Document of The World Bank OF THE PRESIDENT OF THE TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE CENTRAL WATER AUTHORITY WITH THE

Transcription

1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Document of The World Bank FOR OFFICIAL USE ONLY REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN IN AN AMOUNT EQUIVALENT TO US$12.2 MILLION TO THE CENTRAL WATER AUTHORITY WITH THE GUARANTEE OF MAURITIUS FOR A WATER SUPPLY PROJECT December 3, 1982 FILE COPY Report No. P-3430-MAS This document has a restricted distribution and may be used by recipients only in the perfomance of their official duties. Its contents may not otherwise be disclosed without World Bank adhorizatios.

2 CURRENCY EQUIVALENTS Calendar October 31, 1982 * Average Year 1981 Unit Mauritian Rupee (Rs) Mauritian Rupee (Rs) US$1 Rs = Rs 11.0 Rs 1,000 US$ = US$91.00 The rate of Rs ll=us$1 has been used for the purpose of project analysis. MEASUREMENT EQUIVALENTS 1 meter (m) = 39 inches = 3.28 feet 1 kilometer = 0.62 mile 1 square kilometer (kn 2 ) = square mile 1 hectare (ha) = 0.01 km = 2.25 acres 1 cubic meter (m 3 ) = 35.3 cubic feet (cu ft) 1 liter (1) = 0.26 US gallon 1 cubic meter per second (m 3 /sec) = 35.3 cubic feet per second 1000 cubic meter per day (1000 ml/d) = 0.26 million gallon (US) per day lcd = liters per capita per day ABBREVIATIONS AfDB - African Development Bank BADEA - Banque Arabe pour le Dgveloppement Economique en Afrique CCCE - Caisse Centrale de Coop6ration Economique CHA - Central Housing Authority CWA - Central Water Authority DBM - Development Bank of Mauritius DWC - Development Works Corporation FAC - Fonds d'aide et de Cooperation IFAD - International Fund for Agricultural Development A SIGMA - SIGMA Consulting Engineers SOGREAH - Societe Grenobloise d'applications Hydrauliques UNDP - United Nations Development Program FISCAL YEAR (Central Water Authority and Government) July 1 - June 30

3 FOR OFFICIAL USE ONLY MAURITIUS WATER SUPPLY PROJECT LOAN AND PROJECT SUMMARY Borrower: Guarantor: Amount: Terms: Project: Benefits: Risks: Central Water Authority (CWA) Mauritius US$12.2 million including capitalized front-end fee 17 years, including 4 years grace at the standard variable interest rate. The project's objectives are to improve the capabilities of CWA's management and staff, the efficiency of CWA's operations, and the quality of service to consumers, and to reduce unaccounted-for water. The project would improve and expand water supply facilities in the Mare-aux-Vacoas, Triolet and Mt. Blanc areas and in 62 housing estates scattered over the island. It would also include a training component and supply of spare parts and equipment for the CWA. The project would satisfy the water supply demand in the project areas. Combined with the project financed by the Kuwait and Abu Dhabi Funds in the Mare-aux-Vacoas area, it would provide safe water to about 79,000 additional consumers and improvement of service to about 446,000 consumers. More generally, all water supply consumers would benefit from CWA's improved management and operations. The main project risks relate to delays which may occur during engineering and construction of the project because of CWA's limited implementation capacity. 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.

4 Estimated Project Costs: Local Foreign Total (US$ million) Project Components: (a) CHA Estates (b) Triolet Subsystem (c) Mt. Blanc Subsystem (d) MAV System (e) CWA General (f) Engineering Services Total Base Cost Contingencies - Physical Price Total Project Costs Front-end fee on Bank Loan Total Financing Required Financing Plan: Local Foreign Total (US$ million) IBRD Loan Government Loan Taxes (to be financed by Government) Total Estimated Disbursement: Fiscal Year Annual Cumulative Rate of Return: I.R.R. of about 4 percent (para 54) Staff Appraisal Report: Report No MAS Map: IBRD 16208R

5 INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE CENTRAL WATER AUTHORITY WITH THE GUARANTEE OF MAURITIUS FOR A WATER SUPPLY PROJECT 1. I submit the following report and recommendation on a proposed loan to the Central Water Authority (CWA) with the guarantee of Mauritius, for the equivalent of US$12.2 million to help provide financing for a water supply project. The loan will be for 17 years, including a 4-year grace period at the standard variable interest rate. PART I - THE ECONOMY 2. An economic report entitled Recent Developments and Prospects (No MAS) dated May 26, 1982 has been distributed to the Executive Directors. Following the publication of this report a new Government was elected on June 11, Discussions with the new government indicate a strong interest on the part of the Government to continue and strengthen the Bank Group's program of project work and economic advice. Country, social and economic data sheets are provided in Annex I to this Report. 3. The 1981 population estimate for Mauritius was 957,000, of which 940,000 resided on the main island. The country has an area of about 2,000 square kilometers, just over half of which is cultivable. The population density of the main island is 506 per square kilometer. Despite significant expansion of other sectors since the early 1970s, sugar production continues to utilize about 90 percent of the cultivable area. With a GNP per capita of about $1,340 in 1981, Mauritius enjoys a standard of living comparable to that of a middle-income developing country, including high standards of nutrition, health care, and general education, exceeding by far the standards of neighboring countries. The adult literacy rate is over 84 percent, life expectancy is about 65 years, and basic needs are extensively covered. The current population growth rate is estimated at 1.4 percent. 4. At the beginning of the 1980s the Government of Mauritius faced severe financial difficulties which resulted from a combination of excess demand in the aftermath of boom and bust in the country's dominant economic activity, sugar; decelerating growth in industry and tourism; a decline in the rate of domestic and foreign private investment; high and rising debt service obligations incurred both on non-project borrowing and borrowing to finance a much-increased public sector investment program; and rising import prices, especially for energy. In recognition of the serious economic consequences which would result from failure to stabilize the financial situation, the Government embarked on a program of fiscal, monetary and balance of payments measures supported by three

6 - 2 - successive IMF stand-by arrangements (October 1979, September 1980, December 1981) accompanied, notably, by devaluation of the rupee of 30 percent in October 1979 and the 20 percent exchange rate adjustment of September Following discussions and negotiations between the Mauritian authorities and the World Bank, which began in mid-1980, an IBRD loan was approved on May 26, 1981, in support of a program of structural adjustment, which was set forth in the statement of Development Policy prepared by the Government in April In December 1981, the IMF approved a Standby Agreement of SDR 30 million, to be released in four tranches. The first two tranches have been drawn, the third depended on a mid-term review initially scheduled for June Because of the elections this was not held until November The review was successfully completed early November 1982 allowing release of the third tranche. 6. The adjustment program which was developed took into account the following considerations: the Government would have to ensure continued strength of the productive sectors, in particular the sugar industry, which had in recent years not been investing adequately. However, sugar production could not grow fast enough to provide the necessary export earnings or government revenues. A broad-based growth policy was therefore needed, placing emphasis on industrial production and exports, on agricultural production other than sugar so as to reduce food imports, on tourism, and on developing alternative energy sources. The adjustment program also provided for a restructuring of the public sector investment program, a reduction in investment in housing and improved efficiency in certain aspects of public expenditure (education, tea, development works). 7. In this context, the Government has implemented a number of measures in the productive sectors in the past two years, which have established favorable initial conditions for attracting and promoting investment in new manufacturing activities, encouraging export processing, and reducing the country's reliance on imported energy. Institutional machinery has been set up and studies are in progress to rationalize the sugar industry, to evaluate options for agricultural diversification, and to remove constraints to further development of tourism. A crucial part of the Government's adjustment and stabilization program has been a wage policy intended to reduce inflation and to keep the prices of labor-intensive exports competitive by moderating increases in nominal wages. In each of the past three years public sector and minimum wage rates have increased substantially less than the cost of living and, most recently, no increase in public sector wages has been accorded following the September 1981 exchange rate adjustment. Real wages have thus declined substantially since mid However, some politically difficult issues remain to be addressed, while in addition, in 1980 and 1981, factors beyond the Government's control (cyclones and drought, adverse movements in the exchange rate, introduction by one of Mauritius' major trade partners of a voluntary quota on imports of one of Mauritius' most dynamic exports: knitwear) had a negative impact on Mauritius' economy. Thus to safeguard future creditworthiness, to maintain the confidence of domestic and foreign investors, and to ensure access to a level of foreign financing adequate to support even modest growth during a period of structural

