Docm=nt of The World Bank FOR OFFMCIAL USE ONLY V3AW0C/L/ Repwt No. P-5089-IVC REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN OF US$80.0 MILLION EQUIVALENT TO THE REPUBLIC OF COTE D'IVOIRE FOR A WATER SUPPLY AND SANITATION SECTOR ADJUSTMENT PROGRAM JUNE 4, 1990 Thi doumnt ha a restricted dtibutdon and may be uad by redpient only In the perfonrmnce of dthir odf dutis. Its contnXt may not otheri be discoed without World Bank auhrizatol CURRENCY EqUIVALENTS Currency Unit a CFA Franc / Annual Averages, CFAF per US Dollar 1980 - CFAF 211 1986 - CFAF 490 1988 - CFAF 847 1987 - CFAF 847 1988 - CFAF 275 1989 - CFAF 312 1990 - CFAF 286 FISCAL YEAR January 01 - December 81 SYSTEM OF WEIGHTS AND MEASURES (METRIC) 1 metor (m) a 3.28 feet (ft) 1 kilometer (km) = 0.62 mile (i) 1 liter (l) = 0.26 US gallons 1 cubic meter (m3) - 85.3 cubic feet (cu ft) 1 liter per capita per day (lcd) = 0.26 US gallons per capita per day ABBREVIATIONS AND ACRONYMS AEP Abidjan Environmental Protection Project / Projet de protection de I environnement d*Abidjan ASAL Agriculture Sector Adjustment Loan / Pret d'ajustement du secteur de I 'agriculture BCEAO Central Bank of West African States / Banque central. des Etats d'Afrique de I Ouest BNDA Agricultural Development Bank / Banque nationale de d6veloppement agricole BSIE Investment Budget / Budget sp6cial d'inv.stiasement et d'6quipement CAA Debt Amortization Fund / Calsse autonome d'Amortissement CAISTAB Export Crops Marketing Board / Caiss. de Stabillsation *t de soutien des prix des productions agricoles CCCE French Aid Agency / Cal.se central, de Coop6ration 6conomique DCGTx Office for Supervision and Control of Public Works; an agency within the Presidency of the Republic J Direction et Contr8le des grands Travaux DE Water Directorate / Direction de l'Eau EDF European Development Fund / Fonds europ6en de d6voloppnemnt ESAL Energy Sector Adjustment Loan / Pr&t -4aj ustement du secteur de e4nergie FNA National Sanitation Fund / Fonds national do l'Assainissement FNE National Water Fund / Fonds national de l'Eau FNH National Water Works Fund / Fonds national de l'Hydraulique KfW German Aid Agency / Kreditanstalt fUr Wiederaufbau MTPT Ministry of Public Works and Transportation / Minist4re des Travaux publics et des Transports MYRA Multi-Year Rescheduling Agreement 0 a M Operation and Maintenance PE Public Enterprise / Entreprise publique PER Public dxpenditure Review / Revue des d6penses publiques PPGD Public and Publicly Guaranteed Debt RCI Republic of C8te d'Ivoire / R4publIque do C8to d'Ivoire RWS Rural Water Supply / Hydraulique villageoise SAUR Soci6t d'am6nagement urbain et rural (Private French Water Company) SETU Urban Land Development Company / Societ4 d' quipment des terrains urbains SODECI Ivorian Water Distribution Company / SocIlt6 de distribution d'eau do CSte d'Ivoi re TOT Torms of Trade / Termes de e6chango UMOA West African Monetary Unlon / Union monetaire ouest-africaine UWS Urban Water Supply / Hydraulique urbaine VAT Value Added Tax / Taxe A Ia valeur ajout6o WASAL Water Supply and Sanitation Sector Adjustment Loan / PrAt d'ajustoment du secteur do l'eau et de l'assainissement y The CFA Franc exchange rate Is fixed at a rate of GO: 1 with the French Franc. The latter Is a floating currency. FOR OMCIAL USE ONLY REPUBLIC OF COTE D'IVOIRE WATER SUPPLY AND SANITATION SECTOR ADJUSTMENT LOAN Table of Contents Page No. LOAN SUMARY.. .i PART I. THE ECONOMY .... . . . . . . .. 1 Introduction .... . . . . . . . . . . . . . . 1 Background . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 The Short Term: Public Finance and Structural Reforms . . . . . . 4 Reducing the Fiscal Deficit . . . . . . . . . . . . . . . . 5 Sectoral Reforms .... . . . . . . . . . . . . . . .. 6 Other Structural Reforms . . . . . . . . . . . . . . . . 7 Social Dimensions of Adjustment . . . . . . . . . . . . . . 8 Towards a Res-umption of Growth: The Medium Term . . . . . . . . . 8 Overview of the Medium-Term Adjustment Program . . . . . . . 9 Economic Prospects and Financing Requirements . . . . . . . . . 13 The Short Term .T.e.r.m. . . . . . . . ...... . . . . . . 13 The Medium Term . . . . . . ... ... . . . . . . . . . . 14 Financing Requirements ... ...... . . . . . . . . . . 15 Risks... . . 16 PART II. THE WATER SUPPLY AND SANITATION SECTOR . . . . . . . . . . 17 The Water Supply and Sanitation Sector in the Adjustment Frocess. 17 Sector Profile .... . . . . . . . . . .18 Service Levels and Water Demand . . . . . . . . . . . . . . 18 Institutional Framework ... ..... . . . . . . . . . . 19 Sector Performance .... . . . . . ..... . . . . . . . . . 20 Urban Water Supply .... . . . . ..... . . . . . . . . 20 Sanitation .... . . . . . . ...... . . . . . . . . . 22 Rural Water Supply .... . . . . ..... . . . . . . . . 22 Financial Management . . . . . . . . . . . . . . . . . . . . 24 Main Sector Issues .... . . . . . . . . . . . . . . . . . . . 25 Regulatory and Contractual Framework . . . . . . . . . . . . 25 Pricing Framework .... . . . . . . . . . . . . . . . . . 26 Financial Issues .... . . . . . . . . . . . . . . . . . . 27 . ..1.. . This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. Pago No. PART TIT. THE SECTOR ADJUSTMENT PROGRAM . . . . . . . . . . . . . . 29 Policy Framework and Sectoral Objectives . . . . . . . . . . . . 29 Sectoral Adjustm ent Proggam ... . * a.......................... 30 Increased Privatization . . . .......... . . 30 Control of Costs and Efficient Pricing . . . . . . . . . . . 31 Environmental Protection ..... . . ............. 33 Financial Restructurin . . . . . . . . . . . . . . . . . . . 33 PARTIV. THEPROPOSEDLOAN ....** . ...** ....... 35 Loan History . . . . . . . . . . . . . . . . .* . * . * . . 35 Loan Amouat and Tranching. ... ........ ...... 36 Moitorable Actions . .. .. .. .. .. .. . .. ˘. *. .*v* ............... 37 Monitoring and Reporting . ...... . . . . . ..... . 39 Procurement, Disbursement and Administration . . . . . . . . 39 Benefits, Risks and Environmental Impact . . . . . . . . . . 40 PART V. BANK GROUP OPlSATIONS IN COTE D'IVOItZ . ... . ..... . . 42 PART VI. RECOMMNDATION ...........4.. * . . . ..... . 43 ANNEXES 1 Country lconomic Data . ................ . 44 2 Status of Bank Group Operations. . . . ......... . 51 3 Statement of Sectoral Policy . . . . . . . . . . . . . . . 53 4 Program of Policy Actions . .............. . 90 5 Summary of Financial Data and Projections . . . . . . . . 93 6 Impact of Policy Reforms on Public Sector Revenues . . . . 100 7 Supplementary Loan Data . ................ 103 8 Documents and Data Available in the Project File . . . . . 105 MAP: IBRD No. 22120 - Location of Water Supply Systems REPUBLIC OF COTE D'IVOIRE WATER SUPPLY AND SANITATION SECTOR ADJUSTMENT LOAN Loan Summary Borrower: Republic of COte d'Ivoire. Amount: US$80.0 million equivalent. Terms: 20 years, including 5 years of grace, at the standard variable interest rate. Loan Description: The proposed loan would support the Government's comprehensive program of reforms in the water supply and sanitation sector. The main objectives of this program aret (a) to restore the availability of basic rural services; (b) to Improve planning and sustainability of investments; (c) to improve control of costs and efficiency of pricing; (d) to strengthen the protection of water resources and of the envirorment; and (e) to restore the financial autonomy of the sector. To this effect, the program comprises the following: (a) a new institutional framework based on Government retrenchment through increased privatization and community management of rural facilities; (b) introduction of efficient pricing of urban water services and of full recovery of maintenance costs in rural areas; (c) establishment of regulations and controls on private extraction of groundwater and on disposal of domestic and industrial wastewater; and (d) implementation of a new financing strategy and restructuring of sector finances. Benefits and Risks: More than four million villagers, particularly women and children, would benefit from the restoration of rural water services. Industrial competitiveness and low-income urban consumers would benefit from efficient water pricing that is introduced in conjunction with cost reduction measures. The reforms implemented under the proposed loan would also increase returns on sector investments, relieve public finances from the pressure exerted by the sector since the mid-80s and would ensure efficient and environmentally sound use of water resources. Main risks pertain to the effectiveness of the transfer of rural water points to the villagers - ii - and to unpredictable development in the external environment which may reduce the actual availability of ludgetary resources to complete the financial restructuring of the sector. These risks are limited in view ofs (a) the experience already accumulated in training and community development through a large scale pilot program; (b) the resolution of the Government to implement the sectoral reforms already demonstrated during preparation, appraisal and negotiations; and (c) Government's commitment to the main objectives of the stabilization program. Estimated Disbursements: The proposed loan would be disbursed in two tranches: the first tranchtu of US$50 million at loan effectiveness (July 1990) and the second tranche of US$30 million around December 1990, upo.l satiLactory progress in implementation of the program. Staff Appraisal Report: This is a combined President's and Staff Appraisal Report. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMEhDATION OF THE PRESIDENT OF THE IBRD TO THE EXECUTIVE DIRECTORS ON A PROPOSED WATER SUPPLY AND SANITATION SECTOR ADJUSTMENT LOAN TO THE REPUBLIC OF COTE D'IVOIRE 1. I submit the following report and recommendation on a proposed Loan for the equivalent of US$80 million to the Republic of C8te d'Ivoire in support of the implementation of a , er supply and sanitation sector adjustment program. This program is u..scribed in a Statement of Policy received from the Government (Annex 3). The Loan will have a term of 20 years, including 5 years of grace, at the standard variable rate. PART I. THE ECONOMY INTRODUCTION 2. C8te d'Ivoire (RCI) is in the midst of a deep macroeconomic and financial crisis triggered by the sharp decline in the te.ms of trade (TOT) since mid-1986. This has resulted in sharply fal_ing incomes, rising unemployment, and in consequence serious social unrest. The country's two key economic problems are a very large structural fiscal deficit which in 1989 reached 16 percent of GDP and the lack of competitiveness of the productive sectors. The Government decided in mid 1989 to start taking corrective action, and, in close consultation with the IMF and the Bank, is implementing an economic recovery program. After an initial period of continued recession, during which domestic prices are expected to adjust downward, factor mobility enhanced and incentives for the production of tradeables increased, this program is designed to return the economy to a stable growth path, of around 4 percent p.a., consistent with internal and external equilibria. 3. The principal objectives of the first phase ending December 1990 are to reduce the fiscal deficit and achieve substantial progress in repaying domestic and external arrears while carrying out structural reforms in key sectors. The 1989 revenue targets of the IMF Stand-by arrangement, which was approved in November 1989 in support of this first phase, could not be achieved because of a sharper decline in economic activity and in the price of RCI major commodities, cocoa and coffee than forecast. In order to re- establish equilibrium in public finances, the Government has therefore prepared an enhanced program discussed by the IMF Board in June 1990. 4. During a second phase to commence in late 1990/early 1991, the Government aims in the medium-term at restoring competitiveness of the economy by bringing about a real depreciation of the exchange rate and enhancing the efficiency of the economy, while continuing to improve public finances. The Government has agreed in principle that the basic elements of this second, growth-oriented, phase are: reducing public expenditures through further cuts in current expenditures, including salaries, while shifting - 2 - spending in support of productive activities and increasing investment which is currently at a very low level; privatization and public enterprise rehabilitation; deregulation; tax and tariff reforms and financial sector reform. Substantial progress has been achieved in preparing the major elements of the medium-term program, and the authorities have agreed on a joint work program with Bank staff to complete the specific recommendations. Some measures, especially in the area of deregulation, are already to be implemented during the first phase of the recovery program. BACKGROUND 5. With a GNP per capita of US$ 740 in 1988, RCI is a middle income country, among the most developed in the West African Region. During the first 15 years following independence in 1960, it achieved rapid economic growth averaging 7.7 percent p.a. without major external and internal imbalances as a result of favorable resource endowments, inflows of cheap labor from neighboring Sahelian countries, political stability, appropriate macroeconomic policies and an agriculture based and export led growth strategy. In the May 1977 Report No. 1147-IVC "Ivory Coast - A Basic Economic Report', the Bank analyzed in depth the country's striking economic performance during its first fifteen years of independence. 6. Despite this favorable initial period of rapid growth, RCI is today in the midst of a deep macroeconomic and financial crisis. The country's two key economic problems are a very large structural fiscal deficit and the lack of competitiveness of the productive sectors. With regard to the first issue, following two years of growing fiscal deficits, in 1989 the deficit (on a commitment basis) reached the record level of 16 percent of GDP. Unable to finance suoh large deficits through internal and external borrowing, the public settor has been accumulating substantial external and internal payment arrears. In mid-1987, the Government suspended payments to the London and Paris Club creditors; the stock of internal payment arrears expanded rapidly to some 19 percent of GDP at end 1989, precipitating a serious liquidity crisis and a loss of confidence by the private sector. 7. The competitiveness of the RCI economy has been seriously eroded since 1979 by a sharp appreciation of the real exchange rate. For example, from 1985 to 1988 the real effective exchange rate appreciated by some 30 percent; the level of real overvaluation may in fact be larger if one takes into account that since 1985 there have been large decreases in the terms of trade and increases in outstanding external debt. Other key struct"ral constraints which impede improving competitiveness are an inappropriate regulatory framework and a large and inefficient public enterprise sector. 