COPY. 77i1- /3y' Water Supply Project Tunisia HILE. Appraisal of the Northern Tunisia FOR OFFICIAL USE ONLY. (Fourth Water Supply Project)

Transcription

1 Public Disclosure Authorized Report No. 1532a-TUN Appraisal of the Northern Tunisia Water Supply Project Tunisia HILE (Fourth Water Supply Project) 77i1- /3y' COPY May 9, 1977 Public Disclosure Authorized Water Supply and Sewerage Division Europe, Middle East and North Africa Region FOR OFFICIAL USE ONLY M Public Disclosure Authorized Public Disclosure Authorized Document of the World Bank This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

2 CURRENCY EQUIVALENTS (As of December 15, 1976) Currency Unit = Tunisian Dinar (D) = 1,000 Millimes D 1 = US$ US$1 = D D 1 million = US$2,353,000 ABBREVIATIONS ft foot m 3 /sec = cubic meters per second lpcd = liters per capita per day Mm3 = million of cubic meters hp horsepower min. minute kw = kilowat ppm = part per million m = meter psig = pound per square inch, gage mm = millimeter sec = second MEASURES AND EQUIVALENTS Metric System US System Kilometer (Km) 0.62 mile (mi) Square kilometer (Km 2 ) square mile (sq mi) Hectare (ha) 2.47 acres (a) Meter (m) = inches (in) Square meter (m 2 ) = square feet (sq ft) Cubic mete'r (m 3 ) = 264 US gallons (g) Cubic meters per second (m 3 /sec) = 22.8 million US gallons per day (mgd) Million cubic meters/year (Mm 3 /year) = 0.72 million US gallons per day (mgd) Liter (1) = US gallon (g) Liters per second (1/sec) = 22,800 US gallons per day (gd) Liters per capita per day (lcpd) = US gallon per capita per day (gpcd) Milligram per liter (mg/l) = 8.34 lb per mg DEGTH GLOSSARY OF ACRONYMS Direction des Etudes et Grands Travaux Hydrauliques du Ministère de l'agriculture IDA = International Development Association OMVVM = Office de la Mise en Valeurde la Vallée de la Medjerdah RDE SIDA SONEDE = Régie de Distribution des Eaux Swedish International Development Authority Société Nationale d'exploitation et de Distribution des Eaux STEG = Société Tunisienne de l'electricité et du Gaz USAID United States Agency for International Development SONEDE's FISCAL YEAR January 1 - December 31

3 FOR OFFICIAL USE ONLY TUNISIA APPRAISAL OF THE NORTHERN TUNISIA WATER SUPPLY PROJECT Table of Contents Page No. SUMMARY AND CONCLUSIONS.... i-iii 1. INTRODUCTION THE WATER SUPPLY SECTOR... 2 Water Resources Population Distribution... 3 Constraints and Priorities in the Sector... 4 Sector Program Objectives of the Project THE BORROWER Background... 6 Past Performance... 6 Organization and Management... 7 Personnel and Training... 7 Billing and Collection Accounting System Management Information System Audit Insurance... 9 Taxes THE PROPOSED PROJECT Background Scope of the Project Project Description il Cost Estimates Financing of the Project Procurement * Disbursements Execution of the Project Water Drawing Rights Land Acquisition This report was prepared and written by Mr. Fritz Rodriguez and Mr. Johann Renkewitz. Thbis document hm a rtrkcted distribution *nd may be urd by recipients only in the performance of their officia dutih. lu contents may not otherwise be diwcl d without Worid Bank authorition.

4 Table of Contents (Continued) Page No. 5. FINANCE Background Past and Present Position Tariffs Financing Plan Future Finances Monitoring System Risks JUSTIFICATION Objectives of the Proposed Investments Least Cost Solution Economic Justification Environmental Impact Institution Building AGREEMENTS REACHED AND RECOMMENDATIONS May 9, 1977

5 TUNISIA APPRAISAL OF THE NORTHERN TUNISIA WATER SUPPLY PROJECT LIST OF ANNEXES Annex No. 1. Previous Bank Loans and Credits in the Sector 2. SONEDE's Five-Year Investment Plan ( ) 3. Forecast of Water Sales and Number of Connections 4. Gradient of Water Consumption 5. Trend of Average per Capita Consumption 6. Outline of Future Cooperation between SONEDE and the Tunis District 7. SONEDE's Organization Chart Suggested Terms of Reference for Review of SONEDE's Managment Information System 9. Existing Water Supply Facilities 10. Potable Water Needs in Project Area 11. The Proposed Works 12. Forecast of Water Demand in Project Area 13. Detailed Cost Estimates 14. Annual Project Investments 15. Estimated Schedule of Disbursements 16. PERT Program for Construction of the Production Facilities 17. Bar Chart for Design, Bidding and Construction 18. SONEDE - Income Statements - Actual ( ) and Projected ( ) 19. SONEDE - Cash Flow Statements - Actual ( ) and Projected ( ) 20. SONEDE - Balance Sheets - Actual ( ) and Projected ( ) 21. Assumptions for Financial Projections 22. SONEDE's Cash Flow 23. Key Indicators for Project Monitoring 24. Economic Analysis Maps Project Location General Layout of the Project Gdir El Goulla Production Complex Primary Distribution System in Greater Tunis March 11, 1977

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7 TUNISIA APPRAISAL OF THE NORTHERN TUNISIA WATER SUPPLY PROJECT SUMMARY AND CONCLUSIONS i. This report appraises a water supply project for five northern provinces of Tunisia: Beja, Jendouba, Nabeul, Tunis and Tunis Sud, for which a Bank loan of US$21.0 million is proposed. These five provinces are among the socially and economically most active areas of the country and include the largest urban agglomeration, Greater Tunis. Economic activities of the region under consideration are quite diversified: Tunis is the nation's administrative center and dominates the political, economic and cultural life of the country; Beja is a semi-industrial area; Nabeul an attractive area for tourism development and Jendouba a basically agricultural province. About 37% of the country's total population live in these five provinces; more than 45% of the urban population reside there. ii. Water is scarce in Tunisia and water supply works are becoming increasingly difficult and expensive to implement. The available water resources are located far from the urban centers and the waters are very often of poor quality, necessitating sophisticated treatment before they can be considered potable. This situation is so critical that application of sound planning and engineering design, and of realistic pricing policies that would assure a minimum supply to the poor at reasonable cost and at the same time promote conservation of the scarce resources, become prerequisites to further progress of the sector. iii. The Government is about to initiate implementation of its Fifth Investment Plan ( ), and as part of this plan, investments of about US$367 million in new and improved water supply facilities are foreseen. The proposed project is integrated within the Water Master Plan for Northern Tunisia involving the collection and conveyance of the country's northern rivers to meet potable, industrial and agricultural water needs to the year The project covers only the first construction stage of production and distribution facilities which would have the capacity necessary to meet potable water requirements in the five provinces up to the year It is a regional scheme which once completed would allow to increase the percentage of urban population now connected to the water network in the five provinces from an average of 68% to 81% by iv. Since 1968 the Bank Group has become extensively involved in the water supply sector and has already financed three projects (two loans and a credit) of the national water supply authority, "Societe Nationale d'exploitation et de Distribution des Eaux" (SONEDE), for expansion of water supply services in the areas of Tunis, Sousse, and Sfax and 62 rural centers. SONEDE's performance under the previous loans and credit has been good. This

8 - ii - authority, which was set up only in 1968 as part of the first Bank project, today is a financially viable company, with experienced and dedicated staff. v. The proposed loan would be made to SONEDE with the guarantee of the Republic of Tunisia, and would continue a previous policy of strengthening SONEDE's capability. SONEDE has already accomplished a remarkable work in the sector, increasing the percentage of the country's urban population connected to the network from 43% in 1968 to 62% in 1975, and almost tripling the number of house connections in the same period. It is anticipated that continuing Bank involvement in the sector would help SONEDE improve its technical and managerial capability, speed up the execution of house connections and implement adequate pricing policies. vi. The estimated total cost of the project is US$102.9 million of which US$49.9 million is for production facilities, US$44.8 for distribution works in Greater Tunis and US$8.2 million for distribution in other areas of the provinces. The foreign exchange cost of the production component is estimated at US$21.0 million, that of the distribution works in Greater Tunis at US$23.4 million, and that of distribution works in other areas at US$4.0 million. About 34.5% of the project cost would be financed with SONEDE's internally generated funds, and 22.4% with a Government equity contribution to SONEDE's capital. The Bank loan would cover the foreign exchange expenditures for the production component and would account for 20.4% of the project cost. Finally it is expected that SONEDE would receive, under parallel financing, a loan of US$23.4 million representing the balance of 22.7% of the total cost, from other external sources; the Kuwait Fund for Arab Economic Development and the Arab Fund for Economic and Social Development may participate in the financing of the distribution works in Greater Tunis. vii. Except for goods of less than US$150,000 and for civil works of less than US$450,000, aggregating to not more than US$1,500,000, all contracts for the production works would be placed through international competitive bidding ln accordance with the Bank Group's Guidelines for Procurement. For bid evaluation a 15% margin of preference or the actual customs duties, whichever is lower, would be allowed for equipment manufactured in Tunisia. Foreign manufacturers are expected to win the supply of equipment for a new treatment plant, of pumps and special operational equipment. Local contractors are expected to win contracts for supply of large diameter pipes. viii. The Bank loan would be disbursed for the production items against (a) the full CIF cost of all direct imports; (b) the foreign exchange cost of consulting services for engineering design and construction supervision; and (c) 39% of the total expenditures for civil works construction. Detailed engineering design of the project is under way, and bidding is expected to start in October Project construction would be carried out from 1978 through 1982.

9 - iii - ix. Water demand in the project area would soon exceed the supply capacity presently available, and without the project SONEDE would have to stop its expansion program of house connections. The proposed project is technically sound and is the least cost alternative for providing the supply necessary to meet water demand of growing population and to assure further growth of industry and tourism in the five northern provinces. The project would also greatly enhance environment quality and public health in these provinces. The tariffs are efficient enough to ensure the long-run recovery of the proposed capital investments. x. Agreement having been reached on the conditions outlined in Chapter 7 of this report, the project is suitable for a Bank loan of US$21.0 million to SONEDE for a term of 17 years including 3 1/2 years of grace. May 9, 1977

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11 TUNISIA APPRAISAL OF THE NORTHERN TUNISIA WATER SUPPLY PROJECT 1. INTRODUCTION 1.01 The Government of Tunisia and the "Societe Nationale d'exploitation et de Distribution des Eaux" (SONEDE) have requested the Bank to help finance a water supply project for five northern provinces of the country, namely Beja, Jendouba, Nabeul, Tunis and Tunis Sud. The project involves the first construction stage of a master plan designed to meet potable water needs in these provinces to the year 2000, and includes the construction of a regional water production complex and distribution systems in the urban agglomerations of the provinces. The proposed construction, which with related studies, land acquisition, project implementation and management consultants' services, is estimated to cost US$102.9 million, is programmed to be carried out in the years 1978 through A Bank loan of US$21.0 million is proposed to cover part of the foreign exchange cost of the project Water supply systems in Tunisia are planned, built and operated by SONEDE, a Government owned company, which would be the borrower of the proposed loan. Since its creation in 1968, SONEDE has received two Bank loans and an IDA credit. The first loan (581-TUN) of US$15 million, made in January 1969, was to finance water supply works for the regions of Tunis and Sousse. In June 1970, the International Development Association made a credit (209- TUN) of US$10.5 million to assist in financing the improvement and expansion of water supply in eight areas of the country. Both of these projects were jointly financed with the Swedish International Development Authority (SIDA) A second loan (989-TUN) of US$23 million was made in May 1974 to help SONEDE finance the construction of water supply systems for the country's second largest city, Sfax, and for 62 rural centers. In addition, the Bank Group is also assisting in the financing of a tourism infrastructure project 1/ which includes a water supply component estimated to cost US$18.5 million. Details of these loans, together with the status of procurement and project completion, are given in Annex SONEDE's performance under the first loan and the credit has been good, and the water supply sector has been substantially improved through the execution of these projects. The percentage of urban population connected to the systems, which was only 43% in 1968, reached 64% at the end of About 77% of the rural population living in accessible villages is served by public taps. During that period, SONEDE itself has continued to improve its management capability and today is considered a financially viable public authority. 1/ Report No. PT-5a of May 30, 1972, and Loan 858-TUN and Credit 329-TUN of September 28, 1972.

12 However, in spite of this progress, further Bank involvement in the sector appears necessary to (i) assist Tunisia in developing appropriate mechanisms and techniques that could improve the planning, allocation, management and use of scarce water resources, which are becoming a serious obstacle to the economic growth of the country; (ii) help SONEDE improve project implementation; and (iii) assist SONEDE in developing and implementing improved reporting systems. The Bank would also act as a catalyst for (a) the mobilization of financing from other lenders to SONEDE; (b) closer coordination between SONEDE and other Government agencies involved in urban development such as the Tunis District; (c) the adoption of measures to encourage the urban poor to connect their dwellings to the water supply systems; and (d) the adoption of a realistic pricing policy that would foster self-financing potential for expansion The Government would start soon to execute its Fifth Investment Plan ( ) and as part of this plan, SONEDE would invest about US$367 million in new and improved water supply facilities. The project that is being considered accounts for about 28% of these investments and is vital to meet water demand of the growing population, to provide better water supply services to the urban poor and to assure further growth of industry and tourism in the northern provinces of the country A mission composed of Messrs. Fritz Rodriguez and Johann Renkewitz visited Tunisia in October 1976 and discussed technical aspects of the project with SONEDE and two French consulting firms, Coyne and Bellier and SOGREAH, which prepared the feasibility study of the project. The mission suggested some changes and returned in December 1976 to appraise the project. This report is based on the consultants' recommendations and the mission's findings. 2. THE WATER SUPPLY SECTOR Water Resources 2.01 Water is a scarce commodity in Tunisia. Not only is the volume of water available for urban, industrial and agricultural use limited, but the exploitation of a large portion of it is impaired by a high content of chlorides. The salinity 1/ of most groundwater sources is so high that they cannot be used as such for domestic consumption, and are even unfit for irrigation. Most of the fresh surface water sources are found very far inland in the mountains, mostly in the northern part of the country. Only limited volumes of surface water are found in the coastal areas where the bulk of the population is concentrated. 1/ In this report salinity is taken as the chloride content of the waters. The Wlorld Health Organization (WHO) suggests imposing an upper limit of 600 mg/liter of chlorides for potable water.

13 Flow regime of the northern rivers is very irregular and construction of large impounding reservoirs is needed to increase their safe yields. However, as water stored in these reservoirs dissolves chloride compounds contained in the surrounding soil formations, the salinity of these waters increases substantially, thus making their use more difficult. The flow capacity of the northern rivers is also limited; with full development of storage they might cover the water needs for both urban and agricultural use up to the year Beyond that time it would become necessary to resort to more sophisticated treatment methods such as desalination of sea water and recycling of wastewaters to meet the demand Although some groundwater is available along the coastline, the volume that can be extracted is often limited because of the progressive intrusion of sea water into the aquifers. The salinity of most of the groundwater found in the southern part of the country is higher than 600 mg/liter. The tourism areas of Djerba-Zarzis along the southern coastal region are supplied with slightly saline water. Bizerte and other nearby industrial cities in the north are served with groundwater which is both of good quality and available fairly near to these cities. Greater Tunis, the major urban agglomeration in the country, and Sfax, the second largest city, are supplied from surface sources located at more than 120 kms from these cities The Government is aware of the limitation of the water resources and has already taken two major steps towards promoting their rational use. First, it has prepared the Water Master Plan for Northern Tunisia for long-range development and use of the country 's northern water resources, which would involve inter alia the transfer of these waters to areas where they are most needed and where the best use within the priorities can be made. Secondly, it issued a water code I/ establishing usage priorities, regulating the collection and use of the water resources, and strengthening conservation of these resources. In this regard the third Bank project includes a study of the health and economic effects of distributing water of high salinity The Ministry of Agriculture manages all water resources in the country. The water code provides for the creation of a National Water Commission to assist the Ministry of Agriculture in the management and allocation of these resources. In addition, the code provides for the establishment in each province of water-users' associations to review public waterworks programs. Until now the commission and associations have not been very active. Population Distribution 2.06 The latest census, dated May 8, 1975, recorded the country's total population at 5.6 million, of which 47.5% or 2.7 million live in urban areas. Of the rural population, which in that year reached 2.9 million or 52.5% of the total population, only about one million resided in rural agglomerations or 1/ Decree No of March 31, 1975.

14 - 4 - villages. The remaining rural population was dispersed in isolated scattered locations. The total population is projected to grow at an annual rate of 2.3% through the end of this decade. The urban population would grow at a much faster rate (about 4.2% annually) than the rural population whose growth is forecast to be less than 1% annually. Part of the urban population growth would stem from rural migration to urban areas Population distribution between urban, rural agglomerated (villages) and rural isolated, will continue to change in future. The rural population living in isolated locations is steadily moving into rural villages which in turn are loosing population to the urban areas. In effect, the population of rural villages has not increased since It is forecast that by the end of this century, the rural population living in isolated locations would decrease from the present 34% to not more than 20% of the total population Most of the urban population and economic activity are concentrated in the northern coastal areas; the south is almost wholly desert. The proposed project covers an area in which about 45% of the country's urban population live and from which SONEDE collects about 59% of its revenues. Constraints and Priorities in the Sector 2.09 One of the major constraints to rapid expansion of public piped water supply in Tunisia is the remote location of fresh water sources from the main urban centers, requiring the construction of unusually long transmission pipelines. The result is that both capital and operating expenses of the transmission facilities are extremely high compared to similar costs in other countries. This situation is further worsened by the fact that some highly saline sources can only be used in conjunction with other fresh sources. The cost of the transmission pipelines becomes decisive, as the population size is small, making the per capita investments prohibitive Because of these high investments and of budget constraints, the Government has long decided to give first priority to the urban sector where it can get the maximum benefits with its limited financial resources. The Government objective for this sector is to have 81% of the urban population connected to the systems by The Government's second priority is to provide the rural agglomerated villages with piped potable water at public taps. The scattered rural locations have not yet received much attention, because they are generally not large enough to warrant installation of a public water supply system, which would result in high per capita investments. These locations are supplied with water from shallow wells, irrigation canals, cisterns or public taps at the nearest center. Sector Program 2.11 Under the Fifth Plan, SONEDE is proposing to invest US$367 million in water supply works, of which US$91.3 million is to complete projects initiated during the Fourth Development Plan ( ), and the balance of US$275.7 million for new projects. Though SONEDE completed only 60% of the

15 - 5 - works originally programmed under the Fourth Plan, most of the delays occurred in the early years of execution. In 1976 SONEDE invested about D 27 million (US$63 million). Based on SONEDE's latest performance, it is likely that it will be able to carry out the Fifth Plan according to schedule, and may perhaps exceed the proposed investments, details of which are given in Annex 2, which also discusses the achievements of the Fourth Plan To execute the Fourth Plan, SONEDE received in addition to the Bank loans and proceeds of the IDA credit, financial assistance from the Swedish International Development Authority (SIDA), Kreditanstalt fuer Wiederaufbau (KfW) of the Federal Republic of Germany, and the United States Agency for International Development (USAID). These agencies are expected to continue their assistance during the Fifth Plan. SONEDE and the Government are also actively seeking financial assistance from several external sources, including the Arab Fund for Economic and Social Development and the Kuwait Fund for Arab Economic Development To determine the work program to be executed in order to reach SONEDE's objective of connecting 81% of the urban population to the water supply systems by 1985, the Bank developed a mathematical model by the least square method, using SONEDE's 10-year record of water consumption and number of customers, to express the relationship between population connected, water sales and number of connections. Details of the procedure used and the form of the equations are given in Annex 3. Those equations are illustrated in Annex 4 and are represented by parabolic curves which fit well the historical data. The model shows a rational trend and good correlation of population connected, water sales and number of connections. Based on the expected future population growth and SONEDE's past performance, the predicted water sales and number of connections appear reasonable, and are likely to be met or exceeded Future water sales, including consumption from public taps, are expected to grow at an annual rate of about 6%. This rate takes into account the probable effects on consumption of projected tariff increases necessary to meet SONEDE's financial requirements and to promote conservation. To keep up the projected growth, SONEDE would have to execute annually a minimum of 36,000 house connections, a figure that SONEDE reached in the last two years. Obiectives of the Project 2.15 The proposed project would help the Government and SONEDE achieve their priority objective of providing at least 81% of the expected 1985 urban population with house connections. More than a million people living in the cities located in the project area, and some 200,000 dwellers in rural locations, would benefit from the project. Almost 80% of the water produced under the proposed project will be consumed in Greater Tunis. The distribution systems of the cities would be expanded primarily into the low income areas and more than two-thirds of the new house connections would be executed in these areas Under current legislation, a Government agency, the Greater Tunis District, is responsible for planning the development of the Tunis metropolitan

