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Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No. 6582a-AL

STAFF APPRAISAL REPORT

ALGERIA

SECOND NATIONAL WATER SUPPLY & SEWERAGE PROJECT

April 23, 1987

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

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

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CURRENCY EQUIVALENTS(As of September 30, 1986)

Curre.icy Unit = Algerian Dinar (DA) * 100 centimesDA 1 US$0.213US$1 DA 4.70DA 1,000,000= US$212,766.

ABBREVIATIONS

ft foot m = meterha hectare mm = millimeterKm - kilometer Mm3 = iillion of cubic meterinh inhabitant m3/sec= cubic meters per secondLcd liters per capita per day min = minute

MEASURES AND E!UIVALENTS

Metric System U.S. System

Kilometer (km) = 0.62 mile (mi)Hectare (ha) = 2.47 acres (a)Meter (m) = 3.28 feet (ft)

Cubic meter (i 3 ) = 220 gallons (g)Million cubic meters/year (M3/year)= 0.603 million gallons/day (mgd)Liter (l) = 0.220 gallon (g)Liter per second (1/sec) = 19,000 gallons per day (gd)Kilogram/cm2 = 0.981 BarMilligram/liter (mg/l) = 0.0703 (gr/g)

GLOSSARY OF ACRONYMS

AGEP = Agence Nationale de l'Eau Potable et Industrielleet de l'Assainissement

EPEA = Entreprise de Production, de Gestion et deDistribution d'Eau d'Annaba

EPEAI= Entreprise de Production, de Gestion et deDistribution d'Eau d'Alger

EPEBA = Entreprise de Production, de Gestion et deDistribution d'Eau de Batna

EPECO = Entreprise de Production, de Gestion et deDistribution d'Eau de Constantine

L.PEOR = Entreprise de Production, de Gestion et deDistribution d'Eau d'Oran

EPEOU = Entreprise de Production, de Gestion et deDistribution d'Eau d'Ouargla

EPES = Entreprise de Production, de Gestion et deDistribution d'Eau de Setif

EPET = Entreprise de Production, de Gestion et deDistribution d'Eau de Tiaret

ILO = International Labour OrganizationMHEF = Ministere de l'Hydraulique, de 1'Environnement et

des ForktsSEDAL = Societe des Eaux de l'Agglomeration d'AlgerSONADE = Societ6 Nationale de Distribution d'Eau Potable et

IndustrielleSNC = Societe Nationale de ComptabiliteWHO = World Health Organization

WATER COMPANIES' FISCAL YEARJanuary 1 - December 31

FOR OFFICIAL USE ONLY

ALGERIA

SECOND NArIONAL WATER SUPPLY & SEWERACE PROJECT

STAFF APPRAISAL REPORT

Table of Coniei ts

Page No.

LOAN AND PROJECT SUMMARY ...................

1. INTRODUCTION ..........................

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

Background .0 0 ..... 2Recent Sector Development and Sector Organization 3Water Resources ............ *..*****............. 4

Government Sector Strategy and Sector Investments 5Service Levels . ....................... ...... 7

Previous Bank Loans in the Sector .............. 7Constraints to Sector Development ................ 8Rationale for Bank Involvement ................ o.. 9

D]. THE PROJECT ..... ........... 9

Sector Investment Program ..................... 9Project Objectives ............. .................... 10

Project Description . .................... 11

Cost Estimates ............ ,, .. 15Status of Preparation ............ , , . .17

Implementation ........... . .,. ........ 17

Financing Plan ........ ... ... 4 . .......... 19Reimbursement and Other Agreements . 19Procurement . .... . .... , . ............ 20

Dis')ursement ............... , ............ . l1.

Reporting . ... . .......................... . . 23

Project Accounts and Audit ................ 23

This report was prepared and written by Messrs. Fritz Rodriguez, Geoffrey Matthews andSergio Contreras

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

Table of Contents (Cont.)

Page No.

Wv. THE BENlEFICIARIES .......... .. .... * ....... .. ...... 23

Background ................................ ... 23Organization and Management ...................... 24Staffing * * * *......................................... 24Training ............................................. 25Billing and Collection ........................... 25Accounting Systems ..........*.. .................. 26Audit .....................................*.... 26Insurance ........................................ 26

V. FINANCIAL ANALYSIS .. ... ............ .......... . .. 27

Past and Present Financial Performance ........... 27Revenues ..................... ....* *.............. 27Future Financial Performance ..................... 29Monitoring System .... ........................ 30

VI. PROJECT JUSTIFICATION .......................... 31

Objectives of the Proposed Investments ........... 31Technological Aspects ............................ 31Economic Acceptability ........................... 32Affu.>dability ........................................... 33Environmental Impact of the Project .............. 33Risks .......................................... 33

VI. AGREEMENTS REACHED AND RECOMMENDATIONS 33

LIST OF ANNEXES

Annex No.

1 Volume & Structure of Sales Estimated for 1987 for Eight Companies2 Detailed Description of Subprojects3 Terms of Reference for a Review of the Hydraulic Construction

Industry in Algeria4 Estimated Schedule of Disbursements5 Implementation Schedule6 Typical Organization Chart of Sector Companies7 Eight Companies - Income Statements 1984-19918 Eight Companies - Balance Sheets, 1984-19919 Eight Companies - Source and Application of Funds Statement, 1986-199110 Eight Companies - Monitoring Indicators11 Graphs - Sector Investment and Financing Program, and Sector

Auiofinancing12 Eight Companies - Assumptions for Financial Projections

Table of Contewtts (Cot.)

13 Distribution of Annual Per Capita Household Expenses in Algeria in1980.

14 Cash Flow for Calculation of Rate of ?eturn15 Tariff Schedule16 Sele, ed Documents and Data Available w'th Project File

M9h No.

19898R The Second National Water Supply & Sewerage Project

DEMOCRATIC AND POPULAR REPUBLIC OF ALGERIA


LOAN AND PROJECT SUMMARY

Borrower: Democratic and Popular Republic of Algeria

Beneficiares: Lntreprise de Production, de Gestion et de Distributiond'Eau:

d'Annaba - EPEAd'Alger - EPEALde Bechar - EPEBde Batna - EPEBAde Constantine - EPECOde Laghouat - EPELde Medea - EPEMde Mastaganem - EPEMOd'Oran - EPEORd'Ouargla - EPEOUde Setif - EPESde Tiaret - EPET

and de Tizi Ouzou - EPETI

Amount: US$250 million

Terms: Fifteen years including three years of grace, at thestandard variable interest rate.

Relending Terms: The Beneficiaries will reimburse the Government theequivalent of the Bank loan, over a period of 25 yearsincluding five years of grace, at an interest rate of10 percent.

Project Description: The project is part of the national water supply andsewerage sector investment program included in theSecond Five-Year Development Plan. The projectprovides for the development of four water supply andthree sewerage subprojecis to be completed by 1989.The project would help expand > ter production,treatment and transmission to meet the unsatisfied andfuture water demands of areas served by five regionalwater supply companies and to help expand thedistribution systems of areas served by all thirteenregional water supply companies. Technical assistancewill be provided to water sector entities and to thesector's portion of the local construction

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industry. The project wili benefit 2.2 millionpeople and assist the industrial development inseven provinces. The project faces notechnical risks. The degree of success of theGovernment's cost recovery policy will dependupon timely implementation of sector financialpolicies. ThiR risk, however, is minimized inview of the strong Government commitment tothis sector's dvelopment.

Estimated Cost:Local ForeiRn Total

Item ----- US$ Million-----Water Supply:Ain Dalia - Souk Ahras 54.1 58.3 112.4In Anguel - Tamanrasset 9.5 28.0 37.5Ain Skhouna - Saida 22.9 73.6 96.5Mexenna - Annaba 21.9 45.4 67.3

Subtotal: 108.4 205.3 313. 7

Seweraae:Tlemcem Sewage Treatment Plant 5.7 8.2 13.9Maghnia Sewage Treatment Plant 4.5 6.1 10.6Setif Sewage Treatment Plant 10.6 12.8 23.4

Subtotal: 20.8 27 .1 47.9

Distribution Pipes 86.5 51.1 137.6Technical Assistance, Studies 0.6 0.7 1.3Inter=basin Transfer Studies 4.9 5.3 10.2Management Training 0.1 0.1 0.2Construction Supervision 14.0 3.3 17.3

BASE COST 235.3 292.9 528.2

Physical Contingencies 32.3 24.5 56.8

TOTAL COST (Dec.1986 Prices) 267.6 317.4 585.0

Price Contingencies 32.3 13.2 45.5

PRO'JSED PROJECT TOTAL COST'- 1 L2 IQ3 6 6305

1/ Includes US$37.3 million equivalent of taxes and duties.

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Local Foreign TotalItem ...... US$ Million

Regional Companies' Cash Generation 94.6 - 94.6Syndicated Loan 119.4 80.6 200.0Proposed Bank Loan - 250.0 250.0Government Equity Contributions 85.9 - 85.9

EstimatedDisbursements: ........ US$ Million .........

Bank FY 1988 1989 1990 1991 1992 1993

Annual 40.3 50.0 59.4 52.3 33.0 15.0Cumulative 40.3 90.3 149.7 202.0 235.0 250.0

Staff AwriaPtepwt: NN 6582a-AL of April 23, 1987

Map 0: JBRD 19898R

ALGERIA


STAFF APPRAISAJ, REPORT

1. INTRODUCTION

1.01 This report appraises a number of regional water supply and sewerageworks to be executed in Algeria during the Second Five-Year Development Plan(1985-89). These works, together wi:h ongoing projects in the cities ofAlg -rs, Oran and Constantine, constitute the core of Government investmentsin the water supply and sewerage sector during the Plan period. They will beimplemented in seven provinces. The proposed project includes the worksrequired to meet water demands and sewage treatment needs in most urban areasof these provinces through the end of the century. Water supply and sewerageservices would be expanded to serve 2.2 million people ind to assistcontinuous industrial development in seven provinces.

1.02 Since Algeria's independence in 1962, its urban population has grownrapidly in the medium-size cities and towns adjacent to che large metropolitanareas of Algiers, Oran and Constantine. The annual population growth rate inthese areas is estimated to be 3.8 percent. Until the late 1970's, there werefew improvements in urban infrastructure, particularly in water supply andsewerage. Potable water is in short supply in most medium-size cities andtowns and it is estimated that available water producticr in these areasberely meets two-thirds of water needs.

1.03 To correct this situation, the Government plans to invest aboutUS$2.2 billion in the water supply and sewerage sector during the period1985-89. Of this amotmt, US$1.3 billion of financing is committed. Of theremaining US$0.9 billion, US$0.6 billion is to be pro.ided to finance theproposed project. The Government is constructing a new water supply systemfor Greater Algiers at an estimated cost of US$770.5 million, partly financedby a 1984 Bank loan of US$290.0 million (Loan 2461-AL). The Government isalso improving water supply and sewerage services in the metropolitan areas ofOran and Constantine through implenientation of projects with an estimated costof US$539.4 million, partly financed by a 1985 Bank loan of US$262.0 million(Loan 2591-AL).

1.04 With technical assistance provided under the Algiers Project (Loan2461-AL), the Government carried out a reorganization of the water supply andsewerage sector. The reorganization - under which thirteen regionalcompanies, instead of municipalities, were made responsible for the provisionof water and sewer services - was necessary to improve management of theservices and to build up the sector's finances. Technical assistance forlong-term institutional building is being financed under Loan 2591-AL. Thenext steps in the sector's development aim at expanding services in theremaining urban areas and consolidating management of the new regionalcompanies. The proposed project , for which the Government has requested Bankassistance, addresses the twin goals of service expansion in all urban areasand improvements in the sector's efficiency.

L.05 The proposed project would include all those investments in theDevelopment Plan that would be completed in the period 1987-1989. The projectis technically sound and is the least-ccst alternative for increasing potablewater supplies and providing sewerage services in the areas of greatest need.The project cost is estimated at US$630.5 million w4th a foreign exchangecomponent of US$330.6 million, It would amount to an in,vestment of US$286 percapita (based on benefiting 2.2 million people), which is reasonableconsidering the age of the existing systems and the need to reduce severewater shortages. A Bank loain of US$250.0 million to finance direct foreignexpenditures under the project is proposed. A Syndicated Loan ofUS$200.0 million to finance the balance of the foreign exchange cost and partof the local cost is being sought. The borrower would be the Government, theexecuting agency would be the Ministry of Hydraulics, Environment and Forestry(MHEF), and the beneficiaries would be the regional water companies.

1.06 Project preparation was financed and carried out by MHEF with theassistance of foreign and local consultants. The Bank actively participatedin project formulation. A mission composed of Messrc. Fritz Rodriguez andSergio Contreras (Bank staff) and Mr. Abdeljelil Ben Abid (Consultant)appraised the project in July and September 1986, supplementary projectcomponents were appraised by Messrs. Sergio Contreras and Geoffrey Matthews inMarch 1987.

II. THE WATER SUPPLY AND SEWERAGE SECTOR

Background

2.01 Algeria is the largest country in North Africa with an area of about2.3 million Km2 , divided by the Saharan Atlas into two regions. North ofthe Atlas is a semi-arid area which, with more than 95 percent of thepopulation, encompasses a coastal strip along the Mediterranean, the interiorplains, some highlands near the coast and the high plateaux. The mean annualrainfall in the northern areas varies from 300 rmm to 1,000 mm, exceeding600 mm only in the central and eastern coastal parts, where rich arable landis found. South of the Atlas is the Sahara where the mean annual rainfall isless than 100 mm, but which is rich in mineral resources. There are 17 majorriver basins in the country.

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2.02 Until recentl.y, Algeria was administratively divided into 31provinces (wilayate), 160 counties (dairate) and 704 commu'ies. There are now48 provinces.1' The 1985 total population is estimated at 21.9 million.Almost half of the population lives in urban areas located along theMediterranean. About 41 percent of the urban population is concentrated inthe three largest metropolitai, areas (Algiers, Oran and Constantine), whichhave an estimated combined population of about 4.2 million. Most of the ruralpopulation reside in fixed settlements of which only a portion is equippedwith water supply and sanitation facilities. A small percentage of the ruralpopulation, located in the high plateaux area, can be considered dispersed.

Recent Sector Development and Sector Organization

2.03 From Independence up to the late 1970s, an agency of MHEF, theSociete Nationale de Distribution d'Eau Potable et Industrielle (SONADE) wasresponsible for water production. Distributiona and maintenance were Wheresponsibility of the municipalities (responsible to the Ministry of theInterior), which purchased water from SONADE. Investments were generallyfinanced by Government grant, tariffs were low and service and maintenancelevels poor. During this period, furthermore, as Government sought to buildup the economic base of the country through establishment of heavy industry,investment in basic infrastructure was neglected. Systems laid down duringthe colonial period were not expanded or maintained, and water supplyshortages became increasingly serious as population, and specifically urbanpopulation grew.

2.04 In the late 1970s, Government strategy changed and increased emphasiswas placed on water resource development and on improving basicinfrastructure. A reorganization of the sector was undertaken withresponsibility for all aspects of water resource planning, development, anddistribution for both irrigation and potable use, con^entrated under oneMinistry, MHEF. Responsibility for management of water supply and seweragesystems was delegated to thirteen regional public utilities companies,established as financially autonomous publicly-owned entrepriEes, and managedas commercial undertakings. The first of these, the SociAt6 des Eaux del'Agglomeration d'Alger (SEDAL) was established in 1977. The other twelvewere established in 1983. The reorganization proved successful.

2.05 In order to coordinate the operations of the regional authoritiessatisfactorily, the "Agence Nationale de l'Eau Potable et Industrielle et del'Assainissement" (AGEP) was established in 1985, within MHEF. AGEP's role isto assist MHEF in planning and implementing water supply and sewerageinvestment programs, recommending nationwide tariffs for approval by MHEF andthe Ministry of Commerce, identifying the required level of Governmentcontributions to the companies to optimize the use of financial resources inthe sector, and formulating detailed sector policies. AGEP is still in the

This report continues to use the former territorial division becausecf the difficulties of relating census results and other statisticaldata for the newly created 48 provinces.

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organizational stage, and technical assistance to refine its organization,functions and responsibilities is being financed under Loan 2461-AL.

2.06 In conjunction with the 1983 sector reorganization, the Governmentissued a Water Code (Law No. 83-17 of July 16, 1983) to regulate theallocation and protection of water resources and to set out financial policiesfor the sector. The Code deals with ownership, concession and use of waterresources; it also prescribes that water utilities should be managed ascommercial enterpr4ses, settin6 tariffs that encourage economic use of waterand enable the entities to be financially self-supporting.

2.07 The water and sewerage sector orgauiization has thus undergonesubstantial reorganization over the past ten years; its legal andinstitutional framework is appropriate and encourages national exploitation ofwater resources. Much remains, however to be done to strengthen the newlyestablished institutions and improve program implementation.

Water Resources

2.08 Total watez resources in Algeria are estimated at 16.8 billion m3

per year, comprising 13.5 billion m3 of surface water and 2.3 billion m3

of groundwater. Suriace resources, however, are generally difficult toexploit. Most of the rivers are dry in the summer and their water, of poorquality, cannot readily be *used for domestic or industrial supply. Theirregulation through costly reservoirs is often required to obt in economicallyexploitable yields. On the other hand, the rate of infilt tion from stormrunoff and surface resources results in groundwater being available over muchof the country. The total volume of water resources that can economically beexploited is estimated at only 7 billion m3 with full development ofstorage, substantially less than the maximum theoretically available.

2.09 Most urban areas are presently supplied with groundwater, which isalso the main source of water for irrigated agriculture. While surface wateris under-exploited, groundwater resources are already utilized to fullcapacity. Domestic and industrial uses currently account for about 25% ofwater used. These needs will expand rapidly, however, as population grows andwater consumption, currently below tne desirable minimum in many areas,increases. It is estimated that only about 35% (300,000 ha) of irrigable landis currently exploited. As irrigated agriculture develops, its water needswill also grow.

2.10 The following table gives a very broad indication of the present andfuture pattern of water utilization. Serious water deficiencies, andpotential conflicts of use, are likely to develop in the more denselypopulated watersheds, and along the coastal areas where the majority of thepopulation is concentrated. Water shortages already exist in denselypopulated river basins (Algiers and Oran are examples), where present demandexceeds available supplies necessitating costly inter-basin transfers.Reclamation of wastewater and eventually desalination will become necessary tomeet demand.

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Table 2.1Water Utilization - 1981-2010

(billion m3 )

By End-User 1981 2 2010 %

Drinking Water C.70 21 3.20 37Industry 0.14 4 0.64 7Agriculture 2.54 75 4.80 56

Toa 3Q3

Government Sector Strategy and Sector Investments

2.11 Government's sector strategy has recently been articulaced in the1985-89 Second Five-Year Plan. Water demands are to be met in the followingorder of priority: firstly, domestic requirements; secondly, irrigatedagriculture; thirdly, industry. Its objectives for the water and seweragesector are to:

(a) improve water storage capacity;

(b) increase the extent of the water distribution network and numberof household connections;

(c) improve drinking water supplies in sparsely populated areas;

(d) satisfy industrial needs;

(e) improve sewerage and sanitation, specially in low income areasand in big cities; and

(f) improve management of water supply and sewerage systems.