8. The roots of both these problems to a large extent can be traced back to the mismanagement of successive external shocks beginning with the commodity boom of the mid-1970's. Between 1975 and 1977, the terms of trade improved by more that 60 percent and public expenditure was increased dramatically from 26.5 percent of GDP in 1975 to 41.4 percent of GDP in 1978. However, when the boom ended, the Government, rather than cutting back on expenditure, financed its ambitious expenditure program through foreign borrowing and money creation. The fiscal deficit which was at 2.2 percent of GDP in 1975 rose to 12 percent in 1981 and has remained high ever since - 3 - except during 1985 and 1986 when the cocoa and coffee markets experienced another temporary boom. During the 1980s the Government sharply reduced investment expenditures and temporarily froze wages and salaries. Public investment vas cut from 15.2 percent of GDP in 1982 to 3 percent of GDP in 1989; however, current spending 1/ has been on a rising trend (from 18 percent of GDP in 1975 to 23 percent of GDP in 1989), and revenues have fluctuated widely around a virtually horizontal line in tandem with the commodity boom/bust cycle. 9. Large fiscal deficits financed through commodity surpluses, heavy borrowing and money creation led to an acceleration of inflation compared to partner trading countries and a loss of competitivenees for the non-booming tradeable sectors. Thus, RCI has been able to diversify out of cocoa and coffee only to - limited extent, and remains extremely vulnerable to changes in their world prices. RCI now faces an extremely high external debt burden; public debt outstanding amounted to some US$9.8 billion, or 105 percent of GDP in 1989 and the debt service ratio for 1990 is estimated at 49 percent. 10. Another key factor undermining the RC' economy is the status of the domestic financial system which 4- in acute distress. The main causes are primarily rooted in the macroeconomic imbalances and rising public sector deficits. The large accumulation of public sector arrears with banks has seriously eroded their liquidity. In addition, the loss in competitiveness and the downward spiral in economic activlty in the productive sectors have undermined the portfolio of the commercial banks. Moreover, the drop in public sector deposits and capital flight have eroded the resource base of the banks. Although the Government, the BCEAO (the regional Central Bank) and several commercial banks have undertaken major steps over the last 5 years to correct some of the important deficiencies of the financial system, the situation remains critical as negative growth and persisting public finance difficulties and the fragility of the financial sector negatively interact with one another. 11. Faced with this grave situation, the authorities are start',ng to implement a medium term strategy to address the present financial difficulties and return Cote d'Ivoire to the path of sustained economic growth consistent with the country's large potential. This strategy aims progressively to achieve a restructuring of the economy and a major improvement in competitiveness so as to reduce its dependence on cocoa production by expanding non-traditional exports, and increase the scope for efficient Import substitution. To succeed, this strategy will need to be supported by substantial concessional external financing from official creditors and a significant reduction in both the outstanding external debt and debt service payments to commercial banks. 1/ Not of stabilization deficits and interest payments on external debt. THE SHORT TERM: PUBLIC FINANCE AND STRUCTURAL REFORMS 2/ 12. The Government's objective in the short-term is to move rapidly towards equilibrium in public finances and to reduce substantially domestic payment arrears. Achieving this goal is a prerequisite for the resumption of growth since internal arrears are jeopardizing the health of the financial system and have led to a rapid decline in private sector activity. Hence; the Government put in place, with the assistance of Fund and Bank staff, an 18 month program which aims at stabilizing the economy while starting the more difficult process of structural reform. In support of this program, a Stand-by Arrangement was approved by the IMF in November 1989, and two sectoral adjustment loans were approved by the Bank in October and December 1989 for agriculture and energy, respectively. The Government also requested a third sectoral adjustment loan regarding the water and sanitation sector which is the subject of this report; its details are given in Part III below. 13. The Government's public finance objectives as specified in the November 1989 Stand-by were to achieve a 1989 fiscal deficit (on a commitment basis) of 8 percent of GDP or 3.8 percent of GDP excluding interest payments on foreign debt (primary fiscal deficit). In addition, domestic arrears were to be reduced by about 3 percent of GDP in 1989. For 1990, the objective was to achieve a primary fiscal surplus of 2.9 percent of GDP. However, owing to a sharp further drop in international prices for cocoa and coffee towards the end of 1989 and a more rapid decline in economic activity, the 1989 budgetary results were substantially worse than expected; the overall and primary fiscal deficits are estimated at 16 percent and 7 percent of GDP, respectively and, and given the lack of any additional financial resources, domestic payment arrears continued to increase to CFAF 556 billion, or 19 percent of GDP. Slippages in revenues of 3 percent of GDP and increased stabilization expenditures of 1 percent of GDP explain in most part the 1989 results. 14. Owing to difficulties experienced in the second half of 1989 in the implementation of the DMF r ogram and the need to accelerate the preparation of the medium-term program, in late February 1990 the Government made a major effort to strengthen the economic recovery and stabilization program. The principal target was to reduce the public sector wage bill and thereby balance the efforts sought from the rural population in 1989 in the form of a reduction in the producer prices for cocoa and coffee. The wage reduction was to be accompanied by a package of social measures to reduce the cost of living of the poorest population groups. Despite the scope of the accompanying measures envisaged, the announcement of the wage reductions met with strong popular opposition and the reductions were withdrawn. The Government reacted to this situation in April by substantially revising its strategy so as to adapt it better to circumstances and to the short- and medium-term objectives. It gave priority attention to enhancing the coordination and management of the country's economic and financial policies. To this end, on April 18, 1990 it established an interministerial committee responsible for implementation and monitoring of the program, under the chairmanship of the Governor of the Central Bank of West African States 2/ In order to maintain consistency with the IMF program, the public finance figures in this section are based on the Fund definition of expenditure, that is, debt service payments are those due before debt relief and arrears, and not those paid. - 5 - (BCEAO). It also plans to hold in the near future a party congress to reinforce the national consensus for the austerity and reform programs. 15. In response to tne foregoing, the Government, with the assistance of Fund and Bank staff, prepared an enhanced policy package to bring the program back on track. This program was reviewed by the Executive Directors of the W4 in late June 1990. With regard to public fiuances, the program endeavors to achieve a small (less than 1 percent of GDP) primary fiscal surplus in 1990 and repay some CFAF 95 billion of internal arrears (4 percent of CDP). This objective will be achieved by reversing the negative revenue trends of 1989 through a rapid, comprehensive and sustained improvement in tax and customs administration in order to increase revenues tc slightly over their 1989 level and by slashing expenditure, especially non-wage current expenditures, by some 16 percent compared to 1989, while protecting the social sectors. In addition, the Government decided to begin the process of permanently reducing the public sector wage bill over a longer period by reducing temporary employees and by rigorously monitoring the management of staffing levels and the wage bill. The stabilization phase also includes measures which begin to address medium-term constraints such as financial sector reform, improving public enterprise monitoring, price liberalization, review of labor policy and simplification of trade regulations. Simultaneously, structural reform programs in the agriculture, energy, and water sectors are being implemented. Reducing the Fiscal Deficit 16. In the context of the new enhanced program, the Government will attempt to reduce the fiscal deficit by 7 percent of GDP compared to 1989. This important effort is decomposed as follows: 4 percent of GDP due to a reduction in the stabilization deficit, 2 percent of GDP due to expenditure reductions, and 1 percent of GDP due to revenue enhancement efforts. 17. Stabilization Results. In July and September 1989, the guaranteed producer prices for both cocoa and coffee were reduced from CFAF 400/Kg to CPAP 200/Kg. These reductions, together with a cut in scheduled marketing costs of 9.4 percent, resulted in a decline in the domestic cost price for both cocoa and coffee close to 35 percent. However, large coffee stocks of low quality need to be written off during the next three years, hence increasing stabilization costs. In order to avoid in the future similar situations, the Government has decided that CAISTAB support will be limited to good quality coffee. With regard to cotton, measures were already taken during the third quarter of 1989 that eliminated the stabilization deficit. On the basis of these measures and current projections for world market prices and exchange rates, CAISSTAB's 1990 stabilization deficit is expected to be limited to CFAF 39 billion (2 percent of GDP), compared to CPAF 159 billion (5 percent of GDP) in 1989. For 1991, these measures and those being prepared in the context of the ASAL, should result in a small surplus. 18. Expenditure Reduction. In light of the difficulties encountered in 1989 and the first quarter of 1990 in attaining revenue targets, the new enhanced program is predicated more on deep expenditure cuts than was the initial prog:am. Total expenditure is to be reduced to CPAF 672 billion (25 percent of GTIP), down by 12 percent compared to 1989, despite the fact that some expenditures such as social security payments are by their nature - 6 - non-discretionary. Investment expenditures will once again be reduced by 18 percent to CFAF 76 billion (3 percent of GDP)s although this cut in investment expenditures may be justified from a financial point of view, they need to be substantially increased in the future since at their current level they are not sufficient to maintain the capital stock. With regard to current expenditures, the Government proposes to limit them to CFAF 596 billion, compared to CFAF 667 billion in 1989 or a 11 percent reduction. In light of the difficult social and political situation, wages are not to be changed; the wage bill will be reduced by 4 percent compared to 1989 by limiting the use of temporary employees and improved monitoring of the payroll. Hence, the reduction in current expenditures will be mostly achieved through cutting non-wage expenditures by 26 percent compared to 1989. Given that these measures will only be effective during the last seven months of the year, the success of the program critically hinges on improvements in institutional efficiency and management and on the will to cut political sensitive programs. 19. Revenue Enhancement. The Government has prepared measures that are expected to reverse the negative trends of 1989 resulting from the sharper than forecast decline in economic activity and the weak administrative and institutional capacity. Compared to 1988, in 1989, overall revenues declined by 15 percent to CFAF 703 billion (24 percent of GDP); Fund staff estimate that if these trends had continued in 1990, revenue would have only amounted to some CFAF 622 billion. The program includes measures that would yield an ambitious additional CFAF 112 billion during the last seven months of 1990; total revenues in 1990 are therefore forecast at CFAF 734 billion, or 28 percent of GDP. As the tax burden in RCI is already high to the point where raising tax rates tends to reduce receipts, increases in taxes and parafiscal charges are programmed to yield only some CFAF 17 billion. Thus the Government proposes to achieve its revenue targets mainly through expansions of the tax base towards the informal economy and combating fraud (CFAF 38 billion), improved administratior and productivity of the fiscal system (CFAF 12 billion), compensations between tax and budgetary arrears (CFAF 17 billion), and increases in non-fiscal revenues (CFAF 28 billion), especially improved monitoring and control of transfers from public enterprises. The Government has prepared a detailed list of measures to achieve these revenue objectives. However, given that the program will be implemented in the context of a depressed economy and that the measures will only be effective during the last seven months of the year. in order to raise these additional resources a large, rapid and sustained improvement in the efficiency and commitment of the tax and customs authorities is required. Sectoral Reforms 20. In addition to the financial stabilization measures described above, the program provides for a wide-ranging set of sectoral reforms of which implementation has already started -- or will start in the course of the next 6-12 months. These reforms aim principally at restoring international competitiveness through reductions in factor costs, strengthening of economic incentives, removal of distortions created by Government intervention, and increased reliance on the private sector. Adjustment in the agriculture, energy, and water and sanitation sectors is being impleme.1.d with Bank support, while financial sector reforms have been initiated by the BCEAO. 21. The Agricultural Sector Adiustment Program. This program aims to: (a) shift incentives towards crops with higher comparative advantage with producer prices that reflect world market conditions, provide adequate incentive to high value crops and improved quality, especially coffee (for which a special quality premium has been introduced), rubber, fruits and vegetables, and cotton, and introduce a 20 percent premium on exports of non- traditional crops; (b) improve rural financial intermediation and access to savings/credit facilities, including a restruct ing of the Agricultural Bank (BNDA); (c) extend exportlimport and domestic marketing liberalization to food crops, livestock, cotton, palm oil, and diversification crops; eliminating subsidies and reducing intermediation costs by parastatal marketing enterprises; (d) reduce costs for the agro-industrial sector through tax reform, especially by extension of the value-added tax to the sector; (e) reorient public expenditures away from subsidies and towards high-return investments and adequate funding of research and extension services; and (f) reduce the Government's role in direct production, and separate the commercial activities of parastatals from their responsibilities undertaken on behalf of the Government. 