 35.767 46.492

346.451 294.008 35.924 16.163 0.356

154.959 43.344 37.085 48.392

399.505 343.673

37.952 17.462 0.417

173.521 43.707 40.301 51.724

396.483 337.531

39.980 18.021 0.951

179.750 38.125 41.663 53.542

386.27! 322.73( 42.001 19.44( 2.10.

185.221 33.851 45.17' 57.14:

Dette B court terme Total passifs

23,197 28.157 25.866 26.138 37.789 46.420 49.041 1,083.946 1,162.914 1,245.077 1,315.024 1,397.901 1,408.270 1,416.75(



Annex 9

1 2025 I BILAN PREVISIONNEL DETAILLE I 2015 2020 ACTIF

Actifs non courants 1,273.479 1,352.669 1,540.958 Immobilisalions corporelles et incorporelles brutes 2,455.803 2,9 12.427 3,539.390 Amortissements (y compris des subventions tiers) 1,230.720 1,610.655 2,051 827

Immox sarions corpore les er incorporel es nenes 1,225 083 1,301.772 1,487.562 ImmoSi sations financieres 48.396 50.896 53.396

Actifs courants Stocks Clients et comptes rattaches Autres actifs courants (debiteurs divers) Tresorerie actif

Total actifs

180.512 272.888 156.777 18.041 18.541 19.041

135.339 167.582 195.662 19.216 20.216 21.216

1,453.991 1,625.557 1,697.735 7.916 66.549 -79.142

Capitaux propres 852.21 1027 902.879026 985.144033 Capital et fonds de dotations (mcl. subventron pgm rural) 392 203 392.203 392 203 Reserves et primes liees au capital 98830 98830 98.830 Autres capitaux propres bruts (dont financement tiers) 478 817 546.317 613.817

Amortlssement des subventions tiers -124.300 -180.800 -237.300 Autres capitaux propres nets (dont financement tiers) 354.517 365.517 376.517 Reportanouveau 6.660 46.328 117.593

Passifs non courants Emprunts et dettes assimilees Avances sur consommation Autres passifs non courants Provisions pour risque et perte de charge

363.901 432.432 435.925 267.328 302.762 284.000

54.176 64.316 74.456 26.346 32.623 38.089 16.050 32.731 39.380

Passifs courants 237.879 290.245 276.666 Fournisseurs et comptes rattaches 56.022 60.628 77.644 ONAS 62.232 77.739 91.209 Clients crediteurs, Compte d'attente et autres passifs courant 75.681 92.382 107.813 Dette a court terme 43.944 59.496 0.000

Total passifs 1,453.991 1,625.556 1,697.735


Annex 9

Base case scenario Table 3: Cash flow statement

Amortissements net de reprises et de quote part subventionnee 32.967 35.317 40.033 42191 45721 48.628 50743 53.180 lmpayes provisionnes realises et imprevus -2 2 -2 24 -1.250 -1 293 -1 397 -1.442 -1.555 -1.602 Quote part des subventions reversees au resultat Variation du BfR 3.356 -4.0511 17.3332 -5.4460 11.585 3.061 -2.113 9.043

Stocks 0.9 -1.76 -0.10 -0.10 -0.10 -0.10 -0.10 -0.10 - .. . Clients et comptes rattaches -13 9 -648 15 32 -2.73 -6 68 -287 -7.29 -3.01 Autres actifs courants (debiteurs divers) 1 6 -0 10 -0.20 -0.20 -0.20 -0.20 -0.20 -0.20 Fournisseurs et comptes rattaches 0 0 0.98 11.25 -5 86 0 36 -5.58 -4 27 5 55 ONAS 0 0 5.09 -9 82 1 30 3.22 1.36 3.51 1.43 Clients crkditeurs, Compte d'attente et autres passifs courants 16 3 -6.74 3 16 1.90 3.33 1 82 3.60 1.90 Dette a court terme -1 6 4 9 6 -227 0.25 11.65 8.63 2.63 3.47

Subvention du programme centres ruraux 7387 9343 8.000 8.000 8.000 8.000 8.000 8.000 Subvention par des tiers des pgms d'extension 27716 22536 13.500 13.500 13.500 13.500 13500 13.500

Nouvelles avances de consommation 2 182 1924 2.028 2.028 2.028 2.028 2.028 2.028 Service de la dette existante Principal et int6rets capitalises -7 497 -10 682 -13.760 -15.179 -13.136 -22.731 -31.490 -34.625

lnvestissements financiers 0.000 -0500 -0.500 -0.500 -0.500 -0.500 -0.500 -0.500

Mnnhnfc en mm TNT) 2.015 2.020 2.025 I . .. _. _. . . , . . . - - _.___ -,_-- CASH-FLOW Resultat net -0.476 14.337 20.628 Productions d'immobilisation -1,2858 -1.3514 -1.4203 Amortissements net de reprises et de quote part subventionnee 59.508 68.523 83.263 Impayes provisionnes realises et imprevus -2.108 -2.610 -3.047 Quote part des subventions reversees au resultat Variation du BfR 0.618 12.312 -39.993

Stocks -0.10 -0.10 -0.10 Clients et comptes rattaches -9.40 -3.83 -12.76

Fournisseurs et comptes rattaches 1 .08 0.78 3.80 ONAS 4.54 1.83 6.17 Clients crbditeurs, Compte d'attente et autres passifs courants 4.52 2.30 6.00

Autres actifs courants (debiteurs divers) -0.20 -0.20 -0.20

Dette A court terme 0.18 11.53 -42.90

Besoin de financement -33.743 0.000 -80.570 Fonds propres 0.000 0.000 0.000

Subvention du programme centres ruraux 0.000 0.006 0.000 Dettes 30.627 67.821 5.531

Subvention par des tiers des pgms d'extension 13.500 13.500 13.500

Nouvelles avances de consommation 2.028 2.028 2.028 Service de la dette existante Principal et inter& capitalises -30.486 -33.961 -27.333

lnvestissements financiers -0.500 -0.500 -0.500

26.489 16.451 8.203

Tunisia 90 Project Appraisal Document ..

