FOR OFFICIAL USE ONLY

Transcription

1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Urban and Water Country Department AFCW3 Africa Region Document of The World Bank FOR OFFICIAL USE ONLY PROJECT PAPER ON A PROPOSED ADDITIONAL CREDIT IN THE AMOUNT OF SDR 9.60 MILLION (US$15.1 MILLION EQUIVALENT) AND A PROPOSED ADDITIONAL GRANT IN THE AMOUNT OF SDR 7.80 MILLION (US$12.3 MILLION EQUIVALENT) TO THE REPUBLIC OF CHAD FOR AN URBAN DEVELOPMENT PROJECT May 11, 2011 Report No: TD This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

2 CURRENCY EQUIVALENTS (Exchange Rate Effective March 31, 2011) Currency Unit = CFA franc (CFAF) CFAF 462 = US$1 US$1 = SDR 0.63 FISCAL YEAR January 1 December 31 ABBREVIATIONS AND ACRONYMS AF Additional Financing ARAP Abbreviated Ressetlement Action Plan BP Bank Procedure CCP PADUR implementing agency (Cellule de Coordination du Projet) COJO Commission for bids opening and evaluation (Commission d Ouverture et de Jugement des Offres) EMP Environmental Management Plan ERR Economic Rate of Return ESIA Environmental and Social Impact Assessment ESMF Environmental and Social Management Framework ESMP Environmental and Social Management Plan FM Financial Management FMA Financial Management Assessment FY Fiscal Year GoC Government of Chad H High IBRD International Bank for Reconstruction and Development IC Individual Consultant ICB International Competitive Bidding IDA International Development Association IFR Interim Un-audited Financial Report IP Implementation Progress ISN Interim Strategy Note LCS Least-Cost Selection MATUH Ministry of Land Planning, Urban Development and Housing (Ministère de l Aménagement du Territoire, de l Urbanisme et de l Habitat) MDG Millenium Development Goal M&E Monitoring and Evaluation MI Medium High Impact, Low Likelihood ML Medium Low Impact, High Likelihood MoW Ministry of Water MS Moderately Satisfactory NCB National Competitive Bidding i

3 OP ORAF PADUR PDO PIM PPIAF PPP PRSEE QCBS RAP RPF SIL SDR SSS STE STEE ToR Operational Policy Operational Risk Assessment Framework Chad Urban Development Project (Projet d Appui au Développement Urbain) Project Development Objective Project Implementation Manual Public Private Infrastructure Advisory Facility Public Private Partnership Chad Critical Electricity and Water Services Rehabilitation Project (Projet de Réhabilitation des Services Essentiels Eau et Electricité) Quality- and Cost-Based Selection Resettlement Action Plan Resettlement Policy Framework Specific Investment Loan Special Drawing Rights Single-Source Selection National Water Company (Société Tchadienne des Eaux) National Water and Electricity Company (Société Tchadienne d Eau et d Electricité) Terms of Reference Vice President: Country Director: Sector Director: Sector Manager: Task Team Leader: Obiageli K. Ezekwesili Ousmane Diagana Jamal Saghir Junaid Kamal Ahmad Jan Drozdz ii

4

5 REPUBLIC OF CHAD URBAN DEVELOPMENT PROJECT ADDITIONAL FINANCING CONTENTS Page Project Paper Data Sheet...iv I. Introduction...1 II. Background and Rationale for Additional Financing...1 III. Proposed Changes...6 IV. Appraisal Summary Annex 1: Results Framework and Monitoring Annex 2 Operational Risk Assessment Framework (ORAF) Annex 3: Detailed project description Annex 4: Detailed project cost table Annex 5: Procurement arrangements Annex 6: Financial management and disbursement arrangements Annex 7: Environmental and social safeguards Map IBRD iii

6

7 REPUBLIC OF CHAD URBAN DEVELOPMENT PROJECT ADDITIONAL FINANCING Project Paper Data Sheet Country Director: Ousmane Diagana Sector Director: Jamal Saghir Sector Manager: Junaid K. Ahmad Team Leader: Jan Drozdz Project ID: P Expected Effectiveness Date: October 31, 2011 Lending Instrument: Specific Investment Loan Additional Financing Type: Scale-up (US$23.10 million) and cost overruns (US$4.30 million). Basic Information - Additional Financing (AF) Sectors: Water Supply (85%), Flood protection (15%) Themes: Access to urban services and housing (100%) Environmental category: B (Partial Assessment) Expected Closing Date: June 30, 2015 Basic Information - Original Project Project ID: P Environmental category: B Project Name: Urban Development Project Expected Closing Date: June 30, 2015 Lending Instrument: Specific Investment Loan AF Project Financing Data [ ] Loan [X] Credit [X] Grant [ ] Guarantee [ ] Other: Proposed terms: 40 years with a 10-year grace period for the Credit (US$15.10 million), and Standard for the Grant (US$12.30 million) AF Financing Plan (US$m) Total Project Cost: Cofinancing: Borrower: Total Bank Financing: IBRD IDA: New Recommitted Source Total Amount (US$m) Client Information Recipient: Republic of Chad Responsible Agency: Ministry of Land Planning, Urban Development and Housing (MATUH), Implementation Unit within the Urban Department (Cellule de Coordination du Projet) Contact Person: Mr. Abbazene B. Djidda Telephone No.: Fax No.: ccppadur@intnet.td iv