16 - 6 - area. More specifically, the District plans the development of housing and land use in Greater Tunis, factors which have direct bearing on the planning of water supply. Thus there is a need for close cooperation and consultation between SONEDE and the District on programs that might affect urban development in Greater Tunis. In this regard SONEDE should undertake to expand the water distribution network of Greater Tunis only in areas designated by the District The proposed project provides the opportunity to define and establish the required cooperation between these two agencies. The design of the proposed distribution facilities is based on the District's data and projections, and has been reviewed and endorsed by the District. It is most desirable that the execution of the distribution works be planned jointly with the District and reviewed by it. Such cooperation, which is outlined in more detail in Annex 6, needs to be set forth in a formal agreement between SONEDE and the District. During negotiations, assurances were obtained that SONEDE and the District will enter into such an agreement not later than December 31, It is finally expected that the Bank's involvement through the requirement of a fair return by SONEDE on its assets, would help assure implementation of an adequate pricing policy that would permit the generation of funds needed for future expansion of water supply facilities, and the promotion of improved use of scarce water resources. 3. THE BORROWER Background 3.01 The borrower of the proposed loan would be SONEDE, the national water supply authority, which was established in 1968 to replace the Regie de Distribution des Eaux (RDE), in an effort to build up adequately the financial and managerial resources of the water supply sector. SONEDE is owned by the Government and operates under the tutelage of the Ministry of Agriculture. It has the status of an autonomous public enterprise, but is managed as a commercial undertaking. SONEDE is the borrower and beneficiary of previous Bank Group lending to the sector (Loan 581-TUN, Credit 209-TUN and Loan 989-TUN), as well as the executing agency for the water supply component of the Tourism Infrastructure project (Loan 858-TUN and Credit 329-TUN). Past Performance 3.02 SONEDE has to date successfully implemented the two projects associated with the first Bank loan and the IDA credit. Most of the project facilities became operational in 1974 and water supply services in the project areas have greatly improved. Execution of the project components financed under the third Bank loan 1/ (989-TUN) is under way and progressing satisfactorily (see 1/ Report No. 369a-TUN, Appraisal of the Third Water Supply Project, May 6, 1974.

17 - 7 - Annex 1, paragraph 14). The establishment of SONEDE has also been successful and has produced the reforms required for improving water supply operations in the country. At the end of 1976 after 8 years of operations, SONEDE had tripled its initial assets. Water sales increased from 63.4 MM3 in 1968 to 93.5 Mm3 in 1975; in the same period the number of connections increased from 102,000 to 242,000. Organization and Management 3.03 Annex 7 shows the organizational structure of SONEDE. A Board of 12 members chaired by SONEDE's General Manager supervises the activities of SONEDE. Nine Board members are public officials and represent the ministries and government agencies which have particular interest in the sector. The remaining three Board members, though appointed by the Minister of Agriculture, represent the private sector and the customers. The overall control exercised by the Government, beyond the appointment of the Board of Directors, covers major decisions such as approval of annual capital and operating budgets, borrowings, tariffs levels, code of employment and major procurement, but does not affect SONEDE's operational autonomy The General Manager is appointed by the Minister of Agriculture and is responsible for the day-to-day operations which are grouped into five departments - production and distribution in Greater Tunis, production and distribution in the rest of the country, new works, engineering studies, and administration and finance. Three divisions in charge of auditing and organization, operational control and general studies assist the General Manager in preparing long-range planning and policies. Until now SONEDE's organization structure has been largely adequate. However, future expected growth may require some modifications of this structure, such as separation of administration and finance, and creation of a commercial department. These modifications will be implemented progressively as their need becomes apparent Under existing agreements, SONEDE is committed to consult with the Bank before making any basic changes in its organization and administrative structure. These assurances have been restated in the Loan Agreement. Personnel and Training 3.06 At the end of 1976, SONEDE's staff numbered 2,500. This corresponds to an average of 1 employee per 1,000 people served, which is considered adequate for SONEDE's decentralized organization. This ratio should decrease slightly in future, as SONEDE is now sufficiently staffed with engineering and administrative personnel to meet the requirements of further expansion of its operations. SONEDE's salaries and conditions of service are competitive with those of other sectors and are adequate to recruit and retain qualified personnel In collaboration with the "Office de l'emploi et de la Formation Professionnelle", SONEDE is carrying out a training program for its rank and file personnel on a continuous basis. In addition, a number of short

18 term seminars covering various aspects of its operations are arranged each year by SONEDE for its staff. SONEDE has also arranged for overseas scholarships for its engineers to specialize in sanitary engineering and other areas related to water supply. At present, 12 staff members are studying at institutes in French-speaking European countries. Training of SONEDE's top managers will also focus on the planning, financial and economic evaluation of projects. They will be encouraged to follow specialized courses of the Economic Development Institute of the Bank Group and of other advanced institutes. Billing and Collection 3.08 SONEDE bills its customers on a rotating basis every three months for the volume of water consumed and for a fixed charge covering meter rent and connection maintenance. Collection from private customers and the Government offices is efficient; accounts receivable from those two groups of customers stand at about 2.7 months of sales. However, accounts receivable from the municipalities, for water consumed at public taps are presently at nine months of sales (about D 0.7 million). Existing agreements commit the Government to take all necessary steps to enable SONEDE to receive full payment within 120 days of billing, but the financial weakness of the municipalities has led to these high arrears. The municipalities can generate few revenues themselves, and it is unlikely that they would be able to pay the outstanding bills without the assistance of the Ministry of Finance, and the Ministry of Interior which controls their affairs The Ministry of Finance and the Ministry of Interior have recently agreed to set up for the municipalities a payment system similar to the one presently used by the Government agencies, whereby in the Government budgets related to the municipalities' operations, a percentage of their forecast water bills would be set aside and paid periodically. During negotiations, the Government undertook to provide the municipalities, beginning with its annual budget for 1978, with the financial means to make an advance payment of at least 75% of their estimated water charges for each year beginning July 1, and pay the balance of amounts due for such a year not later than four months after the end of a fiscal year An understanding was reached that the Government will liquidate the municipalities' arrears according to the following schedule: D 0.2 million by October 31, 1977; D 0.1 million by December 31, 1977; D 0.4 million by April 30, 1978; and the balance of all charges for water consumed as of June 30, 1977, by June 30, Accounting System 3.11 SONEDE's accounting system is comprehensive. Its financial accounts, billing of water sales, related charges and new connections, inventory control, and payroll are performed on a computer programmed and operated by its staff. A cost accounting section monitors the c0st effectiveness of each section and activity. SONEDE performs annual physical inventory controls and recorded levels of inventories are reliable.

19 - 9- Management Information System 3.12 SONEDE controls the execution of its budgets on a continuous basis, and most of its financial activities are now computerized. However, the present information system and computer programs need to be improved and developed to adapt them to the rapid expansion of SONEDE's activities. Also, the information gathered (including financial reporting) is not presented in a format which highlights the company's financial position and which management needs for taking the appropriate decisions. In addition, better coordination should be established between the various divisions involved in the preparation of the reports. SONEDE is aware of this and has agreed to carry out studies to develop reporting systems which could provide more meaningful and timely information to its management. During negotiations, assurances were obtained that SONEDE will retain management consultants acceptable to the Bank, under terms of reference satisfactory to the Bank, to assist in the preparation of these studies, which should be submitted to the Bank not later than June 30, Tentative terms of reference for the management assistance are given in Annex 8. The cost of these studies will be financed by SONEDE. The consultants might also be retained to assist SONEDE in implementing an improved reporting system. Audit 3.14 SONEDE's operations are monitored by a technical controller and a financial controller who are advisory members of the Board of Directors and appointed by the Government. Existing agreements between SONEDE and the Bank provide for the external audit of SONEDE's annual financial statements by independent auditors acceptable to the Bank. The agreements stipulate that the audited financial statements should be submitted to the Bank within six months after the close of each fiscal year. However, recent audits have been received with some delays due to late submission by SONEDE of its statements to the auditors, and the time needed for field audit of SONEDE operations not only in Greater Tunis but in all of SONEDE's regional offices. The quality of the audits has been adequate. SONEDE has taken the necessary dispositions to finalize its statements shortly after the close of a fiscal year to ensure that in future the audit reports are received within the time limit set forth in the agreements. Insurance 3.15 SONEDE carries insurances covering motor vehicles, fire damages for buildings, third party liability and special coverage for damages caused by polluted water accidentally distributed by SONEDE, all of which are considered adequate. Until the end of 1975, workmen's compensation insurance was with a private company. SONEDE is now self-insurer for such compensation and has set up a special fund into which amounts equivalent to the previous insurance

20 premiums are put. An evaluation of the risks involved is under way to determine whether the present contribution towards this fund is sufficient. All supply and civil works contracts for the project will be insured by private companies against loss and damage in shipment, accidents, fire and property damages. Taxes 3.16 Water sales are subject to a sales tax of 4.3% which is collected by SONEDE and paid to the Government. In addition, a 6.15% tax for services rendered is levied on charges for meter rental, maintenance and the labor component of the cost of house connections Since its creation, SONEDE has been exempted from income taxes in accordance with existing legislation which allows 3 consecutive 5-year periods of tax holiday. SONEDE's second 5-year tax exemption will expire by the end of A request has therefore been submitted to the Government to obtain another 5-year extension of the tax holiday. The financial projections dissussed in Chapter 5 have been prepared assuming that the request will be granted. Should the tax holiday not be renewed, higher tariffs than presently anticipated would have to be implemented to comply with the rate of return covenant. 4. THE PROPOSED PROJECT Background 4.01 The proposed project constitutes the first construction stage of SONEDE's long-range plan to meet potable water supply requirements in five northern provinces - Beja, Jendouba, Nabeul, Tunis and Tunis Sud - to the year The SONEDE plan is in turn integrated within the Water Master Plan for Northern Tunisia, which involves the collection and conveyance of waters of the country's northern rivers, for potable, industrial and agricultural use. The first phase of the Master Plan includes the construction of an impounding dam (Sidi Salem) to control and regulate the Medjerdah River, and of a main canal (Medjerdah-Cap Bon) to convey water to the areas of Tunis and Cap Bon. The proposed SONEDE project would draw raw water at first from an existing canal (Medjerdah), and later from the Medjerdah/Cap Bon canal after the Sidi Salem project is completed. Construction of the Sidi Salem dam and the canal is expected to start soon. The Bank is considering a loan of US$42 million to assist in financing the first phase of the Master Plan. A second phase would involve the construction of additional dams (Djoumine, Madene, Sedjenane) and of another conveyance canal (Ichkeul-Medjerdah), which would also supply raw water to the proposed SONEDE production facilities. Scope of the Prcject 4.02 The first stage of the SONEDE's long-range plan will have the capacity to cover the expected 1990 water demand, though the major element of the

21 - il - project, a reservoir (Saida) for storage of raw water, will be built in one stage for its ultimate capacity. Map shows the area of the country involved in the project. Presently the five provinces are supplied by two regional sources, the El Lil and Kasseb Rivers which are part of the northern river complex, and by minor local sources. Both regional rivers are impounded very far from Tunis City and their waters are conveyed to the areas of consumption through long transmission pipelines. The Kasseb waters are treated in the Gdir El Goulla production facilities located in the western outskirts of Tunis City. A detailed description of the existing water supply facilities is given in Annex Total average production presently available in the project area is 93.5 million m3 (Mm3) per year for a population which reached 1.6 million in In that year about 68% of the population of Greater Tunis was connected to piped water supply systems, while about 18% of the population in Beja and Tunis Sud was served by direct house connections. This percentage was about 12% in Jendouba and 20% in Nabeul. In 1975 a total volume of 79.1 Mm3 was distributed in the five provinces. At the present rate of consumption it is estimated that demand would exceed the available water production by mid Future potable water needs in the project area are discussed in Annex 10. SONEDE's objective is to serve at least 80% of the total projected 1990 population, with an average of 85% of the urban population provided with house connections. It is forecast that water demand in the project area would continue to grow at an average annual rate of 6% to reach about 170 Mm3/year in The first water shortage in the project area is predicted to be felt during the summer of Some of the proposed production facilities would become operational by that time and would temporarily pump raw water from the existing Medjerdah canal to meet the demand (see Annex 11, paragraph 10). Project Description 4.05 The major project components are as follows: A. Production Facilities (i) Construction of a 1,700-HP pumping station to draw raw water from the planned Medjerdah/Cap Bon canal; (ii) construction of an earth dam to create a reservoir (Saida) of 12 Mm3 in which water of varying levels of salinity from the Medjerdah/Cap Bon canal would be stored and mixed with Kasseb's fresh water; (iii) installation of a 1,250-mm transmission pipeline from the Medjerdah/Cap Bon pumping station to a distribution basin;

22 (iv) laying of a 1,100-mm pipeline between the distribution basin and the existing Gdir El Goulla treatment plant, and of a 800/600-mm pipeline from the basin to the Saida reservoir; (v) construction of a 1.4-M3/sec water treatment plant module; (vi) construction of a 2,320-HP pumping station to feed raw water from the Saida reservoir to the treatment plant; (vii) installation of a 1,600-mm transmission pipeline between the Saida pumping station and the treatment plant; and (viii) consulting services for project design and construction supervision. B. Distribution System of Greater Tunis (a) Laying of a 1,250/1,000-mm primary main to supply the northern part of the area; (b) installation of a 1,400/1,100-mm primary main to serve the southern part; (c) increase and improvement of booster pumping stations; (d) expansion and improvement of the secondary distribution network; and (e) consulting services for project design and construction supervison. C. Distribution Systems in Other Areas (i) Expansion of the primary systems in the cities of Beja, Medjez-El-Bab, Pont du Fahs, and in South Nabeul; (ii) increase of storage and booster pumping; and (iii) expansion and improvement of the secondary distribution networks. D. Studies Review and improvement of SONEDE's information system and computer programs to adapt them to the needs of the company's future expansion.

23 A more detailed description of the project is given in Annex 11. A general layout of the main facilities is illustrated in Map The principal elements of production and distribution for Greater Tunis are shown on Maps and Cost Estimates 4.07 The estimated total cost of the project is D 43.7 million (US$102.9 million) of which D 21.2 million (US$49.9 million) is for production, D 19.0 million (US$44.8 million) for distribution works in Greater Tunis and D 3.5 million (US$8.2 million) for distribution in other areas. The foreign exchange cost of the production facilities is estimated at D 8.9 million (US$21.0 million), that of the distribution system in Greater Tunis at D 9.9 million (US$23.4 million) and that of distribution vorks in other areas at D 1.7 million (US$4.0 million). Detailed cost estimates are given in Annex 13. Estimated annual project investments are shown in Annex 14. A summary of these costs is as follows:

24 Item Local Foreign Total Local Foreign Total D Million US$ Million ---- A. Production Facilities Land Acquisition Saida Reservoir Treatment Plant Pumping Stations Transmission Pipelines Instrumentation Sub-total B. Distribution in Greater Tunis Land Acquisition Primary System Secondary System Pumping Stations Miscellaneous Valves Instrumentation Sub-total C. Distribution in Other Areas Primary System Secondary System Reservoirs, Miscellaneous Sub-total D. Studies Grand Sub-total E. Physical Contingencies F. Design and Construction Supervision G. Price Escalation H. TOTAL PROJECT COST The cost estimates are based on quantity take-offs from preliminary plans and construction price levels prevailing in December A 15% allowance for physical contingencies was added to the base costs. Final design and construction supervision are estimated to account for about 8% of the base costs. To provide for price escalation during project execution,

25 construction expenditures are assumed to increase annually by 15% until 1980 and by 12% in For equipment expenditures, the annual rates of increase are forecast to be 9% in 1977, 8% in 1978 and 1979, and 7% thereafter. These estimated rates of construction price increase appear appropriate for the project and take into account the limited capacity of the local construction industry. A study of the Tunisian construction industry to determine means of increasing its capacity and associated training programs, is under way. This study is partly financed under the Bank loan 1088-TUN 1/ and is being closely monitored by the Bank The project provides for an estimated 480 man-months of consulting services for studies, final engineering design and construction supervision. The estimated cost of these services is about US$1.8 million or US$3,750 per man-month. About US$1.2 million needed for final design and construction supervision of the production facilities would be financed under the proposed loan. Financing of the Project 4.10 A Bank loan of US$21 million representing 20.4% of the total project cost is proposed. The loan would finance the estimated foreign expenditures for the production facilities. The Kuwait Fund for Arab Economic Development and the Arab Fund for Economic and Social Development may participate in financing the distribution system for Greater Tunis (foreign exchange cost of US$23.4 million or 22.7% of the total project cost). It is further expected that SONEDE would be able to finance US$35.5 million or 34.5% of the total project cost with its own funds. The balance of US$23.0 million or 22.4% of the cost would be provided by the Government as an equity contribution to SONEDE's capital Although the production facilities and the distribution facilities are independent subprojects, the financial viability of the production component is contingent upon the timely and efficient execution of the distribution systems which will convey the additional water production into the consumption areas and ensure sales. Since more than 80% of the production would be consumed in Greater Tunis, assurances should be obtained that the financing of these distribution facilities will be secured promptly. It was agreed during negotiations that the signing of a loan agreement providing SONEDE with sufficient foreign exchange (US$23.4 million) to execute the distribution component for Greater Tunis will be a condition of effectiveness of the proposed Bank loan In addition to those funds, the Government will have to make a contribution of US$23 million of which US$1.2 million would be needed in 1977, US$4.0 million in 1978, US$7.0 million in 1979, US$6.1 million in 1980, and US$4.7 million in During negotiations, assurances were obtained that the Government will make these amounts available to SONEDE, and if necessary will provide any additional funds needed to cover any cost overruns SONEDE cannot meet. This Government contribution in the form of equity is acceptable as customers already finance through their contributions and rather high 1/ Report No. 581a-TUN - First Urban Sewerage Project, January 15, 1975.