7 - 3 - transformation, the Government will need to strengthen its effort to compress aggregate demand and imports, to improve its foreign exchange reserve position, and to move with determination to implement action programs in the productive and foreign exchange earning sectors of the economy. Current Economic Situation 9. The economic performance of 1980 was extremely disappointing. Cyclone damage reduced the sugar crop by 30 percent from its level of The impact of the shortfall was transmitted immediately to the rest of the economy, and there was a sharp contraction of economic activity. With the exception of tourism and government services, all sectors of the economy registered a significant decline. In 1980 GDP was about 8.8 percent lower than in Economic recovery in 1981 did not compensate for the decline of Sugar production recovered but was still below normal because of a drought in the early part of the year. The good performance of non-sugar manufacturing, which benefitted from the success of knitwear exports-to new markets and a shift in domestic demand towards locally produced goods, was offset by the decline in construction activity resulting from higher costs for materials and credit restraints. On the demand side, gross capital formation continued to follow the declining trend initiated in 1978, largely as a consequence of the successive losses incurred by the sugar industry in 1979, 1980, and The slowdown of economic activity was associated with a decline in employment. Employment surveys in September 1980 and March 1981 indicated successive reductions in the number of jobs. Registered unemployment in September 1980 increased by 9,000 over 1979 and has continued to increase sharply. 11. Government current account balances for 1979/80 and 1980/81 continued to show a deficit. The Government's success in reducing the 1979/80 deficit to only about one third of the 1978/79 deficit was short-lived since the bad sugar crop, the 1979 devaluation, and lower sugar prices in FY 1981 tended to depress exports and government revenues. The current fiscal deficit for 1980/81 was about the same magnitude as in 1978/79. With continued growth of government expenditure, the overall deficit increased from 10.8 percent of GDP in 1979/80 to 12.8 percent in 1980/ Outlook 12. The new Government which took office in June 1982 has taken a number of actions to prompt economic recovery and lay the basis through structural reforms for longer term development. The economic outlook for 1982 points to an economic recovery which will provide an opportunity for the Government to improve its financial situation and its foreign exchange situation. The anticipated increase in sugar output is expected to more than offset the depressed price level on the free market. This improved situation is likely to be reflected in the rest of the economy. The Government has resisted the temptation to increase spending and has maintained the momentum of the adjustment efforts undertaken in 1980 and 1981, limiting import growth and reducing the balance of payments deficit. Unfortunately net government

8 revenue depends on taxes on imported goods. The decline in imported goods had a direct impact on government revenues which fell below expectations and the Government deficit could not be reduced as anticipated. Prospects for The economy is expected to grow at an average annual rate of 3.5 percent over the period This scenario assumes the continuation of the adjustment efforts and a series of policy changes at the sector level. It also assumes a substantial effort on the part of the international community to maintain aid levels and a continuation of IMF assistance. The investment rate in 1982 needs to be held to 24 percent, in line with the proposed demand management policies and anticipated foreign financing, to help restore a sound financial position for future development. In the later years of the period the investment rate should decline to about 17 percent, reflecting in particular a shift away from investment in construction. 14. A compression of budgetary growth and an increase in the consolidated domestic revenues of the Government are necessary conditions for the Government's ability to finance a level of public investment about 20 percent less than that in the Public Sector Investment Program. If the government were to improve income tax collection, and to introduce new taxes (such as an ad valorem sales tax and a tax on urban and rural property), this would permit government revenues to grow on average by about 6 percent a year in real terms while implying only a modest increase in the tax/gdp ratio from 22 percent in 1980/81 to 24 percent in 1983/84. Restraining the growth of current expenditure to about 3.5 percent per year in real terms could be achieved by continuing in 1982/83 and 1983/84 the Government's present policy of compensating wages and salaries for only part of the inflation in the previous year, reducing significantly the subsidy on rice and wheat flour in 1982/83 and continuing to reduce it over the next five years, and reducing expenditure on private schools, while providing enough resources for government purchases of goods and services and other current government transfers to increase in line with the projected growth of GDP in nominal terms. 15. Under these conditions the Government current account balance would begin to show a surplus by 1982/83 and the overall Government deficit would decline from 13 percent of GDP in 1980/81 to about 6 percent of GDP in 1985/86. This amount of deficit is compatible with the amount of gross external borrowing that Mauritius is likely to obtain from project financing as well as from direct balance of payments support. The rest would have to come from domestic sources, i.e., borrowing from the banking system and from profit transfers from public enterprises. This overall program will undoubtedly call for continued discipline but is very much in line with the Government's present commitment to provide the financial framework to support structural reforms. Creditworthiness 16. The Government's borrowing program, together with the effect of the supply-side measures in the adjustment program to increase exports, imply a debt

9 service ratio rising to about 15 percent by 1985 and then declining slightly by the end of the decade. Many developing countries have experienced higher ratios than this. Nevertheless, government recognizes that the present level represents a warning, for the following reasons: (i) Mauritius is an open economy where exports account for almost 40 percent of GDP; (ii) Mauritius is heavily dependent on a single export crop for which prices fluctuate on the world market, and production is affected by cyclones; (iii) Mauritius no longer has sufficient foreign exchange reserves to face the eventuality of a major cyclone; and (iv) any growth in the debt service ratio as rapid as the one recently experienced requires careful attention. Given the Government's recognition of the problem, and its determination and demonstrated ability to follow a program of structural adjustment, complemented by continued standby programs with the IMF, and assuming continued dynanism in its major export earning industries, Mauritius is creditworthy for the Government's borrowing program. PART II - BANK GROUP OPERATIONS 17. To date Mauritius has received five IDA credits and thirteen Bank loans (including one loan on Third Window terms) totalling $136.7 million, to help finance projects in industry ($39.5 million), power ($22.0 million), the port ($13.6 million), agriculture and rural development ($9.4 million), urban development ($15.0 million), education ($22.2 million) and structural adjustment ($15.0 million). The most recent loan approved by the Executive Directors was for $6.0 million for the Sixth Line of Credit to the Development Bank of Mauritius (Ln MAS). An IFC loan for hotel construction was approved by the IFC in 1981, but was subsequently cancelled because the sponsors decided to postpone the project. IFCGis at present considering other proposed investments. 18. The Bank plans to support the Government's program of structural adjustment with a lending program which emphasizes the transfer of resources through non-project aid and technical assistance through economic and sector work. The program will also continue to concentrate on supporting the Government's strategy of economic diversification and employment creation through the development of industry, energy, and necessary infrastructure to meet the needs of growing industrialization. We intend accordingly to participate in projects designed to improve and expand public infrastructure and related institutions. A road maintenance project is under preparation. We may also support the Government's educational reforms through a third education project, depending on steps taken by government to strengthen its program of technical education and training. 19. Implementation of current projects is generally satisfactory. On the other hand, the first rural development project had mixed succes in achieving its objectives, while the tea project, also recently completed, encountered problems caused by falling international tea prices, inadequacies in project management and equipment, and lack of interest from smallholders in taking over tea plots. A project follow-up unit is being established in the Ministry of Economic Planning and Development, under the IFAD-financed Small-Scale Agriculture Development Project: this unit should lead to improvements in

10 project implementation. By and large, Mauritian implementing agencies are will able to handle project responsibilities. Annex II contains a summary statement of Bank Group operations in Mauritius as of September 30, 1982, as well as notes on the status of ongoing projects. 20. Mauritius' disbursement performance has been reasonably close to the Bank-wide average. The inclusion of the rapidly disbursed first SAL, signed on June 12, 1981, effective on June 24, 1981, completely disbursed by January 7, 1982, led to a substantial increase in the average in FY Four audit reports on projects in Mauritius have thus far been prepared by the Operations Evaluation Department. Report No of June 20, 1978 on the first line of credit made to the Development Bank of Mauritius (Cr. 313-MAS) showed that the project had made a valuable contribution to development of the Mauritian economy. Report No of December 31, 1981 on the Tea Development Project (Cr. 239-MAS) discussed the problems encountered by the project (para. 19), and concluded that it had not been successful, especially because of the institutional difficulties arising from the agency created in connection with the project, the Tea Development Authority. Report No of June 28, 1982 on the Coromandel Industrial Estate (Cr. 411-MAS) concluded that general objectives of the project had been met, i.e., facilitating industrial development and employment generation through provision of serviced sites; however, specific targets on investment and employment were not achieved. In addition financial performance of the industrial estate has to date been significantly below expectation. A fourth report on the Rural Development Project, Report No of June 22, 1982, was critical of the design of the project particularly the failure of its few productive elements. III. THE WATER SUPPLY AND SANITATION SECTOR 22. Water resources in Mauritius are generally abundant throughout the year. Average yearly rainfall increases from 1,500 mm in the eastern coastal plains to 5,000 mm in the high central plateau and decreases to 900 mm in the western coastal plains. Water flows from the mountains and the central plateau through a complex hydrographic system and through the aquifers found in the porous rocks of the island's younger volcanic formations. All surface or groundwater is state-owned. Water use is regulated by a department of the Central Water Authority (CWA), the proposed Borrower. In some areas, conflicts exist about water rights among large raw water consumers such as sugar industries, for irrigation and milling, and hydro power stations. However the existing conflicts do not involve potable water supply, and there are no legal obstacles to Bank lending for a water supply project. Water Supply 23. Water supply in the island has developed as three main systems: (1) the Port Louis system serving the capital city and the neighboring industrial areas, (2) the Mare-aux-Vacoas system which serves the principal urban areas of

