Document of

The World Bank

FILE COPYFOR OFFICIAL USE ONLY

Report No. 5068a-AL

STAFF APPRAISAL REPORT

ALGERIA

ALGIERS REGIONAL WATER SUPPLY PROJECT

June 11, 1984

Water Supply and Sewerage DivisionEurope, Middle East and North Africa Regional Office

This document has a restricted distribution and may be used by recipients only in the performance oftheir official duties. Its contents may not otherwise be disclosed without World Bank authorization.

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CURRENCY EQUIVALENTS(As of April 2, 1984)

Currency Unit = Algerian Dinar (DA) 100 CentimesDA 1 = US$ 0.21US$1 = DA 4.80DA 1,000,000 - US$ 208,333

ABBREVIATIONS

ft = foot m = meterha hectare mm = millimeterKm = kilometer Mm3 = million of cubic metersinh = inhabitant m3/sec cubic meters per secondlcpd = liters per capita per day min minute

MEASURES AND EQUIVALENTS

Metric System U.K. System

Kilometer (km) = 0.62 mile (mi)hectare (ha) = 2.47 acres (a)Meter (m) = 3.28 feet (ft)Cubic meter (m3) 220 gallons (g)Million cubic meters/year (Mm3/year = 0.603 million gallons per day (mgd)Liter (1) = 0.220 gallon (g)Liters per second (1/sec) 19,000 gallons per day (gd)Kilogram/cm2 = 0.981 Bar

GLOSSARY OF ACRONYMS

EPEAL = Entreprise de Production, de Cestion et de Distributiond'Eau d'Alger

DGE = Direction Generale de l'ExploitationDGIH = Direction Generale des Infrastructures HydrauliquesDWH = Direction de la Wilaya d'Alger Chargee de l'HydrauliqueSEDAL = Societe des Eaux de l'Agglomeration d'AlgerSONADE = Societe Nationale de Distribution d'Eau Potable et

IndustrielleSNC Societe Nationale de Comptabilite

EPEAL's FISCAL YEAR

January 1 - December 31

FOR OFFICIAL USE ONLYALGERIA

ALGIERS REGIONAL WATER SUPPLY PROJECT

STAFF APPRAISAL REPORT

Table of Contents

Page No.

I. INTRODUCTION ............................................. 1

II. THE WATER SUPPLY AND SEWERAGE SECTOR ..................... 2

Background .......................................... 2Water Resources ............................. 3Sector Organization ................................. 4Service Levels ...................................... 5Constraints to Sector Development ................... 5Investment Program in the Sector .................... 6Previous Bank Loans in the Sector ................... 7Bank's Objectives for the Sector .................... 8

III. THE PROJECT AREA ........................................ 8

General Features .................................... 8Water Production Facilities ......................... 9Conveyance System ................................... 9Existing Distribution Network ....................... 10Existing Sewerage ................................... 10

IV. DEMAND AND MARKET ASPECTS ............................... 11

Water Consumption ................................... 11Composition of the Demand ........................... 12Population Forecast .................. 12Projected Water Consumption ......... ................ 13

V. THE PROPOSED PROJECT .................................. 13

Project Genesis and Concept .......... ............... 13Objectives of the Project ............. .............. 15Project Description ................................. 15Cost Estimates ................................... 8

This report was prepared and written by Mr. Fritz Rodriguez and Mr. Nabil Shehadeh.

This document has a restricted distribution and may be used by recipients only in the performance oftheir official duties. Its contents may not otherwise be disclosed without World Bank authorization.

Table of Contents (Continued)

Page No.

Project Execution .................................. 19Project Financing ................................... 20Reimbursement of the Government ..................... 21Procurement ......................................... 22Disbursement ........................................ 22

VI. PROJECT IMPLEMENTATION AND OPERATION ................... 23

Executing Agency ................................... 23Operation and Maintenance .......................... 24Project Accounts and Audit ......................... 25Reporting .......................................... 25

VII. THE BENEFICIARY ........................................ 26

Background ......................................... 26Past Performance ................................... 26Organization and Management ........................ 27Management Assistance .... ......................... 28Staffing ........................................... 28Current Accounting Practices ....................... 29Billing and Collection ............................. 30Audit .............................................. 31Insurance .......................................... 31

VIII. FINANCIAL ANALYSIS ...................................... 31

Past and Present Financial Position .... ............ 31Revenues ................................. 32Financial Studies .................................. 34Financing Plan ..................................... 35Future Financial Performance ....................... 36Monitoring System .................................. 36

IX. ECONOMIC ANALYSIS ...................................... 37

Objectives of the Proposed Investments .... ......... 37Least-Cost Solution ................................ 37Project Justification .............................. 38Affordability ...................................... 38Environmental Impact of the Project .... ............ 38Institution Building ............................... 38Adequacy of EPEAL's Pricing Policies .... ........... 39Risks .............................................. 39

X. AGREEMENTS TO BE REACHED AND RECOMMENDATIONS ..... ....... 39

Table of Contents (Continued)

LIST OF ANNEXES

Annex No.

1 Development of Water Resources in the Algiers-Sebaou Region2 Terms of Reference for Technical Assistance in Setting-Up a

Regulatory Agency for Water Supply and Sewerage3 Service Levels in Urban Areas in Mid-19814 Terms of Reference for Carrying Out a Survey of the Water Supply

and Sewerage Sector5 Water Consumption and Sales in Algiers Wilaya, Past and Forecast6 Population and Housing in Algiers Wilaya7 Forecast of Water Demand and Sales in Algiers Wilaya8 Isser Water Transfer to Keddara Reservoir9 Detailed Cost Estimates10 Annual Project Investments11 Bar Chart of Construction Schedule12 Allocation of the Loan Proceeds13 Estimated Schedule of Disbursements14 Organization Chart of the Ministry of Hydraulics15 EPEAL - 1984 Organization Chart16 Terms of Reference for Organization, Management and Financial

Studies17 EPEAL - Income Statements - 1983-199218 EPEAL - Table of Sources and Application of Funds - 1983-199219 EPEAL - Balance Sheets - 1983-1992

20 Assumptions for Financial Projections21 Mlonitoring Indicators22 Assumptions for Economic Evaluation of the Project23 Calculation of the Long-Run Average Incremental Cost of Water24 Distribution of Annual Expenses by Households in Greater Algiers25 Selected Documents and Data Available in the Project File

Map No.

16088 Urban Areas to be Served16089R General Layout of the Project Facilities

ALGERIA

ALGIERS REGIONAL WATER SUPPLY PROJECT

STAFF APPRAISAL REPORT

I. INTRODUCTION

1.01 Since Algeria's independence in 1962, there has been an explosion ofits urban population which has grown at an annual rate of more than 5percent. This has been particularly acute in Algiers, the nation's capitaland largest city, whose population has more than tripled since 1962 to itspresent level of 2.1 million. However, in spite of the rapid growth of thepopulation, the expansion of the cities' social infrastructure has not keptpace with the urban growth, and public services such as water supply,sewerage, transport, telecommunication, etc. are very deficient. The watersupply system of Greater Algiers has basically remained the same since theearly seventies and the city is experiencing severe water shortages. Theunsatisfied demand has now reached 46 percent of the production.

1.02 The Government is aware of this situation and has placed theimprovement of water supply to Greater Algiers among its highest priorities.Such improvement, however, would entail the transfer of water resourceslocated outside the Algiers basin and costly river regulation schemes. Itwould also require better management of the services and greater participationof consumers in raising funds needed for expanding the services. It is adifficult task for which the Government has clearly expressed its desire toreceive assistance from the Bank, whose involvement in the sector would befully justified, as adequate water supply and sewerage have becomeprerequisite to urban renewal and continued industrial growth of Algeria.

1.03 The proposed project involves the construction of an impounding damon Oued Boudouaou and another on Oued Isser, two river basins adjacent toGreater Algiers, to regulate an annual flow of 160 Mm3 for urban watersupply. Because of the present institutional weaknesses of the sector, theproject includes important software elements. A sector study would be carriedout and another study would outline the policies and functions of a nationalregulatory authority to be set up for the water supply and sewerage sector.The project further includes management assistance to the water supply and

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sewerage company in Greater Algiers to assist it in the development andimplementation of more effective policies and procedures.

1.04 The total estimated cost of the proposed works and technicalassistance is US$770.5 million, with a foreign exchange component of US$392.4million. A Bank loan of US$290.0 million to finance partly this component isproposed. The execution of some of the project components has started sinceearly 1982 and the construction of the remaining elements is programmed tobegin by mid-1985. Bids for this construction have already been received.The proposed project is technically sound and represent the least costalternative for increasing water supply to Greater Algiers. It would amountto an investment of about US$ 219 per capita, which is acceptable consideringthe obsolescence of the existing system and the need to provide at once alarge production increase.

1.05 A Bank loan (S-17AL) of US$5.0 million was made in 1980 for theproject preparation which was carried out by the Ministry of Hydraulics withthe assistance of British consultants. Formulation of a master plan fordevelopment of water resources in the Algiers/Sebaou region was also financedunder the loan. The Bank reviewed the feasibility study of the master planand actively participated in the formulation of the water supply project forGreater Algiers, which was originally appraised in June 1981. Furtherprocessing of a loan for the project, however, was stopped, awaiting theGovernment's approval of a tariff increase in Greater Algiers and moreprogress by the Algiers water company in strengthening its organization andprocedures. These issues were finally resolved and a Bank mission composed ofMessrs. Fritz Rodriguez and Nabil Shehadeh updated the project appraisal inMarch 1984.