8 AF Estimated Disbursements (Bank FY/US$m) FY Annual Cumulative Does the project require any waivers of Bank policies? Have these been endorsed or approved by Bank management? Does the project include any critical risks rated substantial or high? [ ]Yes [X] No [ ]Yes [ ] No [X]Yes [ ] No Project Development Objective and Description Original project development objective: Increase sustainable access to municipal services for residents in targeted project cities (N Djamena, Moundou, Sarh, Abéché and Doba). Revised project development objective: Not applicable. Project description: Component A Strengthening municipal and urban management capacities (US$0.90 million). Under this component, the project will finance the operating expenditures of the PADUR implementation unit (CCP Cellule de Coordination du Projet) for three additional years. Component B Provision of basic infrastructure and services (US$15.25 million). Under this component, the project will finance (i) the completion of drainage and water infrastructure funded under the original project but facing unanticipated cost overruns in the city of Moundou, Abéché and Sarh, (ii) priority investments in water supply infrastructure to increase access to piped water services in the city of N Djamena and (iii) a medium-term Investment Plan for the 11 provincial cities where the National Water Company (Société Tchadienne des Eaux STE) operates and the update of the N Djamena water supply Master Plan, and (iv) studies, works supervision and audits. Component C - Strengthening sustainable access to urban water services (US$11.25 million). Under this component, the project will finance (i) a Service Contract with a private operator, (ii) operations improvement and rehabilitation activities, (iii) technical assistance for the recruitment and supervision of the private operator, and (iv) technical assistance to improve financial sustainability and to complete the legal, financial and organizational formation of the STE. Safeguard and Exception to Policies Safeguard policies triggered: Environmental Assessment (OP/BP 4.01) Natural Habitats (OP/BP 4.04) Forests (OP/BP 4.36) Pest Management (OP 4.09) Physical Cultural Resources (OP/BP 4.11) Indigenous Peoples (OP/BP 4.10) Involuntary Resettlement (OP/BP 4.12) Safety of Dams (OP/BP 4.37) Projects on International Waters (OP/BP 7.50) Projects in Disputed Areas (OP/BP 7.60) v [X]Yes [ ] No [ ]Yes [X] No [ ]Yes [X] No [ ]Yes [X] No [ ]Yes [X] No [ ]Yes [X] No [X]Yes [ ] No [ ]Yes [X] No [ ]Yes [X] No [ ]Yes [X] No

9 Financing Agreement Reference Article IV, 4.01 Article IV, 4.01 Schedule 2, Section IV, B Schedule 2, Section V, A Schedule 2, Section V, B Schedule 2, Section V, C Schedule 2, Section V, D Schedule 2, Section V, E Conditions and Legal Covenants: Description of Condition/Covenant The Recipient has adopted the revised and updated Project Implementation Manual and Project Administrative, Financial and Accounting Manual, both in form and substance satisfactory to the Association. The Recipient has set up the Steering Committee by Arrêté in a manner satisfactory to the Association. The Recipient shall not make withdrawals under components C1 and C2 of the Project until a Private Operator has been recruited and a Service Contract, acceptable to the Association, is in effect. Not later than three months after the Effective Date, the Recipient shall finalize the transfer of the responsibility of the Recipient s urban water services to STE by Decree. Not later than nine months after the Effective Date, the Recipient shall enter into a Service Contract with a Private Operator, and, at the same time, shall recruit the independent technical auditor of the Service Contract. Not later than twelve months after the Effective Date, the Recipient shall launch the study on water tariff and connection fee levels and the Recipient shall implement the recommendations of such study within a reasonable time period thereafter acceptable to the Association. Not later than nine months after the Effective Date, the Recipient as sole shareholder of STE, shall have made its equity contribution to STE in full. Not later than three months after the Effective Date, the Recipient shall enter into a delegation and performance contract with STE, in form and substance satisfactory to the Association. Date Due Effectiveness condition Effectiveness condition Disbursement condition Dated covenant Dated covenant Dated covenant Dated covenant Dated covenant vi

10 Schedule 2, Section V, F Schedule 2, Section V, G Schedule 2, Section V, H Not later than twelve months after the Effective Date, the Recipient shall: (i) establish a mechanism satisfactory to the Association for the automatic payment of the amounts owed to STE by other public institutions, and (ii) ensure the effective prompt payment of such bills. Not later than nine months after the Effective Date, the Recipient shall implement a payment option scheme for its customers to enable payment of the connection fee in installments. Not later than three months after the Effective Date, the Recipient shall have updated the accounting software of the implementation unit for the purposes of the Project. Dated covenant Dated covenant Dated covenant vii

