Page 1 PROJECT INFORMATION DOCUMENT (PID) APPRAISAL STAGE Report No.: AB3194 Project Name Integrated Sanitation& Sewerage Infrastructure Project Region MIDDLE EAST AND NORTH AFRICA Sector Sanitation (50%); Sewerage (30%);Sub-national government administration (20%) Project ID P094311 Borrower(s) GOVERNMENT OF EGYPT Implementing Agency Ministry of Housing, Utilities and New Communities 12 Ismail Abaza Street Egypt, Arab Republic of National Organization for Potable Water and Sanitary Drainage 96 Ahmed Orabi Street, Mohandeseen Egypt, Arab Republic of Environment Category [ ] A [X] B [ ] C [ ] FI [ ] TBD (to be determined) Date PID Prepared March 13, 2008 Date of Appraisal Authorization December 11, 2007 Date of Board Approval March 20, 2008 1. Country and Sector Issues The Government of Egypt (GOE) has taken several measures to safeguard the quantity and quality of water in the country. To this end, it has spent about LE 18 billion on wastewater management projects over the past two decades. Operation and maintenance (O&M) costs for the water supply and sanitation sector alone constitute 4% of GOE total recurrent budget. Yet water quality in the country continues to degrade, impacting health, agricultural competitiveness and the quality of life. This degradation also frustrates Government plans for downstream reuse of drainage water, a key component in Egypt’s water resources strategy. Damage costs from poor water quality are estimated at 1.8% of national GDP. Moreover, previous Government programs on sanitation have been planned and implemented in isolation, often leading to expensive, geographically fragmented infrastructure projects with limited improvement to the ecosystem. Much of the organic pollution load reaching the country’s water bodies in the Nile Delta comes from rural areas, where 57% of the people live. The present national system for water supply and sanitation has a strong urban bias, while rural areas suffer from weak or non-existent institutional structures for sustainable service delivery and operation, particularly sanitation. Recent improvements in drinking water supplies to the rural areas did not include facilities to safely dispose of the consequent increases in wastewater flows. Statistics on high levels of sanitation coverage mask many inefficiencies and problems in the system. For example, existing household toilets cannot cope with the increased wastewater flows. In addition, many areas in Egypt have high water tables, which render many types of conventional low-cost, on-site sanitation Page 2 technologies inappropriate. The result is spillage of wastewater into streets, irrigation drains, and even into nearby canals. Facing increasing water resource limitations and the economic costs from water resource degradation and health impacts, the GOE recognizes the need to address rural sanitation issues in a broader institutional and planning context. Over the past three years, the Ministry of Housing, Utilities and Urban Development has embarked on an ambitious reform agenda, with the following highlights for rural sanitation: (a) Integrated water resources management: The institutional coordination structures between the Ministries of Water Resources and Irrigation (MWRI) and the Housing, Utilities and Urban Development (MOHUUD) were historically limited to data exchange with limited planning across both sectors. In the past decade however, the country has been progressively moving towards integrated water resources planning with the issuance of the National Water Resources Plan (2004) and the Integrated Water Resources Management Action Plan (2005) under the Ministry of Water Resources, both emphasizing the need for enhanced cross-sectoral mechanisms to address the compounding challenge of water quality deterioration with a special focus on the sanitation agenda. (b) National program for village sanitation : Within the context of the Presidential program, the Government has been mandated with addressing rural sanitation as a priority program and declared the allocation of LE 20 billion over the period of 5 years (2007-2012) to this end, an unprecedented 120% increase in annual investment funding to the sector with a focus on rural areas. The aim is to increase sewerage coverage from the current 4% to about 40% in 5 years. (c) Utility corporatization & regulation: Over the last two and a half decades the financial problems of water utilities have been compounding, as a result of lack of managerial and financial autonomy, lack of incentives to improve performance and continued overstaffing. Cost recovery is among the lowest in the region. By the end of FY 2003 the total accumulated deficit of the companies had reached $1.3 billion. A strong move towards reforming sector structure was initiated in 2004 with the issuance of two presidential decrees: Presidential Decree 135 was issued to form a water and waste water sector holding company (HCWW) and transformed the 16 largest water and wastewater utilities into subsidiaries of that company. At the same time, Decree 136 created the Egyptian Water Regulatory Agency (EWRA), responsible for monitoring and regulating sector performance and setting benchmark to improve efficiency and quality of service delivery to reach international standards. In the past three years, sector performance has witnessed a gradual improvement, with 3 out of the 16 subsidiary companies making profit or breaking even, with a vision towards gradual overall sector financial sustainability. 