II. THE WATER SUPPLY AND SEWERAGE SECTOR

Back round

2.01 Algeria is the largest country of North Africa and occupies an areaof about 2.3 million Km2 which is divided by the Saharan Atlas into twodistinct regions. North of the Atlas is a semi-arid area which encompasses acoastal strip along the Mediterranean, the interior plains, some highlandsnear the coast and the high plateaux located at about 200 kms from the coast.More than 95 percent of the Algerian population lives in this region. Themean annual rainfall in the northern areas varies from 300 mm to 1,000 mm,exceeding 600 mm only in the central and eastern coastal parts where therichest arable land is found. South of the Atlas is the Sahara where the meanannual rainfall is less than 100 mm, but which is rich in mineral resources.There are 17 major river basins in the country.

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2.02 Administratively, Algeria is divided into 31 provinces (wilayate) 11,160 counties (dairate) and 704 communes. The current total population isestimated at 21 million. More than half of the population live in urban areaslocated along the Mediterranean. About 40 percent of the urban population isconcentrated in the three largest metropolitan areas, Algiers, Oran andConstantine, whose annual population growth rate is estimated to be more than5 percent. Most of the rural population resides in fixed settlements whichneed to be equipped with water supply and sanitation facilities; only a smallportion of the rural population, roaming in the high plateaux, can beconsidered dispersed.

Water Resources

2.03 Water resources in Algeria are generally limited and difficult toexploit. Most of the surface water sources are dry in summer, are of poorquality and thus cannot readily be used for domestic and industrial supply.In general, regulation of the rivers through costly reservoirs is required inorder to obtain economically exploitable yields. On the other hand, the rateof infiltration from storm runoff and surface sources is high and as a result,groundwater is available all over the country and represents more thantwo-thirds of the available water resources. The salinity of a large portionof the groundwater, however, is high, restraining its use for domesticconsumption and irrigation. A majority of the cities are supplied withgroundwater.

2.04 Overall, the average yield of the existing fresh water sources withfull development of storage is estimated at 7 billion m3/year, which shouldbe sufficient to cover the water needs for urban, industrial and agriculturaluse until the early part of the next century. Beyond that time, it wouldbecome necessary to resort to reclamation of wastewaters and later on todesalination, to meet the demand. This situation already exists in somedensely populated river basins where the present demand actually exceeds theavailable resources in these basins, and for which water needs to betransferred from adjacent basins. The scarcity of water within those basinsand the need for high capital investments in water production and transmissionfacilities may constitute serious constraints to rapid industrialization inthese regions.

2.05 In the Algiers area, groundwater is now used for both urban supplyand irrigation. The present water demand in this area exceeds the potentialcapacity of the groundwater aquifer which is already over-exploited.Consequently, the groundwater level is lowering rapidly, with the possibledanger of sea water intrusion into the aquifer and the subsequent degradation

1/ Recent proposals have been made by the Government to establish 48 wilayate.

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of the water quality. To satisfy the growing demand, surface water sourcesmust be developed to complement the groundwater production. The preparationof a master plan of water resources in the Algiers-Sebaou region (see Map16089R) was financed under Loan S-17AL. An outline of the master plan ispresented in Annex 1.

Sector Organization

2.06 The Ministry of Hydraulics (established in 1977, incorporating theformer Secretariat of Hydraulics set up in 1970) is responsible for thedevelopment and conservation of the country's water resources and the planningand construction of water supply and sewer systems. Thirteen regionalauthorities, recently created, operate and maintain water supply and seweragefacilities in large urban areas; in the rest of the country, municipalentities are responsible for water production and distribution and for sewagecollection in their municipalities.

2.07 The Government's objective is to decentralize the management andoperations of water supply and sewerage, leaving such responsibility toregional enterprises set up to provide services in one or more adjacent riverbasins. A first experience with a regional enterprise was made with thecreation of a wilaya authority, the "Soci6te des Eaux de l'Agglom6rationd'Alger - SEDAL", which provided water supply and sewerage services in GreaterAlgiers. SEDAL was set up as part of the Bank's first operation in thesector, the Algiers Sewerage Project (Loan 1545-AL). The SEDAL experience wasconclusive and the Government in May 1983 established twelve more enterprises,based on SEDAL's organization as a model. At the same time, SEDAL wasreplaced by a regional authority, "Entreprise de Production, de Gestion et deDistribution d'Eau d'Alger - E.P.E.AL.".

2.08 In conjunction with the sector reorganization, the Government issueda Water Code (Law No. 83-17 of July 16, 1983), to regulate the allocation andcollection of water resources, and to set out financial policies for thesector. In addition to dealing with ownership, concession and use of thewater resources, the Water Code prescribes that water utilities should bemanaged as commercial enterprises and should implement the tariffs necessaryto make them financially self-supporting. It also recommends that tariffs forindustrial and commercial usage be set sufficiently high to encourage economicuse of water.

2.09 To coordinate the operations of the regional authorities and to someextent arrive at cross-subsidizing financial resources in the sector, theMinistry of Hydraulics is considering the setting up of a national regulatoryagency, which would function under this Ministry's authority. The agencywould assist the Ministry in planning water supply and sewerage investments inthe country and in establishing the level of Government contributions to theregional authorities. It would also formulate detailed policies for thesector and oversee the operations of the regional authorities. The Ministryof Hydraulics would request the assistance of organization consultants forestablishing the functions and a work agenda for the national agency. Terms

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of reference for this assistance, which has been included in the project, aregiven in Annex 2. During negotiations, assurances were obta-ined that, notlater than January 1, 1986, consultants for the organization assistance willbe retained in accordance with the Bank Group Guidelines for the Use ofConsultants, and under terms and conditions satisfactory to the Bank.

Service Levels

2.10 Presently, the existing water supply and sewerage systems in most ofthe cities are obsolete and over-loaded. Though more than 80 percent of theurban population is provided with direct water service lines, only a third ofthis population can be considered well served. Preliminary results of asurvey of water supply and sanitation services in 36 cities with populationsranging from 500,000 to 2,000 are shown in Annex 3. The overall per capitaconsumption varies widely from 286 liters/day in El Golea in the central partof Algeria to 20 liters/day in Chegoun in the Kabylie Mountains, but in mostcases is considered inadequate. The per capita allowance is further greatlyreduced by the high volume of unaccounted-for water which in most of thecities reaches around 50 percent of the production. In general, water supplyin the cities is intermittent and available not more than 12 hours a day.

2.11 About 70 percent of the urban population is connected to public sewernetworks which in most cases are combined systems evacuating also stormwaterrunoff. Wastewaters in the cities are in most cases discharged untreated intothe Mediterranean or rivers. About 70 percent of the rural locations areprovided with public water supply systems and 60 percent of them have sewersystems. About 40 percent of the rural population has direct access to publicwater supply networks; only 25 percent to sewerage.

Constraints to Sector Development

2.12 Until recently, the lack of sound financial policies in the sectorwas certainly a major constraint to its accelerated development. In general,all over the country, water tariffs have remained low during the last decade.The municipalities, which were responsible for water supply services, werereluctant to implement effective tariffs which would have encouraged consumersto economize on their water use. This situation has lasted until now, becausepast investments in water supply and sewerage were financed by Governmentgrants to the municipalities. In addition, the municipal water supplyagencies in most cases had delayed payment for their water purchases from bulksuppliers like SEDAL and SONADE 2/. As water demand has been increasingrapidly, the bulk suppliers in turn had been forced to make more lnvestmentsin production facilities, in spite of the municipalities' large overduepayments to them.

2.13 Administrative burden has also been another constraint to the sectordevelopment. The Ministry of Hydraulics, which is responsible for theconstruction of all major water supply and sewerage facilities, has beentaking unusually long delays in implementing its work programs. In

2/ Soci6t6 Nationale de Distribution d'Eau Potable et Industrielle.

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particular, bidding of the works has been long delayed, which has resulted insome cases in cost overruns. Though procurement regulations and schedules arewell defined in codes, they have not been respected in most cases. The Bankhas undertaken various project implementation reviews with the Government, todetermine how the procurement process and project execution can be streamlined.

2.14 Further, the number of engineers and administrative staff in thesector is very limited. Other sectors offer better salaries and benefits andyoung professionals tend to join them instead of the water supply sector. Tolessen this constraint, the Ministry of Hydraulics created in 1974 aspecialized school, the "Institut d'Hydrotechnique et de Bonification - IHB".But, so far, the Institut has produced few graduates.

2.15 As part of the proposed project, the Ministry of Hydraulics willcarry out a sector study which among other things will try to diagnose thecauses for the slowness of the sector development. Terms of reference forthis study are outlined in Annex 4. Consultants would assist the Ministry ofHydraulics in carrying out the sector study and would be retained inaccordance with the Bank Group Guidelines for the Use of Consultants, andunder terms and conditions acceptable to the Bank, not later than July 1, 1985.