11 I. Introduction 1. This Project Paper seeks the approval of the Executive Directors to provide an additional credit in an amount of SDR 9.60 million (US$15.1 million equivalent) and an additional grant in the amount of SDR 7.80 million (US$12.3 million equivalent) to the Republic of Chad for the Urban Development Project (Projet d Appui au Développement Urbain - PADUR). A request for this Additional Financing has been addressed to the Bank by the Government of Chad on September 27, The proposed Additional Financing would help finance the costs associated with the two following needs consistent with OP/BP 13.20: Scaling up the impacts of the original project with a focus on increasing sustainable access to water services in targeted project cities (N Djamena, Moundou, Sarh, Abéché and Doba) by funding additional investments in water supply infrastructure, a Service Contract with a private operator, and by enhancing social accountability to improve the performance and governance of the recently established national water utility STE (US$23.10 million). Completing drainage and water supply infrastructure in Moundou, Sarh and Abéché funded under the original project that currently face unanticipated cost overruns (US$4.30 million). 3. As per the Government request, major changes under the proposed Additional Financing will include a focus on water supply services and the engagement of an experienced private operator to support the development of the STE. The project also aims at leveraging social accountability to improve the performance and governance of the STE. Institutional, fiduciary and safeguard arrangements will be adjusted accordingly to reflect these changes. 4. Most of the Additional Financing resources (US$23.10 million) will be used to finance investments in the urban water sector and activities to improve the performance and governance of the STE. As a result, main expected outcome of the proposed additional loan will be an increased access to sustainable water services in targeted project cities. The rest of the resources (US$4.30 million) will be used to complete drainage and water investments funded under the original project and facing cost overruns. II. Background and Rationale for Additional Financing 5. Urban water sector context. According to the 2008 estimates of the Joint Monitoring Programme, 67 percent of the Chadian population has access to an improved water source, compared with the 2015 Millennium Development Goal (MDG) of 74 percent. If the sector continues to be supported, it could stay on its trajectory to achieve the MDG. The MDG on the water sector may be the only MDG the country could reach by Performance and governance of the piped urban water services. Till 2010, piped urban water supply was provided by a national water and electricity company STEE (Société Tchadienne d Eau et d Electricité). The service provided by the STEE was unreliable due to insufficient production capacity and frequent power failures. The service provided by the STEE was also not financially sustainable as the utility found itself in a downward spiral of overall 1

12 poor performance, lack of revenues to cover operational and maintenance costs which, in turn, prevented from expanding coverage. In total, STEE had 33,000 connections across the country, two thirds of which are in N Djamena, the capital. A large majority of meters are not functioning properly or cannot be read, raising fairness, demand management and performance monitoring issues. Other salient issues include: Tariff. Water tariff has not been revised since 1984 and is among the lowest of the region. The tariff structure is inadequate as the first subsidized tariff block has a very high maximum consumption (up to 15 m 3 /month compared to typically 6 to 10 m 3 /month in other Western Africa countries), which means that most households pay a highly subsidized tariff. Cost of an individual connection. The cost for a new connection amounts a minimum of US$260 equivalent and is an obstacle for households to connect. Those who do not have connections are supplied by vendors which charge a volumetric rate up to 20 times higher than the tariff charged by the utility. Low accountability to customers. Customers did not have any opportunities to hold STEE to account for service provision. Because of the low tariffs, the utility did not depend much on its customers for its income. No mechanism existed for customers to voice their needs and complaints. 7. Formation of a new national water supply utility STE. The urban water sector experienced a major institutional reform in May 2010 with the dissolution of the national water and electricity company STEE and establishment of the national water utility STE (Société Tchadienne des Eaux) constituted at the initiative and by decision of its sole shareholder, the Government of Chad (GoC). At the time of the GoC s decision to dissolve STEE, the GoC also took the initiative to prepare and finance a social plan that would benefit all STEE staff without seeking the Bank s involvement in such decision nor the implementation thereof as this decision was not related to any Bank project or involvement at the time. The STE is currently responsible for providing water services in 11 cities and towns 1. The process of formation of the STE is managed by the GoC with the help of a consultancy firm financed from government internal resources. There is a political will from the GoC to make a fresh start in the urban water sector and to provide real autonomy to the new utility. GoC is currently in the process of updating various laws and regulations to finalize the set-up of STE, such as a decree transferring the responsibility for urban water services to STE. The signature of the decree is a dated covenant. STE will be a corporatized utility with certain autonomy from the GoC. The arms-length relationship between the GoC and STE is being defined through a delegation and performance contract that is currently being finalized and that will notably specify: the assets granted by the GoC to the STE for the operation of urban water services, STE performance targets, service quality standards, the financing of the investments and the remuneration of the STE. The completion of the delegation and performance contract is a dated covenant. The GoC has to date made 25% of its equity payment to STE (equivalent to US$1,000,000) but the remaining balance is still outstanding. The payment of the equity in full by the GoC is a dated covenant. Other ongoing critical actions to make STE fully operational include (a) assets identification and evaluation, debt transfer, preparation of initial balance sheet, and (b) preparation of an organizational chart, identification of the human resources requirements, recruitment of the staff 1 The STE is currently operating water supply systems in N Djamena and 10 provincial cities: Mao, Moussoro, Bongor, Fianga, Gounou-Gaya, Kélo, Moundou, Doba, Sarh, Abéché. At the time of the project appraisal, the STE was expected to become responsible for urban water services in an 11 th provincial center: Faya. 2