Urban Water Supply Project October 2005 Annex 9

Table 4: key ratios

Operational margin 22 5% 21 9% 246% 235% 222% 21 6% 244%

Cost to income (wlo depreciation) 77 5% 78 1% 754% 765% 778% 784% 756% Cost to income (wrth depreciation) 94 9% 96 9% 947% 962% 976% 988% 954% Employees I 1000 connections 3 3 3 3 3 3 3 3 3 2 3 1 3 1 % of investment financed by own resources wlo contribution 32% 24% 48% 36% 72% 57% 51 % % of investment financed by own resources with contributior 58% 42% 60% 50% 89% 76% 71%

2010 2011 2012 2013 2014 2015 2016

Net income margin 3 4% 0 8% 3 4% 18% 0 5% -1 3% 1 2%

Operational margin 23 9% 26 5% 194% 15 9% 157% 187% 185%

Cost to income (wlo depreciation) 76 1% 73 5% 806% 84 1% 843% 81 3% 81 5%

Employees / 1000 connections 3 0 2 9 2 9 2 8 2 8 2 7 2 7 % of investment financed by own resources wlo contribution 61 % 42% 41% 33% 27% 48% 52% % of investment financed by own resources with contributior 80% 59% 57% 48% 42% 63% 67%

Net income margin 0 8% 2 9% -0 4% -3 3% -3 9% -0 1% -0 4%

Cost to income (wtth depreciation) 96 3% 92 7% 990% 1020% 1024% 985% 988%

Long-term debt / liabilities Debt I Liabilities Leverage Current ratio DSCR wlo contributions DSCR with contributions LLCR

Long-term debt I liabilities Debt / Liabilities Leverage Current ratio DSCR w/o contributions DSCR with contributions LLCR

mio TND Revenues from water sales New connections and works Capitalized expenses / works Other revenues

Total revenues

16 0% 19 4% 23 1% 26 3% 28 6% 282% 27 3% 29 9% 32 7% 358% 38 1% 41 0% 409% 403% 42 6% 48 6% 557% 61 6% 695% 693% 676%

1 3 1 3 1 2 1 3 1 4 1 3 1 3 4 86 2 36 3 38 1 96 2 71 1 68 1 44 5 16 3 69 4 02 2 48 3 23 2 04 1 73 5 16 4 04 3 22 2 61 2 30 2 36 2 52

2010 2011 2012 2013 2014 2015 2016 25 7% 23 9% 233% 240% 252% 250% 263%

382% 398% 41 0% 41 4% 428% 39 6% 38 1% 61 7% 660% 695% 706% 74 8% 65 7% 61 6%

1 1 1 0 1 0 0 9 0 8 0 8 0 8 1 62 1 36 147 1 39 1 27 1 70 178 1 89 1 62 1 75 1 67 157 2 01 2 08 2 78 3 19 3 39 3 33 3 20 3 39 3 18

157 6 164 3 178 9 185 4 201 5 208 3 225 9 16.9 16.7 16.4 16.6 16.8 16.9 17.1 0.0 0.4 1.2 1.2 1.2 1.2 1.2 167 17 7 9 7 9 8 10 2 10 4 10 8 191 2 199 1 206 2 213 0 229 7 236 8 255 0

ma TND 2010 2011 2012 2013 2014 201 5 2016

Revenues from water sales New connections and works Capitalized expenses / works Other revenues

Total revenues



Non-statutory staff




Non-statutory staff


233.0 252.2 259.7 280.6 288.5 311.2 319.4 17.3 17.5 17.6 17.8 18.0 18.2 18.3 1.2 1.2 1.2 1.3 1.3 1.3 1.3 11.0 11.4 11.6 12.1 12.3 12.8 13.0

262.5 282.3 290.2 31 1.8 320.0 343.5 352.1

14 5% 143% 150% 15 3% 153% 153% 154% 16.0% 15.8% 16.3% 16.4% 16.5% 16.7% 16.8% 69.4% 69.9% 68.7% 68.3% 68.2% 68.0% 67.8%

854 854 937 978 995 1,011 1,026 942 945 1,014 1,049 1,074 1,099 1,123

4,077 4,177 4.277 4,377 4,430 4,478 4,522 1,123 1,023 923 823 773 723 673

84.84 89.05 95.83 101.21 105.62 110.09 114.66

2010 201t 2012 2013 2014 2015 2016 15 4% 154% 155% 155% 15.6% 156% 15 6% 17 0% 171% 173% 174% 17 6% 17 7% 17 9% 67.6% 67.4% 67.2% 67.0% 66.9% 66.7% 66.5%

1,040 ~ 1,053 1,066 1,077 1,088 1,099 1,108 1,146 1,168 1,190 1,210 1,231 1,250 1,269 4,561 4,596 4,627 4,654 4.678 4,698 4,715

623 573 523 473 423 373 323

119.28 124.00 128.78 133.65 138.60 143.63 148.74



Annex 10

Annex 10: Safeguard Policy Issues

Prior to appraisal, the Borrower contracted a qualified consultant to prepare an Environmental Assessment o f the Project including a review o f potential environmental impacts and development o f appropriate mitigation measures. The Environmental Assessment Report i s available in the SONEDE’s Project f i les and the Bank’s Infoshop.