Investment Program in the Sector

2.16 The second Four-Year Investment Plan (1974-77) included DA 4.0billion (US$920 million) or about DA 240.0 (US$55.2) per capita for watersupply and sewerage works. About DA 1.0 billion (US$230 million) of thisamount was to complete works initiated during the previous investment plan(1970-73). These investments accounted for about 4 percent of the totalcapital expenditures in the public sector. The selection of communities,where investments were made, was based on the population growth rate,population density, percentage of population served, possibility of improvingand expanding services and reducing water losses. With a few exceptions, sofar, all projects in the water supply and sewerage sector have been financed100 percent by Government grants, and the municipal authorities havepractically no debt.

2.17 It is estimated that, during the first Five-Year Plan (1980-1984),investments in the order of DA 6.0 billion (US$1.3 billion) or about DA 300(US$62.5) per capita, would be made in the sector. During the forthcomingFive-Year Plan (1985-1989), the Ministry of Hydraulics is proposing to investDA 45.0 billion (US$9.4 billion) in the hydraulic sector, 50 percent of whichin water supply and sewerage works. The projected substantial increase ofinvestments during the next plan (almost four times the level of investmentsduring the preceding plan in current prices) demonstrates the Government'scommitment to improving rapidly the conditions and service levels in thesector.

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Previous Bank Loans in the Sector

2.18 The Bank became involved in the sector in 1978 when the first loan(1545-AL, US$82.0 million) was made for the Algiers Sewerage Project, tofinance the construction of sewer interceptors and a sewage treatment plant inGreater Algiers, and management and engineering studies in the cities ofAlgiers, Constantine and Oran. One of the objectives of this project was tostrengthen the sector organization in Greater Algiers through the creation ofa regional water supply and sewerage authority (SEDAL). In spite of somedelays in implementing agreed policies, the SEDAL experience has been good, asproved by recent Government decision to set up similar authorities in the restof the country. The Algiers Sewerage Project provided for the carrying out ofa study of SEDAL's organization, management, tariffs and financial structure.The study was originally scheduled to be completed in September 1979 and therecommendations regarding SEDAL's financial policies and performance were tobe implemented as of 1980. This schedule, however, was not met and the studywas completed only in March 1981. EPEAL, which has succeeded SEDAL, hasstarted to implement the new organization since January 1982.

2.19 Meanwhile, EPEAL's financial position has remained good, followingthe implementation of a 67 percent tariff increase which was effected underthe Algiers Sewerage Project. As a start towards the implementation of newfinancial policies for EPEAL, the Government has recently approved a 41percent increase of the water rates in Greater Algiers. Other steps thatshould be taken in the implementation of the financial policies would be setout in the agreement for the proposed project.

2.20 The execution of the works included in the Algiers Sewerage Project,after some initial delays, has been progressing recently extremely well; worksare to be completed by the end of 1987. The initial delays have been due tovarious causes such as the failure to inscribe the project in the nationalbudget and to appoint consultants, rethinking of the project concept, delaysin the review and approval of bidding documents and in the procurementprocess. As of May 1, 1984, US$11.3 million was disbursed and loandisbursements are forecast to continue to pick up rapidly with the recentaward of the remaining contracts under the project and the acceleration of theexecution of the works.

2.21 The studies in Constantine were completed in 1982 and a projectdefined for this city; its construction is scheduled to start soon. Thestudies in Oran are still under way. The closing date of Loan 1545-AL wasextended for a year to December 31, 1984 and would have to be extended furtherto allow full disbursement of the loan.

2.22 EPEAL's prime responsibility is to provide water supply services,whose quality directly affects the public perception of its performance. Asalready mentioned, these services are at present rather deficient, because ofinsufficient production. To help improve them, the Bank in 1980 made a loanof US$5.0 million (S-17AL) to finance water supply studies in Greater

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Algiers. As in the case of Loan 1545-AL. the selection process of consultantswas delayed and the studies started in April 1981, a year later thanoriginally scheduled in the loan agreement. The original closing date of theloan has been extended to December 31, 1984, but no further extension of theclosing date would be necessary, as the studies are practically completed. Asof May 1, 1984, US$2.6 million has been disbursed and an additional US$1.4million would be disbursed by the end of the year. The original cost of thestudies has been substantially decreased due to the appreciation of the US$vis-a--vis other currencies, The unused balance of the loan (US$1.0 million)would be cancelled. The proposed project is based on the recommendations ofthese studies.

Bank's Objectives for the Sector

2.23 The Banik role and sector lending strategy are essentially gearedtowards assisting the Government in strengthening its project implementationcapacity and establishing a strong institutional framework for the sector.The existing Bank-financed projects have been implemented with some delays inthe schedule of the appraisal reports, and the Bank has reviewed with theGovernment the causes for such delays and suggested some actions, such as aproject inscription in the budget prior to its appraisal, packaging of worksin single contracts, decentralization of project construction supervision,which should improve project implementation performance. The Bank'sinvolvement in the sector would be particularly effective in providing thenecessary expertise in institution building, policy formulation and stafftraining. It is also expected that the Bank's association with the sectordevelopment would help to enhance the standing of the new regionalauthorities, strengthen their independence and ensure the implementation offinancial policies that could lead to the finiancial viability of the sector.

III, THE PROJECT AREA

General Features

3.01 Algiers WLlaya, with a current population of 2.8 million, isAlgeria's most populated provInce. It is also the most urbanized with 2.5million people or almost 90 percent of the total population living in urbanlocatiors. About 84 percent of the urban population is concentrated inAlgiers City, the nation's capital, and the political, economic and culturalcenter of Algeria. Algiers City is divided into 5 dairates (boroughs) and 13communes (wards). (See Map 16088). Greater Algiers, which is made up ofAlgiers City and 10 more communes, extends along the Mediterranean coast fromthe Sahel Hills to the Mitidja Plain. Four more communes in Algiers Wilayaare not administratively integrated in the metropolitan area. But their totalpopulation accounts for less than 3 percent of the urban population in thewilaya. Water supply and sewerage services in Greater Algiers are provided byEPEAL.

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3.02 A relatively mild climate prevails in Greater Algiers, though hightemperatures are occasionally recorded in summer. The mean annual rainfallvaries from 580 mm to 760 mm, but is unevenly distributed through the year.Most of the rainfall occurs during the months of October through March, whileit is practically dry from June through August. Rainstorms of high intensity(more than 100 mm per hour) and duration (more than one hour) often occurduring the rainy season. Algiers City's configuration is rugged, making boththe installation and operation of a public water supply system very costly.East of the city the land is flatter. But at the same time, convenient sitesfor service reservoirs cannot be found and expensive elevated tanks must bebuilt.

Water Production Facilities

3.03 Potable water in Algiers Wilaya comes from some 145 wells sunk in theMitidja and Sahel Plains. The wells are incorporated into 12 main well fieldsknown as: Mazafran I, Mazafran II, Baraki, Haouch Felit, Oued Adda, TroisCaves, Haouch Bel-Abbes, Boureah, Thenia, Zemmouri, BirKhadem/Birmandreis andHamiz. The well fields are owned and managed by EPEAL. They account for morethan 96 percent of the total water production in the Wilaya. The remainingproduction comes from isolated wells owned by municipalities located outsideof Greater Algiers. Total water production in 1983 averaged 412,000 m3/day,of which about 83 percent came from the three main fields of Mazafran I,Mazafran II and Baraki. With the exception of the Mazafran and Hamiz WellFields, which are located respectively some 40 kms. west and east of AlgiersCity, all the other fields are situated within the limits of Greater Algiers,in the southern part of the metropolitan area (see Map IBRD No. 16089R).

3.04 The groundwater aquifers have been overexploited for some time and asa result, the water level in the wells has been lowering at an average rate of0.40 m/year. The increasing water heads in the well fields collection systems~have resulted in decreasing production of the existing wells. To maintain theproduction level, it has been necessary to increase the number of wells or toequip the existing ones with more powerful pumping equipment. The Mazafran IIWell Field, which accounts for 27 percent of the total available waterproduction, was put in operation in July 1979. Water from all the well fieldsis of good quality and only requires normal disinfection.

Conveyance System

3.05 Most of the production of the three main well fields (Mazafran I,Mazafran II and Baraki) is conveyed to a central pumping station (El Harrach)from where water is boosted to the elevated areas of Greater Algiers. Waterproduction in the other well fields is consumed locally. Two pipelines, a900-mm and a 800-mm concrete, convey water from the Mazafran Well Fields tothe El Harrach Pumping Station. In addition, from Mazafran I a 600-mmpipeline supplies water to the western part of Greater Algiers. Another600-mm pipeline, connected to the Mazafran-El Harrach Main, provides water tothe elevated central areas of Algiers City. The Baraki Well Field transits

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its production through four pipelines (a 1,000-mm, a 900-mm, a 700-mm and a400-mm) to the El Harrach Pumping Station.

3.06 With the exception of the 600-mm pipeline serving the western areasof Greater Algiers, water flow in the conveyance system is boosted by the wellpumps and four pumping stations. Twenty-three motor pumps with a total powerof 13,600 HP are in operation in El Harrach Pumping Station. Some300,000 m3 are transited daily through this station which was recentlyrenovated and can provide many additional years of service. In general, theexisting conveyance system is in good condition, though bursting of theMazafran II Pipeline has in the past occurred at various times, because ofconstruction faults in the pipe laying. Recently, the pipe foundations werereinforced in some sections of the pipeline.