26 tariffs, about 45% of SONEDE's investment program. An additional 27% of this program would be financed by loans (paragraph 5.11). Procurement 4.13 All major contracts financed by the Bank will be placed by means of international competitive bidding in accordance with the Bank Group's Guidelines for Procurement. For bid evaluation a 15% margin of preference, or the actual customs duties, whichever is lower, would be allowed for equipment manufactured in Tunisia. Contracts for goods of less than US$150,000 and for civil works of less than US$450,000, aggregating to not more than US$1,500,000 would be awarded on the basis of competitive bidding advertised locally and in accordance with SONEDE's procedures which are acceptable to the Bank. The distribution facilities will be procured and funded under parallel financing Foreign contractors are expected to win the contract for construction of the water treatment plant, and the supply of distribution pipes of less than 600-mm diameter, pumps, motor drives, special valves, control and operational equipment. Local contractors are expected to win pipe supply contracts for the production facilities. Disbursements 4.15 The Bank loan of US$21 million would be disbursed for the production component against (i) the full CIF cost of all direct imports; (ii) the foreign exchange cost of consulting services for final engineering design and construction supervision; and (iii) 39% of the total expenditures for civil works construction Allocation of the loan proceeds to different types of expenditures is given in Annex 11. Estimated quarterly disbursements of the loans of the Bank and other external sources, and Government funds are shown in Annex 15. The closing date of the Bank loan would be December 31, Execution of the Project 4.17 The project would be executed in the years 1977 through Detailed design and bid documents for the production facilities are being prepared by a French consulting firm, Coyne and Bellier, whose selection was accepted by the Bank. Another French consulting firm, SOGREAH, has been retained to review the design of the distribution systems and to prepare bid documents for the distribution works. It is expected that bidding would begin in October 1977, so that construction can start by March A PERT program of the construction activities of the production facilities is shown in Annex 16. A bar chart for design, bidding and construction of the project elements is illustrated in Annex The project is expected to be completed by July An analysis of the PERT program shows that a substantial slack of more than a year is available and that the project can be completed earlier. An understanding was reached during negotiations that the project planning will be prepared on the

27 basis of the PERT program and construction schedule. As part of its quarterly reports to the Bank, SONEDE will be requested to review the time and execution performance to date, in relation to the PERT program and construction plan SONEDE's engineering department is sufficiently well organized to supervise competently most of the construction. Some of the project items, however, such as the Saida dam and the treatment plant, would need to be supervised by experts who are not available in SONEDE. Those experts will be retained by SONEDE for periodic supervision of the construction of these items. In addition, after the Saida dam is built, qualified and experienced consultants should be engaged to inspect the dam at least once every year, to ensure that no structural deficiency is developing in the dam and reservoir banks. During negotiations, assurances were obtained that engineering experts or special consultants acceptable to the Bank will be appointed, under terms and conditions satisfactory to the Bank, (i) to assist SONEDE in construction supervision; and (ii) to make periodic inspections of the Saida dam and related structures, the first of such inspections to take place not later than July 1, Water Drawing Rights 4.20 Raw water for the treatment plant will be drawn at first from the existing Medjerdah canal which carries waters of the Medjerdah river diverted at the El Aroussia outlet. Later raw water will be drawn from the proposed Medjerdah/Cap Bon canal which will carry waters of the Medjerdah river impounded in the proposed Sidi Salem reservoir, and from the projected Ichkeul/ Medjerdah canal which will convey waters of the Djoumine and Sedjenane rivers. The existing Medjerdah canal is operated by a Government Authority, the "Office de la Mise en Valeur de la Vallee de la Medjerdah" (OMVVM). The Directorate of Studies and Hydraulic Works (DEGTH) of the Ministry of Agriculture will be responsible for the operation and maintenance of the proposed Sidi Salem dam and Medjerdah/Cap Bon canal Though in principle water allocation to SONEDE for urban use has priority, SONEDE should be formally given the right to draw up to 40 Mm3 annually from the existing Medjerdah canal, and a total of 170 Mm3 from the future canals. SONEDE should also be allowed to draw these volumes of water uniformly throughout the year or only during six months, depending upon the quality of the waters. During negotiations, assurances were obtained from the Government that SONEDE will be authorized to draw the needed volumes of water from the Medjerdah canals. Land Acquisition 4.22 The production facilities, in particular the Saida dam, would be built on land that SONEDE needs to acquire expeditiously. In addition, SONEDE would need to obtain easement for land strips, on which the transmission pipelines and distribution mains would be installed. During project construction, SONEDE might have to occupy temporarily some land for the stockage of materials.

28 SONEDE would try to acquire the ownership of all land and rights through normal procedures. However, difficulties might arise, requiring that the Government take special expropriation measures, in order to avoid substantial delays in project execution. During negotiations, assurances were obtained from the Government that it will promptly take all steps necessary to enable SONEDE to acquire expeditiously the land and easement needed for the project. 5. FINANCE Background 5.01 SONEDE is owned by the Government. The company enjoys a large degree of operational autonomy, although certain major financial decisions are subject to Government approval (paragraph 3.03). Practically all water distributed by SONEDE is metered. New customers are required to pay for the cost of the connection, to contribute to the capital cost of the distribution network and to deposit an advance payment which covers about three months of service. All customers also pay quarterly charges for maintenance of their connections and meter rentals. In addition, SONEDE levies a government tax of 4.3% on water sales and 6.15% on services rendered In the past, domestic customers had the possibility of paying for the connection charges and contributions in interest free installments over 10 years. In order to ease SONEDE's cash flow, these credit facilities were recently modified by shortening the repayment period to five years and levying interest at prevailing commercial rates. This tightening of credit terms is not expected to cause a significant drop in demand for house connections, as the changes in the amounts involved are not that substantial for individual customers. Past and Present Position 5.03 SONEDE's income statements, cash flow statements and balance sheets for 1973 to 1976, together with the projections from 1977 to 1984, are shown in Annexes 18 through 20. SONEDE has in the past consistently earned a surplus. The average rate of return on its net fixed assets in operation was 7.7% in 1975 and 6.4% in 1976,(well above the average 4% achieved in previous years), which was the result of a steep tariff increase in mid Yearly consumption per connection decreased from 464 m3 in 1973 to 359 m3 in Between 1973 and 1976 water sales increased at an annual rate of 6%; the number of connections increased annually by 16% over the same period Over the past four years SONEDE has financed about 46% of its investment programs out of internally generated funds and customers' contributions; the Government contributed 26% of the investments as equity capital. The remaining 28% was financed by external lenders Part of SONEDE's initial equity was provided by the Government in transferring the ownership of the fixed assets (less related debts) of the

29 Regie de Distribution des Eaux (RDE) to SONEDE. Completion of the evaluation of these assets has been held up because of difficulties in establishing titles, but is expected by mid The final value of the assets should not differ significantly from the originally assumed book value as only minor discrepancies have yet been found. The fixed assets are depreciated at realistic annual rates averaging 2.7% SONEDE's working capital (current assets less current liabilities) improved from 1973 to 1975 with the current ratio rising from 0.88 to However, in 1976 its working capital dropped considerably, and the current ratio was at 0.53, due to a substantial build up of accounts payable. This build up was brought about by accumulating contract retentions and a large increase in unpaid contract installments, as SONEDE's investments rose from D 12.0 million (US$28.2 million) in 1975 to D 29.9 million (US$70.4 million) in 1976, an increase in works which could not be properly funded About D 1.2 million (US$2.8 million) of SONEDE's liabilities represents a sum due to the Government in respect of pre-1968 revenues of the former RDE, for which SONEDE is acting as liquidator. SONEDE's cash balances have -been adequate for day-to-day operations until the end of 1976 when they were reduced to D 0.43 million (US$1.0 million) which was too low. Tariffs 5.08 The present tariff levels went into effect in mid-1974 following a comprehensive study of SONEDE's financial obligations and future investment programs. The study concluded that an average rate of 85 millimes would be required in the years 1974 to 1977 to meet the rate of return covenants of previous Bank Group loans (Loan 581-TUN, Credit 209-TUN, Loan 989-TUN), i.e. 5% on net fixed assets in 1973 to 1975 and 6% thereafter. The following rate structure was selected out of various alternatives and approved by the Government: Millimes/m3 Tourism 150 Commercial and Industrial 70 ) 68 for first 160 m3/year, Domestic and Public ) then 90 for any excess 5.09 The existing tariff structure is adequate and fair. It takes into account the high cost of meeting peak demand of tourism facilities, which SONEDE calculates to be about 130 millimes/m3 in capital costs alone. The new tariffs increased bednight hotel operating costs by about only 50 millimes (US$0.12). The tariffs for industrial usage also increased, but it is estimated that the production costs rose by not more than 1%. The rates for small consumers (about two-thirds of the residential customers) remained unchanged, but increased for large consumers.

30 The present tariff levels are expected to be sufficient to meet, to the end of 1977, the existing rate of return covenant of 6% on properly valued net fixed assets, after deducting the assets in villages with less than 2,000 inhabitants and the cost of extensions for domestic customers in urban areas financed by loans from SONEDE after January 1, In order to maintain consistency with a recent Bank loan to the national power utility in Tunisia (Second Power Project - Loan 1355 TUN), customers' contributions as well as the assets in villages with less than 2,000 inhabitants, would from 1978 onwards be excluded from the rate base in calculating the rate of return. In view of this change, the rate of return would be increased to 7.5% to provide the same level of self-financing as under the previous rate of return covenant (Loan 989-TUN). Additions to fixed assets, inflationary increases of operating costs and payment of corporate income taxes from 1983 onwards, would require periodic adjustments of the tariff levels. The average rate per m3 is forecast to be 96 millimes in 1978, and to rise to 160 millimes in These tariff increases would enable SONEDE to finance about 21% of its investment program out of internally generated funds. During negotiations, agreement was reached that SONEDE would set tariffs adequate to earn a minimum return of 7.5% in 1978 and subsequent years, on its net fixed assets properly valued or revalued, and adjusted for the above deductions. Financing Plan 5.11 The following table sets out SONEDE's estimated total funds requirements for the project construction period ( ) and the sources from which they would be met, assuming that the tariffs would be increased as outlined in the above paragraph:

31 REQUIREMENTS D US$ % Million---- Project Expenditures Distribution Works in Other Capital Expenditures Investments and Long-Term Advances TOTAL REQUIREMENTS SOURCES Internal Cash Generation Less: Debt Service Increase in Cash Balance Increase in Other Working Capital _ Net Internal Cash Generation Borrowings Proposed Bank Loan Proceeds of Existing Bank Loans and IDA Credits Proceeds of Existing Swedish Loans Other Loan for Project Other Proposed Loans Total Borrowings Government Equity Customers' Contributions TOTAL SOURCES The proposed requirements include (i) US$351.4 million and US$51.8 million to cover SONEDE's capital investments during the Fifth Plan period and in 1982 respectively; (ii) US$4.5 million to finance house connections and pipeline extensions; and (iii) US$15.3 million that the Government would provide to SONEDE to compensate for the cost of relocating two main water pipelines outside the area to be flooded by the Sidi Salem reservoir. SONEDE's net internal cash generation would provide about 20.7% of the investment requirements, and customers' contributions about 24.3%. The Government contribution of US$117.6 million (D 50.0 million) would be to some extent offset by revenues from taxes on water sales, US$11.5 million (D 4.9 million), over the construction period, other taxes and customs duties on equipment and materials procured by SONEDE for its investment programs (US$6.6 million or D 2.8 million), and interest (US$3.5 million or D 1.5 million) on the IDA Credit 209- TUN relent to SONEDE. The other proposed loans of US$56.5 million (D 24 million) are proceeds of bilateral borrowings onlent to SONEDE to finance specific projects such as the expansion of water supply in the Sahel region and rural villages, and the tourism infrastructure program in Southern Tunisia.

32 The proposed Bank loan of US$21.0 million (D 8.9 million) would finance the foreign exchange cost of the production component. The terms assumed for the Bank loan are a maturity of 17 years including 3-1/2 years of grace and an annual interest rate of 8.2%. The Government will guarantee the Bank loan to SONEDE. An additional loan of US$23.4 million (D 9.9 million) would be needed to cover the foreign exchange cost of the distribution works in Greater Tunis. Future Finances 5.14 SONEDE's forecast financial statements through 1984 are shown in Annexes 18 through 20. The assumptions made in preparing these statements are explained in Annex 21. The predicted cash flow during the next 6 years is illustrated in Annex 22. SONEDE's financial performance is expected to continue improving steadily. Financing of investments out of internally generated funds and customers' contributions would gradually increase to reach about 47% in 1980 and 63% in The current ratio would gradually improve with a build up of cash reserves and the release of retention money. Fluctuations caused by the implementation of the investment program should stabilize by 1982, after which time the current ratio is projected to remain above one Internal cash generation should cover debt service adequately. The debt service coverage is projected not to fall below 2.7. Existing loan and credit agreements set forth limitations on capital expenditures without prior consultation with the Bank, as well as limitations on incurrence of debt. Under the latter, SONEDE is committed not to incur any long-term debt (except for the projects covered by the agreements) without the Bank Group's concurrence, unless its net revenues at the time of incurrence, before depreciation and interest, are at least 1.5 times the maximum future annual debt service on the proposed loan and existing debts. This commitment has been restated in the Loan Agreement. Monitoring System 5.16 Annex 23 shows the indicators which would be monitored during the execution of the project to measure the achievement of the technical and financial goals set for the proposed project. This Annex also gives the values forecast for these indicators, which SONEDE will review and submit to the Bank not later than December 31, Agreement was reached with SONEDE that the evolution of the indicators will be reported to the Bank on a quarterly basis during project execution, and on an annual basis for five years following project completion, and that it will carry out any reasonable remedial actions suggested by the Bank. During supervision missions, SONEDE's performance will be discussed and evaluated with its staff on the basis of these indicators. Risks 5.17 The measures proposed to be taken in the course of project execution, such as the Bank's monitoring of key indicators of progress and assistance of consultants for management and construction supervision, should minimize

33 the risks involved. Works similar to those scheduled have already been successfully completed by SONEDE and, with the assistance of consultants, implementation of this project should pose no major problem. SONEDE is now a well established organization which has already demonstrated its effective performance. Its staff is dedicated and the population living in the project area has shown its willingness to pay for public services. Therefore, the risks of not achieving the project goals are low. 6. JUSTIFICATION Objectives of the Proposed Investments 6.01 The need for increasing water supply services in the project area is critical. Less than 20% of the population in Beja, Nabeul and Tunis Sud is served with direct house connections, and only 12% in Jendouba. While the remaining urban population is generally served by public taps, only few people in the rural areas receive such services. At present most medium - and high - income families have their dwellings connected to the water systems. Basically it is the poorer urban population, which is today not connected to the systems and has to carry its water from public taps, suffering not only inconvenience but the risks of having it polluted before it is consumed, which will benefit from the project The works under the proposed project are essential to raise the present low percentage of population served and to provide the water supply needed for further development of industry and tourism in the five provinces. Under the present consumption conditions, the available production capacity would be sufficient to cover the demand only until mid SONEDE's objective for the project area is to increase the percentage of the urban population connected to the water network by 1990 to at least 87% in Tunis, 85% in Beja, Jendouba and Tunis Sud, and 75% in Nabeul. Future water demand in the project area is illustrated in Annex 12. Least Cost Solution 6.03 The proposed use of the Medjerdah River is the least cost alternative to increase the water supply to the provinces included in the project. Though this water source is closer to Tunis than existing production facilities, its use was in the past deferred because of the poor quality of the waters which are generally highly turbid and saline. The possibility now exists to provide a supply of acceptable quality by using the Medjerdah waters in conjunction with the existing fresh source of Kasseb. This solution becomes more attractive as it is being integrated in the Northern Tunisia Water Master Plan involving the collection of Tunisia's northern rivers for industrial, urban and agricultural use (paragraph 4.01) Apart from the Saida dam, for which a single construction stage is envisaged, all the other production facilities will be built in three stages.

34 The first phase is sized to deliver the expected 1990 flows. The second and third phases, which are less important than the first one, will be executed after For the distribution component, besides the facilities programmed under the proposed project, additional distribution works would be executed on a continuing basis as the demand increases and the network needs to be expanded into new areas. Economic Justification 6.05 The overriding justification for the proposed project is the necessity for providing urgently needed water supply, the basic infrastructure vital to orderly development of the urban agglomerations of the provinces. The proposed project is the least cost alternative to provide this supply. The economic justification is clearly implieà by the fact that the current average tariff is nearly equal to the long-run average incremental cost of water based on a 10% opportunity cost of capital which is considered reasonable for Tunisia (Annex 24). Because of the progressive tariff structure, large consumers now pay more than the average incremental cost for their water. Thus, these consumers have already demonstrated their willingness to pay the cost of providing additional water, and with the contemplated tariff increases (para. 5.10), the average tariff level will be brought up to the full marginal cost.of water Using current tariff revenues as a minimal measure of project benefits, the internal financial rate of return on the project is 8.6 percent. A more meaningful economic rate of return is difficult to calculate, but would certainly be higher due to the unquantifiable health and environmental benefits which accompany improved water supplies. Environmental Impact 6.07 One of the main objectives of the Government's Fifth Investment Plan is to continue to equip the country's major cities with basic infrastructure such as water supply, sewerage and drainage. The proposed project would help the Government meet this objective in the five provinces. Piped water supply systems would be installed mainly in low-income areas and as a result, sanitary conditions in these areas would be substantially improved. Provision of running potable water inside the dwellings would enhance living conditions, which in turn would result in improved productivity stemming from better environment and public health As a result of the project, the cities' wastewaters would increase substantially and would need to be disposed of properly. Construction of sewage collectors and treatment facilities for Greater Tunis is being partly financed under the Bank Loan 1088-TUN. There is no immediate need for sewage treatment in the rest of the project area. Institution Building 6.09 The establishment of SONEDE as an effective national authority with the capability of efficiently managing the sector continues to be the Bank's

35 main objective. In this regard, the project includes a review and improvement of SONEDE's information system and computer programs. Besides strengthening SONEDE's organization, the Bank's involvement would aid the formulation of proper policies, priorities and procedures that are necessary to accomplish further progress in the sector. 7. AGREEMENTS REACHED AND RECO0MMENDATIONS 7.01 During negotiations, agreement was reached on the various issues referred to in Chapters 2 to 6 of this report, including the following matters of particular significance: (i) By December 31, 1977, SONEDE will enter into an agreement with the Tunis District for their future cooperation regarding the construction of the water distribution system in Greater Tunis (paragraph 2.17); (ii) SONEDE will set and maintain water rates adequate to enable it to earn a minimum return of 6% in 1977, and 7.5% in subsequent years, on its net fixed assets in operation, properly valued in a manner acceptable to the Bank (paragraph 5.10); (iii) Beginning with its annual budget for 1978 the Government will provide the municipalities with the financial means necessary to assure timely payment of their water bills (paragraph 3.09); and, (iv) The Government will make available to SONEDE a contribution of US$23 million for the project, and if necessary, any additional funds required to meet cost overruns, should SONEDE be unable to provide them (paragraph 4.12); 7.02 Before the loan is declared effective, the Bank will be satisfied that a loan agreement has been signed with external lenders in an amount of US$23.4 million for the financing of distribution works in Greater Tunis (paragraph 4.11) Agreement having been reached on the matters outlined above, the proposed project is suitable for a Bank loan of US$21.0 million to SONEDE for a term of 17 years including 3-1/2 years of grace. May 9, 1977

36

37 ANNEX 1 Page 1 TUNISIA NORTHERN TUNISIA WATER SUPPLY PROJECT PREVIOUS BANK LOANS AND CREDITS IN THE SECTOR Background 1. The Bank's involvement in the water supply sector started in late 1966 when a mission visited Tunisia and discussed with the Government a program of works for the improvement and expansion of water supply services in the country's urban areas. In that year only 39% of the urban population was connected to piped water supply systems which were operated or supervised by the "Regie de Distribution des Eaux" (RDE), a division of the department of "Hydraulique et Equipement Rural" (HER) of the Ministry of Agriculture. Under a special arrangement with RDE, the Societe Tunisienne de l'electricite et du Gaz (STEG), the national power authority, operated the distribution system of Tunis City, the largest in the country. In addition, construction of large systems was executed by another division of the Ministry of Agriculture called "Grand Travaux". 2. RDE was a Government office and as such its financial operations were administered by the Treasury in conformity with complicated regulations. RDE's budgets were not balanced and various kinds of expenditures such as its debt service, were met directly by the Government. Depreciation was not charged and RDE never prepared balance sheets. 3. As a first step towards reorganizing the sector, the Government created an independent authority which would assume responsibility for planning, constructing and operating water supply systems in the country. On July 2, 1968 the legislature enacted Law No establishing the "Societe Nationale d'exploitation et de Distribution des Eaux" (SONEDE). Meanwhile the Bank had identified a suitable program of works and in 1969 made a first loan to SONEDE. Loan 581-TUN - National Water Supply Project, US$15 million, January 16, Often referred to as the first Bank water supply project, this project included 52% of SONEDE's investments in water supply works for the period The project covered 101 cities and towns located in the northern and eastern parts of Tunisia and consisted mainly of: (i) the construction of a transmission pipeline from the Oued Kasseb Dam to the western outskirts of Tunis, and an extension of the distribution system of Tunis City; (ii) drilling water wells for the Sahel area, doubling transmission capacity and extending distribution systems in Sousse, Kalaa Kebira and Msaken; (iii) drilling water wells, constructing reservoirs and interconnecting the distribution systems for the cities of Nabeul and Hammamet; and (iv) supplying and installing meters in all the systems in order to improve operational efficiency.