2. Existing situation in the project area The project area in the three Governorates can be characterized as mostly flat agricultural land with a high water table (less than 5 meters). Most development is fairly recent in origin and rights of way, other than through roads, are not raised much above the natural ground surface. The high water table is likely to be a problem when considering the options for sewerage. Annual rainfall is low, ranging from about 50mm per year in the south of Gharbeya to 100mm or more per year in the north of Kafr El Sheikh and Beheira. Page 3 Villages in Gharbeya tend to be urban in character with many buildings rising to three stories or more. In Kafr El Sheikh and Beheira villages are more rural in character but even there many buildings have more than one storey and are occupied by more than one household. Rights of way tend to be narrow, often less than 3 meters, with houses built up to the road. Water use varies considerably between villages but is often in the range of 100-140 l/cd. Most households in the three Governorates covered by the project already have water-flushed sanitation although few are currently connected to sewers. Most houses that are not connected to sewers discharge wastewater to cesspits with a small percentage discharging directly to nearby drains. In some locations where the water table is high cesspits are emptied 2-4 times a month, suggesting either that these are true closed cesspits or, more probably, that infiltration is poor. Some villages have installed a rudimentary wastewater collection system (erroneously identified as a groundwater lowering system) which discharges into the closest agricultural drain. There are also some 15 wastewater treatment plants in the three Governorates, serving the largest agglomerations. Flows to many of the existing WWTPs are currently well below design flows, offering possibilities for connecting both additional households within already sewered areas and new areas to existing works. 3. Institutional reform context Planning for and serving scattered smaller communities has not been undertaken in Egypt on a large scale yet. This is why it is important that the technical solutions and related implementation arrangements adapt to strike the right balance between centralized planning and guidance and decentralized implementation and community participation. The project is set within a transforming sector, where the role of the WSCs under the overall supervision of the HCWW is being redefined. Beyond mere operation and maintenance of facilities that have been constructed by NOPWASD, the Ministry is delegating increasing investment implementation authority to the local level. This includes in the past two years the full transfer of the rehabilitation and renewal budget (LE 1.4 billion), as well as the urgent water supply program (LE 1.5 billion). The project is fully aligned with this vision, and therefore has the following key contributions within the sector reform process: · Delegating significant design and construction responsibilities to the WSCs for better management of investment allocations and related operation. · Providing a model for rural sanitation planning that can feed into the National Masterplan and guide the National Program for Village Sanitation · Creating national capacity within HCWW and EWRA to utilize results-based performance information for management and regulatory purposes. · Building local capacity for engaging communities in rural sanitation service provision and combining social and technical skills in planning and implementation · Creating local private sector capacity for operating wastewater treatment plants and associated supervision and control measures within the WSCs and at the HCWW · Creating a platform for cross-sectoral coordination in monitoring rural sanitation inputs and outcomes to demonstrate IWRM framework in practice. Page 4 4. Project Development Objective and Key Indicators The main objective of the project is to contribute to the sustainable improvement in: (i) sanitation and environmental conditions for the resident communities and (ii) the water quality in the selected drainage basins within the served areas. The development objective outcome will be measured by the following indicators: · Improved access to sustainable sanitation services (% increase in coverage and no. of households connected). · improvement in environmental and hygiene conditions in villages (beneficiary satisfaction surveys, reduced sewage ponding, hygiene evaluation procedures). · reduction in pollution loads of the receiving water bodies (ambient fecal coliform and BOD/ DO ). 