Existing Distribution Network

3.07 Because of the rugged configuration of Algiers City, the waterdistribution network is one of the most complex and expensive to operate.Besides, the network is old and overloaded, as it was conceived to serve lessthan one-fourth of the current population. The distribution network isdivided into various pressure zones, with elevations varying from 0 along thecoast to 400 m in the Sahel Hills, and is made up of cast-iron pipes ofdiameters varying from 100-mm to 600-mm. The network functions by gravityonly in a narrow strip along the coast. As ground elevations further inlandincrease rapidly, water must be boosted to reach the service areas. Inaddition to the El Harrach Station, five main booster pumping stations

~-m-aintain water flows and pressures in the distribution network. Availableservice storage in the network amounts to 130,000 m3 or about 35 percent ofthe average daily consumption, which is considered adequate.

3.08 The existing water distribution network needs to be restructured andexpanded to provide better continuous service to the consumers. In addition,a leak detection and repair program should be undertaken without delay toreduce water losses in the network, which are currently estimated at 14percent of production. Preparation of a master plan for water distribution inGreater Algiers, which was partly financed under Loan S-17AL, was completedrecently. A first construction stage of the plan is included in the proposedproject and is expected to be completed at the end of 1989, by the time newproduction facilities, which are also included in the proposed project, wouldbecome operational.

Existing Sewerage

3.09 The 13 communes of Algiers City are served by a combined sewer systemin which both wastewaters from households and industries, and stormwaterrunoff are collected and evacuated in the same conduits. Other districts ofGreater Algiers, specially the industrial area, are equipped with separatesewer systems where wastewaters and runoff are collected and drained indifferent conduits. Most of the water customers are connected to the sewer

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network and about 80 percent of water supplied to domestic consumers returnsto the sewers. The existing sewer systems are relatively in good condition.There are 8 main sewage collectors, of which all but three are canalizedthrough their entire length in close channels. The majority of industries inthe El Harrach River basin use dry type processes requiring little water.Some industries of cellulose, barm and soap, however, use large individualvolumes of water and discharge strong wastewaters.

3.10 Presently, wastewater generated in Greater Algiers is dischargedwithout treatment into the Algiers Bay and El Harrach River whose allowablepollutional loading is very limited. It is estimated that the amount of wastematters actually poured into the river is 20 times greater than itspermissible loading. As a result, waters along the coast and in El HarrachRiver are highly polluted and malodorous. The emission of hydrogen sulphide,characteristic of anaerobic decomposition in the river, can be detected a halfmile away. Black sludge deposits and bubbles of decomposition gases can beobserved along El Harrach River banks, which are densely populated withlow-income people who now face increasingly unpleasant living conditions, aswell as serious health risks.

3.11 In addition, potentially valuable vacant land at the river mouth ispresently unused, because of the pollution problems. Recreational and fishingactivities have many years ago ceased along the coast and in the river. TheAlgiers Sewerage Project, which is partly financed by the Bank (Loan 1545-AL,US$82.0 million) and whose objective is to redress environmental conditions inthe El Harrach Basin, is currently under construction.

IV. DEMAND AND MARKET ASPECTS

Water Consumption

4.01 Current available water production for the Algiers Wilaya isestimated at 150.2 Mm 3/year, which is about 46 percent lower than thecalculated demand of 219.9 Mm3/year. No production increase is foreseen,until the proposed project becomes operational at the end of 1988, by whichtime the potential annual demand would be about 265 Mm3. Thus, as thedemand will continue to exceed the available supply, it will be necessary tocontinue to ration out water, which in some areas is already served only a fewhours a day. Of the current total production, 96 percent or 144.2 Mm3/yearcome from EPEAL's well fields. The rest is generated at individual wellsoperated by municipalities located outside the Greater Algiers area.

4.02 The evolution of water consumption and sales in Algiers Wilaya duringthe last four years is shown in Annex 5. Present per capita consumption forall usages averages only 108 liters/day, which is considered low for a city ofthe size and composition of Algiers. Since the demand was not met in recentyears, the potential per capita consumption can only be estimated. In the

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coming years, the available per capita consumption will continue to decrease,as the population increases, while production remains at the 1983 level.About 98 percent of the urban population in the Algiers Wilaya receives directwater supply services through some 95,000 service lines. Total water sales inthe wilaya in 1983 reached 94.6 Mm3/year, resulting in about 37 percent ofthe production unaccounted-for.

Composition of the Demand

4.03 A breakdown of water consumed in Greater Algiers in 1983 apportionsthe different uses as follows:

Domestic 58.8Public 15.8Industrial 10.6Commercial 10.0Others 4.8

All Uses 100.0

Essentially, water consumed in Greater Algiers is for domestic and public useswhich account for almost 75 percent of total consumption. The commercial andindustrial sector accounts for slightly more than 20 percent of the totalconsumption. Other uses correspond to water consumed in street washing,public gardens, etc.

Population Forecast

4.04 Results of the 1966 and 1977 census in Algiers Wilaya are shown inAnnex 6. Between 1966 and 1977 the Algiers Wilaya's population grew at anaverage annual rate of 5 percent. The rate of population growth in AlgiersCity was, however, less (about 4.6 percent), while it remained at a high of6.5 percent in the rest of the wilaya. A similar trend is expected tocontinue in the future, as the population in Greater Algiers seems to beinflecting towards its saturation level. Meanwhile, it is expected that thepopulation in the suburban areas will continue to grow much faster than in therest of the country, since the metropolitan area will remain an attractivepole for the population of a large number of medium and small cities in theadiacent wilayate.

4.05 Estimated mid-year urban populations in Algiers Wilaya in the years1985 through 2000 are given in Annex 5. They have been estimated assumingthat the population growth would average 4.1 percent in the eighties and then3.6 percent in the nineties. Under the Government-approved urbanization planfor Greater Algiers, most urban development would continue to take place irnthe eastern part of the wilaya, on the right bank of El Harrach River. The1977 census recorded 288,400 households in Algiers Wilaya, resulting in anaverage occupancy of 6.8 persons per household. This occupancy level isexpected to remain unchanged during the next ten years.

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Projected Water Consumption

4.06 Because of the current water shortage in Greater Algiers, it has notbeen possible to use the present water sales to estimate the per capitaconsumption and future water requirements, as the potential demand largelyexceeds available supply. To estimate future water demands, it has beennecessary to assume an average per capita water consumption which has beendetermined on the basis of levels of water consumption in other north Africancapital cities 3/, where climatic and social conditions are similar to thosein Greater Algiers. It has been further assumed that the per capitaconsumption will increase slowly through the years, as the country's economycontinues to grow.

4.07 Forecast water consumption up to the year 2000 is shown in column 8of Annex 5 and illustrated in Annex 7. It is anticipated that by early 1989the proposed project would become operational and that the demand would be metfully. It is further assumed that by that year the entire urban populationwould be connected to the water network and that unaccounted-for water wouldslowly decrease to level at about 25 percent by 1995. Water sales areprojected to increase by 90 percent in 1989 and then to continue to rise at anannual growth rate of about 5 percent. Average per capita water usage isforecast to increase to 49.1 m3/year by 1995. The maximum day demand iscalculated to be about 20 percent higher than the yearly average demand. Themaximum hour demand is expected to exceed by 70 percent the yearly averagedemand. A minimum residual pressure of 3 bars (43.5 psi) would be maintainedin the distribution network.

V. THE PROPOSED PROJECT

Project Genesis and Concept

5.01 In 1980, the Bank made a loan of US$5.0 million (S-17AL) to theGovernment of Algeria to partly finance a Water Supply Engineering Projectwhich covered inter alia: (i) the assessment of urban, industrial andagricultural water needs in Greater Algiers and surrounding areas; (ii) thepreparation of a master plan for the use of water resources in theMitidja/Isser/Sebaou region; (iii) the detailed design and preparation oftender documents for a first construction stage of water production facilitiesfor the Algiers Conurbation; and (iv) the preparation of a master plan ofpotable water distribution in Greater Algiers, and the detailed design andtender documents for a first construction phase of this plan. The Bank wasconcerned with the evident water shortage in Algeria's largest urban area and

3/ Average per capita water consumption in the metropolitan area of Tunis isabout 70 m3/year; 53 m3/year in the Rabat-Casablanca Conurbation.

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the Government's apparent lack of technical capability to eliminate suchshortage. The Engineering Project was recently completed and bids forconstruction of the first phase of production and distribution facilities inGreater Algiers were received at the end of March 1983.

5.02 Greater Algiers is now served by groundwater whose current productionhas already exceeded the safe yield of the aquifer and cannot be increased tomeet the demand. There is no other major aquifer in the area and the nextsource of supply would have to be surface water. Various alternatives ofsurface water have been identified and evaluated in previous studies. Onealternative would be to divert water from Oued Mazafran into a reservoirlocated at Douera, west of Algiers City (see Map No. 16089). A secondalternative would consist of building an impounding dam on Oued El Harrach atRocher des Pigeons. A third one would be to impound waters of three oueds,Isser, Boudouaou and Hamiz, in a reservoir located at Keddara, east of AlgiersCity.

