Public Disclosure Authorized. Public Disclosure Authorized. Public Disclosure Authorized. Public Disclosure Authorized. Report No.

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1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Report No. PID8415 Project Name Tunisia-Water Sector Investment Loan (+) Region Sector Project ID Borrower(s) Implementing Agency Environment Category Middle East and North Africa Region Irrigation & Drainage; Other Water Supply & Sanitation TUPE35707 GOVERNMENT Date PID Prepared June 30, 2000 Address MINISTRY OF AGRICULTURE 30, rue Alain Savary, 1002 Tunis Contact Person: Abdallah Mallek, Director General, DGFE Tel: Fax: Projected Appraisal Date February 28 - March 11, 2000 Projected Board Date June 22, 2000 B 1. Country and Sector Background Background. The Water Sector has always been at the center of Government's development agenda in Tunisia. Its strategic importance is even more pronounced in the agriculture sector which consumes 85% of water resources. As such, it has benefited from considerable public investment since independence (over $2 billion or 37% of the public investment budget for agriculture during the IXth plan alone ) which have translated into major water mobilization infrastructure (22 large dams, 100 hill dams, 500 hill lakes, 120,000 tubewells etc) thereby reducing the country's vulnerability to irregular rainfall and recurrent drought, bringing irrigated areas to about 350,000 ha (400,000 ha by the start of the Tenth Plan-2002), and potable water to meet the demands of close to 80% of rural households, all urban areas, tourism and industry alike. Irrigated agriculture covers only about 7 percent of agricultural land but generates 459 of agricultural output. There are about 125,000 farmers that practice irrigation of some type, with half of those relying on shallow dug wells, 30 percent on surface mobilization, and 20 percent on tubewells. Thanks to important efforts to promote water users associations (WUAs), there are now about 2450 WUAs in Tunisia (1500 for Potable Water; 800 for Irrigation; and 150 for Potable Water and Irrigation). Parallel efforts at commercialization/privatization of the Water Supply and Sanitation sector are also ongoing.a strong institutional setup and legislative framework, coupled with a solid sustainable development policy, has also enabled Tunisia to stand at the forefront of the Middle East and North Africa Region in the area of natural resource management and environmental protection. While these efforts have allowed the country to register these important gains, it has become apparent to Government that if current trends persist, water shortages would be inevitable by 2015 as Tunisia would have developed, by then, its full water resource potential while demand for water would continue to

2 increase. In this context, and in recent years, the Government of Tunisia with the support of major donors (IBRD, KfW, JBIC, AfDB, etc) has conducted a number of key studies (Eau 2000, Eau 21, etc) which culminated with a major comprehensive Water Sector Review (Etude sur le Secteur de l'eau) destined to provide a new strategy for integrated water resource management in Tunisia. The Water Sector Review (WSR), which main thrust is participatory demand management, was completed in April 1999, and soon after presented at a Round Table in Tunis. It has been endorsed by the Government as the basis for the proposed project and all future investments in the water sector in accordance with the new strategy. Its mains guidelines will be included in a Letter of Sector Development Policy (LSDP). This long term strategy would specifically address the following sector issues: (i) integrated management and conservation of water resources; (ii) economic efficiency of irrigation water use; and (iii) institutional restructuring and capacity building in the water sector.for Integrated management and conservation of water resources, the Government is working on two fronts. On the technical front, it intends to facilitate (i) increased interconnectivity of mobilization and transfer infrastructure; (ii) improved technical capacity for surface water management based on real time data and management of groundwater (including registration, qualitative and quantitative monitoring); (iii) proper management of good rainfall years and reduction of physical losses; and (iv) at a later stage, greater use of non-conventional water resources (desalinization, reuse of treated wastewater, artificial recharge where economically justified). On the legislative front, the Government will monitor pilot activities on the ground and progress of participatory management and supervisory approaches to be tested during the WSIL so as to update the Water Code in the follow-up phase (WSIL2). For Economic efficiency of irrigation water use, the Government wants to encourage (i) the use of water as an economic input in competitive and profitable crop production as a result of progressive tariff reforms; (ii) policies to improve modernization and efficiency of irrigation activities; (iii) legislative and institutional reforms to encourage water management by users; (iv) agricultural intensification in existing irrigation areas, and increased productivity of water used in irrigated perimeters through improved farming practices and better cropping strategies.on Institutional restructuring and capacity building in the water sector, the Government wants to reduce excessive involvement of State agencies, improve administrative and financial management, and accountability with a view to progressively reduce subsidies. This is to be achieved through the progressive retrenchment of the State from non-public functions in the sector to the benefit of the private sector and WUAs. The latter would be strengthened and therefore be expected to take on more responsibilities (financial, technical and managerial). In parallel, the Government intends to revisit the role of all major public entities (CRDAs, SECADENORD, ONAS, SONEDE). New skills (water economics, statistics, MIS, M&E, community organization and participation, etc.) needed to solidify a demand management strategy would also be developed and the efficiency of support services would be improved as a result of ongoing and expected reforms in agriculture and research institutions (AVFA, IRESA in particular). 2. Objectives The project's main objectives are to (a) promote effective integrated water resource management by: (i) establishing/implementing an sound - 2 -