22. The Energy Sector Adjustment Program. The main elements of this program, are: (a) introduction of a new contractual framework for hydrocarbon exploration and development; (b) review of the energy project portfolio to define an optimum investment program; (c) internal reorganization and financial restructuring of energy parastatals; and (d) introduction of more efficient -- flexible -- pricing for energy products as well as selective energy price reductions. Together, these measures will make a significant contribution to a more efficient allocation of resources in the energy sector as well as in the economy as a whole, mobilize private sector finance, and enhance the competitive position of the country's productive sectors. 23. The Water and Sanitation Sector Adiustment Program. This program, which is the subject of this report, will reduce and realign water costs so as to improve industrial competitiveness, as well as restore water services to four million villagers, arrest environmental degradation, and promote privatization. The program includess (a) transferring operating and maintenance responsibilities in the rural areas to water users; (b) transferring investment-related responsibilities for urban water supply to a private operator; (c) introducing regulations concerning private extraction of water resources and wastewater disposal; (d) restructuring the finances of the sector to restore its financial autonomy; and (e) reducing water tariffs and costs by 20 percent. Other Structural Reforms 24. In addition to the sectoral reforms described above, the enhanced short-term program includes significant actions on the following fronts: (a) improvement of public enterprise monitoring and preparation of a wide ranging privatization program; (b) reform of the financial system; and (c) review and simplification of the regoilatory framework including an immediate liberalization of almost all prices, simplification of trade regulations, and a review of labor policy. In addition, the Government's Letter of Intent to the IMF sets out timetables for the Government to prepare detailed implementation matrices in many of the above areas. These measures - 8 - are described in more detail below (paras. 27 to 43) in the context of the discussion of the medium-term program. Social Dimensions of Adjustment 25. The present economic crisis has led to a sharp reduction in per capita income and in private consumption during the past few years. The halving of producer prices for cocoa and coffee were necessary m-croeconomic measures which have dealt a blow to rural incomes. However, it is important to note that the impact of this measure had already been felt far some time: for about a year prior to the formal cut in producer price, announced in September 1989, traders and intermediaries were not paying many farmers the official price in the anticipation of a market shift and because of the inability of the stabilization fund to fully compensate merchants. The official realignment of producer prices and redxtction of marketing margins thus keeps wealthy individuals (the traders) from making a major profit at the expense of the farmers while increasing pressure to reduce costs. The reforms envisaged in the Agricultural Sector Adjustment Loan (ASAL - Report No. P-4799-RCI), on the other hand, encourage cocoa and coffee farxtrs to reconstitute their incomes by switching to other crops. The objective or these and other reforms provided under the ASAL is to lay the foundaLions for resumption of growth in this key sector of the RCI economy which should help re-establish the positive trend in income distribution after this initial setback. Other Bank-supported actions will also have a major impact on rural welfare. These includes more rational electrification (supported by the ESAL); more effective water supply (supported by this operation); and the proposed reorientation of intra-sectoral expenditures in the health and education sectors to favor basic and primary services to be supported by a Human Resources Valorization project which is under preparation. In the urban areas, the poor are concentrated in the informal sector where economic activities are effectively deregulated. Food prices, which are an important element effecting the consumption baskets of these households, are not likely to decline. More important, however, will be the successful implementation of the overall structural adjustment program that will lay the foundation for the participation of the poor, both rural and urban, in the process of economic growth. 26. To address both the short-term issues of negative impact of stabilization policies, and the medium-term issues of effective participation in resumed growth, the Government also intends to design and implement a comprehensive strategy to achieve growth with poverty reduction. To this effect, two working groups have been established, with representation from all sectors concerned, and participation drawn from Government, the private sector and academic circles. They are in the process of defining the policy measures, action plans and additional support measures required. This should produce a series of operations to be supported by the Bank and other donors over the next two to three years. TOWARDS A RESUMPTION OF GROWTH: THE MEDIUM TERM 27. The massive 35 percent deterioration in Cote d'Ivoire's TOT from 1986 to 1989 and the concomitant rise in the current account deficit from an equilibrium situation in 1985-86 to 10 percent of GDP in 1989, imply the need - 9 - for both a reduction in absorption and a depreciation in the real exchange rate. Restoring equilibrium in public finances is a prerequisite not only because of the urgent need to reduce internal arrears and help restore private sector confidence, but also because it is a necessary step both to achieve a sustainable BOP position by reducing absorption and to help restore competitiveness through a depreciation of the real exchange rate. However, the success of the financial stabilization and sectoral reform programs is a necessary, but not sufficient condition, for the resumption of growth. This will require a further shift in relative prices and in the incentives structure in favor of tradeables. Hence, the Government fully understands and accepts the necessity to complement its current efforts with a medium- term adjustment program aimed at restoring RCI's comp.._itiveness and diversifying its economy. 28. Although the Government's attention has understandably been concentrated on the more short-term and financial aspects of the program, especially taking into account the slippages that needed to be urgently corrected, it has drawn up a detailed outline of the medium-term adjustment program, preparation is expected to be completed during the next 6 months with the assistance of Bank staff. In addition, the Government will take in the context of the stabilization program some measures to begin to restore competitiveness. With regard to other measures, implementation is to commence as soon as possible in 1990 or in some cases in 1991. overview of the Medium-Term Adiustment Program 29. The Government has decided that the required depreciation of the real exchange rate would be achieved through internal deflationary policies and reductions in domestic costs in order to avoid inflationary pressures and other possible negative consequences on the Franc zone. In particular, a nominal decline in wages will be necessary; wages in the industrial sector have been estimated to be from 70 percent to five times above those prevailing in competing countries. The RCI economy is also extremely inefficient. A wide-ranging reform program is necessary to eliminate distortions and increase productivity. In order to achieve these objectives the Government intends to implement a program consisting of five main elements: reducing public expenditures through cuts in current expenditures, including salaries, while increasing investment; privatization and public enterprise rehabilitation; deregulation; tax and tariff reform; and financial sector reform. 30. Reductions in Government Spending. No medium-term program will be viable if it is accompanied by large fiscal deficits. The Government's objective in this regard is to achieve a primary fiscal surplus of some 8 percent of GDP by 1995. Since revenues are not expected to increase as a percentage of GDP, further cuts in expenditures are required, and given the need to increase investment expenditures gradually over time, these cuts need to come from the recurrent budget. This necessarily means a reduction in the civil service wage bill which is the largest item of the recurrent budget - - especially since the non-wage items in the current budget have taken the brunt of adjustment since 1981, and will again be cut by 26 percent in 1990. A reduction in the civil service wage bill will be needed to bring about the real depreciation. At CFAF 354 billion in 1989, the personnel budget - 10 - represents 12 percent of GDP, and the vean civil service salary is around US$600 per month, roughly 10 times average per-capita GDP. 31. The recently completed Public Expenditure Review (PER) analyzes in detail the components of the wage bill, including basic selaries and special indemnities and wage complements for both civil servants and temporary employees of the public sector. The study also proposes measures that would lead to a 20 percent nominal reduction of the wage bill mainly by significantly reducing special indemnities and benefits in kind such as free housing. The Government has agreed in principle to the need to significantly reduce the wage bill; however, given the volatile economic and political situation (para. 14) it has decided to achieve the 20 percent nominal reduction over an extended period. 32. Around 57 percent of the current budget is spent on health and education. While the Government and the Bank are in full agreement that these expenditures should be protected to the fullest extent possible, there is also agreement that a fundamental restructuring of these programs is required, including redirecting resources towards primary health and education, increasing cost recovery from beneficiaries, and in general increasing efficiency in the delivery of these services. The extent of possible savings, if any, will be worked out with the assistance of Bank staff, using the recommendations of the PER, and the 1991 budget will reflect these and the redefined sectoral strategies. 33. The Rehabilitation and Privatization of Public Enterprises. The State still occupies an important position in the modern secondary sector; approximately 47 percent of the capital of this sector was owned by the State in 1988. Parastatal enterprises (PEs) are prevalent in almost all subsectors; a preliminary inventory carried out by the PER mission found that there are 9 public establishments (i.e., institutions with an internal structure of a government agency and no capital) that raise the majority of their resources from the sale of goods and services, 9 PEs that are fully owned by the State, 22 enterprises where the State is a majority partner and 43 where it is in a minority position. The parastatal sector is not well managed; not only are .any PEs overstaffed and returns on capital low and even negative, but the higher the participation of the State, the worse tends to be the performance of the firm. 34. The Government is fully aware that the prevalent excessive cost structure is due in part to the inefficiency of the PE sector. Especially important are the high electricity and water tariffs, and the inefficient operations of CAISTAB and the 'Caisse de PdrdquationO. In view of this the Government has adopted a strategy of progressive but rapid withdrawal of the State from all directly productive activities. In addition, in order to improve the performance of the PE sector, and reduce costs and the drain on budgetary resources, supervision and financial control mechanisms would be intensified while at the same time granting more a-priori autonomy to firm managers. 35. The following are the principal actions already carried out or envisaged: (a) increase the Government's capacity in policy formulation and supervision by creating in January 1990 a department at the - 11 - Ministry of Finance responsible for the overall management of the sector and the privatization process. In this regard, the Government has requested assistance from the Bank in this key area in the context of an Economic Management Project currently being formulated; (b) establish through the work of this unit by end September 1990 a financial supervision and control system of the principal PEs, including those PEs being rehabilitated in the context of the sectoral programs being supported by the Bank-financed SECALs; (c) prepare a privatization strategy including establishing priorities with regard to privatization and the procedures to be followed in this process. The Government expects to complete this document and the list of those PEs first targeted for privatization at latest by end September 1990. In this regard, as agreed with IMF and Bank staff, the Government has decided that those PEs in relatively good financial standing, mainly those in which the State has a minority share, but need to carry out investments or reinforce their capital structure would be the first to be privatized. Privatization could be realized in liaison with the commercial bank debt reduction program; and (d) in the context of the implementation of the three SECALs, implement the rehabilitation plans for the water and electricity utilities, and review the role and operations of the nCaisse de Perdquation" and CAISTAB. includir.g a financial and management audit of the latter, with the view of carrying out major reforms in their operations in 1990. 36. Regulatory Reform. The Ivorian economy is excessively regulated. Areas where glaring anomalies exist includet the ineffectual system of price controls; the investment code and the long delays (sometimes up to two years) for foreign investors in obtaining official approval ('agrdment prioritaireg); export and import regulations which lead to goods being delayed for an average of 20 days; and labor regulations which impede the efficient working of the labor market. These regulations not only systematically increase the cost of private sector operations, but lead to significant rigidities in output and factor prices, as well as impede desired shifts in factor allocations, augmenting the real costs and decreasing the efficiency of the adjustment measures required to depreciate the real exchange rate irrespective of the approach adopted to achieve this real depreciation. 37. Aware of these costs, the Government has agreed to carry out a deep reform of the regulatory framework based on the conclusions of the recently completed Competitiveness Study and complementary technical papers prepared by Bank staff on the labor market and price controls. A detailed reform program is currently being prepared by the authorities, with the assistance of Bank staff, the formulation of which is expected to be completed by September 1990. This program will include, inter alia, actions in the areas of investment code, the labor market, international transport and export and import procedures and the company law. In addition, based on these studies, the Government has decided to implement the following measures by end Mays liberalize prices for all goods except for a limited number of - 12 - sensitive goods; restrict the inefficient and costly import declaration system to a limited list of goods; simplify export procedures, notably the 'visas pr4alables' system with a view to reducing shipment delays; and review labor regulations, especially the monopoly of OMOCI, a state agency responsible for hiring and firing. 