11 -7- Plaines Wilhems in the center of the island and rural communities on the west coast, and (3) the District system which serves the smaller communities and rural areas on the remainder of the island. Of the 940,000 people living on the island, 99 percent have access to piped water supply, 44 percent through 94,000 piped connections, 50 percent through 1,200 standpipes (one to four families) and 2,000 public fountains, and about 5 percent through private systems owned by sugar estates. Industries, government entities and commerce are supplied through 9,000 piped connections. All three distribution systems suffer from very high water losses, mostly in the urban areas. Thirty-five percent of water produced is unaccounted for, about half of which is lost due to leakage, and the other half is consumed but not billed (under-metering, under-estimation and illegal connections). Sanitation 24. About 53 percent of the total population is estimated to be serviced by the public sewerage system. About 20 housing estates have their own sewerage systems. The rest of the island depends mainly on individual sanitary facilities, such as septic tanks and pit latrines. There are several public sewerage systems, two in Port Louis, where about 54 percent of the population is served, and two in the urban areas in the center of the island where the level of service is about 44 percent. Sewerage planning, operation and maintenance need to be improved. In both systems, the number of illicit stormwater connections is high. This increases operating expenses, overloads facilities and encourages premature investment to expand capacity. Sewerage costs are covered mainly by the Government's general budget, only 3 percent being recovered from the serviced population through a sewerage tax based on the rental value of houses. Sector Organization 25. CWA has responsibility for all matters relating to water including the exploration for and inventorying of water resources, development and operation of water systems for household, industrial, commercial and irrigation. Under the existing legislation CWA also has responsibility for sewerage. However, no steps have been taken to date to transfer sewerage from the Ministry of Works, and it is agreed that the transfer should not occur until CWA's overall management performance has substantially improved. The supply of irrigation water and the charges for this service are CWA responsibilities. Recently, an * Irrigation Authority has been established in connection with the Northern Plains Irrigation Project. The water purchased in bulk from CWA is distributed in the project area by the Irrigation Authority. 26. The Ministry of Energy and Internal Communications (formerly Ministry of Power, Fuel and Energy) is responsible for the sector. The Ministry retains tight control over the activities of the CWA because of its weak managerial performance, its broad responsibilities and its dependence on the government budget for operating subsidies. In 1978 the management consulting firm of Coopers and Lybrand (UK) made recommendations that the Government reinforce CWA's autonomy. This was not done, because of the need to first strengthen CWA's management and improve its finances. In an endeavour to improve operating

12 - 8 - and organizational efficiency by the end of FY84, CWA has agreed to introduce a number of institutional, financial, technical and administrative measures, in accordance with a timetable set out in an Action Plan agreed with the Bank (Schedule 5, draft Loan Agreement). 27. CWA has a staff of about 2000, half of which are in unskilled grades. Compared to other water utilities, CWA is currently overstaffed, but the extent of overemployment would be difficult to estimate without considerable rationalization of the staffing structure accompanied by a detailed manpower planning analysis. CWA has agreed to prepare a manpower plan by August 31, 1984 (Schedule 5, draft Loan Agreement). In order to improve CWA's efficiency FAC and CCCE are providing substantial technical assistance with the objective of establishing an efficient organization by the end of FY84. CWA will consult with the Bank on proposals for reorganizing or changing its administrative procedures and organizational structure before introducing changes (Section 4.02, draft Loan Agreement). Technical assistance is a key factor for the institution building objective of the proposed project, and CWA has agreed to continue the technical assistance presently in place or make other satisfactory arrangements for its continuance (Section 4.01 (b), draft Loan Agreement). Investment Program 28. CWA's investment program for the period , of which the Bank financed project is an integral part, is being financed by the Caisse Centrale, the Abu Dhabi and Kuwait Funds, the AfDB, USAID, and FAC. Financing of the program was coordinated at a meeting held under the auspices of the CCCE in Paris in July 1981 at which the Bank, the Kuwait Fund, and the AfDB were represented. The agreements concerning financing of the various components of the program were based on a Master Plan for Water Resources proposed by the consulting group SIGMA-SOGREAH. 29. In the Port Louis water supply system the extension of La Marie Treatment Plant and the construction of several transmission mains and reservoirs would be completed under an ongoing project assisted by AfDB. Distribution networks in three areas would be extended, and equipment and pipes to improve the Port Louis system would be supplied under a third credit by CCCE. In the Mare-aux-Vacoas water supply system, the Kuwait and Abu Dhabi Funds agreed in early 1982 to finance the improvement of the surface water pumping plant, rehabilitation of the distribution network, leak detection equipment, and mechanical and meter repair shops. USAID is financing distribution and household connections on some 42 housing estates. The Bank project would complement the Kuwait and Abu Dhabi Funds and the USAID projects, but is not dependent on them in terms of implementation or expected benefits. Because the CCCE loan would finance technical assistance for the CWA, the Bank would reserve the right to suspend loan disbursements if CCCE were to suspend its Loan and no alternative sources of financing were available (Section 6.01 (b)(ii), draft Loan Agreement). This is the only cross-default provision linking the Bank financing with that of one of the other lenders to CWA.

13 -9- Sector Objectives and Strategy 30. The Government's objectives in the water supply sector are (1) to improve the supply to ensure total coverage and meet future demand, (2) to improve the quality of service by provision of continuous instead of intermittent service, and (3) to make CWA financially self-sufficient. This strategy is consistent with the public sector investment program agreed in the context of the Structural Adjustment Loan (SAL-I) based on rehabilitation and improvement of necessary infrastructure to meet the needs of growing industrialization and tourism. To carry out its objectives the Government is mobilizing external aid to assist the financing of CWA's investment program, and obtaining technical assistance from France and UNDP to improve CWA's management. 31. In the sanitation subsector the Government's main objective is to improve the standard of service. It intends to have a sanitation subsector study carried out and a sanitation Master Plan for all the island prepared by consultants in order to establish clear development priorities. Aid agencies are being approached to finance this study. In the meantime a detailed sanitation Master Plan for the center of the island will be prepared under French bilateral aid. Under the Urban project (see para. 33) the Government agreed to carry out a study of the costs of investments in and operation and maintenance of its sewerage system so as to develop an appropriate tariff structure. Bank Group Involvement and Strategy 32. Since 1973 the Bank has had a continuous dialogue with the Government and CWA on the subject of water supply and project financing. The Bank posed three conditions for Bank appraisal of a project: first, Government commitment to a sound water tariff policy; second, preparation of a meaningful investment program; and third, preparation of a plan to strengthen CWA. In 1978, a water tariff study and a water rights legislation study were carried out under the WHO/IBRD Cooperative program. By 1981, sufficient progress towards meeting the Bank's conditions had been made to allow appraisal to take place. Furthermore, the policy that CWA should eventually become financially self-sufficient appeared to have taken root. The water tariff has been increased several times since 1974, the latest increase of 20 percent having been introduced at the 9 beginning of calendar The Bank has also been involved in the sector through the Urban Rehabilitation and Development Project (Ln MAS) of December 9, 1980 which includes a $1.9 million component for rehabilitation of sewerage, drainage, and water supply for four Central Housing Authority estates, and a $0.7 million component for solid waste management for Port-Louis. The implementation of these components by CWA has been proceeding satisfactorily. All major civil works contracts have been awarded and the project is expected to be completed on schedule.