38 ANNEX 1 Page 2 5. The total project cost was originally estimated at D million. Total expenditures for the project amounted to D million. This represents a very small cost increase, less than 7% over the appraisal estimates, in spite of some delays in project execution. The construction of the project main components was completed in 1974, only a year later than originally scheduled. The rest of the project was completed in December The loan was closed on December 31, To finance the project the Bank made a loan of US$15 million (581-TUN) to SONEDE, and the Swedish International Development Authority (SIDA) approved a credit of US$5 million to the Government. It was a joint financing which covered 61% of the total project costs; the balance of 39% was financed by internal cash generation and Government capital contributions. Both the Bank and the Swedish funds were fully disbursed as of February 28, Except for the delays already mentioned, the project execution has gone fairly well. The most important item of the program, the Kasseb transmission-pipeline, was put in operation in 1973 and water supply services in Greater Tunis have since greatly improved. The establishment of SONEDE, which was part of this project, has been successful and has produced the reforms needed for improving vater supply operations in the country. Today SONEDE is considered a fairly well run public authority. Except for the late submission of audit reports (paragraph 3.12), all the loan covenants have been met. Credit 209-TUN - Second Water Supply Project, US$10.5 million, June 30, This credit was to finance the second phase of the national program defined under the first Bank loan and basically covered eight subprojects for four regions (Bizerte, Cap Bon, Sahel and Southern Tunisia) and four cities (Beja, Gabes, Kelibia and Sfax), whose water supply systems needed to be reinforced and expanded. The subprojects for Sahel and Cap Bon were intended to complement the construction program started under the first project. The main features of these subprojects were the drilling of water wells, the construction of transmission pipelines, pumping stations, storage tanks and distribution trunks. 9. The project cost was estimated in the Appraisal Report at D 10 million. Total expenditures for the project amounted to D 10.5 million or only 5% higher than the original estimate. As in the case of the first Bank loan, project completion, originally scheduled for mid-1973, was delayed to the end of This late completion mainly stemmed from long delays experienced in pipe delivery for two of the subprojects, due to the limited capacity of the local pipe manufacturers. 10. About 73% of the total project cost, or US$14 million, was jointly financed by the International Development Association (IDA) and the Swedish International Development Authority (SIDA). The IDA credit (209-TUN) was for US$10.5 million and the SIDA credit for US$3.5 million. The balance of 27% of the project cost was financed by SONEDE's internal cash generation and Government contributions. Both credits have been fully disbursed.

39 ANNEX 1 Page The objective of the second project was to complement the works initiated under the first project. In this regard the same comments made on the first project can also be applied to the second one. Like the first project, the execution of the second has been successful in improving water supply services in the areas concerned. Strengthening of SONEDE has continued to progress under the second Bank project. Loan 989-TUN - Third Water Supply Project, US$23 million, May 29, This project was designed to improve potable water supply in Sfax, the country's second largest city, in three villages close to Sfax - Agareb, Mahres and bienzel Chaker - and in 62 rural centers. The project includes the drilling of water wells at about 165 km from Sfax, and laying of a transmission pipeline between the well field and Sfax. The three villages which are located along the pipeline would be served en route. Additional reservoirs would be constructed and the distribution systems in Sfax, Agareb, Mahres and Menzel Chaker would be expanded. 13. Approximately 93,000 dwellers living in the 62 rural villages would be supplied with piped water networks. In addition, the project provides for a study of the economic implications of using potable water with high levels of salinity (paragraph 2.04). 14. The total project cost was estimated in the Appraisal Report at D million. The Bank loan of US$23 million was intended to finance about 54% of this cost; the balance was to to be covered by internal cash generation and Government contributions. It was at first anticipated that the capacity of the aquifer, which would be used to supply the project area, was limited, and for that reason the original scope of the project was to meet only the peak summer demand until about 1980, a relatively short design period. However, after pumping tests revealed a much larger potential capacity of the aquifer, it was agreed to modify the original project design to take advantage of the volumes of water available, which are now considered capable of meeting the demand to the year Consequently a larger pipe diameter and bigger pump units were selected for the project. As a result of these changes, the estimated cost of the project increased to D 27.6 million. 15. Under the Fifth Investment Plan (see Annex 2, Table 2-1), the Government is providing D 17.1 million to cover the increases in the investments, and no financial constraint is foreseen. Project completion is now scheduled for the end of 1981 (instead of 1978 as originally anticipated), due to the larger volume of works. Loan 858-TUN and Credit 329-TUN - Million, September 28, 1972 Tourism Infrastructure Project, US$ This project was designed to provide necessary infrastructure in six tourism areas of Tunisia. The infrastructure package which includes among other things potable water supply, is now being implemented in the areas of Tunis North, Tunis South, Hammamet, Sousse, Djerba and Zarzis. The estimated

40 ANNEX 1 Page 4 total project cost is US$55 million of which US$8. 18 million is earmarked for water supply works in five areas. No major works were proposed for the Hammamet area since the existing system has a capacity sufficient to meet the water demand to The areas of Tunis North and Tunis South are presently supplied from Tunis City's distribution system, and this supply would be reinforced with a new 12-inch pipeline between Nabeul and the reservoir of Bordj Cedria. In addition, a new storage tank and distribution mains would be built. In Sousse the distribution system would be extended and reinforced; a new reservoir would also be constructed. For Djerba/Zarzis groundwater resources would be developed and a 20-inch transmission pipeline would be installed. The distribution networks in Djerba and Zarzis would be improved and extended, and storage capacity would be increased. A prefeasibility study for a desalination plant to serve the Djerba/Zarzis area after 1979 would also be carried out. 18. The Bank made a loan of US$14 million (858-TUN) and a credit of US$10 million (329-TUN) towards the financing of the project. As of January 31, 1977, US$7.8 million of the credit was disbursed. Disbursement of the loan has not yet started. The Federal Republic of Germany also participates in the financing of the project through its agency, Kreditanstalt fuer Wiederaufbau, which made a credit of US$12.4 million to the Government. 19. The cost of the water supply component is currently estimated at US$14.55 million, about 78% higher than the estimates of the Appraisal Report. The works are expected to be completed by mid-1978, one year and a half later than the appraisal estimate. SONEDE's Future Performance 20. Since 1968 the water supply sector has steadily improved, with the percentage of population connected to piped water supply systems increasing from 43% to 62% in Major administrative reforms have also been accomplished through the execution of the first two projects. However, to make the sector progress further, higher capital investments per capita than those already made would be required, because of the greater distances between the water sources and the urban settlements, and the more sophisticated treatment processes that will need to be applied to these sources before they can be used for potable water consumption. This in turn calls not only for careful engineering and financial planning, but most importantly, a realistic pricing policy to encourage the optimum use of water which is a scarce commodity in Tunisia. 21. One of the objectives of the proposed project is to assist SONEDE in forecasting long term needs of the sector and devising appropriate ways to meet them. SONEDE's performance will continue to improve, provided it acquires the capability for making the best use of its limited financial resources. In this regard the proposed project provides for management consulting services to review and improve SONEDE's management information system (paragraph 3.11 and Annex 8). May 9, 1977

41 ANNEX 2 Page 1 TUNISIA NORTHERN TUNISIA WATER SUPPLY PROJECT SONEDE'S FIVE-YEAR INVESTM4ENT PLAN ( ) Present Situation of the Sector 1. The latest national census in Tunisia, dated May 8, 1975, recorded the country's total population at 5.6 million, growing at an annual rate of 2.3%. The census also put the urban population at 2.7 million or 47.5% of the total population, with an annual growth rate of 4.2%. Of the rural population, which in 1975 reached 2.9 million or 52.5% of the total population, only 34.7% or about 1.0 million lived in small agglomerations; the remainder was dispersed in isolated scattered locations. The rural population was estimated to be growing at an annual rate of 0.9%. Some 4,305 rural villages (agglomerations) were tallied during the census. 2. Tunisia's population distribution between urban and rural has been changing in the last decade and will continue to change. The urban population is growing at a much faster rate than the rural population because of higher natural growth and rural migration toward the urban center. The 1966 census found that 40.1% of the total population lived in urban areas as compared to 47.5% in Since 1966 the rural population residing in agglomerated villages has remained unchanged. Thus there is continuous migration from the rural agglomerations to urban areas, and from isolated locations to the rural villages. 3. Presently about 63% of the total population is served with piped water supply systems. However, only 30% of this population is supplied through direct house connections. About 64% of the urban population or 1.8 million people presently have their dwellings connected to the water supply systems. The remaining urban population, and about 77% of the rural population living in agglomerated villages, are supplied by standpipes. Public water services are not organized in the isolated rural locations. 4. Water supply services in Tunisia have considerably improved during the execution of the Government's Fourth Development Plan ( ). When implementation of the plan started in 1973, about 56% of the total population was served with piped water supply systems and less than 50% of the urban population was connected to the public water networks. In 1971, 73.9 million m3 of potable water was sold; 52.5% of this volume was for domestic use, 25% for public use, 12% for industrial use and 7.5% for tourism. The percentage of urban population connected to the systems increased by 14% to 64% at the end of About 99.1 million m3 of potable water was consumed in that year.

42 ANNEX 2 Page 2 Execution of the Fourth Development Plan ( ) 5. SONEDE's objectives for the Fourth Plan were to increase the percentage of population directly served by house connections from 20% to 40%, and to provide water supply services in 139 more rural villages (with population above 500) at the end of the Plan. One of the objectives was to provide Greater Tunis, Sahel, Cap Bon, Beja, Bizerte, Sfax and Southern Tunisia with water supply infrastructure adequate to satisfy the water demand forecast for these regions to The objectives took also into account the regions' water supply needs for the projected growth of industrial and tourism activities. 6. To reach these objectives the Government and SONEDE allocated D 33 million (in 1972 prices) for water supply works needed in the areas described above. Among these works, the Bank's second and third water supply projects 1/ and the tourism infrastructure project 1/ were programmed. Other works included the improvement of production facilities and distribution networks in Southern Tunisia (Medenine, Djerba-Zarzis), the installation of water supply systems in 139 rural villages and the execution of 22,500 house connections annually. In addition to the Bank financing, SONEDE and the Government received the financial assistance of SIDA, KFW and local administrations of the provinces. 7. As previously discussed in Annex 1, the Bank's second project is completed and all the facilities are in operation. For the third project, 30% of the work program was executed at the end of 1976, and its completion is scheduled for the end of The project in Southern Tunisia is completed. Of the 139 rural villages originally considered, new works were carried out in 89 of them, and improvement works were executed in 31. Overall, though only about 60% of the original plan for expansion of the distribution systems was executed at the end of 1976, some 27,500 dwellings were each year connected to the systems, a 22% increase over the initial goal of the Plan. 8. At the end of the Fourth Plan period, about 30% of the total population had direct access to piped water supply, 10% short of the Plan's target for the urban sector. In the rural sector the results have also been encouraging: the percentage of rural population served by standpipes increased by 35% by the end of SONEDE's financial performance during the execution of the Plan has been good; it contributed 29% of the investment costs from internal cash generation compared with the original estimate of 22%. From 1972 through 1976 water sales grew annually at a lower rate (6.2%) than forecast (8%), in part because of lower levels of tourism activities than anticipated, and various tariff increases. 1/ Progress of these projects is discussed in Annex 1.

43 ANNEX 2 Page 3 Objectives of the Fifth Investment Plan ( ) 9. The objectives of the Fifth Plan are to serve 70% of the expected 1981 total population with piped water supply, with at least 42% of this population directly connected to the systems. Over the next five years SONEDE is planning to execute annually some 36,000 water connections and to extend the distribution systems each year by about 400 kms of secondary pipes. In the rural areas SONEDE expects to construct potable water supply systems in 65 more agglomerations. Water sales are projected to grow at an average annual rate of 6% to reach million m3/year at the end of Components of the Plan 10. In addition to the ongoing works of the Fourth Plan, the following projects are included in the Fifth Plan: - Water Supply Production for five northern provinces: Beja, Jendouba, Nabeul, Tunis and Tunis Sud. - Expansion of Distribution in Greater Tunis and the above provinces. - Water Supply for Bizerte and Adjacent Localities. - Improvement Works in the Sahel Area. - Water Supply Production for Sahel. - Supply Improvement in Gabes Industrial Area. - Extension of Distribution Systems in other selected areas. - Water Systems for 65 Rural Villages. The projects of the Fifth Plan together with the required annual investments are listed in Table 2-1. The Plan will be submitted to the legislature for approval in May The proposed Bank project covers the first two items of the Plan and is conceived to meet the expected 1990 water demand in the five northern provinces considered. The works proposed for the other regions are also oriented towards meeting similar goals. 11. SONEDE is budgeting D 156 million for the proposed works. Of this amount D 38.8 million would be used to complete the current projects of the Fourth Plan. SONEDE is expected to be able to finance about 38.8% of the investments with internal cash generation and through customers' contributions. This assumes that water rates would be adjusted to allow SONEDE to realize a 7.5% return on its net fixed assets as specified in the draft loan agreement, and that the conditions for granting loans to eligible new customers would be changed, reducing the terms of payment of the connections from 10 years to 5 and charging commercial interest rates on the loan balance. May 9, 1977

44 1/ Table 2-1 Proposed Annual Investments (D Thousands) Year Item Total Total A. Balance of Fourth Plan Third Bank Project (Sfax) 5,600 4,600 2,000 2,500 2,400 17,100 3, ,600 Bank Tourism Project 1,300 1,200 2,000 4,400 4,800 13,700 1, ,300 New Systems for Rural Centers , ,950 Improvement of Systems of Rural Villages ,100 1,700 1, Sub-total , ,900 8,800 38,800 6, B. Fifth Investment Plan lorth. Tunisia Project-Production 1,157 2,707 5,184 5,992 6,190 21, Noi,th. Tunisia Project-Distributlon 21,230-3,493 5,277 6,648 7,090 22, New Systems 1,000 for 1,100 Rural Centers 25, , Improvement 800 of 850 Systems of 5,700 Rural Villages , Temporary 650 Works 700 in Bizerte 4, Bizerte - Project First Stage ,600 3,000 5,500 Gabes Industrial 10,100 Area - SEPA 2,800 3,600 2,700 2,200-11,300 - Improvement - 3,000 Works in Sahel 14, Sahel - Project - - First Stage 700-1,100 3,700 5,500 4,600 14,900 3,600 Distribution 4,000 4,400 Works 26,900 1,100 1,200 1,300 1,500 1,600 6,700 - Buildings, 1,200 Warehouses, 1,250 Shops 9, ,000 1,500 leplacement, 1,000 Mat. & Equipment ,623 4,200 6,800 8,449 4,960 6,390 31,222 7, ,680 50,032 Sub-total ,100 28,560 28, ,060 15,890 16,90 23," GRAND TOTAL 19 63Q 27,400 34,160 37,500 37, ,860 21,990 17,940 24, ,320 1/ Expressed in current prices. May 1977

45 ANNEX 3 Page 1 TUNISIA NORTHERN TUNISIA WATER SUPPLY PROJECT FORECAST OF WATER SALES AND NUMBER OF CONNECTIONS Past Water Sales 1. Volumes of potable water consumed in Tunisia have been recorded since However, these records are considered reliable only from after water meters were installed on most of the house connections and a rigid water maintenance program started to be implemented. In 1966 water sales amounted to 52.1 million m3 (Mm3) with more than 55% of this volume for domestic usage. In that year about 39.5% of the urban population was served with service pipes resulting in a per capita annual consumption of 72.5 m3 1/. In 1966 some 719,000 people, most of them in Greater Tunis, were connected to the water supply systems. 2. In the years following 1966 the percentage of urban population with service pipes has been increasing rapidly. In 1975 about 1.6 million people or 62% of the urban population was connected to the networks. In that year 93.5 Mm3 of potable water was consumed amounting to a per capita annual consumption of 56.8 m3. The evolution of water sales in the last ten years is shown in Table 3-1. As can be seen in Column 6 of this table, the per capita consumption steadily decreased as the water supply systems reached increased percentages of the urban population. This decrease in the average consumption can be explained by the fact that low income consumers use less water than well-to-do customers. As the networks are generally first installed in high and medium income areas and are progressively extended into low income areas, the average per capita consumption would continue to decrease. House Connections 3. The number of connections 2/ which were only 86,000 in 1966 also steadily increased to reach 242,260 in 1975, an increase of more than 181% 1/ In the following computations the volumes of water consumed at standpipes, representing less than 5% of the total consumption, are not considered separately. All usages, domestic, commercial, industrial, tourism and public are expressed as a per capita consumption by urban people directly connected to the systems. The number of water connections in rural areas is considered negligible. 2/ Apartment houses built before 1975 are supplied by a single connection and water bills are shared equally by the tenants. The new apartment buildings that are now under construction provide for an individual meter for each apartment, thus allowing individual billing for each tenant.