These objectives indicate that for this plan period, priority has been givento overcoming water supply shortages. The target is to provide servicedpopulation with 150-200 lcd by the year 2010. In the next plans, increasingemphasis will be given to sanitation.

2.12 The table below illustrates the increasing importance allocated tothe water and sewerage subsector over successive plan periods.

Assumptions: Population 44 millions; domestic and commercial waterconsumption 200 lcd; industrial consumption 40 lcd; irrigatedagricultural area doubles to 600,000 ha; water utilization per ha is

38,000 m

Table 2.2Sector Investment Plan

Investment Total Per CapitaPlan DA US$ DA US$

..... billions 1974-77 4.0 0.8 240 481980-84 6.0 1.2 300 601985-89 10.3 2.2 476 102

Source: MHEF

2.13 The Second Four-Year Investment Plan (1974-77) includedDA 4.0 billion (US$800 million) or about DA 240.0 (US$48.0) per capita forwater supply and sewerage works. About DA 1.0 'illion (US$200 million) ofthis amount was to complete works initiated during the previous investmentplan (1970-73). These investments were financed entirely by Givernmentgrants. It is estimated that during the First Five-Year Plan (1930-1984),investments in the order of DA 6.0 billion (US$1.2 billion) or about DA 300(US$60.0) per capita were made in the sector. During the Second Five--YearPlan (1985-1989), MHEF plans to invest DA 10.4 billion (US$2.2 billion) in thewater supply and sewerage sector. It should be noted that this figurerepresents only 1.7% of total public investment for the period. Given thecontinuing need to make up for backlogs in water infrastructure provision, theGovernment is not considering curtailing investments in the sector in the wakeof reduced revenues from falling oil prices in 1986.

2.14 The water supply investment program contained in the Second Plan haseleven major projects, of which three are ongoing in Algiers, Constantine andOran. The remaining eight, in seven different provinces, aim at providingimproved supplies to 3.4 million people living in about 39 towns and citiesranging from 15,000 to 800,000 inhabitants. Their present consumptionaverages about 78 lcd ranging from a low of 31 lcd to a high of 188 lcd.Unacccounted-for water is estimated at 28%. A breakdeown of the estimatedwater sales by categoLy for 1987 is in Annex 1 and is suimarized below.

Table 2.3Volume and Structure of Sales Estimated for 1987 '

Usage Volume (Mm3 ) PercentDomestic 282 62Commercial 35 8Public 47 10Industrial 67 15Others (bulk supply contracts) 26 5

TOTAL u Q

Estimates for eight regional companies, which account for anestinaced 90% of the sector's sales.

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2.15 Sewerage projects are coordinated with the water supply projects inkeeping with the Government's integrated approach to water resourcesmanagement and environmental protection. At this stage of development, thesewage treatment projects are selected according to the necessity to protectraw water sources from pollution so thay they may be used for irrigation andpotable water needs.

Service Levels

2.16 The Government's sector strategy and investments over the last decadeor so have greatly improved the level of service from an estimated 60% of theurban population having direct connection to water service lines in 1976 toabout 802 by 1985. Despite this achievement, attained in a period of highurban population growth, much remains to be done as only a third can beconsidered well served. The overall consumption varies widely, from 20 lcd inChegoun in the Kabylie Mountains to 286 lcd in El Golea in the central part ofAlgeria, but in most cases is considered inadequate. This consumption hasbeen limited by inadequate production capacity and the high volume ofunaccounted-for water, which in some cities reaches 50 percent of production.Improvements of the metering systems and renovation of the distributionnetworks, which are currently in progress, would reduce unaccounted-for waterto the acceptable levels achieved in the larger towns (e.g. Oran andConstantine), where unaccounted-for water is under 25% of production. Ingeneral, water supply in nmost cities is intermittent and available no morethan 12 hours a day.

2.17 About 80 percent of the urban population is connected to public sewernetworks, which in most cases are combined systems which also carry stormwaterrunoff. Wastewaters in the cities are generally discharged untreated directlyinto the Mediterranean or into rivers. Treatment facilities being built inGreater Algiers and in Constantine are expected to become operational in 1988and 1989 respectively. Although about 70 percent of the rural locations I/are provided with public water svpply systems and 60 percent with sewersystems, only about 40 percent of the rural population has direct access topublic water supply networks; and only 25 percent to sewerage.

Previous Bank Loans in the Sector

2.18 The Bank became involved in the sector in 1978, when theUS$82.0 million Loan 1545-AL was made for the Algiers Sewerage Project, tohelp finance the construction of sewer interceptors and a sewage treatmentplant in Greater Algiers and management and engineering studies in the citiesof Algiers, Constantine and Oran. One of the objectives of this project was.o strengthen the sector organization in Greater Algiers, which ultimately ledto the recent Government decision to set up similar authorities in the rest ofthe country.

2.19 To help improve water supply and sewerage services in the Algiersarea, the Bank in 1980 made a US$5.0 million loan (S-17-AL) to finance a water

I/ Defined as agglomerations with less than 2,000 inhabitants.

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resources study, the Water Master Plan tor the Algiers/Sebaou Area. Upon therecommendations of this study, a water supply project, which is the firstconstruction stage of the Master Plan, was defined for Greater Algiers and isnow under construction. In June 1984 the Bank made a US$290 million loan(2461-AL) to partly finance this construction. This loan also assistedinstitutional development of the sector by partly financing the setting up ofAGEP, the implementation of a sector eurvey, and organizational, managerialand financial studies for the Algiers company.

2.20 The execution of the works included in the Algiers Sewerage Project,after some initial delays, has progressed well. The project, however, isexpected to be completed only by the end of 1987, some four years later thanforeseen dt appraisal, because of delays in inscribing the project in thenational budget and appointing consultants, additional review by MHEF of theproject design, and slow procurement of the works. All these problems havesince been resolved. Loan S-17-AL was closed at the end of 1984.Implementation of the Algiers Regional Water Supply Project is progressingextremely well.

2.21 More recently, the Bank made a US$262 million loan (Loan 2591-AL) topartly finance water supply and sewerage works in Oran and Constantine andtechnical assistance for the thirteen regional companies in the areas oforganization, management, finance and training. Project execution isunderway. The loan was declared effective in December 1986.

Constraints to Sector Development

2.22 Until recently, lack of sound sectoral financial policies was a majorconstraint to sector development. Water tariffs, all over the country, hadgenerally remained low during the past decade. The municipalities, which wereresponsible for water supply and sewerage services, were under no pressure toimplement realistic tariffs which could have encouraged consumers to savewater because, until recently, investments in water supply and sewerage werefinanced by Government grants to the municipalities. The Government has nowdecided that the regional companies should finance a substantial portion oftheir investments with borrowings and progressively with their internal cashgeneration.

2.23 Administrative burden has also been another constrairt to the sectordevelopment. MHEF has been slow in implementing the sector's work programs.In some cases, delays in procurement have resulted in cost overruns. Thoughprocurement regulations and schedules are well defined in codes, they have notalways been followed. A project objective is to help MHEF streamline theprocurement process and project e;ecution.

2.24 Other difficulties that the regional companies are facing are notparticular to the sector. They are the product of general institutionaldeficiencies in Algeria. Some basic equipment and materials needed foroperating and maintaining the systems, such as vehicles, water meters, pipes,etc. are supplied by state monopolies, and are not readily available.

2.25 Another major difficulty confronting the regional companies is thelack of qualified staff. Prior to the creation of the companies, water

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services were provided by a central operating organization, EONADE, and themunicipalities. SONADE was short of staff, and with the decentralization ofoperations into thirteen companies, the staff shortage has become more acute.A large staff training program for MHEF and the regional companies has beenprepared by the International Labour Organization (ILO) and is scheduled tostart in August 1987. Its cost would be partly financed under Loan 2591-AL.

Rationale for Bank Involvement4

2.26 Since the beginning of its involvement in the sector, the Bank'slending strategy has been geared essentially towards the development of astrong institutional framework for the sector, that should result in soundinvestment programming, improved operational efficiency of the regionalcompanies and ultimately in improved and expanded services. To this end, theBank is actively assisting the Government in putti.ng in place financiallystrong and viable organizations in the recently created regional companies andin expanding wat, r supply and sewerage services in the large and intermediatecities, as outlined in the Second Five-Year Plan. Important institutionalreforms have already taken place under the four previous Bank-financedprojects. The proposed project would extend these reforms by helping theGovernment to implement financially efficient tariff policies on a costrecovery basis through the development of a financial planning and controlsystem based on appropriate managerial, technical and financial objectives.The proposed project would also provide technical assistance in the form ofspecialized training for the management of AGEP and the regional companies, astudy of potential inter-basin water transfers and a study of the water supplyand sewerage segment of the construction industry.

2.27 The Algerian Government has prepared an investment program for the1985-89 period for water supply and sewerage which it has the technical andmanagerial capacity to implement. The Bank has reviewed the overall programand considers it well formulated and technically sound. However, theGovernment's financial resources fall short of requirements and it hasrequested Bank assistance to fill this financing gap.

m. THE PROJECT

Sector Investment Program

3.01 Investments to be made during the Second Five-Year Plan, 1985-89,(Annex 2), are intended to increase water supply, and provide sewerage andsewage treatment facilities in major, intermediate and small-sized cities andtowns nationwide. The individual water supply projects were selected by MHEFbased on the most severe water needs arising from high population growthcoupled with the age and deficiencies of present water systems. The sewagetreatment projects were chosen to protect raw water sources from pollution andthus reduce health hazards in areas where rivers are important sources ofwater for irrigation and for major urban agglomerations. Plan proposalsrepresent the least-cost engineering alternatives to meet water demands andwastewater treatment in the concerned regions. In all, about 60 percent ofall consumers in the country would benefit from these investments.

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3.02 The total cost of the 1985-1989 investment program in current pricesis estimated at DA 10.4 billion (US$2.2 billion) with a foreign exchangecomponent of DA 5.1 billion (US$1.1 billion) or about 50 percent of the totalcost.

3.03 The investment program includes three large water supply and sewerageprojects for the Algiers, Oran and Constantine areas, currently underconstruction, eight regional water supply projects located in seven provincesnationwide and three sewage treatment projects. In addition to these regionalsubprojects, the water supply and sewerage networks of all thirteen regionalcompanies would co 'inue to be improved and expanded. The implementation ofongoing technical assistance and training programs would also continuethroughout the Plan period.

3.04 In the project, investment in four out of the eight regional watersupply systems, benefitting five provinces, and the three sewage treatmentplants, have been grouped together and are referred to hereinafter as"subprojects". The appraisal mission carried out a detailed review of theseseven subprojects and is satisfied as to their appropriateness, priority andtechnical integrity. Implementation of the seven subprojects is due to beginin 1987 and would be completed by 1989.

Projet Objectives

3.05 The objectives of the proposed project are to support theGovernment's Five-Year Development Plan and investment program in the watersupply and sewerage sector. Specifically, the project would assist theGovernment to:

(a) improve and expand water supply services, especially in thecities for which water production would be increased through theproposed project (paras. 3.10, 3.11, 3.14);

(b) provide sewage treatment facilitieE to townz which are presentlydischarging untreated sewage into rivers whicit are important rawwater sources for irrigation and potable water (paras. 3.12,3.13);

(c) support the Government's sector policy for cost recovery whichtakes into account the overall financial viability of thesector, while ensuring adequate financial accountability of theindividual regional water supply and sewerage companies(paras. 5.09, 5.10);

(d) enhance the project implementation capabilities of MHEF and AGEP;

(e) study and define measures to strengthen the water supply andsewerage sector of the Algerian construction industry(paras. 3.16 to 3.18);

(f) study the viability of water transfer projects identified in theWater Supply Master Plan for Northern Algeria (para. 3.19); and

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(g) train management personnel in water and sewerage installationsmanagement (para. 3.15).

3.06 The project aims at providing:

(a) water supply to 750,000 people living in five provinces throughthe construction of four water supply subprojects; and

(b) sewage treatment facilities in three towns, with a combinedpopulation of 340,000. Two of the towns are situated ontributaries of the Oued Tafna upstream of the Tafna intake andwater treatment works (Loan 2591-AL); the sewage treatmentfacilities would thus protect the water supply of the700,000 itihabitants of Oran. The third town is located 25 kmsupstream from the Ain Zada reservoir, which is a raw watersource for 425,000 inhabitants in the Setif area.

3.07 About 80Q of the population in the project area is served directly bywater companies and their average consumption is 74 lcd, ranging from a low of31 lcd to a high of 99 lcd. The remaining 20S obtain water from wells andstandpipes. Water production is about 38 Mm3/year, of which unaccounted-forwater is estimated to be 29X and domestic and industrial consumption20 Mm3/year and 7 Mm3/year respectively.

3.08 The proposed project goal is tc 9ttain the water supply levelsindicLted in para 2.11 while maintaining an 801 service level, accommodating apopulation growth of 41 per year and protecting major raw water sources asexplained in para 3.01. Water supply and sewerage subprojects designed toachieve these goals are outlined in paras. 3.10 and 3.12 and are described inmore detail in Annex 2.

Project Description

3.09 The proposed project would be part of the investment program to beimplemented during the last three years (1987-89) of the Second DevelopmentPlan (Map IBRD N' 19898). It would consist of:

(a) four regional water supply subprojects, including waterproduction, treatment and transmission components;

(b) three sewage treetment plants;

(c) expansion of the water supply distribution networks of allthirteen regional companies;

(d) a study of the water supply and sewerage sector of theconstruction industry leading to measures to improve itsefficiency and competiveness;

(e) four water transfer studies for the northern areas of Algeria;and

(f) training of AGEP and the thirteen regional companies' managersin management of water and sewerage installations.

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A detailed description of the regional water supply and sewage treatmentsubprojects is in Annex 2. A brief outline of the proposed production,treatment and transmission works included in the water supply subprojects isgiven in para. 3.10 and a description of the sewage treatment subprojects isgiven in para. 3.12. The expansion of the distribution network is discussedin para. 3.14; management training in para. 3.15; the study of theconstruction industry in paras. 3.16 through 3.18; and the water transferstudies in para. 3.19. The population increase and the water made availableunder the proposed project are as follows.

Table 3.1Present and Future Population and Water Consumption

1985 1995-2010Subproject Population Consumption Consumption Population Consumption Consumption

Serted lcd _ 3 /d _' Served (year) lcd m3/d -

Ain Dalia 156,800 31 4,900 418,000 (2010) 200 83,600In Amguel 12,200 41 500 24,300 (2000) 150 3,600Ain Skhouna 101,000 99 9,900 161,000 (1997) 200 32,200Mexenna 421,700 95 40,400 624,200 (1995) 200 151,200

Including industry.Source: MHEF

Regional Water SuDDlY Subprojects

3.10 The four regional water supply subprojects are:

(a) Ain Dalia - Souk Ahras - Ouenza Subproject

A multipurpose dam on Oued Medjerda is under construction andwill serve the cities of Souk Ahras, Ouenza and El Aouinet andsome minor towns located in the Guelma and Tebessa Provinces.The dam and a treatment plant, with a capacity of 1.3 m3/sconstructed under this component, would raise the toLalproduction capacity from 7,100 m3/day to 119,400 m3/day,which would satisfy demand in the above cities and the northernregion of the Tebessa Province until the year 2010.

(b) In Amguel - Tamanrasset Subproject

Under this subproject, to alleviate the severe water shortage inthe city of Tamanrasset, which is located in the Sahara Desert,watei will be pumped from a wellfield located some 131 Kms fromthe city. The proposed wellfield, the closest available watersource for Tamanrasset, would increase the production from700 m3/day to 5,900 m3/day, wh4ch would be sufficient tomeet demand until the year 2000.

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(c) Ain Skhouna - Saida Subproject

In the Ain Skhouna-Saida region, a similar subproject would beconstructed. A wellfield at Ain Skhouna, 106 kms from Saida,would raise the product:on capacity from 12,500 m3 /day to47,000 m3/day, satisfying demand until 1997.

(d) Mexenna - Annaba Subproject

The Mexenna-Annaba subproject would primarily serve the countiesof Annaba and Drean. The Mexenna Dam on Oued El Kebir iscurrently under construction; water from the reservoir formedby this dam would be treated in two plants with a combinedcapacity of 1.5 m3/s. Water production would increase from85,000 m3 /day to 216,000 m3/day which would meet the demanduntil 1995.

3.11 The proposed Bank loan would finance the direct foreign exchangecomponent of the cost of the mechanical, electrical and treatment equipmentfor the water treatment works and pumping stations, the transmission pipelinesfor raw and treated water, including telemetry equipment of these foursubprojects. These works are self-standing and would be put to use uponcompletion.

Sewage Treatment Works

3.12 The three sewage treatment works (STW) subprojects are:

(a) Tlemcen S.T.W. Subproject

The Tlemcen subproject would treat the wastewaters of this city(110,000 inhabitants) and discharge its effluent into the OuedChabet El Horrah. This river is a tributary of the Oued Tafna,which is an important raw water source for Oran. The treatmentworks would have a capacity of 30,000 m3 /day, sufficient tomeet the treatment needs until the year 2005.

(b) Maghnia S.T.W. Subproject

The sewage from the 55,000 inhabitants of the city of Maghniawould be treated under this subproject. The treated effluentwould be discharged into the Oued Ouendeffou, a tributary of theOued Tafna, which is a raw water source for Oran. The treatmentworks would have a capacity of 14,500 m3/day, sufficient tomeet the treatment needs until 1989. Construction of a secondphase of this project has also been programmed to start in1990. This is not part of this project.

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(c) Setif S.T.W. Subiroject

This subproject would serve the city of Setif. The treatmentworks would discharge the effluent into the Oued Bou Sellamwhich has been daoned 25 kms downstream, at Ain Zada, to provideraw water for Setif and the surrounding region. The currentpopulation of Setif is 177,000, The treatment works capacitywould be 44,000 m3/day, sufficient to meet the treatment needsuntil 1990, after which a second phase is programmed to start in1991.

3.13 The proposed Bank loan would finance the direct foreign exchangecomponent of the cost of the mechanical, electrical and treatment equipmentfor these sewage treatment works. These works are self-standing and would beput to use upon completion.

Water Distribution Pipes

3.14 At the average current growth rate of about 42 per year, the urbanpopulation is expected to double in the next 17 years. To meet the additionalwater demand, all thirteen regional water companies are expanding their waterdistribution networks at a relatively fast pace. It is estimated that thecurrent expansion would require some 1,500 kms of new pipes. The directforeign exchange cost component of these pipes, which represents about 63,000tonnes of ductile iron pipes and fittings, would be financed by the Bank underthe proposed project.

Management T

3.15 The project would provide a small training program (US$200,000) forthe management personnel of AGEP and the thirteen regional water companies.The training would be composed of seminars to be given by internationallyrecognized experts and training visits to research centers atid leading waterauthorities that would assist the participants to enhance their managementskills in the day-to-day operations of water and sewerage installations.