13 on a competitive basis, transfer of the customer service database, moving of STE management to the utility premises. A new mechanism for the payment of the water bills from public institutions needs to be set up. Water consumption by public institutions represent approximately one third of the total amount billed by the utility. In the past, these payments were made to STEE through an annual subsidy from the government to cover the purchase of fuel for thermal power generators. This subsidy scheme is not applicable to the newly established STE. 8. The formation of the STE offers a window of opportunity. The GoC is currently focusing on the institutional set up of the utility. However, technical, commercial capacities of the new utility will also need to be enhanced to improve its technical, commercial and financial performance. The proposed Additional Financing will provide STE with tools for operational management and build capacity to use them. The combination of institutional reforms and capacity building will significantly enhance the sustainability of the on-going water investments under the original project. 9. Leveraging private sector expertise to improve the performance of the STE. GoC has expressed its interest to consider the participation of a private operator to strengthen the performance of the newly created STE. The Government requested the assistance of the World Bank through the PPIAF 2 to identify the most suited strategy for the involvement of the private sector in a letter addressed by the Ministry of Water on June 17, A workshop held in N Djamena in March 2011 concluded that a service contract would be the preferred option to leverage the expertise of an experienced operator for a few years in order to establish a viable, corporatized public water utility. The Terms of Reference of the Service Contract were discussed during a second workshop held in April The objective of the service contract will be to improve the technical, financial, commercial management and accountability of the STE, as well as to build the capacity of the staff to address the challenges inherited from the STEE. 10. Original project. The PADUR (US$27 million equivalent including US$15 million from IDA) was approved on March 6, 2007 and became effective on May 1, The project development objective (PDO) is to increase sustainable access to municipal services for residents in targeted project cities (N Djamena, Moundou, Sarh, Abéché and Doba). The results sought by the project linked to the two components of the project are: Strengthened capacity of the local governments in N Djamena, Moundou, Sarh, Abeché and Doba to plan and manage the development and delivery of infrastructure and urban services and to increase their financial resources to maintain existing and new infrastructure (Component A US$4.96 million plus contingencies). Increasing availability of urban infrastructure (Component B US$18.42 million plus contingencies 3 ). 11. Performance of the original project. The project is steadily progressing with regard to achieving its development objective. The likelihood the Project achieves its PDO remains high. The project has experienced a slow start due to a large extent to the deterioration of the security situation in Chad, but encouraging implementation progress has been recorded for the last eighteen months. Since June 2010, the project has been rated Moderately Satisfactory (MS) for 2 PPIAF: Public Private Infrastructure Advisory Facility 3 The original project included US$3.62 of physical and financial contingencies that added to components A and B 3

14 both progress towards achievement of the PDO and for Implementation Progress (IP). Progress made on both components is summarized below. At the envisaged date of approval (June 2011), the PADUR will have been rated MS for 12 months for both progress towards achievement of the PDO and for IP. As of May 10, 2011, the commitment rate exceeds 90 percent and the disbursement rate has reached 60 percent (disbursed amount: SDR6.11 million out of the grant amount of SDR10.0 million), and it is expected to grow rapidly over the coming months as awarded contracts get executed. Implementation of Component A. After initial implementation delay, Component A is being implemented satisfactorily. Local governments have benefited from the numerous training and technical assistance activities (on financial management and accounting, collection of municipal taxes, transfer of competences) to increase municipalities own revenue, and to adopt and use transparent and efficient budget management procedures. The study on improvement of resource mobilization and financial management for the 5 communes is currently being carried out and will be completed in September Urban development plans for 16 targeted cities are being completed and will be validated and adopted by key stakeholders by May Implementation of Component B. All contracts for rehabilitation/expansion of water/drainage infrastructure and for supervision under component B have been awarded 4. Labor-intensive activities have created about seven hundred unskilled and semi-skilled jobs (about 560,000 man-days of work cumulated, compared to incremental end of project target of 610,000 man-days). As a result, significant progress has been made in the construction of potable water network in Moundou and Sarh (about 70 percent of the works are done so far and are expected to be completed by May 2011). This would provide access to drinking water to an additional 63,500 people. Road works to provide access to city center have started and would be completed by June This would provide access to about 10,000 people at the end of the project. An additional 50,000 people in targeted cities are already protected from periodic flooding (compared to incremental end-of-project target of 72,096). In addition, the rehabilitation of the slaughterhouse at Abéché has been nearly completed. Safeguard policies. The overall safeguards compliance rating has been recently upgraded from Moderately Satisfactory to Satisfactory, as the revised Resettlement Action Plan (RAP) for the cities of Doba, Sarh, Moundou and Abéché has now been found satisfactory by the Bank. Procurement. Procurement continues to be rated Satisfactory, as majority of bidding documents and contracts have successfully been processed by the implementing agency, and no major bottlenecks have been identified. Financial management. Financial management is rated Satisfactory. The recent recruitment of a new accountant should continue to improve the fiduciary environment. There is currently no outstanding audit on the project. 4 However, some cost overruns mainly for drainage infrastructure have been induced by changes made during the construction compared to the original design to take into account the spatial development and densification of the urban areas addressed by the drainage infrastructure that have occurred since the design of the project. These cost overruns will be addressed by the Additional Financing. 4