46 Table 3-1 Water Sales and Number of Connections, Past and Forecast 2/ 4/ Per Capita7- Consumption-/ Urban Population in 1,000 Water Sales Consumption Total New Per Connection Year Total Connected Y/ % of Total 106 M 3 /Year m 3 /year Connections Connections3/ m3/year , ,002 8, , ,855 5, , ,375 10, , ,714 11, ,153 1, ,506 11, ,245 1, ,875 13, ,342 1, ,082 18, ,442 1, ,318 19, ,547 1, ,712 29, ,656 1, ,266 36, ,768 1, ,200 33, ,884 1, ,000 35, ,005 2, ,000 36, ,132 2, ,000 36; ,263 2, ,000 36, ,401 2, ,000 40, ,544 2, ,000 48, ,693 2, ,000 52, ,848 3, ,000 55, ,010 3, ,000 60, / This column gives the urban population connected to the systems and its projections are based on the probable number of connections that can be executed each year. 2/ Gives the average volume of water consumed by each person in the successive years shown. 3/ Represent additional connections executed each year. They should keep increasing in order to sustain the growth of water sales. 4/ Gives the average volume of water consumed at each connection. February 7, 1977

47 ANNEX 3 Page 3 over the 1966 level. During the same period, however, water sales increased by only 79% reflecting again the fact of higher population density and lower consumption in low income areas. The evolution of the connections is shown in Table 3-1. The average annual consumption per connection continued to decline between 1966 and In 1966 it was about 606 m3; it decreased to 386 m3 in The average number of people served by each connection, which was about 8.4 in 1966 also declined to about 6.8 in 1975, reflecting the predominance of single-family dwellings in small lots in low income areas of the country. 4. During the period considered various tariff increases were implemented, which caused some reduction in demand. However, given the low percentage of urban population served, the assumed reduction is not believed to have had a great effect on the trend of water consumption observed between 1966 and Future Water Sales 5. In forecasting SONEDE's water sales in the next 10 years it has been assumed that the percentage of urban population directly connected to the systems would increase from 62% in 1975 to about 83% in This would represent an overall increase of 21% similar to that accomplished between 1966 and Observing the past trend of water sales and population connected, a mathematical test of the historical data shows that if the population connected Six" is multiplied by a constant factor "A", water sales increased by the same factor raised at a constant power "n". The test also shows that the same property exists between the population connected and the number of connections, and between water sales and the number of connections. Observing further that for zero population connected, water sales and the number of connections should be nil, it becomes obvious that the relationships between the population connected, water sales and number of connections can be expressed by functions of the form y = Axn which are represented by parabolic curves which, when plotted in log scales, are straight lines. 6. To predict future water sales, a mathematical model of water consumption vs population connected to the distribution network in Tunisia was developed. This model is expressed by the equation: x 0.66 (1) Y 1.44 where "x" is the population connected in thousands and "y" water sales in Mm3/year. The constants "A" and "n" of the equation were determined by the method of least squares using the values observed for "x" and "y" between 1966 and Similarly a mathematical model relating water sales to number of connections were derived from the observed data. This relationship is represented by the equation: x 2.11 (2) Y 58.4

48 ANNEX 3 Page 4 where "x" represent water sales in Mm3/year and "y" the number of connections in thousands. Both functions are graphically represented in Annex 4. As it can be observed on this graph, the correlation of the historical data is almost perfect. 8. Water sales forecast for 1977 through 1985 are shown in Table 3-1. It is predicted that the sales would grow in the next decade at an average annual rate of 6%. This rate is projected assuming that 83% of the urban population would be connected to the systems by The growth would be slower if a lower percentage is to be reached by It should be noted that equations (1) and (2) are independent of time, and years are introduced in Table 3-1 only for estimating the number of house connections that SONEDE should execute every year to realize the predicted water sales. Future Number of Connections 9. The relationship between population connected and number of connections in Tunisia is expressed by the equation: x 1.45 (3) where "x" is the population connected in thousands and "y" the number of connections in thousands. This relationship was derived following the same procedures used to develop the model for water sales. Equation (3) is graphically represented in Annex 4. The predicted number of connections appears in Table 3-1. Over the next five years SONEDE is expected to increase the number of its customers by about 36,000 until 1980, and then to 50,000 after that year. 10. The above equations give results which correlate remarkably. For instance, estimating the urban population connected to the network, equations (1) and (3) will give the expected water sales and number of connections. In a different approach, knowing the water sales, equation (2) will give the number of connections. The results in both cases are very close with variations of less than 10%. Trend of Per Capita Consumption 11. As stated earlier, as more consumers are being connected to the water network, the average per capita consumption would continue to decline. After the entire urban population is connected, the average per capita consumption will stabilize and will probably start growing. The first evolution stage of the average per capita consumption "y" (in m3/year) may be related to the population connected "x" (in thousands) by an hyperbolic function in the form of y = b + c. Applying the method of least squares to the historical data, the above function is expressed in the form: y = (4) x

49 ANNEX 3 Page Equation (4) is represented graphically in Annex 5. It becomes a straight line when consumption "y" is plotted against the reciprocals (1/x) of the populations connected, using arithmetic scales for both variables. As the percentage of urban population connected to the water systems keeps increasing, the average per capita consumption tends towards a minimum value of 110 liters/day which is considered realistic. May 9, 1977

50 TUNISIA NORTHERN TUNISIA WATER SUPPLY PROJECT GRADIENT OF WATER CONSUMPTION AinEX 4 WATER SALES 10 6 M 3 /YEAR, X t l o_ :3 WATER SALES X Vs. COCNNECTIONS Yt R D w 1.5z 5 / / PPLTINCNECE s.wtrsae s O~~~~~~~~~~~~~~~ < 9-POPULATION-U 8 CONNECTEDXVs.CONNECTIONSY--- - c w ~~~~~~~~1.45 w 1- ~~~~Y=X 'FM 'l ~82.1 6z 4 POPULATION CO;NNECTED X Vs. WATER SALES Y > 3 y2 97 T Io, 1.5I ~~ O OBSERVED DATA -. y1977 POPULATION CO3NNECTED 103. X World Ban k

51 TUNISIA NORTHERN TUNISIA WATER SUPPLY PROJECT TREND OF AVERAGE PER CAPITA CONSUMPTION Reciprocals of Population Connected, x ANNEX v X V~~~~~~~~~ ~~= x2I 50 /-\ _+50 / \ / ~~~~~~~~~~~~~~~~~~~Minimu m Average Per Capita Consumption -L Population Connected in 106, x Wor,Id Bank May 1977

52 ANNEX 6 Page 1 TUNISIA NORTHERN TUNISIA WATER SUPPLY PROJECT OUTLINE OF FUTURE COOPERATION BETWEEN SONEDE AND THE TUNIS DISTRICT Background 1. The Greater Tunis District vas established by the Government in 1972 to be responsible for the urban development of the Tunis metropolitan area. As such, the Tunis District plans, coordinates and supervises public investment programs in urban infrastructure such as housing, public transportation and roads. The District vas set up as part of the Tunis Urban Planning and Public Transport Project (Loan 737-TUN/Credit 432-TUN) to promote better urban planning in Greater Tunis. It operates under the supervision of the "Conseil Superieur du District" and its role and authority have been defined through administrative circulars. 2. Planning of future development of water supply and sewerage in Greater Tunis needs to be closely coordinated with the District whose policy regarding land use in the area would determine the pace and priorities of such development. In this regard any proposed expansion of water supply and sewerage should follow zoning plans prepared by the District. This view has already been accepted by the Government and is being emphasized through the First Urban Sewerage Project (Loan 1088-TUN) which calls for close cooperation between the Sewerage Authority (ONAS) and the District. A similar type of cooperation is envisaged for SONEDE which should coordinate the construction of its distribution works in Greater Tunis with the District's plans. Areas of Consultation 3. SONEDE and the District should consult each other on any investment programs which might affect urban development in Greater Tunis. Specifically the District should inform SONEDE of proposals for land development and use, and assure that vater supply can be made available for such land at reasonable cost. Proposed land use whether industrial, commercial, residential or recreational, should also be made known to SONEDE. On its side, SONEDE should coordinate its expansion programs vith the District and should install water networks in areas recommended by the District. Consultation should also cover future population, population density and type of housing projected for a specific area. SONEDE's plans should be prepared on the basis of such data. Per capita consumption and volumes of water to supply to these areas should continue to be decided by SONEDE. 4. The objective of the proposed expansion of the distribution system is to cover the water supply needs of the 1990 urban population forecast by the District. The general layout of the system, in particular the location

53 ANNEX 6 Page 2 of the primary mains, was reviewed by the District. Prior to the installation of these mains, the District's evaluation should be sought again. Any proposed network extension and laying of secondary pipelines should also be reviewed by the District. Nature of Future Cooperation 5. Future cooperation between SONEDE and the District should be defined through a formal agreement which should provide for continuing dialogue between the two agencies to ensure that SONEDE's long-term plans are consistent with the planned urban growth pattern and strategy for Greater Tunis. The agreement should call for: (i) the District's review and evaluation of SONEDE's long-range programs for expansion of the water distribution network in Greater Tunis; (ii) submission to SONEDE by the District of its long-range development plans and proposals for land use; (iii) the District's review of SONEDE's annual investment works and its recommendation of areas to be served with potable water; (iv) periodic consultation with the District on the scheduling of SONEDE's distribution works; (v) periodic review by SONEDE and the District of approved policies and programs, their improvement and implementation; (vi) the District's assistance to SONEDE in coordinating its activities with those of other agencies; (vii) procedures and arrangements for reviewing the execution of approved programs and for agreeing on necessary changes in these programs; (viii) the nature and extent of information collection, surveys and studies that are needed by both agencies and which should be undertaken jointly; and (ix) continuing exchange of information, views and planning concepts. 6. The draft Loan Agreement provides for the signing of the agreement between SONEDE and the District not later than December 31, The main points to be covered in this agreement were discussed and agreed upon during loan negotiations. May 9, 1977

54 TUNISIA NORTHERN TUNISIA WATER SUPPLY PROJECT SOCIETE NATIONALE D'EXPLOITATION ET DE DISTRIBUTION DES EAUX - SONEDE ORGANIZATION CHART BOARD OF OIRECTORS OPERATION FINANC ENGINEERING OPERATION GREATER NEW WORKS ADMINISTRATION STUIES INTERIOR TUNIS PRODUCTION DISTRIBUTION PROGRAMM FINANCE PERSONNE REN REGtON REGION H DAMS l s MAINTENANCE SECTIONKS I > ACCOUNTINO S PRODUCTION PRODUCTION PRODUCTION TRUNKLINES PROCUREMEN SETOSIACCOUNTINONPODCTO NORTHERN RCUEETN X ETONS I3 CCOSNTIG SASTC DISTRIBUTION DISTRIBUTION RAINTEN&NCE _F;.~~~~~~~~~~~~~~~~~ANTNNC DISTRIBUTION i AITNAC MITEAC TRUNKLINES SECTIOS [4, SECTIONS ( 4 1 TREASUR AELAIR M HYDROLOGY REPAIRS A Mi 3 g SECTIONS t31 PROCESSING PROCUREMENT RCURMENT PROCUREMENT ISTRICT D STRICT SECTIONS 179 SETIN S Ban N B May 1977W. Bk173

55 ANZNEX 8 Page 1 TUNISIA NORTHERN TUNISIA WATER SUPPLY PROJECT SUGGESTED TERMS OF REFERENCE FOR REVIEW OF SONEDE'S MANAGEMENT INFORMATION SYSTEM Scope of the Review 1. The proposed review includes a complete evaluation of SONEDE's existing systems of reports prepared for its management with regard to all aspects of its operations. The review will in particular cover SONEDE's financial activities including procedures for budget preparation, budgetary control, registration of new connections and deletion of cut-off connections from SONEDE's master files, water sales, levels of accounts receivable, posting of accounts, staffing and training. 2. In reviewing the actual system, the consultant will pay particular (but not exclusive) attention to the adequacy of information contained, as well as of standards, the intervals at which these reports are prepared and the distribution thereof. Based on his findings, the consultant will prepare detailed proposals for necessary modification of the system of reports to be submitted to SONEDE's top management. Specific Areas 3. The consultant will in particular review: (i) the type of financial information that is regularly sent to management. He will evaluate the presentation of this information and the intervals at which it reaches management. He will ensure that the information is sufficiently concise, readily understandable and truly reflects the company's situation; (ii) the adequacy of the information provided to management, whether it monitors progress in a timely fashion and provides the opportunity to take corrective actions when needed; (iii) the procedures that are followed in preparing the information, the closeness and smoothness of cooperation between the various departments involved in the preparation of the reports and the possibility of cross-checking, for instance, data of the Finance Department with those of the Statistics Division; (iv) whether internal regulations defining the objective, function and preparation of the information system exist, and the degree of enforcement of such regulations;

56 ANNEX 8 Page 2 (v) the time limit accorded to management for analyzing the reports, the follow-up actions expected by the departments and the establishment of the responsible levels for taking plans; and (vi) whether the system provides for continuing evaluation of the results, and defines responsibility for achievement of the plans; and (vii) whether the system is sufficiently problem-oriented to pinpoint the areas of weakness of a specific moment in a particular situation. Report to SONEDE 4. The consultant will submit to SONEDE a review report covering the above points, and will recommend specific actions on standards, responsibility of preparation, frequency and distribution of the information reports. The consultant will propose deadlines for preparation of the periodic information, for comments and recommendations to be addressed to higher levels of management and the time limit for management comments and actions. He will also propose a system for monitoring the deadlines for the preparation of the reports. 5. The review is expected to be completed within six months of initiation of the assignment. If judged necessary, the consultant will be requested to assist SONEDE in implementing any suggested modifications of the information system that would have been accepted by SONEDE. He will further review the modified system after it has been in use for some time. May 9, 1977

57 ANNEX 9 Page 1 TUNISIA NORTHERN TUNISIA WATER SUPPLY PROJECT EXISTING WATER SUPPLY FACILITIES A. DESCRIPTION OF THE PROJECT AREA 1. Presently Tunisia is divided into 18 Provinces (Governorates) and 136 Counties (Delegations). Five of these provinces, namely Beja, Jendouba, Nabeul, Tunis and Tunis Sud, located in the country's northern region, are included in the project (see Map 12713). Tunis, the most populated province, is basically an administrative and residential center. The nation's capital, Tunis City, is located in this province. Commercial and industrial activities predominate in Beja and Tunis Sud (the latter was created in 1974 after new boundaries were defined for the provinces of Tunis, Bizerte, Beja, Kairouan, Sousse and Nabeul). Agriculture is still the main activity in Jendouba and Nabeul, though tourism industry has been making rapid strides in the latter. Some tourism development is also taking place in Tunis Sud. 2. The populations of the counties included in the project area, as recorded by the last census dated May 8, 1975, are given in Table 9.1. Except for the provinces of Jendouba and Nabeul where only 32% and 75% of the respective urban populations are covered by the project, almost the entire urban populations of the other provinces are projected to be served under the proposed project. Only part of the rural population of the provinces is included in the project. The census put the total population in the project area at 1.6 million growing at an annual rate of 2.2%. More than 68% of this population is considered urban. About 78% of this urban population lives in Greater Tunis. 3. Of the rural population, which in 1975 reached 517,000, only 253,000 or 49% lived in small agglomerations; the remainder was dispersed in isolated scattered locations. The census results also showed that continuous migration from the rural agglomerations to the urban areas, and from the isolated locations to the rural villages, had been taking place. It is anticipated that by the end of this century, people residing in the isolated rural locations would represent not more than 10% of the total population in the project area. Therefore, no special effort is envisaged to serve this isolated rural population, for as this population moves to the rural agglomerations, provision would be made for its supply. The evolution of the populations together with the percentages of these populations to be served in future under the project are discussed in detail in Annex A relatively mild climate prevails in the project area, though high temperatures and heavy storms occasionally occur in summer.

58 Table 9-1 Populations in Project Area as of May 8, 1975 Urban % of Rural Population % of Total Province Counts Population Total Agglomerated Dispersed Total Total Population BEJA Beja 39, ,267 26,211 44, ,704 Medjez El Bab 7, ,157 14,711 33, ,364 Amdoun ,296 5,635 20, ,931 Teboursouk 8, ,214 12,598 23, ,478 Testour 7, ,762 7,475 19, ,612 62, ,696 66, , ,089 JENDOUBA Bou Salem 8, ,553 36,161 56, ,430 Ain Draham ,414 5,390 29, ,993 Fernana 1, ,846 13,832 40, ,802 14, ,813 55, , ,225 NABEUL Grombalia 9, ,105 9,926 16, ,552 Arkoub - - 2,805 10,707 13, ,512 Soliman 13, ,147 4,272 5, ,805 Hammamet 17, ,722 7,442 9, ,459 Mel Bouzelfa 13, ,207 15,567 16, ,249 Nabeul 58, , ,604 Korba 20, ,169 4,822 7, , , ,004 53,485 69, ,818 TUNIS Medina 64, ,369 Bab Bhar 82, ,809 Bab Souika 124, ,332 Si El Bechir 200, ,407-3, ,556 El Menzah 89, ,193-1, ,244 Bardo 152, ,695-23, ,581 Goulette 90, ,842 Hammam Lif 69, ,997-3, ,074 Mornag ,058-16, , , ,350-48, ,865 TUNIS SUD Sidi Thabet 11, ,657 13,035 22, ,937 Teboura 14, ,831 19,568 37, ,864 Mornagula 4, ,137 14,444 19, ,705 El Pahs 6, ,483 21,873 24, ,008 Zaghouan 6, ,155 19,512 25, ,415-43, ,263 88, , ,009 TOTAL 1,125, , , , ,643,006 May 1977 'o

59 ANNEX 9 Page 3 B. PRODUCTION FACILITIES The Northern Complex 5. Considered the most important water supply production facility in the area, this complex exploits the water sources of Oued El Lil and Kasseb. The Oued El Lil system which was put in service in 1954, consists basically of an impounding reservoir (Ben Metir) on the El Lil River, from which water is first turbined and then conducted to a stilling basin of 100,000 m3 located at an elevation of 237 m. From there the water passes through 14 semi-slow filters with an overall capacity of 1,750 liters per second, after which it is chlorinated and transmitted by gravity to the service areas. 6. The filtration plant (Fernana) is situated at about 131 km from a junction basin at Gdir El Goulla located in the western outskirts of Tunis City. The maximum capacity of the transmission pipeline between the Fernana plant and Tunis is Mm3/year. Available studies indicate that the average yearly volume of water regulated in the Ben 21etir reservoir is only Mm3, resulting in a possible annual deficit of about 7.15 Mm3. This deficit can be made up by pumping from the Bou Heurtma reservoir located 4 km downstream the Fernana plant. Presently six communities (Ain Draham, Fernana, Bou Salem, Beja, Testour and Tebourba) and two sugar factories located along the pipeline are supplied with the Oued El Lil waters. 7. The other system (Kasseb), part of the construction of which was financed under the first Bank loan to SONEDE, includes an impounding reservoir of 80 Mm3 built near the city of Beja, on the Kasseb River. Water drawn from the reservoir is first turbined through a small power plant and is then conducted through a 121 km pipeline to a small reservoir at Gdir El Goulla. Then it is treated in a conventional treatment plant whose average capacity is 1,440 liters/second; the plant's peak flow is estimated to be 2,100 liters/second. The average yearly volume of water regulated through the Kasseb reservoir is calculated to be Mm3, slightly lower than the pipeline capacity estimated at Mm3. There is no service en route on the pipeline between Kasseb and Gdir El Goulla. 8. The Kasseb waters are of good quality (low turbidity and color) and are only filtrated and chlorinated year round, though the plant is equipped for full conventional treatment. The only chemical used at Gdir El Goulla is copper sulfate to control the blooming of algaes in the Gdir El Goulla reservoir. After their treatment, the Kasseb waters are mixed with the Oued El Lil waters at the junction basin mentioned earlier and are then conducted through two pipelines of 1,250 mm and 1,190 mm in diameter to the Ras Tabia reservoir which controls the distribution in Greater Tunis. Volumes of water produced are metered at Fernana, Gdir El Goulla and Ras Tabia. Flows in the Oued El Lil pipeline are controlled downstream at Gdir el Goulla, while the control for the Kasseb pipeline is upstream at its intake.

60 ANNEX 9 Page 4 The Southern Complex 9. Known as the first public water supply aqueduct for Greater Tunis, the southern complex is made up of a multitude of water sources of which the most important ones are the Oued Kebir, the springs and wells of Bargou, Kebir, Djoubar and Zaghouan, and the well fields of Kheldia, Bakbaka and Manouba. The only surface water source is Oued Kebir which is provided with filter units. Except for the wells in Kheldia, Bakbaka and Manouba whose flow is transmitted through three separate pipelines, all the other sources are connected to a gravity aqueduct and a 900-mm pipeline which both discharge at the Djebel Oust junction basin. From this point two 550-mm pipelines and an aqueduct supply water to Greater Tunis. Two small urban centers, Pont du Fahs and Zaghouan, situated upstream of the Djebel basin, are also supplied by the southern complex. Local Resources 10. In addition to the northern and southern complexes, other local water resources are used to supply potable water in the project area. In Jendouba about 28% of the actual consumption is provided by local sources which have a capacity sufficient to continue supplying the same percentage in the future. Two sources in Beja presently supply about 1.0 Mm3/year. In Nabeul there are presently 25 wells, 4 springs and 1 surface water source producing about 3.15 Mm3/year. The total capacity of the actual local resources is put at 4.5 Mm3/year. C. DISTRIBUTION FACILITIES Greater Tunis Il. The gridiron system of water distribution in Greater Tunis originates at the junction basin of Gdir El Goulla from which two pipelines (0 1,190 mm and 0 1,250 mm) of 8 km conduct filtered water to the reservoir of Ras Tabia located in the western outskirts of Tunis City (see Map 12716). A pipe branch of mm connected to the 0 1,250 mm pipeline supplies the reservoir of Manouba. From Ras Tabia three main transmission lines cover Greater Tunis: (i) the northern pipeline (0 1,190/800 mm) of 20 km supplies the reservoirs of Ariana and Amilcar; (ii) a central line of 800 mm of 1.4 km feeding the reservoir of Belvedere; and (iii) the southern pipeline of 0 1,190 mm of 10 km connected to the reservoir of Bir Kassa and supplying en route the reservoirs of Manouba and Mathildeville. This pipeline terminates in Nabeul.