Study of the Local Construction Indusry

3.16 The Algerian construction industry is made up of state-owned firmsspecialized in specific sectors and patronized by ministries; for example,there are construction firms for hydraulic works (water supply, sewerage andirrigation) and those for public works such as roads, bridges, housing, etc.In Algeria, the construction industry accounts for about 12 percent of GDP,and during the period 1970-80, the value of construction amounted to almost47 percent of gross fixed investments. In the water supply and seweragesector, there are 17 specialized construction firms, some of which build dams,some treatment plants and others pipelines, etc. Because of the highlydeveloped specialization, and very often due to the scarcity of firms for aspecific task, construction costs and implementation periods are greater thanthose of international companies.

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3.17 To improve the efficiency and competitiveness of the water supply andsewerage sector of the construction industry, the proposed project wouldinclude a study of its procedures and activities. A survey of the industrywould be carried out to determine the availability of management personnel,technical staff, labor, materials, equipment, housing and other facilities. Areview of the regulations, practices and procedures affecting the industrywould be undertaken to identify possible constraints in its operations. Atthe same time, the performance of foreign firms operating in Algeria would beevaluated and compared with that of local firms. Consultants would berecruited by end-1987.

3.18 At the conclusion of the study, which is expected to take six months,a report would be submitted to MEEF recommending measures to improve theconstruction industry's efficiency and competitiveness. Draft terms ofreference for the study are outlined in Annex 3.

Water Transfer Studies

3.19 The Water Supply Master Plan for North Algeria identified severalpotential water transfer systems. The studies would be carried out byconsultants and would be completed by December 31, 1989. The systems to bestudied include the transfer of water from: the Taksebt Dam; the OuedCheliff; Beni Haroun Dam; and the Koudiat Affren Dam; to Algiers and TiziOuzou; Mostaganem and Oran; Mila, Constantine and Batna; and Bouira,respectively. The project would finance the foreign exchange component of thecost of feasibility studies of these transfer schemes.

Cost Estimates

3.20 The estimated total project cost is DA 2,963.3 million(US$630.5 million) with a foreign exchange component of DA 1,553.7 million(US$330.6 million) or about 52 percent of the total cost. Detailed costs of-he project elements are shown in Annex 2, a summary of the cost estimate isas follows:

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Table 3.2Summary of Estimated Project Cost 1'

, ....... . .. . ... .......... ..................... .... ....... . .... I............. .... ..............

Iten Local Foreign Total Local Foreiqn Total Percent,,.., DA Million .... ,.. .. , US5 Nil ion .....

,........... ................ .............. ............................... .. .. .......... .......... ................... ..... ......... .

Water Supply:

Ain Dalia - Sauk Ahras 253.6 274.4 528.0 54.1 59.3 112.4 19.2In An uel - Teaanrisset 44.7 131.5 176.2 9.5 29.0 37.5 6.4Ain S5onna - Saida 107.8 345.7 453.5 22.9 73.6 96,5 16.5Nexenna - Annaba 103.1 213.6 316.7 21.9 45.4 67.3 11.5

Subtot;l 509.2 965.2 1474.4 108.4 205.3 313.7 53.6Sewerage:

Tlescen S,T.k 26.7 38.3 65.0 5.7 9.2 13.9 2.4Maghnia S.T.W 21.3 29.7 50.0 4.5 6.1 10.6 1.9Seiti S.T.N. 50.0 60.0 110.0 10,6 12.9 23.4 4.0

--- -- ------- ... .... .......... -------. ------- -------... ---

Subtotal 98.0 127,0 225.0 20.0 27.1 47.9 8.2

Ductile Iron Pipes 406.7 240.4 647.1 Sb,5 51.1 137.6 23.5Technical Assistance, Studies 2.8 3.2 6.0 0.6 0.7 1.3 0.2Inter-basin Transfer Studies 23.0 25.0 48.0 4.9 5.3 10.2 1.7Mana esent Trsini3q 0.5 0.5 1.0 0.1 0.1 0.2 0.0Construction Supervision 65.7 15.3 81.0 14.0 3.3 17.3 3.0

…....... … ....... ........ .... ------- -

BASE COST (Dec.1996 Prices) 1,105.9 1,376.6 2,482.5 235.3 292.9 528." 90.3

Physical Contingenciei 152.0 114.9 266.9 32.3 24.5 56.8 9.7….......… ----- ....... ------ ....... ....... ........

TOTAL COST (Dec.1996 Prices) 1,257.9 1,491.5 2,749.4 267.6 317.4 585.0 100.0

Price Contingencies 151.7 62.2 213.9 32.3 13.2 45.5 7.8....... ....... ....... ....... ------- .......

PROPOSED PROJECT TOTAL COST 1,409.6 1,553.7 2,963.3 299.9 330.6 630.5

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

US$1 a DA 4.7

The estimates include US$37.3 million for customs duties on importedequipment and materials and other taxes on services.

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3.21 Cost estimates are based on detailed designs for all the projectcomponents and on actual bids for recently awarded contracts for similarprojects. Physical contingencies are estimated at 10 percent which isconsidered appropriate given the nature of the works and degree of accuracy ofunit costs on which the estimates are based. In addition, the December 1986local prices are projected tc increase annuall, by 8 percent cauring the period1987-89, and foreign prices by 3 percent in 1987 and 1 percent thereafter.Overall, the project cost in current prices is projected to exceed the 1986estimates by about 7.8 percent.

3.22 Ihe project provides for an estimated 150 man-months of foreignconsulting services for carrying out the construction industry study and2,100 man-monchs for construction supervision, training and water transferstudies.

Status of Prepar8tion

3.23 Detailed design of the seven subprojects has been completed and landhas been acquired. Construction of the Ain Dalia-Souk Ahras andMexenna-Annaba subprojects is underway. Both started in 1985 and the AinDalia and Mexenna Dams are well advanced. In addition, the bidding proceduresfor the water treatment plant at Ain Dalia have already been initiated.

3.24 Construction of the other two water supply subprojects and the threesewage treatments works is expected to start during the last quarter of 1987.Distribution network expansion in all thirteen regional water companies is acontinuous process and pipelaying is ongoing as well as preparation of furtherworks.

inplementation

3.25 Project implementation would begin mid-1987 and be completed byend-1989 (Annex 5). As in the case of previous Bank assisted projects inAlgeria, project implementation would be carried out by AGEP, the specializedagency of MHEF. At the express wish of the Government, civil worksconstruction under the proposed project would be carried out by local firmsand has been excluded from Bank financing. This arrangement is satisfactory.To improve efficiency of the construction industry in hydraulic works of thistype, a study is included ir the project. For construction supervision ofsome specialized works, MHEF would be assisted by consulting firms which wouldbe retained in accordance with Bank guidelines for the use of consultants andunder terms and conditions satisfactorv to the Bank. These consultants wouldbe appointed in the third quarter of 1987 as construction of the works isabout to start. Consultants would also be retained for the constructionindustry study no later than December 31, 1987.

3.26 The Ain Dalia and Mexenna dams, are important structures whosestability should be carefully monitored. Consequently, during negotiations,the Government agreed that no later than December 31, 1987, MHEF would employengineering experts to assist it in inspecting the dams and related structuresannually during con5itruction and the first five years after completi.on.Thereafter, the inspections would be made once every five years. The experts

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would be retained in accordance with the Bank guidelines for the use ofconsultants. Following an inspection, MHEF would carry out any necessaryremedial actions suggested by the consultants.

3.27 In the areas to be covered by the reservoirs at Ain Dalia and Mexennathere are 684 inhabitants (115 families), who will be rese:ttled. A total ofDA 130 million (US$28 million) has been budgeted for expropriation andresettlement of all the 684 affected inhabitants. Resettlement in Algeria iscarried out under Ordinance No. 76-48 of May 25, 1976, which is based onsimilar French legislation. This law includes among the steps necessarybefore resettlement takes place, the following: (a) inquest prior todeclaration of a property as being of public domain; (b) approval by themunicipal assembly; (c) declaration of public domain property; (d) inquest forfinal determination of which properties are to be expropriated and theirrightful owners; (e) negotiation of compensation; and (f) expropriation andresettlement. The declaration of public domain property is establishcd bydecree issued jointly by the Miniatries of the Interior, Finance, PublicWorks, and the government authority concerned (e.g. MHEF), in cases where thebeneficiarv is the state.

3.28 In the case of the Ain-Dalia dam, the first four steps have beencompleted and the fifth is in progress. Construction of replacement housinghas alrealy startEl and expropriation and resettlement is scheduled forOctober i987. In the case of the Mexenna dam, construction of which startedin 1985, to be completed by 1989, only the census of the affected populationhas been carried out. The resettlement plan for the area to be covered byimpounding at the Mexenna dam has been received but found to be insufficientlydetailed.

3.29 Expropriation and resettlement of inhabitants in the impounding areaat Ain Dalia is scheduled to be carried out by October 1987. Duringnegotiations, it was agreed that the Government would send to the Bank byDecember 31, 1987, an implementation schedule for executing resettlementlegislation for the inhabitants at Mexenna which would consider finalexpropriation and resettlement either before impounding should start or byDecember 31, 1987 whichever comes sooner. The Bank will closely monitorexecution of the resettlement ptograms during project execution.

3.30 The Oued Medjerda, which is the raw water source for the AinDalia-Souk Ahras water supply subproject, is an international waterway flowingfrom Algeria to Tunisia. The river basin is shared equally between the twocountries. The total annual flow at Souk-Ahras is normally about 60,000 Mm 3

per year. The water supply demand in Algeria would require about 40,000 Mm3per year, i.e. about 2/3 of the annual flow. The Bank has not yet receiveddocuwentation that shows the agreements reached on riparian rights. Duringnegotiations, it was agreed that the Government would send this documentationto the Bank by June 30, 1988. Alternatively, by December 31, 1987, theGovernment may request the replacement of this project component by anotherone which should conform to key Bank criteria for acceptability, namely thatthe alternative component should be technically, economically and financiallyfeasible, be the least-cost technical alternative, be a part of theGovernments' investment program, have a high priority, detailed engineeringdesign for the component should be available and riparian rights, resettlement

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and environmental issues, if any, should have been solved. It was furtheragreed that in the event that the riparian rights issue is not resolved orthat an acceptable replacement project component is not identified byJune 30, 1988, then the Bank would cancel the amount of the loan that wouldfinance the Ain Dalia-Souk Ahras subproject (US$26 million).

Finawipg Plan

3.31 A Bank loan of US$250.0 million to finance direct foreign exchangeexpenditures for the project is proposed. .his loan would financeUS$69.1 million of mechanical, electrical and treatment equipment fortreatment works, wellfields and service reservoirs and US$61.2 million ofdistribution pipes; 'JS$109.7 million for transmission pipes; US$6.6 millionof technical assistance/studies; and US$3.4 million of constructionsupervision. The loan would be made to the Government to be repaid over12 years after a 3--year grace period, at the standard variable interest rate.A syndicated loan of US$200.0 million to finance the balance of the foreignexchange cost and part of the local costs is proposed. Should this loan notmaterialize, the Government is prepared to provide the necessary funds. Theremainder of local cost would be financed by the Government and the regionalwater companies in the proportions shown below:

Table 3.3

Prjeqt Finang

US$ Million Percent

Regional Companies' Cash Generation 94.6 15.0Syndicated Loan 200.0 31.7Proposed Bank Loan 250.0 39.7Government Equity Contributions 85.9 13.6

XQ5ti, PRCS£;T C0sZ iX6.5

&.32 The regional companies would finance part of the program ofdistribution network expaasion. The Government would finance the constructionof production and transmission works and the remainder of the distributionnetwork expansion program. During negotiations, the Government agreed that itwould promptly make available the above funds and any additional funds neededto complete the project.

Reimbursement and Other Agreernents

3.33 Upon project completion, MHEF would transfer ownership of the worksto the regional companies, which are the beneficiaries of the proposed loanand which are described in "hapter IV. The legislation (para. 2.06) governingwater supply and sewerage operations in Algeria requires that the regionalcompanies firance their investments principally by long-term borrowings andeventually develop a self-financing capability. Hence, it is proposed thatthe companies reimburse the Government the equivalent of the Bank loan.

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3.34 These reimbursements by the regional companies would start in 1992after a 5-year grace period, to be completed over 20 years, with interest at102. These terms are appropriate. The 102 nomnnal interest is set2 percentage points above the expected 82 inflation rate as the foreignexchange risk on the loans would be borne by the Government. Although the25-year life of the Government's loan is longer than that of the Bank loan, itis still equivalent to about one-half of the useful life of the underlyinginvestments. During negotiations, agreement was reached on the details of thereimbursement modalities, together with the Government's financing conditionsof works to be exploited by the regional companies, which would be set oLt inReimbursement Agreements between the Government and each of the regionalcompanies. Copies of these Reimbursement Agreements, duly executed, havealready been received by the Bank.

3.35 Under the proposed procurement arrangements (para. 3.36), a largequantity of ductile iron pipes and fittings, which are required fordistribution system improvements, would be financed by the proposed Bank loan,imported through ICB by ENSIDER, a state enterprise specialized in such bulkpurchase of pipes and fittings (para. 3.37). However, as the Government wouldbe the Borrower, in order for the Bank to finance these project-relatedpurchases, all disbursement requests would be made by the Government. Duringnegotiations, the Government agreed to this procedure.

Procurement

3.36 Contracts for the supply of mechanical and electrical equipment andmaterials and the distribution and transmission pipes for the project would beawarded following international competitive bidding consistent with the Bankguidelines for procurement. In evaluating bids, a 15 percent margin ofpreference or the actual customs duties, whichever is lower, would be allowedfor goods manufactured in Algeria. Most of the supply contracts are expectedto be won by foreign suppliers with the exception of the purchase of steelpipes which are manufactured locally. All civil works would be carried out bylocal firms selected by MHEF under LCB procedures, and are not financed underthe proposed Bank loan. Local competitive bidding procedures are generallyconsistent with the need for economy and efficiency in the execution of theproject. There were, however, a few procedures which were inconsistent withBank procurement guidelines and others which required clarification. Theseprocedures, and proposals to improve them, have been discussed duringnegotiations and agreement reached regarding the needed changes to make thecurrent procedures acceptable to the Bank. Consultants for constructionsupervision, training, the water transfer studies and the water supplysewerage sector of the construction industry would be retained in accordancewith the Bank guidelines for the use of consultants.

3.37 Ductile iron pipes and fittings for distribution system improvementsand expansion would be imported by a state enterprise, ENSIDER, under ICB forthe account of MHEF. By concentrating such purchases with ENSIDER, it wouldbe possible to secure competitive prices through bulk orders placed withinternational pipe suppliers. All procurement documentation will be reviewedby the Bank prior to ICB.

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Table 3.4Procurement Table

(US$ Million)

Project Element ICB LCB Other Total Cost

Wellfields 0.7 1.9 - 2.6(0.7) (0.7)

Reservoirs 5.5 18.2 - 23.7(5.5) (5.5)

Water Treatment 26.7 30.9 - 57.6(12.9) (12.9)

Pumping Stations 30.7 24.6 - 55.3(30.7) (30.7)

Transmission 111.9 118.4 - 230.3(Steel Pipes) (109.7) (109.7)Distribution 61.2 111.8 - 173.0(Ductile Iron Pipes) (61.2) (61.2)Sewage Treatment 19.3 37.1 - 56.4

(19.3) (19.3)Construction Supervision - - 19.2 19.2

(3.4) (3.4)Technical Assistance/Studies - - 12.4 12.4

- - (6.6) (6.6)Total Project 26. 349 3"16 630.5

Note: Figures in parentheses are the respective amounts proposed to befinanced by the Bank loan.

Disbursement

3.38 The proposed Bank loan would be disbursed against 100 percent offoreign expenditures for equipment and materials and for expenditures againstconsulting services. A disbursement period of about 6 years, which is shorterthan the standard disbursement profile is forecast for three reasons. First,preparation of detailed engineering designs and plans are complete andconstruction of some of the regional subprojects has started. Secondly, about25% of the loan would be disbursed against purchase of pipes and fittingswhich are urgently needed for distribution network expansion program coveringa large number of various sized works within the thirteen regions, some ofwhich are ongoing. Thirdly, disbursement performance under the ongoingproject (Loan 2461-AL) has been excellent; at the end of FY86, actualdisbursements were running substantially ahead of appraisal forecast.Estimated quarterly loan disbursements for the proposed project are given inAnnex 4. The closing date of the proposed loan would be June 30, 1993. Theproposed Bank loan of Us$250.0 million would be disbursed as follows:

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Table 3.5

Disbursements b-y CategorY

Amount 2 of Expenditures ^

Categor Description US$ Million to be financed

1. Mechanical, electrical and 60.0 100% of foreigntreatment equipment expenditures

2. Pipes and fittings:

(a) transmission 95.0 1002 of foreignexpenditures, and1002 of localexpendituresdelivered on sitenet of taxes andduties

3. (b) distribution 6O,0 1002 of foreignexpenditures

4. Training & Studies 6.0 1002 of expenditures

5. Supervision of Works 3.0 1002 of expenditures

6. Unallocated 26.0

TOTAL 250.0

3.39 To make prompt payments to suppliers and consultants, a portion ofthe proposed loan proceeds would be used to establish a Revolving Fund forwhich a Special Account would be maintained at the Central Bank of Algeria.This system has worked well with previous Loans 2461-AL and 2591-AL. It isestimated that the maximum amount of the Fund would be US$20.0 million, whichwould be sufficient to finance the Bank's share of eligible projectexpenditures over a four-month period. The Fund would be maintained inUS dollars. Replenishments of the Special Account would be submitted on amonthly basis for a minimum of US$5.0 million equivalent or when approximatelyone third of the Special Account has been spent, whichever was the sooner.Disbursement applications would be fully documented except for withdrawalsmade against distribution pipes contracts valued up to US$500,000 equivalent,and treatment works, pumping station, service reservoir equipment contractsvalued up to US$50,000. equivalent. These would be presented on the basis ofStatements of Expenditures (SOEs) duly certified. Audit reports would includea separate opinion given by independent auditors acceptable to the Bank as towhether the SOEs submitted for reimbursement could be relied upon to supportthe related withdrawls.

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Rteport

3.40 In addition to monitoring arrangements for tariffs, staffing, watersales and other financial parameters (paras. 5.09 and 5.13), duringnegotiations, it was agreed that MHEF would submit reports to the Bank, whichshould address, in particular, the following:

(a) quarterly:

(i) progress in procurement of equipment and materials;

(ii) progress in construction of the project facilities; and

(iii) expenditures on the project;

(b) annually:

(i) updated cost estimates of remaining works.

3.41 During negotiations, it was also agreed that, within six monthsfollowing the closing date of the loan, MHEF, in conjunction with each of thecompanies, would prepare and submit tn the Bank a completion report on theexecution and initial operation of the project, its costs and benefits, theperformance and fulfillment by the Government, MHEF, the companies and theBank of their respective obligations under the Loan and Project Agreements andthe accomplishment of the objectives of the Loan.

Project Accounts and Audit

3.42 MHEF mai.atains separate accounts and records of its projects. Afinancial controller from the Ministry of Finance permanently controls theaccounts, which nevertheless should be audited regularly by independentauditors. To this end, during negotiations, it was agreed that MHEF'saccounts for the project, including the Revolving Fund account, would beaudited annually by independent auditors acceptable to the Bank and submittedto the Bank not later than nine months after the end of each fiscal year.Certified copies of the accounts as well as the auditors' reports would alsobe furnished to the Bank.