14 PART IV - THE PROJECT 34. The project was prepared by the Central Water Authority, with assistance from the consultants SIGMA-SOGREAH financed by CCCE, and Sir Alexander Gibb and Partners (UK) financed by CWA. It was appraised in October Negotiations were held in Washington from October 12 to 15, The Mauritian delegation was led by Mr. Khodadeen Sumodhee, Permanent Secretary, Ministry of Energy and Internal Communications. A report entitled "Mauritius, Water Supply Project, Staff Appraisal Report" (No MAS, dated November 17, 1982) is being distributed separately. A map, IBRD No R, showing the projects areas, is attached. Project Objectives and Description 35. The project forms part of the CWA investment program. Its objectives are, in conjunction with projects financed by other agencies, to improve the capabilities of CWA's management and staff, the efficiency of CWA's operations, and the quality of service to consumers. The project would improve and expand water supply facilities in the Triolet and Mt. Blanc subsystems and in the groundwater pumping schemes of the Mare-aux-Vacoas system and in 62 Central Housing Authority (CHA) estates. It would include supply of spare parts and equipment for CWA as a whole, implementation of a training program and provision of consulting services. It comprises the following components: (i) Supply and installation of pumping equipment for about 13 groundwater pumping stations and one booster station; (ii) Construction of pumping stations, including new boreholes and reservoirs in the groundwater pumping stations of the Mare-aux- Vacoas system. Construction of two distribution reservoirs, each of 6,000 m 3 capacitys in the Mare-aux-Vacoas system, one reservoir of 1,000 m capacity and two smaller reservoirs in the Mt. Blanc subsystem; (iii) Leak detection works in the Triolet and Mt. Blanc subsystems; (iv) Supply and laying of pipes to rehabilitate, strengthen and extend the distribution networks in Triolet, Mt. Blanc and 62 different CHA estates and to supply the two new distribution reservoirs in the Mare-aux-Vacoas system; (v) Supply and laying of about 6,700 new metered household connections in part of the CHA estates and in the Triolet and Mt. Blanc subsystems; (vi) Civil works for site offices and reservoir keepers' quarters in the Triolet and Mt. Blanc subsystems;

15 (vii) Supply of spare parts for water meters, supply of about nine vehicles and miscellaneous equipment; (viii) Development of an in-service training program to address, initially, priority training areas, supply of training equipment and provision of training consultant services; (ix) Provision of engineering consultant services to carry out hydrogeological studies of the Curepipe aquifer, to carry out the detailed design studies of the project in the Mare-aux-Vacoas and District system and to supervise construction of the project in all project areas. Financial Management 36. CWA's past performance has been characterized by recurring annual deficits reaching from 301 percent of gross revenue in 1974 (the first full year of operation). CWA broke even in FY80 following a 400 percent tariff increase, but the Authority was again in deficit in FY81. The situation arose in part from government's reluctance to increase tariffs to a level needed to make CWA into a financially viable institution as well as its willingness from FY75-81 to provide CWA with both operating and capital expenditure subsidies required to cover deficits. Agreement with the IMF in FY81 precluded further operating subsidies and an awareness now exists that adequate tariffs need to be charged to consumers to cover operating costs, debt service and to finance a reasonable portion of capital expenditures. However, in December 1981 the Government realized that AfDB, CCCE, Kuwait Fund and IBRD would not provide financial assistance until tariffs were increased and therefore tariffs were raised by an average of 20 percent from January 1, In an Action Plan agreed with the Bank (para. 36) CWA has undertaken inter alia to revert to billing based on meter reading. Government has confirmed that CWA will increase tariffs by 15 percent on January 1, 1983 and on July 1, 1983 which should enable CWA to achieve an operating ratio of 95 percent for FY84, and that CWA will continue to adjust tariffs at six-monthly intervals thereafter to achieve an operating ratio of 80 percent in FY85 and a rate of return of not less than 8 percent for FY86 and beyond (Section 5.05 (a), draft Loan Agreement). Government has also provided assurances that it would take all measures necessary to assist CWA in carrying out its Action Plan and in making the required tariff adjustments (Section 2.01 (b), draft Guarantee Agreement). 38. The 8 percent financial rate of return on revalued net fixed assets in operation for FY86 and each year thereafter would be appropriate as it approximates the opportunity cost of capital in the island and as the tariff levels derived approximate the economic price of water. For the purpose of the financial rate of return calculation, CWA will revalue fixed assets in operation annually using a method of valuation acceptable to the Bank (Section 5.05 (d), draft Loan Agreement). Even at the increased tariff level of FY86 (averaging Rs 1.85/m3 at 1981 price levels), water needs would be affordable since a family of

16 five consuming 50 lcd would have to pay Rs 14/month which represents only 1.1 percent of the household income for a family at the relative poverty level and 1.6 percent for a family at the absolute poverty level. 39. Receivables for water bills were the equivalent of about six months' water revenue at the end of FY81. Therefore, in order to improve its liquidity position, CWA has taken action to reduce the outstanding amount to less than four months' billing, thereby fulfilling a condition of negotiations, and will, starting in FY83, keep outstanding customer accounts for water below the equivalent of three months' billings (Section 5.06 (a), draft Loan Agreement). Moreover, to assist CWA in meeting this target the Government has allowed CWA to reintroduce disconnection as a penalty for non-payment of bills. By June 30, 1984, CWA will ensure that such penalty is enforced within two months of billing (Section 5.06 (b), draft Loan Agreement). 40. CWA financial projections show it should be able to service debt incurred to date and to be incurred in carrying out its investment program, provided that costs are controlled and tariffs are increased in a timely manner. However, to safeguard the position, CWA would not incur any loan if internal cash generation (gross revenue less operating expenses but before provision for depreciation of assets, interest and other charges on debt) for the previous year was below 1.5 times maximum future debt service on all loans including the loan to be incurred (Section 5.04, draft Loan Agreement). Project Cost and Financing 41. With base cost estimates expressed in January 1983 prices, the total cost of the project is estimated at $18.2 million, including taxes and some import duties amounting to about $1.4 million, and the Bank front-end fee of $0.2 million. The foreign exchange component is about $9.3 million. An allowance of 10 percent was used for physical contingencies. Price contingencies are estimated at 22.4 percent of total base costs including physical contingencies. They are based on an annual 15 percent local inflation rate and an international inflation rate decreasing from 8 percent in 1983 to 6 percent in The divergence between local and international inflation rates is not expected to be compensated by regular and predictable adjustments in the exchange rate. Therefore the overall project cost has been estimated using the exchange rate prevailing in October 1982 of US$1=Rs 11. If the differential rate of inflation were to be compensated regularly by adjustment of the exchange rate, the US$ equivalent of total project costs would be reduced by about 7 percent. 42. The proposed Bank loan of $12.2 million would finance 73 percent of total project costs excluding taxes. The Bank contribution would finance 100 percent of the foreign costs including the front-end fee, and about 33 percent of the local costs, excluding taxes and import duties. Local cost financing is justified given the country's severe foreign exchange shortage and the Government's efforts in cooperation with the Bank and the IMF to control public expenditure and improve the balance of payments.

17 Project Implementation 43. CWA would be responsible for implementation of the proposed project and, once completed, for its operation and maintenance. CWA's Chief Engineer for Planning and Design would administer and oversee the construction of the project with the assistance of consulting engineers financed from the loan. 44. A Project Preparation Advance, US$140,000 equivalent, was approved in January 1982 to finance supplementary hydrogeological studies and the detailed engineering required for this project. For this purpose CWA appointed SIGMA-SOGREAH to be the engineering consultants. To carry out detailed design for water supply in the CHA Estates which is a high priority component, CWA appointed Sir Alexander Gibb & Partners, financed by local funds. Detailed design was completed in December 1981 and bids were received in May 1982 for construction supervision. CWA would retain engineering consultants in accordance with the Bank Group's guidelines on consultants published in August 1981 (Section 3.02, draft Loan Agreement). 45. Under the proposed loan, training in manual and trade skills for non-professional staff will be provided using surplus training facilities available at the Development Works Corporation (DWC) centers. One of these five centers (total capacity 200 training places), will be partially converted and appropriately equipped to provide basic and refresher training in skills related to the operation and maintenance of water supply production and distribution systems and plant. Follow-up, on-the-job training will be provided by works overseers, inspectors and foremen who will receive training for this role. f 46. Management training for CWA is expected to be provided through a UNDP-financed project (for which the Bank is executing agency) designed to improve managing skills in the planning, operation and control of departmental functions. The program will be implemented by the Bank-financed training component, which will include the establishment of a small training section within CWA's personnel department. Staff selected to operate this training section will follow an overseas training program acceptable to the Bank and include training in the diagnosis of instructional needs, design and administration of training programs. CWA would retain the assistance of experts whose selection, qualifications, experience and conditions of employment would be acceptable to the Bank to help it carry out the training program (Section 3.02, draft Loan Agreement). 47. According to the implementation schedule, major works would be tendered by August 1983 and the contracts awarded by December Construction would be substantially completed by December 1987, except possibly for some minor items. The project completion date is set for June 30, 1988 and the Closing Date at June 30, 1989.