5.03 An economic comparison of the three schemes showed that the KeddaraSystem is the least-cost alternative to increase potable water production toGreater Algiers and has been integrated as such in the master plan. TheKeddara System involves the construction of a 160-Mm3 impounding reservoir(Keddara) on Oued Boudouaou to store additional raw waters from Oueds Isserand Hamiz, followed by treatment and finished water conveyance to GreaterAlgiers. To that end, excess water from an existing dam (Hamiz) and part ofthe flow of Oued Isser (the second most important oued in theSebaou/Isser/Mitidja Valley) would be diverted and transferred to the KeddaraReservoir, from which raw water would be drawn and treated in a plant to bebuilt near the town of Boudouaou. The Keddara Dam and the Hamiz-KeddaraTunnel are now under construction. Detailed design and bidding of the othercomponents of the Keddara System have been completed recently and theirconstruction is expected to start by mid-1985.

5.04 There are several ways that water from Oued Isser can be diverted andtransferred to the Keddara Reservoir. Annex 8 outlines the technical andeconomic evaluation of the feasible alternatives for this transfer. Theconclusion of the evaluation is that the least-cost alternative would be tobuild a small impounding dam (18 Mm3) on Oued Isser at Beni Amrane and topump the diverted waters directly to the Keddara Reservoir (see Map 16089R).

5.05 On the basis of 40 years of stream flow records, the regulated flowof Boudouaou River at Keddara Dam would be about 20 Mm3/year, while anaverage flow of 30 Mm3/year would be diverted from the Hamiz Reservoir tothe Keddara Dam. The transfer from Oued Isser would supply an average 110Mm3/year. In total, the yearly regulated flow by the Keddara Dam would be160 Mm3. Such an increase in raw water production would be sufficient tomeet the demand up to 1993. Beyond that year, a new water supply source,which is foreseen to come from Oued Sebaou located further east to Algiers,should be put in operation.

5.06 The proposed project, which covers the construction of the KeddaraSystem and other water transmission and distribution works in Greater Algiers,

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stems from the studies included in the Water Supply Engineering Project (LoanS-17AL) and from previous studies carried out by the Ministry of Hydraulicsand the Ministry of Industry and Energy (SONATRACH) for the development anduse of the country's water resources and in particular for an increase ofwater supply to Greater Algiers. The feasibility study of the Keddara Systemwas carried out by an American consulting firm, Hydrotechnic Corporation. Thedesign of the Keddara Dam was carried out by a specialized Swiss consultingfirm and later verified by a specialized Portuguese engineering consultingfirm (KOBA associated with COYNE ET BELLIER, France), which also prepared thedetailed construction drawings. The smaller Beni Amrane Dam was designed byBritish experts (Binnie & Partners). The concept and design of the dams werereviewed by a panel of experienced and competent dams' experts of the Ministryof Hydraulics acceptable to the Bank. Normal and acceptable precautionsagainst earthquakes have been taken into account in the design of the dams.

Objectives of the Project

5.07 The objectives of the proposed project are to increase waterproduction to the level required to meet the unsatisfied demand and futuredemand up to 1993 (which is forecast to reach 308 Mm3 in that year) and toexpand and improve water distribution in Greater Algiers. The existingdistribution network is old, and a large volume of water distributed is nowlost through leaks in the system. Under the proposed project, the secondarydistribution network would be renovated and an extended program of leakdetection and repairs would be executed, in order to reduce the percentage ofunaccounted-for water to not more than 25 percent by 1995.

5.08 Under the Algiers Sewerage Project (Loan 1545-AL), managementassistance was provided to EPEAL for defining and outlining its organizationalstructure, administrative procedures and financial objectives. The executionof this assistance was successful and has led to major improvements of EPEAL'soperations. Meanwhile, the field of EPEAL's activities has been expanded tocover all the wilaya of Algiers and consequently its organization needs to bemodified to suit its new responsibility. The proposed project includestechnical assistance for updating the previous management and financialstudies and for helping EPEAL implement the resulting recommendations (para.7.10).

Project Description

5.09 The project is composed of two parts and includes:

PART I

(i) the construction of an impounding dam on Oued Boudouaou(Keddara Dam) and a tunnel to transfer excess waters of theHamiz Reservoir into the Keddara Reservoir (para. 5.10); and

(ii) the supply of mechanical and auscultation equipment for theKeddara Dam.

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PART II

(a) the construction of a diversion dam on Oued Isser at BeniAmrane, pumping facilities and a conveyance main (includingtwo tunnels) to transfer waters to the Keddara Reservoir(para. 5.11);

(b) the construction of a water treatment plant at Boudouaou, withan original capacity of 450,000 m3/day (para. 5.12);

(c) the laying of a transmission pipeline between the KeddaraReservoir and the Boudouaou Treatment Plant;

(d) the installation of a transmission pipeline to convey finishedwater to Greater Algiers (para. 5.12);

(e) the laying of two primary distribution mains and theconstruction of three new reservoirs and related pumpingstations (para. 5.13);

(f) the supply of master and domestic water meters and operationalequipment for EPEAL (para. 5.15);

(g) a leak detection and repair program aiming at reducingunaccounted-for water from a present 38 percent of waterproduction to about 30 percent by 1990 (para. 5.15);

(h) technical assistance to EPEAL in reviewing and implementingits organizational structures and management and financialprocedures (para. 7.10); and

(i) technical assistance to the Ministry of Hydraulics in carryingout a sector survey and establishing a national agency for theregulation and supervision of the regional water supply andsewerage authorities (paras. 2.09 and 2.15).

5.10 A general layout of the proposed facilities is shown on Map IBRDNo. 16089R. The Keddara Dam would be a rock embankment, with a central coreof clay. It would have a height of 108-m at the lowest point and would be486-m long at the crest. A seal gallery of 550-m long would be built alongthe dam to put in place an impervious core and cut-off wall in thefoundations. The dam would incorporate a 45-m wide surface spillway to divertflow into a channel located at the embankment toe. A tower intake, equippedwith gates allowing to draft water at three different elevations in thereservoir, would be built on the left bank of the oued. The Keddara Reservoirwould submerge a 9-Km stretch of Route No. 29 and about 7 Kms of a highvoltage electric line, which would be relocated under the project. Some 10families, whose settlement was in the Keddara Reservoir, have been relocated.

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5.11 Like the Keddara Dam, the Beni Amrane would be a rock-fill dam withan impervious element. Its capacity would be, however, only 18 Dm3. Thedam would be 38-m high and 10-m wide at the crest, and would contain a total

3amount of 655,000 m of earth and rock fill. The dam would be equipped of aside-channel spillway which would be located in a concrete structurecontaining an outlet and a number of floodgates mounted on the river bottom,to allow regular cleaning of the reservoir. The Oued Isser waters carry ahigh load of suspended solids (14 g./liter) and the Beni Amrane Reservoirwould serve as a sedimentation basin prior to the pumping of the water to theKeddara Dam. The Beni Amrane Reservoir, however, would have to be flushedregularly, specially at times of flood, to impede quick silting of thereservoir. Only two families, whose properties are within the limits of theBeni Amrane Reservoir, would need to be relocated.

5.12 From the Beni Amrane Reservoir, the water would be drawn to a pumpingstation which would transfer it through a 2-m pipeline over 28 kms to theKeddara Reservoir. Two sections of the conveyance system, totaling 1.75 kms,would be built in tunnel. The Keddara Reservoir would supply raw water to theBoudouaou Treatment Plant located some 8 kms downstream the dam. The plantwould be a conventional one and would include standard processes, such assedimentation, filtration and disinfection. A 2-m pipeline, 32-km long, wouldconvey the treated water to the city of Algiers.

5.13 The present way of feeding the existing pressure zones in GreaterAlgiers would basically remain unchanged. Two new distribution centers,however, would be established at Gu6 de Constantine and Beaulieu. The newproduction facilities would be connected to the existing El Harrach PumpingStation and to the new distribution centers, from where water would beconveyed to the service reservoirs through the existing transmission mains andtwo new primary mains. The first would connect the distribution center ofBeaulieu to the pumping station of Telemy and would serve the low leveldistricts of Algiers. The second main would convey water from thedistribution center of Gue de Constantine to a new reservoir at Sidi Garidiand would serve the high level districts located west to Algiers. Three newstorage tanks would be built respectively at Gu6 de Constantine (20,000 mi3 ),Sidi Garidi (25,000 m 3 ) and Beaulieu (40,000 M 3 ).

5.14 The existing main production facilities are located west to GreaterAlgiers and connected to the El Harrach Pumping Station. The new productionwould be coming from the east. Under the proposed project, the existingproduction facilities would first serve the western part of Greater Algiers,after which any excess would be conveyed to the El Harrach Pumping Station.The new production facilities would serve the eastern part where most urbandevelopment is currently taking place.

5.15 The objectives of items 5.09 (f) and (g) of Part B of the project areto arrive at establishing a better estimate of the levels of water productionand consumption in the Algiers Conurbation and to reduce unaccounted-forwater. A better knowledge of these levels would result in a more efficient

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management of the existing water supply network and the future KeddaraSystem. An appreciable volume of water (17 Mm3/year), which is actuallylost through leaks in the network, could be recuperated and used to somewhatalleviate the water shortages that are expected to be felt in Greater Algiersuntil the completion of the proposed project. EPEAL is committed to reduce by1990 the amount of unaccounted-for water to 30% of production and agreementwas reached on an action program.