Iv. THE BENEF'ICIARIES

Back=oro

4.01 The Borrower of the proposed loan would be the Government and thebeneficiaries would be the thirteen regional companies. Potable water supplyand sewerage services in Algeria are the responsibility of thirteen regionalcompanies, which were established by Presidential Decrees Nos. 83-328 through340 of May 14, 1983. These companies have been gradually assuming thisresponsibility and taking over sector assets and liabilities frommunicipalities and SONADE, a bulk water production company which until thenoperated in the concession area of eight of today's companies. Many of the

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existing systems, particularly in the smaller centers, have been poorlymanaged and maintained, and it is the intention of the Government that thenewly established companies do not take over responsibility for new centersfaster than their physical and human resources permit. In this connection,Loan 2591-AL provides for the purchase of operational equipment, training andother measures for the institutional deve±opment of AGEP and all RegionalWater Companies (paras. 4.02, 4.05). Each company has a corporate statute, isfinancially autonomous and managed as a commercial undertaking. AGEP, theMHEF's agency, provides assistance to the companies in the setting of theirmanagerial, technical, financial and training objectives and plans and thepreparation of their budgets and monitors the execution of these plans. Thesector's investment program, budgets, borrowings and tariff adjustments areapproved by the MHEF and other interested ministries. Planning andconstruction of major works are carried out by AGEP.

Organization and Management

4.02 The companies are organized along similar lines, essentially as shownin the organization chart in Annex 6. A Board of seven members, chaired bythe G'neral Manager, supervises each company's activities and sets out generalpolicy guidelines. Except for two Board members who represent Llic workers,the other members are full-time managers of the companies. The GeneralManagers are appointed by fresidential Decree upon nomination by the Ministerof Hydraulics, Environment and Forestry. The General Managers are responsiblefor the day-to-day operations of the companies which are usually handled bytwo departments: engineering and operations, and finance and administration.The Bank's Loan 2591-AL partly finances management consultants to assist thecompanies to identify suitable organization structures and to bring intooperation acceptable operational systems and procedures.

Staffing

4.03 At the end of 1986, the staff of the eight major companies amountedto 6,050 employees. This represents a ratio of about 8.1 employees per 10,000people served for all companies, which is acceptable, but varies from a low ofseven at EPET to a high of 19 at EPEOU. All the companies are still in theprocess of taking charge of the assets assigned to them , mostly in smallersize towns. Therefore, the number of employees is expected to increase andthe ratio of employees to people served is expected to deteriorate in theshort term. Over the longer term, however, after the companies have completedtheir takeover program, efficiency improvements would be possible (Annex 10),as reflected by this ratio, which would be monitored during projectimplementation.

4.04 The salaries and employment conditions in the companies aresatisfactory but lower than in the industry and energy sectors. Most of thecompanies, therefore, are experiencing a difficulty in recruiting staff ofacceptable quality in some areas such as fiaance and accounting. Thisdifficulty is accentuated in companies located in places relatively far awayfrom Algiers. The sector's national training program, described in the nextparagraph, would help alleviate some of the difficulty. During negotiations,the regional companies agreed that they would recruit financial and accountingmanagers of adequate qualifications by December 31, 1987.

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Trining

4.05 The project includes US$200,000 for the training of the maniagementpersonnel of AGEP and the regional companies. In addition, the First NationalWater Supply and Sewerage Project includes a comprehensive training programestimated to cost US$3.6 million, with a US$2.0 million foreign exchangecomponent partly financed under Loan 2591-AL. This program is intended tohelp the regional water companies meet their training requirements in theshort and medium term. The program provides for an assessment of the trainingneeds, design of instruction manuals, acquisition of teaching material andequipment, selection and training of instructors, the selection and trainingof personnel and evaluation of the training results. Preparation of theprogram has been entrusted by the Government to the International LabourOrganization of the United Nations. The program has been under review by theGovernment, is expected to be submitted to the Bank for review in June 1987and signed by the Government in July 1987. Implementation is expected tostart in August 1987.

BfiUllg and CoUection

4.06 The billing and collection systems of all companies are generallyweak and need redesign and computerization. Major factors are:

(a) The absence of bulk metering at both the production anddistribution levels, faulty metering (meters out of commissionas well as out of calibration), and the existence of divisionalmeters (one meter serving many customers). All customers whohave no meters or whose meters provide inaccurate readings areinvoiced at an estimated average consumption and charges areassessed at the first tranche of the domestic tariff, that is atDA 1.00/m3 , regardless of their estimated consumption.

(b) There are unidentified customers; the companies have to take aninventory of them, provide them with meters and bill them.

(c) All the companies that were cr3ated from the former SONADE andfrom municipalities inherited uncollectable receivables, somedating back for several years.

(d) Collection practices and performance vary from company tocompany, but, in general, improvement is needed particularly incollection of overdue accounts.

In general, there are only estimates of the extent of these deficiencies.Although each of the companies is making an effort to resolve its difficultiesand visible improvemente are taking place, there remains a need for concertedeffort. This is being provided under a plan of action which was prepared byAGEP. Progress is being monitored under the First National Water Supply andSewerage Project (Loan 2591-AL).

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Accounting Systems

4.07 Apart from the accounts of the former SONADE, which were keptindependently and on an accrual basis, the accounts for water supply andsewerage services of the cities formed an integral part of the municipalaccounts. In general, fixed assets aad inventories were not recorded. Theseaccounts have now been separated but the companies' accounting systems andpractices need considerable improvement so that their accounts and financialstatements properly reflect their operations. The counting and valuation offixed assets and inventories are progressing, although at different paces ineach company and without adequate standards. Current assets and liabilitiesof the companies include amounts due, and receivable from other watercompanies, most of which date back to the SONADE times. AGEP has recentlyhired a competent data processing and systems consultant who is in the processof developing and setting up r. computerized monitoring system for AGEP whileat the same time helping the regional water companies to set up compatibleaccounting systems. Standards and an appropriate methodology, developed byEPEAL a few years ago, are being provided by AGEP to the regional watercompanies to assist them in the counting and valuation of their fixed assets.

Audit

4.08 The accounts of the en"tities which were merged into the newly createdregional companies have not been audited for some time. As publicenterprises, these companies are subject to audit by "La Cour des Comptes," aGovernment accounting office which carries out limited purpose audits. Apublic utility requires more comprehensive audits directed toward operationsand arrangements similar to those made under Loans 2461-AL and 2591-AL forEPEAL, EPEOR and EPECO. Such arrangements should be made for the ten regionalcompanies which have not yet adopted adequate audit procedures.

4.09 The three regional companies mentioned above are currently audited by"Societe Nationale de Compatibilite", a state audit firm, whose audit work issatisfactory. During negotiations, agreement was reached with the remainingcompanies to have their accounts audited by auditors acceptable to the Bankand to submit their annual financial statements certified by such auditors aswell as the audit reports to the Bank no later than nine months after the endof each fiscal year, beginning with 1987.

Insurance

4.10 The regional companies carry insurance for workmen's compensation,third party liability and motor vehicles. Other assets are insured by theGovernment. All supply and civil works contracts for the project would beinsured against loss or damage in shipment, accidents, fire and propertydawage in accordance with normal Government procedures.

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V. FINANCIAL ANALYSIS

Past and Present Financial Performace

5.01 The recently created regional water supply and sewerage companies areresponsible for systems which for a large part were operated by themunicipalities. The result of their operations - revenues and expenditures -were integrated with those of the rest of municipal activities and for thisreason no reliable data were available at the time the sector wasreorganized. There was no inventory of either fixed assets or stocks ofrepair parts and materials. As can be expected in similar situations, thenewly formed companies are only gradually assuming responsibility for theservices of the numerous and varied-sized population centers in their area.Thus, existing data are still deficient and the financial statements for 1984and 1985 presented in Annexes 7 and 8 therefore include a mix of actual andestimated figures. The financial analysis covers eight of the thirteenRegional Water Companies which, in terms of operating cost and size ofoperations are representative of the sector and account for an estimated 901of sector assets and revenues.

5.02 Because of widely different capital and operating cost structures,some companies were profitable and others were not. However, in aggregate, ineach of 1984 and 1985, the eight regional companies made a loss. Thisindicates the overall insufficience of the then prevailing tariffs and in mostinstances, the need for improving operating efficiency. A substantial tariffincrease has since been introduced (para. 5.07) and plans of action to improveefficiency are being implemented under the First National Water Supply andSewerage Project (Loan 2591-AL).

5.03 The bulk of existing fixed assets were financed by Governmentcontributions and not surprisingly the regional companies' combined long-termdebt to equity ratio at the end of 1985 was 6/94. At that time, receivableswere relatively high at the equivalent of 7.6 months of sales, reflectingmostly the practice of billing only twice a year. Receivables are expected todecline with the introduction of computerized quarterly billing already inprogress in some of the companies.

Revenues

5.04 Water supply and sewerage revenues are derived principally from aunique tariff which covers both water supply and sewerage services based onmetered water consumption. Charges are also assessed, although not uniformlyamong companies, on new connections, water meter rentals, connectionmaintenance fees, and service fees for meter reading and billing of consumersliving in appartment buildings.

5.05 Tariffs set the price per cubic meter higher for public, commercialand industri,l consumers than for domestic consumers and contain steps withprice increasing with consumption for the latter (Annex 15).

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5.06 The country's cost recovery policy is embodied in Decree N°84-267of October 29, 1985 which stipulates, inter alia, that tariff levels must besufficient to cover operating and maintenance expenses and increasinglycontribute to the recovery of capital costs. The revenue covenants containedin existing Bank Loan Agreements for the Algiers, Oran and Constantinecompanies already reflect this policy.

5.07 The last tariff adjustment of November 1, 1985, increased theaggregate revenues of the sector companies by about 40%. However, tariffs hadbeen too low for so long that even this substantial increase is stillinsufficient for the sector as a whole to finance a significant part of itslarge investments, as can be seen in the estimated sources and application offunds statements for 1986 (Annex 9).

5.08 A salient feature of the November 1985 tariff adjustment was theintroduction of a national, country-wide uniform tariff, regardless of thewidely different operating and capital cost structures of the individualcompanies. The average estimated cost per cubic meter sold for 1987 is aboutDA 1.63, the lowest DA 1.10 and the highest DA 2.73. While a uniform tariffrecovers the costs of the sector as a whole, it results in some companieshaving large profits and others losses.

5.09 The introduction of a new tariff, coupled with existing income taxand dividend policies, has led the Government to adopt the following measures:

(a) set a tariff for the sector as a whole at a level sufficient tocover operation and maintenance costs and debt service and torecover a portion of the investments of the sector;

(b) set each year appropriate operating and financial targets foreach of the companies based on their individual cost structureand approved investment plans; and

(c) on the basis of each company's operating and financial targets(b above), determine and earmark, in the Government budget, thenecessary capital and operating contributions to these companies.

The above measures would ensure that the sector, as a whole, is financiallyviable, that the individurl companies can be held accountable throughappropriate operating and financial targets (such as staff per thousand peopleserved, unaccounted-for water, operating ratio, debt service coverage,collection ratio and self-financing ratio) and that all have sufficient cashto meet their obligations and to operate efficiently. The operating standardsenvisaged and the overall sector development policies and control areacceptable. During negotiations, its was agreed that, in conjunction with theannual budget exercise, the Government would before each fiscal year discusswith the Bank its tariff adjustment and capital and operating contributionproposal for said year.

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Future Financial Performance

5.10 Projected income statements, balance sheets and sources andapplications of funds statements for the eight regional companies appear inAnnexes 7 to 9, and major assumptions in Annex 12. In general, expenses havebeen calculated as a factor of various operating criteria, adjusted forestimated future inflation, and revenues on the premise that the tariff wouldbe adjusted to enable the sector as a whole to cover its operation andmaintenance expenses, debt service and contribute towards sectorinvestments -' from internally generated cash (before income tax anddividends) of about 5% in 1987, 10Z in 1988 and 152 in years thereafter. Itis estimated that tariff increases of about 15X, 20% and 302 in 1988, 1989and 1990 respectively, would be sufficient to meet this objective in the shortand medium term. During negotiations, it was agreed that the Government would:

(a) cause the water and sewerage companies to take measures to meettheir operating and financial targets and to adjust their watertariff as necessary to generate in the aggregate during eachfiscal year, revenues sufficient to cover all of their operatingexpenses (excluding depreciation), debt service (includingservice of Government loans) , any increase in working capital,and in 1987, 1988, 1989 and thereafter not less than SZ, 102 and15% respectively of their annual average estimated capitslexpenditures in the year considered and the two followingyears; and

(b) discuss with the Bank the regional companies' proposal as wellas the Government's proposed actions (para. 5.09).

On these assumptions, the sector's projected investment and financing programsfor the period 1986-1991 have been estimated and are graphically illustratedin Annex 11.

5.11 The projected sources and applications of funds for the period1987-91, based on the above assumptions, are summarized below. The net flowof funds resulting from either the payment of income tax and dividends by theprofitable companies or the subsidies to be received by the deficit companies,has been included in Government equity contributions.

'/ For this purpose, sector investments of a given year mean one thirdof the estimated investments to be made during that year and the twoyears which follow.

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Table 5.1

Sources and Appllca4ion of Funds

Eight Reional Water Compnies, 1987-1991(Million of DA and US$)

DA US$1 a/SSources of Funds:Gross Internal Cash Generation 3,177.0 676.0 23.0Less: Debt Service 1,605.8 341.7 11.6

Changes in Working Capital (29.5) (6.3) (0.2)

Net Internal Cash Generation 1,600.7 340.6 11.6

Government Equity Contributions 3,771.4 802.4 27.3

Borrowings:Proposed IBRD Loan 1,175.0 250.0 8.5Proposed Syndicated Loan 940.0 200.0 6.8Existing IBRD Loans 2,523.3 536.9 18.3Future and other Loans 3,796.8 807.8 27.5

8,435.1 1,794.7 61.1

Total_Sources 13.a07.2 2.937.7 100.0

Applications of Funds:Investment Program:Proposed project 2,963.3 630.5 21.5Ongoing projects 4,055.4 862.9 29.4Other projects 688.7 146.5 5.0Interest dulring construction 1,004.2 213.7 7.3Future Projects 5,095.6 1,084.1 36.8

ITtal ARDol2.i93 723. 1 100.I

a/ At the fixed exchange rate of US$1 DA 4.7.

5.12 Under the above assumptions, the debt to equity ratio of the eightregional companies would increase from 8/92 in 1986 to 38/62 in 1991, whiletheir debt service coverage would decline from 4.3 to 1.6, respectively, whichare both acceptable.

Monitorg System

5.13 Technical and financial indicators have been identified (Annex 10) asa means of monitoring the performance of eight of the regional companiesduring project implementation. Annex 10 also shows the values forecast forthese indicators in the years 1986 through 1991. These values were agreed

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upon during negotiations. Furthermore, it was agreed that the remaining fivecompanies would develop similar indicators acceptable to the Bank byDecember 31, 1987, and that the regional companies would:

(a) report the evolution of the indicators to the Bank on aquarterly basis during project implementation; and

(b) carry out any reasonable remedial action suggested by the Bank,aiming at meeting the targeted values of the indicators.

VI. PROJECT JUSTIFICATION

Objectives of the Proposed Investments

6.01 The need for improving and increasing urban water supply to themedium-sized towns throughout the country is evident from the existingwidespread and severe water shortages. The current average per capitaconsumption in the project area is about 80 liters/day but this conceals largevariations among different income groups. The shortage of piped potable waterinside the dwellings, coupled with high density population, inadequatesanitation, and inadequate sewage treatment facilities appear to be theleading cause of infectious diseases in the urban areas. Cholera, typhoid,paratyphoid, dysentery and infectious hepatitis are endemic.

6.02 The proposed project would help to increase water production to thelevels required to reduce the current supply deficit in the project area withthe objective of meeting water needs of years 1995/2010, based on theGovernment's goal to supply between 150 and 200 lcd. The quality of waterserved would also be greatly improved due to the combined effects of improvedwater treatment and the protection of the raw water sources by the treatmentof sewage prior to its discharge to water courses and rivers. The projectwould benefit some 2.2 million people living in the project area. Theextension of water supply networks in the thirteen regional companies wouldhelp supply water needed in the rapidly expanding urban areas. The proposedworks would also provide water for industry where industrial development hasbeen constrained by the inadequacy of basic services. It is estimated thatabout 20% of project beneficiaries would have incomes below the urban povertythreshold, currently estimated at DA 2,193 per capita.-I It is alsoestimated that about 302 of project costs and related benefits would directlybenefit the pcor.

Technological Aspects

6.03 There are no additional readily available potential water supplysources near the cities in the project area. More distant dams and wellfields

The 1980 level of DA 1,270, the last available, updated by changes inthe CPI. Approximately 15X of the urban population as a whole haveincome below this level.

- 32 -

have therefore been selected as future sources of supply and provide leastcost solutions for meeting water needs. The comparatively long transmissionlines, which are unavoidable whetL resorting to distant water sources, aresized to provide the least cost solution, and in all cases, they would bedimensioned for the maximum supply demand capacity in the year 2000. Themajor components of the water treatment plants, however, would be constructedin stages to meet demand. The dams are multipurpose supplying irrigationwater to extensive agricultural lands near these cities in addition to waterfor municipal uses. Sewage treatment works would be construicted in stagesaccording to needs and have been designed to produce an e(fflulent which willmaintain receiving waters of acceptable quality.

Economic Acceptabiity

6.04 The overriding justification for the proposed investments is the neeoto provide adequate water supply and environmental protection to theinhabitants of the project area, in accordance with the social objectives ofthe Government of Algeria. The internal rate of return of the project isabout 3X. However, this rate of return, which was computed on the basis ofcurrent tariffs, gives a misleading picture of the real benefits of theproject. Tariffs, historically very low in Algeria, have been adjustedsharply upwards over recent years, by an average 40X in 1985, 1' and furthersubstantial tariff increases should take place over the next several years.(See agreed covenant in para. 5.10). If the 30% tariff inr.reases in realterms estimated to be needed by 1990 were considered, then the internal rateof return would increase to about 5%. Also, the 3% internaL i-ate of returnobtained for the project ignores the effects of the nationwide application ofa unique tariff with its resulting surpluses and deficits for differentregions of the country.

6.05 The calculated return also understates other project benefits. Thereare many health, environmental and employment benefits that the project wouldgenerate, such as:

(a) reduced expenses for health care;

(b) higher productivity of children in school;

(c) improved welfare of the population, stemming from a cleaner andbetter environment;

(d) workers' higher productivity as a result of better health,leading to a higher economic return on the proposed investments;

(e) increased employment opportunities generated by tneimplementation of these works; and

(f) increased industrial production, currently constrained by lackof water.

This average increase, however, hides the fact thac many consumersare paying for water for the first time.

- 33 -

These benefits, however, are difficult to quantify and a morecomprehensive return was not calculated.