15 Monitoring & Evaluation. Monitoring & Evaluation of the project results has recently improved, is rated Moderately Satisfactory but will be strengthened further. Counterpart funding. Counterpart funds were provided by the Government in An allocation of CFA francs 3.2 billion to co-finance the project in 2011 was approved by the Government, and the related disbursements have already started. Legal covenants. The original project has complied with all legal covenants. Closing date. The current closing date of the original project is October 30, Government requests for Additional Financing. The Bank has approved in November 2010 a request from the Government of Chad for an Exceptional Retroactive Extension of the Critical Electricity and Water Services Rehabilitation Project (PRSEE) in order to allow the payment of outstanding bills under the project and the use of remaining funds (US$27.4 million equivalent) for an Additional Financing of the Chad Urban Development Project in the w ater sector. 13. Rationale for Additional Financing. The Additional Financing (US$27.4 million) will address the following needs consistent with OP/BP 13.20: Scaling up the impacts of the project with a focus on increasing sustainable access to water services in targeted project cities by funding additional investments in water supply infrastructure, a Service Contract with a private operator, and by enhancing social accountability to improve the performance and governance of the recently established national water utility STE (US$23.10 million). Completing drainage and water supply infrastructure in Moundou, Sarh and Abéché funded under the original project that currently face unanticipated cost overruns (US$4.30 million). 14. Scaling-up the project. Approximately 85 percent of the Additional Financing will be used to scale-up the impacts of the project. The institutional arrangements have been established and have sufficient capacity to implement a larger project. The Additional Financing will help to scale up the impacts of the project with a focus on urban water supply in accordance with Government requests. This will be achieved through investments in production, storage and distribution facilities in N Djamena to expand access to piped water services in the Eastern part of the city, through a Service Contract with a private operator to improve the technical, financial, commercial performance and accountability of the STE, technical assistance to improve the financial sustainability and to complete the formation of the STE. At closing of the Additional Financing it is notably expected more than 215,000 people will be provided with sustainable access to "improved water sources" under the project in the targeted cities (as compared to a target of 63,600 under the original project). 15. Cost overruns. Approximately 15 percent of the Additional Financing will be used to cover cost overruns to complete the works for drainage and water supply funded under the original project in the cities of Moundou, Sarh and Abéché. Cost overruns for drainage infrastructure (approximately $3.20 million) are mainly due to the changes to the original project design made during the construction. Modifications to the original project design were required to take into account the spatial development and densification of the urban areas addressed by the drainage infrastructure that have occurred during the five years separating the preparation of the detailed design studies (2005) and the beginning of the works (2010). Cost overruns for 5

16 water supply infrastructure (approximately $1.10 million) in the cities of Moundou, Sarh and Abéché are required to finance some activities that were not included in the design of the original project but are required to allow for the achievement of the objectives of the project. 16. Alternatives to Additional Financing. The proposed Additional Financing is increasing the funding to an established operation. The institutional arrangements have been in place for several years and are functioning. Therefore the use of a streamlined processing instrument such as Additional Financing was viewed by the Government and the Bank as the preferred instrument to address cost overruns and scaling-up. The alternative to Additional Financing would have been the preparation of a new project but it would have taken longer than Additional Financing to prepare and could have created a slowing down of the benefit stream and a delay in the mobilization of the resources needed to support the development of the new national water utility being established. 17. Consistency with the Interim Strategy Note 5. The Interim Strategy Note (ISN) has highlighted the impact of the water sector on poverty reduction. Moreover, the water sector is one of the main pillars of Axis 2 of the Strategy (Improving livelihoods and access to key social services). The Note also indicates that the water sector is eligible for new lending as past records of water sector have demonstrated impact can be achieved. The ISN notes that important progress has been made towards the achievement of the MDGs in the water sector and commends the recent policy reforms in the sector, notably the dissolution of the STEE and the creation of two separate water and electricity companies. III. Proposed Changes 18. Project Development Objective. Under the Additional Financing, PDO will remain the same, i.e. to increase sustainable access to municipal services for residents in targeted project cities (N Djamena, Moundou, Sarh, Abéché and Doba). 19. Design and scope. The Additional Financing will use a strategic incremental approach. This approach recognizes that the urban water sector in Chad faces many challenges and a risky environment. The approach responds to the strong Government willingness to open the door to incremental change. The Additional Financing will finance incremental steps to improve water services and to address obstacles as and when they emerge rather than a traditional big bang reform approach using a deeper private sector participation model. Strategic tools include social accountability, a Service Contract focused on building a viable public utility, and an emphasis on financial sustainability and enhancing connections. The project will start to address financial sustainability of the sector but recognizes that service delivery improvements will have to be tackled before tariffs can be increased, and that in term, a functioning utility has to be set up as a condition for service improvements. 20. The project will support expanded activities under Components A and B of the original project as well as new activities under an added Component C. The following activities will be financed under each of those components (a detailed description of the project is presented in Annex 3): 5 International Development Association Interim Strategy Note for the Republic of Chad for the period June 2010 to June 2012, May 25, Report No TD. 6