5. Rationale for Bank Involvement The rationale for Bank involvement is based on three main principles: (i) building on areas where GOE commitment is strong, (ii) the opportunity for influencing the broader rural sanitation and water quality management agenda in the country, and (iii) capitalizing on Bank and other donor long term engagement and experience in the water resources sector. The proposed project addresses all of the above principles. First, the commitment to rural sanitation has been emphasized by GOE and manifested by additional local funding allocations of LE 2 billion during the current fiscal year. However, GOE recognizes the challenge in ensuring that these large planned financial allocations are translated into visible results on the ground. It is therefore seeking Bank support through this project to distill global experience, and develop rural sanitation planning and implementation processes that are relevant to rural areas of Egypt. The Bank has been at the forefront of the policy dialogue to address the rural sanitation agenda within the IWRM context, emerging from its decades of engagement with GOE in water resources management. A number of sector studies conducted in the past two years, including a the IWRM Action Plan and Water PER, as well as a dedicated ESW on rural sanitation, have shed the light on the weaknesses in the existing financial and service delivery models. An approach has been developed that linked, for the first time in the Egyptian context, access to investment in rural sanitation to quantifiable water quality (and health) improvements in a given hydraulic basin. This project has been designed in close conjunction to the IIIMP project of the Bank, serving the same geographic area, to pioneer a cross-sectoral implementation model that capitalizes on institutional and donor coordination efforts across the board. The opportunity is also ripe based on the GOE reform signals in the water supply and sanitation sector, to expand the long-term collaboration with other donor partners towards a reform vision across the sanitation sector and to create an investment platform to support it. 6. Project components The following project components are proposed to achieve the above objective: Page 5 Component 1: Provision of sanitation systems within selected drainage sub-basins (total cost US$181 million) - This component aims to plan, design and construct sanitation systems for a total of 14 clusters in the selected priority area within the two command areas of Mahmoudeya and Mit Yazid, falling within the Governorates of Beheira, Gharbeya and Kafr El Sheikh in the Delta. The component will be divided into three sub- components: (a) Centralized sanitation systems construction: includes the construction of complete sanitation systems for an estimated 222 larger villages (>1500) within 14 clusters, including: (1) Construction of treatment plants, and (2) Construction of collection network consisting of house connection, transmission lines, and pumping stations; (b) Decentralized sanitation system construction/ rehabilitation: will serve an estimated 120 individual villages/ hamlets with population size less than 1500 inhabitants, providing them with a decentralized system consisting of shallow sewers and anaerobic baffled reactors, and relying on delegated community management for subsequent O&M. It will also include the upgrading and rehabilitation of existing networks in some villages to acceptable design standards, if feasible; and (c) GTZ pilot decentralized systems: this sub-component builds on and replicates the implemented GTZ pilot model in Kafr El Sheikh in an estimated 20 villages in the project area, based on the communities’ expressed willingness to engage. The model serves villages of up to 5000 inhabitants and depends heavily on community participation and commitment for the O&M of these systems based on simple (natural system) technology. Component 2: Establishment of a local result-based monitoring and evaluation system (total cost US$1.1 million) - This component will establish a results-based monitoring system within the HCWW that links the improvements in sanitation coverage with anticipated environmental and water quality impacts. The component will include technical assistance support for expertise in designing the system, identification of monitoring sites, data collection and analysis, results review, finalization, and communication. It will coordinate among national institutions within the IWRM framework, particularly the M&E system established under IIIMP, as well as among the local organizations (incl. WSC’s, CDAs, WUA’s and Water Boards) to develop their capacity to engage in monitoring water quality and improved environmental conditions and hygiene practices and share results regularly with relevant stakeholders. Component 3: Institutional development and capacity building (total cost US$19.5 million) - This component aims to promote institutional development within the national and local public institutions responsible for sanitation implementation to enhance their capacity to plan, design, construct and operate the rural sanitation investments, monitor outputs and outcomes, as well as promote hygiene practices and social mobilization. Through grant donor co-financing, technical assistance will be provided to each of the implementing agencies (HCWW, NOPWASD and the three WSC’s), consisting of: (a) A technical assistance contract to provide specialist support to the implementing units in their mandates, covering technical, procurement, social and financial aspects; (b) Capacity building for contract management at the HCWW and the three WSC’s to serve in procurement and supervision of performance based O&M contracts, including through the demonstration of 2 pilots in the project area; Page 6 (c) Training to the implementing unit staff and CDAs in technical and social mobilization aspects of the sanitation service implementation and O&M; and (d) Implementation of the Environmental and Social Management and Monitoring Framework (EMMSF). 