Affordability

6.06 The relative poverty level in urban areas is estimated to be DA 2,193per capita per annum. The results of a survey of household expenses for basicitems are given in Annex 13. At present tariff levels, water supply accountsfor about 1 percent of a household's total expenses and is not considered aburden on the household budget. As an example, to achieve an ERR of 102(Annex 14), expenditure on water would still account for about 2X ofhouseholds total expenses, which is far less than the usually accepted levelof 5 percent of average disposable income of the lowest income group.Therefore, the service levels provided by the project are in accordance withgenerally accepted criteria for affordability. The analysis indicates thatthere is substantial scope for increasing water tariffs above their presentlevels and increasing the self-financing ratio of the water supply companies.

Environmental impaCt of the Project

6.07 The proposed project is not expected to have adverse effects on theenvironment. On the contrary, it would enhance the overall environmentbecause of its integrated water management concept. The most importantbenefits are the improvements to urban health environment by the supply ofadequate quantities of safe water and acceptable waste water disposal measuresand improvement of the surrounding agricultural environment through the use ofless polluted raw water for irrigation. There would be no destruction ofessential wildlands.

Risks

6.08 There are no special risks involved in the technical execution of theproject. Regarding cost recovery, there is a risk that the Government may notimplement the tariff increases, projected to rise by about 302 in real termsby 1990, in '-he time required to attain the sector's financial objectives.This risk, however, is reduced by the Government's recent decision regardingthe financial framework and objectives for the sector, which emphasize thatthe water companies would be managed as commercial enterprises and shouldcharge the tariffs necessary to finance their investments through a mix ofborrowings and internal cash generation. The general lack of accuratestatistics in the sector introduces some uncertainty in the estimates used inthis report. The accelerated pace of development that the sector has had overthe last several years and which it will maintain at least over the next fewyears raises the need for more reliable data, and these should graduallybecome available with the implementation of the sector survey now in progressand the program of technical assistance for AGEP and the regional companiesfinanced by Loan 2591-AL.

VI. A<;REEMENTS REACHED AND RECOMMENDATIONS

7.01 Agreement having been reached on the issues outlined in Chapters III.through V. 9 the proposed project is suitable for a Bank loan of $250.0 millionto the Government of Algeria for a term of 15 years including 3 years of grace.

- 34 -

ANNEX 1

ALGERIA


Volume and Structure of Sales Estimated for i987 for Eight Companies V

USAGE EPEA EPEAL EPEBA EPECO EPEOR EPEOU EPES EPET TOTAL

Domestic Volume (Mm3) 43 82 27 36 37 10 30 17 282X 49 58 66 77 53 50 97 90 62

Commercial Volume (MmJ3 ) 8 14 5 - 5 2 - 1 352 9 10 12 - 7 9 - 5 8

Public Volume (Mm3) 3 22 6 4 8 4 - - 47% 3 16 14 9 11 20 - - 10

Industrial Volume (Mm3 ) 15 15 3 6 21 5 1 1 67h 17 11 8 14 29 21 3 5 15

Others Volume (Mm3 ) 20 6 - - - - - - 26- 22 5 - - - - - 5

Total Volume (Mm3 ) 89 139 41 46 71 21 31 19 457X 100 100 100 100 100 100 100 100 100

~' These eight companies are estimated to account for about 90X of totalsector sales.

- 35 -Annex 2Page 1 of 14

ALGERIA


DETAILED DESCRIPTION OF SUBPROJECTS

Introduction

1. This Annex describes the Second Five-Year Development Plan (1985-89)investment which would be made on four regional water supply and threesewerage subprojects, expansion and renovation of water distribution systemsof the 13 regional water ccmpanies, construction supervision, interbasin watertransfer studies, a water and sewerage ctistruction industry study, andtraining, all of which constitute the proposed project. Each regional watersupply and sewerage subproject is described individually in this Annex frompages 1 to 8, followed by summary sheets for total cests for all subprojectsincluding construction supervision, cost of distribution pipes, a study of theconstruction industry in the water supply and sewerage sector and regionalwater production, consumption and sewage statistics on pages 9 to 12.Finally, the sector invest.ment tables for the Second Five-Year DevelopmentPlan are shown on pages 13 and 14.

2. Im,lementation of the seven subprojects would start during the SecondPlan and wotld be completed and commissioned by the end of the Plan. The fourregional water supply subprojects would be executed in five provinces (Annaba,Guelma, Tebessa, Tamanrasset and S'ida) to serve 17 towns with populationsranging from 15,000 to 380,000 inhabitant . The three sewage subprojectswould be executed in two provinces (Setif and Tlemcen) to serve three townswith populations ranging from 55,000 to 177,000 inhabitants. The water supplyand sewerage works would be operated by six regional water supply companies,namely EPEA, EPEBA, EPEOU, EPES, EPET and EPEOR.

3. Total investments in the water supply and sewerage sector during theSecond Five-Year Development Plan are estimated at DA 10.4 billion(US$2.2 billion) with an estimated foreign exchange component ofDA 5.1 billion (US$1.1 billion) or about 50 percent of the total cost, ofwhich DA 4.8 billion (US$1.06 billion) are direct foreign exchangeexpenditures.

A. WATER SUPPLY SUBPROJECTS

AMN DALIA - SOUK AHRAS - OUENZA SUBPROJECT

4. This subproject would be built to expand water supply services in theprovinces of Guelma and Tebessa. Additional water would be provided to thecity of Souk Ahras in Guelma and the cities of Ouenza, El Aouinet andneighbouring towns in the Province of Tebessa. The total population isestimated at 196,000 of which 80X are serviced. Presently, both Souk Ahrasand Ouenza are supplied with groundwater. Per capita consumption of this areais about 31 liters/day. Under the proposed project, water production would beincreased by about 1,300 1/sec. By the year 2010, water demand in Souk Ahras

- 36 -

Annex 2Page 2 of 14

is projected to reach 680 1/sec, in Ouenza 340 1/sec and in El Aouinet120 1/sec. To meet the demand in these cities, an additional flow of1,140 1/sec, to be provided under the proposed project, would need to beallocated to them. The balance of 260 1/sec would be used to feed thesouthern area of the Guelma Province and Tebessa's Northern Water System.

5. The proposed subproject consists of the construction of a dam at AinDalia on the Oued Medjerdah to create a 60 Hm3 reservoir. From thisreservoir, raw water will be diverted and treated in a plant located about1.5 Kms downstream from the dam site. The Ain Dalia Dam would be a rock-filldam with an impervious element. It is presently under construction. Thetreatment plant would have an average capacity of 1.3 m3/sec. From theplant, treated water will be pumped to a reservoir (Djebel Dekma) from whereit will flow by gravity to the Souk Ahras area. Cities and towns in TebessaProvince would be supplied from a pumping station (El Hanri) located on theDjebel Dekma Pipeline.

6. The total subproject cost excluding the dam and DA 34.90 million(US$7.4 million) for distribution pipes is estimated at DA 649.79 million(US$138.3 million). The cost estimate summiary is as follows:

Table 5.1

AIN DALIA - SOUK AHRAS(DA Million)

1987 1988 1989 TOTALSItems Local Foreign Local Foreign Local Foreign Local Foreign Total

Treatment 30.00 30.00 10.00 20.00 5.00 5.00 45.00 55.00 100.00Pumping 5.00 5.00 25.00 30.00 11.03 17.88 41.03 52.88 93.91rransmission 100.00 7.42 120.00 8.91 18.27 1.36 238.27 17.69 255.96Reservoirs 10.00 5.00 30.00 10.00 16.00 7.18 56.00 22.18 78.18

Base Cost 145.00 47.42 185.00 68.91 50.30 31.42 380.30 147.75 528.05Physical Cont. 14.50 4.74 18.50 6.89 5.03 3.14 38.03 14.77 52.80Price Cont. 4.25 3.16 16.71 5.79 7.86 2.69 28.82 11.64 40.46

Sub-Total 163.75 55.32 220.21 81.59 63.19 37.25 447.15 174.16 621.31

ConstructionSupervision 5.74 1.02 8.60 1.48 6.84 1.87 21.18 4.37 25.55

Price Cont. 0.23 0.03 1.06 0.06 1.46 0.09 2.73 0.18 2.93

Sub-Total 5.97 1.05 9.66 1.54 8.30 1.96 23.93 4.55 28.48

GRAND TOTAL 169.2. 56.37 229.8 83.1 71.49 39.21 i;Q« 178 6

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Annex 2Page 3 of 14

IN AMGUEL - TAMANRASSET SUBPROJECT

7. Tamanrasset is a city located in the heart of the Sahara Desert.Current population is estimated at 15,300. The population is projected toreach 24,300 by the year 2000. Potable water is in short supply in this city,average consumption per capita being 41 liters/day. To improve the situation,a groundwater source will be tapped about 131 Kms to the north of the city.The proposed subproject includes the construction of:

(i) a wellfield at In Amgel, comprising eight wells equippedwith submersible pumps;

(ii) two 1000 m3 storage tanks;

(iii) two booster pumping stations; and

(iv) a 300 mm dia. transmission pipe with a total length of131 Kms.

8. The average yield of the wellfield will be about 60 l/s, which shouldbe sufficient to cover water demands through the year 2000.

9. The estimated total subproject cost excluding DA 8.80 million(US$1.9 million) for pipes for the distribution network is DA 211.81 million(US$45.1 million). A breakdown of the estimates is given below:

Table 5.2

IN ANGUEL - TAMANRASSET

(DA Million)


Wellfield 1.40 0.40 2.95 0.77 2.37 0.63 6.72 1.80 8.52Pumping 1.80 2.52 5.46 8.32 4.27 3.72 11.53 14.56 26.09Transmission 5.00 5.00 30.00 78.53 10.00 9.20 45.00 92.73 137.73Reservoirs 0.00 0.00 1.20 0.00 2.66 0.00 3.86 0.00 3.86


Sub-Total 9.26 9.06 47.15 100.85 24.25 16.02 80.66 125.93 206.59


Price Cont. 0.03 0.01 0.12 0.02 0.26 0.04 0.41 0.07 0.48

Sub-Total 0.83 0.44 1.13 0.54 1.46 0.82 3.42 1.80 5.22

GRAND TOTAL 10.09 92.0 I428 101325.71 "4 IQa 1. &11.81

- 38Annex 2Page 4 of 14

AIN SKHOUNA - SAIDA SUBPROJECT

10. Saida is a city located in the Sahara Desert with characteristicssimilar to those of Tamanrasset. Current population, including neighbouringtowns, is about 12i,000, of which 80X are served. The existing water supplyrestricts consumption to 99 lcd. To increase the supply and satisfy thedemand to the year 1997, when the population is expected to reach about160,000, groundwater will be tapped about 106 kms to the southeast at AmnSkhouna. The proposed subproject includes the construction of:

(i) a wellfield at Ain Skhouna, comprising one well equipped withsubmersible pumps;

(ii) three 1000 m3 storage tanks;

(iii) two booster pumping stations; and

(iv) a 106 km long transmission pipe 1,000 mm in diameter.

11, The average yield of the wellfield will be about 400 1/sec. It isenvisaged that by 1997, a second phase would be implemented which would doublethis yield and thus ensure the water supply beyond the year 2000.

12. The estimated total subproject cost is DA 539.59 million(US$114.8 million). A breakdown of the estimates is given below. TheDA 10.80 million (US$2.3 million) for pipes for the distribution system arenot included:

Table 5.3AIN SKHOUNA - SAIDA

(DA Million)


Wellfield 0.30 0.30 0.30 0.90 0.00 0.00 0.60 1.20 1.80Pumping 0.00 0.00 12.00 10.30 15.10 17.20 27.10 27.50 54.60Transmission 10.00 10.00 90.00 200.00 23.00 53.10 123.00 263.10 386.10Reservoirs 0.00 0.00 6.00 0.00 5.00 0.00 11.00 0.00 11.00


Sub-Total 11.63 11.78 128.91 2'3.28 54.14 82.05 194.68 337.11 531.79


Price Cont. 0.01, 0.01 0.26 0.03 0.46 0.03 0.76 0.07 0.83

Sub-Total 1.04 0.31 2.40 0.74 2.61 0.70 6.05 1.75 7.80

GRAND TOTAL 12"( 12"09 131.31 244.02 .75 200.73 338.6 539.59

- 39 - Annex 2Page 5 of 14

MEXENNA - ANNABA SUBPROJECT

13. A dam on Oued El Kebir at Mexenna is currently under construction andwould be used for potable water supply and irrigation in the BouteldjaValley. The dam would regulate a volume of 174 Mm3/year. Of this, about48 Mm /year would be used in 1995 for potable water supply ana the rest forirrigation. Water supply services would be expanded in the counties of Annabaand Drean. By 1995, water demands are expected to average 64 Mm3/year inAnnaba and 15 Mm3/year in Drean. Current available production for thesecounties stand at about 31 Mm 3/year.

14. Raw water from the Mexenna Reservoir would be treated in two newtreatment plants. A first one with a capacity of 1 m3/sec would be builtnear the township of Bouteldja located about 23 Kms downstream the MexennaDam. Water will flow by gravity to this plant. Another plant, with anaverage capacity of 0.5 m3/sec would be constructed opposite to theBouteldja Plant, to serve El Kala Township. A 1,200 mm dia. pipe would bebuilt to convey raw water to the Bouteldja Treatment Plant; a 700 mm dia.pipeline will supply the El Kala Treatment Plant. A 1,500 mm dia. pipe willbe built to convey raw water tor irrigation.

15. The estimated total subproject cost, excluding the dam, isDA 382.62 million (US$81.4 million). The cost estimate summary is as follows:

Table 5.4

MEXENNA - ANNABA(DA Million)


Treatment 7.00 3.00 50.00 35.00 20.00 15.00 77.00 53.00 130.00Pumping 0.00 0.00 10.00 16.50 7.00 12.50 17.00 29.00 46.00Transmiasion 5.00 4.00 34.00 60.00 20.00 16.00 59.00 80.00 139.00Reservoirs 0.30 0.00 1.00 0.00 0.40 0.00 1.70 0.00 1.70


Sub-Total 13.89 8.07 113.08 129.00 59.55 51.16 186.52 188.23 374.75


Price Cont. 0.04 0.00 0.30 0.03 0.52 0.02 0.86 0.05 0.91

Sub-Total 0.92 0.12 2.75 0.6P 2.98 0.42 6.65 1.22 7.87

GRAND TOTAL L4U 112 5-83 ,196 U 51S L2JL}Z


B. SEWAGE & WASTE WATER TREATMENT SUBPROJECTS

TLEMCEN SEWAGE TREATMENT WORKS SUBPROJECT

16. Tlemcen is the capital city of the Wilaya of Tlemcen, with apopulation of about 110,000. At present, all its waste waters are dischargedwithout pretreatment into the river which flows through this urbanagglomeration, the Oued Chabet El Horrah, a tributary of the Oued Tafna. Theproposed sewage treatment plant would be built on the river bank near theindustrial zone to the North of the city where the three main collectorsconverge.

17. The function of this treatment works is threefold: to reduceenvironmental pollution, mitigate the public health hazard potential whereriver water is used for irrigation and protect the Oued Tafna which is a rawwater source. This Oued has recently been diverted to improve the supply ofpotable water to Oran, population 700,000, via the Tafna-Oran transfer nowunder construction (Loan 2591-AL).

18. The proposed treatment works would have a capacity of 30,000 m3 /daywhich would be sufficient to meet the treatment demand until the year 2005when the population is expected to be about 160,000.

19. The estimated total subproject cost is DA 89.42 million(US$19.0 million). The cost estimate summary is as follows:

Table 5.5

TLEMCEN SEWAGE TREATMENT WORKS(DA Million)


Tlemcen STW. 5.00 4.00 26.00 14.00 9.00 7.00 40.00 25.00 65.00


Sub-Total 5.64 4.59 30.95 16.41 11.31 8.28 47.90 29.28 77.18


Price Cont. 0.08 0.01 0.55 0.04 0.52 0.03 1.15 0.08 1.23

Sub-Total 2.20 0.47 5.04 0.99 2.94 0.60 10.18 2.06 12.24

GRAND TOTAL Z& LZ i" I" Lk; La i 1 8

- 41 - Annex 2

Page 7 of 14

MAGHNIA SEWAGE TREATMENT WORKS SU)3PROJECT

20. The city of Maghnia in the Wilaya of Tlemcen discharges its rawsewage directly into the Oued Ouerdeffou upon which it is situated. Thiscreates a health hazard for its 55,000 inhabitants as the river water is usedfor irrigation. Furthermore, the Oued Ouerdeffou is a tributary of the OuedTafna which is an important raw water source for the Oran potable water supplynetwork, via the Tafna-Oran Transfer and its water treatment works now underconstruction (Loan 2591-AL). The proposed sewage treatment works wouldmitigate the health hazards for Maghnia and protect the vital water sourcesfor the 700,000 inhabitants of Oran.

21. The proposed works would be situated 3 km east of the city on theOued Ouerdeffou. Phase I of the proposed works would have a capacity of14,500 m3/day, sufficient for 1989 and a population of 63,000 (4.5% growthrate). Phase II would follow immediately. The sewerage network in Maghnie iscurrently being extended to serve new urban development.


Table 5.6

MAGHNIA SEWAGE TREATMENT WORKS(DA Million)


Maghnia STW. 4.00 3.00 21.00 11.00 7.00 4.00 32.00 18.00 50.00


Sub-Total 4.52 3.44 25.00 12.89 8.79 4.73 38.31 21.06 59.37


Price Cont. 0.07 0.01 0.45 0.03 0.40 0.02 0.92 0.06 0.98

Sub-Total 1.77 0.35 4.08 0.78 2.28 0.35 8.13 1.48 9.61

GRAND TOTAL L 2 X2& UA 17Z 22.54 66 "98

-4 -

Annex 2Page 8 of 14

SETIF SEWAGE TREATMENT WORKS SUBPROJECT

23. This subproject would complete the sewerage system of the city ofSetif, capital of the Wilaya of Setif. This agglomeration of177,000 inhabitants is sited on the banks of the Oued Bou Sellam and itssewage, including industrial wastewater, is discharged Jirectly into thisriver without any pretreatment. The sewage treatment works 'ould form part ofthe water cycle management infrastructure of this area. The other componentsare the Ain Zada dam and water treatment works located 25 kms downstream ofSetif currently under construction. This dan is to be the main raw watersource for Setif, El Eulma and Bordi Bou Arridij, cities with a combinedpopulation of 425,000. Therefore, the main function of the Setif sewagetreatment works would be to protect this vital water soturce and itssurrounding environment.

24. The proposed treatment works would have a capacity of 44,000 m3 /dayand is to be Phase I and would serve the city to the year 1990. Phase IIwould follow immediately. By 1990, the population is expected to have reached205,000 assuming a continued growth rate of 32 per annum.