61 ANNEX 9 Page Tunis City is presently served by two main water networks: (a) The Lower Tunis System supplied from elevation 45 by three reservoirs: Lower Belvedere, Sidi Abdallah and Lower Manoubia. This system covers the center of the city (including the old city) and the western part near Sedjoumi Sebka. This network is in good condition and functions well; and (b) The Higher Tunis System fed from elevation 72 by four reservoirs: High Belvedere, High Manoubia, Mathildeville and Manouba. This network extends from east of the airport to the town of Manouba; on south it reaches the hills of Bir Kassa. This system is loose and does not work properly. 13. In the northern suburb, water services are provided by the Ariana network supplied from elevation 63, and by a small network fed from elevation 146 covering exclusively the new Tunis University. Works are underway to install an intermediate system at elevation 109. The suburban cities of La Marsa, Sidi Bou Said, Carthage and La Goullete on the northern coast are served by: (i) the Amilcar system supplied from elevation 77 by the Amilcar reservoir, extending from the hills of Carthage to Cap Gamarth; (ii) the Carthage system supplied from elevation 38, covering the town of La Goullete; (iii) the Raouad system fed from elevation 56, supplying the tourism area developed along Raouad Beach; and (iv) two small systems supplying the hills of Gamarth and Sidi Bou Said, from elevations 91 and 131 by the reservoirs of Marsa, High Gamarth and Phare. 14. Five water networks provide service in the southern suburb. Among them the two important ones are (a) the South system supplied from elevation 50 by three reservoirs: Fochville, La Batie and Foundouk Choucha. This network serves in particular the Tunis industrial area; and (b) the Hamman-Lif system which is very old and needs to be reinforced. 15. Most of the networks are now saturated and need to be expanded in order to provide better service. Actually, the major constraint is the limited capacity of the transmission pipelines between the networks. Total storage capacity in Greater Tunis equals 160,000 m3 equivalent to the present maximum day consumption. Other Areas 16. The capacity of the distribution networks in the rest of the project area is also saturated resulting in low pressures in the systems and frequent interruptions of service. Most of the systems are made up of a single network in which adequate pressures cannot be maintained. In the city of Beja where a change of topographic level of about 110 m is found, the system is divided into various stages, but the pipelines are old and of limited capacity. The distribution networks of Medjez El Bab and Pont du Fahs should be expanded to cover new urban settlements.

62 ANNEX 9 Page Potable water in the province of Nabeul is now partly supplied by a 800-mm pipeline connected to the Tunis network at Bir Kassa. This pipeline has the capacity necessary to supply the northern region of Nabeul (Cap Bon Nord) up to the year At Grombalia where the pipeline diameter changes in 600 mm and water is pumped to the southern region of Nabeul (Cap Bon Sud) the capacity of the 600-mm trunk and pumping station is limited to about 8.5 Mm3/year which would meet the water supply needs in Cap Bon Sud until It is proposed that additional water demand in Cap Bon Sud after 1985 be covered by other local sources. May 9, 1977

63 ANNEX 10 Page 1 TUNISIA NORTHERN TUNISIA WATER SUPPLY PROJECT POTABLE WATER NEEDS IN PROJECT AREA Present Consumption and Production 1. Present per capita water consumption differs widely in the five provinces supplied under the proposed project. It varies from 158 liter/day in Tunis to 112 liters/day in Beja. This difference essentially stems from domestic consumption which averages 105 liters/day in Greater Tunis, but only 49 liters in Beja and Tunis Sud. Daily per capita consumption for commercial, industrial and public usages is similar in the five provinces, about 60 liters. Domestic consumption by people supplied through public taps averages 12 lpcd. 2. The evolution of population served and per capita daily consumption in the five provinces from 1972 through 1975 is shown in Table While almost 68% of the total population in Tunis is connected to piped water supply systems, only about 16% of the population in Beja and Tunis Sud is served through direct house connections. This percentage is now about 12% in Jendouba and 20% in Nabeul. The percentage of population connected to the public water networks has been increasing at a rapid pace in the last five years. Between 1972 and 1975 it increased by 10% in Tunis, 8% in Tunis Sud, 7% in Nabeul and 4% in Beja and Jendouba. It is expected that these growth rates will continue in future. 3. In 1975 a total volume of Mm3 was consumed in the five provinces, amounting to an increase of 6.2% over 1974 consumption. However, consumption in 1976 is estimated at Mm3, an increase of only 0.8% over the previous year's consumption. The annual consumption growth rates observed since 1970 are shown in Table The average annual growth rate during the period was 5.1%; this rate was 5.9% between 1970 and Unaccounted for water in the project area presently amounts to 35% of the total volumes of water produced. This percentage is considered high. SONEDE has recently undertaken a special program of leak detection in order to reduce the water losses to not more than 25%. The total volumes of water produced since 1970 are shown in Table Total production available in the five provinces is today estimated at 93.5 Mm3.

64 Table l3-1 Population and pet Capita Consumption Per Capita Population Con- Served by Dailv Consumption in Liters Year (as of nected to Systems Public Taps 1/ 2/ Number of 3/ Province Julv 1) Urban Rural Total 1.,000 % of Total Domestic Other Public Taps Connections BEJA , , , ,976 JENDOUBA , , , ,825 RABEUL , , , ,426 TUNIS , , , ,574 TUNIS SUD , , , ,694 1/ Refers to consumption by people directly connected to the water supply systems. 2/ Includes co ercial, industrial, tourism and public consumption. / Includes domestic and other connections in service at the end of the year. May 1977

65 ANNEX 10 Page 3 Table 10.2: Past Water Consumption, (Million m3/year) Years Province Beja Jendouba Nabeul Tunis Tunis Sud Total Annual Growth, % Unaccounted for Water, % / Production /1 Only available for Estimated for the other years. Composition of Demand 5. Water consumption patterns also differ widely in the five provinces. Essentially water consumed in Tunis is for domestic and public usage, thus reflecting the administrative and residential character of the area. Such usage is relatively low in Beja and Nabeul where agricultural activity predominates. More than 40% of the total volume of water consumed in Nabeul is for tourism activity. Industrial water demand is only important in Beja and Tunis Sud where it accounts for 33% and 27% of the respective volumes distributed in these two provinces. 6. A breakdown of water consumed in 1975 apportions the various uses as follows: Table 10-3: Water Consumption Distribution in % Province Type of Consumption Beja Jendouba Nabeul Tunis Tunis Sud Domestic Public Commercial and Industrial Tourism Others Total

66 MANEX 10 Page 4 7. SONEDE's largest consumers with service pipes of 80 mm or more and representing only 0.2% of the total consumers use about 23% of the total volumes of water distributed in the project area. The largest users with service pipes of 40 mm or more accounting for 1.7% of SONEDE's customers consume about 43% of the volumes of water distributed. The smallest consumers, with house connections of less than 15 mm, representing more than 85% of the customers, use only 33% of SONEDE's water production. The above distribution indicates that any program for reduction of water losses inside the dwellings should concentrate exclusively on the largest customers. 8. There are presently about 128,000 service connections in the project area. On average each water connection in Tunis serves about 6.2 persons; the lowest density per connection is in Jendouba where only 5.2 persons are supplied by a service pipe. Forecast of Consumption 9. Forecasts of water consumption in the next 30 years are summarized in Table 10-4 and illustrated in Annex 12. Prediction of future consumption is based on the method and data discussed in Annex 3. The percentages of urban population directly connected to the water supply networks are determined on the basis of the number of connections that SONEDE might be able to execute yearly in the provinces. It is anticipated that by 1986, except for Nabeul, more than 83% of the urban population will be provided with direct service connections. This percentage would reach at least 90% in all the provinces by The per capita consumption of people served by public taps is projected to be about 15 liters/day. Table 10-4: Total Water Needs, Year Item Consumption in Mm3/year Unaccounted for Water, % Production in Mm3/year Except for tourism consumption in Nabeul, water demand for commercial, industrial and public usages is projected proportionally to the urban population. Water demand for tourism in Nabeul is based on the number of hotel beds projected for this province, and is estimated to reach 8.37 Mm3 by year 2006.

67 ANNEX 10 Page Water consumption is expected to grow at an average annual rate of about 6% between 1975 and 1980, then at 5% up to 1986, and at 4.5% until The average annual growth rate during the entire design period ( ) is estimated to be 5.0%. Assuming that the percentage of unaccounted for l/ water would progressively decline from 33% in 1980 to 25% by 2006, total water production is forecast to increase from Mm3 in 1980 to Mm3 by 2006, thus growing at an average annual rate of 4.5%. This growth rate is lower than the consumption growth rate because of the anticipated decrease in water losses. 12. The maximum day demand is calculated to be 30% higher than the yearly average demand; the maximum hour consumption is projected to be 70% higher than the average hour demand. May 9, / Until now SONEDE has been unable to reduce substantially the water losses, because of the impossibility of shutting off the transmission pipelines to repair water leaks, due to small reserve available near Tunis. This situation will change after the Saida reservoir is built, which will remove this constraint and make it possible for SONEDE to carry out the necessary works.

68 ANNEX 11 Page 1 TUNISIA NORTHERN TUNISIA WATER SUPPLY PROJECT THE PROPOSED WORKS A. Required Water Production Existing Production Capacity 1. A description of the existing production facilities was made in Annex 9 and forecasting of water demand in the project area was carried out in Annex 10. As stated earlier, at present more than 80% of water consumption in the project area is supplied by the two northern regional systems, Oued El Lil and Kasseb. Water for these systems is stored in the reservoirs of Ben Metir and Kasseb, whose storage capacities are calculated to be Mm3 and Mm3 respectively. About 9 Mm3 of water lies below the lowest invert of the Ben Metir outlet, thus reducing its useful storage to about 48 Mm3. The useful storage of the Kasseb reservoir is estimated at 80 Mm3. The rate of silting-up in both reservoirs averages 0.21 Mm3 per year. Monthly inflows recorded in the last twenty years are available. 2. To determine the potential capacity of the northern regional sources, a probabilistic operation of the Ben Metir and Kasseb reservoirs was carried out, assuming that the probability of a 10% deficit or more in the average capacity would not be more than 3%. Discounting the volumes lost by silting and evaporation, it is estimated that up to the year 2000, an annual flow of 33.5 Mm3 would be available at Ben Metir. For Kasseb this capacity would average 41.0 Mm3/year. These flows can transit through the existing transmission pipelines which have higher capacity. 3. Total average production capacity available, including the southern complex and other local resources, today is put at Mm3/year. This capacity would meet water demand only to mid From that time through mid-1982, when the planned Medjerdah/Cap Bon is expected to be in operation, raw water will be drawn from the existing Medjerdah canal to meet the production deficit. The temporary drawing is further discussed in paragraph 10 of this annex. Water Quality 4. Salinity of the waters stored in Ben Metir and Kasseb has been monitored since The record of monthly measurements of salinity in Kasseb indicates that the average yearly content in chlorides steadily declined from 304 mg/l in 1969 to 270 mg/i in A similar trend has been observed in Ben Metir whose content in chlorides averaged 151 mg/l in For all purposes these salinities are considered acceptable. In contrast, the salinity of the Medjerdah river (the project's water supply source) is relatively high. It fluctuated between 1,100 mg/i and 2,800 mg/i in the

69 ANNEX 11 Page 2 last twenty years. This salinity is projected to increase after the Sidi Salem dam is completed. It is anticipated that the chloride content of the Sidi Salem waters at times might be as high as 4,200 mg/l. 5. The southern complex and other existing local resources supply fresh waters of good quality. The chloride content of other northern sources that will probably be used in the future for supplying the project area is relatively moderate. Based on existing records, an average salinity of 900 mg/1 is predicted for Djoumine, and 700 mg/l for Sedjenane, Madene and Berrak. The salinity of potable waters for the project is specified to be less than 1,000 mg/i with a 3% probability that it might exceed this limit by 20%. 6. The Kasseb waters have very low turbidity, but are relatively odorous and colored due to algae growth in the Gdir El Goulla reservoir. The Medjerdah waters are highly turbid with high content of settleable solids. Future Potable Water Needs 7. Water demand forecasts in the project area are shown in Table The demands are projected separately for the areas located upstream and downstream of Gdir El Goulla. The former includes the provinces of Beja and Jendouba, and part of Tunis Sud Province, and is being supplied by local resources and the Oued El Lil system. Thus the volume of water available from this system at Gdir El Goulla is the difference between the production at Fernana Plant and consumption en route in the areas upstream of Gdir El Goulla. These volumes will keep decreasing throughout the years since the demand for service en route will be increasing with time. By the year 2006 only one third of the average production at Fernana will reach Gdir El Goulla. 8. Areas downstream of Gdir El Goulla include the provinces of Tunis and Nabeul and the rest of Tunis Sud Province. They are at present supplied with water by the balance of the Oued El Lil system, the Kasseb system, the southern complex and local resources in Nabeul. From mid-1979 annual water production at Gdir El Goulla would need to be increased progressively to reach about 215 Mm3 by the year While the Kasseb source will provide about 41 Mm3, the balance of 174 Mm3 would come from the Medjerdah/Cap Bon canal, which has been identified as the immediate and most economical supply source for the project area. A computer model (ORSTOM) has been developed to simulate river flows and water quality in the Medjerdah basin and the operation of the Sidi Salem reservoir, and to forecast possible water shortage in the northern region of the country.

70 ANNEX i Page 3 Tablell-l Water Demand in Project Area (Million m 3 per Year) Year Line Location Béjà Jendouba Tunis Sud-/ Upstream dir El Goula Local Resources3/ Outside Resources-/ North Nabeul South Nabeul Tunis 5/ Tunis Sud_ il Downstream Gdir El Goulla-6/ Local Resources-ZI Outside Resources-8/ Total Outside Resources9/ Kasseb Source oi Oued El Lil Source New Regional Source2l/ Total Productiontd/ at Gdir El Goulla / Represents the part of the province located upstream of Gdir El Goulla and supplied by Oued El Lil system. 2/ Line 4 is the sum of lines 1, 2 and 3. 3/ Assuming maximum production of 1 Mm 3 /year in Béjà and 28% of the water needs in Jendouba from local resources. 4/ Covered by Oued El Lil system. 5/ Represents the part of the province located downstream of Gdir El Goulla. */ Line 11 is the sum of lines 7, 8, 9 and 10. 7/ Based on a production of 14.6 Mm 3 /year from the southern complex, 3.1 Mm 3 /year in Nabeul and the balance from the canal Medjerdah/Cap Bon. Average supply from Tunis to South Nabeul will not exceed 8.5 Mm 3 /year. 8/ Line 13 is the difference between lines 11 and 12. 9/ Line 14 is the sum of lines 6 and / Obtained by difference between Oued El Lil's maximum capacity (33.50 Mm 3 /year) and lir / Line 17 is the difference between line 13 and the sum of lines 15 and / Line 18 is the sum of lines 15 and 17.

71 ANNEX 11 Page 4 9. The evolution of water production for the project area is illustrated in Annex 12. In projecting water demand in Nabeul, it has been assumed that only part of the water consumption in this province would be supplied from Gdir El Goulla. The average capacity of the Grombalia pumping station and the 600-mm transmission pipeline presently supplying South Nabeul is put at 8.5 Mm3/year. It is proposed that future supply from Tunis be limited to this amount. The balance of water needs in South Nabeul would be supplied by local resources. 10. To provide for the expected production deficit until the construction of the Medjerdah/Cap Bon canal is completed, it is proposed to put in service the existing Medjerdah pumping station, to increase its capacity from 11.4 Mm3/year to 14.0 Mm3/year (this would be accomplished by replacing one of the existing pumps with a bigger unit) and to connect its effluent line to the proposed Medjerdah pumping station (paragraph 11). This additional water will be treated at the Gdir El Goulla plant whose installed capacity can meet the projected demand up to the year B. New Production Facilities Description of the Works 11. The proposed project is designed to meet potable water supply needs in the areas involved up to the year It includes the construction of a pumping station to transmit raw water from the planned Medjerdah/Cap Bon canal (which will carry the Medjerdah River waters regulated at the proposed Sidi Salem impounding reservoir) either to a proposed reservoir (Saida) or the Gdir El Goulla treatment plant. After raw water is drawn from the canal it will first pass through a grit chamber where heavy suspended matter will settle. Then it will be pumped through a 1,250-mm pipeline to a distribution basin located at elevation 125 and at about 1,820 m from the pumping station. From this basin a 800/600-mm pipeline will conduct water by gravity to the Saida reservoir, while another 1,100-mm pipeline will transmit water to the Gdir El Goulla treatment plant. A connection on the latter will allow deviation of the waters to the existing Gdir El Goulla reservoir. 12. The Kasseb pipeline will be interconnected to the Saida reservoir where fresh waters from Kasseb will be stored together with relatively saline waters from the Medjerdah river. Both water sources will be mixed in a small basin prior to their discharge into the Saida reservoir. The salinity of the resulting waters will be monitored at this basin. The Saida reservoir will play a double role. First it will permit an improvement in the quality of the Medjerdah waters by mixing them with Kasseb's fresh waters. Waters of the Medjerdah canal at times when their salinity is low could also be drawn and stored in Saida. Secondly, it will provide an emergency reserve in case of interruption of the supply pipelines or a shutdown of flow in the Medjerdah/ Cap Bon canal. A 1,600-mm pipeline will connect the Saida reservoir to the Gdir El Goulla treatment plant whose present average capacity of 1.4 m3/sec will be doubled. The new plant module will be of the conventional type with flocculation, sedimentation and filtration units.