7. Financing Source: ($m.) Borrower 61.00 International Bank for Reconstruction and Development 120.00 GERMANY: German Technical Assistance Corporation (GTZ) 4.00 NETHERLANDS: Min. of Foreign Affairs / Min. of Dev. Coop. 16.50 Total 201.50 The bilateral co-financing amounts indicated above will be confirmed in the coming months based on the relevant approvals of the subject Ministries in the context of their sectoral support programs. 8. Institutional and Implementation Arrangements The project serves a large number of small and scattered communities in the rural areas. The implementation model is therefore tailored to provide the balance between centralized planning and construction support, and decentralized implementation with a strong focus on social mobilization and community involvement in management and cost recovery. The project will be implemented through the following institutions at the national and local levels: ƒ A Project Steering Committee will provide coordination, oversight, and overall direction. The Steering Committee will be headed by the Minister of Housing, Utilities, and Urban Development or his delegate, and will be made up of representatives of HCWW, NOPWASD, EWRA, MWRI and MOHP. The Director of the PIU will act as the Secretary. ƒ The Project Implementation Unit (PIU), will be housed in the HCWW, headed by a PIU Manager and supported by financial management and procurement staff from HCWW, as well as a team of long-term and short-term technical assistance specialists who will work closely with NOPWASD and WSC counterparts to manage the project and build national and local capacity for rural sanitation programming, including integrated planning, technology and social intermediation guidelines, O&M contract management and overall monitoring and reporting. ƒ A NOPWASD ISSIP Unit will be responsible for design and implementation of all new wastewater treatment works. This unit will be headed by a senior NOPWASD official, supported by a team of specialists covering technical, procurement and financial management aspects of wastewater treatment plant design and construction, and supported by technical assistance in the above fields as needed. Page 7 ƒ Rural Sanitation Units (RSU) will be created within each of the three WSC’s, responsible for implementation of centralized wastewater collection systems and the small scale decentralized systems, subsequent O&M management including procurement and supervision of private sector O&M services as well as in-house O&M. The RSUs will also be responsible for ISSIP hygiene promotion and communication activities. Each unit will be headed by a Unit Head and include a team of five specialists covering wastewater management, social intermediation, environmental management, procurement and financial management. This team will also be supported by long and short-term technical assistance in the different fields. In addition, the project will establish partnerships with: ƒ Community Development Associations (CDAs) will be the points of WSC/community articulation for the decentralized systems. The CDAs will be responsible for meeting the prerequisites for investment in decentralized wastewater systems, and for subsequent O&M and cost recovery. The program will adopt a community selection approach which requires target communities to demonstrate demand in order to be selected for the project. ƒ Local Administrative Units (LAUs) are the lowest level in the local administration system in Egypt. The primary roles of LAUs under the project are to provide forums and venues for social marketing and hygiene promotion activities associated with the small community wastewater program, since each village council area may include several target small communities. LAUs can also serve as communication points for the program in village council areas in which CDAs need to be established. ƒ Water User Associations (WUAs)/ IIIMP RMCs are being actively developed in the project area under the World Bank/KfW/Netherlands financed IIIMP Project. They are principal beneficiaries of ISSIP water quality improvements and can be involved in social marketing and in environmental monitoring. Coordination with the Regional Management Committees (RMCs) of the IIIMP project will be established to align planning and implementation. 