Table 5.7

SETIF SEWAGE TREATMENT WORKS(DA Million)


Setif STW. 12.00 10.00 49.00 19.00 14.00 6.00 75.00 35.00 110.00


Sub-Cotal 13.55 11.46 58.33 22.47 17.59 7.20 89.47 41.13 130.60


Price Cont. 0.16 0.03 0.86 0.06 0.66 0.03 1.68 0.12 1.80

Sub-Total 4.18 0.87 7.83 1.52 3.76 0.68 15.77 3.07 18.84

GRAND TOTAL IZJl 12.33 66.16 23.99 21h35 7.8 105.24 44.20 1


Table 5.8

SUBPROJECTS COST SUMMARY TABLEDISTRIBUTED BETWEEN LOCAL AND DIRECT FOREIGN COST

(DA Million)


Treatment 37.00 33.00 60.00 55.00 25.00 20.00 122.00 108.00 230.00Wellfield 1.70 0.70 3.25 1.67 2.37 0.63 7.32 3.00 10.32Pumping 6.80 7.53 52.46 65.12 37.40 51.30 96.66 123.94 220.60Transmission 120.00 26.42 274.00 347.44 71.27 79.66 465.27 453.52 918.79Reservoirs 10.30 5.00 38.20 10.00 24.06 7.18 72.56 22.18 94.74

Sub-Total 175.80 72.65 427.91 479.23 160.10 158.77 763.81 710.64 1,474.45

Sewage TreatmentWorks 21.00 17.00 96.00 44.00 30.00 17.00 147.00 78.00 225.00

Base Cost 196.80 89.65 523.91 523.23 190.10 175.77 910.81 788.64 1,699.45Physical Cont. 19.68 8.96 52.39 52.32 19.01 17.58 91.08 78.86 169.94Price Cont. 5.77 5.12 47.33 30.94 29.71 13.32 82.81 49.38 132.19

Sub-Total 222.25 103.73 623.63 606.49 238.82 206.67 1,084.70 916.88 2,001.58


Price Cont. 0.65 0.10 3.60 0.27 4.28 0.26 8.53 0.63 9.16Sub-Total 16.91 3.61 32.89 6.79 24.33 5.53 74.13 15.93 90.06

GRAND TOTAL ;ij L 2L 2


Table 5.9

SUBPROJECTS COST SUMMARY TABLEDISTRIBUTED BETWEEN LOCAL AND DIRECT AND INDIRECT FOREIGN COSTS

(DA Million)


Treatment 24.67 45.33 40.00 75.00 16.66 28.34 81.33 148.67 230.00Wellfield 1.13 1.27 2.17 2.75 1.58 1.42 4.88 5.44 10.32Pumping 4.53 9.79 34.98 82.60 24.94 63.76 64.45 156.15 220.60Transmission 80.00 66.42 182.67 438.67 47.51 103.42 310.18 608.61 918.79Reservoirs 6.87 8.43 25.47 22.73 16.04 15.20 48.38 46.36 94.74

Sub-Total 117.20 131.24 285.29 621.85 106.73 212.14 509.22 965.23 1,474.45

Sewage TreatmentWorks 14.00 24.00 64.00 76.00 20.00 27.00 98.00 127.00 225.00

Base Cost 131.20 155.24 349.29 697.85 126.73 239.14 607.22 1,092.23 1,699.45Physical Cont. 13.13 15.51 34.92 69.79 12.67 23.92 60.72 109.22 169.94Price Cont. 5.77 5.12 47.33 30.94 29.71 13.32 82.81 49.38 132.19

Sub-Total 150.10 175.87 431.54 798.58 169.11 276.38 750.75 1,250.83 2,001.58

ConstructionSupervision 16.26 3.51 29.29 6.52 20.05 5.27 65.6( 15.30 80.90

Price Cont. 0.65 0.10 3.60 0.27 4.28 0.26 8.53 0.63 9.L6

Sub-Total 16.91 3.61 32.89 6.79 24.33 5.53 74.13 15.93 90.06

GRAND TOTAL 1 179.48 4 £QLiz lA1IE L


Table 5.10

SUPPLY OF DUCTILE IRON PIPESTO

13 REGIONAL WATER COMPANIES(DA Million)


Ductile Pipes 135.83 75.74 133.30 80.00 137.57 84.70 406.70 240.44 647.13Physical Cont. 20.37 11.36 20.00 12.00 20.63 12.70 61.00 36.06 Q7.07Price Cont. 6.20 2.60 18.40 3.70 33.20 4.90 57.80 11.20 69.00

TOTAL 164E 89.70 22 LZ." I.Z2 ;91.4 1QL3 2 £&.1 Q 813-2

Table 5.11

CONSTRUCTION INDUSTRY STUDIES(DA Million)


Technical Asst.& Studies 1.40 1.60 1.40 1.60 - - 2.80 3.2C 6.00

Price Cont. 0.10 0.00 0.20 0.00 - - 0.30 0.00 0.30

TOTAL -1

- 46 -

Anne 2Page 12 of 14

Table 5.12

TRANSFER STUDIES(DA MiLlion)

1987 1988 1989 TOTALSItems Local Foreign Local Foreign Local Foreian Local ForeiRn Total

Taksebt 1.53 1.67 3.07 3.33 - - 4.60 5.00 9.60Cheliff 1.53 1.67 3.07 3.33 - - 4.60 5.00 9.60Beni Haroum 3.06 3.34 6.14 6.66 - - 9.20 10.00 19.20Koudiat Affren 1.53 1.67 3.07 3.33 - - 4.60 5.00 9.60Base Cost 7.65 8.35 15.35 16.65 - - 23.00 25.00 48.00Price Cont. 0.31 0.25 1.89 0.67 2.20 0.92 3.12

GRAND TOTAL 7.96 8.6 1724 17Z.32 2. 20 51.12

Table 5.13

MANAGERIAL TRAMING(DA Million)


ManagerialTraining - 0.18 0.18 0.28 0.28 0.46 0.46 0.92

Base Cost - - 0.18 0.18 0.28 0.28 0.46 0.46 0.92Price Cont. - 0.02 0.01 0.04 0.01 0.06 0.02 0.08

GRAND TOTAL - Q2 Q 2i; Qfi 1.00

AL6ER:ASECOND NATIONAL tATER SUPPLY & SEVERA6E PIIWECT

PROPOSED INYESTHENTS IN THE MATER SUPPLY SECTOR DURWIN THE PERIOD 1985-89DISTRIBUTED KETlEEN LOCAL AND DIRECT FORE1I COSTS

IDA Killion)

19 198 1987 1968 1989 TOALProject baa. Loci' Foreign Local Foreign Local Foreign Local Foreign Local Foreign Local Foreign TotiProject Nm: fetal

LO-go'ng Popecl%

Alisi Rojenua hater gi4ly 205.9 141.8 '.1 360.9 Ul.8 5C0.9 358.6 441.7 169.5 2 34.o 1,580.1 1,685.9 3,266.;(ham Ibtt' 5up;y 3B6. 5O.b ;03A4 S69.4 327.5 451.2 97.7 149.3 47.4 67.3 812.b 1,067.0 1.S99.:CoastirtIne Wo-aoral Wter 84.2 49.4 103.3 100.5 IIZ.1 100.4 46.0 54.6 22.9 21.2 388.9 333.1 m.0Ducti, IrPn F;5F 137.8 7i.;. 144.1 81,4 --- --- --- 263.9 158.2 44.1ToChAirsi. M,63%t:, Studies 0.7 1.3 3.7 6.4 5.0 14.5 1.8 14.4 3.5 10.0 14.7 49.6 63.3Castr.ction SuerVision 5.7 5.6 2e o 29. 6 25.7 41.6 3.6 21.0 2.3 19.6 71.3 117.4 iM.7

OWNS M6 kCIS OOSI 470.9 325.7 Si9.e M50.2 952.15 1,114.6 532.9 680.0 265.6 35.; 3,15.,5 3,43i. 2 i,S1.7Prqw.z" Project_ __.___ --- _--

detw SuapI,-!

Aim klaa - Sock *bras --- --- --- --- 145.0 47.4 185.0 68.9 50.3 31.4 380.3 147.7 523.0In A.lY1 - lamanraset --- --- --- -- 8.2 7.9 39.6 87.6 19.3 13.6 e0'.1 109.1 174.1fia Skome - Saida - --- --- - - 10.3 !0.3 108.3 211.2 43.1 70.3 1617) 291.8 453.5Nemeu - Aeebs --- --- -- --- 12.3 7.0 95.0 111.5 47.4 43.5 154.7 162.0 314.7

Subtetal --- --- --- --- i05.8 72.6 427.9 479.2 180.1 151.8 763.8 710.6 1474.4

TIaco' S.T.M --- --- --- --- 5.0 4. 26.0 14.0 9.0 7.0 40.0 25.0 65.01Nabmi& S.T.v --- --- --- --- 4.4 3.0 21.0 11.0 7L0 4.0 32.0 18.0 58.0Setif S.T.M. --- --- --- 12.0 IO.-, 49.0 1.01 14.0 6.0 75.0 35.0 130.0 ,

Subt1'al --- --- --- --- 21.0 17.0 9.0 44.0 30.0 17.0 147.0 78.0 xi;.

Ductile Iron Pipes --- --- --- --- 135.8 75.7 133.3 90.0 137.6 84.7 406.7 240.4 647.1Technical ksistance, Studies --- --- --- --- 1.4 1.6 1.4 1.6 --- 2.8 3.2 6.0!nter-basis Transfer StuWies --- --- --- --- 7.7 8.4 15.3 16.6 --- -- 23.0 25.0 40.0amaeuat Training --- --- --- --- --- --- 0.2 0.2 0.3 0.3 0.5 0.5 1.0

Ce*strKctlgs S wisios --- ---- --- 16.3 3.5 29.3 6.5 20.1 5.3 65.7 15.3 31.0

BASE COST (Dec.1996 Price) 0.0 0.0 0.0 0.0 358.0 178.8 703.4 621.1 348.1 266.1 1,409.5 1,073.0 2,482.5PhySical Comtiaqecies 0.0 0.0 0.0 0.0 40.0 20.3 72.4 64.3 39.6 30.3 152.0 114.9 26.9

TOTAL COST (Dec.1906 Prices) 0.0 0.V 0.0 0.0 398.0 199.1 775.8 692.4 387.7 296.4 1,561.5 1,187.9 2,74.4Price COtINglmci&S i.0 0.0 0.0 0.0 13.1 B.1 7i.4 35.6 67.2 18.5 151.7 62.2 213.9

PROPOSED PROECT TOTAL COST 0.0 0.0 0.0 0.0 411.1 207.2 847.2 723.0 454.9 314.9 1,713.2 1,250.1 2,963.3Other ProjKts

Aim lada-Setif-I --- --- --- --- 80.7 10.9 217.9 29.6 239.9 31.7 538.4 72.2 610.6Cherf-O.E.E. -Aia IeI --- --- - --- -- --- 45.1 6.3 45.1 6.3 51.4Chuliff - Oram --- --- --- --- --- --- 105.1 16.6 105.1 16.6 121.7 WI2Sei arnm - Co0atantime --- -- --- -- - - -- 90.4 12.7 80.4 12.7 93.1

_--- ---- ---- ---- ---- ----- --- -_ - ---- -------__ __ _ _ _ I I

OTNER PROECTS COST 0.0 0.0 0.0 0.0 80.7 30.9 217.9 29.6 470.4 67.3 769.0 107.9 376.3 1TOTAL IVESTNENTS

IN DA NILUElN Ii) 470.9 325.7 969.6 950.2 1404.3 1332.7 1593.0 1437.6 1,190.9 741.9 5,633.7 4,788.1 10,421.8T0TAL PRPE PRECT COST

IN US$ NILLION 11) 0.0 0.0 0.0 0.0 87.5 44.1 180.3 154.9 96.3 67.0 364.5 266.0 630.5 ^… ……………-- ------ - --------------------- -_----------…

11) asd on a constant nchang rate of USSIDA4.7.23*r-87

ALGERIASECOND NATIONAL MATER SUPPLY & SEWERAGE PPOJECT

PROPOSED INVESTNENTS IN THE WATER SUPPLY SECTUR DURING THE PERIOD 1985-89DISTRIBUTED BETHEEN LOCKL AND DIRECT AMD INDIRECT FOREI16 COSTS

(DA million)

1985 1996 1997 1988 1989 TOTALProject Nan Local Foreign Local Foreign Local Foreign Local Foreign Local F.reiqn Local Forecqt Total

Ongoing Prrjects

Algiers Regional #ater Supply 205.9 141.9 394.1 360.9 441.9 506.9 358.8 441.7 189.5 234.6 1,590.1 1,685.9 3 26 .0Ora" Mater Supply 36.6 50.8 303.4 369.4 327.5 451.2 97.7 148.3 47.4 67.3 812.6 1,087.0 1,699.4Constantine Regional Water 84.2 49.4 103.3 100.5 112.5 100.4 66.0 54.6 22.9 29.2 399.9 333.1 722.0Ductile Iron Pip ps 137.9 76.9 146.1 81.4 --- --- --- --- --- 293.9 159.2 442.1Technical Assistance, Studies 0.7 1.3 3.7 9.4 5.0 14.5 1.8 14.4 3.5 10.0 14.7 49.6 63.3Construction SUpervision 5.7 5.6 29.0 29.6 25.7 41.6 8.6 21.0 2.3 19.6 71.3 117.4 11..

ON60IN6 PROJECTS COST 470.9 325.7 969.6 950.2 912.5 1,114.6 532.9 680.0 265.6 359.7 3,151.5 3,430.2 6,561.7Proposed Project

atr Supply:

Ain Ralia - Souk Akras --- --- --- --- 96.7 95.8 123.3 130.6 33.5 48.2 253.6 274.4 525.0In Anguel - Tauinrasset --- --- --- --- 5.5 10.7 26.4 100.8 12.9 20.0 44.7 131.5 174.2Ain Sionna - Saida --- --- --- --- 6.9 13.7 72.2 247.3 26.7 B4.7 107.8 345.7 453.5Ntiznna - Aisaba --- --- --- --- 8.2 11.1 63.3 143.2 31.4 59.3 103.1 213.6 31L.7

Subtotal --- --- --- --- 117.2 131.2 285.3 621.9 104.7 212.1 509.2 965.2 1474.4Sew_rage:

Tlsmen S.T.9 --- --- --- --- 3.3 5.7 17.3 22.7 4.0 10.0 26.7 38.3 45.0lla hni S.T.I --- --- --- --- 2.7 4.3 14.0 18.0 4.7 4.3 21.3 28.7 50.0 ,.5eOti1 5.T.N. --- --- --- --- 8.0 14.0 32.7 35.3 9.3 10.7 50.0 60.0 110.0 a

Subtotal --- --- --- --- 14.0 24.0 A4.0 7b.0 20.0 27.0 98.0 127.0 225.0

Ductile Iron Pipn --- --- --- --- 135.8 75.7 133.3 80.0 137.6 84.7 406.7 240.4 447.1lechaical Assistance, Studies --- --- --- --- 1.4 1.6 1.4 1.6 --- -_ 2.8 3.2 4.0Inter-basin Transfer Studies --- --- --- --- 7.7 8.4 15.3 14.6 --- --- 23.0 25.0 48.0Managemet Training --- --- --- --- --- --- 0.2 0.2 0.3 0.3 O.J O.J 1.0Construction Supervision --- --- --- --- 163 3.5 29.3 6.S 20.1 5.3 45.7 15.3 11.0

BASE COST (Dec.1986 Pricn) 0.0 0.0 0.0 0.0 292.4 244.4 528.8 802.8 2U4.7 329.4 1,105.9 1,37 b.b 2,482.5Physical Contingencies 0.0 0.0 0.0 0.0 40.0 20.3 72.4 64.3 39.6 30.3 152.0 114.9 244.9

TOTAL COST (Dec.1986 Prices) 0.0 0.0 0.C 0.0 332.4 264.9 601.2 867.1 324.4 359.7 1,257.9 1,491.5 2,749.4Price Contingencies 0.0 0.0 0.0 0.0 13.1 8.1 71.4 35.6 67.2 18.5 151.7 o2.2 213.9

PROPOSED PROJECT TOTAL COST 0.0 0.0 0.0 0.0 345.5 272.8 672.6 902.7 391.6 378.2 1,409.6 1,553.7 2,943.3Other Projects

Ain Zada-Setif-8SA --- --- --- --- 80.7 10.9 217.9 29.6 239.0 31.7 538.4 72.- 610.tCherf-O.E.8.-Ain Deida --- --- --- --- --- --- --- --- 45.1 6.3 45.1 5.3 51.4Cheliff - Oran --- --- --- 105.1 16.6 105.1 Jb.c 121.7 , lbeni haroun - Constantine --- --- --- --- --- --- --- --- 8K.4 12.7 80.4 12.7 93.1

OTHER PROJECTS COST 0.0 0.0 0.0 0.0 80.7 10.9 217.9 29.6 470.4 67.3 769.0 lU7.8 87t.8TOTAL INVESTMENTSIN DA MILLION (1) 470.9 325.7 969.6 950.2 1339.7 1399.3 1423.4 1612.3 1,127.6 805.2 .,330.1 5,091.7 10,421.8

TOTAL PROPOSED PROJECT COSTIN US$ MILLION (1) 0.0 0.0 0.0 0.0 73.5 58.0 143.1 102.1 83.3 80.5 299.9 3;U.o 630.5

I1) Based on a constant exchange rate of USSI-DA4.7.23-Apr-87

- 49 -Anex 3Page 1 of 7

ALGERIA


TERMS OF REFERENCE FOR A REVIEW

OF

THE HYDRAULIC CONSTRUCTION INDUSTRY IN ALGERIA

Introduction

1. The construction industry can be a major contributor to the processof development. In Algeria, the construction industry grew from 9.3 percentof GDP in 1970 to 12.1 percent in 1980. The gross value of constructionduring the period 1970-80 accounted for 47 percent of gross domestic fixedcapital formation. The construction industry in Algeria, however, issuffering from administrative and allocative inefficiencies. It is evidentthat improving construction capacity and capability in Algeria would bebeneficial for the economy. The Government is committed to improving theefficiency, timeliness and quality of construction and maintenance work. Itsobjective is to make the construction industry sector more compet'tive andresponsive to public investment programs.

2. The review is concerned only with construction carried out in thehydraulic sector. Possibly, the situation is identical in other sectors andthe conclusions and recommendations made under the present studies may beapplicable to the whole construction industry in Algeria.

Objectives

3. The objective of the study is to identify the main constraints andobstacles preventing the hydraulic sector of the Algerian constructionindustry from becoming more comretitive with foreign construction firms, andto develop appropriate plans of action to overcome those constraints.

4. While the following sections attempt to present a comprehensive iistof the aspects that need to be considered, the work process should be toundertake a brief but balanced and careful overview, and then to focus on themain issues on which action is needed. Most of the effort of the study will,thus, be devoted to identifying and considering alternative, viable solutionsto the problems and to working up action plans for their implementation.

- 50 -

Anmex 3Pap 2 of 7

5. To ensure full commitment of the government and of the industry tothe execution of the strategy and action plans, they should be developed inclose collaboration with the Ministry of Hydraulics, Environment and Forestry(MHEF) and the Ministry of Commerce.

Scop of the StudV

6. The study of this sector and its environment and the formulation of astrategy and action plans will be based on a careful consideration of thefollowing subjects:

6.1 Structure of the Iutry

(a) Historical development of the industry. Emergence ofentrepreneurs and leaders and ownership characteristics ofhydraulic construction enterprises. Traditional constructiontechnology.

(b) Participation of the sector in the economy of the country:contribution to GDP, contribution to employment, nominalproductivity per capita, backward and forward linkages,particularly with the construction materials industry.Comparison with developed countries and with countries at asimilar stage of development as Algeria. Identification andanalysis of anomalies.

(c) Experience with joint ventures and domestic subcontractors offoreign firms.