Cost Estimates

5.16 The estimated total cost of the project is DA 3,698.2 million(US$770.5 million) with a foreign exchange component of DA 1,883.0 million(US$392.4 million) or 50.9 percent of the total cost. A summary of the costestimates follows. Detailed cost estimates and annual project investments forParts I and II are given in Annexes 9 and 10.

Local Foreign Total Local Foreign Total %Item ----- DA Million ------ ---- US$ Million ----

Keddara Dam and Hami7-Keddara Tunnel 351.6 231.8 583.4 73.2 48.3 121.5 19.7Mechanical andAuscultation Equipment 3.2 11.7 14.9 0.7 2.4 3.1 0.5Beni Amrane Dam 184.0 122.7 306.7 38.3 25.6 63.9 10.3Beni Amrane PumpingStation 20.2 54.6 74.8 4.2 11.4 15.6 2.5

Raw Water Pipelines 107.0 160.4 267.4 22.2 33.4 55.6 9.0Boudouaou Treatment Plant 129.2 145.7 274.9 26.9 30.4 57.3 9.3Filtered Water Pipeline 127.1 190.7 317.8 26.5 39.7 66.2 10.7Storage Tanks andPumping Stations 107.5 107.6 215.1 22.4 22.4 44.8 7.3Distribution Network 195.7 212.0 407.7 40.8 44.1 84.9 13.8Instrumentation 0.8 4.8 5.6 0.2 1.0 1.2 0.2Supply of Water Meters 0.9 1.0 1.9 0.2 0.2 0.4 0.1Leak Detection Program 0.9 1.0 1.9 0.2 0.2 0.4 0.1

1,228.1 1,244.0 2,472.1 255.8 259.1 514.9 83.5

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Local Foreign Total Local Foreign Total %Item ----- DA Million ---- ---- US$ Million ----

Physical Contingencies 193.6 193.1 386.7 40.3 40.3 80.6 13.1Construction Supervision 41.9 46.7 88.6 8.8 9.7 18.5 3.0Technical Assistanceto EPEAL 1.4 3.4 4.8 0.3 0.7 1.0 0.2

Technical Assistanceto the Ministry ofHydraulics 1.9 4.3 6.2 0.4 0.9 1.3 0.2

Total Cost(March 1984 Prices) 1,466.9 1,491.5 2,958.4 305.6 310.7 616.3 100.0

Price Escalation 347.8 388.6 736.4 72.5 81.0 153.5 24.9

Front End Fee - 3.4 3.4 - 0.7 0.7 0.1

TOTAL PROJECT COST 1,814.7 1,883.5 3,698.2 378.1 392.4 770.5 125.0

(Current Prices)

% 49.1 50.9 100.0 49.1 50.9 100.0

5.17 The cost estimates are based on actual bids for construction of theproject components, and include customs duties on imported equipment andmaterials, and other taxes on sales and services. To the bid prices, a15 percent allowance has been added for physical contingencies. Constructionsupervision of the works is estimated to account for about 3 percent of theproject costs. To provide for price escalation during the project execution,local expenditures are projected to increase by 7.5 percent in 1984, 7 percentin 1985 through 1988 and 6 percent in 1989. Foreign expenditures areprojected to increase by 3.5 percent in 1984, 8 percent in 1985, 9 percent in1986 through 1988, and 7.5 percent in 1989. Price escalation, which has beenlimited to contractual ceilings, is forecast to account for about 25 percentof the sum of the base costs and the physical contingencies and constructionsupervision.

5.18 The project provides for an estimated 1,350 man-months of consultantservices for the technical assistance to the Ministry of Hydraulics and EPEAL,and for construction supervision of the proposed works.

Project Execution

5.19 A bar chart for the project execution is presented in Annex 11. Theconstruction of the Keddara Dam and the Hamiz-Keddara Tunnel (Part A of theproject) has started since January 1982 and is well under way. This partwould be completed by the end of 1986. Meanwhile, bids for the remaining

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project components (or Part B) were received at the end of March 1984. Theexecution of this part is expected to start by mid-1985 at the latest and tobe completed by the end of 1989. The production facilities, however, areprogrammed to be completed by the end of 1988, and a major production increasewould become available in early 1989. Other works in the distribution systemwould be completed by the end of 1989.

5.20 The Ministry of Hydraulics, with the assistance of consultants, issupervising the construction of the Keddara Dam and the Hamiz-Keddara Tunnel.The Ministry would also be responsible for the construction supervision of theother project components. It would retain a consulting firm to assist it insupervising the project construction. This firm would also conduct periodicreviews with the panel of experts during construction to ensure whether anymodifications in the design of the dam have become necessary. Furthermore,agreement was reached during negotiations that the Borrower would employ byJuly 1, 1988, engineering consultants to assist the Ministry of Hydraulics inannual inspections of the Keddara and Beni Amrane dams and relatedstructures. After 1992 these inspections would be done once every fiveyears. The firms would be retained in accordance with the Bank GroupGuidelines for the Use of Consultants, under terms and conditions satisfactoryto the Bank, not later than January 1, 1985.

Project Financing

5.21 The construction of Part I of the Project has been underway since1982 and the Government has already invested DA 175.7 million (US$36.6million) in this part. An additional amount of DA 84.7 million (US$17.6million) would be invested during the first semester of 1984. The remaininginvestments, for which financing is being sought, are estimated to amount toDA 3,434.2 million (US$715.4 million), with a foreign exchange component ofDA 1,772.6 million (US$369.3 million).

5.22 The project would be executed over a six-year period. A Bank loan ofUS$290.0 million, including a capitalized front-end fee, would finance part ofthe foreign exchange cost of the project. The loan would be made to theCovernai nt and would be repaid over 15 years including 3 years of grace, atthe standard variable interest rate. The loan should become effective byMarch 1985. EPEAL would finance the local cost of secondary distributionworks, of the leak detectlon and repair program, the supply of water meters,and the technical assistance program to the enterprise. The Government wouldfinance the balance of local and foreign exchange costs of the project. Onthis basis, the financing plan for the project would be as follows:

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1982 - 1989Requirements DA US$ %

------ Million

Project Expenditures 3,698.2 770.5 100.0

Financed by:Government:Local Expenditure 1,489.4 310.3 40.3Foreign Expenditure 491.4 102.4 13.3EPEAL 325.4 67.8 8.8Bank 1,392.0 290.0 37.6

Total 3Z698.2 770.5 100.0

Reimbursement of the Government

5.23 Once the construction of the project has been completed, theGovernment will transfer the ownership of the facilities to EPEAL, which willoperate and maintain them. The legislation governing the operations of watersupply and sewerage enterprises in Algeria requires that the enterprisesfinance their investments principally by long-term loans and eventuallydevelop a self-financing capability. It is therefore intended that EPEALshould reimburse the Government for part of the investments in the project.

5.24 Some of the facilities, such as the two dams, represent enormousinvestments which would be amortized over a long period of time. However, inview of the short period of time for repayment of the debt, the debt servicefor the construction of the dams would be extremely high. Further, it hasbeen necessary to lump the investments together, trying to catch up the delaysin providing an adequate water supply system in Greater Algiers. Under thesecircumstances, it would be impossible for EPEAL to assure the full debtservice on the proposed loans, if reasonable tariffs were to be maintainedduring the next five years.

5.25 Thus, it is proposed to consider the cost of the two dams as aGovernment contribution to EPEAL and to limit EPEAL's reimbursement toUS$212.0 million equivalent. To this amount would be added interest and othercharges paid by the Government on the funds during the construction period.The reimbursement would start from July 1, 1990 and would be completed over 20years, with an interest rate of 10 percent. The foreign exchange risk on theloan would be borne by the Government. Details of the reimbursementmodalities, together with the conditions of Government financing of theprogram, would be set out in a Reimbursement Agreement between the Governmentand EPEAL. The execution of this agreement, with terms and conditionssatisfactory to the Bank, will be a condition of effectiveness of the proposedBank loan.

5.26 Including the value of the dams, the Government would make an equitycontribution of DA 1980.8 million to EPEAL for the project financing. EPEALshould be required to reflect such contribution in its statutory capital.Assurances to this effect were obtained during negotiations.

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Procurement

5.27 The contract for construction of the Keddara Dam and theHamiz-Keddara Tunnel was awarded to a Yougoslav firm, Hidrotecnica, followinginternational competitive bidding consistent with the Bank's guidelines.Similarly, international competitive bidding procedures are also beingfollowed to secure the works included in Part II of the project. Bids forthis part were received on March 31, 1984. Their evaluation is now underway. The works would be awarded to a single contractor or at most to twocontractors. This solution has been adopted to speed up the bidding processand to ensure better planning and coordination of the execution of the works.In evaluating bids for the supply of equipment and materials, a 15 percentmargin of preference or the actual customs duties, whichever is lower, wouldbe allowed for goods manufactured in Algeria.

