Report No. PIC1655 Project Name Algeria-Urban Water Supply ro) N Restructuring Project Region Middle East and North Africa Sector Water Supply and Sanitation Project ID DZPA35709 Borrower Government of Algeria Implementing Agencies Ministry of Equipment Contact: Mr. M.Amaouche, Director Planning and Economic Affairs Ministry of Equipment Algiers, Algeria. Tel. 213.2.589.500 Fax. 213.2.581.703 Date this update prepared June 1996 Date initial PID February 1995 Project Appraisal date June1996 Project Board date September 1997 Background 1. Algeria, a middle-income country, with a current population of 30 million, is endowed with moderate water resources. The current available per capita water resources in the northern part of the country, where 90 percent of the population lives, are about 760 m3/year, compared to 1,200 m3/year in neighboring Morocco. By and large, water consumption in Algeria is for irrigation, urban supply, and industrial processing. In 1994, the irrigation sector consumed 2.4 billion m3, aost two-thirds of the mobilized resources. Of the rest, 80 percent was used for urban supply, and the balance by industries. 2. At present, irrigated farming is practiced in only 4 percent of the arable land in Algeria. The Government, however, has an ambitious program for expanding irrigation in newly opened land, particularly in the Cheliff Valley. At the same time, as the population and the economy continue to grow, more water will be needed to meet urban demand. Together with the proposed irrigation expansion, it is estimated that total net water consumption in the year 2010 will reach 5.6 billion m3, representing about 75 percent of the total available fresh water resources in the country. Irrigation efficiency in Algeria is currently very low, less than 50 percent. A water resources strategy study, carried out by the Bank in 1992, showed that if efficiency in the irrigation sector could be increased to 70 percent, and to 80 percent in the urban sector, the available conventional water resources in Algeria could be stretched out to satisfy demands way beyond the year 2030. 3. The urban water supply sector in Algeria is fairly well advanced in terms of coverage of the population. On average, 90 percent of the total population has direct access to the public water supply network through private service lines. The rest of the population is served by standpoints and private wells. These services, however, are not provided efficiently. An estimated 40 percent of water produced is unaccounted for. A rehabilitation project aiming at recovering water losses from distribution networks in ten cities, is currently under implementation, financed in part by the Water Supply and Sewerage Rehabilitation Loan (3743-AL). Execution of this project is progressing well, and under the proposed project, a similar operation would be carried out in seven more cities. 4. Because of a prevailing drought, water production has greatly diminished in the western and eastern regions of Algeria. On the western coast, incorporating the cities of Mostaganem, Arzew, and Oran, it is estimated that the supply deficit has now reached 30 percent of the demand. In the east, the deficit in Annaba City is about 10 percent. However, by the time a new supply becomes available in about seven years, the deficit will reach 30 percent; in the west, it will be much higher. The water systems in these cities are scheduled to be rehabilitated under the above-mentioned project. But the resulting savings are not expected to be sufficient to satisfy the pent-up demand. The water shortage is so critical that a number of industries installed in these areas, such as a petroleum refinery in Arzew and a steel mill in Annaba, are making plans to resort to their own water sources. This solution, however, is not considered the most economical. Project Objectives 5. In 1994 the Bank made a loan of US$110 million under the Water Supply and Sewerage project to Algeria to finance a rehabilitation project of the country's urban water distribution systems. As part of this project, a set of institutional, economic, and financial objectives was fixed for the sector. In particular, a leasing system between the Government and the water utilities, as well as the application of regional tariffs in lieu of a national tariff structure, would be put in place. 6. The proposed project would be a continuation of the previous one, and conceived within the same legal framework as Loan 3743-AL. It would include a number of new works that were not financed under the previous loan, because of the priority given to rehabilitation works. The new project would seek to increase water production in the western and eastern regions to fill the supply deficit in these areas. They are among the most industrialized regions in the country, and have been beset by water shortages for some time. In parallel with the proposed production increase, a number of distribution networks in cities located in the same areas would be renovated to ensure that full project benefits would reach consumers. 7. As part of the previous Bank-financed project, a new institutional setup, covering the relations between the Government and two regional enterprises, EPEOR in the west, and EPEA in the east, has been in effect since 1994. These enterprises now manage the water systems under leasing agreements with the Government. - 2- 8. For now all water utilities in Algeria are state-owned entities. The goal is to open them up to private capital participation. The current leasing arrangements are considered only an intermediate step toward full participation of the private sector in water utilities' management in Algeria. The privatization process will only touch the sector management. The sector assets will continue to remain state properties. The proposed project would take a next step toward privatizing the sector management by sponsoring a spin-off operation of the four largest enterprises in the country, operating in the cities of Algiers, Oran, Constantine, and Annaba. A number of their activities such as meter repair and gauging, leak detection and repair, meter reading and billing, would be contracted with former staff who would have established their own small enterprises. Project Description and Implementation 9. The project would include: (a) water production for the western region (Gargar System); (b) water production for the eastern region (Mexenna System) (c) distribution network rehabilitation in seven cities; (d) project implementation; (e) preparation of feasibility studies of urban water supply expansion in the center of the country; (f) institutional development assistance; and (g) technical assistance for designing a regional water tariff structure. Project Cost and Financing 10. The total project cost is estimated at US$350 million, with a Bank loan currently placed at US$118 million. Cofinancing is being sought. Rationale for Bank Involvement 11. The proposed project fits into the Bank's interim lending strategy for Algeria, that focuses on stimulating the economy through job creation, and on protecting basic social services during the transition period from a planned economy to a free market. The proposed project is urgently needed to provide the additional water supply that is required for urban dwellers and industries. The water shortage is most acute in the cities' outskirts where low income population lives. The additional supply would also allow industries to continue operating at current levels and preserve jobs Project Benefits 12. By the time the project is completed in the year 2004, new water production would increase by 117 Mm3/year. The leak detection component is expected to recover some 32 Mm3/year, for a total of 149 Mm3/year in additional production. Based on current tariffs, the proposed investments are expected to generate a good rate of return, now estimated to be about 12 percent. In addition, the project would bring major health benefits by curtailing the use of unsanitary sources of water by low-income consumers. Some waterborne diseases, such as cholera, dysentery, and typhoid have been endemic in Algeria. An attempt would be made at quantifying the health benefits. 13. The proposed project would make it possible to stretch out the use -3 - of fresh water resources in the country, and to postpone resorting to more expensive treatments such as demineralization and desalination. Environmental Aspects 14. The project has been rated Category B. Please see attached Environmental Annex. Contact Point: Mr. F. Rodriguez, Task Manager The World Bank 1818 H Street N.W. Washington D.C. 20433 Telephone No.: (202)473-2820 Note: This is information on an evolving project. Certain components may not necessarily be included in the final project. Processed by the Public Information Center week ending February 21, 1997. - 4 - Annex Environmental Aspects The project will have a major positive impact on the environment. First, it will help to improve public heath in the project area by providing safe, clean water supply. Second, by stopping water leaks in the distribution network, it will improve sanitation in urban areas. As a result, waterlogging would be avoided, lessening the possibility of creating favorable conditions for the development and spread of vector- borne diseases. Nevertheless, because treatment plants and other project construction may have limited adverse environmental impacts, the project has been rated "Category B". As a result of the proposed project, the volume of waste water in the project area would increase, and would need to be evacuated properly. However, it is estimated that the existing combined sewer systems have the necessary capacity to convey the additional volume, and no sewerage works are required at this stage. In this context, the Bank will explore with the Government ways to increase stakeholders' participation in the project implementation through the construction of individual septic tanks, and the adoption of land cultivation methods that can reduce soil erosion.