AFRICAN DEVELOPMENT BANK

Language: English Original: French

KINGDOM OF MOROCCO

NINTH DRINKING WATER SUPPLY AND SANITATION PROJECT APPRAISAL REPORT DEPARTMENT OF INFRASTRUCTURE NORTH, EAST AND SOUTH REGION MAY 2006

TABLE OF CONTENTS

PROJECT BRIEF, LIST OF TABLES, LIST OF ANNEXES, CURRENCIES AND MEASURES, LIST OF ABBREVIATIONS, BASIC DATA, PROJECT LOGICAL FRAMEWORK, EXECUTIVE SUMMARY

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1. PROJECT ORIGIN AND BACKGROUND

2. WATER SECTOR 2.1 Water Resources 2.2 Drinking Water Supply and Liquid Sanitation 2.3 Institutional Framework of the Water Sector 2.4 Major Constraints on the Water Sector 2.5 Sector Policy 2.6 Government Programme 2.7 Donor Operations

3. DRINKING WATER SUPPLY AND SANITATION SUB-SECTOR 3.1 Rural Drinking Water Supply 3.2 Urban Liquid Sanitation 3.3 National Drinking Water Authority (ONEP)

4. THE PROJECT 4.1. Project Design and Rationale 4.2. Project Area and Beneficiaries 4.3. Strategic Context 4.4. Project Objectives 4.5. Project Description 4.6. Production, Markets and Prices 4.7. Environmental Impact 4.8. Social Impact 4.9. Project Costs 4.10. Sources of Finance

5. PROJECT IMPLEMENTATION 5.1. Executing Agency 5.2. Institutional Arrangements 5.3. Implementation and Supervision Schedule 5.4. Procurement Provisions 5.5. Disbursement Arrangements 5.6. Monitoring and Evaluation 5.7. Financial Reports and Auditing 5.8. Aid Coordination

6. PROJECT SUSTAINABILITY AND RISKS 6.1. Recurrent Costs 6.2. Project Sustainability 6.3. Major Risks and Mitigating Measures

7. PROJECT BENEFITS 7.1. Economic Analysis 7.2. Social Impact Analysis 7.3. Sensitivity Analysis

8. CONCLUSIONS AND RECOMMENDATIONS 8.1. Conclusions 8.2. Recommendations

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This report has been prepared by Messrs. B. Ben Sassi (Project Manager, Water and Sanitation Expert), Salawou (Financial Analyst), Mr. Goetze (Environmental Expert), J-C. Meyoupo (Socio-economist Consultant) and Mrs. A. Fouich (Gender Expert) following their preparation mission to Morocco from 10 to 24 December 2005, and appraisal mission from 27 March to 8 April 2006. All inquiries on this report should be referred to them, or to Mr. S. Jallow, Acting Division Manager, ONIN.2 (Ext. 2334) and Mr. A. Rakotobe, Director ONIN (Ext. 2040).

LIST OF TABLES

No. Title Page

Table 2.1 Table 2.2 Table 3.1 Table 3.2 Table 3.3 Table 3.4 Table 4.1 Table 4.2 Table 4.3 Table 4.4 Table 4.5 Table 4.6 Table 4.7 Table 5.1 Table 5.2 Table 5.3 Table 5.4 Table 7.1

Loans and Grants mobilized by ONEP for Rural DWS (end-2005) Loans and Grants mobilized by ONEP for Urban Sanitation (end-2005) ONEP Staff Trend Summary of ONEP Operating Income and Expenditure Summary of ONEP Balance Sheets Projections of ONEP Operating Income and Expenditure Additional Demand in the Project Area (in m3/day) Average Volume of Discharged Wastewater in the Project Area (in m3/day) Project Cost by Component Project Cost by Expenditure Category Financing Plan by Source Financing Plan by Component Financing Plan by Expenditure Category Supervision Schedule Expenditure Schedule by Component Expenditure Schedule by Source of Finance Procurement Procedure Sensitivity Analysis of Economic Rate of Return

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LIST OF ANNEXES

No. Title No. of Pages

Annex 1 Annex 2 Annex 3 Annex 4 Annex 5 Annex 6 Annex 7 Annex 8 Annex 9a Annex 9b Annex 10 Annex 11 Annex 12 Annex 13 Annex 14 Annex 15 Annex 16 Annex 17 Annex 18 Annex 19 Annex 20

Map of Morocco – Provinces covered by the Project Bank Group Operations in Morocco (end-April 2006) ONEP Organization Chart Presentation of the National Programme (PAGER) Role of ONEP in Rural Drinking Water Supply Planning and Programming of Rural DWS projects ONEP Operating Accounts ONEP Balance Sheets Drinking Water Supply Prices Drinking Water Supply Prices Detailed Project Cost Assessment of ONEP Procurement Capacities Assumptions of Financial Projections Projections of Income and Expenditure Accounts Assumptions in Calculation of Project Economic Rate of Return Calculation of Economic Rate of Return Summary of Environmental and Social Management Plan Project Monitoring Organization Chart Detailed Project Implementation Schedule Key Documents Consulted Chronology of Project Preparation and Appraisal Activities

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AFRICAN DEVELOPMENT BANK Temporary Relocation Agency (TRA-Tunis) Tel.: (216) 71 10 21 91 Fax: (216) 71 33 36 80 P.O. Box 323, 1002 Tunis Belvédère, Tunisia

PROJECT BRIEF

(May 2006)

The information given below is intended to provide some guidance to prospective suppliers, contractors, consultants and all persons interested in the procurement of goods and services for projects approved by the Board of Directors of the Bank Group. More details should be obtained from the Executing Agency of the Borrower. 1. COUNTRY : Kingdom of Morocco 2. PROJECT NAME : Ninth Drinking Water Supply and Sanitation Project 3. BORROWER : Office National de l’Eau Potable (ONEP) (National Drinking Water Authority) Station de traitement, Avenue Mohammed

Belhassan El Ouazzani B.P. Rabat-Chellah 10002 – MOROCCO

4. GUARANTOR : Kingdom of Morocco 5. LOCATION : Northern and central regions of the country 6. EXECUTING AGENCY : Office National de l’Eau Potable, Rabat, Morocco Tel.: 212 37 65 06 95 – Fax: 212 37 65 06 40 7. PROJECT DESCRIPTION : The project comprises the following components:

A. Access of rural populations to drinking water (production and supply);

B. Drinking water distribution and gray water management in rural areas;

C. Treatment of wastewater in the towns of Khouribga, Oued Zem and Boujaâd;

D. Technical assistance and support to project implementation.

8. TOTAL PROJECT COST : UA 104.2 million 9. SOURCE OF FINANCE : ADB 10. LOAN AMOUNT : UA 69.0 million

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11. LOAN CONDITIONS :

i) Duration : 20 years with a 5-year grace period ii) Currency and interest rate : EUR; fixed interest rate iii) Repayment : In 30 (thirty) equal and consecutive half-

yearly installments as from the 6th (sixth) year with effect from the date of signature of the loan agreement

12. OTHER FINANCING SOURCES : Morocco (ONEP, beneficiary

Councils): UA 35.2 million 13. DATE OF APPROVAL : July 2006 14. STARTING DATE AND DURATION : Last quarter of 2006, for 5 years. 15. PROCUREMENT: ADB-financed works, goods and services will be procured according to Bank rules of procedure for procurement of goods and works, or as the case may be, for the use of consultants, using model competitive bidding documents of the Bank. Goods: Contracts for the supply of equipment will be awarded through international competitive bidding. Remote management systems, to be established, will be procured through limited international competitive bidding. Power lines will be procured through national competitive bidding. The lands required for the implementation of works will be acquired in accordance with the regulations in force in Morocco. Works: Contracts for civil works of the drinking water treatment and waste water treatment plants, as well as those for the laying of pipes, amounting to over UA 1.5 million, will be awarded through international competitive bidding. Contracts for the laying of pipes and civil works of amounts of up to UA 1.5 million, will be awarded by national competitive bidding. Services: The consultancy contract for technical assistance and support to project implementation will be awarded on the basis of a short list following a call for expression of interest (amount of over UA 1 million). Geotechnical control will be procured on the basis of a framework contract and awarded through national competitive bidding. Post Review: The Borrower made a request as to the possibility of significantly raising the threshold for prior consideration of goods and services contracts, in accordance with the Bank’s guidelines on post-review of procurements. The request is justified by ONEP’s experience in using procurement procedures of donors, in general, and of the Bank, in particular, and also by the multitude of contracts to be signed for projects of a similar nature (rural DWS). Following consideration of the request from the Borrower and assessment of ONEP’s capacities, the threshold for prior review of procurements of pipes and civil works was fixed at UA 1.3 million. 16. ENVIRONMENTAL CATEGORY : II.

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CURRENCY EQUIVALENTS, ACRONYMS AND ABBREVIATIONS

Currency equivalents (May 2006)

Currency unit : Moroccan Dirham (MAD) UA 1 = USD 1.47106 UA 1 = EUR 1.17338 UA 1 = MAD 13.0483

Fiscal year

1 January - 31 December

Units of Measure 1 km = kilometre = 1 000 m 1 km2 = square kilometre = 1 000 000 m2 = 100 ha 1 ha = hectare = 10 000 m2

1 lm = linear metre 1 m3 = cubic metre 1 m3/d = cubic metre per day 1 hm3 = million cubic metres l/s = litres per second inhbt/ha = inhabitants per hectare l/inhbt/d = litre per inhabitant per day

Abbreviations

ABH Agence de bassin hydraulique (Water Basin Agency) ADB African Development Bank ADF African Development Fund AFD Agence Française de Développement (French Development Agency) AIC Agricultural Investment Code AUE Association des Usagers de l’Eau (Water Users’ Association) CSEC Conseil Supérieur de l’eau et du climat (Supreme Council for Water and Climate) CSP Country Strategy Paper DAE Water and Sanitation Department DGCL General Directorate for Local Authorities DGH General Directorate for Water Resources DPH Domaine public hydraulique (Public Water Resources Property) DWS Drinking Water Supply DWSS Drinking Water Supply and Sanitation EIB European Investment Bank EU European Union GDP Gross Domestic Product

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GG Gardien gérant [Caretaker Manager] GOS Gross Operating Surplus IBRD International Bank for Reconstruction and Development IDB Islamic Development Bank JBIC Japanese Bank for International Cooperation JICA Japanese International Cooperation Agency KfW Kreditanstalt für Wiederaufbau LYDEC Lyonnaise des eaux, Casablanca MAD Moroccan Dirham MADRPM Ministry of Agriculture, Rural Development and Sea Fishing MAEG Ministry of Economic and General Affairs MATEE Ministry of Regional Development, Water Resources and the Environment MI Ministry of Interior MOH Ministry of Health NWP National Water Plan OCP Office chérifien des phosphates (Moroccan Phosphates Authority) ONEP National Drinking Water Authority OPEC Organization of Petroleum Exporting Countries ORMVA Regional Agricultural Development Authority PAGER Grouped Rural Drinking Water Supply Programme PDAIRE Integrated Water Resources Management Master Plan HDPE High-Density Polyethylene PERG Global Rural Electrification Programme PVC Polyvinyl Chloride SAP-Eau Water Sector Adjustment Programme SDF Social Development Fund STEP Wastewater Treatment Plant TDH Total Dynamic Head UNDP United Nations Development Programme WHO World Health Organization

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KINGDOM OF MOROCCO

NINTH DRINKING WATER AND SANITATION PROJECT

PROJECT MATRIX

HIERARCHY OF OBJECTIVES

EXPECTED OUTCOMES SCOPE PERFORMANCE INDICATORS TARGET INDICATORS AND DEADLINES

ASSUMPTIONS / RISKS

SECTOR GOAL (theme of PRSP) 1. Poverty reduction in rural and urban areas through access to DWSS services.

LONGER TERM RESULTS 1.1 Improve health conditions of urban and rural populations. 1.2 Increase access of rural populations to socio-educational services (enrolment of children, notably girls and adult education). 1.3 Increase women’s involvement in local social life and in decision-making.

1. Moroccan rural areas. 2. Urban population of average towns.

1.1. Disparities in the living conditions between rural and urban areas. 1.2. Enrolment rate in rural areas (notably for girls) 1.3. Percentage of associations of users and micro-enterprises (operating in the rural DWSS sector) including women. 2.1. Prevalence rate of water-borne diseases. Sources: National surveys on incomes and living environment of the populations. Statistics of the Ministries of Health and Education. Methods: Surveys and Studies

1.1. Reduction of disparities in household expenditures between urban and rural areas by 20% between 2005 and 2015. 1.2. Increased school enrolment in rural areas from 89% in 2004 to over 95% in 2015 (for girls, from 78% in 2004 to over 90% in 2015). 1.3. The percentage of associations and micro-enterprises of the DWSS sector which include women rises from 4% in 2004 to 50% in 2015. 2.1. Decrease in water-borne diseases of 50% between 2005 and 2015.

PROJECT OBJECTIVES 1. Sustainable improvement of rural water supply, notably in the provinces of Kénitra, Chefchaouen, Settat and Azilal. 2. Improvement of management of waste water in the province of Khouribga (towns of Khouribga, Boujaâd and Oued Zem).

MEDIUM-TERM RESULTS 1.1 Supply drinking water to over 350 000 inhabitants (equivalent of over 600 douars) in the provinces concerned. 1.2 Improve management of waste water of over 350 000 inhabitants (equivalent of over 600 douars) in the provinces concerned. 2.1 Collect and treat the waste water discharged by an urban population estimated at about 300 000 inhabitants.

1. Rural populations of project area (approx. 350 000 inhbts). 2. Urban populations of project area (approx. 300 000 inhbts).

1. Access rate of rural population to drinking water. 2. Rate of treatment of waste water discharged in urban areas. Sources: Statistics and reports of different Ministries. Methods: Surveys and Studies.

1. Drinking water access rate in rural areas at the national level increases from 60% at end-2004 to 80% in 2008 and over 90% in 2010 (the Bank-financed project will permit raising the national rate by about 2.6% and in the provinces concerned by about 18%). 2. Rate or treatment of urban waste water at national level increases from about 5% currently to 15% in 2008 and to 30% at project completion (2010) and to 60% in 2015 (the Bank-financed project will help to increase the national rate by about 1.5%).

Assumptions 1) Completion of loan arrangements for the Rural DWS programme. 2) Management and maintenance of rural DWSS systems. 3) Partial recovery of DWSS service costs. Measures 1) Undertaking by all donors to support ONEP investment programme (2006 – 2009). 2) Choice, through participatory approach, of method of management of DWSS systems in rural areas. 3) Implementation of conditionalities of Water-SAP of the Bank and EU (notably the new DWSS tariffing system).

ACTIVITIES / INPUTS

SHORT TERM OUTPUTS

In 2010 :

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1. Finalization of TORs of technical assistance (participatory approach, coordination, monitoring and control of works). 2. Acquisition of land and conduct of geotechnical tests necessary. 3. Conduct of rural population information and sensitization missions. 4. Award of goods, works and services contracts. 5. Provision of DWS systems in rural areas. 6. Rehabilitation and construction of sewer networks and treatment plants in the towns concerned. FINANCIAL RESOURCES (UA)

Components ADB Moroccan party Total

A- Access of rural populations to drinking water 32.7 11.7 44.4 B- Drinking water distribution and waste water management 0.0 4.0 4.0 C- Urban waste water treatment 26.4 13.6 40.0 D- Technical assistance and support to project implementation 2.7 2.7 5.4

Total base cost 61.8 32.0 93.8 Physical contingencies 6.2 2.6 8.8 Financial contingencies 1.0 0.6 1.6

TOTAL 69.0 35.2 104.2

1. Provide 19 DWS systems in rural areas (for 24 rural councils, that is about 600 douars) 2. Provide drinking water distribution systems (individual connections) to about 100 villages (douars). 3. Rehabilitation and extension of waste water collection network of Khouribga town. 4. Rehabilitation of the existing treatment plant (activated sludge-type) and construction of a new plant (lagooning-type) in Khouribga town. 5. Extension of waste water collection network of Oued Zem town. 6. Construction of a new treatment plant (lagooning-type) in Oued Zem town. 7. Rehabilitation and extension of waste water collection network of Boujaâd town. 8. Construction of a new water treatment plant (lagooning-type) in Boujaâd town.

1. Rural and urban populations in the project area. 2. Consulting firms and contractors concerned by the studies and works.

1. No. of DWS systems provided in rural areas. 2. No. of douars supplied and persons having access to drinking water in rural areas. 3. No. of drinking water distribution systems. 4. Volume of waste water treated per year. 5. No. of jobs created during the project. Sources: Quarterly activity reports of the Executing Agency – Works acceptance reports. Activity reports of NGO and Associations. Technical and financial supervision reports of the Bank. Mid-term review. Audit reports. Method: Survey, studies, reports.

1. 19 (nineteen) DWS systems in rural areas. 2. About 600 douars supplied and over 350 000 inhabitants having access to drinking water in rural areas (the drinking water access rate increases from 35% on average in 2004 to 45% in 2008 and to 53% on average in 2010 in the provinces concerned). 3. About 100 villages equipped with drinking water distribution systems (individual connections). 4. About 20 000 m3/day of waste water treated in Khouribga Province (reduction of rate of raw waste water discharge into the natural environment from about 100% currently to about 20% in 2010). 5. Over one hundred jobs created throughout the duration of works in each of the provinces concerned by the project.

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EXECUTIVE SUMMARY 1. PROJECT ORIGIN AND BACKGROUND Like many countries in the world, Morocco is faced with the problem of the development and sustainable management of its water resources. These scarce resources, which are marked by wide geographical disparities and are highly sensitive to vagaries of the weather, come under heavy pressure due to demand resulting from population growth, improved living conditions and the implications of economic development. To support this trend, there is a need for sustained development of water resources in quantity and quality in order to ensure widespread access to drinking water and reduce inequality between regions, notably between urban and rural areas. Furthermore, the lag in appropriate treatment of raw wastewater discharged into the natural environment (sea, rivers, wadis, open air, and cesspools), is degrading the quality of water resources, the natural environment and the environment in general, thereby posing a threat to natural resources and health of the population, and could jeopardize the country’s drinking water supply and its social and economic development. The project design is based on the priority needs defined by the Moroccan Government and adopted in ONEP’s investment programme for 2006-2009. The project comprises two component: access to drinking water in rural areas (based on the programme approach which fosters the participation of the beneficiary population) and collection and treatment of wastewater in urban areas. It concerns the rural populations of 4 provinces for access to drinking water1 and urban populations of 3 towns for wastewater treatment. Preliminary and/or final designs have been prepared for the different project components, and environmental impact assessments have been conducted for the sanitation projects. 2. PURPOSE OF THE LOAN The Bank loan of an amount of UA 69 million, representing 66.2% of the total project cost, will be used to finance approximately 93.8% of the foreign exchange costs. 3. SECTOR GOAL AND SPECIFIC OBJECTIVES OF THE PROJECT At the sector level, the project goal is to reduce urban and rural poverty through access to DWSS services.

Its specific objectives are the sustainable improvement of drinking water supply in rural areas and the management of wastewater in Khouribga province. 4. BRIEF DESCRIPTION OF PROJECT OUTPUTS The main project components are:

A. Access to drinking water for the rural populations (production and supply); B. Drinking water distribution and gray water management in rural areas; C. Treatment of waste water of the towns of Khouribga, Oued Zem and Boujaâd; D. Technical assistance and support to project implementation.

1 With the possibility of including certain projects adopted under the project co-financed by IBRD and AFD.

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5. PROJECT COST

The project cost, exclusive of taxes and customs duties is estimated at UA 104.2 million of which UA 73.5 million in foreign currency and UA 30.7 million in local currency. 6. FINANCING SOURCES The project will be jointly financed by ADB and Morocco (ONEP, beneficiary councils). The Bank will grant the project a loan of UA 69 million, that is 66.2% of total project cost. The Morocco will finance the balance estimated at UA 35.2 million or 33.8% of the project cost. 7. PROJECT IMPLEMENTATION

The implementation of the project is envisaged to span a period of 60 months, from 2006 to 2011. The National Drinking Water Authority (ONEP) is the executing agency of the project. The Development Pole Central Directorate, through the Directorate for the Generalization of Drinking Water, will be responsible for managing all the technical aspects of the project, in close collaboration with the Supplies and Procurement Department and the Regional Directorate for Procurements of goods, works and services, the Financial Department for the accounting and financial management of the project and general coordination with the ADB, the Department of Sanitation and the Environment for the implementation of works relating to component C as well as the mitigating measures of project impacts on the environment, and the different Regional Directorates concerned for the day-to-day management of the works.

8. CONCLUSION AND RECOMMENDATION The ninth drinking water supply and sanitation project in Morocco is technically feasible, socially justified, and economically viable. The mitigating measures of the project, classified under Category II, have been taken into account in the project in order to ensure its sustainability at the environmental level. The implementation of the project will reinforce the grouped rural drinking water supply programme (PAGER) and will be a suitable solution to the problem of pollution by wastewater discharge in Khouribga Province. This project is a major contribution by the Bank to the Government’s efforts to sustainably supply drinking water and sanitation services to the Moroccan populations. The economic rate of return of the project is 14.8%.

It is recommended that a loan not exceeding UA 69.0 million should be extended to ONEP with State guarantee for the implementation of the project as described in this report, subject to compliance with the conditions set out in the Loan Agreement.

1. PROJECT ORIGIN AND HISTORY 1.1 Like many countries in the world, Morocco is faced with the problem of the development and sustainable management of its water resources. These scarce resources, marked by wide geographical disparities and highly sensitive to vagaries of the weather, come under heavy pressure due to demand resulting from population growth, improved living conditions and the implications of economic development. To support this trend, there is a need for sustained development of water resources in quantity and quality in order to ensure widespread access to drinking water and reduce inequality between regions, notably between urban and rural areas. 1.2 The situation is even worse in the liquid sanitation and waste water treatment sub-sector. The overall connection rate to the sanitation network is around 70%, meaning that 4.5 million urban dwellers (essentially in peri-urban neighborhoods) are not connected to the sanitation network and essentially have autonomous systems. Regarding waste water treatment, Morocco has a low number of treatment facilities, that is about 80 treatment plants of which less than half are operating properly. This situation reflects a considerable lag in terms of water treatment facilities, and poses a serious threat to the preservation of water resources and the environment in general. 1.3 To cope with these problems, the Government’s new intervention strategy in the sector is centred on the integrated and rational management of water resources and the development of infrastructures, so as to facilitate and support the country’s economic and social development. The Bank and the European Union have lent their support to the implementation of this strategy by co-financing the water sector adjustment programme (WSAP). The implementation of this strategy has also translated into the definition of the investment programmes of the key actors of the sector. ONEP, as key actor in the drinking water and sanitation sub-sector, has defined an investment programme for the period 2006-2009 (in the form of a programme contract between the Government and the Authority) comprising two components relating to widespread access to drinking water for the entire rural population of the Kingdom and to the strengthening of the sanitation and waste water treatment service in towns and urban centres where the Authority distributes drinking water2. This investment programme has facilitated the definition of several priority projects throughout the Kingdom, covered by technical and economic feasibility studies over the period 2002-2005. 1.4 During the general identification mission to Morocco in March 2005, discussions were initiated between the Bank and ONEP for financial support to certain projects adopted under the investment programme for 2006-2009. These discussions continued in June 2005, during the supervision mission of the 8th DWSS project. The project was formally identified during the meeting organized by ONEP in September 2005 in Rabat on Rural Drinking Water Supply and Sanitation in Morocco (attended by various donors concerned with the water sector in Morocco). Several studies and documents on the project identified were submitted to the Bank during these missions. The main documents received are listed in Annex 19.

2 The sanitation projects in ONEP’s investment programme fall under the National Sanitation Programme (PNA).

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1.5 The ninth project comprises sub-projects on widespread access to drinking water in rural areas and sub-projects relating to the collection and treatment of waste water. During the identification mission, available data was obtained on the project components (notably concerning urban sanitation) and discussions were held with various ONEP officials on the general aspects of the projects. 1.6 In November 2005, the Moroccan Government submitted to the Bank a request for the financing of a project comprising: (i) access to drinking water by the rural populations in certain provinces of the Kingdom; and collection and treatment of waste water in Khouribga, Boujaâd and Oued Zem towns. This report is based on the data collected and the work done during the project preparation and appraisal missions, which took place in December 2005 and April 2006 respectively. 2. THE WATER SECTOR

2.1 WATER RESOURCES 2.1.1 The water sector plays a major role in the country’s social and economic development. It is a key factor in the country’s development strategy. While the country’s population could exceed 40 million inhabitants by 2020 as against 26 million in 1994, water needs for drinking water supply and agricultural production purposes should increase 2.6 to 2.9 or even 3.8 times, as the case may be. However, it is estimated that over 80% of the resources are currently mobilized, and that supply is approaching its limits. 2.1.2 To address this increasing demand, Morocco has extensively developed and planned the exploitation of both its ground and surface water resources, giving priority to hydro-agricultural development and drinking water supply to large and average towns. Efforts in this domain have translated into the construction of 103 big dams with a total storage capacity of 16 billion m3 (over 80% of mobilizable resources), 13 water transfer structures and major ground water exploitation facilities. 2.1.3 The resources per inhabitant and per year currently stand at about 1 000 m3, but this volume ranges between 180 m3/inhbt/year in the South and 1 800 m3/inhbt/year in the most favoured areas, such as Tangier and Loukkos. With the population increase, these figures will drop to an average of 700 m3/inhbt/year in 2020 and by that time, 35% of the country’s population will have less than 500 m3/inhbt/year. 2.1.4 Non-conventional water resources are little developed. In the country’s south, desalinized brackish and sea water is used to supply drinking water, for a volume of 2.67 million m3/year. Worth mentioning is also the use of raw or partially treated waste water for irrigation, over a surface area evaluated at about 8 000 ha, representing an annual volume of around 250 million m3. 2.2 DRINKING WATER SUPPLY AND LIQUID SANITATION 2.2.1 In the domain of drinking water supply, Morocco has made remarkable progress towards generalizing urban drinking water supply, both in terms of service quality and mastery of engineering, whereby virtually the entire population is served. The rural drinking water supply sector, which covers 13 million inhabitants contributing nearly 20% to the Gross Domestic Product (GDP), is still lagging behind and is facing severe problems of lack

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of infrastructure. However, since the launching of Grouped Rural Drinking Water Supply Programme (PAGER) in 1995, various stakeholders have made considerable efforts that have raised the level of access in rural areas from 14% in 1990 to about 60% at end-2004. It is envisaged under PAGER that this access rate should exceed 90% at end-2007. 2.2.2 Most Moroccan built-up areas have sanitation networks that facilitate the collection of waste water and its evacuation outside inhabited areas. Approximately 70% of the urban population is connected to the sewer network (40% in small towns), but on the whole, less than 60% of domestic and industrial waste water is effectively collected by the existing sanitation networks, owing to the poor state of part of the existing network. In the ground, the waste water is discharged into the wadis [which are generally not perennial], from where it infiltrates the ground water. In rural areas, there are no sewer networks and individual systems are used, generally consisting of cesspools or disposal directly into the natural environment. In slum areas, there are generally no sewer networks and individual sanitation systems are used or disposal on the bare ground or into rainwater drainage channels. The treatment of collected waste water is limited, and spillage into rivers and coastal areas contributes to pollution of the natural environment. For the coastal towns, the water is either discharged into sewage outfalls which end at varying distances from the shore, or into the streams and rivers which transport it to the sea. 2.3 INSTITUTIONAL FRAMEWORK OF THE WATER SECTOR 2.3.1 Law No. 10-95 on water, which was enacted in 1995, is the legal framework for integrated management of water. It set up structures for the integrated management of water, namely, (i) the “Conseil Supérieur de l’Eau et du Climat” (CSEC) (Supreme Water and Climate Council), which is charged with developing general guidelines on the national water and climate policy; (ii) the “Agences de bassin hydraulique” (Water Basins Agencies) (ABH) which are the central structure for the implementation of integrated water management, and which are the only entities with regulation prerogatives; (iii) the provincial or prefectural water commission which encourages the councils’ actions as concerns water saving and protection of water resources against pollution. The other existing structures, notably the supervisory ministries and sector operators, undertake their activities within this new context. 2.3.2 Several structures and stakeholders are involved: the Inter-Ministerial Water Council (CIE), chaired by the Prime Minister, brings together all government ministries involved in the management of the water sector. The role of the Ministry of Regional Development, Water and the Environment (MATEE), through the Secretariat of State in charge of Water, is to implement the priority given to water and its integrated management by the authorities. MATEE exercises technical supervision over ONEP. The Ministry of Agriculture, Rural Development and Sea Fishing (MADRPM), through its Agricultural Development Regional Offices (ORMVA), is charged with managing irrigation water. The Ministry of Interior (MI), through the Department of Utilities and Services under Concession, exercises supervisory authority over water distribution and sanitation and conceded management utilities. The Ministry of Health (MOH) is responsible for drinking water quality control, sensitization and health education of the population, and sanitary surveillance of water points. The Ministry of Economic and General Affairs (MAEG) presides over the Inter-Ministerial Tariffing Committee and intervenes in the regulation of drinking water and sanitation tariffs, except for contractual tariffs in case of delegated management. Lastly, the Ministry of Finance and Privatization (MFP) is charged with coordinating the economic and financial planning of the water sector.

