Page 1 PROJECT INFORMATION DOCUMENT (PID) APPRAISAL STAGE Report No.: AB6486 Project Name Additional Financing Urban Development Project Region AFRICA Sector Water supply (85%);Flood protection (15%) Project ID P123501 Borrower(s) GOVERNMENT OF CHAD Implementing Agency Environment Category [ ] A [X] B [ ] C [ ] FI [ ] TBD (to be determined) Date PID Prepared April 6, 2011 Date of Appraisal Authorization April 12, 2011 Date of Board Approval June 7, 2011 1. Country and Sector Background 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 2015. The urban water sector experienced a major institutional reform in May 2010 with the establishment of the national water utility STE ( Société Tchadienne des Eaux) following the dissolution of national water and electricity company STEE ( Socété Tchadienne d’Eau et d’Electricité). The STE is responsible for providing water services in urban areas and is currently operating in 11 cities and towns 1 . 2. Objectives Under the Additional Financing, the project development objective (PDO) will remain the same as for the original project, i.e. to increase sustainable access to municipal services for residents in targeted projected cities (N’Djamena, Moundou, Sarh, Abéché and Doba). 3. Rationale for Bank Involvement 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). 1 N’Djamena, Mao, Moussoro, Bongor, Fianga, Gounou-Gaya, Kélo, Moundou, Doba, Sarh, Abéché. Page 2 · Completing drainage and water supply infrastructure in Moundou, Sarh and Abéché funded under the original project that currently face unanticipated cost overruns ($4.30 million). Scaling-up the project . Approximately eighty five percent of the Additional Financing will be used to scale-up the impacts of the project. The PADUR helped to increase sustainable access to municipal services. 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). Cost overruns . Approximately fifteen percent of the Additional Financing will be used to cover cost overruns to complete the drainage and water works funded under the original project in the cities of Moundou, Sarh and Abéché. Cost overruns for drainage infrastructure (approximately $4.14 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 and that have occurred during the five years separating the preparation of the detailed design studies (2005) and the beginning of the works (2010). Limited cost overruns for water infrastructure (approximately $0.16 million) in the cities of Sarh and Abéché are required to finance a few minor activities that were not included in the design of the original project but that are needed to complete the on-going works. 4. Description Under the Additional Financing, PDO will remain the same, i.e. to increase sustainable access to municipal services for residents in targeted projected cities (N’Djamena, Moundou, Sarh, Abéché and Doba). The design and scope of the proposed Additional Financing will reflect the objectives of the project, namely (i) the completion of drainage and water infrastructure in Moundou, Sarh and Abéché and (ii) the scaling up of the impacts of the project with a focus on increasing sustainable access to water services 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. 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 as summarized hereafter. Page 3 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 extension of the water distribution network and the procurement of connection fittings to expand piped water services. Components B.2, 3, 4 – For the city of Moundou ($1.04 million), Sarh (US$1.66 million), Abéché (US$1.60 million). Under this component the project will finance the completion of drainage and water supply works 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; this component will also finance (iv) the preparation of a medium-term investment plan covering the 11 cities and towns where the STE operates, (v) financial audit of the project, (vi) the update of the project implementation and procedures manuals, (vii) Master Plan for N’Djamena water supply. 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. Component C.2 – Operating and rehabilitation fund (US$5.45 million) . Under this component, the project will finance the procurement and replacement of meters, the rehabilitation of networks, connections and boreholes, the procurement of equipment for a call center, a customer census and update of the customer database, a communication campaign, a customer satisfaction survey and the set-up of a Geographical Information System. 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$0.50 million) . Under this component, the project will finance (i) a tariff study 2 , (ii) technical assistance for the design and implementation of a mechanism of payment of public 2 The financing of the tariff study is pending to the decision of the French Agency Development to proceed with a project addressing this issue. This will be discussed during appraisal. Page 4 institutions bills, (iii) technical assistance for the completion of the legal, financial and organizational formation of the STE. 5. Financing Source: ($m.) BORROWER/RECIPIENT 0 International Development Association (IDA) 27.4 Total 27.4 6. Implementation Institutional implementation arrangements . The institutional implementation arrangements of the Additional Financing will largely remain the same: · The Interministerial Steering Committee established under the PADUR, headed by the Ministry of Land Planning, Urban Development and Housing (MATUH) and that includes the Ministry of Water (MoW), 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 implementation Ministry (MATUH), review progress made on a regular basis, and assess the quality of the project. · 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; · 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 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. 