72 ANNEX 11 Page 5 Sizing and Operation of the Facilities 13. As mentioned earlier, one of the functions of the Saida reservoir would be to provide an emergency storage for the Gdir El Goulla plant. Two periods of time should be considered: the first one preceding completion of the Djoumine reservoir and the Ichkeul/Medjerdah canal, and the subsequent one when all the northern reservoirs become operational. In the first period, which in the worst assumption might go until 1990, the Saida reservoir should be capable of providing the maximum day flow coming from the canal for about 50 days which is the assumed time needed to repair or clean the canal. To satisfy this requirement in 1990, total useful storage in Saida should be about 10 Mm3. Assuming a total shutdown of all inflow supply to the Gdir El Goulla complex, the 10 Mm3-reservoir would be able to sustain the maximum day flow for at least 24 days which seems ample for making repairs. After 1990 both canals should not be shut down at the same time, thus eliminating the requirement to provide a reserve for such purpose. By year 2000 a 10 Mm3- reservoir would be able to provide about 20 average days of supply which again appears to be adequate. Adding some allowances for the dregs of the reservoir, a total volume of 12 Mm3 is recommended for Saida. 14. The treatment plant should have a capacity sufficient to meet the 1990 average demand of 2.8 m3/sec. As the existing plant has an installed capacity of about 1.4 m3/sec, the new plant's nominal capacity should be 1.4 m3/sec. This plant should be able to deliver a peak flow of 1.8 m3/sec. The 1,600-mm pipeline connecting the Saida Reservoir to the treatment plant should be able to supply the maximum volume of water that can be treated at Gdir El Goulla in case of interruption of the Kasseb and Medjerdah transmission pipelines, i.e. a flow of 3.6 m3/sec. A 2,320-HP pumping station will be installed at the outlet of the Saida reservoir to provide that flow. 15. The proposed 1,250-mm pipeline between the Medjerdah pumping station and the distribution basin would deliver the 1990 maximum day flow of 2.8 m3/sec. The pumping station is sized to supply twice the 1985 average flow assuming that pumping from the Medjerdah canal might be limited to 6 months a year (prior to the completion of the Sidi Salem scheme), due to bad quality of the waters. This pumping station will have a capacity of 1,700 HP. The sizes of the pipelines between the distribution basin and Saida and the treatment plant were determined by simulating the functioning of the Gdir El Goulla complex. A new 1,250-mm pipeline will connect the new treatment plant to the junction box (NBC-5) which supplies the primary system of Greater Tunis. C. Expansion of the Distribution Systems Greater Tunis 16. The proposed expansion of the primary system is designed to meet the expected water demands up to the year The proposed system closely follows the existing layout (see Map 12716) and includes two main lines:

73 AN4NEX 11 Page 6 (i) The northern pipeline of 1,250 mm of diameter originating from the Gdir El Goulla junction basin (NBC=5) and terminating at Dar Bou Kheris in the northern coastal suburb. This conduit will assure the supply of the reservoirs of Manouba, Belvedere, l'universite, Rouad, Gamarth, Marsa Nord, Amiltcar and Carthage; and (ii) The southern pipeline of 1,400 mm connecting NBC-5 to Bir Kassa in the southern coastal suburb and supplying the reservoirs of Sidi Abdallah, Manoubia, Ilathildeville. From Bir Kassa the pipeline, whose diameter is reduced to 1,100 mm, would continue to Grombalia in North Nabeul from where water would be pumped to South Nabeul. The pipeline will supply en route the reservoirs of Hammami-Lif and Borj Cedria. 17. The proposed distribution system will be equipped with four new booster pumping stations. The first one will be located on the inlet of the Manouba reservoir and will lîft water to elevation 109. The second station will pump waters from the reservoir of l'universite to elevation 146. At Dar Bou Kheris, a third one will lift water to the reservoirs of Amilcar. Finally a fourth station at Hammam-Lif will pump water to elevation No immediate increase in service storage is envisaged. Total storage now available in Greater Tunis amounts to 160,100 m3 representing 72% of the average day consumption in 1980 and 56% in These percentages are considered adequate. Construction of additional storage tanks should start only after The proposed expansion of the secondary distribution system is designed to allow for a minimum residual pressure of 35 psig at the farthest end of the system. After completion, the improved system will include 17 networks defined as follows: (i) the lower Tunis section which is today functioning well and for which no major changes are proposed; (ii) the higher Tunis whose service storage would have to be increased after 1981 because of possible urban expansion in the Gdir El Goulla area; (iii) the northern suburb which would be served by four networks covering the areas located respectively at elevations 63, 72, 109 and 146; (iv) the northern coast which would be supplied by the networks of Rouad, Gamarth, Amilcar, Sidi Bou Said, lower Carthage and elevation 55 North; and

74 ANNEX 11 Page 7 (v) the southern suburb which would be served by four networks covering the areas located respectively at elevations 50, 72, 81 and 100. A fifth one would serve the region of Hammam-Lif along elevation 50. Other Areas 20. The distribution systems in other areas involved in the project will be substantially improved. In particular the distribution networks of the cities of Beja, Medjez-El-Bab, Pont du Fahs, and in South Nabeul will be expanded. Both the primary systems and service storage will be provided with the capacity sufficient to meet the 1990 demand. The secondary systems will be expanded progressively as new urban areas are developed. All the secondary distribution systems will be designed to provide a minimum residual pressure of 20 psig at the farthest end of the systems. Service storage in all the cities would amount to about 50% of the average day's consumption. D. Estimated Costs 21. The total cost of the project is estimated at D 43.7 million of which D 21.2 million would be for production facilities and D 22.5 million for distribution facilities. Total foreign exchange expenses would amount to D 20.5 million or 47% of the total expenditures. The cost estimates are based on quantity take-offs from advanced preliminary designs and are detailed in Annex 13. The unit prices used are those in effect in December 1976 and are broken down into local and foreign expenditures. To take into account possible variations in the estimated volumes of works and in their nature, the original quantities are increased by 15%. Final engineering design and construction supervision are estimated at 8% of the original costs. 22. Table 11-2 gives the annual inflation rates together with the factors that are used to estimate probable future price increases in the construction costs. In projecting these rates, it is assumed that the present trend in price escalation would continue during project execution. The rate of exchange of the Tunisian Dinar to the US dollar is assumed to remain unchanged in spite of the projected disparity between the assumed domestic and foreign rates of increase in construction prices. Such a disparity is expected to be limited to the construction industry area.

75 ANNEX 11 Page 8 Table 11-2: Price Escalation Factors IL Local Foreign Combined Year % Factor % Factor % Factor /1 Assuming that overall local expenditures would amount to 53% of the total costs and foreign expenditures to 47%. 23. A summary of the cost estimates is shown in Table As stated before, the foreign exchange cost (US$21.0 million) of the production facilities would be financed by the Bank, while the foreign exchange cost (US$23.4 million) of the distribution facilities in Greater Tunis would be financed by other external lenders. The local costs (US$50.4 million) of the production facilities and distribution networks in Greater Tunis, and the total costs (US$8.2 million) of the distribution systems in other areas would be financed by SONEDE and the Governnent.

76 ANNEX 11 Page 9 Table 11-3: Summary of Project Costs (D. Thousands) Production Distribution Item Local Foreign Total Local Foreign Total Total Original Cost 6,420 5,652 12,072 5,174 7, Physical Contingencies , ,176 1,952 Studies, Engineering Design & Construction Supervision , Total Cost at Constant 1976 Prices 8,098 6,992 15,090 6,782 9,153 15,935 Price Escalation 4,207 1,933 6,140 4,103 2,470 6,573 Total Cost at Current Prices 12,305 8,925 21,230 10,885 11,623 22,508 E. Project Execution 24. The project will be executed in the years 1977 through The final design of the production facilities will be carried out in 1977; the design of the distribution facilities will also be revised in that year. At the same time, tender documents will be prepared for both components. The first contracts are expected to be awarded in early 1978, so that construction can start by mid Construction of all the works should be completed by 1981, and start-up and final disbursements should take place during the first semester of Industrial production would begin by July Land and rights-of-way needed for the production facilities should be acquired in 1977; those needed for the distribution facilities can be purchased in 1978 after the distribution works have been identified in more detail. Design and bidding documents will be prepared by engineering consultants, but construction supervision will be carried out by SONEDE's staff with the assistance of consultants. 26. It is proposed that construction of the production facilities be carried out through 10 contracts as follows: Contract No. 1: Contract No. 2: Contract No. 3: for constructing the Saida dam and related structures; supply of pipes of diameter larger than 800 mm; supply of pipes of diameter less than 800 mm;

77 ANNEX 11 Page 10 Contract No. 4: Contract No. 5: Contract No. 6: Contract No. 7: Contract No. 8: Contract No. 9: Contract No. 10: civil works construction of the Medjerdah pumping station including installation of pump units and piping header; civil works construction of the Saida pumping station including installation of pump units and piping header; supply of pumps and motor drives including motor control equipment; supply of valves, pipe fittings and miscellaneous equipment; construction of outside pipelines, including pipe connections to the reservoirs and NBC-5, and junction and distribution basins; turnkey construction of the Gdir El Goulla treatment plant module; and supply and installation of instrumentation system. 27. It is also suggested that Il contracts be placed for the execution of the distribution facilities in Greater Tunis, as follows: Contract No. 1: Contract No. 2: Contract No. 3: Contract No. 4: Contract No. 5: Contract No. 6: Contract No. 7: Contract No. 8: Contract No. 9: Contract No. 10: Contract No. 11: supply of pipes of diameter larger than 800 mm; supply of pipes of diameter less than 800 mm; supply of valves, pipe fittings and miscellaneous equipment; supply of pumps and motors including electrical control; civil works construction of pumping stations including installation of pump units and inside piping; construction of the northern pipeline; construction of the southern pipeline; installation of distribution pipes; installation of distribution pipes; installation of distribution pipes; and supply and installation of instrumentation system.

78 ANNEX 11 Page Though construction of the Gdir El Goulla treatment plant will be carried out through a turnkey contract, engineering consultants will first prepare a precise layout of the plant together with specifications and basic requirements of the selected treatment process. Bidders will be allowed to submit alternative designs which will be evaluated by the consultants. In the other areas of the project, contracts for supply and installation of distribution pipes will be combined to make them attractive. Contracts for civil works construction of the reservoirs will be placed separately. 29. Contracts for supply of pipes would amount to about US$26 million accounting for 26% of the total costs. This supply would be the single most important item of the project. However, there is presently only one local concrete pipe manufacturer. It would appear desirable that SONEDE and the Government try to stimulate interest in the establishment of more pipe manufactures, so that local competition and consequently lower prices can be secured. Procurement is expected to be completed by mid Table 11-4 shows the projected annual investments for various types of expenditures. They are expressed in current prices and already include all contingencies. Most of the investments in production facilities would be made in civ-il works construction, which would amount to about 61% of the total expenditures. Foreign expenditures, which would represent 16% of the total costs, would principally cover the purchase of equipment for the treatment plant and pumping stations. Most of the pipes would be procured locally. For the distribution works about 49% of the total expenditures would be for the purchase of locally manufactured pipes. It is anticipated that pipes of diameter less than 600 mm would be imported.

79 ANNEX 11 Page 12 Table 11-4: Annual Prolect Investments (D Thousands) Year Type of Expenditures Total % A. Production Facilities Foreign , , Local , Civil Works - 1,571 3,469 4,029 3,901 12, Studies, Engineering Design and Construction Supervision , Land Acquisition B. Distribution Facilities in Greater Tunis Total 1,157 2,707 5,184 5,992 6,190 21, Foreign , Local - 1,472 2,269 2,766 2,757 9, Civil Works ,418 1,755 1,855 5, Engineering / , Land Acquisition Total - 3,095 4,565 5,561 5,805 19,

80 ANNEX 11 Page 13 Table 11-5: Allocation of the Loan Proceeds (D Thousands) Year /1 Type of Expenditures Total % A. Bank Loan Foreign , , Civil Works 605 1,337 1,552 1,503 4, Foreign Cost of- Consultants Total 1,381 2,381 2,633 2,530 8, B. Other External Loans Foreign , Local 662 1,021 1,245 1,241 4, Civil Works , Foreign Cost of Consultants Total 1,649 2,292 2,895 3,092 9, /1 Represent the percentages of the total expenditures financed under the loans. 31. Proposed allocation of the proceeds of the loans from the Bank and other foreign lenders is shown in Table All foreign expenditures for the production facilities and distribution facilities in Greater Tunis would be financed 100% with the loan proceeds. In addition, 39% of the civil works costs for the production facilities would be financed under the proposed Bank loan. It is further suggested that the loans from other external lenders cover 45% of the local purchases and of the civil works costs of the distribution facilities in Greater Tunis. The distribution works in other areas of the project would be financed by SONEDE and the Government. May 9, 1977

81 TUNISIA NORTHERN TUNISIA WATER SUPPLY PROJECT ANNEX 12. FORECAST OF WATER DEMAND IN PROJECT AREA 250 _ 225 Total Demand with South Nabeul Partly Supplied from Tunis from 1985 Onwards 200 Total Water 175 Production at -- Gdir El Goulla Project's First 150 Stage CapacimE o 125 o- II, Pumpung from 100 Medierdah - Canal I t \ I I Volumes Drawn / l / from Medjerdah/ Production I i Cap Bon Canal Capacity Available I ' _/ /_ II Total Demand with South Nabeul Fully Supplied I I from Tunis 50 until 1985 i 25 I i l l Flows of Oued El Lil System at Gdir El Goulla I " i o _ r_, l I May 1977 Years World Bank-16982

82 TUNISIA NORTHERN TUNISIA WATER SUPPLY PROJECT PRODUCTION FACILITIES COST ESTIMATES (D Thousands) Type of Procurement Type of Expenditures Line Item Equipment Civil Works Total Local Foreign Total 1 Land Acquisition Saida Reservoir 42 4,278 4,320 2,075 2,245 4,320 3 Kasseb/Saida Connection Saida/Plant Connection a) Pumping Station , ,008 b) Pipeline - 1,068 1, ,068 5 Treatment Plant 1,605 1,795 3,400 1,705 1,695 3,400 6 Canal/Saida/G.E.G. Connection a) Intake b) Pumping Station c) 1,250-mm Pipe d) 1,100-mm Pipe e) 800/600-mm Pipe f) Connection to G.E.G Plant/NBC-5 Connection Instrumentation SUB-TOTAL 2,750 9,322 12,072 6,420 5,652 12, Physical Contingencies 413 1,398 1, ,811 il Studies, Engineering Design and Construction Supervision , Total Cost at Constant 1976 Prices 3,438 11,652 15,090 8,098 6,992 15, Price Escalation 1J198 4,942 6, , Total Cost in Current Prices 4_ Total Cost in US$ -10,.908 _ , Total Cost in % / Based on a constant rate of exchange of US$1 = D May 1977 o w

83 TUNISIA NORTHERN TUNISIA WATER SUPPLY PROJECT DISTRIBUTION FACILITIES COST ESTIMATES (D Thousands) Type of Procurement Type of Expenditures Line Item Equipment Civil Works Total Local Foreign Total A. GREATER TUNIS 1 Primary System a) North Pipeline - 3,755 3,755 1,502 2,253 3,755 b) South Pipeline - 4,180 4,180 1,672 2,508 4,180 2 Secondary System a) Tunis City b) South Suburb , ,190 c) North Suburb Pumping Stations Miscellaneous Valves 42 il Instrumentation Land Acquisition SUB-TOTAL 1,284 9,777 11,061 4,320 6,741 11,061 8 Physical Contingencies 193 1,466 1, ,011 1,659 9 Construction Supervision Total Cost at Constant 1976 Prices 1,567 11,927 13,494 5,664 7,830 13,494 il Price Escalation , , TOTAL COST AT CURRENT PRICES 1,985 17, L TOTAL COST IN US$ 4_ TOTAL COST IN 7% B. OTHER AREAS 15 Primary System , , Secondary System Reservoirs Miscellaneous Land Acquisition SUB-TOTAL 651 1,302 1, ,099 1, Physical Contingency Construction Supervision TOTAL COST AT 1976 PRICES 814, 2, Price Escalation , , Total Cost at Current Prices 1,026 2,456 3,482 1,787 1,695 3, Total Cost in US$ V/ 2,414 5,779 8,193 4,205 3,988 8, Total Cost in % / Based on a constant exchange rate of US$1 = D May 1977

84 TUN IS IA NORTIEBN TUNISIA WATER SUPPLY PROJECT PRODUCTION FACILITIES A1O4UAL PROJECT INVESTMENTS (D Thousands) TOTAL Line Item Local Foreign Local Foreign Local Poreain Local Foreign l Foreîn Local Foreign 1 Land Acquisition Saida Reservoir ,075 2,245 3 Yasseb/Saida Connection Saida/Plant Connection a) Puaping Station b) Pipeline Treatment Plant ,705 1,695 6 Canal/SaidajG.E.G. Connection a) Intake b) Puaping Station c) 1,250-mm Pipe d) 1,100-uns Pipe e) 800/600-u- Pipe ai f) Connection to Gdir El Goulla Plant/NWC-5 Connection Instrumentation SUB-TOTAL ,648 1,584 1,677 1,671 1,541 1,591 6,420 5, Physical Contingencies , il Studies, Engineering Design and Construction Supervision Total Cost at Constant 1976 Prices ,118 1,168 2,060 1,842 2,118 1,922 1,950 1,829 8,098 6, Price Escalation , , , TOTAL COST (Current Prices) ,929 2, I 15 TOTAL COST IN US$ (Current Prices V/ _18 6_ z6.05 Q 9 a / Based on a constant rate of exchange of US$1 = D M%y 1977

85 TUNISIA NORTHERN TUNISIA WATER SUPPLY PROJECT DISTRIBUTION FACILITIES ANNUAL PROJECT INVESTMENTS (D Thousands) TOTAL Line Item Local Foreign local Foreign Local Foreign Local FareiRn Local Yoreign A. GREATER TUNIS 1 Primary System a) North Pipeline ,502 2,253 b) South Pipeline ,672 2,508 2 Secondary System ,793 3 Pumping Stations Miscellaneous Valves Instrumentation Land Acquisition _ SUB-TOTAL 485 1,629 1,193 1,626 1,121 2,085 1,521 1,401 4,320 6,741 8 Physical Contingencies ,011 9 Construction Supervision Total Cost at Constant 1976 Prices 652 1,934 1,548 1,875 1,508 2,405 1,956 1,616 5,664 7,830 il Price Escalation , TOTAL COST AT CURRENT PRICES U , TOTAL COST IN US$ 1, OTHER AREAS 15 Primary System Secondary System Reservoirs Miscellaneous Land Acquisition SUB-TOTAL , Physical Contingencies Construction Supervision _ TOTAL COST AT 1976 PRICES Price Escalation TOTAL COST AT CURRENT PRICES zl 26 TOTAL COST IN US$ , / Based on a constant exchange rate of US$1 = D May 1977

86 ANNEX 15 TUNISIA NORTHERN TUNISIA WATER SUPPLY PROJECT ESTIMATED SCHEDULE OF DISBURSEMENTS (US$ Thousands) Bank Loan l/ Other Loan 2/ Government Equity3/ Bank Fiscal Year Cumulative 4/ % of 5/ Cumulative 4 Z of 5 Cumulative 4/% of and Quarter Disbursement- Total- Disbursement- Total- Disbursement- Total rd Quarter , th Quarter , lst Quarter 1, , , nd Quarter 2, , , rd Quarter 2, , , th Quarter 3, , , lst Quarter 5, , , Znd Quarter 7, , , rd Quarter 8, , , th Quarter 9, , , lst Quarter 11, , , nd Quarter 12, , , rd Quarter 14, , , th Quarter 16, , lst Quarter 17, , nd Quarter 18, , rd Quarter 19, , th Quarter 21, , / Would finance 42.0% of the total cost of the production facilities. 2/ Would finance 52.2% of the total cost of the distribution facilities in Greater Tunis.,' %,r'1 ixld cover 20.0% of the expenditures for the production facilities and distribution ks in Greater Tunis, and 50.0% of the distribution works in other project areas. Y fhe figures shown represent accumulated disbursements expected at the end of the consecutive quarters. 5/ Represent percentages of the loans or equity disbursed at the end of the quarters. January 25, 197

87 n. TUNISIA NORTHERN TUNISIA WATER SUPPLY PROJECT PERT NETWORK FOR CONSTRUCTION OF THE PRODUCTION FACILITIES c,, r,y - c M _ =~~~~~~~6 casou dta n B, 0$ =na 75t PrePDrOtlO Q}. n re r \ S Aa/ ' \_ 4 Wek k 05Web -(l=6 io0t~~~~~~~~~~~~~~~~~~~~~~ar 107 sa=10ts eut 16 PLrnc, Ac Desorn ysn Ganstruction 71co_y OF Maty 1977 World BanE-17t3?