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2.3.3 ONEP produces over 80% of drinking water. The “Société des Eaux d’Oum Er Rbia, AMENDIS” at Tétouan and certain utilities and local authorities are also producers. The management of drinking water and sewerage services is provided by ONEP, private enterprises (LYDEC in Casablanca, REDAL in Rabat-Salé and AMENDIS in Tangier-Tétouan) and by autonomous drinking water, electricity and sewerage utilities under the direct management of communities. Lastly, the management of irrigation and drainage networks and irrigation water is one of the functions of ORMVA, which is supervised by MADRPM.

2.4 MAJOR CONSTRAINTS ON THE WATER SECTOR The sector faces major deficiencies, namely: (i) a water exploitation ratio close to the possible limit within a context of frequent droughts; (ii) high water cost in financial terms and in terms of ecological degradation; (iii) substantial water losses in the networks (drinking water and irrigation); (iv) marked deterioration of water quality. Regarding the drinking water and liquid sanitation sub-sector, there is still limited access to DWS in rural areas as well as disposal of waste water into the natural environment, which poses a threat to the environment and the health of the population. The financial sustainability of the sector, as it is currently structured, is weak, given the absence of an appropriate cost recovery system and financing framework for sanitation services. To address these deficiencies, the Moroccan Government has developed an appropriate policy for the sector and put in place an ambitious development and investment programme.

2.5 SECTORAL POLICY 2.5.1 To date, Morocco’s water needs have been satisfied mainly by increasing supply, centred on water resource mobilization. This approach is nearing its limits, given that over 80% of the potential resources have been mobilized. Faced with this increasing scarcity and in a bid to ensure the sustainability of a sector that is essential for the economic development and welfare of the population, the Moroccan Government has opted for a new sectoral policy based on the integrated management of water, aimed at protecting and saving the resource. It is in this light that Law No. 10-95 was enacted in 1995. It represents the legal basis of a new water policy based on a forward-looking vision which takes into account the trend of resources on the one hand, and real water needs, on the other. 2.5.2 The principles underlying this sectoral policy are: (i) water as a public good, whereby all water belongs to the public water domain except for traditional water rights the ownership of which is legally established or recognized by an appropriate procedure; (ii) the oneness of the resource, whereby water is one and the same, and its quantitative and qualitative aspects are indivisible; (iii) oneness of water management, which is carried out from the water basin, the appropriate geographical setting for understanding the development of integrated water management; (iv) recognition of the economic value of water with the application of the principle of “user-pays” and “polluter pays” to ensure water saving through demand regulation; (v) national and regional solidarity, with the creation of basin agencies aimed notably at setting up solidarity mechanisms in the water management process, notably between users, between sectors and between regions; and (vi) consultation in water management at all levels (national, regional, local) between Government services, users and elected officials.

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2.5.3 In order to formulate this sectoral policy, the Government, through the Secretariat of State in charge of Water, in coordination with the departments concerned and all the stakeholders at all the levels, used a strategy which is based on the: (i) search, monitoring and evaluation of water resources in terms of quality and quantity; (ii) planned development of resources so as to ensure constant balance between supply and demand; (iii) harnessing of ground and surface waters according to a watersheds development plan; (iv) the rational management of harnessed water, the safeguard and maintenance of water works; (v) protection and restoration of the quality of water resources; (vi) provision of structures for protection against high waters and floods; (vii) use of institutional structures to promote the protection and development of water resources and the constant balance between supply and demand, and (viii) promotion of the national company in the fields of studies, engineering and works, etc..

2.6 GOVERNMENT PROGRAMME 2.6.1 Rural Drinking Water Supply: The action plan presented by MATEE during the thematic meeting with donors, held in June 2005, adopted rural access to drinking water as one of the national priorities and confirmed the target of a rural service rate of over 90% in 2007. To this end, the plan reactivated the work of the PAGER Follow-up Committee, which comprises MATEE (ONEP, DGH) and the MI (DGCL, DAE). 2.6.2 Following the Government statement in 2002 which raised the target as regards the rate of access to drinking water to over 90% in 2007 and with its designation in 2004 as the principal interlocutor as regards rural DWS, ONEP developed a rural DWS intervention strategy based on:

Development of adequate infrastructures for access to drinking water: widespread access to drinking water in rural areas, progressive upgrading and integration of existing DWS systems, development of individual connections and promotion of partnership, and guiding the initiatives of third parties in the implementation of rural DWS projects.

Control of management and sustainability of facilities provided: direct

intervention for major or technically complicated installations, control of the production of average-size installations within the framework of partnership agreements with local operators, and providing technical support to managers of small and remote installations under tripartite agreements (ONEP/ Councils /Associations).

2.6.3 Within the framework of its 2006-2009 program contract with the State, ONEP programmed a total investment for widespread rural access to drinking water of about MAD 7.3 billion, of which 6.1 billion for the period 2006-2007. 2.6.4 Liquid Sanitation: A strategy aimed at developing the liquid sanitation sector was developed in 1986 by the Ministry of Interior as supervisor of local authorities, calling on councils to take a number of technical, institutional and financial measures, notably transfer of the management of sanitation services to well-performing operators, such as the various utilities, ONEP and the private sector, and the introduction of suitable service tariffing systems.

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2.6.5 Under this strategy, the major towns of the Kingdom launched studies on liquid sanitation master plans in 1990. ONEP launched a series of studies on liquid sanitation master plans for average towns and small centres (those in which it distributes drinking water). Indeed, according to the study on the National Liquid Sanitation Master Plan (SNDAL) started in 1994, there are 55 urban and rural council treatment plants and 8 private tourist camp plants, of which only 15 are operational. Thus, out of a total volume of discharged wastewater of about 500 million m³/year, 95% is discharged into the receiving water body in a raw state. 2.6.6 At present, liquid sanitation services are managed at the national level by local authorities, utilities, ONEP and private operators. The liquid sanitation infrastructure investment programme of the utilities for 2004 to 2008, stands at over MAD 8 billion. For the 4 delegated private companies (LYDEC of Casablanca, REDAL of Rabat-Salé, AMENDIS of Tangier and AMENDIS of Tétouan), the contractual investments programme stands at over MAD 14 billion for the period going up to 2011. 2.6.7 ONEP has made liquid sanitation a key component of its new strategic guidelines, materialized by the creation of a new department specifically in charge of liquid sanitation activities. Thus, an investment programme of about MAD 15 billion has been put in place to cover all the centres managed by ONEP over a 15-year period (2003-2017). 2.6.8 Under the National Sanitation Plan, a priority programme is under way for the period 2003–2007 with a package of MAD 4.1 billion. It concerns 90 centres, and targets a population of 3.4 million inhabitants. The following table summarizes ONEP's sanitation intervention programme in 3 phases:

2003-2007 2008-2012 2013-2017 TOTAL Number of centres

Population in 2000 Investment (103 MAD)

90 3 364 379 4 136 363 3 057 411 3 047 944 10 241 718 95 958 720 2 487 948 1 442 012 3 929 960 93 189 579 844 123 844 123

Total (278) 4 512 679 4 136 363 5 545 359 5 334 079 15 015 801

2.6.9 In order to implement this program, a new Councils-ONEP contracting project was adopted by the new local communities supervisory department (DGCL). This new management agreement governing ONEP responsibility for sanitation services on behalf of the councils, lays down the technical, financial, tariff and legal conditions of the service.

2.7 DONOR OPERATIONS 2.7.1 The sector is developed by the Government with the support of a number of bilateral and multilateral donors. Morocco's principal development partners in the water and sanitation sector are the African Development Bank (ADB), the World Bank (BM), Islamic Development Bank (IDB), Japanese Bank for International Co-operation (JBIC)3, European Investment Bank (EIB), European Union (UE), and various European donors (AFD, KFW, GTZ, Belgium, Spain, etc...), Arab Fund for Economic and Social Development (AFESD), Japanese Cooperation (JICA), the American Development Agency (USAID), and the Canadian Cooperation. 3 JBIC has earmarked approximately MAD 400 million for financing an ongoing project.

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2.7.2 Relations between ONEP and the Bank date back to 1978, the date of the first loan to the Authority for the Marrakech drinking water supply project. Since then, the ADB Group has granted to the Authority loans for the financing of 6 (six) projects for an amount of approximately UA 180 million. Except for the last drinking water and sanitation project which was approved in November 2004 and which is to be completed in 2010, all the other projects are completed and their completion reports prepared. Other loans were granted by the Bank to Morocco for the construction of 2 dams (UA 49 million), 2 transfer structures (UA 55 million), 3 irrigation projects (UA 159.6 million), 2 studies (UA 3.23 million in the form of a grant) and the sectoral adjustment programme (UA 179 million). 2.7.3 Performance in the implementation of these projects is considered generally satisfactory. ONEP has an excellent grasp of Bank policies and procedures and the studies conducted by the Authority are of good quality. The main recommendations made by the completion reports of previous projects, notably the last three (5th, 6th and 7th) are, in brief, to: (i) strengthen technical assistance and envisage its presence until completion of the project; (ii) carry out regular project supervision missions and ensure better project implementation monitoring. These recommendations were taken into account in the last Bank-financed project in the sector (8th DWSS project), and will also be considered in this project. In 2005, OPEV conducted a post-evaluation of the performance of Bank operations in Morocco for the period 1996-2004. This post-evaluation showed a good performance of lending operations (physical investments), unlike Bank assistance through non-loan operations (studies) and through institutional reform programmes, which is considered less satisfactory. With the exception of the utilities, which still suffer from uncontrolled costs, the projects carried out by the other operators, notably ONEP, do not pose any problem of return on investments (notably drinking water production and supply projects4). 2.7.4 The World Bank has been involved in the water sector for over 25 years and has financed several urban DWSS projects, irrigation projects and a sector review conducted in 1995. In December 2005, it approved a rural DWSS project. The IDB has also intervened in several DWS projects (urban and rural), as well as sanitation and resource mobilization. The EU and various European donors5 have financed several projects in Morocco concerning resource mobilization and management, irrigation water, urban and rural drinking water and sanitation. Japanese and Canadian Co-operations, as well as the AFESD, have financed several drinking water and sanitation projects for ONEP. The soft grants and loans from bilateral co-operation agencies have been channeled to certain types of projects, such as access to drinking water in rural areas and liquid sanitation, which have so far benefited mainly from this type of financing. 2.7.5 The loans and grants mobilized by ONEP for widespread drinking water supply in rural areas are shown in Table 2.1 below.

4 Based on the marginal cost of development, the tariffing of drinking water at production (applied by ONEP) partially reflects the diversity of costs through the adoption of differentiated tariffs from one supply complex to another. 5 ADF, EIB, GTZ, KfW, Belgian, French, Italian, Spanish etc. Cooperation Agencies.

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Table 2.1 Loans and grants mobilized by ONEP for Rural DWS (end-2005)

BODY DESCRIPTION FINANCING MOBILIZED

(in thousand MAD) 1 – GRANTS 655 131 Belgium DWS for Tlat Lakhsass and 206 douars 74 876 Spain DWS for M’Noud 8 615 Spain DWS for FErkhana 17 447 KFW DWS of douars adjacent to regional supply lines I 270 602 KFW DWS of douars adjacent to regional supply lines

II 122 991

EU MEDA – rural DWS programme 105 600 JICA DWS of El Bibane, Teroual and Ain Dfali 55 000 2 – LOANS 1 132 993 JBIC PAGER 429 550 KFW DWS of small towns 2 149 236 OPEC DWS of Taourit Tafoughalt region 63 000 IDB DWS of 20 rural centres 187 343 SDF DWS of douars in Hoceima region 107 000 EIB ONEP III 110 000 ADF ONEP VI 86 864 TOTAL 1 788 124 2.7.6 The loans and grants mobilized by ONEP for urban sanitation are shown in Table 2.2 below.

Table 2.2 Loans and Grants Mobilized by ONEP for Urban Sanitation (end-2005)

BODY DESCRIPTION FINANCING MOBILIZED

(in thousand MAD)

1 – GRANTS

1 021 199 Belgium Sanitation of Ouarzazate 56 800 Belgium Sanitation of Tarfaya 12 563 KFW Sanitation of Khénifra – M’Riret 114 146 KFW Sanitation of small centres I 182 100 KFW Sanitation of small centres II 259 140 EU MEDA– Sanitation programme 98 450 EU 20 MEURO Programme (sanitation) 100 000 APDS Sanitation of Dakhla and Marsa 198 000

2 – LOANS

385 241 IDB Sanitation of 9 urban centres 209 241 ADF Sanitation I 132 000 ADB 8th DWSS project (sanitation of Sidi Taibi

urban centre) 44 000

TOTAL

1 406 440

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3. DRINKING WATER SUPPLY AND SANITATION SUB-SECTOR

3.1 RURAL DRINKING WATER SUPPLY 3.1.1 The main stakeholders in the rural drinking water sector are the rural councils which, by Law No. 78-00 on the Council Charter enacted by Dahir No. 1-02-297 of October 2002 that extended their functions and defined their role in DWS, saw their jurisdiction in the domain expressly recognized. Under Article 39 entitled “local public utilities and amenities” the Council Board decides on “the establishment and management of council public utilities” in several sectors including “drinking water supply and distribution” and “liquid sanitation”. “It decides on the methods of management of municipal public utilities through direct control, autonomous utilities, concessions or any other form of delegated management of public utilities in accordance with the laws and regulations in force”. The new Council Charter also recognizes the Councils’ right to intervene in water and sanitation management, and offers them a wide range of management methods and cooperation and partnership possibilities. 3.1.2 Morocco has made major achievements towards widespread access to urban drinking water supply, whereby virtually the entire population is served. For rural areas, the rate of access to drinking water rose from 14% in 1990 to about 60% at end-2004. However, the rural DWS sector has many deficiencies regarding local facilities, as well as maintenance of the project structures provided. In January 2004, ONEP officially became the main DWS operator for rural areas. To adjust its strategy and planning in rural DWS, it conducted a diagnostic study6, whose objectives were to (i) review the current situation of rural DWS nationwide and according to the provinces and councils; (ii) assess the current strategy for the development of the present DWS; and (iii) propose a new strategy for rural DWS development. 3.1.3 The measures proposed by SAP-Water, approved by the Bank in December 2003 and co-financed with EU to address the abovementioned constraints, include: (i) the definition of the institutional framework of the national rural DWS programme; (ii) adoption of the principles of tariffing according to usage, as well as issuing of orders fixing drinking water rates nationwide. Of the 34 measures envisaged for the first tranche of this programme, 28 have already been implemented to the satisfaction of the Bank (including those mentioned above relating to the institutional framework of rural DWS and adoption of the new tariffing system), the six remaining measures are being implemented (before end-2006).

3.2 URBAN LIQUID SANITATION 3.2.1 The Council Charter of 1976 as revised in 2002 confers responsibility for liquid sanitation on local authorities. Besides councils, the main ministries, bodies and public and private establishments intervening in the urban liquid sanitation sub-sector are the MI, MATEE, MOH, MAEG, autonomous utilities, ONEP, ABH and the private sector. 3.2.2 The overall sewer connection rate is currently estimated at 70% (40% in small urban centres), but on the whole less than 60% of household and industrial waste water is collected by existing sewer networks, owing to the poor state of part of the existing network.

6 Diagnostic study of rural DWS in Morocco – ONEP/FAO; September 2005.

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Regarding waste water treatment, Morocco has a low number of treatment facilities (about 80 treatment plants), of which less than half are operating properly. About 5% of waste water discharge is treated before discharge into the natural environment for agricultural purposes. 3.2.3 The deficiencies in the liquid sanitation sub-sector have adverse effects on several parameters entailing substantial losses for the community, namely: (i) public health, (ii) living conditions of the population, (iii) water resources, (iv) water quality of bathing places, (v) flood problems (lack of stormwater drainage networks), and (vi) reuse of raw waste water. This accumulation of deficiencies and shortcomings is due to a combination of factors relating to urban, demographic, technical, financial, legislative, regulatory and planning constraints. 3.2.4 To address these constraints on the development of the liquid sanitation sub-sector, a reflection was launched within MATEE, in collaboration with MI, on the reform of the sanitation service by introducing delegated management nationwide (ONEP, private operators, etc.) This reflection continued during the water sector adjustment programmes financed by the Bank and by the EU, as well as an analysis of the sub-sector conducted by the World Bank in December 2004. The measures proposed by SAP-Water, approved by the Bank in December 2003, co-financed with EU to address the abovementioned constraints, include: (i) increasing budgetary appropriations allocated to sanitation and treatment operations; (ii) grouping of isolated towns and centres (for liquid sanitation services) for which there are problems of negative returns, which would attract private investment to the sector; (iii) setting general limits for discharge of water into sewer networks and the natural environment, and for liquid wastes from the different industrial and handicraft sectors; (iv) definition of a regulatory framework for autonomous sanitation; and (v) adoption of tariffing principles based on usage and issuing of orders fixing sanitation rates nationwide. 3.3 NATIONAL DRINKING WATER AUTHORITY (ONEP) Legal framework 3.3.1 The National Drinking Water Authority (ONEP) was set up by Dahir No. 1-72-103 of 3 April 1972 to replace the Industrial Exploitation Authority (REI) which, since 1929, was responsible for distributing drinking water. ONEP is an industrial and commercial public establishment with administrative and financial autonomy. Since 2002, it has been under the supervisory authority of the Ministry of Regional Development, Water and the Environment (MATEE), and has its headquarters in Rabat. This framework has not changed from what obtained at the appraisal of the 8th DWSS project of the Bank with the Authority. Organization and Management 3.3.2 ONEP is administered by a Board of Directors and a Standing Technical Committee, and managed by a Managing Director. The Board of Directors meets at least once each semester and comprises representatives of key ministries and elected officials, as well as two representatives of water distribution utilities. The organization chart of ONEP is shown in Annex 3. The Authority is represented in the regions by regional directorates ranking as central directorates. Under its new guidelines, the Authority has been reorganized into two levels, central and regional. On the basis of an organizational diagnosis conducted by a restructuring committee, the central organization underwent a general overhaul across the board, with a new set-up and appointment of officials using a top-down approach:

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directorates, divisions and services. The next steps of the reorganization will consist in putting in place a new structure along with the means needed by the regions to carry out their new functions. Personnel and Training 3.3.3 The human resources policy implemented over the past few years consists in skills transfer, incentives to employees and supporting ONEP’s development process in establishing its new strategy. In five years, ONEP’s staff strength has risen by 8% to 6 850 at end-2005, of which 15% are senior management, 29% supervisors and 55% non-administrative staff. The growth has been accompanied by an evolution in quality, with a training rate which rose from 12% at end-2000 to 15% end-2005. Female employees represented about 12% of the staff of the Authority in 2005 (18% senior staff, 24% supervisory and 4% execution). Table 3.1 below shows the trend of ONEP personnel between 2000 and 2005.

Table 3.1 Trend of ONEP workforce

Workforce 2000 2001 2002 2003 2004 2005 Senior staff 776 859 868 925 957 1063 Supervisory staff 1 738 1 821 1 883 1 926 1 989 1974 Executing agents 3 829 3 825 3 819 3 818 3 804 3813 Total 6,343 6,505 6,570 6,669 6 750 6850 Female workforce 735 771 788 787 787 797

3.3.4 ONEP has well-trained personnel in various aspects of the sector, and carries out the continuing training of its staff. In 2005, ONEP organized 550 training sessions for 5,000 participants, totalling 24 000 trainee days. It has a Water Engineering Training Centre which is adequate and internationally recognized as a World Health Organization (WHO) collaborative centre. It has experienced managers and trainers, and an adequate infrastructure: workshop, mini-networks for practicals, a mobile training unit, a pilot treatment plant, library, lecture and computer halls, conference centre and reception centre. Accounting and Auditing 3.3.5 The financial and accounting statements of the Authority are prepared according to the provisions of Law No. 9-88 on the accounting obligations of traders and those of the General Code of Accounting Standards. ONEP is subject to multi-level auditing: (i) external audit, which certifies the accounts and financial statements of the Authority; and (ii) internal audit conducted by the Department of Audit and Organization (DAO) which ensures proper application of internal rules and procedures. According to the external auditor, the financial statements of ONEP in all their major aspects give a faithful picture of its assets and situation. It was possible to judge the efficiency of these audits through the Bank’s past projects with the Authority. Billing and Recovery 3.3.6 ONEP’s sales services have been decentralized to the provinces, and the process will continue as part of the decentralization of the Authority right down to operations centres. Furthermore, as part of its client-oriented business strategy, the Authority has embarked on the modernization of its customer management services by optimizing the “reading – billing

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– recovery” cycle thanks to the use of portable data acquisition terminals for taking readings and the introduction of a new detailed bill enabling the client to be better informed. The billing of “big accounts”, which are 17 in number (70% of the turnover of the Authority), is monthly on the basis of a second reading of meters. ONEP separately negotiated the deadlines for payment of bills of major customers, which varies between 3 and 6 months, a deadline which is generally met. The Authorities (OCP, ONCF, etc.) have a 45-day time-limit. The payment deadline is one month for small subscribers and two months for local authorities. 3.3.7 To avoid accumulating arrears and to reorganize ONEP’s customer accounts, the Moroccan authorities in 1993, set up a system of revenue stamps for government services and local authorities, whereby the State directly advances payment to ONEP of a total amount representing the budgetary appropriations earmarked for the government services and local authorities to cover their water consumption. At the same time, the State distributes the stamps to these services, which they use during the year to settle their ONEP water bills. Through this system ONEP’s recovery rate has improved to 98% on average at present. The stamp system follow-up committees chaired by ONEP and comprising representatives of the Ministries of Finance, the Interior, and distribution bodies have been instituted by the Government to ensure the system’s sustainability. Retrospective Financial analysis 3.3.8 The audited accounts of ONEP for the period 2000-2004 as well as the provisional figures for 2005 are presented in Annex 7. On the whole, the retrospective analysis of the Authority’s operations shows a stable financial structure with positive operating results, except for the year 2000. The operating results for the 2000-2005 period increased by 15% on account of a significant increase of about 24% of operating income (sale of water and surtaxes) and despite an equally significant increase in operating expenses (personnel expenses and provision for depreciation). The financial result was negative throughout the period owing to increased financial costs even though the latter have dropped by 20% since 2003 thanks to debt optimization actions (advance repayment in 2003 and 2004 of ADF and ADB loans). 3.3.9 Under the combined effect of the operating and financial results, ONEP’s net income was positive throughout the period except in year 2000, with a record in 2001 (MAD 1 111 million), thanks to a carry forward of grants and subsidies as income tax from 1987 to 2001. This trend increased its self-financing capacity, enabling ONEP to renew its equipment and finance its contribution to the implementation of the rural drinking water generalization programme without borrowing heavily.

Table 3.2 Summary of ONEP’s Operating Income and Expenditure

(in million MAD)

2000 2001 2002 2003 2004 2005* Operating income 2 312 2 525 2 474 2 724 2 755 2 856 Operating expenses 2 049 2 355 2 202 2 368 2 459 2 556 Operating result 262 170 272 356 296 300 Financial result - 68 - 101 - 103 - 96 - 106 -37 Net income -87 1.111 65 127 130 144 Self-financing capacity 781 879 881 886 951 912

Source: Audited financial accounts of ONEP and *provisional figures for 2005

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3.3.10 The analysis of the balance sheet structure of ONEP concerns the audited balance sheets of the period 2000-2004 shown in Annex 8. The assets recorded a 16% increase, thanks to a high increase in fixed tangible assets. Equity and the like of the enterprise rose by about 20% as a result of the rise in depreciation expenses on fixed assets and on the special depreciations on fixed assets financed by investment grants, free assignments, grants and riverain taxes. Although the Authority undertook major investments under rural DWS and sewerage in several centres, the indebtedness ratio remained fairly steady around 27% during the period. 3.3.11 Financial and operating ratios of the Authority are generally good. An analysis of the ratios shown in Table 3.3 below reflects a large financial autonomy of the Authority with its equity capital representing about three times its debt level and general liquidity of about 2.03 in 2004, showing that the Authority’s current assets are almost sufficient to cover its short-term liabilities. The overall solvency ratio shows that total assets cover three times the debts of the Authority. The Authority has sufficient cash to cope with its short term commitments and loan repayment. The debt service ratio hovered around 3 (the EBE covers three times the debt service). This rate had started dropping in 2001-2003 as the enterprise went into borrowing to finance PAGER and liquid sanitation investments, but improved as from 2003, thanks to the above-mentioned advance repayments.