Environment

The project i s expected to bring significant environmental, socio economic and public health benefits through better quality and availability o f treated water, and improvements in the sustainability o f raw water sources through reductions in losses and wastage.

Only l imited and temporally negative impacts are expected during construction phase while some adverse impacts may result from the operation o f water treatment facilities and potable water wells if they are failures in their design, implementation and operation. Potential impacts during construction and operation phases involve:

(a) Impacts were surveyed on air and water quality and noise, resulting f rom excavation work, machinery operation, and traffic as a resul t o f construction and rehabilitation o f transmission and distribution networks, construction o f storage reservoirs in urban area and the water treatment plant. These impacts wil l be localized, temporary and minimal, due to the EMP mitigation measures.

(b) Unsustainable use o f the groundwater resources: Creation o f wells for potable water i s among the subprojects requiring environmental screening. For each drinking water well, the Bank will require documentation (from DGRE) that demonstrates the water requirement o f the project in relation to the current exploitation and renewable resource status o f the aquifer involved.

(c) ST4, the planned water treatment plant will remove sediments, i ron and minerals, and precipitates f rom intake waters and might produce sludge contaminated with chemicalhazardous pollutants. The contractor in charge o f the design and construction o f ST4 will be requested to prepare an EA including the development and implementation o f a sludge management plan for the whole water treatment pole in Ghdir-el-Golla. TORS for this specific EA will be included in ST4 biding documents.

(d) The potential water quality and health risks o f additional water supply causing overloading o f sewerage, treatment and disposal systems were reviewed. I t i s expected to be minimal since most o f the planned subprojects wil l have l imited implications for increased wastewater production. Nevertheless, the EMP includes provisions for a rapid EA screening/appraisal for some urban centres in order to identify appropriate mitigation measures.

In general, the project, through the implementation o f the developed EMP below, i s not expected to have significant negative environmental impacts and will not generate any health damage.


Station de traitement ST4

Rehabilitation DN1190 GEG - Ras Tabia

Rtservoir eau traitke grand Tunis

Borj Toui l

93

2,500


Annex 10

10,000

50,000

50,000

Land Acquisition Plan

Under the Environmental Assessment, special attention was made for OP 4.1 2 on involuntary resettlement. I t was confirmed that only a small amount o f land wil l be needed for storage tanks and pipelines construction/operation with none involving relocation. SONEDE land acquisition procedures have been reviewed and deemed satisfactory. Detailed surveys for al l known land acquisition have been completed and are summarized in the table below. The main land requirement anticipated wil l be for the construction o f <( ST4 )) treatment plant and a storage tank in Ghdir El Golla, Greater Tunis which belongs to the SONEDE. The specifics o f the project Land Acquisition Plan as submitted on June 15,2005 are summarized in the fol lowing table.

0.050

0.070

0.062

Rouhia-Sbiba-Jedliane 5,000

Jammal 0

(m2) I Estimated requiremei

For Pipeline

Project Sub component

Equipment Acquisition process stage

Total

Land owned by SONEDE

Land owned by Government + 29,500 0.040

~ ~~~

Land owned by SONEDE

Pipelines & structures : AOT” issued; purchase beeun

27,000

I L a gazelle I 2,500 0 2,500 1 0.013 AOT issued, purchase begun

I Momag I o 15,000 15,000 I 0.015 AOT issued Etage GEG 72 et Bir I io,ooo

T K a s s a a 72 0 Land owned by SONEDE

Pipelines & structure : AOT issued; acquisition initiated 45,000

47,000 Pipelines : AOT issued Structures :SONEDE land. I 33000

Ghardimaou

r AinDraham I 2,000 0 AOT issued, purchase begun I Ouerdanine I 0 10,000 AOT issued, purchase begun

Pipelines & structures : AOT issued. Acquisition initiated 24,000 2,500 26,500 0.037 Nasrallah

I KalaaKbira I o 15,000 15,000 1 0.075 AOT issued

50,000 50,000 I 0.050 AOT issued

233.000 260.500 I 0.561

” AOT = Avis d’occupation Temporaire, or temporary occupation notice.


Annex 10

SONEDE’s tested land acquisition procedures, as established in 1978 and most recently updated in 2003 have applied to previous bank financed projects, and are provided in the appendix below.

Cultural Property

The EA report indicates that project activities would not affect any above ground artifacts with archeological, paleontological, historical, religious, or unique natural values as defined under OPN 1 1.03. However, most o f the construction activities wil l involve excavation work and thus al l contracts will include standard clauses which fol low Tunisian law (Law no 35 o f M a y 9, 1986) and regulations regarding chance finds during construction.

Environmental Management Plan (EMP)

The objectives o f the EMP are to identify feasible, cost effective measures that may be used to mitigate any adverse environmental impacts that might occur during the construction and operation o f the project. The proposed EMP wil l consist o f three kinds o f activities: (i) implementation o f mitigation measures; (ii) monitoring and evaluation o f mitigation measures; and (iii) strengthening the capacities o f SONEDE.

Mitigation Measures

Mitigation measures have been identified to ensure that the defined objectives o f the project are achieved whilst preventing and reducing any adverse environmental impacts. The mitigation measures are to be executed by the Construction Contractors with supervision by the SONEDE and involved governmental institutions.

During Construction Phase Construction mitigation measures wil l be required to minimize inconveniences to the public. Such mitigation measures are standard and widely used in construction practices properly supervised for achievement o f international standards o f quality. Tables A, By C et D (construction phase) in the EA report summarize the major adverse environmental impacts during construction and their mitigation measures as well as involved institutions.