18 Procurement and Disbursements 48. Except as indicated below all procurement for civil works totalling $12.8 million, including contingencies, and for goods totalling $1.5 million, including contingencies, would be awarded on the basis of international competitive bidding in accordance with Bank Group guidelines. Domestic manufacturers would receive a preference in bid evaluation of 15 percent or the import duty, whichever is the lowest. Civil works contracts of less than $500,000 equivalent for the installation of service connections and the construction of small buildings may be procured in accordance with local procurement procedures which allow foreign bidders the opportunity to participate. These regulations, as defined in CWA's "Financial Orders for Tenders", were obtained at appraisal and were found to be satisfactory. Such contracts shall not in the aggregate exceed $1.4 million equivalent. Procurement of equipment estimated to cost the equivalent of $50,000 or less and which cannot be grouped into contracts of greater value may be awarded on the basis of competitive bidding advertised locally in accordance with procedures examined and found to be satisfactory to the Bank; provided, however, that such contracts shall not in the aggregate exceed $400,000 equivalent. Leak detection works totalling $230,000, including contingencies, would be carried out on force account by CWA with the assistance of consulting engineers. 49. The Bank loan would be disbursed as follows: (i) 100 percent of foreign expenditures and 100 percent of local expenditures ex-factory and 65 percent of local expenditures ex-store on materials and equipment (excluding pipes) and vehicles; (ii) 60 percent of total costs for pipes; (iii) 40 percent of total costs for civil works; (iv) 100 percent of total costs for consultants services; (v) recovery of the cost of the Project Preparation Advance; and (vi) front-end fee. Retroactive financing of up to $1.2 million is recommended to cover the foreign exchange costs of the supply and laying of distribution pipes needed to supply the CHA estates and the supervision of this component's construction after June 10, 1982 and prior to the date of the Loan Agreement (Schedule 1, para. 4, draft Loan Agreement). Accounts, Audit and Reporting 50. CWA's accounting systems are commercially-oriented and maintained manually with the exception of the billing and the payroll systems, which have been computerized since Studies are underway to computerize the general accounting system which is expected to be completed by the end of FY83. CWA's finance division is headed by a competent chief accountant and is staffed with qualified and experienced staff. However, since 1979 the finance division has been faced with considerable arrears of work because of (a) a change in the computer system in 1979; and (b) the changes in the tariff level and structure that occurred in 1979 and 1980 but which were later withdrawn, leading to refunds to consumers that caused an immense amount of unscheduled work. As a result, the audit of the 1979 accounts was completed only in October 1981, and those of 1980 and 1981 in mid CWA's accounts would be audited annually by auditors acceptable to the Bank and CWA would furnish such accounts to the Bank within six months after the end of each fiscal year (Section 5.02,

19 draft Loan Agreement). Within six months after project completion, CWA would prepare and submit to the Bank a project completion report (Section 3.04 (e), draft Loan Agreement). Health and Environmental Aspects 51. By providing sufficient piped water to people in project areas, the project is expected to reduce the incidence and risk of disease attributable to lack of safe and adequate water. The increase in water supplies would lead to an increase of waste water. In most of the project areas where the populaton density is relatively low and the soil generally permeable this is acceptable, but in some CWA estates of the Plaine Wilhems area, problems may be expected and these are to be studied in a detailed waste water Master Plan being financed for that area by French bilateral assistance (see para. 31). Justification, Benefits and Risks 52. The project would satisfy the water supply demands in the project areas. Combined with the project financed by the Kuwait and Abu Dhabi Funds in the Mare-aux-Vacoas area, it would, up to the year 2000, provide safe water to about 79,000 additional people, improve service to about 446,000 people, allow an increase in domestic consumption by 49,800 m 3 /day, and meet the needs of commerce, industry and government whose water consumption is expected to increase by about 7,600 m 3 /day. More generally, all water supply consumers would benefit from CWA's improved management and operations. Through its financial covenants and the Action Plan the project is expected to improve substantially CWA's institutional effectiveness which should benefit CWA's consumers. 53. At an opportunity cost of capital of 7 percent in real terms, the long term marginal cost of supply for the project areas is above the existing average selling price for CWA as a whole; it is also above the average tariff projected in the mid-80s, discounted to 1981 price levels. The reasons for this situation are: (1) some of the existing assets in the CWA system are fully depreciated; (2) standard tariffs apply throughout the island and water supplies outside the project area relate mainly to Port-Louis where larger economies of scale exist; and (3) portions of the investments in the project areas are for rehabilitation and they will not generate incremental revenues but help to maintain existing revenues. 54. With shadow pricing of foreign exchange at 120 percent, the project's internal rate of return is 3.7 percent using the projected average selling price in 1986 discounted to 1981 price levels. Although low, the internal rate of return is acceptable because it provides adequate funds to enable CWA to be financially viable when taken together with the revenues from more prosperous areas of the island. An economic rate of return incorporating all benefits would be significantly higher, as a result of major public health and environmental benefits from the project which are difficult to quantify.

20 The main project risks relate to delays which may occur during engineering and construction of the project because of CWA's limited implementation capacity. The use of consulting engineers for engineering studies and supervision of project construction, the management technical assistance provided under the third CCCE loan and the improvement in service brought about by recent AfDB and CCCE projects, should play an important role in improving morale and efficiency in the sector and avoiding delays in implementation. The project risks appear moderate compared to the substantial benefits which are expected from its implementation. PART V - LEGAL INSTRUMENTS AND AUTHORITY 56. The draft Loan Agreement between the Bank and CWA, the draft Guarantee Agreement between Mauritius and the Bank and the Report of the Committee provided for in Article III, Section 4 (iii), of the Articles of Agreement are being distributed to the Executive Directors separately. 57. Features of special interest are referred to in Section III of Annex III of this report. A special remedy is included to allow the Bank to suspend in the event that funds for technical assistance for the strengthening of CWA's management cease to be available and no alternative sources of financing are found. 58. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank. PART VI - RECOMMENDATION 59. I recommend that the Executive Directors approve the proposed loan. Attachments A.W. Clausen President December 3, 1982 By E. Stern,

21 17- TABLE 3A MAURITIUS - SOCIAL INDICATORS DATA SHEET Page 1 of 5 MAURITIUS REFERENCE GROUPS (WEIGHTED AVE/RAGES AREA (THOUSAND SQ, KM.) - MOST RECENT ESTIMATE)- TOTAL 1.9 MOST RECENT MIDDLE INCOME MIDDLE INCOME AGRICULTURAL /b 1970 /b ESTIMATE /b AFRICA SOUTH OF SAHARA NORTH AFRICA & MIDDLE EAST GNP PER CAPITA (US$) ENERGY CONSUMPTION PER CAPITA (KILOGRAMS OF COAL EQUIVALENT) POPULATION AND VITAL STATISTICS POPULATION, MID-YEAR (THOUSANDS) URBAN POPULATION (PERCENT OF TOTAL) POPULATION PROJECTIONS POPULATION IN YEAR 2000 (MILLIONS) 1.3 STATIONARY POPULATION (MILLIONS) 1.9 YEAR STATIONARY POPULATION IS REACHED 2075 POPULATION DENSITY PER SQ. EM PER SQ. KM. AGRICULTURAL LAND POPULATION AGE STRUCTURE (PERCENT) 0-14 YRS YRS YRS. AND ABOVE POPULATION GROWTH RATE (PERCENT) TOTAL URBAN CRUDE BIRTH RATE (PER THOUSAND) CRUDE DEATH RATE (PER THOUSAND) GROSS REPRODUCTION RATE FAMILY PLANNING ACCEPTORS, ANNUAL (THOUSANDS) USERS (PERCENT OF MARRIED WOMEN) FOOD AND NUTRITION INDEX OF FOOD PRODUCTION PER CAPITA ( ) PER CAPITA SUPPLY OF CALORIES (PERCENT OF REQUIREMENTS) /c PROTEINS (GRAMS PER DAY) OF WHICH ANIMAL AND PULSE w CHILD (AGES 1-4) MORTALITY RATE HEALTH LIFE EXPECTANCY AT BIRTH (YEARS) INFANT MORTALITY RATE (PER THOUSAND) ACCESS TO SAFE WATER (PERCENT OF POPULATION) TOTAL /d URBAN /d RURAL ACCESS TO EXCRETA DISPOSAL (PERCENT OF POPULATION) TOTAL /d URBAN o RURAL i00.o7. ( POPULATION PER PHYSICIAN /c POPULATION PER NURSING PERSON /e T POPULATION PER HOSPITAL BED TOTAL /c URBAN E RURAL Th ADMISSIONS PER HOSPITAL BED /c HOUSING AVERAGE SIZE OF HOUSEHOLD TOTAL 4.9/e 5.3/f URBAN 4.9;/..- RURAL 4. 8T.. AVERAGE NUMBER OF PERSONS PER ROOM TOTAL 1.9/e.. URBAN 1.8/e.... RURAL ACCESS TO ELECTRICITY (PERCENT OF DWELLINGS) 4 TOTAL 6.9/e 70.1/f.. URBAN 81.9/e.... RURAL 29.27e....