Table 3.3

Summary of ONEP Balance Sheets (in million MAD)

2000 2001 2002 2003 2004 Fixed assets 11 872 12 412 12 716 12 763 13 725 Current assets 2 791 3 182 3 236 3 052 3 281 Total assets 14 663 15 595 15 951 15 814 17 006 Equity and similar resources 9 329 9 846 10 015 10 457 11 187 Long-term liabilities 3 314 3 743 3 691 3 527 4 203 Current liabilities 2 020 2 005 2 246 1 830 1 616 Total – Liabilities 14 663 15 595 15 951 15 814 17 006 Ratios Debt-equity ratio 2.81 2.63 2.71 2.96 2.66 Current ratio 1.38 1.59 1.44 1.67 2.03 General debt ratio 2.75 2.71 2.69 2.95 2.92 Debt coverage ratio 3.07 3.97 2.30 1.17 2.24 Working capital ratio 1.06 1.09 1.08 1.10 1.12 Indebtedness ratio 26% 28% 27% 25% 27% Cash bal. at end of fin. year 1 195 1 800 1 796 1 525 1 767

Source: Audited financial accounts of ONEP Financial Projections 3.3.12 ONEP’s financial projection assumptions for the period 2006-2012 are shown in Annex 12 and are those used within the framework of the Programme contract between the State and the Authority for the period 2006-2009. These projections take into account investments to attain the targets set by the Authority. The projection model used by ONEP is also deemed acceptable7. Table 3.4 below shows some of the items, the details including the balance sheet of which are shown in Annex 13. 7 Within the framework of its intervention in the sector, the French Development Agency (AFD) in an analysis report prepared in December 2005, also deemed reliable the financial projections model used by ONEP. It also describes as sustainable ONEP’s investment programme for 2006-2009.

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3.3.13 According to projections, the net income of the Authority is expected to rise even taking into account the ambitious investment programme for the period 2006-2009, estimated at about MAD 17 735 million. This upswing will enable ONEP to implement the rest of its investment programme for 2009-2012 without the fundamental financial balances being called into question, as testified by the positive trend of the different aggregates and ratios shown in the table below.

Table 3.4 ONEP Operating Income and Expenditure Projections (in million MAD)

Description 2006 2007 2008 2009 2010 2011 2012

Total operating income 3 084 3 422 3 738 4 100 4 428 4 639 4 933Total operating expenses 2 894 3 217 3 584 3 918 4 190 4 371 4 602Operating results 190 206 154 182 238 268 331Net income 119 133 130 154 220 300 403Ratio Self-financing capacity 896 962 1 000 1 110 1 340 1 458 1 580 Debt-equity ratio 1.92 1.63 1.49 1.41 1.39 1.38 1.37 Current ratio 1.67 1.36 1.36 1.46 2.23 1.61 1.65 General debt ratio 2.52 2.31 2.27 2.24 2.23 2.23 2.23 Debt coverage ratio 2.22 2.09 1.98 1.89 1.48 1.42 1.45 Working capital ratio 1 .06 1.03 1.03 1.03 1.03 1.03 1.03 Indebtedness ratio 34% 38% 40% 41% 42% 42% 42% Cash bal. at end of fin. year 1 349 1 186 638 525 389 295 304

3.3.14 The financial impact of this investment programme on ONEP accounts is analyzed through the key ratios shown in the above table. Indeed, there is a decline in the debt-equity ratio from 1.92 in 2006 to around 1.38 as from 2010 up to 2012, which impacts on its borrowing capacity in the long run. However, its debt ratio remains solid, as well as its general liquidity as shown by the different ratios thanks notably to a strong rise in its assets during the period. However, as a result of borrowing to finance the investment programme, the Authority’s indebtedness ratio will progressively increase (from 34% in 2006 to reach 41% in 2009 and remain around 42% up to 2012) but will only slightly affect its capacity to cover debt service, thanks to a positive growth of the EBE during the period, which will contribute to cover the debt service. However, the cash position is expected to weaken throughout the period. It should be noted that certain measures will be taken jointly by the State and the Authority under the Programme Contract (2006-2009), notably tariff measures, targeted subsidies and other rehabilitation measures in order to ensure the financial equilibrium of the Authority. 3.3.15 In conclusion, it should be noted that the financial situation of ONEP remains solid as shown by the different ratios and its operational capacity is undeniable. The investment programme for 2006-2009 of the Authority according to our analysis is sustainable and its impact is described as manageable on its financial equilibriums according to the assumptions used. Accordingly, there is no major risk concerning its financial equilibrium. The Authority is successfully fulfilling its role as producer of water for the autonomous utilities and concession holders, as well as its role of distribution in small towns and douars8. 8 Douar: Basic “official” administrative unit, made up of a group of individuals who have or may have the same territory (used in official censuses of 1982, 1994 and 2004). The average size of a douar is about 500 inhabitants.

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4. THE PROJECT

4.1 PROJECT CONCEPT AND RATIONALE 4.1.1 The project design is based on the priority needs programmed by ONEP in its strategic plan for 2003-2007, taking into account the following criteria: (i) lag in rural access to drinking water and (ii) lag in sanitation and waste water treatment in urban centres where ONEP distributes drinking water. On the basis of these criteria, two project components were defined. The first component relating to rural DWS was also supported by the Water Sector Adjustment Programme (WSAP) financed by the Bank. It facilitated the assessment of PAGER (through the diagnostic study conducted by ONEP in 2005) and confirmation of its institutional framework (ONEP was designated as sole interlocutor for this programme). 4.1.2 The first project component “Rural DWS” is based on a programme approach, which fits squarely in the “PAGER” national program (Annex 4). ONEP, as the main interlocutor in rural DWS in the Kingdom, is responsible for planning operations at the national and regional levels according to the priorities and objectives set by the Government (Annex 5). Planning and programming of rural DWS projects by ONEP comprise several stages, the sequence of which is presented in the organization chart in Annex 6. A DWS situation analysis at the national level and the identification of areas lagging behind or in difficulty, which is the first stage of this process, was conducted on the basis of an evaluation study of the sector, requests from the local authorities, elected officials and the beneficiary populations, as well as field investigations. Thus, zones lagging behind in rural drinking water supply or encountering access problems are located in the Atlantic plains that lack easily mobilizable local resources (Kénitra, Safi, El Jadida, Settat and Essaouira Provinces) and zones in Rif with difficult access (Nador, Al Hoceima, Taounate, Taza, Chefchaouen and Tétouan Provinces) and the high Atlas (Azilal Province). 4.1.3 On the basis of this evaluation, ONEP proposed to the Bank, Kénitra, Settat, Chefchouan and Azilal9 Provinces, as well as cofinancing by the World Bank and AFD for Safi, El Jadida, Essaouira, Touanate and Taza Provinces, which was approved in December 2005. This overall ONEP vision of widespread access to rural DWS in Morocco will help to ensure proper harmonization between the various projects financed by different donors, and thereafter the success of the national programme and the achievement of its objectives. 4.1.4 The second component, concerning the collection and treatment of waste water in the towns of Khouribga, Oued Zem and Boujaâd, addresses an urgent situation of high pollution of the natural environment and health conditions of the urban population in Khouribga Province. The intervention of councils in the sanitation sector requires an appropriate framework based on a new contractual approach (standard agreement between ONEP and the Councils). 4.1.5 The various operations envisaged by the project were already covered by the master plans and feasibility studies of 2002-2004, which confirmed their technical and economic feasibility. The preliminary design studies conducted in 2005-2006 provided insights into the

9 Chefchouan and Azilal Provinces have already been covered by a Bank-financed project to stregnthen rural basic health care. The project was completed in 2004.

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different technical and financial aspects of the project. Moreover, the environmental impact assessment of the Khouribga sanitation project has been completed, as well as the two preliminary environmental assessments for Oued Zem and Boujaâd. 4.1.6 The Bank's experience in similar projects in Morocco generally shows a good quality of the technical documents prepared by ONEP and a stringent management of company contracts as regards the implementation of works and meeting of deadlines. Similarly, over the past few years, ONEP has acquired much experience in the implementation of rural DWS projects which, by virtue of their specificity, require a participatory approach aimed at involving the rural beneficiaries and their adhesion to the projects to be implemented. Within this framework, ONEP has just finalized a methodological guide to rural DWS and sanitation projects aimed at providing users (planners, designers, social mobilization teams charged with implementing DWS projects, etc.) as well as donors with a tool which spells out ONEP's intervention strategy in rural DWS, the implementation process, the role of each stakeholder, the process and criteria of project planning, design and appraisal and the choice of management method for the facilities, all based on a participatory approach.

4.2 PROJECT AREAS AND BENEFICIARIES 4.2.1 The project concerns the first component relating to improved access to drinking water in rural areas in 4 provinces (Chefchouan, Kénitra, Settat and Azilal) and a second component relating to the development of liquid sanitation in the urban centres of Khouribga, Oued Zem and Boujaad, all 3 located in Khouribga Province (Annex 1). The five provinces concerned by the project, located in the north and centre of the Kingdom, have different physical features. 4.2.2 The choice of the areas concerned by the two components was based on the following main criteria:

- For the rural DWS component, the choice of the provinces concerned is

essentially based on the level of the rate of access to DWS compared to the national average.

- For the urban sanitation component, the choice of the towns is based on the level of pollution of the natural environment, and notably the region's water resources.

Rural DWS component: 4.2.3 In terms of administrative division, the selected provinces belong to 4 different regions and are geographically separated from each other. While Chefchaouen is under the Northern Region of the country (Tangier-Tetouan), Kénitra is under Gharb-Chrarda-Bni Hssene, Settat under Chaouia-Ouardigha region and Azilal under Tadla-Azilal region. The 4 provinces are characterized by a relatively high rural population. In this respect and according to the results of the last population census of 2004, these 4 provinces have over 15% of the total rural population of Morocco (about 2 million out of a total rural population of approximately 13 million). Concerning ONEP’s coverage, the 4 provinces are managed by 2 regional directorates: North West regional directorate (based in Kénitra) for Kénitra and Chefchouan Provinces and the Centre regional directorate (based in Settat) for Settat and Azilal Provinces.

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4.2.4 With the exception of Chefchaouen, these provinces have vast agricultural plains of which a considerable part is devoted to irrigated agriculture: Gharb plain for Kénitra, Chaouia plain for Settat and Tadla plain for Azilal. This reflects a certain rural situation which undoubtedly explains why between the last 2 general censuses (1994 and 2004), the rural population of the provinces in question grew at an average rate higher than the national rural average (0.9% compared to a national average of 0.6%). It is thus important to envisage measures to maintain the rural populations where they are otherwise they could migrate to large cities. The development of access to drinking water in rural areas could contribute to maintaining them there. 4.2.5 From the economic point of view, the rate of rural unemployment in these 4 provinces is higher than the national average for the two sexes. As regards health, these provinces are less favoured insofar as the ratio of doctor per 10 000 inhabitants varies from 1.9 for Azilal to 4.7 for Kénitra, against a national average of almost 8 doctors per 10 000 inhabitants. Similarly, the under-equipment in hospital infrastructures is quite significant given that except for Settat, the number of beds per 10 000 inhabitants is extremely low compared to the national average. 4.2.6 Concerning access to drinking water, these 4 provinces all had an overall access rate10 lower than the national average at end of 2004, which was 61%. Taking into account only the localities with a functioning DWS system, the access rates are 32% for Chefchaouen, 32% for Kénitra (against 42% taking into account the DWS systems that are non-functional or break down frequently), 35% for Settat (against 62% taking into account the DWS systems that are non-functional or break down frequently) and 36% for Azilal. As regards individual connection of the rural population and for a national average of 22% in 2004, these 4 provinces have rates of individual connections by far lower than this average, namely 3% for Chefchaouen, 7% for Settat, 14% for Kénitra and 15% for Azilal. 4.2.7 The project will benefit approximately 600 villages (douars) totaling a population of about 350 000 inhabitants (approximately 176 000 women), representing 18% of the total rural population of the 4 provinces. Its impact on the improvement of access rate to drinking water in rural areas at the national level will be about 2.6% on the overall. However, this impact will be much more significant in the various provinces taken separately. Thus, the impact will vary from approximately 10% for Settat and Chefchaouen to more than 20% for Azilal and Kénitra. Urban Sanitation Component 4.2.8 In 2004, the towns of Khouribga, Oued Zem and Boujaâd concerned by the project had a total population of about 300 000 inhabitants (approximately 155 000 women) of which approximately 2/3 for Khouribga, which is thus the only true city, the other 2 localities being much more comparable to small urban centres. As regards sanitation, none of the 3 urban centres presently has a functioning waste water treatment plant insofar as the 2 plants in Khouribga (compact plant of the Office Chérifien des Phosphates (Moroccan Phosphates Authority (OCP) and the activated sludge type plant11 of the Municipality) have virtually stopped working, while the old plant in Boujaâd has been completely dismantled. 10 The rural drinking water access rate is obtained by dividing the rural population of localities with a DWS system by the total rural population of the province concerned as a whole. 11 This activated -sludge plant was constructed in 1986 for a capacity of 7 700m3/day and a DBO5 of 2 700 Kg/day. It currently operates below its nominal capacity as most of the collected waste water is by-passed

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4.2.9 The town of Khouribga has for a long time relied on a very significant phosphate mining activity (2/5 of the Kingdom's deposits), exploited by the OCP in its mines located in the immediate surroundings of the city. Other less significant industrial (agro- industry, textile, wood, marble) and commercial activities have developed in the city. Agricultural activity remains insignificant owing to low rainfall and the lack of easily accessible sustainable resources in the area (growing of barley and extensive stockbreeding). Oued Zem and Boujaâd are small urban centres primarily engaged in agricultural activities (cereals, fodder, market gardening and livestock). Mining and industrial activities also play a significant role in the economy of the town of Oued Zem, given that the OCP employs over 30% of the city's workforce. 4.2.10 The project will benefit the urban population of these 3 centers by improving the natural environment through the elimination of raw waste water discharges and collection of waste water in the districts of these centres. In addition to this population, there are the farmers adjacent to the new treatment plant and the Touim Wadi who receive and will continue to receive the town's treated waste water discharges for re-use in agriculture. 4.2.11 Both the rural drinking water and urban sanitation aspects of the project will have other equally important beneficiaries: the Moroccan State and notably the councils concerned by the project, which will be able to provide to their population adequate access to drinking water while reducing expenditure on water-borne diseases; ONEP, which will be able to cope with the increasing demand for sanitation services by strengthening its means of collection and treatment of waste water; the environment, following reduced pollution of the natural environment; and the national and international companies, which will benefit from the works, goods and services contracts for the implementation of the works of the various project components.

4.3 STRATEGIC CONTEXT 4.3.1 The Government's strategy in the sector is centered around the integrated management and development of water resources so as to support the country's economic and social development. The key objectives of this strategy are to satisfy and secure the drinking water needs of the populations, contribute to agricultural development by supporting irrigation, develop the hydraulic potentialities by the production of electric power, protect the populations and property against floods, and promote local development by fostering balanced access to water in all the regions. ONEP, as a leading actor in matters of drinking water and sanitation infrastructures, prepared its strategic plan for 2003-2007 with special focus on the following three areas: (i) widespread access to drinking water for the entire population, (ii) active intervention in the liquid sanitation sector and (iii) sustainability and protection of existing infrastructures. 4.3.2 The project also consistent with the Moroccan Government's 2020 rural development strategy, of which one priority is to improve living conditions in rural areas by developing access to basic infrastructure and social services, while reducing imbalances

upstream of the plant at the spillway of the feed-pipe (El Touim thalweg)/ Moreover, owing to the lack of technical and financial means, the Khouribga municipal plant is currently facing serious pre-treatment problems, a reduction in the running time of aeration turbines and only partial treatment of collected effluents.

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between the provinces best served and those which are least so. The National Initiative for Human Development (INDH), launched by King Mohamed VI in May 2005, came to reinforce this priority, its objective being poverty reduction and its target the poor rural and peri-urban areas, as well as vulnerable groups. It is also one of the areas of intervention featuring in the CSP (2003-2005), which was updated for year 2006, to back up the Government’s programme, notably support to the reforms undertaken in the drinking water and liquid sanitation sub-sector and the financing of investment projects concerning the development and upgrading of economic and social infrastructures and as regards consolidation of basic social facilities in rural areas. The WSAP, which was approved in December 2003, strengthens the Government's programme in the integrated management of water resources and promotes a conducive environment for investments in the sector. This project thus responds to the Government’s strategy and will contribute to strengthening public investments in priority areas such as rural DWS and the treatment of waste water and the preservation of water resources. It is also in conformity with the Bank’s policy and strategic plan guidelines, which have upgraded the drinking water and sanitation sector to a priority sector so as to assist member countries to achieve the Millennium Development Goals (MDGs). 4.3.3 The project also falls within the Rural Water Supply and Sanitation Initiative (RWSSI) of the Bank, designed as a response to the African Water Vision and to the Millennium Development Goals. The RWSSI was designed in 2002, and aims at accelerating access to drinking water and sanitation services in the rural areas of the continent in order to serve 66% of the population in 2010 and 80% in 2015. The Initiative encourages the programme approach in defining and implementing operations. Investments will be based on an agreed minimum level of water supply and sanitation service, in consultation with the governments, non-governmental organizations (NGO) and stakeholders, while taking into account the hydrological and hydrogeological conditions, the population density, and the socio-economic situation of the countries.

4.4 PROJECT OBJECTIVES 4.4.1 At the sectoral level, the project aims to reduce poverty in rural and urban areas through access to DWSS services. The short-term objective of the Government of Morocco is to increase the rate of access to drinking water in rural areas from approximately 60% at end-2004 to over 90% at end- 2007. This access rate is beyond the Millennium Development Goals (halving the rural population without access to drinking water) and is also higher than that envisaged in the Bank's RWSSI. As regards waste water management, the Government's objective is to ensure widespread connection to the network in urban areas and to increase the rate of treatment of urban waste water currently at 5% to 30% in 2010 and 60% by 2015. 4.4.2 The specific objectives of the project are the sustainable improvement of rural drinking water supply and improved waste water management in Khouribga Province. The achievement of these objectives will: (i) increase the rate of access to drinking water in the provinces covered by the project from approximately 18% of the rural population (that is, a population estimated according to the 2004 census at 350 000 inhabitants); (ii) provide at least 20% of the beneficiary population with DWS service through individual connections (90% of the beneficiaries with individual connections will have adequate facilities for gray water management), and (iii) provide satisfactory liquid sanitation services to a population estimated at 300 000 inhabitants (waste water collection and treatment) in the towns of Khouribga, Oued Zem and Boujaâd, thereby decreasing the rate of discharge of raw waste

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water into the natural environment, which is virtually 100% currently (the existing waste water treatment plant being virtually broken down) to approximately 20% at project completion (2010).

4.5 PROJECT DESCRIPTION 4.5.1 The project comprises the following key components:

A Access to drinking water for rural populations (production and supply); B Distribution of drinking water and management of gray water for rural

populations; C Treatment of waste water in the towns of Khouribga, Zem Wadi and Boujaâd; D. Technical assistance and support to project implementation.

A. Access to drinking water for rural populations (production and supply): 4.5.2 This component comprises the production and supply works of the sub-projects, which will be selected in the 4 provinces concerned on the basis of eligibility criteria jointly defined with ONEP12 (on the basis of current cost of the priority sub-projects adopted by the Department of the generalization of drinking water of ONEP in each province) :

Capital costs of the sub-project (100% of the cost of the sub-project excluding tax (final design-base), plus 10% for physical contingencies / population in 2004):

- Maximum amount of MAD 2,500/inhabitant, for Kénitra and Settat

Provinces (plains) ; - Maximum amount of MAD 3,000/inhabitant, for Chefchouan and

Azilal Provinces (hilly areas).

Operating cost of the sub-project (100% of the cost exclusive of tax (final design-base excluding depreciation, at time of commissioning) :

- Maximum amount of MAD 5/m3.

4.5.3 ONEP identified 4 sub-projects (one per province) for which preliminary designs were prepared and which meet the eligibility criteria mentioned above. Component A works for the sub-projects identified are:

Kénitra Province (Kénitra Suburb sub-project): construction of 8 pumping stations, laying of supply pipes (51 km of HDPE and PVC pipes of diameters ranging from 90 to 225 mm), the construction of 6 tanks of a capacity ranging from 50 m3 to 600 m3, laying of douar delivery pipes (about 195 km of HDPE and PVC pipes of diameters ranging from 50 to 400 mm) and the construction of about 190 water fountains.

12 Where sub-project costs exceed one of the above-mentioned thresholds, ONEP will send a note to the Bank confirming that the sub-project is part of ONEP’s priority programme and that the technical solution chosen is the most cost-effective.

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Settat Province (Settat “Cercle” sub-project): construction of 2 relay plants,

laying of supply pipes (20 kms of PVC pipes of a diameter ranging from 125 to 315 mm), the construction of 3 tanks of a capacity ranging from 300 m3 to 1000 m3, laying of douar delivery pipes (about 405 kms of HDPE and PVC pipes of diameters ranging from 50 to 400 mm) and the construction of about 195 water fountains.

Chefchouan Province (Mokresset and Bab Taza “Cercles”sub-project):

construction of 7 relay plants, laying of supply pipes (176 km of HDPE, PVC and ductile cast iron pipes of diameters ranging from 75 to 315 mm), the construction of 4 tanks of a capacity ranging from 25 m3 to 500 m3, laying of douar delivery pipes (about 40.5 km of HDPE, PVC and ductile cast iron pipes of diameters ranging from 60 to 150 mm) and the construction of about 70 water fountains.

Azilal Province (Hassan I dam sub-project): construction of a water intake

on the Hassan I dam, the construction of the first module of a treatment plant, the construction of a pumping station, laying of supply pipes (34.5 km of PVC and cast iron pipes of diameters ranging from 400 to 600 mm), the construction of a gravity water tank of a capacity of 1500 m3, laying of douar delivery pipes (about 530 km of HDPE and PVC of diameters ranging from 50 to 140 mm) and construction of about 200 water fountains.

4.5.4 Regarding sanitation measures under this component, the approach suggested favours promotion and training in water hygiene and individual sanitation to be conducted by the technical assistance which will make maximum use of existing black water (excreta) management facilities, since in 2004 over 70% of households already had autonomous sanitation facilities13. B. Rural drinking water distribution and gray water management 4.5.5 This component concerns individual connection based on a participatory approach aimed at giving beneficiaries a choice between the two service levels (water fountains or individual connection), depending on their ability to pay the costs of providing distribution systems and gray water management works and tariffs that will cover the operating and maintenance costs of these systems. The management of gray water (household waste water) will be based on an approach favouring separate management of waste water (black water and gray water) so as to: (i) reduce investments by making maximum use of existing facilities (latrines); (ii) limit the cost of operating the gray water evacuation system. The option of individual connection is subject to the following eligibility criteria:

- At least 70% of village (douar) households concerned opt for individual connection;

- The investment and operating costs are financed by the local population (users, supported where necessary by rural councils);

- Construction of gray water treatment plants is a condition precedent to individual connection.

13 Diagnostic study of rural DWS in Morocco – ONEP/FAO; September 2005.

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4.5.6 This component comprises distribution networks within douars with individual meters, as well as the structure required for gray water management. The works will involve the laying of distribution pipes (HDPE of 63 mm diameter), placing the individual meters and construction of gray water management structures on the basis of individual drainage (according to the type of soil, filter-beds or sand filters). In villages where this individual option is not possible (soil impermeability), the Technical Assistance will examine and identify other suitable solutions which will be presented to the beneficiary population to select, in light of the investment and operating costs. 4.5.7 The cost of providing drinking water and gray water management systems will be borne by users, where possible, with support from rural councils and according to procedures in force at ONEP. To facilitate access to individual connection for poor households, the amount envisaged for component B will be a payment facility that will enable beneficiaries to refund the investment costs of the facilities over a period of 7 years. The diagnostic study conducted by ONEP, with FAO support, has shown that the willingness to pay for individual connections increases significantly when payment is proposed with a credit spanning 7 years. The project will also provide technical know-how to users, through technical assistance, which will conduct detailed studies of drinking water distribution networks and will assist users in selecting the best technical and economical solution for gray water management. 4.5.8 On the basis of the socio-economic study of rural DWS in Morocco, conducted by ONEP with FAO support, the percentage of the population that would opt for individual connections has been estimated at 20% in the project area, that is about 90 000 inhabitants at project completion (2010). This rate will rise progressively to reach 80% in 2025. Technically, all douar drinking water supply systems to be put in place under Component A will be designed to meet specific consumption needs and under minimum pressure, necessary for individual connections. C. Waste water treatment in the towns of Khouribga, Oued Zem and Boujaâd 4.5.9 This component comprises the following works:

- Khouribga town with a population estimated at 166 397 inhabitants of which 87 525 are women (2004 census): the works consist in the rehabilitation and extension of the waste water collection network (for a distance of 30 km), the rehabilitation of existing treatment plant (activated sludge-type of a capacity of about 7 700 m3/day) and the construction of a transfer network and a new lagooning-type treatment plant (of a capacity of about 10 000 m3/day);

- Oued Zem town with a population estimated at 83 970 inhabitants, of which 43 916 are women (2004 census): the works consist in the extension of the waste water collection network (for a distance of 70 km) and the provision of a transfer network and a lagooning- type treatment plant (of a capacity of about 6 000 m3/day);

- Boujaâd town with a population estimated at 40 513 inhabitants, of which 21 553 are women (2004 census): the works consist in the rehabilitation and extension of the waste water and rain water collection network (for a distance of about 20 km) and the establishment of a transfer network and a lagooning-type treatment plant (of a capacity of about 3 500 m3/day).

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D. Technical Assistance, Capacity Building and Support to Project Implementation 4.5.10 This component will strengthen ONEP’s capacity for the implementation of the project and support the douar DWSS management units. It comprises: (i) the adoption of a participatory approach, aimed at informing the population, striking a balance between the facilities provided on the solvent request of the populations and the enhancement of the capacities of management units of DWSS systems; (ii) the development of human capital in rural areas through training activities on water hygiene and the promotion of sanitation systems; and (iii) coordination, monitoring and control of works. 4.5.11 Technical assistance will essentially comprise social mobilization and hygiene education teams and technical teams for the validation of the choice of DWS sub-projects based on agreed eligibility criteria, the validation and approval of the design and construction studies furnished by contractors, in particular reinforced concrete plans of structures, equipment and laying of pipes. Technical assistance will also assist ONEP in preparing quarterly activity reports and the project completion report.

4.6 PRODUCTION, MARKETS AND PRICES 4.6.1 The demand to be met by this project comprises the drinking water needs of about 18% of rural populations of Chefchaouen, Kénitra, Settat and Azilal Provinces, as well as liquid sanitation needs (including treatment) of urban populations in Khouribga, Oued Zem and Boujaâd. The drinking water needs of the Kingdom’s rural areas are evaluated by province using an analytical method which takes into account the past trend of different parameters: demographic trend of rural populations, trend of rates of access to drinking water and rate of individual connections and the drinking water allocation for each service (water fountain and individual connection). The general assumptions used are the following14: (i) an average growth rate of 0.5% to take into account the future trend of the rural population in each province; (ii) improvement of the service level to reach a national average of 90% in 2010 for drinking water access and 20% for individual connections (over 30% for centres that are chief-towns of rural councils); (iii) a minimum allocation of 50 l/inhbt/day for households connected individually and 20l/inhbt/day for populations not connected individually; and (iv) an improved output of networks to attain the national target of 80% for distribution and 90% for production by the year 2010. The demand projections based on the above assumptions are summarized as follows:

14 “Methodological guide to rural DWS project”; ONEP – January 2006.