(d) General appreciation of the efficiency and efficacity of thesector and its ability to respond to the demand for constructionmaintenance services.

6.2 Demand

(a) Overall demand: historical series, fluctuation of annual growthrates relative to the manufacturing industry in general and GDP,identification of trends.

(b) The specialization of hydraulic construction demand arising fromthe private and public sectors. Historical series and futuretrends. Geographical distribution.

(c) Forecast future demand, identifying in particular:

(i) Recurring demand for construction and maintenance serviceswhich can potentially be supplied by the domestic sector;

- 51 -

Annex 3Page 3 of 7

(ii) Demand for larger construction works which can be handledby domestic enterprises, either by slicing and packaging orby providing those enterpri&es with technical and financialassistance; and

(iii) Demand for larger or highly specialized construction work,requiring expertise or capacity that is not available inthe country.

(d) The process of generating demand. The influence of thegovernment's planning and work execution programs in thegeneration of public and private demand for hydraulicconstruction services. Policies (economic, financial, fiscal,and so forth) influencing demand and their effect on specifictypes of demand.

6.3 Procurement and Contract Administration

(a) Procedures for procurement. Regulations for bidding ornegotiating construction and maintenance work. Existence andadequacy of contractor's registry. Time consumed anddifficulties encountered in the post-bid process, up to thestart of the work.

(b) Contract forms and contracting practice. Fairness of contractprovisions, particularly in the apportionment of risk betweenowner and contractor; compensation to the contractor fordefault by the owner (for example interest payable for lateprogress payments, or compensation for delays induced by theowner); adequacy of provisions for price escalation andsettlement of disputes. Existence of indices or data sourcesfor applying escalation provisions.

(c) Policy and legal framework for contracting with public sectorconstruction organizations.

(d) Adequacy of owner's establishment to manage contracts andsupervise construction. Autonomy of government supervisors.Adequacy of delegation to consultants employed for supervision;restrictions which may inhibit the engagement of competentsupervisors.

(e) Adequacy of the engineering process to the level of developmentof the domestic construction industry (for example, is thecontractor required to tender on preliminary engineering and tofinalize engineering as part of his brief? Are methodspecifications used to supplement performance specifications?)


(f) Procedures being used, or potentially applicable, to foster theindustry (or a sector). Special provisions which must beintroduced for this purpose.

(g) Anomalies and difficulties observed in the process ofprocurement, management, and completion of constructioncontracts.

6.4 Choice of Technolog

(a) Potential for the employment of alternative technologies inhydraulic construction. Geographical identification ofpotential areas for labor-intensive construction. Traditionalconstruction methods and present-day attitudes towardlabor-intensive construction, and the use of locally availableor traditional construction materials.

(b) Pricing distortions which may influence choice agaiast locallyavailable, traditional construction materials.

(c) Legal, administrative and employment conditions which mayinfluence a choice against labor intensity or may hinder itsapplicability: permanence in employment.

(e) Availability of managers and technical personnel. Mainrestrictions affecting supply. Likely alternative sources ofmanagers and technicians.

(f) Code and standards. Their adequacy for country conditions andfor the use of locally available materials, and/or traditionaltechnologies. Design bias against appropriate technology.

6.5 The Hydraulic CoDstrUCtion Industry

(a) Level of development of civil construction sectors in accordancewith specified indicators of complexity and volume of theoperations the domestic enterprises can handle.

(b) Managers and professionals. Their status in society. Potentialsupply of managers and technicians. Traditional attitudes.Willingness of leaders to learn modern management techniques.Facilities available for coaching managers and technicians.Salary levels.

- 53 -

Annex 3Page 5 of 7

(c) Supply of engineers, architects, estimators, surveyors,accountants, senior clerks, foremen, and other middle-levelmanagers. Traditional sources, adequacy of supply, and trainingfacilities available. Salary levels.

(d) Supply of equipment operators and mechanics. Adequacy of supplyand training facilities available. Proficiency levels relativeto the quality of finished work. Wage levels.

(e) Supply of unskilled labor. Long-term or seasonal problemsaffecting the availability of labor and of any otherconstruction employees. Wage levels.

(f) Adequacy of salary and wage regimes for state constructionenterprises. Problems arising from these regimes.

(g) Labor productivity. Feasible incentives.

(h) Welfare -I safety of personnel.

(i) Equipment resources. Restrictions for the importation andownership of construction equipment. Standardization.Availability of spare parts and servicing facilities.Restrictions on the importation of spare parts. Availability ofequipment leasing or hiring facilities. Availability of excessequipment in government fleets which could be sold or hired outof contracting enterprises. Prices of consumables.

(j) Availability of materials. Shortages which affectconstruction. Alternatives available. Means of marketing anddistribution, accessibility of self-help builders. Prices ofdomestic and imported materials.

(k) Technology gaps: in estimating, planning, organizing andmanaging construction work, cost control and constructiontechnology. Quality of finished work.

(1) Research and development (R & D) facilities available for thehydraulic sector; identification of needs. What R & D work hasbeen carried out in the past? Are its results being used?

6.6 Fimacing

(a) Financing, bonding, guarantee and insurance requirements ofcivil contractors.

- 54

Annex 3Pape 6 of 7

(b) Particular characteristics of construction risk in Algeria.

(c) Availability of suitable insurance facilities.

(d) Suitability of contractual arrangements (advances or progresspayments) in the context of the financial resources available tothe industry. Acceptance by financiers of government progresscertificates and other contractual documents for discounting.Terms of such discounting.

6.7 Lefal

(a) Taxation regime applicable to the construction industry. Taxexemptions and concessions (particularly, incentives forreinvestment), depreciation allowances, industry concessions.Protection of industry against foreign competition. Protectionof State enterprises against private competition. Pricing andprofit controls.

(b) Employment regime. Permanence o01 labor in construction industryemployment. Wage-fixing procedures, free bargaining. Sociallaws (health, insurance, pension and so forth) applicable toconstruction, services offered in return. Methods available forsettlement of disputes. History or periodicity of disputes.

(c) Importation regime. Duties levied on equipment, spare parts, andmaterials. Treatment of domestic and foreign companies.Restriction in the availability of foreign currency.

(d) Codes and regulations affecting the industry (for instance,licensing of builders and contractors, determination andlimitations of responsibility, building codes, safety and fireregulations).

6.8 Institutional

(a) Existence of a government office responsible for development andliaising with industry institutions.

(b) Existence of an institution representative of the industry,capable of presenting its views to the Government in mattersaffecting construction and providing management information andtraining services to construction enterprises.

(c) Existence of professional associations related to theconstruction activity (for engineers and architects, forexample).

- - Annex 3

Page 7 of 7

Stratexy mnd Actio Plea

7. A comprehensive strategy for development of the hydraulic sector willbe prepared to enhance the level of development of this industry. Thestrategy will propose short-, medium-, and long-term objectives. These shalltake into account the state of development of the country's economy and itslikely evolution when proposing a time frame.

A small number of action plans, aimed at resolving key problems andconstraints identified in the strategy as having a high priority, will beprepared. The plans will contain schedules and programs for their varioussteps, the persons or institutions responsible, the estimated costs and likelysources of funding and the standards by which to appraise the results of theirimplementation.

October 21, 1986

- 56 -

Annex 4

ALBERIASECOND NATIONAL WATER SUPPLY t SEWERAGE PROJECT

ESTIMATED SCHEDULE OF DISBURSEMENTS(USS 1illion1

Bank LoanBank FY (1' Ouarter In Quarter Cumulative (2)

1988 FirstSecond 20.0 20.0Third 10.0 30.0Fourth 10.3 40.3

1989 First 11.9 52.2Second 12.3 64.5Third 12.5 77.0Fourth 13.3 90.3





(I) Runs from July I ofthe preceding year to June 30of the current year.

(2) Fiqures shown under this column give estisated accumulateddisbursements at the end of the corresponding quarters.

- 57 - A 5

I."

SECOND MAT IW. NATEO SUPPLY L IEERAE PROJECT...... . ... _. ....... . ..... ...........

1"psumntatimu khudJule

........ ,....................................... ..................... .............................................. *. ........ ................ ... .... ... .... ....

---*----- 1987 ----------- -- -- --- 1 -------- ----------- 199 -----989 …;lit Suuter 1 2nd Sumester I lst nem ter I 2rd Soemeter I 1st Semster I 2ad Semter I

| .. .I _ _ _ e__. I_ ... ~ .1e .f......... ........................... I .. ... .. _I a.5.......

t I I I I I I II I Equipmet Siddingl I Construction of PM, Rosrvoirs sod Pipeline IIPIN DAIIA-rSOK NRIB ' IIIAMUI II!!

a~ a I III I Equiiomt Stiddigi I Construction of P, R fwvoirs aid Piplin I

110 ANGIEL-TAMIWASSET . t

' Equipmont Oiddinlg I Construction of PS, Rosrvoirs sod Pipeline I'AIN SKD""-SAIDAIIIIIIIIIII!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!I

Equipmt Diddingl IConstructioa of PS,TP,Rnervoire and Pipelines IINEIENNA - MA""b XXXXXXIII!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

a . Equipmnt liddingl I ConstructioN I I!TLEMCEN S.T.N. I XIIIIXXlt!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!l

z | ~ ~ ~ ~ ~ ~ ~ ~~I I I I I IEquipeent Diddinql I Construction I I

I Equipmet liddingl I Construction I,SETIF S.T.N. 5XXIXIXIII!!!!'!!!!!!!!!!!!!!!!!!!!!!!!!I

: ' ~ ~ ~ ~ ~ ~ ~ ~ ~~I I I I I I'~~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~ a a I , a a

PIPES SUPPLY I IIIIIXIIIII!!!IIIIIXIIIXIIIXI! !!IIXIXIXI!!!!!!!!!!!!!!!: : ' I i~~~~~~~~~~~~~~~Slect I

I I Consultato I Executio of Study I IXCONSTRUCTION IDUSTRY I I XIXIXIXIIIII II'!!!! '!!!!!!!!!!!!!!!!!!!!I I

a Selct 1 1 a I Ia a I 1Co As&ltnts I Studin I I

!TRANSFERS STUDIES ia a I a a a a a

a I a a a I................................ - ---------- -. ------------------.----..-----......-.......... .. .. ... _........_........... - --------- -...... ----... -....... .-- - - - - - - - - -- - - - - - - - - - -

LEBEND% 11111111 bidding, SelKtioN of Cntsultts.

!!!!!!! Construction, Studies

Narc 31, 199

ALGERIASECOND NATIONAL WATER SUPPLY & SEWERAGE PROJECT

ENTREPRISE DE PRODUCTION, DE GESTION ET DE DISTRIBUTION D'EAU

Interim izt Chtat - 1986

.. orv~q I AIdx I

~~~xSm _ _ _No lot rnmG

Iu's~ [ luuvt~u9son Pioct. Ignr

~~~~~~DM AccurItf

Stocks & Csa § f L

Li I - I

WWohd B0*-27033

Offices

- 59 - SEO NtOn L MMmm u . AS .IOJCT A=s 7E2I1T CuilAuics - INICE STATEMIITS

IIA Nilliu)

-------- .. ... _..... .. ......... ...................... ,............ ........................ ...... ........... ....... . ................... ........... __. ._...... ..

Fiscil Year Ending Decoemr 31 1984 1995 1994 1917 1989 1989 1990 1991Est. Est - ---------- Projected ----------

Water Produced 110.3) 377.94 432.72 442.30 604.46 496.87 743.90 772. 30 803.19Unaccounted-for Water 24 24 24 25 25 24 24 23Niter Sold (103) 294.14 330.07 352.92 456.19 526.69 562.01 589.61 615.83Historical/86 Average Revenue tDA/m3) 0.96 1.00 1.41 1.56 1.57 1.57 1.57 1.57kate increase i!) 0.00 0.i0 0.00 0.00 15.00 20.00 30.00 10.00Avwrage Revenues from Rate licrease (DA/. 0.00 0. 00 0.00 0.00 0.24 0.40 1.25 1.53

Revenues:

From Water Sale: - at Mistwrical/l Rate 244.39 329.62 497.73 711.60 826.75 9U3.45 925.79 968.64- late lcreae 0.00 0.00 00 0.00 124.01 335.79 735.09 942.89

Meter Rental & Maintenance 17.37 14.57 27.85 32.11 33.19 34.21 35.: 36.23OWt Connectieos 44.20 49.55 27.97 22.79 23.10 24.54 26.65 12.02

Other 6.33 2474 6.00 4.00 4.00 4.00 4.00 4.00- ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ - - - -- -- --..--..---

Total Revenue 336.29 442.60 559.55 770.45 1,011.05 1,282.21 1,724.90 1,963.80

Operating Expenses

wales 141.80 204.23 242.44 300.34 333.54 360.99 409.22 453.51Energy I Fuel 47.43 54.44 63.43 90.59 101.17 120.03 132.34 146.54Materials & Iaintenance 61.52 46.31 57.06 43.60 73.93 121.87 129.95 119.79Taxes 24.73 20.96 38.14 44.58 53.60 68.11 82.54 90.19Adoinistrative & Others 11.48 14.40 15.58 14.95 18.21 19.69 21.29 23.00

-----. -- -- . ..... -- - - - - - _ - - - - - -

Sub-Total 289.94 348.54 416.91 515.96 517.67 699.67 774.25 833.04

DeprecKation 55.49 79.94 167.40 224.07 262.73 3"9.26 525.23 541.36

Total Operating Expoese 342.44 42*.50 584.31 740.03 950.40 1,097.94 1,299.48 1,374.40

Net Operatinq Income: (6.15) 14.13 (24.74) 30.62 160.64 194.27 427.32 589.41

Interest 1.35 2.49 5.99 4.11 35.94 37.71 449.44 460.77Other 11.61) 15. 0 2.60 0.00 0.00 0.00 0.00 0.00

. ........ -----...-- ...... ------... -----

Net Income 15.899 14.19) (33.24) 23.90 124.71 146.54 (22.121 128.63

Labor onus 0.00 0.00 21.92 27.03 30.02 33.21 36.83 40.82-- - .. .. -- - - - - - .... ... . - - - - - -

Taxable Incom (5.899 (4.19) (55.07) 13.23) 94.69 113.35 (58.953 97.92

Incm Tax 12.84 5.49 10.14 45.24 70.97 90.96 55.93 114.14

After-Tat Income 111.731 (9.80) 165.211 (48.471 23.71 32.39 1114.99) (26.34)

Dividend Paemt 0.00 0.00 0.00 19.51 29.03 33.12 22.08 46.70.. . . ...... ...... - ..….... _

ketained Earnim (1I.731 (9.80) (45.21) (4. "I (5.32) (0.73) 1137.741 (73.04)amm _ _.. * mum mm... mamma. . ....

24-4w-I

- 60 - SECOS MTIWIIItEI . lL W U ECTEISIT COINPIJES - VIUIC SHEEN

(iA 9111i1.

Fiscal Year Endinq Dectaber 31 1994 1995 1996 1997 1999 1999 199O 1991Est. Est. ---------- Projected ----------

ASSETS:

Fixed Assets:6ross Fixed Assets in Operation 1,588.89 4,555.99 5,493.01 8,771.17 10,616.66 19,921.33 19,857.55 20,231.55Less: Accusulated Deprec:ation 946.97 1,019.84 1,190.44 2,334.09 2,613.76 3,013.02 3,538.25 4,079.61

Net Fixed Assets in Operatic. 641.92 3,536.05 *,302.57 6,437.07 9,002.91 15,908.31 16,319.30 16,151.93

Work in Progress 611.52 1,416.62 3,218.29 5,221.26 6,804.35 897.25 2,627.15 5,076.85

Total Fixed Assets 1,253.44 4,952.67 7,520.85 11,658.33 14,807.26 16,905.55 18,946.45 21,221.71

Current Asets:Cash 54.49 77.61 26.24 38.93 41.32 49.86 9.92 106.41Receivables 397.05 280.41 338.26 414.64 454.78 451.27 519.63 576.56Inventorits 92.97 113.93 119.26 116.05 99.56 102.48 64.43 59.90Other Receivables 178.31 148.23 85.35 78.94 69.911 58.25 61.72 55.38

--..-- ----- .....-------.. . ....... ........ -------- ............ __

Total Current Assets 712.82 620.25 569.11 648.58 665.65 661.95 745.70 802.24

TOTAL ASSETS 1,966.26 5,572.92 8,089.96 12,306.92 15,472.90 17,467.41 19,692.15 22,031.02232zX:2: 3S332233 3333 2233332 :3233 238232 a-ass 3 3ass22ss3 332323

EQUITY I, LIABILITIES:

Equity:6overnment Contributions 1,416.70 5,122.20 7,509.98 10,702.59 11,969.96 12,302.32 12,557.99 13,158.89Retained Earnings lex.Incoae Tax Expense) (49.97) (205.06) (260.10) (271.15) (176.47) (63.15) 1122.089 (34.27)

Total Equity 1,366.73 4,917.12 7,249.78 10,431.42 11,693.50 12,239.17 12,435.92 13,124.62

Debt:I8RD Loan 1545-AL 114.27 212.92 316.79 404.98 378.76 352.64 32b.52 300.40IBRD Loan 2461-AL 0.00 0.00 71.69 316.63 663.57 865.02 955.58 1,006.30IBRO Loan 2591-AL 0.00 0.00 111.05 700.79 2,133.92 3,131.78 3,377.32 3,434.73MT Debt 47.27 102.15 126.89 143.99 129.32 104.48 77.93 52.48Other LT Oebt 163.26 17.91 28.19 104.82 202.19 302.76 299.28 274.56Future LT Debt 0.00 0.00 0.00 16.09 83.38 254.79 1,930.43 3,406.06

Total Debt 324.90 332.88 654.59 1,697.09 3,SY1.04 5,011.40 6,865.95 8,474.53

Less: Current (aturities 10.97 22.50 43.07 64.61 144.98 145.61 216.98 U1.44

Total LT Debt 313.83 310.38 611.52 1,622.48 3,446.16 4,865.97 6,648.97 8,213.09

Current Liabilities:Pyables 273.40 314.50 169.27 199.40 188.37 216.77 390.28 431.87Current LT Debt NAturitits 12.30 30.92 59.39 64.61 144.98 145.61 216.99 261.44

-- - - -- -- - -- -- - -- -- - -- -- - --- --- ...... .. ---------... ..... ...... .. ... .. ........