22 - 18- Annex I TABLE 3A MAURITIUS - SOCIAL INDICATORS DATA SHEET Page 2 Of 5 MAURITIUS REFERENCE GROUPS (WEIGHTED AVERAGES - MOST RECENT ESTIMATE)- MOST RECENT MIDDLE INCOME MIDDLE INCOME 1960 /b 1970 /b ESTIMATE /b AFRICA SOUTH OF SAHARA NORTH AMERICA & MIDDLE EAST EDUCATION ADJUSTED ENROLLMENT RATIOS PRIMARY: TOTAL MALE FEMALE SECONDARY: TOTAL MALE FEMALE VOCATIONAL ENROL. (1 OF SECONDARY) PUPIL-TEACHER RATIO PRLMARY SECONDARY ADULT LITERACY RATE (PERCENT) 60.8/e 80.0/f CONSUMPTION PASSENGER CARS PER THOUSAND POPULATION /c RADIO RECEIVERS PER THOUSAND POPULATION TV RECEIVERS PER THOUSAND POPULATION NEWSPAPER ("DAILY GENERAL INTEREST") CIRCULATION PER THOUSAND POPULATION 83.0/e CINEMA ANNUAL ATTENDANCE PER CAPITA LABOR FORCE TOTAL LABOR FORCE (THOUSANDS) FEMALE (PERCENT) AGRICULTURE (PERCENT) INDUSTRY (PERCENT) PARTICIPATION RATE (PERCENT) TOTAL MALE FEMALE ECONOMIC DEPENDENCY RATIO INCOME DISTRIBUTION PERCENT OF PRIVATE INCOME RECEIVED BY HIGHEST 5 PERCENT OF HOUSEHOLDS /d HIGHEST 20 PERCENT OF HOUSEHOLDS /d LOWEST 20 PERCENT OF HOUSEHOLDS /ad LOWEST 40 PERCENT OF HOUSEHOLDS o7. POVERTY TARGET GROUPS ESTIMATED ABSOLUTE POVERTY INCOME LEVEL (US$ PER CAPITA) URBAN RURAL ESTIMATED RELATIVE POVERTY INCOME LEVEL (US$ PER CAPITA) URBAN RURAL ESTIMATED POPULATION BELOW ABSOLUTE POVERTY INCOME LEVEL (PERCENT) URBAN RURAL Not available Not applicable. NOTES /a The group averages for each indicator are population-weighted arithmetic means. Coverage of countries among the indicators depends on availability of data and is not uniform. /b Unless otherwise noted, data for 1960 refer to any year between 1959 and 1961; for 1970, between 1969 and 1971; and for Most Recent Estimate, between 1978 and /c 1977; /d 1975; /e 1962; /f 1972; /g May, 1982