5.28 A summary of project elements and method of procurement is as follows:

Procurement Method 4/ TotalProject Element ICB LCB Other Cost

--- US$ Million --- US$ Million

Keddara Dam & Tunnel 155.6 155.6(40.5) (40.5)

Mechanical & Sounding Equipment 4.3 4.3(2.9) (2.9)

Consulting Services - Dam andTunnel 1.3 1.3

(0.8) (0.8)Construction Supervision 1.2 1.2

(0.0) (0.0)Beni Amrane Dam, Algiers

Pipeline, Treatment Plant andRelated Works 583.3 583.3

(233.3) (233.3)Equipment (Meters) 1.0 1.0

(.5) (.5)Consulting Services 23.10 23.10

(11.3) (11.3)

TOTAL PROJECT 744.2 25.6 769.8(277.2) (12.1) (289.3)

Disbursement

5.29 Annex 12 shows the allocation of the loan proceeds to various typesof expenditures. In order to avoid a repetition of long delays which have

4/ Figures in parenthesis are the amounts proposed to be financed by the Bank.

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occurred in the implementation of two previous Bank-financed projects in thesector, specially during the bidding process, advanced contracting of theproposed works has been sought, so that disbursement of the Bank loan cancommence right upon its effectiveness. The proposed Bank loan would bedisbursed against foreign expenditures made for the project from July 1,1984. US$3.6 million equivalent in retroactive financing would be foreseen asof July 1, 1984. Through July 1, 1984 the Government is projected to havealready invested US$22.4 in foreign expenditures from its own resources andwould forward the remaining foreign expenditures (of US$80.0 million) throughthe project completion.

5.30 Estimated quarterly disbursements of the loan and Government fundsare shown in Annex 13. The estimates are not based on disbursement profilesof past water supply projects in Algeria, because the status of preparation of

the proposed project is very different from that of previous water supplyprojects. Rather, the loan disbursements have been estimated on the basis ofthe work programs submitted by the contractor for the Keddara Dam and theHamiz Tunnel and bidders for Part B of the project. Disbursement is expectedto advance rapidly, as works under the contract for the Keddara Dam areprogressing well and the other contract should be awarded prior to the loaneffectiveness, two features which allow to forecast faster disbursements thanin previous projects.

5.31 In order to make prompt payments to contractors and consultants forthe project, the Bank should agree to advance regularly funds for theestablishment of a Revolving Fund in Algeria to cover these payments. TheFund would be maintained at the Central Bank of Algeria for a maximum amountof US$10.0 million which would cover the Bank's share of eligible expenditureson the project over a period of three months. The Fund would be maintained inUS dollars and replenished by reimbursement applications from the Governmentin US dollars. Applications with appropriate supporting documentation,covering the use of the Fund, should be submitted when approximately half themaximum allowed amount in the Fund has been spent. The establishment of aspecial account for the Fund at the Central Bank of Algeria would be acondition of effectiveness of the proposed loan.

5.32 The closing date of the loan would be December 31, 1991, or two yearsafter the provisional acceptance of the works, which is the time needed tomonitor the performance of the works and to return retention money on thecivil works contracts.

VI. PROJECT IMPLEMENTATION AND OPERATION

Executing Agency

6.01 The Ministry of Hydraulics through its "Direction Gen6rale desInfrastructures Hydrauliques" (DGIH) would be responsible for the construction

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of the project. Under the current organization of the Ministry of Hydraulics,DGIH is in charge of the design and construction of water works forirrigation, water supply, sanitation and drainage. DGIH is well organized andstaffed. It is presently divided into three major departments: waterresources development, water supply and sewerage, and irrigation anddrainage. Below the departments are various divisions in charge of specificfields (see Annex 14, Organization Chart of the Ministry of Hydraulics).

6.02 DGIH is currently managed by a competent, dynamic and veryinfluential Chief Engineer. The present staff numbers 66 civil engineers, 30technicians and 410 foremen. In addition, 64 foreign advisors providetechnical assistance to the agency. A team of 9 civil engineers and 30technicians has been assigned for the construction supervision of the KeddaraDam and the Hamiz Tunnel. A similar but more staffed team would be formed forthe construction supervision of the other project components. However, inview of the importance of the works and the expertise required for theirproper execution, DGIH would be assisted by specialized engineeringconsultants for construction supervision of the project (para. 5.20).

6.03 The metering and leak detection and repair programs would be executedby EPEAL, the regional authority responsible for providing water supply andsewerage services in Greater Algiers. The installation of the meters and theworks under the leak detection and repair program would be carried out byEPEAL's own technicians who are the only specialists in Algeria of this typeof work. The Bank loan will be disbursed against only the supply of equipmentand materials for the programs.

6.04 DGIH carries insurances covering motor vehicles, fire damages andthird party liability. It is also insured for workmen's compensation. Allsupply and civil works contracts on the project will be insured against lossand damage in shipment, work accidents, fire and property damages.

Operation and Maintenance

6.05 A department of the Ministry of Hydraulics, the "Direction G6n6ralede l'Exploitation - DGE" operates and maintains dams and irrigation structuresin Algeria. The DGE would continue to provide such services to EPEAL for theKeddara Dam, the Hamiz-Keddara Tunnel and the Beni Amrane Dam. EPEAL wouldpay DGE for its services.

6.06 Maintenance of the Keddara Dam, the Beni Amrane Dam and related workswould require special attention, since any structural failure could result insevere loss of life and property in the Boudouaou Valley and the Isser Plain.As a precautionary measure, engineering experts should inspect the damsregularly to ensure that no structural deficiency is developing in the damsand reservoir banks. Following an inspection, the Ministry of Hydraulicswould carry out any remedial actions suggested by the consultants and foundnecessary (see para. 5.20).

6.07 The other project facilities, after they are completed, will behanded over to EPEAL which will be responsible for their operation and

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maintenance. A training program for EPEAL's staff was included in the AlgiersSewerage Project (Loan 1545-AL) and is currently under implementation (para.7.14). One major success of this program has been the creation of a trainingschool which has already graduated 24 electro-mechanical engineers. Moretraining is being undertaken to cover other fields like plumbing,administration, etc.

6.08 Thus, it is expected that by the time the proposed project becomesoperational in early 1989, EPEAL will have the technical capability and thestaff required to operate and maintain the project facilities properly. Thetraining program, as defined in the Algiers Sewerage Project (Loan 1545-AL),is progressing well and sufficient funds are available for its execution. Noamendment of the program or additional funds are required under the proposedproject.

Project Accounts and Audit

6.09 DGIH maintains records and separate accounts for its projects. Afinancial controller from the Ministry of Finance permanently controls theaccounts. The present system is satisfactory. Data on project expenditureswould be sent regularly to the Bank as part of DGIH's quarterly progressreports (para. 6.10).

Reporting

6.10 In order to measure progress in the project implementation, agreementwas sought during negotiations that DGIH and EPEAL will submit quarterlyreports to the Bank. The reports will in particular cover:

(a) progress in procurement of equipment, materials and civil works;

(b) progress in construction of the proposed facilities; and

(c) expenditures incurred and updated cost estimates of remainingworks.

6.11 DGIH and EPEAL would, within six months following the closing date ofthe loan, prepare and submit to the Bank a completion report on the executionand initial operation of the project, its costs and the benefits derived or tobe derived from it, the performance and fulfillment by the Government, theBank, DGIH and EPEAL of their respective obligations under the Loan Agreementand the Project Agreement and the accomplishment of the objectives of the Bankloan.

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VII. THE BENEFICIARY

Background

7.01 The project facilities would be operated by EPEAL, a publicenterprise established by Presidential Decree No. 83-333 dated May 14, 1983.In accordance with the decree, EPEAL is responsible for the provision ofdomestic and industrial water and the collection and treatment of wastewaterin the wilaya of Algiers. EPEAL was set up, as one of thirteen new regionalwater supply and sewerage companies, in a major reorganization of the sector,to replace SEDAL, the Wilaya company, which was responsible for the sameservices (para. 2.07). SEDAL itself was created in 1977 as part of the firstBank-financed operation in the sector, the Algiers Sewerage Project (Loan1545-AL). Under the Bank loan, management assistance was provided to SEDAL toestablish its organization and financial policies. EPEAL, in fact, is notdifferent from its predecessor, except that it operates under the tutelage ofthe Ministry of Hydraulics and its jurisdiction covers a larger territoryextending over the wilaya of Algiers.

7.02 EPEAL is a young public-owned enterprise. It has a corporatestatute, is financially autonomous and managed as a commercial undertaking.Its parent authority (the Ministry of Hydraulics) exercises overallgovernmental control of the enterprise, such as, approving its investmentprogram and annual budgets, annual accounts and decisions on borrowing andtariff levels.

7.03 The former SEDAL was formed through the merger of three water supplycompanies 5/ and the sewerage service of the city of Algiers. EPEAL hascompleted the takeover of the water supply and of the major seweragefacilities in Algiers. The transfer of responsibility for the secondarynetwork is to be completed by end 1987.