3 institutional framework and sector reform measures for demand management (revised tariff policy, new institutional arrangements) as shifting programs from supply to demand management is the main thrust of the Government's strategy in the sector, (ii) improving the capacity of the Government, Water Users Associations (WUAs) and private operators to efficiently manage resources, and (iii) facilitating real-time management of ground and surface water (from conventional and non-conventional sources); and (b) promote conservation of water resources and protection of the environment. These two objectives are expected to significantly improve the productivity of agriculture and access to safe water in rural areas. 3. Rationale for Bank's Involvement Value-added (for the Borrower) of Bank support is two-fold:the Bank has built good experience in the Middle-East and North Africa in particular on policy dialogue, sector work, and operations dealing with the water sector. The Bank can facilitate access to information, lessons learned, best practices on areas where the Government needs it: water resources economics, institutional management, regulatory and participatory issues. Having experienced difficulties in pushing some reforms in the areas of tariff systems, institutional restructuring, decentralization, etc. in certain countries, the Bank is also best placed to realistically assess the likelihood of progress on the above-mentioned reforms.bank's participation builds on important investments undertaken in the sector, a trusting collaboration and therefore provides continuity for implementation of the (sought after) long term water management strategy. Moreover, other donors active in the water sector in Tunisia are ready to intervene even more actively in the context of a new strategic framework and are looking to the Bank to take the lead in assisting the Government define the framework and help implement it. 4. Description In addition to key policy and institutional reforms measures described in Section C-2, the project would be developed around the following investment components: Irrigation Management (including small and large scale perimeter rehabilitation); Groundwater Management; Conservation of Water Resource base and Environmental Protection, Rural Water Supply, and Capacity-Building. Central to all components would be knowledge development and dissemination activities for irrigation efficiency and management, drainage and salinity management, acquifer recharge, treated waste water reuse, etc. This will also be complemented by the strengthening of public/private capacity for needed research and extension in the upcoming Bank-supported Agriculture Services Initiative. A detailed description of project components is available in Annex 2. Irrigation Management Groundwater Management Water Conservation and Environmental Protection Rural Water Supply Institutional Strengthening and Capacity-Building 5. Financing Total ( US$m) Government IBRD 103 IDA -3-

4 KREDITANSTALT FUR WIEDERAUFBAU 17.5 Total Project Cost Implementation Institutional and implementation arrangements would follow those established for ASIL and ASIL2 and proved to be fully satisfactory.project Coordination. Overall project coordination among the executing units would be assured by the DGFE (Direction Generale du Financement et des Encouragements) and a Coordinating Committee chaired by the Minister of Agriculture and comprised of key directorates and other institutional partners (MINCOOP, MINFIN, MINECODEV, MEAT, ONAS, ANPE, SONEDE). Project Implementation. The Ministry of Agriculture would be the overall executing agency for implementation of the project, with investment preparation guidelines and sub-sector policy pursued at the central Ministry level by the: (i) Directorate General of Rural Works (DGGR) for the irrigation and rural water supply components; and (ii) Directorate General of Water Resources (DGRE) for the groundwater monitoring and prospecting component. At the regional level the Regional Commissariats for Agricultural Development (CRDA) would be responsible for sub-project identification, preparation and monitoring and for coordination across technical units at the local level. For activities for which close collaboration between the Ministry of Agriculture and its traditional partners (ONAS, SONEDE, AVFA, and IRESA) is required, contractual agreements would be established along the same lines as those in effect in ASIL2.Accounting, financial reporting and auditing arrangements. Accounting and financial reporting will be assured centrally by the Project Coordination Unit within DGFE. During the first three years ( ), Technical Directorates involved in the WSIL will act on behalf of CRDAs and would be responsible for financial management and accounting duties for activities managed by their field representatives. They would maintain accounting records for components under their responsibility, prepare and disseminate sub-project accounts financial management reports. They would also ensure timely transmission of these documents to DGFE. During the first 18 months, a simplified Project Management Report (PMR) will be issued. After this 18-months period, the content of the PMR would be gradually expanded to include all evaluation and performance indicators, and budget forecasts. DGFE would be responsible for aggregating this data and submit a periodic (quarterly: to be agreed at negotiations) PMR to the Bank and make it available to auditors. Audits would be done by the General Controller of Finances (CGF) of the Ministry of Finance in accordance with acceptable auditing standards and would be made available to the Bank within six months of the close of each fiscal year.disbursements from the Bank Loan would initially be made on the basis of Statements of Expenditures (SOEs), and direct payments. The Tunisian authorities may choose to convert to PMR-based disbursements if and when a certificate confirming that the financial management system in place is operating satisfactorily. The target date for the issuance of this certificate is June 30, Monitoring and Evaluation Arrangements. The DGFE would be responsible, with inputs from all implementing units, for monitoring of financial and physical progress on investment implementation, for progress reporting on execution of policy measures and development impact, for coordinating disbursement, and for semi-annual project implementation reports. The above arrangements were detailed during appraisal and will be reconfirmed at negotiations