9. Sustainability The challenge to efficient long term sustainable sanitation systems operation relates to two aspects: Institutional and Managerial Sustainability: the project adopted a number of features specifically designed to enhance institutional sustainability. The majority of the infrastructure works will be implemented by the WSCs, who are in closer proximity to the communities and are responsible for subsequent O&M. This will enhance accountability and the focus on quality of the investments. Recognizing the management burden that a large number of smaller systems will place on the WSCs, management responsibility for the smaller systems will be delegated to active CDAs that meet agreed criteria. Last, but not least, introducing well structured performance based O&M contracting of the local private sector is a key element to Page 8 demonstrating effective management set-ups based on clear targets. All of these features are important in shaping the evolving rural sanitation sub-sector. Financial Sustainability: The project covers a sanitation agenda as well as a water quality agenda. The latter has a larger public good dimension than the former. The project design is working at the intersection of these two agendas. As part of the public good aspect of sanitation, the Government is bearing capital cost of the constructed systems. However, financial sustainability will depend on how well the O&M or recurrent liabilities are handled. For the smaller villages benefiting from decentralized systems, low cost technology options and community participation in selecting and implementing the systems is expected to reduce O&M costs. Communities benefiting from the project will pay for the cost of O&M of decentralized systems to the managing CDAs, therefore ensuring their long-term financial sustainability. Concerning centralized systems, the cost recovery will be managed by the three WSCs under the supervision of the HCWW. It is envisaged that the following actions will support the improved financial sustainability of the constructed systems: (a) Agreement with HCWW on realistic tariff increase projections over the life of the project coupled with continued targeted subsidy allocation to close the gap; (b) introduction of private performance based O&M contracting for 2 pilot plants with ring- fenced allocation of associated costs to test out risk allocation, cost structuring and benchmarking of operational efficiency, feeding back into the national policy dialogue on cost recovery and sector financial sustainability; and (c) establishment of a local results-based monitoring and evaluation system that creates public disclosure and information sharing mechanisms supporting a national policy dialogue concerning subsidy allocation for public benefits, related primarily to treatment. 10. Lessons learned and reflected in the project design The conceptual approach and design of the project draws on the experience of GOE and various donors in implementation of sanitation projects over the past two decades. The key lessons learned are outlined below: (a) The main challenge is to ensure that the constructed systems will continue to operate sustainably after the construction phase. Most of the sanitation technologies have been tested in Egypt, however systems have failed to continue operating efficiently mainly due to lack of adequate O&M funding, limited management capacity at the local level and lack of incentive to enhance performance. A primary aim of the design should therefore be to ensure that the financial, social and institutional settings support long term sustainability of operation to achieve the desired outcomes; (b) There is a need to plan along hydraulic boundaries for visible results to be achieved. Despite the large investments in waste water treatment in the past three decades, impact on the recipient water body quality has been quite limited. The fragmented, top-down and urban-biased approach to planning and sequencing of investment often yields scattered interventions that do not systematically address the priority water basins and more Page 9 importantly are not able to demonstrate to the communities the value-added of proper treatment on their environment; (c) Engagement of local communities is necessary for sustainability. Several pilot sanitation programs demonstrated that community participation in planning and operation contributes to increased confidence at the village level of their ability to manage their resources and enhance O&M cost recovery. It also reduces the pressure local utilities face in managing a large number of scattered systems. Building on strong local CDA’s and WUA’s is key to enabling this utility-community partnership, and should be further supported within the legal framework of the sector; (d) There is a significant willingness to pay by the communities that can enhance financial sustainability . Communities have indicated, and in some pilots actually demonstrated their willingness to pay for enhanced sanitation services. This willingness to pay is primarily for safe disposal and reaches up to LE 10/ household/ month, particularly for areas with high ground water levels. This should be matched with an equal willingness to charge by the utilities for sustainable O&M coverage; (e) Implementation through a decentralized system should be coupled with streamlined procedures and guiding central oversight Experience from several World Bank operations show that multiple authorities particularly at the local level often resulted in significant implementation delays. To mitigate against this, the project should provide streamlined operational procedures and assign strong monitoring role at the central level; and (f) Lessons from Country Portfolio Performance Review (CPPR): A recent CPPR exercise has taken which has provided very useful lessons particularly with regard to procurement, financial management and readiness for implementation which have been reflected in the project design and preparation. 