38. Tax and Tariff Reform. By all accounts, the RCI productive sector is overtaxed: the effective profit tax is 50 percent, the normal VAT rate is 25 percent, and the domestin gasoline price (CFAF 350 per litre) is much higher than world prices because of high taxes. These high tax rates not only decrease the international competitiveness of the RCI modern sector, but have also multiplied distortions as certain well placed firms and entrepreneurs have been abla to secure privileged tax and/or customs status. Despite these high rates, tax collection is low and decressing, as economic activity declines and fraud and evasion rise. Faced with a shrinking tax base, the Government has in the past resorted to increasing rates which has led to further shrinking of the formal sector. Hence a reduction of statutory rates, together with tax simplification and institutional reforms aimed at improving collections, are an important component of both the short- and medium-term phases of the Government adjustment program. 39. With regard to the reform of the tax and tariff systems, on the basis of the Resource Mobilization Report completed by the Bank in 1988, the Competitiveness Study and a complementary technical study by Bank staff on the tariff regime, the Government will prepare detailed measures in this area to be included in the regulatorylincentive reform program to be completed by September. Recommendations concerning the simplification of the tax regime, a single VAT rate, one income tax schedule and a more uniform tariff structure, as well as those concerning the reduction of taxes on productive activities such as the rationalization of the implicit taxes on petroleum products are being considered. In addition, the Government has decided to eliminate the National Investment Fund Tax to reduce the effective profit tax from 50 to 40 percent. 40. The Government will also implement in the context of the first phase of its recovery program a detailed plan consisting of both short- and medium-term measures aiming at reinforcing the tax and customs departments. With regard to customs, the principal measures envisaged are reviewing legal and financial prerequisites for customs agents, introducing more efficient systems in monitoring both the value of imports and exports and effective payment before goods are released from customs, and introducing a personnel rotation plan. These measure will be supported by a detailed audit of the Customs Department, the recommendations of which will be implemented in 1990. With regard to taxes, the key measures to be implemented are the introduction of systems and individual files to monitor taxpayers in arrears, organize emergency tax collection operations, and create new inspectorates. The Government has requested technical assistance from France and the IMF to carry out some of these measures. 41. Financial Sector Reform. The Government, the BCEAO and several commercial banks have taken major steps over the last five years to correct some of the most important deficiencies of the financial system. First, the Government has restructuredlliquidated five specialized public banks. BCEAO has ended the preferential discounting system, tightened the crop credit system and began to strengthen control over banking activities. Finally, - 13 - several commercial banks have substantially reduced staff, improved management and control, closed branches and undertaken financial restructuring. 42. Nevertheless, the situation remains extremely worrisome as negative growth and persisting public finance difficulties and the fragility of the financial system negatively interact with onie another. To return to good health, the banking system requires above all a dramatic improvement of the macroeconomic situation, that is, a settlement of domestic arrears and the restoration of competitiveness. On the other hand, the banking system requires support to survive the impact of the further adjustments needed to stabilize the economy, since the success of the adjustment process itself hinges on the existence of an operative and stable financial sector. The challenge is to put in place measures that, in the short-run, will avoid a banking sector collapse and in the longer-run gradually restore the health of the financial system. 43. Fully aware of the gravity of the situation, the Government has agreed to prepare and implement aU in-depth financial sector reform as a component of the medium-term program. Discussions between the Government and Bank staff on this reform are underway; the objective is for the program to be put in place before the end of 1990. It will most likely involve three phases: (a) stabilization of the situation by performing comprehensive audits of the commercial banks (completed), the orderly repayment of domestic payment arrears, pursuing a tight but flexible monetary policy, and improving the balance sheets of the most fragile banks through financial restructuring; (b) restructuring and recapitalizing financial institutions in order to assure their survival during the adjustment process: and (c) in the longer- term, measures need to be devised and taken to revitalize and diversify the financial sector so it could effectively finance economic growth and social development. ECONOMIC PROSPECTS AND FINANCING REQUIREMENTS The Short Term 44. As mentioned before, the Government has opted for an internal adjustment process in which competitiveness is restored through a reduction in domestic costs. The program formulated by the Government would have an initial recessionary impact, i.e., GDP would continue to decline or stagnate during the next 2-3 years. This difficult adjustment period will be characterized by a large decline in per capita consumption mainly due to cuts in public consumption. Thus, the domestic savings rate (before terms of trade adjustment) would rise sharply from a level of about 22 percent of GDP in 1989 to 27 percent in 1992, which is still slightly below the level prevailing in the seventies and early eighties. In addition to this needed rise in savings, it is expected that a realignment of relative prices will take place, thus leading to a gradual rise in the volume of private investment and an improvement in its efficiency, laying the foundation for the resumption of stable growth as of 1993. Details of the short term projections are presented in Table 1 below. - 14 - Table 1: SUM_ry Macroeconomie Indicators The Sho t-Ter uutloo Actual Projected 1987 1968 19890 1990 191 1992 Annual Growth Rates (Constant price,) CDP -1.0 -1.9 -1.2 -5.0 -1.0 2.5 Total Consumption /capita -2.6 -8.8 -7.6 -11.2 -7.7 -0.5 Exports (GNFS) -9.5 -4.2 14.9 8.? 8.8 0.0 import. (GNFS) -2.0 -8.6 -0.6 -7.0 -0.8 4.4 Cross Domestle Investment 11.7 15.2 10.8 6.6 9.1 10.4 Publlc Invootment 8.9 4.7 8.1 2.9 8.4 4.5 Private Investment 7.6 10.5 7.2 5.? 5.7 5.9 Dom etIc Sv Ing (ratio to GcY) \S 16.8 10.6 14.1 12.0 16.0 16.9 Trade Balance (CNFS) 4.6 0.8 2.8 2.9 4.6 4.6 Current Account Blanceo -6.1 -0.2 -9.7 -11.6 -4.0 -8.7 Primary Current Acc.Balance -1.9 -8.7 -1.8 -1.8 0.7 0.6 Public Sector Balance -4.8 -8.4 -16.2 -8.9 -5.0 -8.6 Primary Fiscal Balance -0.5 -5.9 -7.8 1.2 4.4 5.5 Debt Indicators \V DOD/GDP 69.8 78.1 105.6 184.9 122.6 1S8.9 DOD/XGS 197.5 248.5 299.4 889.6 810.1 818.6 DObt Service/GOP 6.0 4.7 17.4 21.1 15.6 15.6 Debt Servic./XGS 17.1 14.9 49.2 61.0 40.0 87.2 Intorest/aDP 4.2 2.5 7.9 10.2 9.8 9.2 *: estimated. \'These projections are different from those of the IMP because of slight variations In external debt, conmodity price projectlons and Imports. The net result of these differences is that In the Bank*s projections both the fiscal and current account balances Improve loss rapidly. However, the overall trends are consistent. \bThe fiat trend of the export growth rate in 1992 is explained by sharp increases In the previous three years due to reloases of stockpiles of coffee and cocoa. \cAdjusted for Terms of Trade. q Public and Publicly Guaranteed only, including Residual FisTcl GAP Financing. The Medium Term 45. The realignment of relative prices together with the increase in savings and investment is expected to lead to the resumption of positive per capita growth as of 1995. Growth will be led mainly by agriculture (4 percent per annum). The increase in exports and the restructuring of public finances will imply important improvement in the public finance and balance of payments positions, with primary surpltuses (excluding interest) in both accounts. Thus COte d'Ivoire would enter a sustainable growth phase, consistent with internal and external equilibria. Details of the medium- term projections are presented in Table 2 below. - 15 - Table 2: Summry Macroeconomli Indicgtore The Mdium-Term Outlook %2 Projected 1998 1094 1995 1996 199t Annual Growth Rates (constant prices) GOP 8.0 .5 8.7 4.0 4.5 Totl Consumption /capita -1.7 -1.1 -0.6 -0.2 0.6 Exports (CWS) 1.2 2.5 3.0 8.2 8.8 Imports (GNFS) 6.2 6.1 4.8 4.7 4.6 X of GDP Oros Domestic Investment 12.7 14.8 16.5 10.6 17.0 Public Investment 6.7 6.8 7.0 7.5 8.0 Private Investment 7.0 8.0 8.5 9.0 9.0 Domestic Saving (ratio to GODY) \b 17.7 19.1 20.1 21.5 22.5 Trade Balance (GNFS) .8 8 .56 8.8 8.9 4.9 Current Aceount Balance -9.6 -9.6 -9.4 -9.4 -7.0 Primry Current Acc.ealance 0.0 -0.1 -0.1 0.6 1.5 Public Sector Balance -8.9 -4.2 -4.8 -8.6 -8.1 Primary Fiscal Balance S.7 5.8 1.0 5.2 5.4 Debt Indicators \i DOD/GDP 187.8 186.0 188.6 129.1 120.7 DOD/XGS 819.4 808.6 296.6 276.7 268.1 Debt Service/GOP 14.4 18.1 14.1 18.2 12.5 Debt Service/XOS 88.4 29.8 81.2 29.6 26.8 Interst/GODP 9.5 9.8 9.8 9.0 9.5 aThes projections are different trom those of the IMF becuse of slight varpitions in external debt, commodity price projections and Imports. The not result of these differences Is that In the Bank's projections both the fiscal and current account bIlances Improve lose rapidly. Howver, the overall trends are consistent. \k Adjusted for Terms of Trade. \! Public and Publicly Guaranteed only, including Residual Flscal CAP Financing. Financing Requirements 46. Despite the strong adjustment measures adopted by the authorities, COte d'Ivoire needs substantial financial assistance from multilateral, bilateral and private creditors to implement in an orderly fashion its stabilization and restructuring program and to normalize its external financial relations. Apart from loans traditionally aimed at financing the public investment budget, the program envisages for 1989-90 an overall financing requirement of the order of US$3.5 billion, as reflected in Table 3. About one fourth of the overall requirement is expected to be covered by resources provided by the multilateral institutions, principally the IMF, the -World Bank, the African Development Bank, and the EEC. Moreover, it is assumed that rescheduling of medium- and long-term foreign debt to private creditors on conventional terms would cover about US$2.9 billion. In view of the magnitude of the debt and arrears to commercial banks, a comprehensive debt renegotiation, including debt- reduction options, will be required. A first meeting between the Steering - 16 - Committee of the country's commercial creditors and the Government took place in early November 1989, with further meetings scheduled for June 1990. Table 8: Financing Requireents of Adlustment Program. 1989-0 ---…------------- Rised Estimates ------------------ 1989 1990 Totel Tote I \!! (.ltTiiated (progruram) outcome) --------- CFAF biIion ---- uSS m-- Requiregents \671 494 1066 8469 1. Identified Multilateral Financing 80 179 259 844 IMF 12 42 U4 176 IBRD program loans 28 70 98 319 African Development Bank 0 32 32 104 'TABEX 40 20 6o 195 EDF 0 15 1S 49 II. Identified Bilateral Financing so 92 122 897 III. Debt Relief Lendon Club V 456 223 079 2212 IV. Private Creditors s 0 5 16 B Based on an average exchange rate of 807 CFAF/USS. Equal to public expenditure minus revenue. Includes debt relief granted by Peris Club. d Presently being negotiated with the London and Paris Club. Sourco: IMF/IBRD. 47. After the initial phase of domestic stabilization, COte d'Ivoire will still be faced with a difficult '..ransition period before a positive rate of economic growth is restored and a recovery in real per capita income is achieved as outlined above. Strong efforts will be needed to generate additional domestic savings to finance the diversification and the modernization of the production base of the economy. Notwithstanding the Government's commitment to adjustment, C8te d'Ivoire's external debt will remain a serious constraint on the country's prospects for achieving sustained economic growth. Conventional rescheduling and financing presently available for highly indebted lower-middle-income countries will not contribute to a lasting alleviation of C8te d'Ivoire's critical external debt problem. The country's medium-term economic and financial outlook thus hinges importantly on the willingness and ability of the major creditors to provide substantial concessional assistance and further debt relief. Risks 48. The Ivorian Government has embarked on an adjustment process that will be long and painful, with GDP not expected to rebound until 1993. On the economic side, even if all the complex set of deregulatory measures - 17 - envisioned in the medium-term program are implemented, there is risk that the supply response expected from the private sector might be delayed, if downward factor price flexibility is not achieved to the wide extent needed. On the political side, a recent setback to the public salary wage cuts approved in February given the strong opposition faced by the Government attest to the difficulties of implementing a 'competitive deflation, program of such magnitude. External factors on the other hand should not present a major risk, in principle, since most conservative estimates point to a slow recovery of terms of trade. PART II. THE WATER SUPPLY AND SANITATION SECTOR THE WATER SUPPLY AND SANITATION SECTOR IN THE ADJUSTMENT PROCESS 49. The situation of the water supply and sanitation sector in West Africa is often characterized by a limited capacity of absorption of investments, poor management and operating performance, and low level of cost recovery stemming from the reluctance of goverrnments to raise politically sensitive water tariffs. These shortcomings usually translate into low service levels in urban areas with a bias in favor of capital cities; even lower service levels in rural areas; poor quality of service and periodic needs of rehabilitation in lieu of maintenance; continuous wastage of scarce water resources; and heavy reliance on exhausted national budgets to finance sectoral debt service, investments and a portion of operating costs. Thus, the provision of safe water to a limited and well-off portion of the urban population is eventually subsidized by the national economy's main engine, i.e., the agricultural sector. 