23 19 ANNEX I Poof 5 TEFPIpTIrtS OP SOCIAL 1OOICATORS lo I:itod isdt r rialo cr. oeai de tsme atirttv nr ibe tsri lob oe htte a o eitr a-rnly of chot c-s-nl- In 9400p hoe Aee lot that JIndc_to. Since chnrns 0 otconniaccx tin-ndlotor ixpen.. o the -siiobillo of diloccetr ea tea cin hc. -oney ond sfees... ge-pe. F ~ Totol 1- Tta sor ae re corli cd area od il otd -einr; 1979 data. cln n oal4iie rte n_sywon-to nosie ci hicreytnal hodo oart- ltrs - scman f-ortoc.olae mod toanororily or p- -ovenly cociali yo Ito sod retrinl & -nra acc nid icdlonitladto Icc cope. sonces. scie..od kitohex -d-ceo ortiie follow; 1979 dt.b hoc IIatIct nenter. Hopisa I cw wet oilsreys pconot Ip stid ny o -woen c_ yiygooao Etb Iish_ot P_onid'. P Inc tyalycot- GOP Pit COPITA dusll - GI?NsrP pt stimce urn vorcatpprices. cal 1 Col-a eye tonin boe.tr 1 -Inptae howeer hnlce Iolnt ccac ydm orrin tid sinchw ta 1 80 hae-i.i...i.. O-000 medica' etr r esrn yaa e yayrdixbry dalnodprocide a Ilaiied -ogr of sedicl frloto1cteio tenty Cfnnl.IITIIv (Ti CAPITA - cr"oc... c.r Ion of -nee l ocryloa rd opoe ro honcos oloolon...n.ee icptoc and Icnir pnirc.- -a-rlo ydro-. cc-.na and A-nh-na n Iclo rlhciaood co-strcc an rlc no tiooo sodlc- _Inilc) lilglc.r.. ca caplna , and nbno IpccaI-o hospinala am Inlond In c nc..a! txp-r cnly...t cta dcta. P.iixic e Ho-pita Bwd - ctal. no-bor ci~ aooi-t C. Ot C. 0 discatrtro hospitlsi dccided by the ocbno beds. ~ ~ ~ ~ ~ ~ PPUfCLATION AND VITAL. STATISTICS Tota Ppvrclortr. flid-oror t~hocesods) -bof (dly I I6ol 1970, and I98HO data knetoc ti.e cf oowhlo Iperoe.e...ol-ico. to and- nr-l- Irhn ooiaio (Peren... notalf) - het"o ci ora cntipyltc;ibc oocni_e c aorcp o irtdalswoore1ing oroe llffnrvt deinltlxe ofcrhooore..sen ofe rb csnbil asoxgcoonrrbes; ihyl, sod igod dane. ito nf Osra co'i ter nrc-f-i tivoeod els ore o nnitolpoye rldg"n o, h,eycbtn olddi fvpolseico Prciennhane I coenane~~d-. Id otter'.l of nesceprromtoa,cro. n or -- eagn PrlrcsI Pes 200P -Creryoaio poctxe rebsd ox 1980 heb fpesn ncnr.c I cri.on os ocoied oneto Ing licf t-spettan.y at bi Ch InIn...Cig with ory5per -apita ittowe ceatofloc- icty rp...tx of doe... gto-nt -,n-o, a-d corl - It-el. and f-n.l lls. _np_ntx -toilobog on7.1 Year..Thyo- Ccrrwntto.al dwellings irh elwc-icly cvi I.oCo q-acer ncwrnc eaters tcc focxil ixy rate aiso -hav ra Iov-I assost_og delin i In of notol. ome.. aodyr-l deat ng repn inly fnnt ility a-jordlng ir...cm land a_ed past faa Cr pla-oig enorse loch cccnxr xe the.. a..cgne on no nheso nice o-binet'ios f rainy tducatitls ond frnttlity treds forpoen P-, o r",", e..ac ba-d to-c linn totlo hot rrclotion-loenst 'ovary inosrypoycl.f..iix tih- is - gyc-non... Pyrtary othirl - not-l. tos otd fcaolc - Gr..a total oale sod f-so thoccrx~hoatcl IeqoaiLtoth dsanhrete,.adolo-nheossnotoccn----lceiofictwsxneylmrylcoio-a-p--.cnzxoot This Co achicowd -ay ofeer fe-ilify r-x- iwliie n yrsoy.- on-oge popolanlons; Ioreally inll"ex ohilei d H-b cnrotcmex Ire of tc ow -cproort Coo cone, ahoy -ortg... raiton frntno oclosned flo dclffer.n longtffe cf nrcaayo1dor-tlov;io of cmen eplrce tsef -nsrty The -tainx..ry pouattso a cnroat oleoleaa o nolenny -rooc 101 pernoon neniaiedcv te bece c nha pro crd chor-ten-itsil of the ponobti- ono ta Popl ry.enonb o l fic-io otnol re 0teya 000aate rate of d_tltoe of f-rillnyrssenoneylrne- bo-cdory sho ca acadtioe-lattooh ceodr car scnlrory nnolsloxis rajled - The year whe sten..tary yroltcnprnded enrl.crxxel. r w hrt-fi-igistolit for...po..9 oboeoclibererhed colly of 12 no17 er of0w o =syodne ore or kgnra P-rs. o Otd-y-o popbanio yen sqase kilometer 1100 her...a of tocoic-a -onrolen 1 nerer of s...xdaryl - ooct- vlvxt- sio F_ acro 1h.17qao199doa onoo contl csnial. or ote-h goe nc nrdoocoo PreotticoAge nrotors ncr-... Childea 70-li y-erel soricog-age (15- y,rigaryaogs-id,r L.-I.g dinldsd hrvey r ft fennr Ix h Latio; lr.x.100.so.d acrsns.i linecewnt1 - licenses od.lte bc1 Int.mod toodncc Poeplocirn Growth lat lrp-cwxt - -tta - crooi Irceth -a-e ot nrta old-d -1yscrtgdofeto 1c popoloncon ogclcire Io d -0r.,...iyea ppoilxiow for 1950-HO, sodi 197-W.t f Got _oolo ham, Ireensoe -ct - Axai,- oonti I.-g of crb.v pono- CTNtibrTI0N lonlon for 1910-Ho ocogrcos(o...cn P..v.a tool. - ooo 1 r as w ncsoo ropyc.coicoc 1990, 1977, ord 1990 doto. tl inaryon 1iCIoIesI nopo IHsPIon;lInG, od 19.0.dot.broodcosi fi 1no noealphlc r-n toceox ofnpoic yoccr cy... ooalyicnya.asa o Erote ondg in ond odo -- orir cnol ishwd I iclnvsin Soaly fl_rnivs-cr_p r Ainc_a lchrcsanls -onal note W.oreyo TV fencr prtron nnrla CO rocor o. raron c al sndd cmsi S.ae g 8-ro_or. ltcnr bf diy nrslintreo owcpee. del d aacnsird C,,ra pcblconi-on devoted prl.ec_ yio reotlggeea vane. Ii Ca -redw AN0 MORITI.ON no on coly" Cf it oppere at Ie..x fou c- ee a- anti Irdos of Fond Pnod-ct- no (aia loooofprooiorn Clo_m conos hne-d-rr nor Corica own der-aso, n oevoh eo prodotlor oilicco omolnwa. f Podornco rolodeeoesa vd fec andninies'rop"crindpfeiear,knnlod-g dddgaioenodhoe-ynlnemd Is-on ocendf neen heeo. Codtlscner.reay gvd Io. oir-te odecclecots V too ore. eslded). hooregans prdrno f adt=or CecsdoI.&000 FOnt ctaologlooerge prd.cnn -ir iaes 19 1-HIm90 nld 1199da.Tol Laborfvr F I rtbroaaxdsl -l f...sioly rtcne ne..x...v. bin Per000Ito sopp o1f clre rrrslfrolrmne.opaned Cr. co ns orgndcr bre -o otlo hceisa one t. 5 qnrynoisecofocfo oplc- vlalecroty per apn velg opasnof el re.ototxe ireoo ctiw oe yen oar.a. eil nopl b coprise domeenir p-od-nc, imports.. lea nerw-bale; aod 1980 das. optaosch,,,,,cotre Own srp1plle encode axiel 1.0d. tends, rexald (perosre - resol lohor leer.ed.pe.ees.itoa loor Icro cxcnocedilod- -oraso. a loes nd igo-lhotlx leqai1- aicloc(ro-ent - faire trte in fe.is. f-rr-t, hcoing cod me owd ve eslmene hrpa.b0 h. Is rc plyeiclooirl nands far orene -lian- ICbo sperrnaga of ntall teo- torte; cadii Ca da.- ciny cdbot coadarings-ir-xa t- pn1 oe hoop nouliht ass Ira-sry lprerx.. (f - L.slc fvo xettg ovtibvx ecfcern cad digcnihoioe se o nprloir.. and atlowoo Ii pe-ca ice cee sad trrrcr.onrd aaa as pe-renoa of nota lat-fo r hueld ler1; , 1970 cad 1977 data o 90 sta Per ca f ito reonin onnlr (oase pr den frvniv... e. of I pr capita yfncraentns(eret onl eb x tw e-roi..n Ipat-iono ve opply of food Per "ay'ne crl f-ir Oa reficd ascoos te- -tcoicyaesrto _e1s oal2oe.cd eabelrfocr ndlnmeos for ol coca tres -baoliax by 1100 proobde frr nlotie petoaelirl sol ad lemele p.pi.letio ci all1 agna twopen ney al.ane o 0 rsso cns prtin yen dey oso 10 ge f aniga o td19 rena1th.. ore bae d on - e0 poi.iatcnt pise. FtotIli,o, cct 0 rm sioold h heesad- -relposf rolcigasansrror ftepplco,cd bo.g tim tred. ens r lo hr.ie those.fi7 rm talproenod13 I grame of tw eacese -r from no-oa... oro.. ~~~~~~~~~~inue froneic as a -ancrag forni -nid, popoe dbyfa hr. In sh Third fnciiirinde..cyrttlo - laeia o J 1poitbo coderl an d l5 and o Ocrld food Ocoer 1991-H, 197 ani97dn,n h oa laborive y itcno mo-omecpl fro aoaao ond noie Pr-cir eopply of lord In niowfrv.oiass ao poies - cre-do yen da, h n doto. T1andki,dI0ITOdOhl-I-ltCothini agegron 1 yers.no lilld-e in tibi age grop, for en reelp Cog coos-. -wcx If rirre ITfret2poesT yrer.-c ora Ioto otas dit dei_e fmm life c-ble; 10960, 1907 and 1990 dana. of tone.. 1oda. OCALlO ~~~~~~~~~~~~~~~PVRotTn ~ ~ TdR0fT droups at in; nd 90 data -on.- oncold bloeprn-sds-n orldennhindoct-on lctnnnrtoinrat(racoosadl-oval eats f iofaiiaodsroty- Escctated Aso-oeeecyonnLclfb nroloccinoooc of irpertrroad Ine -thyt; 1960, 1970 end 109 Ioa_iocrrorrInoeIoli hnicm I.od I. ho ir - ace,la na hsroca r rneiolntls plg..od -anitay ee l, on Otliln oerty Income lee soeth- faeag e C t po-rencge oftnnnnroepooab-. Irooooeaclcproa icm lcdccty. iibrviav enl,lirtelnsh.rnral fonsl o.oadpnet lct..iwd notsor -roa IdH menro frosa Mao. a be Ioel otth coj--es Ion nigho- coa of Iioirglv rotaes Ox- rot -loona t~l pw h-n ofh.ol Iio.-on,u ha. haco.orld --?.I r T' Mome- of- peple (ctal orion, and-o-- proe by toc-reto di--es oa p bs..oollerx.i.cs an beoe. I,- a or Iieo inst. t ad otsa... ret-,ponlas Cn rer PhysIcian- opoiistnc rjnodec lv oeeof r-ort IsCo nirs - foat and lotial lan Ibis-co is q _ fitfcd fro meibro 5th.. at coiocstytodoooicoilyeis tod P-ojcrirn... ya...i. P Poaic e Nsrelg eti Pyseir ini hy rote,o,pacla IfU 1992 mels ago. dcmela gladcaesoo..a. d..aleranoee ai...r..v.re.od secgact ois

24 annex I Page 4 of 5 MAURITIUS - ECONOMIC INDICATORS GROSS NATIONAL PRODUCT IN 1981 Annual rates of Growth 1/ US$ Mln. % GNP at Market Prices Gross DomesLic Investment ,2-0.3 Gross Domestic Saving Current Account Balance Exports of Goods, NFS Imports of Goods, NFS OUITPUT, LABOR FORCE AND PRODUCTIVITY Iil 1981 Value added 2 / Labor Force 3/ V.A. per Worker US$ Mln. % Thousand % u$s % i ;war 'Wler Agriculture ')ther Industry Servicees Total GOVERNMENT FINANCE Central Government Rs Mln. P of GDP 1980/ / /81 Current Revenue Current Expenditures Current Deficit Capital Expenditure Foreign Financing (gross) MONEY, CREDIT and PRICES (Rs million outstanding at the end of the period) Money and Quasi Money Claims on Government (net) Claims on private sector (Percentage or Index Numbers) Mloney and Quasi Money as P of GOP GDP Price Deflator (1976 = 100) Annual percentage changes in = GDP Deflator Claims on Government (net) Claims on private sector Note: All conversions to dollars in this table are at the average exchange rate prevailing during the period covered. 1/ In 1970 prices for the period and 1976 prices for / At factor cost 3/ Employment in large establishments May 1982