88 TUNISIA NORTHERN TUNISIA WVATER SUPPLY PRQJEGT BAR CHART FOR DESIGN, BIDDING AND CONSTRUCTION ANEX 17 J 79?? 1979 >~~~~~~~~~~~~1979 I I PRODUCTION FACILITIESI > Lard Acus n do R.ghts cf Wacy---- l Bidd.ng of Saidta RSero Cv Stoiddiq o t Marda,~ Statro W C W i ---- M,adjind h Medtj-ea Star on F Tercer ccamceîsfo- Pip- S>ppio, j i Bddi-r cf Pue~ Suppfy Biraran> o Pîp,, fn~israîraî r - a B» 3ai Pipci, Lne ~ g i r Bon GrfrrE Guua ~Pipefrcc,~Laor n Biddicgc> P an-i Dura te Derigo far F cr F Par' ci Te Atmcr -4~ ~... Star> ni--- Part--- u.a f - -F St'lP S~t- - f i- Il DISTRIBUTIiON FACILITiESF a. F ai Pro eut De,srg b Brecf,g cf Prrerarn Pipe> SuPppp S ifîdcn> ci Ppe -frc yiiatrnr c rrtaiddr, cf Pripmat. Ma p Munafatae,ng c Aeccncupi' Pie I. Bidric ch Pump, ard Vaîcrr ---- u---y r-- k Biddir,> cistatiors CirjI %a,k, t t- E>uipm-n Fabri.arr- a-n DFie, ~> Cnercrrricr cf r--ar t.. LnctruAonr,uti.un I?1-1 ue r- Mav 1977 W-rrc Barrr-tJt7129

89 TUNISIA NORTHERN TUNISIA WATER SUPPLY PROJECT SONEDE - INCOME STATEMENTS - ACTUALI/ ( ) AND PROJECTED ( ) Fiscal Year Ending December Water Produced (Million m ) Water Purchased after 1981 (Million m Less: Unaccounted-for Wster (M) Water Sold (Million me 3 ) No. of Connections at Year End (Thousand) Average Rate (Millimes/m 3) Operatine Revenues D Million Water Sales New Connection Charges Other Fees and Charges Water Sales Tax Other Income (losses) Net (.01) Lesa: Bad Debt Provision Total Revenues 6, , OperatinR Expenses Personnel Energy and Fuel.42.5; i Chemicals Materials Maintenance Water Sales Tax and Other Taxes General and Administrative Expenses Water Purchases Less: C pitalized Expenses/ (.80) (1.98) (2.47) (3.95) (4.60) (4.90) (5.12) (5.42) (5.63) (6.04) (6.37) (6.72) Sub-Total Depreciation Total Operating Expenses Net OperatinR Incoae , Interest , Net Operating Income Before Taxes Income Taxes Paid Income Taxes Deferred _ Net Income Operating Ratio (%) Raturn on Average Net Fixed Assets / 1976 results preliminary. 2/ Cost of Extensions carried out by force account. May 1977

90 TDNIS7A AMNE 19 NDRTHEU TUNISI4 IiATU SUPPLY PROJECT SONEDE - CASH FIOW - ACMtli/ ( ) AND PROJECTED ( ) Fiscal Year Ending Decodber Internal Sources of Fund DMillion Operating Incom Before Depreciation (1) Operational Requiramenta Thore... (Dec.r.a) in Working Capital other than Cash (1.28) (.67) (1.29) (.14) Interest Charged to Operations: IBRD/IDA (lot - 3rd Project) Svedish 1.12 Credita 1.05 (lot & 2nd Projecta).01, Propos.d.06 Bank loan Other.57 Existing loans Other.09 Ioan for.08 Project Other Loans,.59 Proposed -_ Total Interest Amortisation of Loans: IBRD/IDA (lot - 3rd Project) Svedish.82 Credits.86 (lot & 2nd Projects) Proposed Banko Ian Other Existing boans Other.29 Loan for Project Other boas,. Proposed _Z _ - _ Total Amorti.ation Total Debt Service & J Net Increase in Deferred Inote Tases Total Operational Requirassnte (2) (.42) (4.12) _. i Balance of Internal Funds Available for Investment (3) Capital lnvestrents: 1st Project nd Project rd Projiet Proposed Project Tourism 1.10 Project Future Projects Renes.als 9.90 and Other Projects , , S.b-Total Increane (Decrease) i Investments and Long-Term Advances (.35) (.71) (.60) (.493 (.35) Total Capital lnvestaeet (4) Balance to bh Financed Financed by Borrowing: Prior IBRD/IDA Prior Swedish Lending Proposed Bank a.n Other loans, Existing Other Loan for Project Other oans, Proposed Total Lending Sd a Govervment Contributions Customer Contributions Total Funding ,51 Cash Increase (Decrease) for Year (1.54) ,20 (.05) Cash at Begining of Year Caeh at bond of Year Debt Service Coverage (Times) InLernai Financing of Capital 2/vetmt! (7» do as X 65 of Net Fixed Assete Plus Work in Progreas (Annual Average) / 1976 results preliminary. 2/ Line (3) as a percentage of line (4). May 1977

91 TUNISIA NDRTHERN TUNISIA WATER SUPPLY PROJECT SONEDE - BALANCE SHEETS - ACTUAL1 ( ) AND PROJECTED ( ) Fiscal Year Ending December Assets DMillion Fixed Assets Lens Depreciation , Net Fixed Assets Work in Progress _4, Total Fixed Assets Accounts Receivable Long-Term and Investments Sub-Total Stocks Accounts Receivable Cash and Equivalent Total Current Assets Total Assets , Equ4t, and Liabilities Govertuent Contributions Customer Contributions Earned Surplus IA, Total Equity Long-Term Debt: Previous IBRD/IDA Lending Swediah Creditg Proposed IBRD Loan Other Existing Loans Other Project Loe=s Proposed Other Loans, tnvisaged Total Long-Term Debt Deferred Income Tax Customer Deposits Accounts Payable Current Maturities of Long-Term Debt Total Current Liabilities , Total Equity and Liabilities Debt Equity Ratio 31:69 31:69 29:71 31:69 27:73 25:75 24:76 26:74 28:72 26:74 24:76 21:79 Total may not agree due to rounding. / 1976 resulte preliminary. o may 1977

92 ANNEX 21 Page 1 TUNISIA NORTHERN TUNISIA WATER SUPPLY PROJECT ASSUMPTIONS FOR FINANCIAL PROJECTIONS Projections of Water Sales 1. Forecasts of future water sales by SONEDE are discussed in Annex 3 of this report. Future number of house connections is also evaluated in this annex. It is estimated that water sales would continue to grow at an average annual rate of 6% and that SONEDE would have to execute about 339,000 connections between 1977 and 1984 in order to keep up the predicted growth rate of sales. Revenues 2. The tariff for 1977 is assumed to be the same as for 1976 as it would generate a rate of return of 6% on net fixed assets after deducting the assets in rural villages and the cost of extensions for low income customers in urban areas (Loan 989-TUN). From 1978 onwards, the average tariff is assumed to increase gradually in compliance with the modified rate of return covenant, which calls for at least 7.5% on average net fixed assets in operation after deducting customers' contributions and the assets in rural villages with less than 2,000 inhabitants. The steep increase in 1983 results from the liability of income taxes from that year on. The forecast average rates are as follows: Year Average Tariffs in Millimes/m Income Statement 3. The following summarizes the assumptions for items appearing in the Income Statement Projections other than Water Sales: (i) Other Fees and Charges. Included hereunder are the meter rental and the maintenance charge levied on all connections. The average fee of D 4.02 includes D 2.49 for meter rental, D 1.24 for maintenance, and D 0.29 for the 6.15% service tax. The fee is calculated on the mid year average number of connections. (ii) New Connections. Connections are the property of the customers. They are installed by SONEDE and their cost billed to the customers. The 1976 average cost of a connection is based on available data for materials used and time of manpower needed. The cost is increased annually for price escalation of the various components.

93 ANNEX 21 Page 2 (iii) Water Sales Tax. All water sales are subject to a 4.3% sales tax which is included both as a revenue and an expense. (iv) Other Income. Includes miscellaneous income such as late charges and interest on credits for financing private house connections. Operating Expenses 4. (a) Personnel. Personnel expenses are projected to increase annually by 7%. In addition, it is assumed that on average 30 more workmen would be hired every year. (b) Energy and Fuel. Vehicle fuel is projected to increase in quantity by 3% a year, and power consumption for pumping, by 6.3% a year over 1976 levels. All unit prices are forecast to increase annually by 5%. (c) Chemicals. Based on the evolution of production, the amounts of chemicals used are projected to increase annually at 6%, and subject to an additional annual increase of 5% in the unit prices. (d) Materials. Quantities are based on the estimated number of new connections and lengths of main extensions. The average cost of materials for a house connection is calculated to be D 43.6 and that for an extension at D 3.84 a meter. These unit costs are projected to increase annually by 5%. (e) Maintenance. Provision for routine maintenance (excluding replacement) is estimated to average at about 0.2% of fixed assets. (f) Taxes. Calculated in detail according to nature: Tax of 4.3% is levied on all water sales and 6.15% on services rendered. (g) Water Purchased. Bulk purchases of raw water will become necessary from 1982 onward at prices shown below: Year Water Purchased in 10 6 m Millimes/m (h) General and Administrative Expenses. Assumed to increase annually by about 1.5% and to be subject to a price escalation of varying rates up to 6.5%.

94 ANNEX 21 Page 3 (i) Expenses Transferred to Assets. This represents the cost of extensions (material, labor, overhead and tax) included in the foregoing items and constructed by SONEDE. (j) Depreciation. Depreciation is calculated at straight-line rates based on estimated service lives of major assets components. An annual average rate of 2.8% is used. (k) Income Taxes. Existing legislation provides the possibility for SONEDE to obtain extension of the tax holiday till From 1983 SONEDE's net income would be liable to a 46% income tax. However, only two-thirds of the tax liability must be paid to the Governnent when due. The remaining one-third can be paid in equal installments over a period of 40 years. The impact of this tax liability is reflected in the income statement, cash flow statement and the balance sheet. A substantial tariff increase is required in Cash Flow Statements and Balance Sheets Government Contributions 5. Government contributions include two components: (i) the contribution towards financing the remainder of the Fourth Plan including the Sfax Project (Third Water Supply Project); and (ii) the contribution for financing the investment program under the Fifth Plan. Customers' Contributions 6. Customers (homeowners, industries and tourism facilities) contribute to SONEDE's investment program in two ways: a fixed fee of D 1.5 per meter frontage of up to 100 m, and the payment of actual costs of all extensions required beyond the first 100 m. While the first is projected on the average frontage fee to be paid by each new customer, the second is arrived at by past averages on diameter, length and labor, adjusted for inflationary increases. Long-Term Accounts Receivable 7. Charges for new connections, provided they are incurred for single residences occupied by their owners, can be financed over a period of five years with interest charged at commercial rates on the outstanding balances. Data on record were used to determine the part of new connections that would be eligible for this financing. Accounts Payable 8. Accounts payable are variously projected as shown below:

95 ANNEX 21 Page 4 Stocks (i) Suppliers: from 3 months' capital expenditures in 1977 down to 1 month's from 1979 onward, one and half month's of operating expenses (except personnel, taxes and depreciation). (ii) Retention Money: 10% of work in progress at years end. (iii) Customers' Deposits: increasing at D 5.0 per new customer in 1977, thereafter adjusted for rate increases. (iv) Miscellaneous: increasing at varying rates up to 6%. 9. Stocks are assumed to be at 8 months' value of supplies of materials, chemicals and fuels, and then to decrease to 5 months' by 1980 and thereafter. Accounts Receivable 10. Private customers' arrears are assumed to be at 1-1/2 months' of sales increasing temporarily to 2-1/2 months' of sales by 1983, due to the projected large tariff increase. Arrears from public authorities are assumed to decline to 3-1/2 months' of sales by 1980, and to increase temporarily to 4-1/2 months' of sales by Other receivables are projected to be in the same range. Bad debt provision is maintained at 10% of arrears from water sales and 5% of other receivables. Other Loan for Proiect 11. This loan is assumed to be repaid over 16 years after a 4-year grace period, and to carry an interest of 7% per annum. Other Proposed Loans 12. These loans cover the proceeds from bilateral lenders, onlent by the Government to SONEDE, and are assumed to carry an interest of 6% per annum and to be repaid over 15 years after a 5-year grace period. May 9, 1977

96 ANNEX 22 Million Dinar 50 TUNISIA NORTHERN TUNISIA WATER SUPPLY PROJECT CASH FLOW CHART L < 4 ~~~~~~~INVES TMENTS i / X ' ~~~CONTORIBEUTIONS i X RVNU we 5 r NON-CASH WORKING CAPITAL 1A CHAN GES, DE BT SE RVIC E CASH OPER ATING EXPENSES O 1 l l ; l Lrl Years May 1977 Worid Bank-17145

97 TUNISI-A NORTHERN TUNISIA WATER SUPPLY PROJECT MONITORING INDICATORS Year Indicators STAFFING Number of Permanent Employees 2,500 2,600 2,700 2,750 2,780 2,810 2,840 2,870 Employees per 1,000 Population Served Employees per 1,000 Customers SYSTEM OPERATIONS Water Produced, 106 m 3 /year Water Sold, 106 m 3 /year Water Purchased Unaccounted for Water, % Number of Connections, FINANCES 1/ Rate of Return, % Operating Ratio, % 2/ Debt Equity Ratio 3/ 27:73 25:75 24:76 26:74 28:72 26:74 24:76 21:79 Cash Generation I % Cash Generation II % Debt Service Coverage Ave. Revenue in D per 106 m 3 produced Operating Expenses in D per 106 m 3 Sold Revenue in D per Unit of Investment 5/ Operating Effectiveness Index 6/ Average Rate in D per m 3 Sold / Income after taxes but before interest divided by average rate base x / Total operating expenses divided by total revenues x / Net cash generation as % of capital investments in the year. 4/ Net annual average cash generation as % of net fixed assets plus works in progress. 5/ Total revenues divided by net fixed assets plus works in progress. 6/ Revenue collected per m 3 produced divided by average revenue billed per m 3. February 27, 1977

98 ANNEX 24 Page 1 TUNISIA NORTHERN TUNISIA WATER SUPPLY PROJECT ECONOMIC ANALYSIS Long-Term Cost Recovery 1. Calculations of the long-term economic recovery of the proposed investments are shown in Table 24-1 of this annex. Net incremental revenues are the income earned from water sales, connection fees and customers' contributions, after deducting incremental operating expenses due to the project. Capital costs are those of the proposed works and the subsequent investments needed to fully utilize the project facilities in the next 50 years. All costs are taken net of tax and inflation, but include physical contingencies. 2. The following assumptions are made in calculating the long-term economic cost recovery of the project: (1) the average life of the major assets (dam, structures of the pumping stations, pipelines) is 50 years. Provision is made for replacement of equipment such as pumps and motor drives which are expected to last 15 years on average; (ii) since the demand requirements would exceed the available supply 93.5 Mm3 by mid-1979, all sales in excess of this volume are credited to the project; (iii) all values in the cost and revenue streams are expressed in terms of the 1976 price levels. The additional quantities of water sold are valued at the present average tariff of D increased by the 4.3% sales tax; (iv) only the incremental operating costs are charged to the project. When the investments aim at improving the services of existing customers, these are not charged to the project; and (v) raw water purchased in excess of Mm3 (the volume actually available to SONEDE) from OMVVM is charged at D 0.030/m3.

99 Table 24-l Calculation of Cost Recovery-/ Gross Raw Operating 2/ Water Sold Revenues 2/ Connection Total 2/ Capital Water Maintenam Total- Net 2/ Year Mm 3 From Sales- Fees 2/ Revenues- Costs2/ Purchase Costs - Costs Revenues , ,083 (1,083) ,945-4,945 (4,945) , ,450 (6,932) , ,201 (7,217) , ,395 7, ,746 (6,351) , , , , , ,106 1, , , ,315 1, , ,028 1, , , ,406 1, , , , ,348 1, , , ,649 2, , ,584-1, ,868 2, , , , ,935 2, , ,444 1,200 1, ,558 1, , ,916 1,500 1,599 1,029 4,128 1, , ,390 1,600 1,776 1,122 4,498 1, , ,892 1,700 1,954 1,214 4,868 2, , ,394-2,130 1,307 3,437 3, , ,897-2,308 1,399 3,707 4, , ,614-2,561 1,531 4,092 5, , ,329-2,814 1,662 4,476 4, , ,049-3,067 1,795 4,862 5, ,476-10,476-3,321 1,927 5,248 5,228 1/ Internal Economic Rate of Return 8.55%. Id 2/ Revenues and Costs are expressed in D Thousands. X t >

100 ANNEX 24 Page 3 3. The internal economic rate of return on the proposed investments is 8.55%. The calculated return is based on the prices that customers actually pay for their supplies, which are used as a surrogate to value the benefits that these customers receive from the piped water supply systems. These prices, however, do not reflect intangible benefits such as improvement in productivity due to better environment and public health, increased property values, which, were it possible to quantify them in monetary terms, would have substantially boosted the benefits and therefore the economic rate of return. Average Incremental Costs 4. Table 24-2 gives the long run average incremental costs of water supply in the project area, calculated at discount rates varying from 2% to 14%. At interest rates of 2% to 8%, the average tariff is higher than the long-run average incremental costs by D to D From 9% to 14% the average tariff is only between D and D below the average incremental costs. At the discount rate of 10% which is considered the relevant value of the opportunity cost of capital in Tunisia, the tariff is only D lower than the long-run average incremental cost. This demonstrates that the proposed allocation of capital expenditures is justified, besides the social necessity for the project. Table 24-2: Long-Run Average Incremental Costs /1 /2 Discount Present Value Cost per Tariff Deviation Rate % Water Sold Mm3 Total Costs Millime/m3 Millime/m3 Millime/m , , ,453 92, , , , , (3) , (10) , (17) , (26) , (44) /1 Computed for 50 years. /2 Expresses the difference between the incremental cost and the actual tariff. 5. Under the present tariff structure, low income families receive the minimum needed volume of water at less than the average cost, while large consumers are charged more than the average cost in order to encourage rational usage of scarce water resources. The structure takes also into account the high cost of meeting peak demand of tourism and industrial installations for which higher tariffs are charged. These higher charges to hotels and industries, however, represent marginal increases to their overall costs.

101 ANNEX 24 Page 4 Sensitivity Analysis 6. A sensitivity analysis of the cost recovery shows that the return on the proposed investments is significantly sensitive to the levels of water sales. Moderate increases in capital investments would not significantly affect the expected return. As shown in Table 24-3, for each 5% decrease in water sales, the return would decrease by about 0.9%; for each 5% increase in the capital costs, the return would decrease by about 0.6%. Variations in the operating and maintenance costs are not considered, since any increase in these costs should be offset by a proportional increase in the tariffs. Table 24-3: Sensitivity Analysis of the Return /1 Stream % of Change in Total Costs Net Income /1 The figures give the resulting rates of return if the percentages of change shown occur on either the stream of costs or revenues. 7. Under the most pessimistic conditions in which the investments would increase by 20% and water sales would fall by 20%, the return would be about 4%, which is still acceptable considering the social character of the project. It is more probable, however, that water sales would be greater than projected. The water supply projections take into account the possible effects of expected tariff increases on consumption, and are based on a realistic number of new connections that SONEDE can execute annually. May 9, 1977

102

103 TUNISIA NORTHERN TUNISIA WATER SUPPLY PROJECrf Project Location -. kes -- MEDJPFPAbîF. IBRD FEBRUARY 1977 'Mvdrs Main Roads~~~~~~~~~~~~~ahi ~~ International 4irports~El 5e,~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Dj s'~~~~~~~~s.ched> oîcts (a vt.»b l ar er 2' L\ke W$ld kp D International Aounportes Ports KiIOMETORS

104

105 ) ALGERIA ALGERIA >j?0;g. _ / - r: G.. i J1.. g.. $0. -? t 0 00 t -0 X: i o / 5 gx 30 * 3 ; 0 < f 0 00 $.0 3 f ~WI', 3 :=:===. AW_r' ih _p/ = 5 = t '

106

107 IBRD FEaRUARY 1977 TUNISIA Northern Tunisia Water Supply Project GDIR EL GOULlA PRODUCTION COMPLEX PROJECT EXISTING Conails r V '^ i) Pipelines r,3 Reservo,rs llli M Basins - Rods 125 Contours in meters O 2 _, 6 8 IC Jptpsnin K! LOMETES O E 10 MIL ES ~~~~~~~~~2S ~ ~ ~ ~ ~ ~ ~ ~~~~2 S * DA.`AM,'* r 0 < /; \ = -sqn 36 lo.ver' J,~~~~* ~ B sin ~~ `3 - ; g X - r S a w~~~~~~~~~~~~~~~~~l~1 el GO;LL:A \ I ~ '7~ ~~~~~y0-l Y rdrnp.-s*lji;:i:l\é~~~ 1S0n /0A0 -fntf f 5,,i75 R~~~~~~~~~~~~~~~~~~~~~~~~~~~~SPV~~~~~~~~~~~F3. SA~~~~ DAsJ, 9~ i< 1- j / B g-/ ``,,,-,` SX ` 7 3

108

109 TUNISIA NORTHERN TUNISIAWATER SUPPLY PROJECT Primary Distribution System in GreaterTunis \ \ / \ - ~~~~~~~~~~~~~~ 1271b j T-s - / 'A < - --f- \ 0" «P oposed plies,dsme,ersinm,llmeters Ru lrouds Rords ' \\ `` \\ Â LMARSA Ruade~~~~~~~~~~~~~~~~~~~~~~~~~~ THG 0\~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ", '~ f Iv < ;V,< jk -u< szgx \ > HR~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~,E-AHR KILOME TERS 5 < \ A CW Z3 f~--i MILE5 /_\+ S i F ^