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Table 4.1 Additional Demand15 of the Project Area (in m3/day)

Province concerned 2004 2010 2015 2020 2025

Additional population 43 000 47 605 51 817 56 401 61 391 Chefchaouen Province Water demand 2 150 2 380 2 591 2 820 3 070

Additional population 164 200 175 861 186 208 197 164 208 765 Kénitra Province Water demand 8 210 8 793 9 310 9 858 10 438

Additional population 77 000 78 584 79 929 81 297 82 689 Settat Province Water demand 3 850 3 929 3 996 4 065 4 134

Additional population 130 000 135 880 140 982 146 276 151 769 Azilal Province Water demand 6 500 6 794 7 049 7 314 7 588

4.6.2 Regarding the collection and treatment of waste water in Khouribga, Oued Zem and Boujaâd towns, the allocation and ratios adopted are similar to those of centres of the same size:

Khouribga town:

- Rate of connection to the sewer network: The current rate is about 90%, it will reach 98% by 2025.

- Average drinking water consumption for the connected population is about 80l/inhbt/day.

Oued Zem town:

- Rate of connection to the sewer network: The current rate is about 75%, it

will reach 98% by 2025. - Average drinking water consumption for the connected population is about

55l/inhbt/day.

Boujaâd town:

- Rate of connection to the sewer network: The current rate is about 90%, it will reach 98% by 2025.

- Average drinking water consumption for the connected population is about 60l/inhbt/day.

Table 4.2

Average Volume of Discharged Waste Water in the Project Area (in m3/day)

Town concerned 2005 2010 2015 2020 2025

Total population 167 895 175 587 183 632 192 046 200 845 Khouribga Volume discharged 12 699 13 950 15 200 16 450 17 700

Total population 85 045 90 271 95 347 100 210 105 322 Oued Zem Volume discharged 3 368 4 199 4 860 5 575 5 975

Total population 41 314 45 613 50 361 55 603 61 390 Boujaâd Volume discharged 2 440 2 485 2 799 2 982 3 326

15 Additional production is calculated by ONEP on the basis of an individual connection rate of 100%, that is an additional demand equal to 50l/inhbt/day, times the number of additional inhabitants.

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Tariffing 4.6.3 Drinking water tariffs at production and at distribution are fixed by Order of the Minister delegate to the Prime Minister in charge of the General Affairs of the Government, on the proposal of an interministerial committee comprising representatives of the various ministries concerned. Tariffs continue to be progressive so as to be considerate towards the populations with low incomes and encourage large consumers to economize water. There are two types of tariffs in Morocco: the sale price at production and the sale price at distribution for each distribution operator (ONEP, utility, concession or others). Based on the marginal cost of development, drinking water tariffing at production partially reflects the varying costs through the adoption of differentiated tariffs from one supply complex to another, without however reaching the real price (taking into account the mobilization). The revised tariffs took effect as from 2 March 2006. 4.6.4 Drinking water tariffs applicable by ONEP for water distribution is based on economical consumption of drinking water and distinguishes three types of use: domestic (private subscribers and Government services), preferential (public baths and water fountains) and industrial. Domestic use comprises 4 consumption brackets: the first one (social bracket) represents a consumption of 18m3/quarter, that is 200 litres/day at a very low price, sometimes half the cost price. The second bracket (18-60 m3/quarter) is billed at a price close to the cost price, while the tariff of the third and fourth brackets exceed the cost price to offset the lost earnings resulting from the social tariff. The industrial tariff and preferential tariff are lower than the average distribution cost. Present tariffs of drinking water sales are shown in Annex 9. 4.6.5 Alongside this tariff scale, a system of surtaxes is designed to ensure equalization between users in major urban centres and those of small localities and rural areas, namely: (i) national solidarity surtax established in 1992 which stands at MAD 0.74/m3 and is earmarked for financing the extra cost of operating services in small centres managed by ONEP; and (ii) a PAGER surtax, established in 1998, representing 5% of the tariff on water production which is paid by all users of the utilities and conceded services on the production tariff, and is used to finance part of the rural DWS investments. 4.6.6 During the first quarter of 2006, two tariff Orders were issued by the Government following a request for the revision of tariffs, prepared by ONEP under its programme contract for 2006-2009 with the State. By ministerial Order of 6 February 2006, the Government took the following measures for drinking water production: (i) 3.5% increase of production tariffs; and (ii) taking into account of production tariffs, the full impact of the water catchment charge (MAD 0.04/m3) to be paid to ABH. Regarding distribution, there was: (i) revision of the threshold of the 1st bracket from 8 to 6 m3/month (this measure could contribute to better targeting of the social concerns of the public authorities through the social bracket); (ii) the fixed charges rise from around MAD 36 to 72/subscriber/year for households and MAD 74 to 120/subscriber/year for industrial and preferential users, and (iii) application of the industrial tariff to hotel consumption (for concession holders in two phases, the 1st phase is already granted, with a tariff that is already approved). 4.6.7 The levying of sanitation tariffs in Morocco is relatively recent, currently representing between 10 and 30% of the drinking water tariff. Still under P-C 2006-2009, the State also revised sanitation tariffs by Ministerial Order of 6 February 2006. This new revision introduces a fixed charge of MAD 3/month, applicable throughout the Kingdom. The

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sanitation tariff for households of ONEP centres ranged from MAD 0.75/m3 to MAD 3.0/m3 according to the brackets. The State’s objective is to raise the sanitation tariff from the current average of MAD 2/m3 to MAD 3/m3 in 2015. 4.6.8 For private operators, water distribution in Moroccan towns is profitable. Conversely, tariffing remains a constraint on the development of autonomous utilities. The main constraint regarding water tariffing in Morocco at present remains the definition of the cost price of raw water, which includes mobilization, transfer, sustainability of the installed capacity and protection of the resource itself in order to determine the economic cost of water. This constraint is being removed by the Bank’s WSAP16 which envisages, among other measures, the preparation of a methodology circular (both for drinking water and sanitation) laying down the principles for tariffing drinking water. This would bring about a pricing policy based on the real cost of raw water. 4.7 ENVIRONMENTAL IMPACTS 4.7.1 Categorization The project is classified under environmental category 2 owing to the fact that a limited surface area of land will be acquired, people will not be displaced, there will be no special impacts on the biodiversity, there will be no ecological areas to be protected in the vicinity of the project sites, and there will be substantial socio-economic benefits, especially for the most needy populations (rural population, peripheral urban population). The project will improve the health status of the populations in three towns following the construction of waste water treatment plants; it will also protect the water tables concerned. ONEP has acquired much experience in Bank procedures and guidelines in the area of the environment and land occupancy; it successfully managed all the environmental issues under various Bank-financed projects (notably the 7th DWSS project already completed and the ongoing 8th DWSS project) as well as the projects of the other donors such as WB, AFD, EIB, KfW, etc. 4.7.2 Institutional Aspects: MATEE is responsible for coordinating the environmental management activities of the various institutions in that domain. Law No.12-03 of 12 May 2003 on impact assessment aims at harmonizing EIA procedures at the national level, and subject the implementation of certain projects to an “Environmental Acceptability” decision. In 1996, ONEP prepared the first methodological guide for EIAs on the drinking water supply projects which it implements. This guide was revised in 2000, and was extended to liquid sanitation projects. The Environment Division of ONEP is currently preparing guides for environmental surveillance and monitoring. 4.7.3 In accordance with Law No.12-03 of 12 May 2003, liquid sanitation projects are subject to environmental impact assessments and to obtaining the environmental acceptability decision. This was already granted in 2005 (for a validity period of 5 years) for the Khouribga Sanitation Project on the basis of an EIA conducted in 1999. This EIA could be revised if the detailed studies of the Khouribga project being finalized recommends major changes compared to the basic study, notably concerning the re-use of purified water by OCP and the change of the treatment process (the choice of the treatment plant remains unchanged). The EIA for the sanitation of the town of Zem Oued will be finalized in May 2006. The appraisal was based on a preliminary note received at the time of the appraisal mission. Concerning the sanitation of Boujaâd, the EIA will only be ready in July 2006. The

16 Approved by the Bank in December 2003.

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appraisal was also based on a preliminary note received at the time of the appraisal mission. The final reports of the EIA for the towns of Oued Zem and Boujaâd will be presented to the Bank and to the national commission of the environment in order to obtain the environmental acceptability decision. For the rural drinking water and sanitation projects, an EIA is not required under Moroccan law. However, it was agreed that ONEP would have an environmental analysis conducted by its Environment Division before the commencement of works concerning each sub-project. This analysis will decide if it is necessary to conduct an in-depth assessment. 4.7.4 Special Aspects The use of treated waste water in agriculture would be a good idea for a country such as Morocco that has water shortage. Treated waste water quality after a standard treatment in two phases (primary and secondary) is appropriate for certain crops such as cereals, fodder plants, etc. Conversely, for plants which are eaten raw such as vegetables, safety is no longer guaranteed in all cases. Risk monitoring in re-use should thus take place on the one hand, by monitoring the physicochemical indicators of the quality of treated water and, on the other hand, by a periodic analysis of the quality of agricultural produce. The treatment plants constructed under the project all have maturation (tertiary treatment) to improve waste water treatment and notably to ensure the elimination of bacterial pollution to a level sufficient to allow the re-use of the treated water in agriculture. 4.7.5 The management policy on treatment plant sludge and the institutional framework are not yet established nationwide. Pending that, the most suitable solution will remain the dumping of this sludge at landfill sites according to the regulations of the management of solid wastes, after carrying out quality control. To this end, the sludge must be dehydrated to reduce volume and to avoid the risks of subsequent nuisances through fermentation. The ground water of the area suffers a deterioration in quality with nitrate contents largely exceeding the standards of potability allowed in Morocco, fixed at 50 mg/l. In order to contribute to the elimination of such pollution, the sanitation project of these three towns envisages nitrogen treatment by denitrification. 4.7.6 Positive Impacts The positive impacts of the project essentially include: (i) for rural DWS: improvement of the hygiene and health conditions of drinking water supply, regional recruitment for construction and earthworks, development of new activities related to water availability (supply of goods and services, development of small livestock and small-scale family-type market-gardening irrigation, etc.) and the disappearance of water collection-related chores (ii) for liquid sanitation in the 3 towns, extension of the sanitation service to the entire population of the towns concerned, elimination of frequent breakdowns of the network and floods in the towns, improvement of the living environment and hygiene and health conditions of the population and users of waste water for irrigation, gradual depollution of receiving wadis (over 42 existing wells in the Jamaâ of Ouled Amdoun, located downstream of the current discharges of raw waste water, are currently abandoned because of the pollution of their water by raw waste water discharges) which will make their water fit for use in profitable economic activities (irrigation, market gardening, nurseries, etc.) and reduce current risks of spread of water-borne diseases. 4.7.7 Negative impacts The key environmental risks during the works are: (i) acquisition of the land necessary for laying of pipes and construction of tanks, pumping stations and treatment plants; (ii) hiring of land for work sites and depositing materials; (iii) work site impacts, such as noises, dust, etc. (labour legislation was re-examined recently and strengthened to better guarantee work site safety and protect workers' rights); (iv) some

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negligible disturbances of the fauna and flora, which do not pose any threat; and (v) short disruption of the economic activities of the districts concerned during the laying of pipes. During the operation of the new facilities, the risks primarily depend on the type of maintenance to be carried out: risks of erosion of the gravity lines; risks of pollution by the effluents and waste from water treatment plants, through generation of residues (sludge); aesthetic impacts (non-maintenance of buildings and installations). These risks are minimized by ONEP’s wide experience in the operating drinking water and sanitation systems for over 25 years. ONEP is a key actor in environment and its Environment Division has developed guides for environmental surveillance, monitoring, and auditing. 4.7.8 In conclusion, it should be noted that the project does not entail any significant negative impact requiring special monitoring. The procedures for environmental surveillance and monitoring during the works and during operation of the networks are specified in the Environmental and Social Management Plan (ESMP). The mitigating measures detailed in the environmental impact assessments will be managed directly by the contractors in accordance with the specifications, and the costs are included in the works. Measures to be taken will concern land acquisition and/or compensation for damage caused to private properties, supervision of work sites, movement within the work sites, earthworks, the systems of effluent and waste collection and treatment on work sites, working hours and information of riparian populations, restoration of worksite areas, management of worksite equipment, tree planting and restoration of vegetation, protection of ground and surface waters, hygiene and public health, standardization of the quality of purified and treated water, etc. Special measures will be taken in treatment plants, such as sealing of the basins, fencing of the treatment plants and plant screens. The environmental and social monitoring of the project, in accordance with MATEE directives, will be placed under the responsibility of ONEP's Environment Division, which has wide experience in the field. Acceptance of the works will include the environmental component.

4.8 SOCIAL IMPACT 4.8.1 Impacts on Poverty According to the annual report on the status of the MDGs, poverty among the populations, evaluated on the basis of the threshold of less than 1 dollar/day, has no statistical relevance in the country. However, 19% of the population live below the country poverty line fixed in 1998-1999 at MAD 3 988 in urban areas as against MAD 3 037 in rural areas, whereas the poorest population’s proportion in the total expenditure rose from 1.9 % in 1985 to 2.5 % in 2001 almost doubling over the last 30 years. Conversely, relative poverty remained stable from 1994 to 2004 for the rural areas. The inequalities in expenditure, where urban dwellers spend on average 2 times more than rurals, best reflect the disparity in living conditions. Moreover, social exclusion generated by unemployment in rural areas is characterized by various forms of under-employment, and not by chronic unemployment. 4.8.2 The halving of inequalities in expenditure between 1990 and 2015 (target 5 of MDG 1) combined with literacy activities and supply of public amenities are major components of the rural poverty reduction strategy. Thus, access to drinking water and sanitation constitutes a double progress in view of the process of harmonization of the living conditions between town and country, and as concerns various fundamental human rights which are thus made possible (right to life, right to dignity, right to food, right to peace, right to a healthy environment, right to sustainable development). Thanks to the recommended participatory approach, a strengthening of social bonds in the douars, greater transparency in

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the management of the local communities and, in the long term, professionalization of the civil society in water management are expected. Finally, the jobs created will foster job opportunities among those most vulnerable to rural unemployment. 4.8.3 Impacts on Gender With regard to gender, the aim is to reduce the time devoted to water collection in rural areas mostly by girls aged 7 to 15 years, who form the group in which the poverty incidence is highest (24.9 %), as well as for those aged 15-25 years. According to some sources, women and girls today devote from 40 to 90 minutes on average to water collection, and in 74.3% of the cases, it is the single women who go and fetch water. Reducing this drudgery through water fountains or eliminating it through individual connections would allow them more time to study, train, play or join associations where women are particularly absent in rural areas. In addition to improved health conditions through reduced prevalence of water-borne diseases (reduction by 37% of diarrhoeas, by 13% of child mortality and by 75% of colics and chronic diarrhoeas during the last decade 1995-2004 since the beginning of implementation of PAGER17), such time saved could also impact on the reduction of the illiteracy rate among older women, which is still very high in rural areas (61% in 2004). Lastly, women's associations seeking to promote the establishment of a quota for women in the council elections of 2008 would put women in direct contact with the management of DWSS services, which is the exclusive responsibility of the councils in accordance with the new Council Charter. Such presence in municipal councils will be also a response to the absence of a gender focal point in the technical ministries in charge of water. 4.8.4 Socio-economic Impacts: Taking into account Morocco's strategy regarding the development of rural DWSS sub-sector and the effective actions undertaken on the ground for the past ten years, notably under PAGER, the country will successfully achieve the MDGs relating to access to drinking water and sanitation services18. The concrete socio-economic impacts are time saved for women and improvement of the enrolment rate for children in rural areas (reduction of the water collection chore, reduction in absences due to intestinal diseases, availability of drinking water for pupils in schools19). 4.8.5 The construction of new waste water treatment plants in the urban centres of Khouribga, Oued Zem and Boujaâd will improve the health conditions of the urban populations of Khouribga province, and will curb the spread of water-borne diseases (mainly enteric dysenteries and fevers) which affect mostly the children. This will contribute to reduce medical expenses, absence from work or school, as well as health care-related tasks generally performed by women.

17 Diagnostic study on rural DWS in Morocco – ONEP/FAO; September 2005. 18 United Nations Development Programme in its Country Report 2005 for Morocco. 19 Diagnostic study on rural DWS in Morocco – ONEP/FAO; September 2005.

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4.9 PROJECT COST Total project cost, excluding taxes and customs duties, is estimated at MAD 1 360.4 million, that is about UA 104.2 million. This cost includes a 10% provision for physical contingencies and 1.5% for price escalation. The detailed cost of the project is shown in Annex 10. The breakdown of project cost by component and expenditure category is as follows:

Table 4.3 Project Cost by Component

Component Cost exclusive of taxes

(in million MAD) Cost exclusive of taxes

(in million UA) Foreign

Exchange Local

currency Total Foreign

Exchange Local

currency Total

A – Access to drinking water by rural populations (production and supply)

414.0 166.2 580.2 31.7 12.7 44.4

B – Distribution of drinking water and management of gray water for rural populations

41.2 10.3 51.5 3.2 0.8 4.0

C – Treatment of waste water in the towns of Khouribga, Oued Zem and Boujaâd

372.3 149.2 521.5 28.5 11.5 40.0

D – Technical assistance and support to project implementation

34.6 36.0 70.6 2.7 2.7 5.4

Basic cost 862.1 361.7 1 223.8 66.1 27.7 93.8 Physical contingencies 82.8 32.5 115.3 6.3 2.5 8.8 Price escalation 14.4 6.9 21.3 1.1 0.5 1.6 Total 959.3 401.1 1 360.4 73.5 30.7 104.2

Table 4.4

Project Cost by Expenditure Category

Expenditure Category Cost excl. of Taxes (in million MAD)

Cost excl. of Taxes (in million UA)

Foreign Exchange

Local currency

Total Foreign Exchange

Local currency

Total

Goods 103.8 10.7 1145 8.0 0.8 8.8 Works 723.7 233.2 956.9 55.5 17.9 73.4 Services 34.6 39.4 74.0 2.6 3.0 5.6 Miscellaneous 0.0 78.4 78.4 0.0 6.0 6.0 Basic cost 862.1 361.7 1 223.8 66.1 27.7 93.8 Physical contingencies 82.8 32.5 115.3 6.3 2.5 8.8 Price escalation 14.4 6.9 21.3 1.1 0.5 1.6 Total 959.s3 401.1 1 360.4 73.5 30.7 104.2

4.10 SOURCES OF FINANCE 4.10.1 The project will be jointly financed by the Bank and ONEP with State guarantee. The Bank will finance 80% of Component A (not including the cost of purchasing land), 70% of the costs of Component C (not including the cost of purchasing land) and all the foreign exchange costs of Component D, which represent about MAD 900 million, or approximately UA 69.0 million, representing 66.2% of project cost estimates, excluding taxes. ONEP will finance the balance of total project cost excluding taxes as well as any taxes and customs duties. The project’s financing plan is as follows:

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Table 4.5 Financing Plan by Source

Source in million MAD in million UA (%)

Foreign Exchange

Local currency

Total Foreign Exchange

Local currency

Total

ADB 900.0 0.0 900.0 69.0 0,0 69.0 66.2 ONEP 59.3 401.1 460.4 4.5 30.7 35.2 33.8 TOTAL 959.3 401.1 1 360.4 73.5 30.7 104.2 100.0 Percentage 70.5 % 29.5 % 100.0 % 70.5 % 29.5 % 100.0 % 4.10.2 The share financed by ONEP will be partially borne by the councils and beneficiaries. In fact, according to the general rule followed in this type of project, rural councils (with the beneficiaries) finance 20% of the rural DWS project costs, while urban councils finance 30% of urban sanitation project costs. ONEP intervention in such projects is undertaken under specific agreements signed with the councils concerned. Such agreements are based on the standard agreement approved by ONEP and DGCL as supervisory authority of councils. 4.10.3 The project’s financing plan by component is as follows:

Table 4.6

Financing Plan by Component (in million UA)

Component ADB ONEP TOTAL A – Access to drinking water by rural population (production and supply) 36,1 13,4 49,5 B – Distribution of drinking water and management of waste water for rural populations 0,0 4,4 4,4 C – Treatment of waste water in the towns of Khouribga, Oued Zem and Boujaâd 30,2 14,7 44,9 D – Technical assistance and support to project implementation 2,7 2,7 5,4 Total 69,0 35,2 104,2 Percentage (%) 66,2 33,8 100,0

4.10.4 The financing plan by expenditure category is as follows:

Table 4.7

Financing Plan by Expenditure Category (in million UA)

Expenditure Category ADB ONEP TOTAL Goods 8.1 1.5 9.6 Works 58.2 23.7 81.9 Services 2.7 3.3 6.0 Miscellaneous 0.0 6.7 6.7 Total 69.0 35.2 104.2 Percentage (%) 66.2 33.8 100.0

5. PROJECT IMPLEMENTATION

5.1 EXECUTING AGENCY 5.1.1 ONEP, which is the borrower (with Moroccan Government’s guarantee), will be the executing agency of the project. In collaboration with the regional and provincial directorates, the DCPD is, through the DGEP (rural DWS section) and the DAE (sanitation section), charged with the implementation and monitoring of the project. The DGEP will be responsible for managing all technical aspects of the project, in close collaboration with the

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DAM and Regional Directorates concerned for the procurement of works, goods and services, the Financial Department for accounting and financial management of the project and general coordination with the ADB and the DAE for monitoring the component concerning the purification and treatment of waste water in the towns of Khouribga, Oued Zem and Boujaâd, as well as monitoring of the impact mitigating measures on the environment. ONEP has wide experience in Bank procedures, having previously successfully implemented 6 (six) projects financed by the ADB. It has adequate human and material resources to implement projects on time. 5.1.2 The project implementation unit will be composed of a coordinator and project managers for each rural DWS and urban sanitation project. It will be backed by technical assistants that will be recruited by the project. It will be placed under the direct supervision of the Monitoring, Studies and Implementation Division (DEP/S) within the Department of the Generalization of Drinking Water. The project coordinator will be a Hydraulic Engineer, or a person with similar qualifications and work experience deemed acceptable by the Bank (minimum of ten years’ experience). As concerns the different project managers for the implementation of the various components, they will be trained hydraulic engineers or with similar qualifications, with relevant experience (minimum of 5 years’ experience) in monitoring projects of rural drinking water supply or urban sanitation and treatment, as the case may be.

5.2 INSTITUTIONAL ARRANGEMENTS 5.2.1 All institutional arrangements have been formalized in the methodological guide for rural DWSS, prepared by the Department of the Generalization of Drinking Water. This guide which is put at the disposal of users (planners, designers, social mobilization teams of the project) as well as donors, specifies amongst others, ONEP’s strategy in the sector, the implementation process, the role of each stakeholder, choice of management method for the installations, all based on a participatory approach. This guide, which is quite exhaustive, will be used by all stakeholders in the implementation of the project, and will be the reference document. 5.2.2 Project implementation at the central level will be monitored by the Monitoring, Studies and Implementation Division (DEP/S) within the Department of the Generalization of Drinking Water. It will designate a project coordinator under its supervision who will be responsible for the implementation and management of all the components. It will also appoint project managers for each sub-project in the provinces concerned to assist the coordinator in the overall project implementation. For the sanitation component, the Technical Assistance Division (DAE/A) within the Department of Sanitation and Environment will monitor and implement sanitation projects in the three towns. It is envisaged that a project manager will be appointed in each of the three towns given the nature of the works. The various Regional Directorates will support the day-to-day management of works and will be charged with launching competitive bidding for the project. The two divisions will be backed by the Technical Assistance of the project throughout the process of implementation of the project. The project implementation organization chart is shown in Annex 17. The appointment of the coordinator and project managers will be a loan condition. 5.2.3 The opening by the Bank of a country office in Morocco with a water and sanitation expert, will help improve the management and monitoring of project implementation. This expert should provide all the necessary assistance required by ONEP’s project

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implementation unit, notably concerning Bank rules and procedures for project implementation, procurement and disbursement procedures and the technical and financial management of the project (quarterly progress report, financial audit report, etc.).

5.3 IMPLEMENTATION AND SUPERVISION SCHEDULES 5.3.1 The implementation of the project is envisaged to span 60 months from 2006 to 2011. This schedule is deemed reasonable, given the nature of the works and the experience acquired by ONEP for similar works. Project start-up is envisaged for the last quarter of 2006. The technical assistance mission will begin in 2006 and will last 4 years, and the different structures to be constructed under the project will be commissioned as they are completed. The completion of the outputs under the project is envisaged for October 2010. The estimated project implementation schedule is summarized as follows: Activities Responsibility Dates Completion of detailed studies ONEP June – December 2006 Competitive bidding ONEP August 2006 – June 2007 Loan approval by the Board of Directors ADB July 2006 Comp. bidding for consulting engineer ONEP June/September 2006 Bid analysis ONEP/ADB Sept 2006 – December 2007 Award of contracts ONEP/ADB October 2006 – Dec. 2007 Implementation of works Contractors October 2006 – October 2010 Works monitoring and inspection Consultant/ONEP October 2006 – October 2010 ONEP completion report ONEP April 2011 ADB completion report ADB October 2011 5.3.2 The estimated schedule of supervision activities of project components is as follows:

Table 5.1

Supervision Schedule

Approximate dates

Activity Speciality ADB Staff/weeks

Launching mission Water and sanitation engineer Procurement officer

3/1

2006

Disbursement officer Supervision mission Water and sanitation engineer

Financial analyst 2/1

2007 Supervision mission Water and sanitation engineer

Financial analyst 2/2

2008

Mid-term review

Water and sanitation engineer Financial analyst Disbursement officer Environmentalist

4/2

Supervision mission Water and sanitation engineer Financial analyst

2/1

Supervision mission Water and sanitation engineer Financial analyst

2/2

Supervision mission Water and sanitation engineer Financial analyst

2/1

2010 Supervision mission Water and sanitation engineer Financial analyst

2/2

2011

Completion mission

Water and sanitation engineer Financial analyst Environmentalist

3/2

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5.3.3 The expenditure schedule by component and the expenditure schedule by source of finance are shown in the following tables.