17 Component A Strengthening municipal and urban management capacities (US$0.90 million) Component A.2 Strengthening the capacity of the central administration and deconcentrated ministries to support the municipalities (US$0.90 million). Under this component, the project will finance the operating costs of the PADUR Implementing Agency (CCP) for three additional years. Component B Provision of basic infrastructure and services (US$15.25 million) Component B.1 For the city of N Djamena (US$8.57 million). Under this component the project will finance the construction of new storage tanks and pumping station, the construction and equipments of boreholes, the expansion of the water distribution network and the procurement of connection fittings to expand piped water services to the districts of Diguel and Ndjari located in the Eastern part of the city. Components B.2, 3, 4 For the city of Moundou (US$1.33 million), Sarh (US$1.60 million), Abéché (US$1.37 million). Under this component the project will finance the completion of drainage and water supply investments funded under the original project but facing cost overruns. Component B.6 M&E, studies, supervision of works and audits (US$2.38 million). Under this component, the project will finance, for the works funded under Component B: (i) the preparation of engineering studies and bidding documents; (ii) the preparation of environmental / social studies; (iii) supervision of the works; (iv) the preparation of a medium-term investment plan covering the 11 provincial cities where the STE operates; (v) the update of the Master Plan for N Djamena water supply; and (vi) financial audit of the project. Component C Strengthening sustainable access to urban water services (US$11.25 million) Component C.1 Service Contract (US$5.00 million). Under this component, the project will finance a 3-year performance-based Service Contract with a private operator to improve the technical, commercial, financial performance and accountability of the STE and build capacity of the new public utility. Component C.2 Operations improvement and rehabilitation (US$5.45 million). Under this component, the project will finance the procurement and replacement of meters, the rehabilitation of networks, connections and boreholes customer census and update of the customer database, the set-up of a Geographical Information System, and improved customer service and consumer accountability tools. Component C.3 Technical assistance for the recruitment and supervision of the private operator (US$0.30 million). Under this component, the project will fund technical assistance for the preparation of bidding documents and data room for the Service Contract, for the management of the recruitment process of the private operator and for the technical audit of the performance of the private operator. Component C.4 Technical assistance for the financial sustainability and formation of the STE (US$0.50 million). Under this component, the project will finance (i) a comprehensive study on water consumption tariff and connection fees; (ii) technical assistance for the design and implementation of a mechanism of payment of public institutions bills; and (iii) technical assistance for the completion of the legal, financial and organizational formation of the STE. 7

18 Table 1: Cost table of original grant and Additional Financing Components A. Strengthening municipal and urban management capacities A.1 Strengthening urban and municipal management capacities A.2 Strengthening the capacity of the central administration and deconcentrated ministries to support the municipalities B. Provision of basic infrastructure and services B.1 For the city of N Djamena B.2 For the city of Moundou B.3 For the city of Sarh B.4 For the city of Abeché B.5 For the city of Doba B.6 M&E, Studies, Supervision, and Audits C. Strengthening sustainable access to urban water services C.1 Service Contract C.2 Operation improvement and rehabilitation C.3 Technical assistance for the recruitment and supervision of the private operator C.4 Technical assistance for the financial sustainability and formation of the STE Original Project Financing (US$ million equivalent) Proposed Additional Financing (US$ million equivalent) Revised Total Cost (US$ million equivalent) Physical contingencies (10%) Financial contingencies (8%) Total Institutional implementation arrangements. The institutional implementation arrangements of the Additional Financing will largely remain the same. The PADUR implementation agency (CCP - Cellule de Coordination du Projet) of the MATUH will be responsible for the day-to-day management of the Additional Financing, focusing on the following main functions: (i) coordinating the overall implementation of the project; (ii) ensuring availability of funds in a timely manner; (iii) managing project activities at the central level; (iv) maintaining the books and accounts of project activities and producing financial reports; (v) monitoring and evaluating implementation and impacts of the program; and (vi) reporting results to various stakeholders. Some adjustments pertaining to the functioning of the CCP will be made to reflect the revised design and focus on increased access to sustainable water services of the proposed Additional Financing: For activities addressing cost overruns under the original project (Components B2, 3 and 4): roles and responsibilities of the CCP will remain the same as the original project. 8