50. Against this background, the Ivorian approach to the development of the water supply and sanitation sector could have appeared as a model. When embarking on an ambitious National Water Supply Program in 1973, the Government decided tos (a) adcress equally the needs of rural and urban areas; (b) retain an experienced and efficient Ivorian private company, the Ivorian Water Distribution Company (SODECI), for operating all facilities; (c) borrow on appropriate terms and conditions to finance investments; and (d) implement a pricing policy aiming at fully covering sectoral operating costs and debt service requirements. In addition, the Government launched a ten-year investment program to develop the Abidjan sewerage and drainage system. In 1973, the water supply sector strategy constituted one of the most far-reaching undertakings of the Government to correct the imbalances in growth and income distribution in the development of C8te d'Ivoire, particularly between urban and rural population and between Abidjan and the rest of the country. Reliable basic infrastructure was to be built throughout the country, while she financial burden of sector development was to be borne primarily by the wealthiest part of the population, namely Abidjan customers, through an unprecedented effort of cross-subsidization between water users. 51. It appears, retruspectively, that C8te d'Ivoire has indeed succeeded in overcoming many of the regional deficiencies mentioned above in thats (a) infrastructure was planned and built to levels well beyond those of the rest of West Africa; (b) SODECI, at least in urban water supply, achieved a high quality of service; and (c) the Government consistently approved the - 18 - urban water tariff revisions designed to cover operating costs and debt service of the entire sector. Investment expenditures amounting to CFAF 131 billion at current prices (US$461 million) have been made since 1974, of which CFAF 70 billion for urban water supply (piped) systems, CFAF 36 billion for rural water supply facilities, and CFAF 25 billion for sewerage and drainage systems. These investments represented e percent of the total public investment over the period 1975-1985. Although urban water supply investments led to the establishment of sustainable systems, the development impact of investment efforts in -ural water supply and urban sanitation remained limited. As poor maintenance hampered the use of rural water points, fetching water continued to be one of the most time-consuming chores (20 percent on average of time spent on daily activities) of rural women and children. The progress of urban sanitation in Abidjan, on the other hand, was offset by an ever-growing pollution of the Ebrie Lagoon, around which the city is located. 52. In addition, as the investments were often financed with medium- term and commercial credits, based on over-optimistic demand forecasts and costly standards, the financial burden of the sector rose excessively. Until 1984, the financial impact of sectoral shortcomings had been absorbed by the sector through tariff increases that were entirely borne by urban water customers. This was achieved, however, at a high cost. Average tariffs surpassed long-term marginal costs and industrial water rates reached even higher levels. Actually, water charges represented more than 4 percent of the monthly expenditures of the average urban household in 1985, and constituted the third most important item -- after food and lodging -- of the urban family budget. 53. After 1984, revenues from urban water consumption declined under the concurrent shocks generated by the depressed macroeconomic situation and excessive tariff increases. Sectoral deficits translated into growing support from the Budget and into a complete loss of financial autonomy. The coucept of a specific sectoral adjustment soon emerged during the preparation of SAL III, but a protracted dialogue on sectoral responsibilities and, subsequently, the lack of a comprehensive macroeconomic program delayed the processing of the operation. Meanwhile, the Government initiated the first sectoral reforms at the end of 1987 and formulated a comprehensive program in early 1989, which is the subject of this report. In line with the objectives of the country's stabilization program and with the medium-term recovery program, the adjustment in the water supply and sanitation sector wills (a) pursue Government retrenchment by privatizing investment responsibilities in the urban water supply subsector and by transferring operation and maintenance of rural water points to villagers; (b) reduce factor costs by decreasing industrial rates; and (c) reduce the pressure on public finance. SECTOR PROFILE Service Levels and Water Demand 54. Today, urban water supply is a basic service accessible to the majority of Ivorians, even in remote areas. Seventy-two percent of the urban population (87 percent in Abidjan and 60 percent in other urban centers) has - 19 _ now access to safe water -- compared with less than 30 percent in 1974 . The Abidjan network comprise 110,000 service connections, while 158 cities and towvs and about 90 villages are equipped with piped systems, serving 100,000 additional connections. The daily water consumption per capita is around 70 lcd in Abidjan and 30 lcd in other centers, well above the levels observed in neighboring countries. The development of the urban water service was accelerated by the successful implementation of a social connections program that provided free house connections to low-income households. The rapidly rising domestic demand, combined with strong economic growth induced a 8 percent annual average growth rate of the urban water consumption over the 1974-1983 period. After 1983, however, water consumption declined at a 0.7 percent annual rate. This was largely due to the reduction of the consumption of the large (mainly industrial) private users, induced by the economic depression and extremely high tariffs (para. 65) which could not be offset by the increasing household consumption. 55. Thirteen thousand five hundred modern water points (wells and boreholes) have been constructed in more than 8,000 villages and equipped with handpumps. Thus, the coverage ratio would be above 80 percent in rural areas (vs. less than 10 percent in 1974). This performance, however, remains largely theoretical since a large proportion of these water points are not in working condition. 56. A third of the Abidjan population is served by the sewerage system through a number of tertiary sewerage networks, often constructed by the governmental Land Development Agency (SETU) in the context of public housing projects. Forty five percent of the population is served by septic tanks and leaching pits and the remaining 20 percent lacks any sanitation service. An extensive drainage network covers the major part of the city. In other urban centers, the low housing density and their size cannot justify the construction of sewerage networks and only part of the population relies on individual sanitation. Institutional Framework 57. At the inception of the 1973 National Water Supply Program, sector responsibilities for management, operation and maintenance (O & M), investment, and finance had been divided among several agencies including: (a) the Ministry of Public Works and Transportation (MTPT) through its Water Directorate (DE), for planning and investment; (b) SODECI, for 0 & M of the entire sector; and (c) two sector funds, the National Water Works Fund (FNH) and the National Sanitation Fund (FNA), that were separate legal entities within the National Debt Agency (CAA), for managing sector finances. 58. SODECI was established in 1960 as a subsidiary of SAUR, the third largest private French water utility, to operate the Abidjan water supply system, after competitive bidding. In the following years, the majority of the company's equity was acquired by private Ivorian shareholders, while the Government retained a 2 percent interest; SODECI shares are traded on the Abidjan Stock Exchange since 1978. In the meantime, a vigorous and successful training program led to a significant reduction in the number of expatriates holding management positions. - 20 - 59. The legal arrangements with the Government pertaining to 0 & M were based on: (a) an affermage (lease) i.ontract for urban and rural water supply facilities outside Abidjan, by which the lessee operates the public servi-e at its own commercial risk, including the right to bill and collect user charges, a portion of which has to be transferred to the two sector funds for the purposes of assuatng debt service obligations and financing 0 & M costs of the sanitation subsector; (b) a concession contract for the Abidjan water supply system, by which SODECI was also responsible, in addition to the above, of investments in boreholes; and (c) a conventional maintenance contract for the Abidjan sewerage and drainage system. SECTOR PERFORMANCE Urban Water Supply 60. Operating Performance. The choice of a private company for operating urban water supply (UWS) facilities has been fully justified, as demonstrated by the low level of water losses (12 percent) and a quite high collection rate (98 percent) on private customers. As SODECI's operations are scattered throughout the country, the company set up an efficient three- tier (local, regional and national) decentralized management system allowing to operate the smaller water systems without residential permanent staff. The productivity of the company is twice as high as the one of any other water utility in West Africa, either in physical terms (170 connections per employee) or monetary terms (value added divided by personnel costs). 61. Investment Planning. There has been a striking contrast in the capacity of the public and private sector institutions to recognize, and to adapt to, changes in their economic environment. SODECI, the private operator, adjusted to the depressed water consumption and preserved its profitability. DE instead, having established an impressive absorptive capacity in preparing and executing physical investments, was more anxious to maintain a strong project investment pipeline than to review its impact on sector finances. The fragmentation of sector responsibilities and a lack of overall financial control led to serious misallocation of resources and over-investment. SODECI was not involved either in the definition of technical criteria of urban water supply projects, nor in the elaboration of consumption forecasts. The latter were entirely carried out by DE on the basis of extremely optimistic assumptions. 62. As a result, water projects were overdesigned and excessive priority was given to constructing production facilities rather than expanding distribution networks, particularly outside Abidjan. The rate of utilization of the existing production capacity amounts to 50 percent in Abidjan and to only 28 percent in other urban centers. Overdesign inflated the intrinsically high investment costs in secondary centers. The gross value of urban water supply assets in secondary centers amounts to CFAF 126 billion -- that is US$4,420 per connection -- compared to CFAF 40 billion for the Abidjan system -- US$1,275 per connection. In some regions, the average investment per connection is six times higher than in Abidjan. Thus, the economies of scale achieved in Abidjan were largely offset by the overexpansion of costly water supply systems in the interior. As a consequence, the sectoral incremental capital output ratio (ICOR), _ 21 - traditionally high in this capital-intensive industry, has been continuously increasing. 63. Risk-sharing. Under the lease contract, SODECI was obliged to take over all new water supply systems constructed and designed on the basis of DE's consumption forecasts. Accordingly, SODECI's remuneration for 0 & M was periodically revised by reference to DE's forecasts, and was subject to provisions entitling the company to be compensated for the difference between actual and projected sales. Again, this uncoordinated approach was not conducive to accountability of the two institutions, and reduced the extent of the commercial risk borne by the private operator. As a consequence, SODECI's share of sector revenues grew when consumption declined and this at the expense of the sector funds. (The additional compensation to be paid to SODECI under these 'take or pay' arrangements amounted to about US$11 million over the 1982-1987 period). 64. Cost Recovery and Pricing. The responsibility for fixing tariffa always rested with the Government. Until the tariff restructuring of December 1987, water tariffs comprised three elements: the lease contractor rate allocated to SODECI, a portion allocated to FNH and a third portion allocated to FNA. The average tariff amounted to CFAF 2821mS (US$0.99/ma). The portion compensating SODECI for 0 & M of the urban water supply systems, represented in 1987 53 percent of the average tariff. The portion allocated to FNH to finance debt obligations of the urban and rural water supply subsectors represented 43 percent, the balance of 4 percent was allocated to FNA to finance the sanitation subsector's debt service and 0 & M costs. In addition to revenues from water tariffs, sector revenues also comprised: (a) a fixed fee added to each water bill, collected and retained by SODECI to finance the social connections program (house connections installed free of charge); and (b) a sanitation tax levied in Abidjan as part of the property tax and collected by the Treasury, to finance the Abidjan sewerage and drainage systems. 65. Volatility of Revenues. Under the increasing block rate structure, the relative share of the tariff components varied largely from one block to another. DE had established five blocks: social, domestic, normal, industrial and administrative. While SODECI's compensation was approximately constant, the FNH/FNA portion varied from zero for the social block to CFAF 300/ma for the industrial block. Thus, the revenues of FNH/FNA were highly sensitive to changes in consumption patterns of upper blocks. From 1974 to 1985, the social block rate remained constant in real terms at CFAF 99/ma, but the establishment in 1982 of the quarterly fixed fee of CFAF 2,000 regardless of level of consumption increased the actual average cost of water for a customer of the social block consuming about 60 mn per year to CFAF 232/m3. The domestic, normal and administrative block rates increased annually by 3 percent and the industrial block rate by 10 percent. Tariff revisions in April and October 1984 doubled the latter from CFAF 215/ma to CFAF 458/ma. At that point, a few hundred customers were expected to generate 70 percent of revenues required by FNHE/FA. Those increases gave a cowp d grAe to industrial water consumption, which declined from 27 million ms in 1981 to 20 million ms in 1985, depriving FNHP/PA of 20 percent of their average revenue per in. The analysis of past sales showed a - 0.5 price elasticity of industrial consumption. (see Annex 6). - 22 - 66. In the face of sizeable increases in water charges, industries reduced their water consumption by installing recycling devices and changing industrial processes -- which is consistent with economic efficiency -- or by shifting away from public supply to private wells. However, private extraction of water is regulated since: (a) it competes with public water supply for tapping scarce water resources that belong to the public domain; and (b) groundwater extraction is only a part of the water cycle and entails costs for disposal of waste water. Nevertheless, legal loopholes allowed some industries to benefit freely from their own facilities, otherwise subject to payment of fees. Sanitation 67. The role of SODECI in this subsector has been restricted to the provision of maintenance services for the Abidjan sewerage and drainage networks, under the supervision of SETU. The latter was also responsible for the payment of energy bills. to be reimbursed by FNA. FNA, albeit in a healthy financial situation, never provided sufficient funds for adequate 0 & M of the networks. This led to piecemeal maintenance and precluded adequate programming of operations. The primary drainage system was, on the whole, properly maintained and thus relieved the city from recurrent floods, but several sewage pumping stations and treatment plants were closed. This context did not provide incentives to control costs. As the financial situation deteriorated, it became more and more difficult to measure the performance of the operator and to get a clear picture of what should be the real costs of maintaining the entire system. Moreover, although the implementation of sewerage projects improved public health in Abidjan, the discharge of the effluent into the lagoon aggravated the pollution problems. 