11. Safeguard Policies (including public consultation) Safeguard Policies Triggered by the Project Yes No Environmental Assessment ( OP / BP 4.01) [ x] [ ] Natural Habitats ( OP / BP 4.04) [ ] [ x] Pest Management ( OP 4.09 ) [ ] [ x] Physical Cultural Resources ( OP/BP 4.11 ) [ ] [ x] Involuntary Resettlement ( OP / BP 4.12) [ x] [ ] Indigenous Peoples ( OP / BP 4.10) [ ] [ x] Forests ( OP / BP 4.36) [ ] [ x] Safety of Dams ( OP / BP 4.37) [ ] [ x] Projects in Disputed Areas ( OP / BP 7.60) * [ ] [ x] Projects on International Waterways ( OP / BP 7.50) [ ] [ x] The proposed project falls under the World Bank environmental category B classification, according to the Bank’s Operational Policy 4.01 (OP 4.01) on Environmental Assessment is triggered. By virtue of the project geographic extent, the feasible approach for environmental and social assessment was to follow the “Framework Approach”. The partial assessment required, * By supporting the proposed project, the Bank does not intend to prejudice the final determination of the parties' claims on the disputed areas Page 10 according to OP4.01 is presented in details in the “Environmental and Social Impact Assessment Framework (ESIAF)” report, which describes the evaluation of impacts, and presents an Environmental and Social Management and Monitoring Framework (ESMMF) which includes mitigation measures, monitoring plan, and institutional aspects. The main issues raised are included in Annex 10. The ESAIF found the project to have major positive environmental and social impacts, resulting from the overall improvement of the water quality in a number of drains and canals in the project command area. This will result from stopping the discharge of the untreated wastewater to these canals and drains, once the centralized and decentralized sanitation services are provided to the village clusters which are responsible for water quality degradation. The improvement of water quality will have a far reaching improvement on the health of the residents, who currently have elevated incidence of water borne diseases (such as diarrhea and gastroenteritis). This results in a considerable overall improvement in people’s quality of life. Furthermore, the project is expected to create employment and business opportunities for the local population, especially related to unskilled labor, during the construction phase of the sewerage systems. The project will also stimulate the private contractor sector, likely to operate the newly construed, and/or existing, wastewater treatment plants. The ESMMF outlines the various mitigation measures which would respond to the potential negative environmental impacts which may result from the improper construction and/or operation practices. The ESMMF, furthermore, assesses the institutional capacity of the implementing agencies, in regards to environmental and social safeguards, and proposes capacity building measures. The ESMMF finally proposes a monitoring plan to ensure environmental impacts are accounted for and are within the national and international standards. A Resettlement Policy Framework (RPF) establishing overall resettlement objectives and principles has been prepared, as there may be involuntary land acquisition under component 1 (provision of sanitation infrastructure). The RPF discusses legal aspects of land acquisition, and how the law has actually been applied in similar cases in Egypt in the past. As the extent of potential involuntary land acquisition becomes known, Resettlement Action Plans (or abbreviated RAPs depending upon scale and severity of impacts), will be prepared before any physical work/construction is initiated. The RPF includes criteria for the screening of subprojects, guidelines for mitigation and compensation, implementation arrangements for the RPF and assessment of the capacity for its implementation, and the identification of the source of funding for any resettlement activities. 12. Documents in the Project File Project Implementation Plan (under preparation) Bank Staff Assessments i) Project Concept Note (June 21/2005) ii) Draft Project Appraisal Document – QER version (June 2007) Page 11 Other i) Operational Framework for Rural Sanitation Service Delivery in Egypt, July 2005 ii) Putting IWRM into Practice in Egypt using Conceptual Performance-Based Monitoring and Benchmarking Approach - July, 2005 iii) Summary for Design Study for Hygiene Promotion in Integrated Sewerage and Sanitation Infrastructure Project (ISSIP) within the Governorates of Kafr El Sheikh, Garbeya and Beheira, June 2006 iv) Assessment of Existing Situation, February 2007 v) Support to ISSIP in Technology, Economics and Finance, April 2007 vi) First Phase Investment Plan, April 2007 vii) Strategic Sanitation Plan and Solid Waste Pilot Plan, May 2007 viii) Water Quality Modeling Report, September 2007 ix) Institutional Assessment and TOR Implementing Agencies, November 2007 13. Contact point Contact: Ayat Soliman Title: Senior Environmental Specialist Tel: 5772+216 Fax: + 202 25741 676 Email: asoliman@worldbank.org Location: Cairo, Egypt (IBRD) 14. 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