19 For all other water-related activities funded under Component B (Components B1 and B6) and for all activities funded under Component C: while the CCP remains responsible for the overall management of the activities including for fiduciary matters, the STE (or the operator in the case of the Component C.2) will be responsible for all technical specifications of the bidding documents and for the preparation of the Terms of Reference for the selection of consultants, as well as for validating submitted bills before transmittal to the CCP for payment processing. A Steering Committee for the oversight of the implementation of the Additional Financing will be created. It will be made up of representatives from the Ministry of Economy and Planning, MATUH, MoW, Ministry of Environment and STE. The CCP will act as secretary of the Committee. The Steering Committee will supplement the Inter-Ministerial Committee created under the project original financing, involving a larger number of stakeholders and that will focus on sector-wide urban development issues. The creation of this Committee aims at setting up a steering body involving a significantly smaller number of stakeholders and that can therefore be mobilized more frequently. The Committee will be in charge of the overall coordination and supervision of the Additional Financing. In particular, the Committee will review the annual program of activities of the project, review progress made on a regular basis, and assess the quality of the project. The Project Implementation Manual and the Project Administrative, Financial and Accounting Procedures Manual will be revised to reflect the proposed changes. The table below summarizes the respective responsibilities of the CCP, STE and private operator for the implementation of the various components: Components Table 2: Institutional implementation arrangements Procurement categories 6 Overall responsibilities for implementation including procurement and financial management Responsibilities to provide the technical specifications and Terms of Reference Responsibilities to validate submitted bills Component A.2 OC CCP N/A N/A Component B.1 W/G CCP STE STE Component B.2-4 W CCP CCP CCP Component B.6 CS CCP STE STE Component C.1 CS CCP STE STE Component C.2 W/G/CS CCP Private Operator Private Operator Component C.3 CS CCP STE STE Component C.4 CS CCP STE STE 22. Scope of the Service Contract. The 3-year performance-based service contract will leverage the expertise of an experienced operator in order to establish a viable, corporatized public water utility. The service contract will aim at improving the technical, commercial, financial performance and accountability of the STE. The focus is on capacity building and 6 W: Works, G: Goods, CS: Consulting Services, OC: Operating Costs 9

20 putting in place systems that can be used after the operator has left rather than on replacing certain functions of the STE. The operator will be in charge of improving: (i) commercial performance by implementing a comprehensive census of customers, replacing all non functioning or non readable meters, updating the customers database, and implementing procedures for customer services; (ii) technical performance by undertaking priority networks, connections and boreholes rehabilitation works, setting up a Geographical Information System; (iii) financial performance by organizing the finance and accounting department, preparing auditable financial statements, and preparing procedures for financial management; (iv) accountability by implementing a comprehensive meters replacement program, establishing a call center, and implementing customers satisfaction survey or report cards, and communication campaign; (v) human resources management, by carrying out an audit of skills, identifying and delivering a structured training program; and(vi) monitoring and evaluation of the performance of the STE by assisting the utility in data collection and publication. These objectives were discussed during the March 2011 consultative workshop on the scope of the service contract involving the STE and the Ministry of Water. These objectives have been operationalized through the preparation of Terms of Reference, definition of the geographical scope for each activity, definition of performance indicators, preliminary contract outlines during a workshop held in April 2011 in N Djamena as part of the PPIAF-funded strategy for private sector participation. The recruitment of the private operator under a Service Contract is a dated covenant. 23. Financial sustainability. At present, the financial sustainability of the newly created STE is hampered by (i) overall poor efficiency; (ii) low water tariffs; and (iii) the lack of mechanism for the payment of the water bills by public institutions. The financial sustainability is a critical issue to guarantee the quality of the service provided by the STE. However, full financial sustainability for the sector can only be achieved in the medium term. The challenge is to change the downward spiral of bad services, low tariffs and non-payment into a virtuous cycle of service improvements and increased revenues. In this respect, the Additional Financing will support a series of activities for each of the four following pillars: Increasing water sales. The project will help to increase billed water sales in several regards, including increased production, expansion of the distribution networks, new connections and leakage repairs. Also the Service Contract will help decreasing commercial losses through the census of connections, which will not only include currently connected households but also those households that are not formally connected but close to the network (with a high likelihood of having an illegal connection). Improving efficiency and lowering costs. The Service Contract will help STE to increase its operational efficiency and identify and implement cost saving measures. The current ongoing process of competitively hiring staff for STE will also help to increase efficiency. Ensuring payment of bills from the public institutions. The project will finance Technical Assistance to design and implement a mechanism to calculate government bills through annual budgetary allocation at year N based on anticipated consumption throughout year N+1 and adjusted a posteriori on the basis of the actual metered consumption at the end of year N+1. The implementation of this mechanism is a dated covenant. Adjusting tariffs along with improved service delivery to increase equity and financial sustainability. The current incremental block tariff structure is obsolete and needs to be 10