Other adverse construction activities will be mitigated through the adoption o f Good Environmental Practices given in Annex o f the EA report. For instance noisy construction activities can be limited to normal working hours and providing muff ler to minimize noise nuisance. Dust emissions can be avoided by using dust suppression measures such as periodically sprinkling water in certain areas, providing appropriate covers and removal o f excess material from the site. Dangerous activities in public area’s will be controlled to reduce r isk to the public, traffic and warning s igns wil l be placed at construction sites, trenches wil l be provided by fences, or railings. The contract with contractors will incorporate al l requirements to minimize disturbance from construction activities and wil l be monitored by SONEDE (assisted by a Safeguards/Environmentalist Consultant) to ensure compliance with the contract.



Annex 10

The cost o f the mitigation measures during construction wil l be incorporated in the contract cost o f the contractor. Moreover, the Bank wil l review al l c iv i l works contracts to ensure that the required mit igation measures have been incorporated in the tender documents.

During Operation Phase The operation o f the water networks and treatment facilities and exploitation o f groundwater (wells) can create adverse impacts, which need to be avoided through the implementation o f mitigation measures. Tables A,' B, C and D (operational phase) in the EA report summarizes the potential impacts and the proposed mitigation measures. Specific EA will be canied for identified subprojects (see l i s t in the EA report) and wil l identify more specific safeguards measures.

Mon it0 ring Plan Monitoring o f construction activities will have to ensure that mitigation measures o f construction impacts are being implemented properly, while monitoring o f operation activities i s to ensure that no unforeseen negative impacts are arising. During construction, the monitoring program will include dust and noise. Monitoring o f the water supply will include biological, physical and chemical parameters as wel l as heavy metals and pesticides residues. Table under Section 7.3 o f the EA report gives the proposed monitoring requirements during the construction and operational phases.

Institution a1 Strength en ing The institutional arrangement and capacities o f the organizations in-charge with the implementation and management o f the proposed project were reviewed with the intention o f providing technical assistance and reinforcement. Environmental expertise wi l l be strengthened through:

(i) the provision o f an environmental expert to (i) assist the SONEDE in supervising the implementation o f the EMP; (ii) the elaboration o f TORS and review o f EIE reports for subprojects requiring EA during the project implementation; (iii) the elaboration o f EMP monitoring reports.

(ii) the provision o f training programs that will be designed and implemented with the assistance o f a local or international expert and will cover the fol lowing main topics:

0 Environmental Assessment 0 Effective implementation o f mitigation measures 0 Project supervision, monitoring and evaluation

Implementing safeguard requirements

The borrower wil l hire a partial time safeguards/environmental consultant to assist the Project Management in overseeing and managing the fol lowing environmental activities:

0

0

Overall supervision and monitoring the EMP Preparation o f EIA TORS for ST4 and supervision o f relevant consultants works



Annex 10

0

0

Preparation o f EIA TORS o f pipeline GEG -Ras Tabia and supervision relevant consultants works Preparation o f ToRs for rapid EA screeninglappraisal and reviewing relevant consultants’ reports

The EMP implementation planning includes contracting out the preparation o f EIA and D S studies, implementation o f environmental training activities, and EMP supervision and reporting. The project budget includes funds for the implementation o f al l safeguards requirements, including the following:

0 Hiring a Safeguards/environmental Consultant 0 Preparing and implementing Specific EIAs and rapid EA screeninglappraisal 0 Preparing and implementing EMPs 0 Preparing and implementing an awareness workshop on key environmental issues

related to water supply projects 0 Training SONEDE staff and other involved institutions in fulfilling their responsibilities

for management o f safeguards issues.

Implementation o f EMPs will be monitored by SONEDE regional engineers andor Safeguards consultant as appropriate. The Tunisian EPA will also undertake periodic inspections.

Appendix : SONEDE Land Acquisition Procedures



Annex 10

119 'd

Tunisia 98 Project Appraisal Document

Urban Water Supply Project October 2005 Annex 10

f 'd


Annex 10

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Annex 10


Annex 10

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A73.1

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A.6.4.9



Annex 10

F

. _____

Description de i'apktion

_I

Dac.ut

A.7.5.1

A.?.3,%

R5.4.2

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Annex 10

a 'A

i I t ' -


Annex 10

. . I . , . . . . '

:I' I , .


Annex 10

Description de I'op8ration

- ProcMer a la d s m d e de la DJF B me snqctrib fonciiKe approtor& p u r s'assumr de la pro@&&

J.45



Annex 10

I . SONEDE

- i Q,

7

8

9

!I

2

P 1 1 I I

t=

N7 I_

11.2

,1.46



Annex 10

'Tunis, le 10 Octobre 1978

: Occupation temporake Acquisition d a Terrains.

w: I'objet de la presente rlote est de rGgIem at la prOcQdure damupattion temporaira,

dexpropriatian at dacquisi n que les l'exprapriation n'intewienna plus ii la fin d m tmvaux nt des pfopfi&aire$ $e fasse dans les mailleurs d&lais passibles. Pour =la i'an ne souriant tiop insist que les Divieians Travaux fassent respecter Is trad d'exhtion etabli rvice tamraphie lors de I'ktude parcellaim - Ce inactfa doit &re, defiinitg et doit pOUVOk donner de la maniere la plus precise possible, la superficie I occup la supetrficie B acquerir ( ou le cas &h&tnt

PEN

temporatremerit et au s i n de

I!

+155 deux op&?rations sa mjaignsnt dans Iplurs phase p&paratoire qui est du ressart I it.$ Service Topographique - cette phase Eomprsnd :

I l., W d e parmllaire

- La delimitsrtian de ia zone doccupattan temparairs qui entreine !a constitution du I 4

dossier d'accupatim tempofaire.