5 7. Sustainability Sustainability would be addressed at three different levels: Water resource use: As the main thrust of the WSIL is to shift emphasis from a water mobilization strategy to a long term demand management strategy, the WSIL is expected to significantly contribute to implementing reforms and financing investments that would be conducive to increased sustainability of water resource use. Irrigation: (i) involving beneficiaries in validating planning assumptions about future farm activities to ensure that these are realistic and sufficient to permit farmers to pay water charges to local management groups that will be contractually responsible for operations and maintenance; (ii) improving financial autonomy of irrigation user groups, and ensuring that these implement water charges that are sufficient to provide for replacement of irrigation equipment, without further subsidies from Government; (iii) defining future tariff policy for public delivery of irrigation water, going beyond O&M recovery to include partial capital cost recovery, and thereby encouraging water savings in agricultural uses; and (iv) introducing piloting of water use rights for irrigation water user groups and thereby increasing incentives for efficient use and local market development. Groundwater resource use: (i) better identification of the resource through exploration, monitoring, and evaluation (including modeling); (ii) strengthening of quality and quantity monitoring; (iii) integration of surface and groundwater monitoring; (iv) computer data storage and dissemination to stakeholders (v) developing methodologies for the monitoring of water extraction from shallow aquifers; and (vi) piloting, for shallow aquifers, user-defined and implemented sustainable management plans. 8. Lessons learned from past operations in the country/sector The proposed WSIL builds on lessons learned during the implementation of major projects in the water sector (ASIL, ASIL2, Rural Water Supply and Sewerage, Greater Tunis Sewerage and Reuse Project) and findings of strategic studies (Eau 2000, Eau 21, Etude sur le secteur de l'eau) undertaken during the past several years and corresponding consultations with key government staff, donors and the private sector (WUAs and UTAP in particular). Key lessons include: (i) the need for extensive consultation on the reform process, (ii) the need for capacity building concomitantly with investments, and (iii) progressivity in the implementation of policy measures). As a result, planned reforms were designed after extensive consultation with all stakeholders. Their impacts will be closely monitored so as to gradually phase them in on the basis of a consensus and not conditionalities. Experiences with water sector projects in other countries (Algeria, Morocco, Jordan, Cyprus, etc.) have been looked at during the project design process. Key issues addressed during appraisal and reflected in the project design concern:sustainable Groundwater Management. The appropriate management approach will vary according to circumstances, but what is most urgent for the Government is to develop a methodology and capacity for participatory design and implementation of groundwater management. The WSIL would pilot this approach.water Users' Associations About 60t of existing WUAs are yet to achieve financial autonomy. The WSIL would support WUAs in the irrigation subsector towards such financial autonomy.multiplicity of Technical Units. The structure of the Ministry of Agriculture at both the central and regional levels fragments water management into a number of technical units. This does not facilitate comparison across technical options for solving local water availability/management constraints to identify the least-cost - 5 -