68. Investment planning in the sanitation subsector suffered from conflicts arising between various governmental agencies (DE, DCGTx and SETU) each claiming responsibilities for investment. These conflicts, compounded with technical differences on the choice of the solution for final discharge of liquid wastes, and a low priority given to sewerage works in general, delayed the completion of the sewer interceptor and the execution of facilities required to protect the fragile ecology of the Abidjan lagoon. In the absence of an adequate solution, concerns over the environmental impact of the sewerage system led to a standstill in the expansion of the system after 1984. Prior to that date, house connections to the sewerage network had often been built according to very different and poor standards, without any supervision from either DE or SODECI. Rural Water Supply 69. SODECI has been unable to duplicate its outstanding performance in managing urban water supply in rural water operations. In 1986, various donors of the subsector expressed their concern about the situation of rural water supply (RYS) to the Government. An exhaustive survey of the 13,500 rural water points carried out in the summer of 1987 by the Directorate of Major Works (DCGTx) showed that 50 percent of them did not supply water. A Rural Water Supply Sector Memorandum prepared by the Bank in 1987 in order to review maintenance policies came to the conclusion that the poor status of rural water supply, especially with regard to handpumps, was due to: (a) inadequacy of centralized maintenance that induced costly - 23 - and delayed repairs; (b) inefficient supervision of the operator's performance by DE, which had to c;oncentrate on project execution; (c) erratic cost recoveiy policies; and (d) delayed and uncoordinated community development initiatives and lack of villagers' participation. 70. Centralized maintenance of rural water points scattered around 8,000 villages entailed high repair costs, since the replacing of a single part of the pump, a minor repair, costs as much, in terms of labor and travel costs, as a major repair. Quality control of the maintenance service naturally encountered the same constraints. Horeover, any problem arising between periodic visits of the pumps by SODECI teams compelled villagers to spend time and money to inform one of the 20 regional offices of SODECI. Until 1982, SODECI's expenditures with respect to rural water supply were fully reimbursed by FNH from the proceeds of the urban water surcharge. After the establishment of an annual lump sum fee paid by villages, SODECI could no longer claim for FNl funding and began to incur losses in its rural water supply operations. Accumulated losses of SODECI amounted to some CFAF 2.2 billion over 1982-1987, thus showing that the actual maintenance costs were in the range of CFAF 120,000 (US$420) per year per water point in the context of SODECI's centralized maintenance system. 71. Cost recovery policies in the subsector have been erratic. A modest financial contribution towards the investment bad been initially required from the villagers. This contribution was dropped in the early years of sector development. A period of total gratuity followed and abruptly ended in 1982, when SODECI was empowered by the Government to collect an annual maintenance fee of CPA? 60,000 (US$210) per water point. This radical change was introduced without any effort to create understanding among the rural population and local leaders, who always regarded rural water points as Government's business. The general reaction was therefore negative and the collection rate never exceeded 40 percent. Whereas SODECI was not authorized to cut off villages in arrears, there was a great temptation, in the field, to link repair service to payment of charges. Thus, the relations between SODECI and villagers promptly deteriorated. 72. The contractual framework and the lack of sense of ownership of the w&ter points spread among the villages proved to be major obstacles to the community development actions carried out by various governmental agencies, without the participation of DE. Costly programs for the training of repairmen received a lukewarm response from the villagers and generated conflicts with SODECI. Sanitary education campaigns were more successful and evidenced a decrease of morbidity rates among the communities benefitting from well-maintained handpumps, but were discontinued for lack of funding. 73. Aware of these failures, DE launched in 1984 its own comprehensive training and community development program, known as Eau Toujours ("Water Always"), targeted on recently installed water points, not officially transferred to SODECI. This program, aiming at developing a network of village repairmen and area mechanics and at allowing the communities to take over the maintenance of the handpuwps, has been successfully extended to some 1,300 boreholes. - 24 - Financial Management 74. Financing Strategy. Eighty percent of the investments of the urban and rural water supply subsectors over the period 1975-1987 were financed by borrowings. Given the limited amount of cash that FNH could generate after servicing this debt, most of the counterpart funds required by water supply projects had also to be borrowed by FNH from the Central Bank (BCEA0). Net internal cash generation contributed to only 7 percent of investment expenditures, and Government subsidies -- through the Investment Budget (BSIE) -- provided the remaining balance (13 percent). Until 1984, subsidies from BSIE financed projects that had not attracted external financing and were essentially justified by considerations of regional politics. Then, as fiscal surpluses vanished, local counterpart funds of SAL operations became the main ingredient of BSIE's resources available for the sector and were redirected towards the provisicn of counterpart funds for externally_ financed projects. 75. Total borrowings during 1975-1987 by FNH have amounted to US$330 million, of which US$139 million in C8te d'Ivoire. FNA borrowed USS 42 million, exclusively abroad. FNH's borrowing strategy duplicated the one of the National Debt Agency (CAM), regardless of the nature and lifespan of investments being made. Thus FNH's indebtedness reflects the past creditworthiness of Cote d'Ivoire in the years 1975-1980, as shown in the following table: Table 4: FNH and FNA Borrowinas 1975-1987 (Current USS million) ------P1414---- -- -NH - FA --- UWS RWS Total USO X USSM I X U USO UX Landers Cowmerciol Banks (in˘l. BCEAO) 86.7 421 7?.8 S8X 158.9 48X 0.0 OX Si let. and Multi let. Agencies 62.6 40% B0.8 24X 112.9 B4X 36.7 8X Soft-terms Lend. (EDF nd KfW) 36.1 161 22.1 16% 58.1 16X 0.0 14X Total Borrowings 20425 10.X 125.7 100% 8BB0.O 100% 41.7 100% Aversoe Conditions: .Interest rate (X) 0.7x 6.4 6.61x 0.8x .repayment period (years) 8.9 6.7 8.8 16.7 76. Borrowing terms were highly unsuitable for the financing of rural water supply projects. They were consented by assuming that urban water customers would eventually pay for the total debt service of the rural water supply subsector. The discrepancy between loan terms and the lifespan of assets thus added another constraint, in the absence of refinancing mechanisms. The inclusion of FNH into the multi-year rescheduling agreements (MYRA) negotiated with the Paris and London Clubs had a limited impact on the repayment schedule of the sector's debt, since the bulk of hard loans was extended by the domestic banking system. As a result, sector indebtedness became even more front-loaded than the national debt. 77. As DE's water consumption forecasts failed to materialize, FNH became increasingly unable to fulfill its debt service obligations that were - 25 - largely met instead by CAA and the Treasury. Therefore, FNH began to accumulate arrears towards CAA and the Treasury of CFAP 11 billion (US$39 million) in 1985. The stock of arrears grew to CFAF 15 billion (US$53 million) in 1986 and to CFAF 21.6 billion (US$76 million) in 1987. In the meantime, FNA built cash surpluses of CFAF 5 billion -- partly by curtailing 0 & M expenditures -- that were legally unavailable to its sister fund, FNH. Separate cash management of the two funds deprived the sector of implementing flexible mechanisms for solving short-term problems. (Financial statements of FNH and FNA are provided in Tables 5.1 and 5.2 of Annex 5). 78. Financial Accountability. Although FNH and FNA had responsibility to manage sector finances, the two sector funds never truly controlled them. Excluded from the investment decision-making process, left entirely to DE, they have been unable to provide a clear picture of sector finances, which were further obscured by unorthodox accounting practices. This has resulted in claims being raised among SODECI, FNH, FNA, CAA, various suppliers and the Government Treasury, and the financial confusion has fostered a morass of cross-indebtedness over time. The inventory of cross-debts carried out in 1988 revealed that more than US$24 million of arrears due to SODECI for compensation or works requested directly by MTPT could not be traced in FNH accounts. In addition, as the liquidity crisis began to generate governmental arrears on the water bills of the public sector, FNH could not legally claim the corresponding surcharges and record them in its accounts as long as they were not collected by SODECI. MAIN SECTOR ISSUES 79. Most of the basic weaknesses of the sector were attributable to the fragmentation of responsibilities and the subsequent lack of accountability of the various partners. Distortions in water pricing and inappropriate risk-sharing arrangements built in the contractual framework have disseminated their negative effects throughout the sector and created the conditions for a major financial crisis, aggravated by an euphoric financing strategy. Regulatory and Contractual Framework 80. Investment Responsibilities. A substantial reshuffle of sector responsibilities was required to adapt to a prolonged period of slow growth. The key element should be enhanced accountability and responsibility for investments by the utility company. Investments for urban water supply in the years to come should essentially maximize the use, and thus the benefits, of existing facilities via a densification of distribution networks and an increase of the number of house connections, to provide more direct access to ever wider population strata. These investments are typically better decided upon, and managed, by utilities themselves, particularly when the latter are run by the private sector. 81. On the other hand, investment responsibilities for the rural water supply and sanitation subsectors should rest with Government. It is unlikely that the private sector would be interested in planning and financing investments in these subsectors for two main reasons. First, capital costs of rural water supply facilities cannot be fully recovered from the users and - 26 - will require subsidization for funding them. Second, sewerage investments to be made will require sizeable amounts of capital which are normally out of range for the private sector. Therefore, the planning process (including investment criteria and financing policies) should be strengthened, in order to keep investment expenditures commensurate with the financial capacities of the entire sector. Furthermore, villagers should participate in the decision and investment process. Local initiatives for improving service (e.g., by shifting to submersible electrical pumps and minimal water storage) should be encouraged, provided that additional investments be financed by communities. 82. Operational Efficiency and Risk-sharing. The main issue facing urban water supply operations was to shift the full commercial risk that partially befell on FN3 (para. 63) upon the private operator and to provide incentives to further cost effectiveness in 0 & M. The tull responsibility given to SODECI for investments implies that the company must be accountable for water sales forecasts and has to assume their financial impact on costs and tariffs. On the other hand, the perspectives of growth of the urban water demand, as well as investment opportunities, do not appear limitless. This creates a context whereby the operator has to concentrate on cost- saving efforts that had to be reflected in contractual arrangements. 83. The operational efficiency of the sanitation subsector required substantial improvements. The scope of maintenance activities has to be expanded in order to cover the whole of the Abidjan sewerage and drainage system. Given the uncertainties over the costs, recourse to bidding among professional private operators provided the least-cost solution. The major bottleneck to the development of the sewerage system should be removed with the construction of environmentally adequate facilities for the final disposal of liquid wastes, financed under the Abidjan Environmental Protection (AEP) Project, approved in January 1990. 84. The institutional arrangements governing the rural water supply subsector proved to be totally inadequate. The Bank's 1987 Rural Water Supply Sector Memorandum accordingly recommended that maintenance responsibilities be transferred from SODECI to the villagers, through the generalization of the Eau Touiours program (para. 73). DCGTx's survey of water points (para. 69) showed that the breakdown rate was on average 11 percent for handpumps maintained by trained villagers and area mechanics, in the context of the Eau Toujours Program initiated by DE, vs. 50 percent for other water points. One weak point of this program was, however, the storage and distribution of spare parts -- provided by RWS projects -- through the regional offices of DE. This solution perpetuated the dependency of the maintenance system on the performance of public bodies and could not be generalized to permanently supply the 13,500 water points. The main issue was to design and build, outside of governmental departments, a sustainable spare parts supply network. Pricing Framework 85. Cost recovery objectives set in the 1973 National Water Supply Program were ambitious. Urban water charges had to cover immediately debt service obligations of the rural water supply subsector and financial needs of the sanitation subsector, as well as the costs of the urban systems. - 27 - These objectives could have been met in a context of adequate investment planning and financing, that DE and the sector funds, however, failed to provide. As formulated, the cost recovery objectives entailed important distortions of the water rate structure discriminating against industrial users. These distortions largely contributed to curb urban water consumption and sector revenues. Consequently, a substantial revision of the sectoral tariff policy was needed in order to establish efficient pricing while permitting to restore the financial autonomy of the urban vater supply and sanitation subsectors. 