- La delimitation de la zone h acquerir ou 31 expropder, support du daa;sllet d'expropriatian dont se chetgelliei Betvice Juridlque. M.B. La auperficiet n8cessaire pour I'i?dlflcatim cr'un ouvrage aulre qu'une condllite dolt &tr@ cfslimitQe avec la plus grande prE!

Oans une deuxh3me phase, il y aura en p


Annex 10

-.Ex&cution de I'ouvrage avec &valuation des d&g&tts et dedommagements au fur et 8 mf:.<ure de I'avancement des travat~%.

-E-tabiissement do dossier d'sxpropriation par I@ Service Juridique suite B un rapport ti'expertise de terrain Btabli par le Semi

III - I ERE PHaSE - TRAVAUX PREPARATClkRliS. :

$/ Etude P~rcelJaire :

mite etude "?Me, suite a un levti topographique, B dtablir un plan parcellaire faisant tessortit le tracb de I'ouvrage et au deja de ce tract? la zone d'acCup&ion temporaire.

agent du Service Chantier eront un &at comportant

ires et la auperficis des prcelks B occuper temporairement.

Cette bande dolt, lors de sqn Btailrlissement, faire I'objet d'une etude minutieuse et tenir compte ds taus Iss impand0rable$ (oppqsitipn d'uns minutieuse et tsnir compte de taus les impanderablas ( oppositi d'una autofit4 lowle pour 80s m e ; ; ksains, par exemple ), afin) qu'elle Souffre d'auwne modification lors de la r&alisattion de f'auwage. La Division Travawr dait htablir pour m u e parcella de terrain d aeqwir un plan parcellairs btabli sur une e e l l a aussi grande que possible ( Ex : 1/550 ) faisant ressbrtit le5 Mites de la propri&& L traversw :

- S'il s'apit d'une parcells faisant partle d'un t&rain immatricui& II sera fait mention du num6ro du titre fonder et de la tranwpositinn de I'emprise de I'ouvrage sur une copie du plan abjjet: du titre fbncier en question dtilivri5 par l'affice de la topogrepie ot de la cartographie.

S'ji s'agit d'un terrain ~ Q R lmmatricul6 iI sera indique les llmites de I'emprlse de la pw;~;Ile B acquhrir par rapport B I'ensemble du tsrraln appartenant BUX tiers &nsi e p Im nom6 des riverains.

I

temporalre, le service Topogtaphique &Wit :

- Un projet d ' m W d'ocwpatfon temporaire

71 ' J


Annex 10

- Un avis &occupation temporaire clestln4 aux proprietalres - UR projet de note au Gouvef+ur.

&cs documents ajout4s su plan parcetfaire constituent le dossier d'occupation kmpQrairm qui e& d&pas& en six exttnpleirea pour approbation aw Minist&@ de

42 p%usi~n du Dessk r dLOlccunation T @ ~ I ) I oraim, :

Lina feis approuvh et retourne du Minist& de I'AgricuRum IC dossier doooupattion temporairs devient e*!cutoire. Ii eat alors trabmik :

- Au Gouvetneur de la rbgion en deux exemplaires Ce dernier se charge d'acheminer les avis dowupation tempofaire aux pr&surn&s proprietaires pour information. I

- Au servlw Chanlier en un exemplaire pour exWtion des Travaux.

- A la Division Travaux en un exemplaire pour Information.

- Au Service Juridlqus en un exemplairr pour suivi at paiement des d&&it$.

A%f G d I m L

,

5j")a '4s l'etablissement du dossier d'occupation temporake, le Servicft Topographique .;rt Prm&der i?r I'axxprtrtlse des prrains nus a acquerlr, par un expert agree aupres t Jes fribunaux originairas de I? riiqion.

L'mpertise cioit atre faite A Iftytare pour as ikrrAns A vocation agricole et au mdtre cesrr'r8 pour las terrains destine@ la canstruclian et situ& dans une zone municipale. I'expertiao qui racevra f'sgr8ment des deux parties donnem naissance a un &at des expcar;tih;es dias terrains nus. 1

Direction Grintkralcs les Mres de prix aux propri&wrea. Dans le a s ou le prapri&aire n'accepterait pa5 l M r % qui lui,a BtB fait@, il sera invite d produire une axperkiss, &.rthlle par un expert a.q& tequis a ses fr;ais. &WYCI des deux rapports d'ex#wtlWs Brtabtie l'uri t'initiative CY@ la SONEDE, I'autre

'&C'w+!ative du proprietaaire, le f3.J peut :

53NEDE et le propribtaire int4ressd.

.- Soit prochder B unr expertts$ d'arbltraga f G?r up expert arbitfe choisi par les deux expsrts d m deux parties en littge ).

Sol! soumettra ia Direction bndrale une propasition de transaction entre ia

RQ: 1.1 a w " p r "J



P I 'd 7iJlO.L

Etli-" n lieu au fur et ti mesure de I'avancemeni des Travawr. Cette Bvaluaticwr aMfmrte b ~ t r i la ddterminhtlon des d$g&ts, mat$rialis&e par un constat C O ~ : F ,;dictaire, leurs evaluetjons proprement dite, Cslk-ci peuf se faire B I'amiable Q H m cas de contestation, /&&e soumlse B la proGBdure d'expertise groupant e&jc;nwe des expenises des dQBts affirents au trawn exsCUt6.