Table 5.2

Expenditure Schedule by Component (in million UA)

Component 2006 2007 2008 2009 2010 Total A– Access to drinking water for rural population (production and supply)

A1. Azilal province 0.0 6.9 9.2 2.9 0.0 19.0 A2. Chefchouan Province 0.3 6.5 1.9 0.0 0.0 8.6 A3. Settat Province 0.2 5.6 5.2 0.4 0.0 11.4 A4. Kénitra Province 0.0 5.4 5.0 0.0 0.0 10.4 B– Distribution of drinking water and management of gray water for rural populations

0.0 1.0 2.0 1.0 0.4 4.4

C– Treatment of waste water of Khouribga, Oued Zem and Boujaâd urban centres

C1. Khouribga town 0.6 3.4 6.8 6.8 6.8 24.4 C2. Boujaâd town 0.2 1.0 1.6 1.6 1.6 6.0 C3. Oued Zem town 0.2 1.7 4.2 4.2 4.2 14.5 D – Technical assistance and support to project implementation

0.2 1.9 2.0 1.0 0.3 5.4

Total 1.7 33.4 37.9 17.9 13.3 104.2 Percentage (%) 3.6 32.1 36.4 17.2 12.8 100.0

Table 5.3

Expenditure Schedule by Source of Finance (in million UA)

Source 2006 2007 2008 2009 2010 Total ADB 0,0 22,7 25,3 12,1 8,9 69,0 Morocco 1,7 10,2 12,7 6,1 4,5 35,2 TOTAL 3,7 32,9 38,0 18,2 13,4 104,2 5.4 PROCUREMENT PROVISIONS 5.4.1 ADB-financed goods, works and services will be procured in accordance with Bank rules of procedure. Standard competitive bidding documents of the Bank will be used for preparing competitive bidding documents. The contract award method is shown in table 5.3 below. ONEP will be responsible for awarding contracts. Its resources, its capacity and its acquired experience in the application of Bank rules during the implementation of the five preceding Bank-financed projects, represent a guarantee of the proper conduct of the competitive bidding. 5.4.2 Under the project, an advance procurement action was undertaken for the recruitment of a consultant for technical assistance and support to project implementation. This procedure is justified by the role of technical assistance given the specificity of rural DWS projects which are bases on a participatory approach. This approach requires actions preliminary to project implementation, essentially population information and sensitization missions which will be supported by Technical Assistance.

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5.4.3 The following table shows the procurement methods

Table 5.4 Procurement Procedure (in million UA)

Category ICB LCB Shortlisting Non-ADB20

financing Total

1. Goods 1.1 Equipment 1.2 Remote management 1.3. Power lines

8.7 (7.8) 0.3 (0.3)

0.6 (0.0)

8.7 (7.8) 0.3 (0.3) 0.6 (0.0)

2. Works 2.1 Civil works 2.2 Laying of pipes

12.7 (7.5)

53.9 (43.0)

5.4 (3.2) 9.9 (4.5)

18.1 (10.7) 63.8 (47.5)

3. Services 3.1 Geotechnical control 3.2 Study, supervision and control of works and support to project implementation

5.4 (*) (2.7)

0.6 (0.0)

0.6 (0.0) 5.4 (2.7)

4. Miscellaneous 4.1 Acquisition of land

6.7 (0.0)

6.7 (0.0)

Total 75.6 (58.6) 15.3 (7.7) 5.4 (2.7) 7.9 (0.0) 104.2 (69.0) (*) This amount includes the amount of UA 2.7 millions for the recruitment of a consultant and an amount of UA 2.7 million for services by ONEP team charged with project implementation and monitoring. Works 5.4.4 The civil works of treatment plants mentioned above will be procured through international competitive bidding (ICB). Four contracts will be awarded for the construction of 3 waste water treatment plants (3 new plants) and one raw water treatment plant of a total amount estimated at UA 12.7 million (the contract amounts range from UA 2 to 5 million). 5.4.5 The civil works of tanks for an amount less than UA 1.5 million will be procured through national competitive bidding (NCB). Five contracts will be awarded for the construction of tanks, the total amount of which is estimated at UA 5.4 million (the contract amounts range from UA 0.8 to 1.2 million). The choice of the NCB procedure is justified by the high number of national enterprises with the skills and capacities to implement works of similar scope and nature and making for high competition21. 5.4.6 The laying of pipes for an amount of UA 1.5 million and above will be procured through international competitive bidding (ICB). 27 contracts will be awarded for the laying of drinking water supply pipes and for interception and reinforcement pipes of the sewer network, the total amount of which is estimated at UA 53.9 million (the contract amounts range from UA 2 to 3 million).

20 The land required for the implementation of the works, of a total cost of UA 6.7 million from private and / or rural councils, will be procured according to Moroccan legislation in force. 21 The number of enterprises operating in the drinking water and sanitation sector in Morocco is quite high. Indeed, the Ministry of Public Works, which is responsible for the classification and qualification of civil works enterprises has classified over one hundred enterprises which are above class 3 and thus capable of implementng DWSS networks of a scope comparable to those launched by ONEP. For information, over the last three years, 2003-2005, over 40 different enterprises have been awarded at least one contract for DWSS launched by ONEP.

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5.4.7 The laying of pipes for an amount below UA 1.5 million will be procured through national competitive bidding (NCB). Ten contracts will be awarded for the laying of drinking water delivery pipes and sewer network extension pipes, of a total amount estimated at UA 9.9 million (the contract amounts range from UA 0.8 to 1.2 million). The choice of the NCB procedure is justified by the high number of national enterprises with the skills and capacities to implement works of a similar scope and nature, making for high competition. Goods 5.4.8 Equipment for the treatment plants and pumping stations mentioned above will be procured through international competitive bidding (ICB). Five contracts will be awarded for the supply of equipment of the waste water treatment plant (existing plant to be rehabilitated) and pumping stations of DWS systems, of a total amount estimated at UA 9.0 million (the contract amounts range from UA 0.5 to 4 million). 5.4.9 The above-mentioned remote management equipment will be procured through limited international competitive bidding. This procurement method is justified by the specific nature of the goods to be procured and the low amounts for the contracts to be awarded (3 contracts of an average unit amount of UA 0.1 million). ONEP will consult potential bidders directly at the international level. 5.4.10 Electric lines of an amount of UA 0.6 million will be procured through national competitive bidding. Seven contracts will be awarded for the supply of electric lines, of an average of UA 0.1 million per contract. The choice of the NCB procedure is justified by the high number of national enterprises with the skills and capacities to implement works of a similar scope and nature, making for high competition. Consultancy Services 5.4.11 Consultancy services for geotechnical control, of a total amount estimated at UA 0.6 million will be procured on the basis of a framework contract. The choice of framework contracts awarded by national competitive bidding is justified by the savings made by ONEP for previous contracts of the same type and by the great number of national consultants with the know-how and capacities to perform services of similar scope and nature and making for high competition. These services will be 100% financed by ONEP, as the framework contract will not cover only the services envisaged in this report, but also other similar projects. 5.4.12 Consultants for the studies, supervision, works inspection, and support for project implementation of a total cost of UA 2.7 million will procured in accordance with the Bank’s rules of procedure for the use of consultants. In view of the fact that the amount is above UA 1 million, a short list will be prepared following prequalification. The procedure selected will be based on a technical evaluation taking into account the price. National Laws and Regulations 5.4.13 National laws and regulations concerning ONEP procurements have been examined and deemed acceptable.

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Executing agency 5.4.14 ONEP will be responsible for works, goods and services procurement. The resources, capacity, expertise and experience of ONEP are adequate to successfully conduct procurements. General Procurement Notice 5.4.15 The general procurement notice has been adopted with ONEP, and will be issued for publication in “Development Business” of the United Nations once the loan proposal is approved by the Board of Directors. Review Process Pre-review 5.4.16 For contracts subject to pre-review (works, goods and services of an amount of UA 1.3 million and above), the following documents will be submitted for examination and approval by the Bank before publication: (i) prequalification documents (where applicable); (ii) competitive bidding documents or letters of invitation to Consultants; (iii) analysis reports on bids from contractors and suppliers or Consultants’ bids containing recommendations for the award of contracts; (iv) draft contracts, if those included in the competitive bidding documents have been modified. Post-review 5.4.17 As part of its policy of developing assistance to countries eligible for the ADB window, the Bank encourages the use of the post-review procedure for contracts awarded through local competitive bidding. To that end, we have assessed the capacity of ONEP, the executing agency of the 9th DWSS project, to set (i) the pre-review threshold by type of procurement, (ii) capacity building action plan and (iii) frequency of independent audits of procurements. 5.4.18 On the basis of the assessment shown in Annex 11, the procurement of civil works and laying of pipes for lots of an amount below UA 1.3 million, and a total amount of about UA 15.3 million, will undergo a post-review. The contract amount of civil works and laying of pipes which will be procured following local competitive bidding and which will undergo post-review, represent about 20% of a total amount of construction contracts (approximately UA 81.5 million).

5.5 DISBURSEMENT ARRANGEMENTS The direct payment method will be used for the procurement of goods and works, as well as for studies and consultancy services. The finance department of ONEP, which is charged with the financial management of the project, is familiar with the Bank’s disbursement rules.

5.6 MONITORING AND EVALUATION 5.6.1 ONEP, the executing agency, will be chiefly responsible for monitoring the implementation of the project and will draw up, according to the method of presentation recommended by the Bank, quarterly reports on the status of implementation of the project,

38

covering all aspects of outputs. These reports will notably evaluate the progress of the project, expenditure, commitments and disbursements by component and by financing source, the main problems (including environmental) as well as recommended solutions. 5.6.2 The Bank will monitor the implementation of the project through Bank supervision missions, activity reports and financial statements of ONEP. The latter will include in the activity reports, actions concerning the monitoring of land acquisition and compensation for any damage to agricultural activities, to enable the Bank to carry out the environmental monitoring of the project. At the end of the project, ONEP will prepare a project completion report. Thereafter, the Bank will draw up a completion report and a project performance evaluation report, both of which will notably verify the level of satisfaction of project outputs (number of beneficiaries having adopted better sanitation systems or best hygiene practices – target: min 20% of the population concerned in 2010 –; number of DWS systems meeting Moroccan drinking water norms from the bacteriological and physico-chemical viewpoint – min 80% of systems provided in 2010 –; percentage of existing DWS systems that are non-operational in the provinces concerned – target: a max. rate of 20% in 2010 –).

5.7 FINANCIAL REPORTS AND AUDITING ONEP will keep separate financial accounts of the project to enable monitoring of expenses by component, by expenditure category and by financing source. The project accounts will be audited annually by the firm which audits ONEP’ accounts and financial statements. The audit reports will be submitted to the Bank within six months of the end of each financial year, in accordance with the provisions of the general conditions applicable to loan agreements and guarantee agreements of the Bank.

5.8 AID COORDINATION The project will be financed by ONEP and the Bank. Even if the other donors are not specifically involved in this project, the mission held discussions with them, notably those involved in rural DWS and / or urban sanitation, during preparation and appraisal missions. The processing of the project was notably based on experience acquired during the processing of the SAP-Water in Morocco (2003) and of the 8th DWSS project in Morocco (2004), during which good collaboration prevailed between the Bank and various donors intervening in the water sector within the framework of the Water Theme Group (GT-Eau) which comprises all European donors as well as the key financing institutions of this sector (WB, ADB, IDB, JICA) as partners. This close collaboration is being pursued and will be extended to this 9th DWSS project during supervision meetings or through occasional contacts each time this is deemed necessary. This coordination was strengthened by the permanent representative of the Bank in Rabat, through the recently opened Country Office. 6. PROJECT SUSTAINABILITY AND RISKS

6.1 RECURRENT COSTS 6.1.1 The rural DWS component of the project concerns water supply right to the douars and the distribution within douars of the provinces of Azilal, Chefchaouen, Kénitra and Settat. The recurrent cost of this component comprise fixed and variable costs. Fixed costs are mainly due to maintenance costs, depreciation costs, DWS system personnel expenses, and overheads. As concerns variable costs, they are related to the utilization of DWS structures

39

and are a function of the volume consumed by users. They comprise energy and treatment costs. The income generated by the project from water sales resulting from progressive water consumption largely covers the recurrent costs and has been taken into account in calculating the internal rate of return. Indeed, the last upward adjustment of tariffs will strengthen the financial capacity of ONEP and other operators to cover these costs. A projection of the estimated operating account of WUA and GGs in the 4 provinces shows that even in the case of conservative assumptions of collection and distribution rates, water distribution within douars remains a financially profitable activity, thus capable of entirely covering recurrent costs. In fact, WUAs and GGs buy water from ONEP at low prices, respectively at MAD 3.5/m3 and MAD 2.37/m3 to resell it at a moderate price, respectively MAD 8/m3 and MAD 10/m3. Regarding the sanitation aspect, the introduction of the fixed royalty, the progressive tariff increases envisaged will permit coverage of the operating costs concerning pumping and treatment plants. These are taken into account in calculating the profitability of the project. 6.1.2 Concerning the cost recovery aspect for ONEP under this project, according to the project operating accounts, the income generated is insufficient to cover operating costs which range between MAD 19 and 45 million/year between 2007 and 2015. However, as from 2016, it is expected that the project will generate positive operating results capable of covering the operating costs and part of debt service. Given its rural and social character, it is clear that the operating income will not be sufficient to totally cover the operating costs directly borne by ONEP. Considering the scope of the mission entrusted to ONEP by the State in the area of generalization of drinking water, attendant solutions have been envisaged in the PC 2006-2009 between the State and ONEP so as to assist ONEP to maintain a balanced financial position. These measures will enable ONEP to cover the operating costs of the rural drinking water supply project sustainably throughout the life of the project. However, without a clear cost recovery policy in the sector (on going reform under the WSAP in Morocco, cofinanced by the Bank and the EU), these operating deficits must be covered by other profitable operations by ONEP, namely wholesale of water (production) to municipal utilities and to private concession holders.

6.2 PROJECT SUSTAINABILITY 6.2.1 Project sustainability is ensured at three levels: through the technical choice and operation of project structures, institutional arrangements and sectoral reforms. Regarding the technical level, project sustainability essentially depends on the capacities of ONEP and users to properly manage project outputs. The project design is based on choice of simple, sustainable, proven and cost-effective technology. The optimization of investment costs through studies, the strict application of sub-project eligibility criteria defined with the Bank will help ensure the technical sustainability of the project. Furthermore, the demand approach adopted, a participatory approach in the choice of modes of distribution (standpipes or individual connection), management of structures (manager-caretakers, water user associations, cooperatives or other) will help ensure ownership by users and thus project sustainability. ONEP has a solid organizational structure, a wide experience and a competent technical personnel in steering and managing drinking water supply and sanitation projects. The support of the consulting firm will foster real transfer of know-how to beneficiaries for management.

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6.2.2 At the institutional level, the sustainability of the project in rural areas will be ensured through the revitalization and accountability of rural councils (RC), involvement of the private sector through micro-enterprises (a recent experience in M’haya proved positive), service providers and water user associations who, as the primary beneficiaries of the project, will be able to take charge more efficiently in the management of DWS infrastructure. The participatory approach and management by WUA adopted by the project guarantee its sustainability. The PAGER experience described in the diagnostic report, shows that projects managed collectively by WUAs are more sustainable compared to projects managed by other management methods. These measures, along with sensitization and outreach activities should lead households to further contribute to the servicing and maintenance of hydraulic facilities. Adequate financial resources will thus be generated by exploitation within douars in order to cover operating and maintenance costs of each of the envisaged outputs (paragraph 6.1.1). The attendant measures which are and will be taken under PC 2006-2009 notably cost optimization, appropriate tariffing and State subsidies will also help ensure project sustainability. Already rural DWS investments and operational deficiencies in secondary centres are covered by cross-subsidies between urban and rural areas. 6.2.3 Project sustainability is also ensured through the reforms undertaken by Morocco, notably the Sectoral Adjustment Programme (WSAP) aimed among others, at conserving the resource and preserving gains. These reforms, most of which are already being implemented, will translate into the rehabilitation of DWS distribution and irrigation networks to save water, as well as the adoption of the laws and regulations necessary to combat pollution (autonomous sanitation, treatment of waste water, discharge taxes). 6.3 MAJOR RISKS AND MITIGATING MEASURES 6.3.1 Although the project does not present any major implementation risks, there are however a few moderate risks related to the implementation of project activities and those related to the achievement of project’s development objectives. In the past, a number of risk factors concerning the proper functioning of the installations have been identified, namely: insufficient water resources mobilized, lack of servicing and maintenance, poor management of installations, and poor water quality22. 6.3.2 The achievement of project objectives requires the sustainable preservation and availability of water resources. This project will be implemented in a cleansed sectoral environment. The risks associated with resource preservation in the provinces of the project will be mitigated by the reform measures of SAP-Water. Furthermore, the feasibility studies of the project have shown the sustainable presence of resources which guarantee, except in the case where Morocco were hit by a long-lasting drought, supply to project areas. For this project, the risk concerning water quality remains very low, given that responsibility for drinking water quality is assumed and guaranteed by ONEP which has efficient laboratories and which has always carried out this function satisfactorily in the centres for which it is responsible. The provincial services of the Ministry of Health will also play an important role in the control and surveillance of water quality and prevention of water-borne diseases. 6.3.3 The risk concerning the lack of maintenance and poor management will be mitigated by profitable operation generated by the project at the level of distribution as explained in Section 6.1. Moreover, the following approaches adopted by the project will also

22 Causes identified by the Diagnostic Study of Rural DWS in Morocco, ONEP/FAO, September 2005.

41

mitigate this risk: (i) the demand approach adopted by the project will contribute to strengthen ownership by users; (ii) the management modes to be adopted by the project; (iii) the regular sensitization and monitoring actions to be undertaken by ONEP as envisaged in the methodological guide. Experience in rural Morocco has shown that these management methods through a participatory approach are very reliable and ensure the viability of project structures. Furthermore, the recognized experience of ONEP and the envisaged actions of technical assistance under the project, guarantee better maintenance and will also contribute to sensitize users to servicing and maintenance issues. 7. PROJECT BENEFITS

7.1 ECONOMIC ANALYSIS 7.1.1 The assumptions for the calculation of the economic rate of return of the project are shown in Annex 14. These hypotheses are essentially culled from the methodological guide prepared by ONEP for the implementation of the programme, and which is adopted by all donors intervening in the sector. An analysis was conducted on the basis of economic costs and benefits. By assuming a 10% capital economic opportunity cost, the analysis shows an economic NPV of MAD 295 million, reflecting the significant impact and the generation of substantial benefits for the entire country. The economic rate of return of the project is estimated at 14.8%, which is above the capital economic opportunity cost for Morocco. The detailed results are shown in Annex 15. However, it should be noted that the financial rate of return of the project was quite low (about 3.2%), as is generally the case with development projects of a rural and social nature such as this project. 7.1.2 The project has many economic benefits. First, there are direct benefits concerning water and sanitation facilities. They represent created value for beneficiaries by the new supply and / or improved drinking water access (i.e. increased consumption and reduced water cost for users), sewerage (collection and treatment of waste water), and resale of purified waste water in Khouribga province to the productive sectors (OCP, farmers,) under the urban sanitation aspect. These direct benefits from water and sanitation works represent 52% of the overall benefits generated by the project for the period 2007-2025. 7.1.3 Regarding the economic benefits of the project, they concern notably the time saved as a result of a shorter distance and time to access drinking water supply, and for households, avoidance of direct health costs due to water-borne diseases under the rural DWS aspect. The main indirect benefit of the project remains the water collection time saved water collection as a result of closer standpipes and individual connections. In the pre-project situation, the average time devoted to water collection which is 180 mn, will be reduced to 30 mn with the project23. The time thus saved could be devoted to other more profitable activities, notably: (i) studies for children; (ii) income-generating activities, education, training and leisure for women. More precisely, the benefits in terms of time saved are valued at the opportunity cost resulting from the time saved by the beneficiaries as a result of the proximity of drinking water, in the villages and the setting up of a sanitation system. They also represent to a lesser extent, the avoidance of sick leave costs for parents with sick children. This time is valued at the minimum guaranteed agricultural wage (fixed by Moroccan law). All the benefits generated by the time saved by beneficiaries represent 40% of overall benefits over the period considered.

23 Actual data from the diagnostic study and opinion polls.

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7.1.4 The positive impact on the health of project beneficiaries has also been identified and taken into account. Indeed, the reduction in the number of cases of water-borne diseases and their impact both at the level of the health system (time of the health personnel, immobilization of health facilities, drugs) and for the populations (medical expenses borne, time lost during consultations and tests, related transport expenses, lost work time) creates non-negligible economic benefits for the entire country. The cost of treatment of avoided water-borne diseases for beneficiaries represents 8% of socio-economic benefits generated by the project. The annual budget allocated to these diseases by the MOH stands at about MAD 20 million per year.

7.2 SOCIAL IMPACT ANALYSIS 7.2.1 Beyond its specific impacts described in Section 4.9, the project will have a significant overall social impact beyond the basic objectives of satisfying the drinking water and sewerage needs of beneficiary populations. First of all, rural populations whom from time immemorial had always faced chronic water supply problems and who through the project will be able to have permanently at their disposal relatively abundant water of excellent quality, can only look forward to better living conditions. While the monetary price paid by each household for water and sanitation will increase, such increase should be offset by a real drop in the costs incurred elsewhere, e.g. health (fewer diseases) or the children's education (less repeating or absenteeism thereby improving school performance). 7.2.2 Women's relief from water collection chores would enable them to devote the time thus saved to other income-generating activities, notably farming and home-based micro-enterprises. The development of the latter sub-sector is currently being mentored in Morocco by many national NGOs which are encouraged by the public authorities and are being extended increasingly substantial financing (as grants) by certain donors. Some of these NGOs propose to interested candidates not only soft micro-credits , but also a real micro-project bank tailored to the needs of the various areas concerned for each candidate to choose that which best suits their skills, know-how and trade. 7.2.3 Another fundamental aspect of the improved comfort (access to drinking water) and economic situation (income-generating activities) of the populations is the contribution to retaining rural populations on the spot, thereby curbing rural-urban migration which is so high in Morocco that the rural population growth rate between the last 2 censuses (1994 and 2004) was only 0.6% on average per annum, that is practically three times lower than the natural growth rate. 7.2.4 The development of sewerage in Khouribga province will have an overall positive impact on pubic health. Through it, a substantial amount of drinking water which, hitherto, was used by OCP for the washing of phosphates, will be saved if it is replaced with purified water generated by the treatment plants constructed under the project.

7.3 SENSITIVITY ANALYSIS 7.3.1 The sensitivity analysis of the economic rate of return of the project enables an assessment of the solidity of the various assumptions and their impacts on the project. This analysis has been made while varying: (i) the capital cost of the project; (ii) operating costs; (iii) the volume of water sold to households; and (iv) a combination of (ii) and (iii). From the

43

baseline scenario, the sensitivity analysis shows that the project is not very sensitive to a change in the fixed costs and costs related to water production and consumption. Hence, an increase in such costs does not entail a significant decline of the net present value of the project which remains positive in both cases. Similarly, the project's sensitivity to reduced demand remains low. 7.3.2 Conversely, the project is more sensitive to cost overrun of infrastructure investment. The net present value drops by 46% for an increase of 15% of these costs. Any cost increase will be financed by the Board. The analysis also shows, to a lesser extent, project sensitivity to the combined effect of reduced demand and increased operating costs. However, the project will not be affected by this risk, as demand remains strong and even on the increase and costs in the long term, go down. In any case, the present value remains positive and the economic rate of return of the project still remains robust.

Table 7.1

Sensitivity Analysis of the Economic Rate of Return

ERR NPV @ 10% ERR sensitivity NPV sensitivity Baseline case 14.80% 295 757 15% increase in investment 12.29% 159 196 -2.51% -46.17% 15% increase in operating costs 14.12% 254 080 -0.68% -14.09% 15% drop in water sales 13.40% 207 255 -1.40% -29.92% 15% drop in sales and increase in costs 12.72% 165 579 -2.08% -44.02%

8. CONCLUSIONS AND RECOMMENDATIONS

8.1 CONCLUSIONS The ninth drinking water supply and sanitation project in Morocco is technically feasible, socially justified, and economically viable. Mitigating measures of the project, classified in category 2, have been taken into account in the project. The implementation of the project will support the programme of widespread access to drinking water in the rural areas of the country, and will constitute a suitable solution to the problem of pollution by waste water discharges in the towns of Khouribga, Oued Zem and Boujaâd. This project is a significant contribution of the Bank to the Government's efforts aimed at sustainably providing drinking water and liquid sanitation services to the population. 8.2 RECOMMENDATIONS 8.2.1 It is recommended that an ADB loan not exceeding UA 69.0 million should be granted to ONEP with State guarantee. The loan will be used to finance 66.2% of the total project cost. The granting of this loan is subject to the following conditions: A. Conditions precedent to loan effectiveness 8.2.2 The effectiveness of this loan is subject to fulfillment by the Borrower and the Guarantor of the conditions specified in section 5.01 of the General Conditions applicable to loan agreements and guarantee agreements.

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B. Conditions precedent to first disbursement 8.2.3 The Borrower shall:

i) Provide the Bank with evidence of the appointment of the project Coordinator and project managers (for drinking water and sanitation) in the 2 regional Directorates concerned (North-West and Center), whose qualifications and experience will have been considered acceptable beforehand by the Bank (paragraph 5.1.2).

C. Other Conditions

8.2.4 Furthermore, the Borrower shall:

i) Submit to the Bank, no later than before commencement of works of each of the operations to be carried out, the appropriate supporting documents for the occupation of each parcel of land concerned (paragraphs 4.7.5);

ii) Submit to the Bank, within than 6 (six) months following the end of the

financial year which it covers, the audit report of each procurement which has undergone post-review and which may be part of the financial audit report of the project (paragraph 5.4.18).

Annex 1 Kingdom of Morocco Ninth DWSS project

Map of Morocco – provinces concerned by the project

This map is furnished by staff of the African Development Bank exclusively for readers of the report to which it is appended. The names used and the boundaries shown on this map do not imply on the part of the ADB Group and its members any opinion concerning the legal status of a territory nor any approval or acceptance of its boundaries whatsoever.