86. Economic Efficiency. As a result of the December 1987 tariff revision, the average water rate of CFAP 267/m3 is still higher than long-term marginal costs. The latter are estimated at CYA" 180/m3 for urban water on a country-wide basis and at CFA! 48/nP for the Abidjan sewerage system, the cost of which has to be recovered from water charges since the disposal of waste water is an essential stage of the water cycle. With respect to economic efficiency, industrial water rates of CFAF 412lmP are excessive and need to be rapidly decreased. The highest rate applied to industrial customers in the subregion (Cameroons CFAF 25O/ms) is 40 percent lower than the Ivorian rate. 87. The decrease of industrial water rates will translate into a further reduction of sector revenues and. in turn, of the potential for cross-subsidization. Some such cross-subsidization is justified within the urban water and sanitation subsectors. It may eventually appear as a logical consequence of the institutional set-up. The existence of a single operating entity in a country is often associated with the establishment of a uniform tariff schedule. Financing of the rural water supply investments, in turn, could be more efficiently achieved by using the appropriate budgetary channels. This oill improve the transparency of the subsidization process and reinforce the need for justifying rural investments. 88. At the same time, full cost recovery of operating expenses of rural water points has to be actively pursued, in parallel with the introduction of community-managed maintenance of rural water points. Eau Toujours has provided sufficient evidence that adequately trained local mechanics could repair handpumps at a fraction of SODECI costs. Three series of actions should be carried out to successfully implement cost recovery in rural areas: (a) community development to promote among villagers a strong sense of ownership of water points; (b) training of village repairmen and area mechanics to offer the villagers the option to choose when and by vhom the pumps should be maintained, at reasonable cost; and (c) rehabilitation of existing pumps. The lump sum fee is regarded by the villagers as a tax rather than the compensation of services rendered. This cost recovery system has to 'n abolished and replaced by direct payments for actual repairs. Financial Issues 89. Financial Outlook. On the basis of slowly increasing water sales and of water rates that are consistent with long-term marginal costs from 1990 onwards, and taking into account modest additional investments in urban water supply and sanitation, the following table summarizes the financial outlook for the water and sanitation sector given in Table 5.4 of Annex 5. - 28 - Data for 1987, 1988 and 1989 take into account the financial impact of extraordinary items revealed in the inventory of cross-debts (para. 78). Table 6: Water and Sanitation Sector Financlal Outlook Before Financial Restructuring (Current CFAF billion) ----Actual-- -Eat ------------ -… item 1986 19S7 198 1989 1980 1991 1992 1999 1994 1"9 199 ConsolIdated Revenues 24.2 22.5 19.8 28.3 25.8 26.9 27.7 29.5 31.4 88.6 85.7 Of which: Extraordinary Items 0.0 -2.9 -5.0 2.5 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Availabl, for Debt Service 11.4 8.1 8.6 18.5 8.7 9.4 9.1 9.8 8.6 7.7 6.9 Debt Service 15.2 l6.2 17.2 12.9 8.4 7.8 7.8 6.5 5.6 6.1 4.8 Surplus (Deficit) S _ _1.8 0.6 0.4 1.6 1.8 _L.8 2.9 2.6 2.6 Working Capital Other than Cash -6.8 -13.4 -28.0 -19.8 -19.0 -17.5 -16.6 -18.2 -10.4 -7.9 -5.3 Account payable to Treasury 10.0 16.7 19.6 20.9 20.9 19.5 17.8 15.8 12.6 10.1 7.6 The above table points to crushing deficits over the period 1986-1988, that required Government financial support peaking in 1989 to about CFAF 20.9 billion (US$73 million). After 1989, the situation begins to improve with the decrease of debt service requirements, but the sector would remain financially non viable till the late 19908. 90. The breakdown of the debt service given in Table 5.4 of Annex 5 also shows that sector deficits -- before extraordinary items -- have been roughly equal to the debt service requirements of the rural water supply subsector. This indeed is evidence of the limits of further financial effort to be expected from urban water customers, the more so as tariff increases have proven to be self-defeating. The burden of cross-subsidization weighed essentially on industrial customers paying rates well above marginal costs. Therefore, a resolution of the debt overhang of the sector, which would not undermine the Government strategy to reduce the costs of factors of production, has to involve: (a) a revision of the financing strategy of the sector that would recognize that urban water customers cannot afford to bear the financial consequences of past inadequate investment decisions and financing, and at the same time be required to pay for new investments in the rural water supply subsector; and (b) refinancing arrangements so as to relieve the pressure exerted on both user charges and public finances. 91. Refinancing. The time profile of the maturities of the domestic debt, which represent 42 percent of FNH borrowings has been the major source of the peak in debt service. BCEAO loans totalling CFAF 30 billion (US$105 million) had to be repaid over four years (1986-1989). Only CFAF 10 billion were actually repaid by FNH, and the Treasury account at BCEAO was debited of the remaining balance. Nevertheless, a consolidation of maturities of BCEAO loans would not have relieved the situation of public finances. According to UMOA regulations, all BCEAO commitments towards the sector, whatever their terms, have to be included in the cowputation of the advances - 29 - of the Central Bank to the Government that are subject to a statutory ceiling. Similarly, refinancing arrangements involving the Ivorian commercial banks would have required them to obtain, in turn, refinancing from the Central Bank, that would fall under the same statutory ceiling. Therefore, refinancing will eventually be achieved through the long-term consolidation of current sectoral arrears by the Treasury itself. 92. Cross-debts. The escalating amount of unpaid water bills of the public sector emerged as an additional issue. Before mid-1988 the Government was almost current on its payments to SODECI, albeit municipalities and parastatals had generated arrears of US$11 million. In less than twelve months, the mounting crisis of public finances has inflated public arrears towards SODECI to more than US$39 million at the end of 1989, including US$14 million of water surcharges. Public arrears jeopardizes the survival of SODECI unless the latter discontinues to transfer the proceeds of the surcharge on private bills to the sector fund. This, in turn, generates additional arrears of the sector fund towards the Treasury and C M. The restoration of the financial viability of the sector would thus require substantial amounts of fresh money from the budget to settle cross debts. PART III. THE SECTOR ADJUSTMENT PROGRAM POLICY FRAMEWORK AND SECTORAL OBJECTIVES 93. Aware of the standstill in the development of the sector and facing the critical consequences of its financial crisis that became apparent in 1985, the Government carried out in 1986-1987, through DCGTx, a thorough review of the water supply and sanitation sector. This review pointed to the need for in-depth reforms of the regulatory and pricing framework and for the reformulation of its financing strategy. Since the end of 1987, the Government has demonstrated a strong commitment to the formulation and implementation of a sectoral adjustment program which aims at: (a) ensuring that financial realities and economic efficiency will become the main consideration in sector management. In this respect gradual Government divestiture of the sector will take place and management will be improved, in particular regarding investment policies; (b) reestablishing equitable risk-sharing between the public and the private sector in order to create incentives for cost-savings; (c) restoring the availability of basic services in rural areas by fostering community management of rural water points in more than 8,000 villages; (d) ensuring environmental protection, while preserving the sustainability of past investments in sewerage and drainage systems; (e) establishing tariff policies that will not cause undue hardship to consumers and thus become a self-imposed constraint for future sector development; and - 30 - (f) providing the sector with financial autonomy, so as to relieve the pressure on public finances. 94. As part of the preparation of the proposed Water Supply and Sanitation Sector Adjustment Loan (WASAL), the Government moved toward the integration and deepening of its reforms within a comprehensive sector framework. As explained in the Statement of Policy (Annex 3), the thrust of the sectoral adjustment program is to bring about permanent changes in the sector's institutional set-up and policies based on Government retrenchment and increased privatization. A reduction in water tariffs, made possible by Improvements in efficiency, will contribute to enhancing the competitiveness of Ivorian enterprises and to supporting the shift in relative prices in favor of tradable goods. 95. Based on the above objectives, the Government has formulated a program of monitorable actions. A detailed list of measures, developed by the Government and extensively discussed with the Bank, is presented in the policy matrix of Annex 4. THE SECTORAL ADJUSTMENT PROGRAM Increased Privatization 96. C8te d'Ivoire is committed to a liberal economy, and, in the past, privatized a number of public enterprises. In the Water Supply and Sanitation Sector, Government retrenchment translates into: (a) increased privatization of urban water supply operations; and (b) privatization of rural water supply operations through community management of rural water supply facilities. 97. Urban Water SUpPlY. The Government took an essential step towards a streamlined and improved institutional setup for sector investments in October 1987. At that time, DCGTx, on behalf of the Government, and SODECI negotiated a concession contract extending the involvement of the private company in urban water supply. Under this contract, SODECI has to plan, finance and execute all investments, in addition to its previous responsibilities for 0 & M. DE relinquished all investment responsibilities in the subsector and concentrates on the supervision and control of SODECI's operations. DCGTx supervises investment-related activities. The concession contract became effective in July 1988. SODECI prepared a first five-year rolling investment program aiming ats (a) maximizing the use of urban water systems; (b) renewal, as needed, of existing facilities; and (c) continua- tion of the social connections program to expand direct access of low-income households to the water service. These investments are financed by SODECI from the proceeds of the development levy included in the water tariff (para. 103). Investment expenditures will amount to CFA? 12.3 billion (US$43 million) over the first five-year period (1988-1992). 98. Sanitation. In January 1988, DCGTx tendered the 0 & M contract of the Abidjan sewerage and drainage system, which was awarded to SODEC'. Since the scope of the contract was extended to the entire system, unit prices were substantially lower than in the previous maintenance contract. The medium- - 31 - tenm objective is to transform this arrangement into a lease contract, thus transferring responsibilities and risks to the private operator. 99. DCGTx is responsible for planning and carrying out investments in this subsector. A medium-term investment program has been defined and agreed upon, as well as the definition of acceptable financing terms and conditions. Priority projects comprise rehabilitation and renewal of Abidjan facilities, and works to be completed under the Abidjan Environmental Protection Project (AEP) which was negotiated in parallel with the WASAL and approved by the Board in January 1990 (Ln. 3155-IVC). The updating of the Abidjan Master Plan for sanitation and environmental protection will be part of the ASP Project and will provide the long-term framewo:k of investments. 100. Rural Water Supply. The Government recognized that community participation was the key element for improving the availability of rural water points. DE's Eau Touiours Program could not be expanded since this was in contradiction with the then existing legal arrangements. Aware of the shortcomings of the institutional setup, the Government cancelled the lease contract for rural water supply with SODECI in December 1987. The Government decided instead to transfer maintenance responsibilities to villagers. 101. DCGTx prepared with the assistance of DE, which is the agency responsible for this transfer, the implementation plan, along the guidelines set out and tested in Eau Toulours. This plan defined the pace of the transfer which is carried out in conformity with available human and financial resources and with the absorptive capacity of villagers. Rehabilitation of handpumps is also a component of the transfer process. The cost of the rehabilitation of handpumps, training and of the zommunity development program was estimated at US$10 million and is funded by the Second Water Supply Project (Ln. 2130-IVC). In order to provide an adequate framework for the development of the subsector after completing the rehabilitation of existing water points, DCGTs will prepare, with the assistance of DE, a three-year investment program. 102. On the other hand, the standardization and large number of handpumps have made commercially attractive the establishment of a private network for the distribution of spare parts to 600 area mechanics. Given the quality of the road system, including rural roads, the latter would not encounter difficulties of supply. The redeployment of DE's activities does not entail significant changes in its staff. The execution of the transfer is carefully monitored by DCGTx and the Government will complete the transfer of maintenance responsibilities for at least 2,500 water points prior to the release of the second tranche. Thirty percent of the water points -- including those already enlisted in the Eau Touiours Program -- will then have been transferred to the villagers. Experience has shown that such a percentage is the threshold beyond which a community development program may be expected to expand without major difficulties. Control of Costs and Efficient Pricing 103. Urban Water Supply and Sanitation. A major step towards better control of costs and tariffs resulted from the negotiations between DCGTx and SODECI. SODECI's compensation had to be entirely reassessed, in view of the new investment responsibilities of the company. Negotiations resulted in - 32 - setting the portion of the tariffs to be allocated for the compensation of the company's operating costs at CFAF 134/ms. The latter figure translates into a 20 percent reduction from the previous remuneration of CFAF 163/m9 (including the connection fee paid by all customers). The reduction of SODECI's compensation and the abolition of the connection fee allowed allocations of CFAF 28/ms to be made to the financing of the urban water supply investment program by SODECI and to pass part of the savings to consumers. SODECI's compensation is now calculated on the basis of consumption forecasts carried out by the company itself and the new contract does not include any 'take or pay' provision (para. 63). SODECI thus bears 100 percent of the commercial risk. The contract also includes provisions concerning a new price escalation formula and procedures for periodic revision of SODECI's compensation that create incentives for cost-savings. 