81 'd

A.FRIH



Annex 11

Annex 11: Project Preparation and Supervision

Planned Actual PCN review June 1,2004 Initial PID to PIC June 2004 June 2004 Init ial ISDS to PIC June 2004 June 2004 Appraisal March 15,2005 June 16,2005 Negotiations July 2005 September 28,2005 BoarcURVP approval October 25,2005 November 17,2005 Planned date o f effectiveness Planned date o f mid-term review Planned closing date

Key institutions responsible for preparation o f the project: SONEDE and the Ministry o f Development and International Cooperation.

Bank staff and consultants who worked on the project included:

January 2,2006 lSt quarter 2008 lSt quarter 201 1

Name Title Unit Pier Francesco Mantovani Ines Fraile Elisabetta Capanelli Severine Dinghem Maya Khelladi Michael Hamaide Rachid Bouhamidi Mohammed Dal i l Essakalj Mohamed Benouahi Georges Khoury-Haddad Marie Khoury Mohamed Larbi Khrouf Dominique Bichara Nina Masako Eejima Hadi Abushakra Jaafar Sadok Friaa Daniel Coyaud Louis Godinot Siaka Bakayako Khalid Boukantar

TTL TTL

Economist Financial Officer Water economist

Operations Officer JPA JPA

Lead Financial Analyst Procurement specialist Disbursement specialist

Sr WS&S specialist Sr Counsel Sr Counsel

Chief Counsel Sr Environmental Specialist

Sr WS&S specialist Organization consultant

Financial Management Officer

M N S I F M N S I F M N S I F

IEF M N S I F M N S I F M N S I F M N S I F M N S I F MNACS L O A G

Consultant LEGMS LEGMS LEGMS

Consultant Consultant Consultant MNACS

ETTPromam Assistant M N S I F

Bank funds expended to date on project preparation amount to US$211,000 o f Bank resources.

Estimated Approval and Supervision costs: 1. Remaining costs to approval: 2. Estimated annual supervision cost: $75,000



Annex 12

Annex 12: Documents in the Project Fi le

1. SONEDE - Amklioration des Conditions de l a Desserte en Eau dans la Localite de Borj Touil - Etude Prkliminaire; January 2005.

2. Centre de Production Plus Propre (CP3) - Rapport d’Evaluation Environnementale du Projet d’Eau Potable du Grand Tunis et des Centres Urbains ; December 2005.

SONEDE - Renforcement de l a Capacite de Traitement - Note Prkliminaire; October 2004.

4. SONEDE - Amelioration des Conditions de la Desserte en Eau dans l e Grand Tunis, Etage Tunis Haut 72 - Etude Prkliminaire; July 2004.

5. SONEDE - Renforcement des Infrastructures Hydrauliques dans l e Grands Tunis; July 2004.

6. SONEDE - Jendouba, Alimentation en Eau Potable de l a ville de Ain Draham - Etude Technique; July 1998.

7. SONEDE, Siliana et Kasserine - Alimentation en Eau Potable du Complexe Rouhia, Sbiba et Jedeliane - Etude Technique; M a i 1998.

8. SONEDE, Jendouba - Amelioration des Conditions de Desserte de la Ville de Ghardimaou - Etude Prkliminaire; July 2004.

9. SONEDE, Kairouan - Projet d’Alimentation e n Eau Potable de Nasrallah et Menzel Mhiri - Note Technique; Septembre 2004

10. SONEDE, Monastir - Projet d’Alimentation en Eau Potable de Jammel-Zeramdine - Note Technique; Octobre 2004.

11. SONEDE, Monastir - Amklioration de 1’Alimentation en Eau Potable du Complexe de Ouaradanine - Etude PrCliminaire; July 2004.

12. SONEDE, Sousse - Amklioration de 1’Alimentation en Eau Potable de la Ville de Kalaa Kbira - Etude Prkliminaire; July 2004

13. Coyaud, Daniel - Projet d’Eau Potable Dans l e Grand Tunis et des Centres Urbains - Rapport de Mission de PrCparation ; May 2004.

14. Godinot, Louis - Hoche Consultants - Mission d’assistance a la SONEDE pour l a Dkfinition du Volet Renforcement des Capacitks de Gestion ; February 2005.

15. Mission aide-mkmoire January, July, October 2004, and March 2005.

3.



Annex 13

Annex 13: Statement of Loans and Credits

Difference between expected and actual

disbursements Original Amount in US$ Millions

Project ID FY Purpose IBRD IDA SF GEF Cancel. Undisb. Orig. Frm. Rev’d

PO82999

PO74398

PO723 17

PO483 15

PO05750

PO64082

PO48825

PO50945

PO35707

PO55814

PO05741

PO43700

PO05736

PO05731

PO05589

2004

2003

2003

2002

2001

2001

2001

2000

2000

1999

1998

1998

1997

1997

1995

TN-Education PAQSET I1 TN-MUNICIPAL DEVELOPMENT I11

TN-NW Mountainous and For. Areas Dev.