CHEFCHAOUEN

KENITRA

SETTAT

KHOURIBGA

AZILAL

SPAIN

ALGERIA

LEGEND Province concerned by the rural DWS Province concerned by urban sanitation • Other town International boundary

Regional boundary

Annex 2 Page 1/8

Kingdom of Morocco Ninth DWSS project

Bank Group Operations in Morocco (end-April 2006)

Project Name Status Source of Finance

Date of approval

Date of Signature

Effective ness date

Date of closure

Amount approved

Amount cancelled

Undisbursed amount Total disbursed Net loan amount

% disburs

ed

Sector: Agriculture

TENSIFT INTEGRATED POULTRY COMPLEX Not signed ADB 28.04.1981 0,00 0,00 0,00 0,0 0,00 0,00

WIDENING OF DOUKKALA CANAL completed ADB 13.09.1974 05.12.1974 22.12.1975 30.09.1979 4.000.000,00 2.732.906,91 0,00 1.267.093,1 1.267.093,09 100,00

SIDI DRISS DAM completed ADB 27.06.1978 29.11.1978 09.03.1981 31.12.1983 5.000.000,00 0,00 0,00 5.000.000,0 5.000.000,00 100,00

SECOND TRANCHE GHARB IRRIGATI0N completed ADB 29.05.1979 01.10.1979 21.10.1982 30.06.1994 8.000.000,00 837,01 0,00 7.999.163,0 7.999.162,99 100,00

AGRIC. SECTOR REVIVAL completed ADB 24.10.1985 18.11.1985 21.10.1986 30.09.1990 45.000.000,00 0,00 0,00 45.000.000,0 45.000.000,00 100,00

INTEGRATED RURAL DEVEL. SETTAT PROVINCE completed ADB 12.03.1985 23.12.1985 10.04.1987 31.12.1997 41.630.000,00 32.940.602,62 0,00 8.689.397,4 8.689.397,38 100,00

AGRIC. SECTOR ADJUSTMENT PROGRAMME completed ADB 14.12.1987 10.03.1988 30.09.1988 30.06.1994 117.000.000,00 0,00 0,00 117.000.000,0 117.000.000,00 100,00

LOUKKOS ORMVAL completed ADB 26.10.1987 10.03.1988 19.11.1990 21.12.1999 21.600.000,00 624.532,29 0,00 20.975.467,7 20.975.467,71 100,00

PASTORAL DEVELOPMENT IN THE EAST completed ADB 14.05.1990 31.10.1990 22.09.1992 31.12.2001 5.460.000,00 2.417.837,67 0,00 3.042.162,3 3.042.162,33 100,00

NATURAL RESOURCES CONSERV. PROJECT completed ADB 14.05.1990 31.10.1990 27.01.1994 31.12.1997 8.330.000,00 5.173.083,08 0,00 3.156.916,9 3.156.916,92 100,00

NATURAL RESOURCES CONSERV. PROJECT completed ADF grant 14.05.1990 31.10.1990 29.12.1992 31.12.1998 2.440.788,00 1.588,65 0,00 2.439.199,4 2.439.199,35 100,00

NATURAL RESOURCES CONSERV. PROJECT completed ADF 14.05.1990 30.11.1990 27.01.1994 31.12.1998 3.794.734,00 647.412,84 0,00 3.147.321,2 3.147.321,16 100,00

PASTORAL DEVELOPMENT IN THE EAST completed ADF 14.05.1990 30.11.1990 28.09.1992 31.12.2001 15.473.674,00 7.202.420,17 0,00 8.271.253,8 8.271.253,83 100,00

Annex 2 Page 2/8

Project Name Status Source of Finance

Date of approval

Date of Signature

Effective ness date

Date of closure

Amount approved

Amount cancelled

Undisbursed amount Total disbursed Net loan amount

% disburs

ed

DOUKKALA IRRIGATION PROJECT completed ADB 29.10.1991 05.03.1992 08.07.1994 30.06.2000 130.000.000,00 54.626.777,70 0,00 75.373.222,3 75.373.222,30 100,00

GHARB IRRIGATION STUDY (GRANT) completed ADF grant 31.08.1993 19.11.1993 06.05.1996 31.12.1999 2.410.000,00 1.060.877,65 0,00 1.349.122,4 1.349.122,35 100,00

TOTAL: Agriculture 410.139.196,00 107.428.876,59 0,00 302.710.319,4 302.710.319,41 100,00

Sector: Industry

INVESTMENT PROPOSAL-LOAN TO CAROGUA S.A.

Not signed ADB Loan 16.12.1991 0,00 0,00 0,00 0,0 0,00 0,00

MINING DEVELOPMENT PLAN STUDY completed ADF Grant 23.06.1993 19.11.1993 29.01.1996 31.03.2000 1.657.894,00 18.930,19 0,00 1.638.963,8 1.638.963,81 100,00

TOTAL: Industry 1.657.894,00 18.930,19 0,00 1.638.963,8 1.638.963,81 100,00

Sector: Environment

Environmental upgrading of Sam Non active

Private window 22.06.2005 03.12.2005 59.000.000,00 0,00 0,00 0,0 0,00 0,00

TOTAL: Environment 59.000.000,00 0,00 0,00 0,0 0,00 0,00

Sector: Transport

AIRPORTS IMPROVEMENT AND CAPACITY ENHANCEMENT ongoing ADB 18.04.2001 06.01.2002 18.09.2002 31.12.2006 77.800.000,00 0,00 43.292.918,7 34.507.081,3 77.800.000,00 44,35

Budgetary support – Transport Reform (PAST) ongoing ADB 01.12.2004 07.02.2005 14.09.2005 31.12.2007 240.000.000,00 0,00 120.000.000,0 120.000.000,0 240.000.000,00 50,00

RAILWAY REHABILITATION PROJECT cancelled ADB 02.12.1996 20.05.1997 31.12.2002 0,00 0,00 0,00 0,0 0,00 0,00

RAILWAY REHABILITATION PROJECT completed ADB 16.12.1998 08.03.1999 06.04.2001 30.06.2005 81.500.000,00 11.408.252,78 0,00 70.091.747,2 70.091.747,22 100,00

SECONDARY – TERTIARY ROADS (PERST) completed ADB 11.12.1985 23.12.1985 03.11.1987 31.12.1994 49.000.000,00 175.646,59 0,00 48.824.353,4 48.824.353,41 100,00

TRANSPORT SECTOR PROGRAMME completed ADB 25.11.1987 10.03.1988 18.01.1990 31.12.1998 94.000.000,00 764.104,06 0,00 93.235.895,9 93.235.895,94 100,00

Annex 2 Page 3/8

Project Name Status Source of Finance

Date of approval

Date of Signature

Effective ness date

Date of closure

Amount approved

Amount cancelled

Undisbursed amount Total disbursed Net loan amount

% disburs

ed

SECOND ROAD PROJECT completed ADB 11.06.1990 05.12.1990 25.02.1992 31.12.1996 25.750.000,00 4.145.155,22 0,00 21.604.844,8 21.604.844,78 100,00

AIRPORT REHABILITATION PROJECT completed ADB 14.12.1992 06.04.1993 12.10.1993 31.01.2002 70.000.000,00 26.711.326,35 0,00 43.288.673,7 43.288.673,65 100,00

THIRD ROAD PROJECT completed ADB 15.12.1994 19.05.1995 05.11.1997 31.08.2001 60.000.000,00 30.625.760,14 0,00 29.374.239,9 29.374.239,86 100,00

TOTAL: Transport 698.050.000,00 73.830.245,14 163.292.918,7 460.926.836,1 624.219.754,86 73,84

Sector: Water & sanitation

WATER SECTOR STRUCTURAL ADJUSTMENT ongoing ADB 03.12.2003 14.10.2004 31.12.2006 215.000.000,00 0,00 215.000.000,0 0,0 215.000.000,00 0,00

Eighth DWSS Project Ongoing ADB 24.11.2004 07.02.2005 24.11.2005 31.12.2010 66.500.000,00 0,00 62.149.333,2 4.350.666,8 66.500.000,00 6,54

MARRAKECH WATER SUPPLY completed ADB 08.06.1978 29.11.1978 24.08.1982 31.12.1983 5.000.000,00 705.446,93 0,00 4.294.553,1 4.294.553,07 100,00

TANGER DRINKING WATER SUPPLY completed ADB 13.06.1984 09.05.1985 25.11.1987 30.06.1988 10.700.000,00 3.875.960,91 0,00 6.824.039,1 6.824.039,09 100,00

TANGER DWSS (CHARF EL AKAB) completed ADB 18.08.1987 10.03.1988 21.12.1989 31.12.1996 7.950.000,00 1.378.797,81 0,00 6.571.202,2 6.571.202,19 100,00

EL HACHEF DAM completed ADB 21.05.1991 29.11.1991 09.10.1992 31.12.1996 44.000.000,00 21.952.340,41 0,00 22.047.659,6 22.047.659,59 100,00

RADEEF FIFTH DRINKING WATER PROJECT completed ADB 23.03.1992 13.05.1992 28.09.1994 30.06.2001 4.200.000,00 1.515.049,26 0,00 2.684.950,7 2.684.950,74 100,00

FIFTH DRINKING WATER PROJECT (ONEP) completed ADB 23.03.1992 13.05.1992 27.01.1994 31.08.2001 55.800.000,00 7.889.148,03 0,00 47.910.852,0 47.910.851,97 100,00

SIXTH DRINKING WATER SUPPLY PROJECT completed ADB 26.05.1994 20.07.1994 25.06.1996 31.12.2001 30.000.000,00 14.183.435,47 0,00 15.816.564,5 15.816.564,53 100,00

DRINKING WATER AND SANITATION PROJECT completed ADB 09.06.1999 13.12.1999 01.08.2001 25.150.000,00 12.034.220,49 0,00 13.115.779,5 13.115.779,51 100,00

TOTAL: Water & sanitation 464.300.000,00 63.534.399,31 277.149.333,2 123.616.267,5 400.765.600,69 30,85

Annex 2 Page 4/8

Project Name Status Source of Finance

Date of approval

Date of Signature

Effective ness date

Date of closure

Amount approved

Amount cancelled

Undisbursed amount

Total disbursed Net loan amount

% disburs

ed

Sector: Energy

INTERCONNEXION OF POWER GRIDS ongoing ADB 13.11.2002 06.05.2003 04.11.2003 31.12.2007 80.000.000,00 0,00 10.000.000,0 70.000.000,0 80.000.000,00 87,50

Ain Beni Mathar thermal-solar power plant Non active ADB 02.03.2005 29.08.2005 31.12.2010 136.450.000,00 0,00 136.450.000,0 0,0 136.450.000,00 0,00

RENEWAL OF POWER TRANSMISSION GRIDS ELECTRICITY VIII Cancelled ADB 15.12.1994 0,00 0,00 0,00 0,0 0,00 0,00

RENEWAL OF POWER TRANSMISSION GRIDS AND DISTRIBUTION GRIDS Cancelled ADB 14.10.1997 28.05.1998 31.12.2001 25.306.536,86 25.306.536,86 0,00 0,0 0,00 0,00

O.N.E.(I) completed ADB 20.03.1970 28.07.1970 28.12.1971 30.06.1972 2.800.000,00 0,00 0,00 2.800.000,0 2.800.000,00 100,00

O.N.E.(II) completed ADB 24.01.1973 03.07.1973 07.03.1974 31.12.1976 3.000.000,00 0,00 0,00 3.000.000,0 3.000.000,00 100,00

O.N.E.(III) completed ADB 20.12.1976 18.02.1977 27.02.1977 31.12.1980 5.000.000,00 0,00 0,00 5.000.000,0 5.000.000,00 100,00

O.N.E.(IV) completed ADB 27.11.1979 05.02.1980 23.07.1980 31.12.1984 7.600.000,00 0,00 0,00 7.600.000,0 7.600.000,00 100,00

O.N.E. (V) completed ADB 27.10.1981 18.03.1983 06.12.1983 30.12.1986 10.000.000,00 0,00 0,00 10.000.000,0 10.000.000,00 100,00

SMALL HYDRO-ELECTRIC POWER PLANTS completed ADF 18.06.1986 14.01.1987 31.03.1988 30.06.1994 787.499,00 26,19 0,00 787.472,8 787.472,81 100,00

MATMATA HYDROELECTRIC PROJECT completed ADB 18.10.1988 07.02.1989 20.03.1990 31.12.1996 51.000.000,00 1.911.264,02 0,00 49.088.736,0 49.088.735,98 100,00

ELECTRICITY VII completed ADB 23.03.1989 28.04.1989 18.01.1990 31.12.1994 39.000.000,00 1.049.979,27 0,00 37.950.020,7 37.950.020,73 100,00

TOTAL: Energy 360.944.035,86 28.267.806,34 146.450.000,0 186.226.229,5 332.676.229,52 55,98

Annex 2 Page 5/8

Project Name Status Source of Finance

Date of approval

Date of Signature

Effective ness date

Date of closure

Amount approved

Amount cancelled

Undisbursed amount Total disbursed Net loan amount

% disburs

ed

Sector: Communications

DEVELOPMT OF THE INFORMATION INFRASTRUCTURE SECTOR completed ADB 04.04.2001 04.10.2001 06.06.2002 31.12.2006 100.000.000,00 0,00 0,00 100.000.000,0 100.000.000,00 100,00

TELECOMMUNICATIONS DEVELOPMT. PROJECT completed ADB 14.12.1993 06.06.1994 27.11.1995 31.12.1997 42.750.000,00 29.158.241,92 0,00 13.591.758,1 13.591.758,08 100,00

POSTS & TELECOM SECTOR ADJUST. PROGRAMME completed ADB 09.12.1998 10.05.1999 31.05.1999 31.12.2002 95.096.199,57 0,01 0,00 95.096.199,6 95.096.199,56 100,00

TOTAL: Communications 237.846.199,57 29.158.241,93 0,00 208.687.957,6 208.687.957,64 100,00

Sector: Finance

FIFTH LINE OF CREDIT TO CNCA Cancelled ADB 20.10.1993 0,00 0,00 0,00 0,0 0,00 0,00

LINE OF CREDIT TO SGMB Cancelled ADB 06.05.1993 13.05.1993 30.06.1997 20.000.000,00 20.000.000,00 0,00 0,0 0,00 0,00

LINE OF CREDIT (I) completed ADB 08.05.1974 25.06.1974 20.02.1975 30.06.1977 4.000.000,00 87.777,08 0,00 3.912.222,9 3.912.222,92 100,00

LINE OF CREDIT (II) completed ADB 16.07.1976 03.08.1976 18.01.1978 30.06.1979 3.000.000,00 148.261,60 0,00 2.851.738,4 2.851.738,40 100,00

LINE OF CREDIT (III) completed ADB 21.11.1978 29.11.1978 22.01.1980 31.12.1982 5.000.000,00 0,00 0,00 5.000.000,0 5.000.000,00 100,00

LINE OF CREDIT (IV) completed ADB 24.11.1981 16.02.1982 14.12.1983 30.06.1994 10.000.000,00 404.658,61 0,00 9.595.341,4 9.595.341,39 100,00

AGRIC. LINE OF CREDIT completed ADB 16.03.1982 07.10.1982 24.03.1983 30.06.1986 10.000.000,00 0,00 0,00 10.000.000,0 10.000.000,00 100,00

AGRIC. LINE OF CREDIT (II) completed ADB 23.08.1983 22.03.1984 12.07.1984 31.12.1988 30.000.000,00 0,00 0,00 30.000.000,0 30.000.000,00 100,00

AGRIC. LINE OF CREDIT III completed ADB 17.06.1986 25.06.1986 27.02.1987 30.06.1994 62.400.000,00 0,00 0,00 62.400.000,0 62.400.000,00 100,00

LINE OF CREDIT (V) completed ADB 24.09.1986 18.12.1986 07.03.1988 31.12.1996 50.000.000,00 3.041,90 0,00 49.996.958,1 49.996.958,10 100,00

Annex 2 Page 6/8

Project Name Status Source of Finance

Date of approval

Date of Signature

Effective ness date

Date of closure

Amount approved

Amount cancelled

Undisbursed amount Total disbursed Net loan amount

% disburs

ed

IV LINE OF CREDIT TO CNCA completed ADB 16.10.1989 22.02.1990 28.12.1990 30.06.1994 56.160.000,00 0,00 0,00 56.160.000,0 56.160.000,00 100,00

LINE OF CREDIT TO B.C.P.; B.C.M.E; B.C.M completed ADB 29.10.1991 05.03.1992 26.04.1993 31.12.1996 25.000.000,00 11.647.405,08 0,00 13.352.594,9 13.352.594,92 100,00

LINE OF CREDIT TO B.C.P.; B.C.M.E; B.C.M completed ADB 29.10.1991 05.03.1992 08.01.1993 31.12.1996 30.000.000,00 0,00 0,00 30.000.000,0 30.000.000,00 100,00

LINE OF CREDIT TO B.C.P.; B.C.M.E; B.C.M completed ADB 29.10.1991 05.03.1992 25.08.1993 31.12.1996 25.000.000,00 17.128.782,17 0,00 7.871.217,8 7.871.217,83 100,00

LINE OF CREDIT TO CIH completed ADB 29.10.1991 05.03.1992 09.11.1993 31.12.1996 10.000.000,00 4.973.500,68 0,00 5.026.499,3 5.026.499,32 100,00

SIXTH LINE OF CREDIT TO BNDE completed ADB 06.05.1993 13.05.1993 18.11.1993 30.06.1997 70.000.000,00 26.593.670,10 0,00 43.406.329,9 43.406.329,90 100,00

FINANCIAL SECTOR SUPPORT PROGRAMME 4 completed ADB 12.12.2002 17.12.2002 31.12.2005 137.500.000,00 0,00 0,00 137.500.000,0 137.500.000,00 100,00

TOTAL: Finance 548.060.000,00 80.987.097,22 0,00 467.072.902,8 467.072.902,78 100,00

Sector: Social

DEVELOPT. OF SCIENTIF.& TECHNOLOGICAL EDUCATION Ongoing ADB 30.11.2000 30.05.2001 17.09.2001 31.12.2007 32.410.000,00 0,00 27.811.802,5 4.598.197,5 32.410.000,00 14,19

GENERALIZATION OF EDUCATION SUPPORT PROJECT. Ongoing ADB 30.11.2000 30.05.2001 17.09.2001 31.12.2007 76.089.844,80 0,00 63.400.018,8 12.689.826,0 76.089.844,80 16,68

MEDICAL COVERAGE REFORM SUPPORT PROJECT (PARCOUM) Ongoing ADB 12.12.2002 25.04.2003 31.12.2006 110.000.000,00 0,00 55.000.000,0 55.000.000,0 110.000.000,00 50,00

EDUCATION V PROJECT completed ADB 24.11.1993 13.03.1995 04.12.1998 31.12.2005 30.000.000,00 25.484.475,06 0,00 4.515.524,9 4.515.524,94 100,00

EDUCATION V PROJECT completed ADF 24.11.1993 13.03.1995 04.12.1998 31.12.2005 10.130.000,00 6.437.974,83 0,00 3.692.025,2 3.692.025,17 100,00

VOCATIONAL TRAINING INTENSIFICATION completed ADB 11.12.1985 23.12.1985 07.04.1987 31.12.1997 25.500.000,00 7.834.782,11 0,00 17.665.217,9 17.665.217,89 100,00

VOCATIONAL TRAINING INTENSIFICATION completed ADF 12.12.1985 23.12.1985 08.04.1987 31.12.1998 9.210.520,00 1.359.555,12 0,00 7.850.964,9 7.850.964,88 100,00

EDUCATIONAL SYSTEM REFORM completed ADB 27.11.1986 14.01.1987 21.04.1988 30.06.1994 60.000.000,00 57.427,60 0,00 60.057.427,6 60.057.427,60 100,00

Annex 2 Page 7/8

Project Name Status Source of Finance

Date of approval

Date of Signature

Effective ness date

Date of closure

Amount approved

Amount cancelled

Undisbursed amount Total disbursed Net loan amount

% disburs

ed

BASIC EDUCATION completed ADB 23.03.1989 11.08.1989 17.07.1990 30.06.1997 31.000.000,00 4.086.478,34 0,00 26.913.521,7 26.913.521,66 100,00

EDUCATION IN RURAL AREAS completed ADB 29.10.1990 08.05.1991 10.11.1994 31.12.1999 37.000.000,00 26.983.354,32 0,00 10.016.645,7 10.016.645,68 100,00

STRENGTHENING OF RURAL HEALTH CARE IN 10 PROVINCES completed ADB 26.08.1992 25.01.1993 27.10.1994 30.06.2004 18.500.000,00 7.610.771,45 0,00 10.889.228,6 10.889.228,55 100,00

STRENGTHENING OF RURAL HEALTH CARE IN 10 PROVINCES completed ADF 24.08.1992 25.01.1993 27.10.1994 30.06.2004 18.421.040,00 6.076.716,59 0,00 12.344.323,4 12.344.323,41 100,00

TOTAL: Social 458.261.404,80 85.816.680,22 146.211.821,3 226.232.903,3 372.444.724,58 60,74

Sector: Multi-Sector

Administrative reform support programme completed ADB 20.12.2004 07.02.2005 13.12.2005 31.12.2008 121.000.000,00 0,00 0,00 121.000.000,0 121.000.000,00 100,00

S.A.P. completed ADB 22.08.1989 11.09.1989 02.10.1989 30.06.1994 100.000.000,00 0,00 0,00 100.000.000,0 100.000.000,00 100,00

FINANC. SECTOR ADJUSTMENT PROGRAMME completed ADB 27.01.1992 05.03.1992 30.09.1992 31.12.1993 75.000.000,00 0,00 0,00 75.000.000,0 75.000.000,00 100,00

STRUCTURAL ADJUSTMENT CONSOLIDATION PROGRAMME completed ADB 01.09.1993 23.09.1993 08.12.1993 31.12.1994 100.000.000,00 2,23 0,00 99.999.997,8 99.999.997,77 100,00

FINANC. SECTOR ADJUSTMENT PROGRAMME II completed ADB 22.11.1995 30.11.1995 22.12.1995 31.12.1998 150.000.000,00 0,00 0,00 150.000.000,0 150.000.000,00 100,00

INSTITUTIONAL SAVINGS DEVELOPMENT PROGRAMME completed ADB 19.11.1997 28.05.1998 16.06.1998 31.12.2000 80.264.407,58 0,00 0,00 80.264.407,6 80.264.407,58 100,00

INSTITUTIONAL SAVINGS DEVELOPMENT PROGRAMME completed ADB Loan 19.11.1997 28.05.1998 16.06.1998 31.12.2000 88.738.000,00 0,00 0,00 88.738.000,0 88.738.000,00 100,00

ECONOMIC AND SOCIAL REFORM PROGRAMME completed ADB Loan 09.12.1998 10.05.1999 23.07.1999 31.12.2002 178.305.374,19 0,00 0,00 178.305.374,2 178.305.374,19 100,00

TOTAL: Multi-Sector 893.307.781,77 2,23 0,00 893.307.779,5 893.307.779,54 100,00

Annex 2 Page 8/8

GRAND TOTAL 4.089.416.512,00 469.042.279,17 749.954.073,2 2.870.420.159,6 3.620.374.232,83 79,29

TOTAL ADB LOANS 4.008.240.363,00 446.236.776,94 733.104.073,2 2.828.899.512,8 3.562.003.586,06 78,14

TOTAL ADF LOANS 57.817.467,00 21.724.105,74 0,00 36.093.361,3 36.093.361,26 1,00

TOTAL ADF GRANTS 6.508.682,00 1.081.396,49 0,00 5.427.285,5 5.427.285,51 0,15

Annex 3 Kingdom of Morocco Ninth DWSS project

ONEP Organization Chart

Annex 4 Page 1/4

Kingdom of Morocco Ninth DWSS project

Presentation of the National “PAGER” Programme

A - STRATEGIES AND INVOLVEMENT OF USERS

a. Before PAGER The period before PAGER was characterized by a top-down “technicist” approach to the implementation of DWS projects. The populations were neither consulted nor involved by seeking their opinions and acquainting them with their responsibilities, which led to failure and non-sustainability of the majority of projects. Furthermore, the projects conceived did not always meet the aspirations of the populations. This phase was marked by the lack of a clear-cut strategy defining the roles and functions of different stakeholders. This situation did not valorize the efforts being made at the time. b. After PAGER To remedy this situation, the Government in October 1995, decided not only to implement the Grouped Rural Drinking Water Supply Programme (PAGER), but also to put in place a clear-cut strategy which defines the roles and responsibilities of each stakeholder. In this strategy, the involvement of the populations and the manner of involving them was among the fundamental points. An overview of the strategy and the approach is presented below. These new approaches were therefore adopted so as to address the issues of sustainability of projects and their ownership by local communities. c. PAGER Objectives and Strategy The PAGER strategy is based on the lessons learned from the Moroccan experience, which has shown that project planning and implementation must compulsorily and actively involve the population concerned. Failing this, the projects are doomed to fail. Similarly, the PAGER strategy is based on a system of partnership between rural councils, the population concerned and the technical services of the State. The partnership is based on a participatory approach fostering the participation of the rural council (RC) and User Associations (UA) at all phases of the project, from the initial diagnosis to building of the structures and establishment of the management conditions. The contractual approach, materialized by an agreement signed between the three parties, defines the responsibilities of each of them, notably the financing structure: population 5%, RC 15%, State 80%. At the institutional level, PAGER is implemented by ONEP and the DGH following two different, but complementary systems:

• The ONEP system consists in supplying by standpipes, the douars situated along the supply lines and close to centres and towns. Production and distribution to douars and groups of douars are carried out by ONEP. Only the management of standpipes in each douar is delegated to the populations, by designating a manager-caretaker.

• The DGH system which concerns very remote localities and/or which might not be covered by ONEP facilities. The DGH (through the DPE) equips douars using simple and autonomous systems composed of a production facility (well, borehole, spring), a drinking water storage structure and a distribution network. The management and operation of the structures and facilities are entrusted to the beneficiary populations, through the creation of user associations which are responsible for the management of DWS systems thus provided.

Annex 4 Page 2/4

The objective of PAGER is therefore to improve in the medium term, the conditions of drinking water supply to rural populations so as to make up lost time and reduce the disparity observed as concerns drinking water supply access between rural and urban areas. The medium term objective is to reach a rural population access rate of 80% by 2010. However, since the beginning of PAGER, the two systems (ONEP and DGH) have greatly evolved. This evolution was necessitated by the dire need of the populations, the lack of water resources which calls for a “sensible” sharing of the resource, the attitude and behaviour of the population towards the technical concept used for PAGER projects, etc. This evolution could be summarized as follows: 1. For the DGH system, the passage from a built water point with standpipes destined for a douar to a larger

and more complex system to supply more people and resolve the water shortages of certain regions. This concept which is more elaborate, required greater rigour in social guidance and monitoring of management units.

2. For ONEP, the passage from the supply of douars abutting supply lines to supplying douars located near

centres or even nearly all of the provinces facing water shortages (e.g. Fez Wilaya, Zouagha My Yacoub, Safi, etc.) or extension of the strip situated along supply lines to include douars lying 10 km off, or even more, instead of 4 km along the supply line requires more and more means to mobilize the populations and monitor the manager-caretakers who are often unable to perform their contracts.

3. For the two institutions: the gradual acceptance of the installation of individual connections instead of

standpipes with stricter conditions in the part of ONEP requires reflection in order to diversify management methods given this social and technical evolution and develop legal instruments governing these different management systems.

d. Participatory Method Used The method chosen for PAGER is MARP (active research and participatory planning method). This method was chosen for four main reasons:

• It has a set of tools from among which some can be selected for DWS projects, • These tools facilitate dialogue between technicians and the populations and permit the latter to learn

and own the projects rapidly, • It permits the collection not only of qualitative data, but also quantitative data necessary for the design

of DWS projects, • It is quite appropriate for illiterate persons (a problem in Morocco).