25 Annex I Page 5 of 5 MAURITIUS - TRADE PAYMENTS AND CAPITAL FLOWS BALANCE OF PAYMENTS MERCHANDISE EXPORTS (AVERAGE ) (US$ Million) US$ mln. % Exports of Goods, NFS Sugar Imports of Goods, NFS Molasses Resource Gap Tea Clothings Investment Income (net) Other products Net Transfers Re-exports Current Account Balance Total Long-term Capital Net MLT borrowing: Disbursements EXTERNAL DEBT, DECEMBER 31, 1981 Amortization (US$ Mln) Other capital (net) 1/ Public Debt, outstanding and Change in Reserves disbursed (decrease +) Memo item DEBT SERVICE RATIO FOR 1981 Use of SDRs Public Debt, incl. guaranteed 9.32/ Use of IMF credit Net foreign assets IBRD/IDA LENDING, (September 30, 1982) (US$ Mln.) RATE OF EXCHANGE IBRD IDA Outstanding & Disbursed Undisbursed US$1.0=R6.140 US$1.0= US$1.0= US$1.0= Outstanding including R1.0=US$ R1.0=US$ Rl.O=US$ R1.0=US$ undisbursed 1/ Includes short-term private capital, SDR allocation and errors and omissions 2/ Debt service payments as percentage of estimated export earnings. May 1982

26 -2 STATUS OF BANK GROUP OPERATIONS IN MAURITIUS ANNEX II Page 1 of 4 A. Statement of Bank Loans and IDA Credits (as of September 30, 1982) Loan or US$ million Credit Amount (less cancellations)'! Number Year Borrower Purpose Bank IDA Undisbursed Five Loans and Five Credits have been fully disbursed MAS 1974 Mauritius Port I T-MAS 1976 Mauritius Revised Port I MAS 1977 DBM Development Bank IV MAS 1978 Mauritius Second Education MAS 1978 Second Power MAS 1980 DBM Development Bank V MAS 1981 Mauritius Urban Rehabilitation and Development MAS 1982 DBM Development Bank VI TOTAL of which has been repaid TOTAL now outstanding Amount sold 4.95 of which has been repaid TOTAL now held by Bank and IDA TOTAL undisbursed B. Statement of IFC Investments (September 30, 1982) Year Borrower Type of Business Loan Equity Total 1971 Dinarobin Inns Tourism & Hotels Ltd Total gross commitment Less cancellations, terminations, repayments and sales Net held by IFC Total undisbursed / Prior to exchange adjustments

27 - 23- C. Status of Projects in Execution as of September 30, / ANNEX II Page 2 of 4 Loan No. 976-MAS Port Project: US$10.0 million Loan of April 12, 1974; Date of Effectiveness: June 13, 1974; Closing Date: December 31, 1982 Loan No T-MAS: Revised Port Project: US$3.6 million Third Window Loan of December 9, 1976; Date of Effectiveness: July 27, 1977; Closing Date: December 31, 1982 The main elements of the project have been completed including the construction of three deep water berths, two transit sheds and open storage areas. As a result of this increased capacity the port is now operating without congestion. Physical execution is proceeding well. Construction work is well advanced on the administration workshop and fire-station buildings and they are expected to be commissioned by September Port operating equipment has been procured and cargo handling operations have improved. Technical assistance financed under the project has had beneficial effects on the administration of the Mauritius Marine Authority. The closing date was extended by one year in order to finish construction of the administration building and to complete dredging works. Loan No MAS Fourth Development Bank Project: US$7.5 million Loan of August 29, 1977; Date of Effectiveness; October 6, 1977; Closing Date: December 31, The loan provides financing for the term foreign exchange needs of mediumand large scale industrial, tourism and agro-industrial projects. The loan is fully committed. Loan No MAS Second Education Project: US$15.2 million Loan of April 26, 1978; Date of Effectiveness: August 8, 1978; Closing Date: December 31, 1982 The Project Unit continues to operate satisfactorily. Construction of 12 of the 15 Junior Secondary Schools (JSS) have been completed. The remaining three, where expansion and upgrading are involved, are expected to be completed in mid All 15 schools are in operation, although some have not yet attained full capacity. Constrution of the additions to the Mauritius College of Education and the Mauritius Institute of Education are expected to be completed in April / These notes are designed to inform the Executive Directors regarding the progress in execution, and in particular to report any problems which are being encountered and the action taken to remedy them. They should be read in this sense and with the understanding that they do not purport to present a balanced evaluation of strengths and weaknesses in project execution.

28 ANNEX II Page 3 of 4 The construction of a building for the Ministry of Education may be deleted and funds used for improvement of primary schools. This proposed modification is under review. After substantial delay, the reorganization of MECA is now completed. Educational objectives are expected to be substantially achieved upon completion of the project. Project closing may have to be postponed by 18 to 24 months to finalize the project. Loan No MAS Power Transmission Project: US$15 million Loan of April 26, 1978; Date of Effectiveness: January 23, 1979; Closing Date: December 31, 1983 The project consists of construction of 66-kV and lower voltage transmission/distribution lines and substations; construction of a system control center; consulting services and training. Almost all material and equipment have already been ordered except for some distribution material and equipment. Construction is progressing satisfactorily at various sites in the country to construct substations and powerlines and the control center included in the project. The project is satisfactorily on schedule and the original project cost estimate has not changed. Studies for long range power planning, reorganization of CEB (Central Electricity Board), energy sector planning and CEB training have been completed, and recommendations of these studies are being implemented by the CEB. Loan No MAS Fifth Development Bank Project: US$6.0 million Loan of January 23, 1980; Date of Effectiveness: April 30, 1980; Closing Date: December 31, 1983 The Project assists the Development Bank of Mauritius in financing directly or through Mauritian-owned commercial banks the foreign exchange component of loans and investments in industry, agro-industry and tourism. It also helps cover the foreign exchange investment needs of artisan and small-scale enterprises. Because clients of commercial banks were reluctant to use refinancing due to fear of the foreign exchange risks, the $2.0 million earmarked for the purpose have been reallocated to DBM's general lending operations; $0.5 million from the $1.0 million earmarked for SSEs was also reallocated to the same category, because the level of DBM's SSE approvals was less than anticipated. Loan No MAS Urban Rehabilitation and Development Project: US$15.0 million Loan of January 8, 1981: Date of Effectiveness: May 5, 1981; Closing Date: December 31, 1984 The Project will assist the Government in implementing a change in its policy for providing housing in the public sector, including a reduction in overall Government expenditure on housing, and redirection from building rental units at subsidized rates, to provision of housing credit for lower income groups. It will also strengthen institutions responsible for urban planning, development and maintenance. The project includes (a) an integrated housing development at a site (La Tour Koenig) near Port Louis, housing credit and establishment of a physical planning unit in the Ministry of Planning; and (b) traffic management and

29 ANNEX II Page 4 of 4 rehabilitation of urban services, to be funded by the Saudi Fund for Development. Project implementation has started and is progressing satisfactorily. Implementation of civil works is progressing with all major contracts awarded. The project is expected to be completed on schedule by June, P Loan No MAS Sixth Development Bank Project: US$6.0 million Loan of June 30, 1982; Date of Effectiveness: September 22, 1982; Closing Date: December 31, 1988 The Project has two main purposes: (i) to finance studies of the industrial and financial sectors, to be carried out by Government with the aid of consultants, intended to develop policies and institutional arrangements conducive to growth of industrial production and exports; and (ii) to assist DBM in financing the foreign exchange component of loans and investments in industry, agro-industry and tourism, including the foreign exchange component of investment by small-scale enterprises. Disbursements have already started.

30 ANNEX III Page 1 of 2 SUPPLEMENTARY PROJECT DATA SHEET Section 1: Timetable of Key Events (a) Identification: 1976 (b) Project Prepared by: CWA and SIGMA/SOGREAH (c) Appraisal mission: October/November 1981 (d) Negotiations: October 1982 (e) Target Effectiveness: February 1983 Section II: Special Bank Implementation Actions None Section III: Special Conditions A. The Government would (i) take all measures required to carry out and to enable CWA to carry out the Action Plan for purposes of restoring full operating efficiency and to allow CWA to adjust tariffs as and when necessary in order to achieve operating ratios (para. 37). B. CWA would (i) consult with the Bank on proposals for reorganizing and improving the organizational structure of CWA before introducing any changes (para. 27); (ii) achieve an operating ratio of 80 percent in FY85 and earn for FY86 and subsequent years a financial rate of return of at least 8 percent on average revalued net fixed assets in operation (paras. 37 and 38); (iii) carry out an agreed Action Plan in accordance with a timetable satisfactory to the Bank (para. 37);

31 ANNEX III Page 2 of 2 (iv) reduce outstanding accounts and thereafter maintain receivables equivalent to three months' water revenue billed or less (para. 39); (v) continue the policy of disconnection as a penalty for non-payment of bills (para. 39); and (vi) obtain Bank agreement on the incurrence of any loan if cash generation for the previous year was below 1.5 times maximum future debt service on all loans (para. 40). C. Special Remedies A special remedies clause gives the Bank the right to suspend in the event that Caisse Centrale financing ceases to be available and no alternative sources of financing are found (para. 29).

32 I

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