TN-Protected Areas Management Project

TN-AGRIC. SUPPORT SVCS

TN-TRANSPORT SECTOR INVESTMENT

TN-CULTURAL HERITAGE

TN-Education PAQSET I TN-WATER SECTOR INVESTMENT PROJECT TN-EXPORT DEVELOPMENT

TN Higher Education Reform Support I TN-TRANSPORT SECTOR INV

TN-NATURAL RESOURCE MGMT

TN-GREATER TUNIS SEWERAGE

SOLAR WATER HEATING

130.34

78.39

34.00

0.00 21.33

37.60

17.00

99.00

103.00

35.00

80.00

50.00 26.50

60.00

0.00

0.00 0.00

0.00 0.00 0.00 0.00 0.00 0.00

0.00 0.00

0.00 0.00

0.00 0.00

0.00 0.00

0.00 0.00

0.00 0.00 0.00 0.00 0.00 0.00

0.00 0.00 0.00 0.00 0.00 0.00

0.00 0.00

0.00 0.00 0.00 0.00 5.33 0.00

0.00 0.00

0.00 0.00

0.00 0.00

0.00 0.00

0.00 0.00

0.00 0.00 0.00 0.00

0.00 0.00

0.00 0.00 0.00 6.95

4.00 0.00

123.56

81.74

37.97

4.78

24.85

34.06

20.38

44.64

72.10

10.66

32.28

11.53

4.41

20.39

0.28

8.69 0.00 11.92 0.00 2.94 0.00

1.66 0.00

4.64 0.00 14.15 0.00

5.16 0.00

5.48 0.00

10.49 0.00

10.66 1.56

30.38 5.40

13.63 1.33

7.43 6.64

32.00 5.78

0.28 0.00

Total: 772.16 0.00 0.00 9.33 6.95 523.63 159.51 20.71

TUNISIA STATEMENT OF IFC’s

Held and Disbursed Portfolio In Millions o f U S Dollars

~~ ~

Committed Disbursed

IFC IFC

FY Approval Company Loan Equity Quasi Partic. Loan Equity Quasi Partic.

1995 Maghreb IM Bank 0.00 0.33 0.00 0.00 0.00 0.33 0.00 0.00

1986198 SITEX 0.00 0.77 0.00 0.00 0.00 0.77 0.00 0.00 1998 Tuninvest 0.00 4.29 0.00 0.00 0.00 4.29 0.00 0.00

Total portfolio: 0.00 5.39 0.00 0.00 0.00 5.39 0.00 0.00

~ ~~

Approvals Pending Commitment

FY Approval Company Loan Equity Quasi Partic.

Total pending commitment: 0.00 0.00 0.00 0.00


Annex 14

Annex 14: Country at a Glance

POVERTY and SOCIAL

2002 Tunis ia

Population, mid-year (millions) 9.8 GNI per capita (Atlasmethod, US$) 2,000

19.6 GNI (Atlas method, US$ billions)

Average annual growth, 1996-02

Population (%) 12 Labor force (%) 2.4

M o s t recent es t imate ( la tes t year available, 1996-02)

Poverty (%of population belo wnatlo nal po veriyiine) Urban population (%of totalpopulation) 67

Infant mortaiityfper 1,OOOlive b i~hs ) 24

80 27 ll7

Male P O Female 115

Life expectancyat birth (years) 73

Child malnutrition (%ofchildren under5) 4 Access to an improved water source (%ofpopulation)

Gross primaryenrollment (%of school-age population) Illiteracy (%of population age a+)

KEY ECONOMIC RATIOS and LONG-TERM TRENDS

1982 1992

GDP (US$ billions) 8.1 15.5 Gross domestic investmentIGDP 317 34.3 Exports of goods and services/GDP 36.9 39.5 Gross domestic savings/GDP 212 27.4 Gross national savings/GDP 22.5 26.4

Current account balance/GDP -92 -7.0 Interest paymentslGDP 2.7 2.6 Total debt/GDP 46.4 55.1 Total debt servicetexports 62 20.0 Present value of debtlGDP Present value of debtlexports

1982-92 1992-02 2001 (average annual growth) GDP 3.8 4.7 4.9 GDP Dercavita 13 3.2 3.7

M. Eas t Lower- & N o r t h middle-

A f r i ca income

306 2,070

670

19 2.9

58 69 37

88 35 95 98 90

2001

20.0 27.9 47.1 23.4 23.6

-4.3 2.1

54.5 0.9 54.2

D2.7

2,411 1390

3,352

10 12

49 69 30 11

81 t3 111 111 10

2002

212 25 8 44 3 214 22 4

-3 5 2 2

57.2 154

2002 2002-05

17 4.7 0.5 3.7

STRUCTURE o f the ECONOMY

(%of GDP) Agriculture Industry

Services

Private consumption General government consumption Imports of goods and services

Manufacturing

(average annual growth) Agriculture Industry

Services

Private consumption General government consumption Gross domestic investment Imports of goods and services

Manufacturing

1982 1992 2001

0.2 6.1 116 311 28.5 28.8 111 6.5 18.5

55.8 55.4 59.5

62.3 56.6 60.9 6.5 6.0 15.7

47.4 46.5 517

1982-92 1992.02 2001

5.3 19 -15 3.6 4.8 5.7 2.0 5.6 6.9 3.4 5.3 6.0

2.7 4.6 5.4 3.0 4.2 5.0 0.8 3.7 6.4 3.0 4.7 0.4

2002

z) .4 29.1 18.6

60.5

62.3 6.3

48.7

2002

-0.3 3.4 2.2 3.7

3.4 4.5

-6.2 - 17

Development diamond'

Life expectancy

T GNI

capita per

I

Access to improved water source

-Tunisia - Lo rier-middle-inc o m e group

Economic ra t ios*

Trade

i Investment Domestic savings

1 Indebtedness

-Tunisia __ Lorier-middle-income group

Growth o f inves tment and GDP (%)

2o T 10

0

- 10 -GDI -GDP - -


Annex 14

P R I C E S and GOVERNMENT FINANCE

D o m e s t i c p r ices (W change) Consumer prices

1982

Implicit GDP deflator 6 .0

G o v e r n m e n t f inance (%of GDP, includes current grants) Current revenue Current budget balance Overall surplusldeficit

T R A D E

(US$ milions) Total exports (fob)

Fuel Agriculture Manufactures

Total imports (cif) Food Fuel and energy Capital goods

Export price index (S95-WO) Import price index (S95=WO) Terms of trade (S95=WOj

B A L A N C E o f P A Y M E N T S

(US$ millions) Exports of goods and services Imports of goods and services Resource balance