Past Performance

7.04 EPEAL is the beneficiary of Loan 1545-AL made in April 1978 tofinance partly sewerage works in Greater Algiers. The executing agency of thesewerage project was the "Direction de la Wilaya d'Alger Charg6e del'Hydraulique - DWH", while EPEAL was essentially responsible for theexecution of management and financial studies for the company. Contrary tothe rest of the project, the consultants for the studies were employedpromptly and the studies were completed with slight delays in the appraisalreport schedule. EPEAL has put in place the organizational structure

5/ They were (i) SONEDE-WA, a division of the National Water ProductionCompany serving the Western part of Algiers; (ii) ECOEVA, a municipalcompany serving the rest of Algiers; and (iii) Societ6 Alg6rienne desCompteurs d'Eau (SACE), a service company which was managing water metersin individual apartment buildings served by SONEDE-WA and ECOEVA.

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recommended under the studies, and as a result, the company's administrativeprocedures have improved. SEDAL's financial situation was affected by delaysof the Government approval of increased tariffs (see Chapter VIII).

Organization and Management

7.05 Annex 15 shows the current organizational structure of EPEAL. ABoard, chaired by the Director General, supervises EPEAL's activities. AllBoard members are full-time managers of EPEAL, with the exception of two whoare workers' representatives. The General Director is appointed byPresidential decree upon nomination by the Minister of Hydraulics. He isresponsible for the day-to-day operations of the Company, which are handled bysix departments: water operations, sewerage operations, administrative,finance, commercial, and engineering studies and new works. The DirectorGeneral is also assisted by two divisions, one for organization and dataprocessing, and another for legal matters.

7.06 The ongoing Algiers Sewerage Project included a technical assistancecomponent for setting up EPEAL's structure. The organization and managementpart of the studies included the definition of EPEAL's organizationalstructure, the preparation of statements of objectives for all functionalunits and detailed organization of the units. The studies, which werecompleted in 1981, covered also the provision of assistance for improvingbilling and collection, accounting procedures, fixed assets and materialscontrol systems. They further included a study of computerization of EPAL'sactivities and the feasibility of acquiring data processing equipment for thecompany.

7.07 As a result of the assistance, substantial progress and improvementshave been achieved in the company's organization, notably in reorganizing thecommercial department, the operating districts, and the finance department.In addition, EPEAL is in the process of purchasing computer equipment and hasimplemented the systems developed by the consultants for billing. Theimplementation of the studies' recommendations was affected, however, by (i)the expectation that a different organization might be needed following aproposed sector organization (para.7.01); (ii) the unavailability of adequateoffice space, due to delays in achieving the construction of the company'shead office; and (iii) a lack of qualified staff to continue theimplementation of the studies' recommendations.

7.08 The sector reforms are now known and EPEAL's jurisdiction has beenexpanded to cover the whole Algiers Wilaya. As a result, there is a need forrevising EPEAL's organizational structure and management requirements. EPEAL,in accord with the Ministry of Hydraulics, believes that the management studyshould be updated to fit its expanded organization. However, given themagnitude and volume of the ongoing water supply and sewerage programs, EPEALwould not be able to provide the staff needed for the updating work.

7.09 Therefore, an important component of the project (para. 5.09, h) isthe provision of technical assistance to EPEAL in establishing a revisedorganization and management procedures. The assistance would also cover a

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review of EPEAL's financial policies. Terms of reference for the technicalassistance are outlined in Annex 16; they were discussed and finalized duringnegotiations.

Management Assistance

7.10 The program of management assistance would comprise a review of thestudies, which were carried out under the Algiers Sewerage Project, an updateof the organizational and management structure of EPEAL, and the provision ofassistance during the implementation of the study's recommendations. Thefollowing aspects would be covered:

(i) an evaluation of progress made in implementing therecommendations and systems of the previous studies;

(ii) an update and definition of the broad lines of the company'sorganizational structure and its relationship with thesupervising authority and other agencies of the Governmentand the Algiers Wilaya;

(iii) an update of job description and statements of objectives forall main functional departments;

(iv) development of detailed organizational structure for alldepartments and divisions together with an organization planand staffing requirements;

(v) development of general and cost accounting procedures andpractices; and

(vi) provision of assistance and training for the implementationof the recommended organization, and of revised systems andprocedures. The latter will include in particular provisionof guidance to EPEAL's staff in inventoring and reconcilingpast accounts.

7.11 The assistance for the financial aspects is described in para.

8.13. During negotiations, assurances were obtained from EPEAL that, notlater than March 31, 1985, it will employ qualified consultants inaccordance with the Bank Group Guidelines for the Use of Consultants, andunder terms and conditions acceptable to the Bank, to carry out themanagement assistance program. Assurances were obtained that, at theconclusion of the studies, EPEAL will promptly review theirrecommendations with the Government and the Bank and implement the agreedstructures and procedures.

Staf fing

7.12 At the end of 1983, EPEAL had 1,200 staff, or an average of 59employees per 10,000 people served. This ratio is considered adequateand would be further reduced after EPEAL takes over the rest of

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municipalities in Algiers Wilaya (para. 7.01). EPEAL plans to reach aratio of 43 employees per 10,000 people served by the end of 1990, a yearafter the project completion. The staff ratio would be one of theprincipal indicators that would be monitored during the project execution(para. 8.19).

7.13 EPEAL's salaries and conditions of employment are somewhatadequate, though lower than those in the private sector. Consequently,because of a shortage of skilled engineers and accountants in thecountry, EPEAL has found some difficulties in recruiting qualifiedstaff. To overcome this, EPEAL has been carrying out a training programand has sent abroad young staff to specialize in sanitary engineering,administration and finance.

7.14 The General Director is assisted by a training coordinator whooversees the company's training needs and programs. A training centerwas set up as part of the Algiers Sewerage Project. The center, whichbecame operational in 1981, had already graduated 45 electro-mechanicalassistant engineers. Seventeen others would be graduated at the end of1984. The duration of the studies is 18 months, after which graduatesare integrated automatically in EPEAL's personnel. Besides its full-timetraining programs, the center is used for training seminars andshort-term courses. In 1983, ten administrative staff were trained tobecome accounting personnel. EPEAL is closely monitoring its trainingneeds and is using training as a means to rotate and promote staff.

7.15 EPEAL has received assistance from the "Soci6t6 des Eaux deMarseilles-France" for conducting courses for assistant engineers. Forother courses, EPEAL uses the services of the "Ministere de la FormationProfessionelle" Twenty-four candidates, who have received EPEAL'sfellowships, are now enrolled in civil and sanitary engineering coursesin the Federal Republic of Germany. A first group of graduates (sixengineers) is expected to join EPEAL in September 1984 and the remainderby the end of 1987. Under the terms of their fellowships, they arerequired to work for EPEAL for at least ten years after their return tothe country.

Current Accounting Practices

7.16 EPEAL keeps its accounts in accordance with the "Plan ComptableNational" which is acceptable. The company's accounts were computerizedas from January 1, 1983, using a Government-owned computer outlet. Abroader plan for computerization of the accounts, together with otheractivities, has been developed under the previous management assistanceprogram (para. 7.10), and EPEAL is expected to acquire computer equipmentby the end of 1984. EPEAL performs annual inventories of its stocksprior to finalizing its annual accounts.

7.17 So far, EPEAL's accounts have been based on an estimate of theassets of the merger companies, and EPEAL's take-over of their accounts.Some deficiencies existed in the old accounts and persisted afterwards,

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and because of lack of documentation, it has not been possible toconsolidate the accounts. EPEAL's auditors have indicated thatconsolidation of the past accounts and actions to strengthen EPEAL'spractices in this field, are required in order to ensure that EPEAL'sfinancial statements truly represent the company's financial situation.

7.18 Actions to streamline the accounting procedures and financialreporting should aim to: (i) update and complete the implementation offixed assets and material control procedures, which is under way as partof the previous management assistance; (ii) develop general and costaccounting procedures and financial reporting requirements; (iii) trainthe accounting and financial staff; and (iv) reconcile and consolidatepast accounts in conjunction with an appropriate inventory of EPEAL'sassets and liabilities. The first two tasks are part of the managementassistance to be provided under the proposed loan. Training of thefinancial staff would also be carried out under the proposed managementassistance, and through special courses at the training center. Theassistance to EPEAL would further include guidance on proper ways toconsolidate the past accounts.

Billing and Collection

7.19 EPEAL bills its customers every six months for water consumedand a fixed charge for meter rental and connection maintenance. Inaddition, in some apartment buildings, EPEAL reads individual meters andapportions the consumption and charges between tenants. For suchservices, EPEAL charges a special fee for reading and billing. Bills areprepared manually for customers with master meters, whereas forindividual customers, bills are computerized using a Government-ownedcomputer outlet.

7.20 From the merger companies, EPEAL has inherited a backlog ofreceivables, which at the time of the creation of the former SEDAL,amounted to about 2 years of billing. The number of deteriorated meterswas high and EPEAL experienced many problems in identifying customers'contracts and accounts. About two-thirds of these old receivablesrepresent debts which should be written off through reconciliation andconsolidation of past accounts and an Action Plan to reduce by end 1984the receivables to not more than nine months of water sales (excludingaccounts dating from prior to 1979) and to not more than six months ofwater sales by the end of 1987 was agreed during negotiations. This planincludes measures to write off old accounts and to collect from publicsector debtors directly through the Ministry of Finance. Thecomputerization of billing by end 1984 will further improve the system.

7.21 EPEAL plans to install individual meters for te