6 alternative. The WSIL would help re-focus technical departments more on policy formulation and monitoring and less on investment project preparation and support the creation of a socio-economic unit at the cabinet level at MOA. Participatory Management. Beneficiary involvement from the beginning for agricultural investment projects that use water (e.g. irrigation infrastructure) is critical to the success of their activities and for guaranteeing the durability of water systems. The Ministry of Agriculture has strengthened its participatory methodology for small-scale irrigation creation and is already implementing this for ASIL2 sub-projects. This methodology would be monitored during implementation through beneficiary assessments, refined, and its application extended in the proposed WSIL for investments in artificial recharge, rural water supply, and the rehabilitation of irrigated perimeters in particular.institutional Responsibilities for treated wastewater re-use and water quality issues in agriculture are fragmented among ONAS/the Ministry of the Environment, the CRDAs, user associations and the Ministry of Public Health. The WSIL would strengthen coordination mechanisms, and support capacity building efforts in the implementing agencies. 9. Program of Targeted Intervention (PTI) N 10. Environment Aspects (including any public consultation) Issues The lending instrument is a sector investment loan and therefore, the approach used during appraisal was to conduct a specific sub-sectoral environmental review (irrigation and drainage/agriculture) to ensure that adequate environmental impact assessment procedures are in place as needed for sub-project components. The environmental assessment was carried out by an independent consultant who consulted with the staff in the key technical units in the Ministry of Agriculture, Ministry of Environment, the Agence Nationale pour la protection de l'environnement (ANPE), and selected CRDAs. In addition, consultations were also held with the other cofinanciers (notably, KfW and the African Development Bank). Selected field visits were also carried out. The results of the environmental assessment indicated that no major negative environmental impacts are expected. In fact, the project is expected to result in enhanced environmental benefits through increased efficiency of water use, drainage improvements which would enhance soil quality and reduce production losses, improved management of groundwater quality and quantity, and more generally, improving decision-making processes. The EMP currently being finalized incorporates many of the mitigation measures outlined in the Environmental Management Plan developed in conjunction with the ongoing ASIL2 and will continue to be adhered to for specific sub-projects. All individual sub-projects under the WSIL will continue to require individual EIAs in accordance with the national law under which the ANPE was created (loi no , modified by loi no ). It was agreed with the Government during appraisal that the sectoral assessment as well as any other environmental studies would be made available to the public in accordance with the requirements of OP 4.01.Specifically, the SEA determined that only the activities to be carried out under three project components, the Irrigation Management component, the Groundwater Management component, and the Rural Drinking Water Supply component, might have an effect on the environment, if any. The SEA concluded that potential adverse impacts in irrigation and groundwater development, if any, could be fully mitigated, if the national environmental assessment procedures are applied systematically. With - 6 -

7 regard to Rural Water Supply, discussions are underway with the DGGR to simultaneously program facilities for wastewater disposal and sanitation. This will require close coordination with ONAS, in line with its recent Sector Strategy for Rural Sanitation. For environmental reasons and for public health reasons such coordination to avoid unnecessary pollution in rural areas is essential.the main issues with potential environmental implications are: water and soil quality (pertaining to pollution, wastewater treatment etc.); groundwater management; and drainage. The small-scale irrigation development component is not expected to have major environmental impacts. The impact on groundwater aquifer management is expected to be minimal since the administration (DGRE) is capably monitoring irrigation development, and only permits additional tubewell irrigation capacity to be installed where renewable groundwater resources are not overexploited. In order to qualify for financing under the Project, for each tubewell irrigation sub-project, the Bank will require documentation (from DGRE) that demonstrates the water requirement of the project in relation to the current exploitation and renewable resource status of the aquifer involved. The monitoring of the realization of the SEA Environmental Management Plan will be carried out during project supervision, and will be presented as part of the annual implementation report to be submitted by the Government to the Bank for review on an ex-post basis. In addition, the Government would send for prior review to the Bank the Environmental Management Plan (incorporating the mitigation measures proposed in the SEA) duly approved by ANPE for 2 small-scale irrigation projects (to be confirmed during negotiations). 11. Contact Point: Task Manager Madani M. Tall The World Bank 1818 H Street, NW Washington D.C Telephone: Fax: For information on other project related documents contact: The InfoShop The World Bank 1818 H Street, NW Washington, D.C Telephone: (202) Fax: (202) Web: Note: This is information on an evolving project. Certain components may not be necessarily included in the final project. Processed by the InfoShop week ending June 30,

8 Annex Because this is a Category B project, it may be required that the borrower prepare a separate EA report. If a separate EA report is required, once it is prepared and submitted to the Bank, in accordance with OP 4.01, Environmental Assessment, it will be filed as an annex to the Public Information Document (PID). If no separate EA report is required, the PID will not contain an EA annex; the findings and recommendations of the EA will be reflected in the body of the PID. -8-