Net income Net current transfers

31.7 6.7

-2.2

1982

1,980 911 63

965 3,389

356 377

1,032

1982

3,002 3,859 -856

-294 403

Current account balance -748

Financing items (net) Changes in net reserves

776 -27

M e m o : Reserves including goid (US$ millions) 614 Conversion rate (DEC, /oca//US$) 0.6

E X T E R N A L DEBT and RESOURCE FLOWS

(US$ millions) Total debt outstanding and disbursed

1982

3,772 IBRD 376 IDA 68

Total debt service IB RD IDA

Compositionof net resource f l o w Official grants Official creditors Private creditors Foreign direct investment Portfolio equity

World Bank program Commitments Disbursements Principal repayments

563 53

1

29 279 29

340 0

0 83 27

1992

5.8 5.7

26.8 4.1

-3.0

1992

4,014 609 4 6

2,432 6,432

430 449

1,578

79 89 89

1992

5,973 6,978 -1,005

-654 570

-1,089

I f f 1 -82

862 0.9

1992

8,543 1470

56

1342 267

2

140 278

74 526

0

210 111

149

2001

19 2.7

24.6 5.2

-3.5

2001

6,606 6D 541

4,981 9,521 654 888

2,240

251 a 7 141

2001

9,518 DP23

-905

-941 983

-863

2118 -255

1999 14

2001

10,884 1297

37

1,465 226

2

365 229

0

328 293 148

2002

2.8 2.8

24.6 4.7 -3.1

2002

6.857 641 489

5,272 9,503

653 886

2,236

154 D9 141

2002

9,539 10,431 -893

-984 1,80

-746

895 -149

2,301 14

2002

P,DO 1,464

35

1,641 233

2

-90 556

lt? 17 156

5 T i 97 98 99 00 01 0

----GDPdeflator -CPI

Export and impor t leve ls (US$ mill.)

I 96 97 98 99 00 01 02

exports mlworts

Current a c c o u n t ba lance to GDP (%)

~~

C o m p o s i t i o n o f 2001debt (US$ mil l . )

G 682 A 1,297

F 3.638

E 2.529

A - IBRD 8 - IDA D-Otkrrmltilatsal F-Private C-IMF G-Short-term

E - Bilateral

MAP SECTION

This map was produced by the Map Design Unit of The World Bank.The boundaries, colors, denominations and any other information shownon this map do not imply, on the part of The World Bank Group, anyjudgment on the legal status of any territory, or any endorsement oracceptance of such boundaries.

Tunis

Madrid

Algiers

Tripoli

Valletta

AthensSPAIN

ITALYGREECE

TUNISIA

L I B Y A

C H A DN I G E RM A L I

A L G E R I A

40°

30°

35°

25°

20°0° 5° 10° 20°

5° 10° 20°

30°

35°

25°

Med i t e r ranean

S e a MALTAArea ofmain map

GAFSA

S I D I B O U Z I DS F A X

M A H D I A

MONASTIR

SOUSSE

K A I R O U A N

K A S S E R I N E

E L K E F

S I L I A N A

ZAGHOUAN

BENAROUS

TUNISARIANA

B E J AJ E N D O U B AN

AB

E

UL

B I Z E R T E

M e d i t e r r a n e a n

S e a Gu l f o f Tun i s

Gu l f o f

Hammamet

KerkennaIslands

Gu l f o f

Tun i s

SebkhetEr Riana

ElBahira

SebkhetEs Sedjoumi

To Annaba

To Souk Ahras

ToTebessa

ToTebessa

Agareb

Bou Hajla

Sbiba

Tabarka

ThalaKalaâ Khasba

Dahmain

Teboursouk

Gaâfour BouArada

Pt. duFahs

Ennfidha

Hammamet

Grombalia

Korba

Mateur

Nefza

SejneneMenzelBourguiba

Menzel Temime

Kelibia

El Haouaria

Ras Djebel

Utique

Menzel BouZelfa

Bou SalemMejezEl Bab

Tebourba

SakietSidiYoussef

Sers

Makthar

Oueslatia

Fériana

Sbeïtla

KalaatEs Senam

Jebeniana

Chebba

El Jem

El Hencha

Ksour-Essaf

El Mezzouna

MenzelChaker

Bir Ali BenKhélifa

NABEULZAGHOUAN

BEJA

BIZERTE

ARIANA

BENAROUS

SILIANA

KASSERINE

SIDI BOU ZID

SFAX

MAHDIA

MONASTIR

SOUSSE

KAIROUAN

EL KEF

JENDOUBAAriana

BenArous

TUNIS

TUNIS

AL

GE

RI

A

37°

9° 10°

36°

35° 35°

36°

37°

9° 10° 11°

0 25 50

Kilometers

Jammel

TUNISIA

URBAN WATER SUPPLY PROJECTINTERNATIONAL AIRPORTS

CITIES AND TOWNS

GOVERNORATE CAPITALS

NATIONAL CAPITALS

GOVERNORATE BOUNDARIES

INTERNATIONAL BOUNDARIES

PROJECT CITIES ORNEIGHBORHOODS

MAIN ROADS

OTHER ROADS

RAILROADS

PORTS

SALT LAKES

IBRD 3

40

59

MA

Y 2

00

5

5

Kilometers

0

See insetfor detail Borg Touil

La Gazelle

Ras Tabia

GhdirEl Golla

Mornag

Aïn Draham

Ghardimaou

Rouhia

Nasrallah

Kalaa Kbira

Ouerdanine

Jammel