MARP is by far the most widely applied and the most welcomed method the world over in the development of DWS and environmental hygiene. In order to strengthen its effectiveness (photos, prototypes, hygiene, health, water point surroundings, notion of potability and project plans) were prepared by stakeholders (DGH, ONEP) for use during any outreach activities. e. Outreach and Involvement of Populations Mobile participatory planning teams (EMP) in the DGH system are charged with monitoring the implementation of the different phases of the cycle of a system of drinking water supply (SDWS) in conjunction with various partners (notably local authorities). Such monitoring is done in a participatory manner ensuring the involvement of the populations in project design and planning (through several meetings). This approach falls squarely in line with the implementation phases of SDWS and required the EMP to have in-depth knowledge of these phases, whereas, in the ONEP system, the population is involved only in one or two meetings aimed at conducting a socio-economic diagnosis and sensitizing the populations to their financial contribution and the use of drinking water. Such outreach is conducted either by ONEP technicians or teams of different technical assistants.

Annex 4 Page 3/4

B – FINANCING OF THE RURAL DRINKING WATER SECTOR The financing sources of the rural drinking water supply sector have witnessed considerable diversification and evolution, that can be classified under the following three phases: a. Phase 1: Before 1976 (before enactment of the council charter) The sector was financed by the general budget, through the Ministry of Agriculture (Rural Engineering department). A survey conducted in 1985, showed that the financing of public facilities was carried out as follows (in current MAD):

• The 60s : MMAD 1 to 2 / year, • The 70s : MMAD 8 to 10 / year, • The 80s : MMAD 30 to 40 / year.

b. Phase 2: After enactment of the Council Charter in 1976 / Before PAGER

• Investments in this sector were made mainly by local budgets (rural councils and provincial councils), • Since 1985, and thanks to the intervention of ONEP, within the framework of management, the

councils have been able to benefit from national solidarity and international aid, The situation of financing of rural DWS for the decade 1980-1989, shows an annual financing of MAD 200 to 250 million broken down as shown in the table below.

Financing sources Average contributions in MMAD / year (in current MAD)

DRPE (hydrogeological reconnaissances) MARA (up to 1985) FDCL, then CAT as from 1988 FEC (4 to 5 loans / year) ONEP (estimate) Drought subsidy 81-82 Contribution to UNICEF programme

23 7 50 11 2 27 2

19% 6%

41% 9% 2%

22% 2%

Total 122 100% c. Phase 3: After the launching of the PAGER programme In 1996, an earmarked account for the development of rural drinking water supply was established. This account whose authorizing officer is the Ministry of Equipment contributed to the financing of projects listed under PAGER, for up to 80% of the investment cost. The financing is supplemented by rural councils for up to 15% and local population, up to 5%. As from July 1998, a PAGER surtax was instituted and collected by ONEP from water distributors and designed to finance part of the investments made under PAGER. This tax fixed at 5% of the production price, contributed to financing at the rate of MAD 70 million/year. Furthermore, the mobilization of grants and loans extended as part of donor support to PAGER (ADF, WB, JBIC, Luxembourg, Belgium, EU, KfW, Kuwait Fund, …) made possible the financing level summarized in the table and graph below.

Annex 4 Page 4/4

Trend of PAGER financing (in MAD million)

Years 1 995 1 996 1 997 1 998 1 999 2 000 2 001 DGH share 397 139 307 248 284 673 1 000 ONEP share 45 119 88 92 142 180 211

Total 442 258 395 340 426 853 1 211 C – INTERNATIONAL FINANCING OF PAGER The funds mobilized for the implementation of the PAGER programme come from the general budget of the State, the national solidarity tax, the funds of the drought programme and the Hassan II fund, etc. or from concessional grants and loans. Among the countries and institutions currently involved in this programme are: the World Bank (loan), The Grand-Duchy of Luxemburg (grant), Japan (JICA in the form of a grant, JBIC in a form of a loan), China (donation of pumps), Belgium (CTB), Germany (KFW loans and grants), France (AFD concessional loan), EU (grants under MEDA), UNICEF, etc. The following table summarizes the external financing mobilized for PAGER.

Amount in M MAD ONEP

Financing source

Type of

financing DGH (Total

mobilized) Total

mobilized Available

Total mobilized

Japan (JICA) Japan (OECF, JBIC) France (AFD) Germany (KfW) Kuweit (KFEDA) European Union (MEDA) World Bank (WB) Luxemburg China Belgium (CTB) Spain, OPEC

Grant Loan Loan Grant Loan Grant Loan Loan Grant Grant Grant

100 655 300 524 280 330 100 50 5 34

- 375

- 330

- 100

- - -

69 62

- 375

- 140

90 - - -

69 62

100 1 030 300 854 280 430 100 50 5

103 62

Total 2 378 936 736 3 314

T re n d o f P A G E R f in a n c in g ( 1 9 9 5 - 2 0 0 1 )

0

2 5 0

5 0 0

7 5 0

1 0 0 0

1 2 5 0

1 9 9 5 1 9 9 6 1 9 9 7 1 9 9 8 1 9 9 9 2 0 0 0 2 0 0 1Y e a r s

Mill

ion

Dh P a rt O N E P

P a rt D G H

T o ta l

ONEP share

DGH share

Annex 5 Kingdom of Morocco Ninth DWSS project

Role of ONEP in Widespread Access to Drinking Water in Rural Areas

Management

Distribution of drinking water

Role of ONEP

Strategy

Planning

Implementation

National and regional planning

Development of the national strategy and proposal to public authorities

Implementation of DWS projects from ONEP installations

Other productions (PEA, utilities…)

Management of installations by WUAs and RC, etc.

Distribution of drinking water

Coordination, support and assistance to other stakeholders for the implementation of projects

outside ONEP intervention zone (AWU, utilities, RC…)

ONEP Production

Direct management of ONEP installations

Direct management in ONEP branches and

adjacent douars

Direct management of ONEP installations

Management by WUAs, utilities, etc.

Widespread access to drinking water in rural areas

Annex 6 Kingdom of Morocco Ninth DWSS project

Rural DWS Project Planning and Programming Process

Planning criteria

Sources of information

* DWS situation analysis at the national level

* Identification of areas facing DWS problems or lagging behind

Priority to areas with: - The lowest access rates - Water supply problems

- Results of assessments - Request of authorities and elected representatives - Field surveys

*Setting of priorities *Drawing up and implementation of a

programme of studies of provincial and communal master plans

Establishment of a projects bank with definition of a priority programme

Priority to: - areas with the lowest access rates - projects with the lowest cost/inhabitant - projects providing water access

Findings of studies of master plans and feasibility studies

Multiyear programming (programme contract) and search for financing

Priority to: - projects with at least a feasibility study - areas with identified water resources

- Situation of studies - Result of programme of clearance and mobilization of water resources, - Discussions with the population and the RC.

- Thorough engineering design studies (at least preliminary design), - Projects accepted by the population - Financing mobilized - Water resources confirmed

- Programme contract, - Situation of studies, - Situation of mobilized financing, - Diagnostic reports

Preparation of an annual programme (budget law)

Stages in the planning process

Annex 7 Kingdom of Morocco Ninth DWSS Project

ONEP Operating Income (in million MAD)

DESCRIPTION 2000 2001 2002 2003 2004 2005* Operating incomes (i) 2 312 2 525 2 474 2 724 2 755 2 856 Sales of goods and services 2 207 2 412 2 339 2 493 2 612 2 738 Plant assets of the company 97 99 64 43 47 48 Other operating incomes 0 0 0 0 0 0 Carry forward of operation 8 14 70 189 96 69 Operating costs (ii) 2 049 2 355 2 202 2 368 2 459 2 555 Purchase of materials and supplies 405 360 352 383 378 410 Other external costs 267 256 260 302 322 364 Dues and taxes 51 32 46 48 45 45 Staff costs 589 653 638 748 794 798 Other operating costs 0 0 0 0 0 0 Allocations for the financial year 737 1 053 906 887 920 938 Operating income (iii) = (i-ii) 262 170 272 356 296 300 Financial income (iv) 174 170 216 214 188 218 Exchange gain 6 4 3 18 1 4 Other financial income 59 70 80 101 79 89 Financial recoveries 109 96 134 95 108 125 Financial charges (v) 242 271 319 310 294 256 Interest expense 132 121 205 182 159 164 Exchange losses 15 16 18 21 11 8 Financial provisions 95 134 95 108 125 83 Financial result: (vi)= (iv-v) -68 -101 -103 -96 -106 -37 Current income: (vii)= (iii+vi) 195 69 169 260 190 263 Non-current income (viii) 47 6 763 369 599 1 052 834 Non-current charges (ix) 324 5 558 442 646 1 039 877 Non-current result: (x)= (viii-ix) -277 1 205 -74 -47 13 -42 Pretax income: (xi)= (vii+x) -83 1 274 96 213 204 220 Income tax: (xii) 5 163 31 86 73 76 Net income (xi-xii) -87 1 111 65 127 130 144

Source: ONEP * Provisional figures 2005

Annex 8 Kingdom of Morocco Ninth DWSS Project

ONEP Balance Sheets (in MAD million)

2000 2001 2002 2003 2004 ASSETS Fixed assets 11 872 12 412 12 716 12 763 13 725 Current assets 1 596 1 382 1 440 1 527 1 515 Cash 1 195 1 800 1 796 1 525 1 767 Total Assets 14 663 15 595 15 951 15 814 17 006 LIABILITIES Equity 9 329 9 846 10 015 10 457 11 187 Financing debt 3 314 3 743 3 691 3 527 4 203 Current liabilities 2 020 2 005 2 246 1 830 1 616 Total – Liabilities 14 663 15 595 15 951 15 814 17 006

Annex – 9a Kingdom of Morocco Ninth DWSS project

Drinking water production tariffs

Localities

Price in DH/m3 (exclusive of VAT)

El Jadida- Azemour and small centres served by drinking water supplies from the Daourat or Sidi Daoui dams (except for the OCP industrial complex) 4.20 Casablanca-Mohammedia-Rabat-Salé Témara-Skhirat-Bouknadel- salé- Oued Nfifikh-Bni ykhlef Military base - Ain Harrouda 4.34 Kénitra- Mehdia 4.14 Safi-Oualidia-Essaouira 3.96 Nador and small centres in the region 3.01 Asilah (3.41*(1+3.5%) +0.04) 3.57 Al Hoceima –Agadir-Ait Melloul-Inezgane-Ouled Téima. 3.84 Marrakech 3.02 Tanger 2.86 Tétouan- Fnidek- M’diq 2.85 Larrache-Ksar El Kébir 2.96 Settat-Tamanar 2.19 Fez-Sefrou- Bhalil 3.05 Béni Mellal-KasbaTadla-Fqih Ben Salah- 2.39 Khouribga (4.08*(1+3.5%+0.04) 4.26 Oujda 3.52 Meknes 2.41 Taza 3.07

Tariffs applicable since 2 March 2006.

ANNEXE - 9b

LOCALITES USAGES USAGES USAGES0-6 m3/mois 6-20 m3/mois 20-40 m3/mois Sup 40 m3/mois PREFER. INDUST. TOURIS

P.CENTRES ONEP 2,37 7,39 10,98 11,03 7,20 6,68 6,68 CHECHAOUEN 1,79 4,71 6,61 6,66 2,79 4,41 4,41 KHOURIBGA 3,07 7,40 11,22 11,27 7,16 6,57 6,57 EL JADIDA 3,09 7,78 11,86 11,91 6,88 6,23 9,00 AZEMMOUR 2,47 7,02 11,53 11,59 7,14 6,50 8,81 ESSAOUIRA 2,65 6,44 11,17 11,23 6,36 5,94 5,94 ELOUALIDIA 2,52 6,65 10,73 10,79 5,94 5,44 8,02 BIR JADID 2,47 6,15 10,07 10,13 6,71 6,08 7,85 AGADIR 2,95 7,77 9,58 9,63 6,21 5,77 8,34 HOUCEIMA 2,71 7,32 10,96 11,02 6,21 5,79 5,79 SAFI 3,32 7,88 13,12 13,17 7,82 7,14 10,87 MARRAKECH 1,70 6,37 9,36 9,41 5,73 5,40 8,02 OUJDA 3,81 10,11 14,72 14,77 9,77 10,13 12,18 FES 1,95 7,07 8,79 8,84 5,61 5,32 7,63 NADOR 2,13 6,01 8,51 8,56 6,01 5,23 7,05 SETTAT 2,63 6,86 7,53 7,58 5,81 5,56 6,88 B.MELLAL 2,61 6,51 10,14 10,19 6,73 7,05 8,56 KENITRA 2,32 5,25 6,59 6,64 4,88 4,46 5,82 LARACHE 1,74 5,31 6,06 6,11 3,74 3,57 4,78 MEKNES 1,30 3,88 4,45 4,51 2,18 2,23 3,71 TAZA 2,15 6,00 8,92 8,97 5,85 6,07 7,63 (1) Ces tarifs sont appliqués depuis le 1er avril 2006

(En DH/m3 Hors TVA)

USAGE DOMESTIQUE

TARIFS A LA DISTRIBUTION (hors TVA)

Royaume du MarocNeuvième Projet d'AEPA

TARIFS DE VENTE DE L'EAU POTABLE A LA DISTRIBUTIONFévrier 2006 (1)

Annex 10 Kingdom of Morocco Ninth DWSS Project

Detailed Project Cost

Project Component Pre-tax Costs (in million MAD)

Foreign currency Local currency Total I – Rural DWS in Azilal Province 189.0 54.1 243.1

• Civil works 25.5 16.9 42.4 • Equipment 32.1 3.5 35.6 • Pipes 131.4 33.7 165.1

II - Rural DWS in Kénitra Province 104.5 28.1 132.6 • Civil works 6.4 4.3 10.7 • Equipment 5.4 0.6 6.0 • Pipes 92.7 23.2 115.9

III - Rural DWS in Settat Province 114.0 31.5 145.5 • Civil works 8.3 5.5 13.8 • Equipment 3.5 0.4 3.9 • Pipes 102.2 25.6 127.8

IV - Rural DWS in Chefchouan Province 87.2 21.9 109.1 • Civil works 4.1 2.6 6.7 • Equipment 10.1 1.1 11.2 • Pipes 73.1 18.2 91.3

V – Sanitation of Khouribga town 235.7 72.3 308.0 • Civil works 51.9 34.5 86.4 • Equipment 60.3 6.8 67.1 • Pipes 123.5 31.0 154.5

VI – Sanitation of Oued Zem town 141.9 48.4 190.3 • Civil works 30.7 20.6 51.3 • Equipment 1.6 0.3 1.9 • Pipes 109.6 27.5 137.1

VII – Sanitation of Boujaâd town 52.0 21.5 73.5 • Civil works 20.1 13.5 33.6 • Equipment 1.0 0.2 1.2 • Pipes 30.9 7.8 38.7

VIII – Acquisition of land and geotechnical control

0.0 86.7 86.7

IX – Studies, control and supervision of works 35.0 36.6 70.6 Total cost (including contingencies) 959.3 401.1 1 360.4

Annex 11 Page 1/3

Kingdom of Morocco Ninth DWSS Project

Assessment of ONEP’s Procurement Capacities

This assessment is based on:

- An assessment of ONEP’s capacities was conducted by the World Bank in May 2005 as

part of the preparation of a new rural DWSS project financed by the World Bank, which was approved in December 2005.

- The Bank’s experience with ONEP and notably during the execution of recent DWSS projects.

1. Assessment conducted by the World Bank:

This assessment concluded that the national procurement system is solid and functioning in a structured and reliable environment, with no fiduciary risk. It also concluded that this procurement system, used by ONEP is in accordance with World Bank guidelines24. The World Bank therefore concluded that the risk of a post-review of envisaged procurements under its rural DWSS project is deemed low and it set the threshold for pre-review as follows:

- Works: USD 5 million (approximately UA 3.5 million). - Goods: USD 2.5 million (approximately UA 1.7 million).

2. Bank’s experience with ONEP: On the strength mainly of completion reports of the 5th, 6th and 7th DWSS projects, as well as the appraisal and progress reports of procurements under the 8th DWSS project, approved by the Bank in November 2004, we can conclude as follows:

a) Legal aspects:

Moroccan legislation on procurement, used by ONEP is in conformity with donors’ guidelines thereon. It guarantees the following three fundamental principles:

- the concern for cost-effectiveness and efficiency in project implementation; - the concern that all bidders should have equal opportunity to bid for supply and

construction contracts ; - the importance of transparency in the procurement process.

The legal aspects are thus deemed satisfactory and the risk low.

b) Management of the contracting process

ONEP’s efficiency in managing the contracting process (planning, preparation of competitive

bidding documents, bid analysis, award and management of contracts) is deemed satisfactory both by completion reports of old projects as by the efficiency of the contracting process within the 24 World Bank – Drinking Water Supply and Sanitation Project in Morocco – Appraisal report, November 2005 (Annex 8 – Procurements).

Annex 11 Page 2/3

framework of the implementation of the ongoing 8th project (the schedule for the award of contracts envisaged by the appraisal report has been strictly followed).

The management of the contracting process is therefore deemed satisfactory and the risk low.

c) Organization and functioning

The Directorate charged with contracting at ONEP is well organized, with a clear division of duties (DWS service, sanitation service,…) and well-defined responsibilities (awarding committees are appointed by decision signed by the Director-General). The procedures and instructions exist and are applied systematically.

The organization of the ONEP service charged with contracting is thus deemed satisfactory and the risk is deemed low.

d) Support and control system

The contracting system is subject to controls at several levels: (i) external audit conducted by a private firm; (ii) internal audit conducted by the Audit and Organization Department which ensures the proper application of the internal rules and procedures; (iii) the State comptroller appointed by the Ministry of Finance within the framework of State audit of public establishments.

The support and control system of the contracting process is accordingly deemed satisfactory and risk is deemed low.

e) Keeping of records

During project appraisal and also during completion missions of old projects, the Bank team was able to verify that records concerning old projects are available and complete. All the information requested concerning various contracts awarded under Bank-financed projects were obtained without difficulty.

The keeping of contract records is thus deemed satisfactory and risk is deemed low.

f) Personnel

The personnel of the Department of Supplies and Contracts (DAM) of ONEP is efficient and sufficient to carry out all the contracting tasks. The personnel is well trained in contracting procedures and rules. Besides, a policy of personnel specialization according to the sub-sectors covered by ONEP is instituted in DAM (drinking water service, sanitation service…). Furthermore, this personnel is supported by other experts specialized in contracting in the various Regional Directorates.

The ONEP personnel responsible for the contracting process is thus deemed adequate and efficient and the risk is deemed low.

g) Assessment of the private sector

During our project supervision, completion and appraisal missions, we were able to hold discussions with national and international contractors and consulting firms which were generally satisfied with ONEP contracting practices, which they consider an example to be followed in Morocco. Regarding Bank-financed projects, no complaint was lodged by bidders during the

Annex 11 Page 3/3

implementation of the last four projects (5th, 6th, 7th and 8th) under which a large number of contracts were awarded. Similarly, the very large number of contractors and consulting firms that take part in competitive bidding launched by ONEP is also proof of private sector confidence in ONEP practices (e.g., 21 international consulting firms responded to the call for expression of interest concerning technical assistance launched under the 8th DWSS project).

The private sector’s assessment of ONEP’s contracting practices is therefore deemed satisfactory and the risk is deemed low. 3. Setting of pre-review thresholds: In accordance with Bank directives in that regard, PPRU was requested to examine our assessment of ONEP’s capacities and to fix the pre-review thresholds of construction contracts to be launched under the 9th DWSS project of the Bank. According to Bank rules which limit post-review to lots that are subject to local competitive bidding (for works, lots of an amount below UA 1.5 million) and given that this is a first experience of ONEP with the Bank concerning pre-review, PPRU recommended setting of the pre-review threshold of works procurement at UA 1.3 million. 4. Plan of action for Post-review: To ensure a smooth conduct of this first experience with ONEP, the Bank will put in place a plan of action based mainly on the following:

- Conduct of an annual audit of procurements25: annual audits of contract awards will be conducted. This audit must be conducted by a specialized firm, which may be the same firm which will conduct the financial audit of the project.

- Participation of ONEP experts responsible for contracting, and notably those of the Regional Directorates of Kénitra (DR4) and Settat (DR3), in a Bank training seminar on the procurement of goods, works and services26.

- Prior agreement of the Bank for the first competitive bidding documents for works, launched in each of the regional directorates.

25 These audits are currently conducted for all ONEP-managed projects. We ensure that the TORs of these audits meet Bank requirements thereon. Where necessary, we request ONEP to amend these TORs. 26 A training seminar on goods, services and works procurement is envisaged y the Bank in Morocco before end-2006. We will ensure that ONEP experts attend this seminar.

Annex 12 Page 1/2

Kingdom of Morocco Ninth DWSS Project

Assumptions of Financial Projections

Assumptions (Targets, Investments required)

1. Key assumptions: 1.1. Targets 2006 2007 2008 2009 2010 2011 2012

No. of drinking water Branches to be run 64 64 64 70 Trend of volumes sold in Mm3: 668 707 728 750 775 786 798

Utilities and Concessions 498 507 516 526 536 539 542 Small towns and douars 146 163 173 182 193 201 209 Industries 24 30 30 31 32 32 32 Tourist 0 7 9 11 14 14 14

Rural drinking water access rate 80% 92% 92% 92% 92% 92% 92% No. of sanitation Branches to be run 11 22 26 12 27 38 18

1.2. Investments required in MMAD

Total 2006-2009 2006 2007 2008 2009 2010 2011 2012

a- Urban areas: 7 452 2 077 2 072 1 797 1 506 740 565 656b- Rural areas: 6 112 1 759 2 475 1 034 844 481 481 481

Small rural centres 318 104 91 56 67 0 0 0 Douars 5 794 1 655 2 384 978 777 481 481 481

Total drinking water: a+b 13 564 3 835 4 548 2 831 2 350 1 221 1 046 1 137 Sanitation: c 4 171 794 1 333 1 161 883 1 336 1 165 1 071 Total Investment: a + b + c 17 735 4 629 5 880 3 993 3 234 2 557 2 211 2 207

Annex 12 Page 2/2

Resources (Tariff, Human)

1.3. Tariff assumptions: 2006 2007 2008 2009 2010 2011 2012

Increase of drinking water tariffs (*): 3,5% 4,5% 4,5% 4,5% 4,5% 4,5% 4,5% Sale tariffs to caretaker-managers 2,37 2,37 2,37 2,37 2,37 2,37 2,37 Sale tariffs to third parties (associations, ...) 3,5 3,5 3,5 3,5 3,5 3,5 3,5 State subsidies - rural MDh 100 250 250 250 Sanitation tax Dh/m3 2 2,1 2,2 2,3 2,4 2,5 2,6 State subsidies for sanitation 100 100 100 100 100 100 100 (*): in 2006, revision of the fixed tax at 72 DH/subscriber/year before taxes and decrease of 1st bracket to 6 m3 instead of 8 m3 1.4. Human resources: 2006 2007 2008 2009 2010 2011 2012

ONEP 4 688 4 775 4 775 4 775 4 775 4 775 4 775 Branch 2 026 2 081 2 136 2 193 2 193 2 193 2 193 Douars 153 405 596 747 961 1 177 1 396 Sanitation 124 204 284 364 444 524 604

Total staff strength 6 991 7 465 7 791 8 079 8 373 8 669 8 968

Annex 13 Page 1/3

Kingdom of Morocco Ninth DWSS Project

Income and Expenditure Amount Projections (in million MAD)

DESCRIPTION 2006 2007 2 008 2 009 2 010 2 011 2 012 OPERATING INCOME Sales of goods and services 3 034 3 372 3 687 4 048 4 374 4 584 4 877 Fixed assets generated by the company 49 50 51 52 53 54 55 Carry forward and transfer of charges 0 0 0 0 0 0 0 TOTAL INCOME (I) 3 084 3 422 3 738 4 100 4 428 4 639 4 933 OPERATING COSTS Purchased items 511 570 621 699 739 688 719 Other external charges 426 512 612 674 747 834 897 Taxes and duties 51 55 59 64 68 72 77 Staff costs 846 883 946 1 001 1 057 1 115 1 177 Allocations for the financial year 1 060 1 197 1 345 1 480 1 579 1 661 1 732 TOTAL EXPENSES (II) 2 894 3 217 3 584 3 918 4 190 4 371 4 602 OPERATING INCOME (I)-(II) 190 206 154 182 238 268 331 FINANCIAL INCOME (III) 108 121 151 193 237 281 317 FINANCIAL COSTS (IV) 361 468 569 651 796 859 904 FINANCIAL RESULT (III)-(IV) -253 -346 -418 -458 -558 -579 -587 CURRENT INCOME (I-II+III-IV) -63 -141 -263 -275 -321 -311 -256 NON-CURRENT INCOME 247 347 465 514 662 775 880 PRETAX INCOME 184 207 201 239 342 465 623 Income tax 65 73 72 85 122 164 220 NET INCOME 119 133 130 154 220 300 403

Annex 13 Page 2/3

BALANCE SHEETS ESTIMATE (in million MAD)

DESCRIPTION 2 006 2 007 2 008 2 009 2 010 2 011 2 012 ASSETS NET FIXED ASSETS 18 301 22 348 24 584 26 008 26 727 27 048 27 281

CURRENT ASSETS (EXCLUDING CASH) 1 596 1 639 1 685 1 778 1 870 1 948 2 030

CASH 1 349 1 186 638 525 389 295 304 TOTAL ASSETS 21 247 25 173 26 907 28 311 28 986 29 291 29 616 LIABILITIES CAPITAL STOCK & THE LIKE 12 803 14 297 15 073 15 656 16 007 16 177 16 309

FINANCING DEBTS 6 681 8 794 10 127 11 076 11 518 11 721 11 888 LONG-TERM DEBTS 19 484 23 090 25 200 26 732 27 526 27 898 28 198 CURRENT LIABILITIES 1 763 2 083 1 707 1 579 1 460 1 392 1 418 TOTAL LIABILITIES 21 247 25 173 26 907 28 311 28 986 29 291 29 616

Annex 13 Page 3/3

Financial Impact on Development Plan

2. Financial indicators: 2006 2007 2008 2009 2010 2011 2012Revolving fund ratio in Nbr 1,06 1,03 1,03 1,03 1,03 1,03 1,03Rate of indebtedness in % 34% 38% 40% 41% 42% 42% 42%EBE in MAD 1 250 1 402 1 500 1 662 1 817 1 929 2 063EBE/debt service in Nbr 2,22 2,09 1,98 1,89 1,48 1,42 1,45(CAF – variation BFR-Principal) / non-rural investment in % 29% 30% 9% 21% 13% 15% 23%Personnel expenses / added value in % 39,4% 37,7% 37,8% 36,7% 35,9% 35,8% 35,5%Cash at end of fiscal year in MAD 1 349 1 186 638 525 389 295 304 3. Sales indicators 2006 2007 2008 2009 2010 2011 2012

Sales of goods and services in MMAD in MMAD 3 034 3 372 3 687 4 048 4 374 4 584 4 877Trend of client numbers in % 6% 6% 6% 6% 6% 6% 6%Collection time (clients) in Months 3,5 3,2 3 3 3 3 3Delivery time (suppliers) in Months 3 3 3 3 3 3 3

4. Financial flows in MMAD: 2006 2007 2008 2009 2010 2011 2012Period flow -224 -164 -548 -112 -136 -94 10Initial cash 1 574 1 349 1 186 638 525 389 295Final cash 1 349 1 186 638 525 389 295 304

Annex 14 Page 1/3

Kingdom of Morocco Ninth DWSS project

Assumptions for calculation of Economic Rate of Return of the Project

The calculation of the economic return is based on a financial calculation, subsequently transformed into an economic rate of return by applying the appropriate factors of conversion and quantifying certain socio-economic benefits of the project. The calculation assumptions are mostly drawn from the methodological guide to the project prepared by ONEP on the basis of its past experiences and feasibility studies of the project. This calculation concerns two project components, namely: rural drinking water supply to four provinces (Azilal, Chefchaouen, Kenitra and Settat) and sanitation of the towns of Khouribga, Oued Zem and Boujaâd. Investment Costs

Investment cost (plus physical contingencies and provisions for price contingency) is MAD 1352.6 million (UA 102.5 million) at current prices for the period 2006-2010.