21 amended to lower the maximum volume of the first subsidized block. The current high connection fees represent an obstacle for poorer households to connect. The project will finance a comprehensive study addressing both water consumption tariffs and connection fees. This study will be an important analytical and political tool to feed the dialogue on water tariff revision. The launch of the study is a dated covenant. Overall guiding principle for water consumption tariff is first exhibiting some improvements before showing the cost of these improvements on the water bills. 24. Enhancing consumer accountability to improve the performance and governance of the STE. The implementation of the project as well as the on-going institutional reforms offer a window of opportunity to introduce accountability tools to make STE more accountable to their customers. This will help in improving the performance and governance of the STE fostering transparency, preventing political capture, holding the utility accountable for services, and better addressing customer needs and complaints. The Additional Finance will support several accountability tools as described hereafter. Increased transparency through the publication of performance data. A performance contract is currently being developed by the GoC to define the respective roles, responsibilities and targets of the Government and STE. The contract will include a set of performance indicators and annual targets against which the STE (and the Government) will be held responsible. The private operator will assist the STE to collect good quality performance data and to disseminate them among concerned parties, as well as to publish them in the public domain in an easy to read format. Increase outreach and dialogue with customers. Under the Service Contract, the operator will also assist the STE to implement a communication campaign to inform their customers about the actions in place to improve the service delivery, about the performance of the STE and to promote good practices for water use. The communication campaign will also be used to develop a two-way dialogue with the existing customer association on the changes in governance and priority investment programs. Carry out independent survey / report card on service quality and customer satisfaction. The project will finance an annual report card on service quality and customer satisfaction that will be carried out by an independent third party (e.g. an NGO). This will help monitoring the evolution of the satisfaction of the service provided by the STE at different times of the project. The satisfaction surveys will help to understand and address the needs of the customers. Better customer service. One of the spear points of the Service Contract will be to improve customer care. This will include setting up a basic customer complaint system, improving communications through the set-up of a call center, systematic metering to strengthen transparency, expanding the number of ways customers can pay for bills. Appoint customer association representatives in the Board of the STE. As part of the technical assistance for the legal, financial and organizational formation of the STE, the project will support activities to assess the feasibility and relevance of appointing customer association and municipality representatives in the Board of the utility and/or the establishment of a customer advisory board in order to prevent political capture and foster transparency. 11

22 25. Connection fee. The high connection fee is an obstacle for households to connect to the network. However, it is noted unconnected households who pay a much higher volumetric rate for water supplied by vendors and households will benefit from lower costs in the medium term by connecting to the network. Lack of affordability of individual connections could undermine the achievement of the PDO. The project takes a multi-track approach to increase the affordability of connections and thus increase the uptake of connections in the area served by the STE. The project will support an option of paying the connection costs by installments which will decrease the lumpiness of the expenditure for a household. The implementation of a payment option scheme for its customers to enable payment of the connection fee in installments is a dated covenant. The project will also finance a comprehensive study addressing both water consumption tariffs and connection fees. The study will provide an accurate assessment of affordability and actual connection costs in order to enable the STE to make informed choice to revise the connection fee structure. The launch and implementation of the study on water consumption tariff and connection costs is a dated covenant. 26. Results framework. The revised Results Framework will present progress made under the original PADUR as well as the revised targets under the proposed Additional Financing. Changes have been proposed: (i) to comply with the latest Bank template of Results Framework; (ii) to update the end-of-project target values taking into account the expected impacts of the Additional Financing; (iii) to reflect new and scaled-up activities funded by the Additional Financing such as the Service Contract with a private operator and additional investments in production, storage and distribution water infrastructure; and (iv) to ensure consistency with the Bank-wide core indicators. At closing of the Additional Financing it is notably expected more than 215,000 people will be provided with access to "Improved Water Sources" under the project in the targeted cities (as compared to a target of 63,600 under the original project) and more than 365,000 people will be protected from periodic flooding. The updated Results Framework is presented in Annex Closing date and implementation. The Additional Financing will be used within three years of the closing date of the original project. The expected closing date is June 30, IV. Appraisal Summary 28. Technical appraisal of the water investments. Proposed investments in N Djamena (US$8.57 million) have been derived from the 2007 Master Plan for the water supply of N Djamena. The Master Plan provides robust technical planning and cost estimates. The costing for the proposed investment is based on the costs provided by the Master Plan after application of a discount rate to reflect price changes since the completion of the Master Plan. The detailed design studies and bidding documents for all these investments will be prepared under a single contract that will also include the supervision of the works. In Moundou, Sarh and Abéché, the water activities proposed to be financed (US$1.10 million) are required to allow for the achievement of the objectives of the original project. 29. Technical appraisal of the drainage investments. Drainage investments proposed under the Additional Financing aim at addressing the cost overruns mainly due to the changes to the original project design made during the construction. Modifications to the original project design were required to take into account the spatial development and densification of the urban areas addressed by the drainage infrastructure that have occurred between the preparation of the 12