Total Current Liabilities 285.70 345.42 229.6 253.01 333.25 362.38 607.26 693.31

TOTAL EQUITY I LIA8ILITIES 1,966.26 5,572.92 8,089.96 12,306.92 15,472.90 17,467.41 19,692.15 22,031.023323333 33322333 , .32832238 232XS3 3333333 3S3XS33 3S2 X 22 332333

24-ur -87

- 61 -

ALSERIASECOND NATIONAL WATER SUPPLY AND SEWERA6E PROJECT

ciH1 COMPANIES - SOURCE AND APPLICATION OF FUNDS STATEMENT(DA million)

Fiscal Year Endinq Decetber 31 1".6 198? [988 1989 1990 [991-- -- -- - -- - Projected - --

SOURCES

Operating Incose beive Deprciationafter Bonus 120.82 227.66 393.36 550.32 915.72 1,089.95

LESS:Debt Service: Interest 5.99 6.81 35.94 37.71 449.44 460.77

AmortizatioW 22.50 43.07 4.A 144.89 145.61 216.98

Debt Service 29.39 49. 8 100.55 182.59 595.05 677.75

Increase (Decrease) in Workir.q Capita! 94.09 60.34 17.10 (32.19) (89.66) 14.94

Net Internal Cash 6eneration (1.66) 117.44 275.71 39n.93 410.33 397.26

5overneent Contributions:- Income Tax Receipt (10.14) (45.24) (70.97) (80.96) (55.93) 1114.16)- Dividend Receipt 0.00 (19.51) (29.03) (33.12) (22.98) (46.70)- Cash 1,738.70 1,953.01 1,038.68 200.95 334.52 761.74- Assets Takeover 653.25 1,278.94 23.72 345.45 0.00 0.00

Sub-Total 2,381.81 3,169.20 1,167.39 432.32 255.71 600.88

Borrowings 359.29 1,075.58 1,968.56 1,565.32 2,000.09 1,825.56

Others (2.60) 0.00 0.00 0.00 0.00 0.00

TOTAL SOURCES 2,736.85 4,361.21 3,411.66 2,397.57 2,666.13 2,823.702:x2s::3 3l2:2::X :-Z3x22 Xmaum.::S :z_:: 2U 332:2x2

APPLICATIONS

Investments:- Assets Takeover 656.69 1,278.94 229.72 345.45 0.00 0.00

- Construction Program 2,090.15 3,082.27 3,192.94 2,052.11 2,666.13 2,923.69

TOTAL APPLICAIiOdS 2,736.84 4,361.21 3,411.66 2,397.56 2,666.13 2,823.69

24-Nar-81

- 62 -

mamia~_ 1SECIII UTIUL NATM UIMLV I. 3 PAIJECT

ElhT CUHPAIIEI - MITORINS IUICATO

Fiscal Year Ending Decenber 31 1966 1987 I988 1989 1990 1991- - - -- - - -P- Project --

I. Staffing

Total Staff 6,051 7,077 7,287 7,476 7,679 7,895Staff per 10,000 people served 0.1 8.7 8.6 B.5 8.4 8.3Average Cost per Staff (DA'000) 40 42 46 49 53 S8Total Wages INDA) 242.46 300.3 333.56 366. 9 49.22 453.51

11. Systes Operations

Water Production (O1 3/yeal 462.30 604.46 6.87 743.0 772.30 803.19later Sales (103/year) 352.82 456.19 526.69 562.01 58.61 615.83Unaccounted-for Iater (1) 24 25 25 24 24 23

Ill Financial

Average Revenue per 03 Sold (DA)-At 1986 Tariffs 1.41 1.56 1.57 1.57 1.57 1.57-From Tariff Increass 0.00 0.00 0.24 0.60 1.25 1.53

Operating Ratio 1Z) 104.42 96.03 64.11 85.63 75.25 69.990 & f Costs per a3 Produced IDA) t) 0. 0.65 0.84 0.94 1.00 1.040 & A Costs per s3 Produce

in 1986 Prices (DA) It) 0.90 0.79 0.72 0.75 0.74 0.71bebt/as a Proportion of

Debt Plus Equity (Z) 5 13 23 28 35 38Debt Service Coverage (tien) 4.3 4.6 3.9 3.0 1.5 1.6Collection Period (months) 7.3 6.5 5.4 4.2 3.6 3.5Self-Financing Ratio (Z):

-Annual (0) 4 9 19 15 14-3-year Average (0) 4 10 16 15 14

Net Government Funding (NDA) (H) 1,690.40 1,844.68 84.07 18.76 173.17 510.6t9Rate of Return on Average Net Fixe AIsets (1) (11 1 2 2 3 4

(4) Excluding depreciationlte) Cash Governaent contributions less taxes aid dividns

24-tbr-87

ALGUUA -63 -

SECOND NATIONAL WATER SUPPLY SEWERAGE PROJECT

SECTOR DI- I & FCAN-C PtOGR

32 - _ l

3

20

24/

2.2

2

o 6 C KBORROWNGS

12

I C GOVENMENT\

o a - CONTRIBUTIONS0 6

0 2 NET INEAL CASH GENERATION lCG)

t

-a-o2 -136 137 tg 1¶09 130 IS1

a NICC + XmcG # Gov.num.tt Cfrthgi * bWUtUSt

SECTOR AUTOFINANCING

2 -

1.9

i.7-

1.4-

1.2-

0 9-

0 7

0.6

O b I__--

l"6 in7 Is" Ing 11

a O. wcq. 0 imme a1t Mt"

+ OWi.&M w.Cq.p6 Bye a. Btm Ad. bNogs

- 64 - Annex 12

Page 1 of 4

ALGERIA


EIGHT COMPANIES - ASSUMPTIONS FOR FINANCIAL PROJECTIONS

A. General

The financial projections were derived by adding the prijections foreach of the following companies: EPEAL, EPEOR, EPECO, EPEA, EPEBA, EPES,EPEOU, and EPET. No set-off was tmade among the intercompany receivables andpayables, which were assumed to be cancelled out in 1987 through offsets andcash payments.

The financial projections for EPEAL, and for EPEOR and EPECO areupdates of those presented in the SARs for Loans 2461-AL and 2591-AL,respectively. An 8% p.a. inflation rate was applied from 1987 on to theoperating expenses.

B. Income Statements

1. Operating Revenues

(a) Water production and sales for EPEAL, and for EPEOR and EPECOwere updated from the figures shown in the SARs for Loans2461-AL and 2591-AL, respectively. For the other companies,they were estimated to grow at tthe same pace as populationgrowth in each area. The impact of the companies' take overprogram was estimated.

(b) Given that there is only one national tariff and that financialobjectives have been defined for the sector as a whole, revenueswere computed for the addition of all eight companies. Theseeight companies are an acceptable proxy for the sector, as theyrepresent about 90X of the whole sector. Water revenues werefirst computed on the basis of existing tariffs. The 1987average revenue per m3 of DA1.56 at current tariffs wasderived using the follawing demand structure for all eightcompanies:

Consumption Demand 4,verage Weighted__yt__ Structure (%) Revenue (DA) Average Revenue (DA)

Domestic 61.6 0.98 0.604Commercial 7.6 2.50 0.190Public 10.4 2.00 0.208Industrial 14.6 3.00 0.438Others 5.8 2.00 0.116

Total 100.0 1.556

- 65 -

Annex 12Page 2 of 4

The DAO.98 average revenue for domestic consumers was derived fromthe records of some of the companies and were subject to several rather weaktests, such as looking into the possible extent of metering problems andothers. Rate increases were computed so that by 1989, net internal cashgeneration would be equivalent to about 15% of the companies' investment.

(c) Water rental and maintenance were calculated by multiplying thenumber of connections by DA40.0, which is the estimated averagecharge per connection. Actual rates range from DA26.0 toDA54.0. The number of connections were derived by dividing thepopulation connected by the average family size of 6.8.

(d) New connections charges were obtained by dividing the revenuesfrom new connections for each year, by the average fee ofDA950. The average fee was inflated at 82 p.a. starting 1987.

2. Operating Expenses

(a) Personnel:

The companies' estimates for number of staff and average costper staff for 1986, which are reasonable, were taken as abasis. Expenses for 1987 on were computed assuming an81 inflation rate. Changes in the number of staff in eachcompany was chosen to allow for improvement in the ratio ofstaff to population served.

(b) Energy and Fuel:

Each company's estimate water production and energy costs for1986, which are reasonable, were taken as a basis. Unit energycost per m3 of water production was inflated at 81 p.a. ForEPEAL, EPEOR and EPECO, from 1987 on, water production wasseparated between existing (old) and additional (new)production; an estimated 5% efficiency improvement was allowedfor existing production while a 301 cost decrease was allowedfor additional production as new plant is about 30S moreenergy-efficient than existing plant.

(c) Materials and Maintenance:

Materials were computeA on the basis of estimates for the numberof new connections and the average cost per connection. Theaverage cost per connection of about DA460 was inflated at 81p.a. starting 1986. Maintenance expenses were projected at 0.5%of year-end gross fixed assets in operation.

- 66 -

Aax 12Pop 3 of 4

(d) Taxes:

Calculated at 61 on salaries, 2.531 on gross revenues and 11.1%on purchases of materials.

(e) Administrative Expenses:

The 1985 actual amount was taken as a basis and inflated at 8Sp.a. thereafter.

(f) Depreciation:

Calculated on a straight-line basis at average rates rangingbetween 2.2S and 3.21.

(g) Labor Bonus:

Estimated at 91 of personnel costs.

(h) Income Tax:

Estimated at the current 551 rate.

(i) Dividend Payments:

Estimated at the current rate of 501 if there are profits.

C. Balance Sheets and Source and Appliation of Funds

1. Pixed Assets and Investment Prousm:

The investment program to 1989 is that described in Annex 5. Theaverage annual investments for the period 1987 to 1989 for eachcompany was taken as an estimate for 1990 and 1991.

2. Finacing Propa:

EPEAL, EPEOR and EPECO's investment program carried out by MEEF, arefinanced by Bank loans and Government equity contributions. Bankloans are onlent to these companies as follows: Loan 1545-AL: 7.45Xinterest rate, 17-year repayment period starting 1986; Loans 2461-ALand 2591-AL: 101 interest rate, 20-year repayment period starting1989. These companies finance their own construction with a mixtureof medium and long-term loans. MT loans carrr an average interestrate of about 51, 2 years of grace and are repaid over a 5-yearaverage period. LT loans carry an average interest rate of 61,

- 67 -

Annex 12Page 4 of 4

5 years of grace and are repaid over a 15-year average period.Financing of the proposed project will be provided by the companies(151) and by Government loans including relending of the proposedloan and equity contributions. It was assumed that the proposedsyndicated loan would be re-lent to the companies. Governmentrelending terms on both the proposed Bank loan and the proposedsyndicated loan would carry a 101 interest rate, 5 years of grace andwould be repaid over a 20-year period.

3. Equity Contributions

Were estimated to close any financing gap or to cover any foreignexchange requirement not financed by borrowings.

4. Current Assets

(a) Cash: requirements for cash on hand were estimated at 15 daysof cash operating expenses (including labur bonus and incometax), investments carried out by these companies and debtservice requirements.

(b) Receivables: computed to reflect progressive improvements incollection, as shown by the monitoring indicators.

(c) Inventories: calculated to reflect improvements in inventorymanagement to decline to 0.5 month consumption of materials by1990.

(d) Other Receivables: computed at 15% of material and maintenanceexpenses, 35S of the companies' own construction expenditures(252 import deposits and 101 advances to contractors), 50% ofrevenues from new connections and others to grow at the 81inflation rate.

5. Current Liabilities:

Payables were estimated at 15 days of personnel costs (includingbonus), 2 months of energy costs, 3 months of materials andmaintenance expenses and own construction expenditures, 6 monthstaxes other than income tax, a full year of income tax, 251 ofpersonnel costs (consisting of social security, withholdings andothers) and customs deposits were inflated at the 81.

ALSERIASEaCI NTIAL VAIER 1W Y & KrN PIECT

DISTRINTION OF INI MP CEITA NIGELI 1EE I 1.311IA 19 I a(3* pe capita)

Emu ID A1) Les 900 1000-1200 kh 1200-150 2W0-2N 3500-400 CetrryieWBaIt (2) 3.75 4.35 4.407.30 13.50 4.30 Avea

Cmiati a ie 11) 3.75 1 11.35 I 15.95 1 .45 Z 50.75 1 77.S7 1 Eapenu I

Expueuw Itm

Potable lhtur Xc 0.2 2 0.2 3 0.2 3 0.2 5 0.2 9 0.2 7 0.2Feu 427 67.3 740 67.4 344 b4.4 902 4.2 1,404 40.2 2,237 59.6 1,739 55.7Clething 7 1 11.3 113.0 10.3 140 11.0 155 11.4 234 10.0 357 9.3 24 9.2Nomsi %c 21 3.3 35.0 3.2 42 3.3 45 3.3 111 4.3 143 4.2 142 5.2Fw1tware 24 4.1 55.0 5.0 42 4.9 4 4.3 140 4.0 231 4.0 200 4.4Nualth Care 13 2.1 30 2.7 38 3.0 43 3.2 74 3.3 129 3.4 94 3.1Trmggertatim 13 2.1 24 2.2 34 2.7 40 2.9 103 4.4 220 5.7 207 4.4Euautioo, bcreatam It 1.7 25.0 2.3 28 2.2 29 2.1 44 2.7 121 3.3 10 3.4other 47 7.5 74.0 4.7 77 4.1 79 5.3 197 3.4 314 8.2 320 10.2

Totdl Avorag l u e 0 100 1,0I' 100 1,270 100 1,342 100 2,33 104 3,1 100 3,123 100

%a Let Available guvev.

Ub 1. 1960, the relative pewty level #as eutiated at 3*1,270.Figns in this colm are astwrpolted betwen data for the 3*1000-1200 and *1200-150 raages.

%C Pulise basing figWn iclu ater elKctricity ad as. Exapes for atwr reu ntiteu ftorthe cetryside aveag and .btracteud Ir the housing iat. Estiatis of ate fxp eun for ech rapwe obtaied a a proWtim of avtag exnpws for ech rmp ad the cutrywide averag.

SeCwse Office atiomal dn Statistiqse, bAaire Statistiqee de I Al eie, 1933-1984 No. 12, 195 Editim .Esuai d'Anae srw las ide Coesoetion de Nonages, eiorehat, in Statistips,Office Natinal de Statict7 i, 34. 4, JAm.-NrW, 195.

Ia

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Annex 14Page 1 it 2

ALGERIA


Cash Flow for Calculation of Rate of Return

Incrrner,tal WNtTota, Benefits

Yea Investmfnts 0 & M Costs SBles Revenues (Costs)

,-,I,,I,ID M 0A 6),...... N IhA3) (DA10I6) IDAIOx6)

1987 359.80 358.80 1358,0)198Q 1,211. 0 1,211.70 (1,211.70)1989 451.90 451.90 (451.9011Q9(! 81.80 61.80 39,50' 61.62 (20.19)1991 82.90 92.90 45.80 71.45 (11.45)199. 84.30 94.30 53.70 83.77 (0.53)1993 95.30 85.30 61.80 96.41 11.111994 86.50 86.50 70.60 110.14 23.641995 87.70 87.70 79.70 124.33 36.631996 99.10 '89.10 99.40 139.46 50.361997 90.20 90.20 99.10 154.60 64.401998 91.40 91.40 107.50 167.70 76.301999 92.50 92.50 116.40 181.58 89.082000 93.90 93.90 125.50 195.78 101.882001 95.00 95.00 130.60 203.74 108.742002 96.30 96.30 135.40 211.22 114.92200 96.30 96.30 139.10 215.44 119.142004 96.30 96.30 140.90 219.65 123.352005 96.30 96.30 143.70 224.17 127.972006-2026 96.30 96.30 146.40 228.S8 132.08

IRR- 2.77%

Sensitivity Analysis

IRR with 10% Cost Increase 1.96%IRR with 102 cost decrease 3.76ZIRR with 10% revenue increase : 3.662IRR with 102 revenue decrease 1.76%IRF w:th 102 cost increase

ard IC revenuE decrease 0.812IRR at forecast tariff increases 5.222Tariff increases by 1990 necessary

to obtain an IRR=IQ0 113l

Long-ru, increaertal cost

Dl::ourt IncresentalRate (2) Cost(DA/W3)

6 2,21S 2.7210 3.33

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Annex 14Page 2 of 2

Notes

1. O&M costs were estimated at 4-52 of investmer.t cost. Incremental saleswere estimated on the assumption that water consumption per capita willgradually increase from the present average of 80 lcd to about 200 lcdby the year 2000 as per government policy.

Revenues were computed at the current average revenue per m3 ofDA 1.56. If revenues were computed considering the covenanted tariffincreases to 1990 of 302 in real terms, that is at DA 2.06 per m3

then the IRR would be about 5.22. Investments included in thec3lculations do not consider DA 575 million of distribution pipes, dueto the difficulty of establishing precise benefits.

2. IRRs for each subproject range from negative, that is incrementalrevenues never exceed incremental costs, to 31X for the Tlemcen andMaghnia S.T.W. subprojects considered together (para. 3 below). Thisdiscrepancy anong the individual subprojects' IRRs is a naturalconsequence of the national, country-wide tariff schedule.

3. The Tlemcen S.T.W. has been lumped together with the Maghnia S.T.W. asthe two subprojects have the same beneficiaries. The benefits of thethree S.T.W. subprojects have been estimated as the incremental sales tobe derived from the water treatment works that would receive downstreamthe water treated by the S.T.W.s. The investment expenditures of thewater treatment works have been considered sunk costs. Under thisassumption, the IRRs of the TIemcen/Maghnia S.T.W. subproject and of theSetif S.T.W. subproject would be about 311 and 71, respectively. If theinvestment expenditures sunk in the water treatment works were includedin the computations, then the IRRs would be about 4% and negative 14.51,respectively.

April 22, 1987

Annex 15

ALGERIA


TARIFF SCHEDULE

AnnualConsumer Consumption Coefficient RateCategory (m3/year) (DA)

I. Domestic 1. From 0 to 200 1.00 1.002. From 221 to 330 1.75 1.753. More than 330 2.50 2.50

II. Public Any 2.00 2.00

III. Co me rcial Any 2.50 2.50

IV. Industrial Any 3.00 3.00

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Annex 16

ALGERIA


Selected Documents and Data Available with Proiect File

Item

1. R6sultats Preliminaires par Commune et Dispersion, 2ieme Recencementgeneral de la population et de l1habitat du 12 fevrier 1977Direction des Statistiques et de la Comptabilite Nationale,Commissariat National aux Recensements et Enqu

2. Arrete du 23 juin 1975, Plan des Comptes

3. Loi N'85-09 du 26 decembre 1985, Loi de Finance

EPEA:

4. Organ4gram5. Opening Balance Sheet, January 1, 19846. Plan de Charge 1986, December 18, 19857. 1984 Annual Report

EPECO:

8. Opening Balance Sheet, January 1, 19849. 1984 Annual Report10. Etude Economique et Financiere des Exercices 1984 et 1985

EPEOR:

11. Opening Balance Sheet, January 1, 198412. Liquidation de la Sonade, Transfert a 1'EPEOR13. Exercise 1984, Rapport de Revision Coomptable, SNC14. 1984 Annual Report15. 1986 Budget de Fonctionnement

EPET:

16. 1984 Annual Report, SNC17. 1985 Annual Report

18. Financial Statements, 1984-1991 for EPEAL, EPEA, EPEBA, EPECO, EPEOR,EPEOU, EPES, and EPET

ALGERIA

SECOND NATIONAL WATER SUPPLY M E I

AND SEWERAGE PROJECTWater Utilities Service Areas

J ProJect Locations

Water Utilities Service Companies ALGIERSsWater Utilities Service Boundaries

O Selected Towns

* Wlayo Headquarters BLIDA

6 National Copital .

- Wiiaya Boundaries EL ASNAM Medea

- - International Boundaries (EL Asnomn

Mostciganeirn MEDE

ORAN, MOSTAGANEM®Oran

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