Local authorities and beneficiaries will finance 20% of total investment cost of DWS infrastructure and 100% of the investment cost of water distribution within the douars.

Households will make a financial contribution of MAD 1700 /household for individual connection. The total project cost is fixed. Any additional cost will be reflected on the quantities of structures

envisaged. Operating Costs Fixed costs Maintenance cost: it is calculated on the following bases:

Civil works : 1.0% of the investment/year Equipment : 3% of the investment/year Pipes : 0.5% of the investment/year

Depreciation period:

Civil works : 40 years Equipment : 13 years Pipes : 40 years

Personnel costs:

MAD 169 600 /year for pumping stations MAD 382 700 /year for treatment plants

Overheads and miscellaneous: they are estimated at 30% of personnel costs. Motor vehicle costs: they are calculated on the basis of one vehicle per pumping station and two vehicles per treatment plant:

Depreciation in 5 years : MAD 20 000 /year/vehicle Maintenance and running : MAD 24 000 /year/vehicle

Variable costs These costs concern the utilization of the structures and the volume of water consumed by users. They mainly cover energy costs.

Cost of energy : MAD 0.7 /m3 Cost of reagents : MAD 0.26 /m3 for surface water treatment

MAD 0.01 /m3 for ground water treatment.

Annex 14 Page 2/3

ONEP purchase rate: MAD 2.35/m3 for caretakers-manager and MAD 4.5/m3 for associations. The cost of collecting water for ONEP is taken at MAD 2.5/m3.

Common income and revolving fund

Specific consumptions: 20l/day for standpipes and 50l/day for individual connections. The year has 365 days.

The average selling price is MAD 10/m3 at standpipes and MAD 8/m3 to IC. Rate of IC: 20% at end of project in 2010 and a projected rate of 80% by 2025. Fixed water charged

of MAD 6/month. Sanitation charge, (average) MAD 2.5/m3 of water consumed (80% of this water is discharged and

thus treated). Fixed royalty of MAD 3/month. All the treated waste water will be sold to OCP at a supposed rate of MAD 2.5/m3. Client accounts represent 10% of individual connection sales. Supplier accounts represent 5% of costs

of in-puts consumed, while a cash account of 2% of total sales is maintained by caretaker-managers and water users’ associations. 27

Macroeconomic variables

An annual inflation rate of 2% is adopted. The exchange rate used in the analysis (2005) is MAD 13/UA and MAD 10.87/EUR.

Conversion factor Investment:

• Foreign currency: 1.00 as the exchange market in Morocco is free. • Local currency: 0.90 to take into account the deficiencies in the domestic market.

Operating costs:

• Specific consumption costs: 1.250 to take into account the very low selling price of water to standpipes compared to the real cost of water production.

• Energy costs: 0.890 to take into account the fact that Morocco is not an energy producer and is interconnected for electricity with Europe.

• Reagents: 0.870 to take into account the fact that this product is essentially imported. • Maintenance: 0.940 to take into account the incidence of taxes and customs duties. • Personnel costs: 0.880 to take into account the lowest opportunity cost for unskilled labour. • Overheads: 0.870 to take into account the incidence of taxes and customs duties.

Operating income:

• Sale price to caretaker-managers: 1.05 to take into account the difference with the social bracket price. • ONEP sale price to WUAs: 0.980 to take into account the difference in price with the ONEP social

segment price. • Contribution of households for individual connection: 1.000 as there is no bias.

Estimated economic gains Certain economic gains not directly quantifiable are likely to have a substantial impact on the material situation of the populations following the implementation of the project, such as saving the populations concerned from the “water collection chore”, in terms of time saving for adults and improving school enrolment for children and the impacts in terms of reduction of water-borne diseases. In accordance with the approach usually followed to that end in economic appraisals, these benefits were converted into monetary gains estimated in the following working assumptions:

27 It is assumed that sales are adjusted to inflation annually.

Annex 14 Page 3/3

i. Gains in terms of time saved:

- Water fetching is done 50% by women, 30% by girls, 15% by boys and 5% by men. - Daily average duration of the water collection chore is estimated at 180 minutes per household. This

duration is reduced to 30 minutes after the project. - Time saved for adults is estimated at 63 days per year and per household. - Quantification in monetary terms of such saving, by applying the time saved, to the agricultural

guaranteed minimum wage which is MAD 50 /day. ii. School enrolment gains:

- Saving children from the water collection chore will lead to better school performance translated into a decrease in repeat and absenteeism rates.

- The gains in terms of enrolment cost are estimated at half of the costs borne per year in this domain per household and per person (MAD 54).

iii. Health care gains:

- The reduction in water-borne diseases (dysentery, diarrhoea of infants and typhoid) translates into a drop in health expenses.

- It has been estimated that the gains resulting therefrom represent one-third of the costs borne per year in this domain per household and per person (MAD 396).

Annex – 15

Kingdom of Morocco Ninth DWSS Project

Calculation of Economic Rate of Return (in MAD)

Annex 16 Page 1/8

Kingdom of Morocco Ninth DWSS Project

Summary of the Environmental and Social Management Plan

1. Brief description of the project and the key environmental and social components 1.1 General information. The project of a social and economic nature is aimed at implementing DWS and sanitation works. The works will generate minor negative impacts on the social and environmental components; they will be similar for the DWS and treatment of waste water: acquisition of land, localized soil disturbances, damage of crops, localized disturbance of fauna and flora, worksite nuisances, passage of pipes under certain wadis, road or railway infrastructures, etc. Conversely, no population displacement is scheduled. Positive social benefits are also expected: regional employment, improved hygiene and health conditions related to secured water supply, development of new activities due to availability of the resource, disappearance of water collection-related chores (improvement of the status of women, treated water resources for industry (OCP) and agriculture (irrigation). 2. Main environmental and social impacts The envisaged works will generate minor negative impacts on the physical, natural and social environment, given their small scale and their localization outside settlements, often on unproductive State or communal land. The worksite nuisances are the same for the different components and will be limited to very rare interventions on the roads; they will generate noises and gas emissions from various civil engineering equipment and will be sources of rising dust. In the settlements crossed, the works, given their rapid execution will not disrupt economic activities significantly. No archaeological sites are mentioned on the work sites which additionally should not generate any landscape disturbance. While acquisition of some land may be required, no population displacement is envisaged. Impacts of rural drinking water supply works (laying of pipes, construction of small gravity water tanks and small pumping stations) will be similar in each province: requisition of State land or acquisition of communal or private land for the passage of pipes (maximum strip of 5 metres wide over the length of the pipes), and installation of various tanks, as well as localized soil compacting; the scheduling of works outside farming periods will prevent any agricultural losses. The localized disturbances of non-specific flora will concern a few passages in the quickset hedges, fauna will no be affected. The risks of soil pollution will be caused only by very limited leakages of engine oils and fuels of worksite equipment, which as a result of rainwater runoffs could affect surface water and possibly ground water quality. In the case of individual connection, the increase in the volume of water consumed by the populations will represent an increase in household effluents discharged into the natural environment and an increased risk of spread of water-borne diseases (these risks will be mitigated by appropriate measures for the management of gray water, which is condition for qualification to obtain individual connections). Construction of waste water treatment plants: these works will be undertaken on infertile communal lands; their acquisition will not require population displacement. The impact on biodiversity will be negligible given the surface areas required (136 ha) and the limited plant cover ; the indirect impacts will depend on the operation phase and concern the noise from equipment, odour emissions (depending on the direction of prevailing winds), movement of trucks, risks of contamination of workers by pathogens, evacuation of screened, wastes, sludge management (public landfill), utilization of treated water (primary, secondary and tertiary treatment) for the washing of phosphates by OCP or irrigation of trees or discharge into the wadi.

Annex 16 Page 2/8

3. Improvement and mitigation programme Impact-mitigation measures have been estimated and their costs included in the cost of works (they will be financed by successful bidders) except for costs of acquiring land which were estimated separately. The key mitigating measures proposed were: (i) compensation of landowners as part of acquisitions or damages to private property; (ii) soil restoration following works and taking into account of risks of erosion and landslides during and after works; (iii) organization of ad hoc measures to avoid all risks of pollution by effluents, gas emissions from equipment, solid wastes. The land acquisition plan, budget estimates and availability will be disseminated before commencement of operations. As part of operation of treatment plants, the running of the project will be monitored by an on-site analysis laboratory which will certify the quality of effluents and sludge, inspectors from the Department of Water Quality Control will regularly monitor operations. To avoid odour emanations, sites have been chosen according to prevailing winds and at an appropriate distance from settlements. Special measures will be taken to avoid occupational diseases as well as accidents among workers. To improve the aesthetics of the site, tree planting in curtains is envisaged. Solid wastes from the operation of the installations will be recycled or directed to the controlled waste landfill. The sewage sludge farming and irrigation of tree plantations and nurseries are envisaged in order to reap benefits from these by-products, provided that their heavy metal content are suitable for agricultural use. Similarly, the use of purified waste water for phosphate washing by OCP is envisaged. 4. Monitoring programme and supplementary initiatives ONEP, which designed the project will comply with the applicable laws, regulations, codes and other provisions designed to prevent, control and protect the physical, natural and human environment. ONEP’s Department of Sanitation and the Environment will be responsible for that. Contracts for the execution of the works will describe the penalties to be inflicted on Contractors in case of non-compliance with the specific technical prescriptions of an environmental and social nature. Contractors and ONEP will refer to impact assessments to mitigate or compensate risks on the environment. Contractors must take all the necessary measures to protect soils, waters, woodlands, farmlands, fauna and flora, communal infrastructures and socio-cultural facilities, environmental constraints and ensure their application. They must not go outside the areas envisaged for their works without prior authorization from ONEP officials. They will also be responsible for cleaning up and physical rehabilitation of work sites. In case of disasters during the works (accidents, fires, water or soil contamination, spillage of hazardous substances, etc.), emergency procedures will be applied. The personnel in charge of works will be informed thereof and will regularly participate in simulation exercises. 5. Institutional arrangements and capacity building requirements Given the nature of works, the limited surface area of the land to be acquired, the non-displacement of persons, the absence of any particular impact on biodiversity, absence of protected ecological areas on the project site and the significant socio-economic benefits, notably on the needy and poor populations, this project is classified under category II by the ADB and does not require an EIA. Conversely, Moroccan legislation exempts drinking water supply projects from impact assessments but requires such assessments for waste water treatment projects. 3 EIA are being finalized for the sanitation of the three towns of Khouribga, Oued Zem and Boujaâd. Moroccan public water resources (DPH) are supervised by the State which has powers over two components of the DPH, namely: (i) utilization of the resource and (ii) control of the submerged hydraulic areas. It exercises its managerial role through (i) institutional instruments (Secretariat of State in charge of Water, the Ministry of Equipment, Water basin authorities, National drinking water Authority, ORMVA, (ii) planning instruments (Higher Water and climate Council, Integrated water management master plan, national water plan) and (iii) water legislation (law No. 10-95 on water). The Ministry of Regional Development, Water and the Environment and its General Secretariat for the Environment are currently responsible for coordinating the

Annex 16 Page 3/8

environmental management activities of the different institutions. The law on impact assessment was passed in December 2003 ; it seeks to harmonize ESIA procedures at the national level and requires that projects likely to have an environmental impact must first obtain a decision of environmental acceptability. Its decree of implementation will list the projects concerned. ONEP is a key actor in the domain of the environment; it drew up an initial methodological guide in 1996 for the conduct of EIAs for drinking water supply projects undertaken by it. This guide was revised in 2000 and extended to sanitation projects. At present, ONEP is preparing guides to environmental surveillance and monitoring. More specific provisions empower the State to expropriate or temporarily use lands (law No. 7-81 of May 1982) for any public interest project. The Dahir of 1977 allows occupation of public or private land in the national interest and guarantees compensation of rightful claimants (interministerial arbitration commission). 6. Public consultations and information disseminate requirements ONEP is mandated to carry out the management of drinking water supply and sewerage in the Kingdom of Morocco and in that capacity, it is charged with planning the actions and executing the works necessary to provide such services (drinking water and sanitation) to the populations according to a strategy defined by the supervisory Ministry. The participatory approach envisaged for rural DWS requires the opening of public consultations and the dissemination of information on the lie of the project, on its components – considering the lands that will be acquired. Persons who suffer any damages as a result of the organization of the project must be informed prior to the commencement of works, the nature of the said works, the losses they will suffer, and the compensation envisaged so that they can get together, consult and file their claims. The amounts of compensation for land acquisitions or crop damages must be known to those concerned prior to the commencement of works (land and valuation surveys must be finalized prior to the commencement of works). 7. Cost estimates The costs of environmental measures to be taken to offset project impacts are included in the costs of the technical components of the project and thus feature in the specifications to contractors. The environmental costs for the town of Khourigba amount to MAD 2 million, for Oued Zem MAD 6.8 million and for Boujaâd MAD 6.3 million. The costs of land acquisition for water supply stand at MAD 52.3 million, that of the sanitation component MAD 26.1 million. The costs of environmental measures. 8. Schedule of implementation and production of reports The project implementation and technical assistance unit are bound to include the progress report of the social and environmental component of the project in each activity report. An environment audit will be conducted at project completion, and the conformity of the environmental component will form part of the acceptance of works of each component.

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Table 1: Assessment of positive impacts

(Rural DWS and Urban Sanitation)

Type of positive impacts

Proposed improvement measures

Impact Assessment

Socio-economic impacts Improvement of hygiene and health issues; Rational management of the resource; Job openings during works; Engineering services; Development of new economic activities including SMEs;

Improve water treatment at the appearance of anomalies; Complete identification and assessment of reserves; Identification of volumes necessary; Use of local labour; Development of works; Regional competitive bidding; sub-contracting; Surveillance of all pollution risks;

Important, on-going and significant; Important; long-term Short lived; significant; Short lived; significant; Long-term; significant.

Annex 16 Page 5/8

Table 2: Assessment of negative impacts and description of proposed mitigating measures (Rural DWS and urban sanitation)

Type of negative impacts

Mitigating measures recommended

Impact assessment

PREPARATORY PHASE Impacts on the natural environment - Setting up of the worksites and provision of access: felling and clearing.

Rehabilitation at the end of works, tree planting, vegetation, crops; Transmit information on the environmental protection to workers;

Moderate and temporary

Impacts on the physical environment - Soil compacting

Levelling, restore original compacting by digging over 50 cm;

Negligible and reversible; surface areas concerned not extensive

Socio-economic impacts - acquisition of land and various damages to private property

Land audit to be conducted; assist populations to claim their rights; compensations;

Moderate impact (small surface area) and irreversible

WORK SITE LAYOUT PHASE Type of negative impacts Mitigating measures recommended Impact assessment

Impacts on the natural environment - destruction of plant cover, degradation of native plant communities; - risks for protected plant and /or animal species; - Landscape aesthetics: temporary damage during works: due to deforestation, soil exposure, ditches, excavation, worksite wastes,

Restoration of the soil, plant cover, the characteristics of the place; Few endemic endangered species in the region; protect fragile ecosystems by avoiding them; reafforestation and revegetation; Restoration of the soil to its initial state; reafforestation of surroundings and vegetation; disposal of wastes;

Minor; short-lived entirely controllable; Negligible given the type of works; Negligible, temporary and controllable;

Impacts on the human environment: - risks of destruction of cereal crops, fruit trees, forest plantations; - risks of destruction of archeological, religious heritage; - deterioration of quality of streams (laying of pipes in wadis) and disruption of water use; - public health: water-borne diseases, pollution risks in the watershed; risks of STDs; - accident risks during road

Restitution and compensation; works outside farming periods; Restoration of sites after closure of worksites; Restore topsoil, reafforestation, decompacting, vegetation; avoid passage through irrigated land; Unlikely – passing round classified sites – inform the Ministry concerned Use existing infrastructure to cross them; choose crossing points, protect banks; remove all waste; superficial drainage ; Control physico-chemical, bacterial, viral, pesticide – concentration parameters; health and STD education; Apply labour legislation ; place appropriate road signs during works; surveillance of worksite;

Nil to significant according to component (s/project); temporary to permanent; Practically nil Low risk; proportional to the domestic and tourist effluents discharged upstream in water intakes without treatment; Low and easily controllable;

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works and on worksite; traffic; - air quality: - noise pollution

standardization of worksite equipment; etc.; Ensure the worksite equipment meet fuel consumption norms ; Standardize worksite equipment; work only during working hours;

Negligible; idem Very temporary; negligible

Impacts on the physical environment - excavation, dynamiting during digging; movement of earth; - soil compacting (traffic); - power transmission;

Exposure of the soil and restoration after works; quarry management; leveling; vegetation; Tillage at closure of work site;

Minor to significant; controllable;

OPERATION PHASE Type of negative impacts Mitigating measures recommended Impact assessment

Impacts on the physical environment - risks of soil erosion - soil compacting

Maintenance of installations, vegetation of soils; drainage of rain water; Mark out the spaces for motor vehicle traffic;

Moderate risk; short and long term; controllable;

Impacts on the human environment - risks due to the handling of waste water; - contamination of users; - miscellaneous accident risks in installations

Training of operators, wearing of gloves and glasses, aeration of premises; prepare an emergency plan; conduct required chemical analyses; Health check-ups, improved treatment and disinfection procedures; Safety procedures ; marking out of movement areas

Significant; temporary; controllable; significant; short term; controllable Short term; significant, controllable;

Impacts on ecosystems - Water treatment plants: discharge of sludge ; discharge of purified waste water

Drying of sludge and disposal in landfill; treatment of polluted water, conduct physico-chemical analyses of pollution indicators; maintain proper drainage.

Moderate; short term; controllable

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Table 3: Surveillance and Monitoring Programme (Rural DWS and Urban Sanitation)

Surveillance programme

Implementor

Monitoring programme

Implementor

Costs

PREPARATORY PHASE Land audit; lands to be acquired – identification of rightful claimants -

Wilaya administration; Council

Verification of proper execution of compensations;

Agency organizing the project: ONEP / Councils

Specific budget

Choice of worksite locations Provision of access ways

Contractors and Environmentalists

Conformity with goals pursued and rationalization of operations

Agency organizing the project: ONEP / Councils

Not applicable

Participatory approach; Stakeholder participating

Agency organizing the project: ONEP; Wilaya; Council

Verification of project publicity

Agency organizing the project: ONEP / Councils

Not applicable

WORKSITE PHASE Marking out of project easement

Contractor’s environmentalist

In conformity with surface area of the interaction zone of works on the environment

ONEP / Councils Not applicable

Transportation of sundry equipment and materials ; storage

Contractor’s environmentalist

Road traffic and safety, state of soils

ONEP / Councils Included in work costs

Physical risks of accidents on worksites and surroundings

Contractors Compliance with legislation on works and movement of machines;

ONEP / Councils Idem

Project site works (control of block making, control of gas and dust emissions, discharge of liquid and solid effluents)

Contractors

Compliance with recommendations of environmental assessment;

ONEP / Councils Idem

Excavation, laying of pipes, placing of power lines, construction of sanitation works

Contractors and their environment expert.

Compliance with recommendations of environmental assessment;

ONEP / Councils Included in work costs

Maintenance of worksite vehicles and machines

Contractors and Concession holders

Compliance with the manufacturer’s recommendations and norms

ONEP / Councils Idem

Putting in place of structures and equipment; connection to electricity.

Contractors and their environment expert.

Compliant with the detailed design – compliant with environmental assessment.

ONEP / Councils Idem

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Surveillance programme

Implementor

Monitoring programme

Implementor

Costs

OPERATING PHASE: RURAL WATER SUPPLY COMPONENT Maintenance of equipment in conformity with manufacturer’s norms;

Network manager; ONEP;

Compliance with manufacturer’s norms

ONEP / Councils Recurrent budget

Water quality surveillance;

Network manager; ONEP

Application of public health norms and standards

ONEP: Water Quality Control Department

Recurrent budget

OPERATION PHASE: SANITATION COMPONENT Maintenance of equipment in conformity with manufacturer’s norms;

Network manager; ONEP

Compliance with manufacturer’s norms

ONEP / Councils Recurrent budget

Presence of structures: impact on landscape; maintenance of pipe works, sanitation, facilities, buildings, power lines;

Network manager; ONEP

Integration of structures in the landscape and maintenance – Aesthetics of buildings;

ONEP / Councils Recurrent budget

Control of effluents or wastes from treatment of water or other sources

Network manager; ONEP

Compliance with anti-pollution norms in the natural environment

ONEP / ABH/Councils

Recurrent budget

Control of elimination of hazardous waste from waste water treatment

Network manager; ONEP

Compliance with anti-pollution norms in the natural environment

ONEP / ABH / Councils / MATEE

Recurrent budget

Control of parameters related to purified waste water and sludge;

Network manager; ONEP

Application of public health standards and norms; epidemiological survey.

ONEP / ABH / Councils / MATEE

Recurrent budget

Annex – 17

Kingdom of Morocco Ninth DWSS Project

Project Monitoring Organization Chart

Annex – 18

Kingdom of Morocco Ninth DWSS Project

Detailed Project Implementation Schedule

Annex 19 Kingdom of Morocco Ninth DWSS Project

Main documents consulted

1. General Documents:

- Requête officielle du Ministère des Finances et de la Privatisation – Novembre 2005. - Rapport d’activité de l’ONEP pour l’exercice 2004. - Divers documents relatifs à la politique tarifaire, la gestion des ressources humaines, la politique

de formation, la facturation et le recouvrement, les projections financières, la gouvernance de l’entreprise, etc. – ONEP, Décembre 2005.

- Etats financiers – Bilans de l’ONEP 2000 – 2004. - Projet du contrat-programme ONEP/Etat 2006-2009. - Rapport d’analyse de la situation financière de l’ONEP – AfD, 2005. - Décrets fixant les tarifs de vente de l’eau potable (production et distribution) et les tarifs

d’assainissement – Février, 2006. - Note sur le mode d’acquisition des terrains – ONEP, Septembre 2005. - Statistiques du recensement général de population au Maroc, 2005.

2. Generalization of access to drinking water in rural areas:

- Guide méthodologique de l’AEPA en milieu rural – ONEP, 2006. - Etude de diagnostic de l’AEP en milieu rural au Maroc – ONEP / FAO, Déc. 2005. - Rapport d’évaluation du nouveau projet d’AEP en milieu rural – Banque Mondiale, 2005. - Documents relatifs au programme d’appui au développement de l’assainissement rural –

ONEP/FAO, 2005. - Présentation et recommandations de la rencontre sur l’AEP rurale au Maroc organisée au Rabat –

Septembre 2005. - Sous-traitance de la gestion des installations de M’Haya et des douars avoisinants. - Rapport sur l’expérience de l’ONEP relative à l’eau potable et la promotion de l’emploi en milieu

rural – ONEP. - Documents et CD relatifs à la sensibilisation et la participation de la population rurale dans la

mise en œuvre des projets d’AEP en milieu rural – ONEP. - Documents de communication et de sensibilisation (classeur animateur) et guide d’assainissement

pour le technicien de l’association – ONEP. - Rapport relatif aux indicateurs d’exploitation des bornes fontaines en milieu rural pour l’exercice

2004 – ONEP. - APS des études d’AEP des communes rurales des provinces de Chefchouan, Azilal, Kénitra et

Settat – 2006. 3. Treatment of urban waste water in Khouribga, Oued Zem and Boujaâd :

- Etude d’impact sur l’environnement du projet d’assainissement de la ville de Khouribga – 2004. - Etude du plan directeur d’assainissement de la ville de Khouribga – 2005. - Etude d’assainissement de la ville d’Oued Zem – 2005. - Etude d’assainissement de la ville de Boujaâd – 2005. - Evaluations environnementales des projets d’assainissement des villes d’Oued Zem et de Boujaâd

– 2006. - Normes de rejets et de réutilisation dans l’agriculture des eaux usées épurées – ONEP, 2005.

Annex 20 Kingdom of Morocco Ninth DWSS Project

Chronology of project preparation and appraisal activities

Date Activities Organization

2002 – 2004 - Preparation of feasibility studies of the different components.

ONEP

2005

- Discussions between ONEP and ADB for the definition of the new project and coordination meetings with representatives of the World Bank and European donors.

ADB / ONEP

2005 – 2006

- Finalization of detailed studies of different components and environmental impact assessment for the sanitation aspect.

ONEP

June 2005

- Project identification and proposal of components to be financed.

ONEP / ADB

November 2005

- Official request by the Ministry of Finance and Privatization.

MFP

December 2005

- Project preparation mission.

ADB / ONEP

February 2006

- Internal review (internal and interdepartmental working groups) of preparation report.

ADB

March/April

2006

- Project appraisal mission(1) and coordination meetings with representatives of the World Bank and AFD (which is co-financing a new rural DWS project).

ADB / ONEP

May 2006

- Internal reviews (internal and interdepartmental working groups and loan committees) of the appraisal report.

ADB

June 2006

- Negotiation of loan and guarantee agreements.

ADB

(1) During project appraisal, the Bank mission held working sessions with the Minister of Finance and Privatization and

with different services (planning and strategy, finance, accounting, environment, supplies and procurement, audit and organization, human resources and sales services) and the ONEP regional directorates of Khouribga and Kénitra.

Annex

o Paragraph 2.6.3, line 1: Add “draft” after 2009.

o Paragraph 2.6.5: Add to the end “A National Sewerage Programme was adopted in 2005”.

o Paragraph 3.2.4, line 6: After “December 2004” add “and resulted in the adoption of

the National Sewerage Programme”. o Paragraph 4.6.3, amend the last sentence to read: “The revised tariffs came into effect on

2 March 2006 for the water production and on 1 April 2006 for the water distribution and sewerage.

o Paragraph 5.4.5: Replace “The Civil works of tanks …” with “The civil works for

pumping stations and reservoirs …”