7. Sustainability Financial sustainability of the STE . Under current conditions, the sustainability of the newly created STE cannot be achieved due to: (i) overall poor efficiency, (ii) very low water tariff not revised since 1984 and among the lowest of the Region, (iii) the lack of mechanisms for the payment of the water bills from public institutions that amount approximately one third of the Page 5 total amount billed. The overall approach to improve financial sustainability has been discussed throughout the preparation of the project and consists of exhibiting the improvements in service delivery and efficiency achieved before the costs of those improvements appear on the water bills, as per the three key pillars detailed hereafter. Lack of financial sustainability will undermine the achievement of the PDO. The Additional Financing will support a series of activities that will enhance the performance of the STE in this regard for each of the three pillars: · Increasing the sales of the STE and targeting efficient operating costs through increased production, number of connections, sales, lower Non Revenue Water and overall better management. The Service Contract and the investments financed by the project will directly support the effort in this area; · Enforcing a mechanism of payment of bills from the public institutions by the Government 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. Technical Assistance to design and implement this mechanism will be financed by the project; · Increasing incrementally the tariff level along with improved service delivery (and amending the tariff structure appropriately) on the basis of financial viability, economic efficiency, social equity and simplicity principles. A tariff study will be funded by the project 3 . The financial sustainability is a critical issue to guarantee the quality of the service provided by the STE. However it will not affect the financial risks taken by the private Operator whose remuneration is independent from the revenues of the STE as the Service Contract is directly funded by the project. 8. Lessons Learned from Past Operations in the Country/Sector Lessons learned from the implementation of the Chad Urban Development Project as well as from the early-terminated public-private partnership Management Contract have been incorporated into the design of the project. The team has notably paid a specific attention to the following lessons learned: · Coordination between the STE and the CCP – The CCP of the MATUH is the implementing agency of the project, however the STE will be ultimately responsible for operating the water investments financed by the project. Coordination is therefore needed to ensure water infrastructure funded by the project are designed and implemented as per STE needs and standards. Institutional arrangements will reflect this need for coordination. Thus, 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 Operating and Rehabilitation Fund) will be responsible for providing all technical information for the preparation of the biding documents, and for validating submitted bills before transmittal to the CCP for payment processing. · Type of private sector involvement – The PPIAF-funded study has identified the Service Contract as the most appropriate form of private sector participation in the Chad urban water sector. Service Contract is the lowest risk and most appropriate form of public 3 The financing of the tariff study is pending to the decision of the French Agency Development to proceed with a project addressing this issue. Page 6 private partnership considering the incomplete process of formation of the STE, the overall lack of information on the operational and financial performance of the utility, the currently unmet conditions for financial sustainability, the mistrust generated by the early terminated management contract with the STEE. The Service Contract is also the form of public private partnership likely to attract the largest number of capable bidders. 9. Safeguard Policies (including public consultation) Environmental and Social safeguards under the original project are rated Satisfactory. Like the original project, the Additional Financing triggers OP/BP 4.01 (Environmental Assessment) and OP/BP 4.12 (Involuntary Resettlement). None of the additional activities included in the proposed Additional Financing affect the environmental category which remains at Category B. The two environmental safeguards instruments prepared by the original project, the Environmental and Social Management Framework (ESMF) and the Resettlement Policy Framework (RPF) have been updated, and disclosed at the Bank’s Infoshop on April 11, 2011 and in country on April 11, 2011 [ Targeted dates of disclosure ]. The implementation of all environmental and social safeguards-related tasks will remain the responsibility of the CCP that has an environmental and social specialist. Besides, capacity of the STE shall be strengthened by an additional environmental and social specialist in charge of monitoring the implementation of the mitigation measures for the investments in water infrastructure financed by the project. 10. List of Factual Technical Documents To be completed 11. Contact point Contact: Jan Drozdz Title: Senior Water & Sanitation Specialist Tel: 5330+8040 / 237- -2220-3815 Fax: (202) 473 8249 Email: jdrozdz@worldbank.org Location: Yaounde, Cameroon (IBRD) 12. For more information contact: The InfoShop The World Bank 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 458-4500 Fax: (202) 522-1500 Email: pic@worldbank.org Web: http://www.worldbank.org/infoshop