104. In line with the Bank's recommendations, the Government decided in December 1987 in favor of a proposal including a 10 percent reduction of the irnustrial block rate and a 20 percent decrease of the domestic and normal block rates. The social block rate was increased from CFAF 99/ms to CFAF 159Ims but the abolition of the connection fee led to an overall 25 percent reduction of the average bill paid by low-income customers. Other features of the new tariffs also reduce the volatility of revenues. All consumers, even those belonging to the social block, pay a price not lower than the average operating expenditures and investmernt costs per ms. In addition, a decree concerning private extraction of water has been prepared to provide SODECI with legal powers to enforce the collection of the corresponding fees. 105. In order to eliminate the remaining distortions of the rate structure, the Government expressed its commitment to bring over time the industrial rate in line with marginal costs. A condition for the release of the second tranche of the proposed loan is to further decrease the industrial rate to CFAF 350/ma. Large users will then pay a rate only 14 percent higher than the normal block rate of CFAF 307/ms. which translates into a 25 percent reduction from the 1987 tariff. Accordingly, the private extraction fee of CFAF 250/ms will be reduced to CFAF 179/m3. The impact of the reform of the pricing policies, including the expected impact of the new contract provisions on revisions of SODECI's compensation, is summarized in the following table: Table 6: Water Rates 1987-1992 (CFAF/m3) Item 1987 1988 1989 1990 1991 1992 Averase Water Rate: .t current prices 282 267 264 261 259 259 .et constant 1989 prices 806 278 264 239 23C 224 Industrial 'Bater Rate: .at current prices 458 412 412 8S0 8S0 a34 .at constant 1989 prices 496 426 412 883 818 288 106. Rural Water Supply. The transfer of maintenance responsibilities to villagers implies full recovery of maintenance costs. The Eau Toujours Program had already set procedures allowing villagers to master maintenance expenditures while ensuring the safety of community funds. The implementation plan of the transfer includes an action plan warranting - 33 - adequate cost recovery at community level. A tariff schedule for repairs and spare parts has been defined and tested in the field. The elimination of the annual lump sum fee (para. 71) and the possibility of choice opened to rural communities alleviate the financial burden of the villagers and facilitate the recovery of maintenance costs. Annual maintenance costs are in the range of CFAP 20,000 to CFAF 30,000 per handpump in the context of the community- managed system vs. CFAF 60.000 in the previous centralized system. In order to reinforce the sense of ownership of water points among the rural population, the Government will also define, as part of the preparation of the three-year investment program (para. 101), criteria and procedures for the financial participation of villagers towards initial investment and renewai costs of rural facilities. In addition, a study will be launched to explore the perspectives of rural water supply, within and beyond the handpump option. Environmental Protection 107. Pollution Control. In order to address the major environmental issue represented by the increasing pollution created by discharge of liquid wastes into the fragile lagoon environment, the Government adopted a two- prong approach based on the formulation of an adequate legal framework and the provision of adequate discharge facilities. To that effect, the outline of a legislation introducing a discharge permit system for industries was formulated in July 1989. This permit system aims at controlling pollution parameters of industrial effluent before discharge into the sewer system and at imposing, as needed, mandatory pre-treatment of toxic wastes. It will be implemented in parallel with the execution of environmental protection works under the AEP Project. 108. Strengthening Groundwater Protection. The 1988 Budget Law provided the legal framework required to control the unorganized tapping of groundwater resources, by generalizing throughout C6te d'Ivoire the extraction fee levied on private wells in Abidjan. A decree establishing a system of declaration and notification of well drilling has been drafted and will be enacted prior to the release of the second tranche. Under this decree SODECI will be given enforcement rights and will carry out an exhaustive inventory of private wells subject to the extraction fee, which will be billed accordingly. Financial RestructurinR 109. Enhanced Accountability. The rationalization of the financial management of the sector implied to merge the two sector funds --PNH and FNA. A new entity would thus be the sole recipient of proceeds of the surcharge collected and transferred by SODECI and of the Abidjan Sanitation Tax collected by the Treasury. This should create the conditions for obtaining a timely, clear and accurate picture of sector finances in order to avoid the repetition of the current crisis. To that effect, the Government issued in December 1987 two decrees abolishing FNH and FNA and establishing a Water Account (PNE) under GAA. The abolition of FNH and FNA was ratified by the National Assembly in July 1988. Sound accounting procedures for the FNE were implemented under the supervision of the Managing Comittee of the PNE, appointed In December 1988. To complete the transparency of sector finances, - 34 - SODECI carried out the inventory of Abidjan sanitation assets and the inventory of urban water supply facilities in 1989 as stipulated in the concession contract. This will allow to set up assets registers for sanitation and urban water supply by July 1990. 110. Financial Autonomy. The institutional and pricing policy reforms will ensure that the sector will be financially viable in a context of improved allocation and mobilization of resources. To restore the financial autonomy of the sector, the following actions have been already takens (a) formulation of a financing strategy that recognizes the autonomy of the urban water supply and sanitation sectors vis-&-vis future investments in the rural water supply subsector; and (b) establishment of comprehensive statements of cross-indebtedness between sector institutions, outside suppliers, CAL -id the Treasury. In addition, excess cash of FNA amounting to COAF 4.5 billion was transferred to the CAM in May 1988. 111. In June 1989 the Government prepared: (a) a liquidation plan of the net balance owed by FNH/FNA on the basis of the above statements and of the public arrears towards SODECI deriving from the internal liquidity crisis; and (b) a consolidation plan for the sectoral net liabilities owed to the Treasury (to be repaid over a ten-year period). The financial projections of Table 5.5 of Annex 5 reflect the results of the financial restructuring of the sector that will be carried out in two phases. The first phase, comprising the Treasury consolidation and the payment of CFAF 5.5 billion (US$19.3 million) of arrears on public water bills will be completed prior to the release of the second tranche. The second phase, corresponding to the final settlement of sectoral cross-debts and of the balance of public arrears (US$19.7 million) will be completed before the end of 1990. 112. The following table summarizes the expected outcome of the above restructuring plan which will allow to replenish the working capital of FNE and to close the open-ended claims of the sector on the Treasury. Table 7: Financial Outlook of FNE After Financial Restructuring (Current CfAF billIon) Item 1988 1989 1990 1991 1992 1998 1994 1995 1998 Sector Revenues Available for Debt Service 8.5 13.5 9.7 9.4 9.1 9.8 8.5 7.7 8.9 Debt service 17.2 12.9 8.4 7.8 7.8 6.5 5.8 5.1 4.8 Minus: impact of consolidation 0.0 0.0 -20.4 1.0 1.5 2.6 2.5 2.5 2.5 Surplus (eicit) 18 0.8 O 0.8 0.4 0. 1 0.1 emo0rsadum Items Workin Capital other than Cash -28.0 -19.8 0.8 0.4 0.4 0.4 0.5 0.8 0.7 Accounts Payable to Treasury 19.5 20.9 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - 35 - PART IV, TEE PROPOSED LOAN LOAN HISTORY 113. Past Bank Involvement. Since 1974 the Bank has helped finance two sewerage projects, one environmental protection project and two water supply projects through five loans totalling US$116.4 million. Sewers were also built as a small component of the Urban Development Project of 1976. The First Sewerage Project (Loan 1076-IVC for US$9.0 million in 1975) was completed in 1981, the second (Loan 1577-IVC for US$33.0 million in 1978) in 1985 -- part of this loan (US$6.5 million) was cancelled after completion of the works -- and the First Water Supply Project (Loan 1484-IVC for US$16.0 million in 1977) in 1984. The closing date of the Second Water Supply Project (Loan 2130-IVC for US$43.0 million in 1982) is scheduled for March 30, 1991. The Abidjan Environmental Protection Project (Loan 3155-IVC for US$21.9 million) was approved in January 1990. The implementation of the physical components of the projects has been satisfactory and timely. The supervision of the Second Water Supply Project revealed, however, that the diffused institutional structure, as well as the financial position of FNH, showed acute signs of strain, thus calling for a major review by the Government and the Bank. 114. In 1984, the Government requested Bank assistance to improve the institutional framework of the water supply and sanitation sector and to adapt its development pattern to the changing macroeconomic environment. On the basis of an institutional study financed by the proceeds of Loan 2130-IVC, a Bank mission proceeded to appraise in May 1985, a project supporting the consolidation of the disparate public institutions in the sector into a single public entity. Instead, the Government decided at that stage to increase the extent and scope of privatization of the sector. The operation was then put in abeyance pending the articulation by the Government of an action program and the confirmation by SODECI, the private water utility company, of its interest in participating in the financial restructuring of the sector through a leveraged buy-out scheme involving its acquisition of sector assets and associated sectoral debts. The scheme failed to materialize, due to considerable risks perceived by SODECI as a result of the imbalance between the equity of the company and the financial size of the transaction. 115. In January 1987, the President appointed DCGTx as the responsible body for further preparing the adjustment operation, and DCGTx resumed discussions with the Bank on sector issues and necessary reforms at that time. Building on prior work, DCGTx prepared a package of preliminary actions for consideration by the Government, while entering into direct negotiations with SODECI. The latter were completed in October 1987 and the outcome was embodied in the package submitted to the Council of Mizisters in December 1987 and subsequently approved. Further discussions with the Bank led to the formulation of the Sector Adjustment Program. 116. A full agreement on the new institutional, regulatory and pricing framework of the sector had been reached with the Government during the post- appraisal mission of July 1988. At that time, protracted discussions on macro-policy issues delayed negotiations of this loan -- as well as the negotiations of all other loans to C6te d'Ivoire -- until July 1989. Since - 36 - then, two sector adjustment loans -- for the agriculture and energy sectors -- as well as three investment projects have been approved by the Board. Following difficulties the Government has encountered with meeting a number of performance criteria under the IMF stand-by arrangement, the Bank decided to withhold submission of the WASAL to the Board until agreement on a new program with the IMF had been reached, which occurred in June 1990. LOAN AMOUNT AND TRANCHING 117. Loan Amount. The proposed sector adjustment operation will be supported with a Bank loan of US$80 million, expected to be disbursed over a period of six months. This amount will cover the losses in public sector revenues resulting from the adjustment measures taken since October 1987 (US$61 million) and will provide US$19 million additional balance of payments support. In the absence of sectoral adjustment, the conventional answer to the increasing sector deficits would have been to maximize the portion of sector revenues allocated to the sector funds for debt servicing by: (a) at least maintaining--in real terms--the high level of tariffs reached in 1986; and (b) freezing all sector investments. The necessary reforms of tariff and investment policies, envisioned in the sectoral adjustment process, will, on the contrary, contribute to reduce revenues earmarked for debt servicing, by reducing water rates (paras. 104 and 105) and allocating sector revenues to SODECI for financing a minimal investment program (para. 97). The financial consequences of these reforms are discussed in Annex 6. The potential losses in revenues of the public sector are estimated at CFAP 17.4 billion (US$61 million) over the adjustment period from October 1987, when the reforms of the pricing policies started to be implemented, to the end of 1990. This estimate takes into account the impact of the price elasticity on the urban water consumption. The time profile of these losses is given in the following table. Table 8: Reduction of Public Sector Revenues. 1987-90 (Current CFAF bil lion) 1987 1988 198 1990 Water Sector Revenues Availabl, for Debt Servicing \! --- Without adjustment 11.8 12.8 18.9 14.7 With adJustment 10.2 8.6 8.4 8.1 Annual reduction 1.1 4.3 6.5 6.$ Accumulation 1.1 5.4 10.8 17.4 E Bore extraordinary Ite. 118. Therefore, the proceeds of the loan will be disbursed against general imports not specifically tied to the sector (negative list). On the whole, the proposed loan amount would cover about four percent of the overall financing requirement (para. 46) for 1990. Together with the agricultural and energy sector adjustment loans (ASAL and ESAL), respectively approved in October and December 1989, the proposed WASAL is thus an integral part of the financing plan in support of the Government's medium-term adjustment program. 119. The time profile, given in Table 5.5 of Annex 5, of the financial needs of the sector will require that the support from the Budget under the - 37 - consolidation arrangements will be CRAP 20.9 billion and that CFAF 11 billion of arrears will be paid to SODECI in 1990. In view of this time profile and also of the advanced stage already reached in the sectoral adjustment process, the first tranche of US$50 million will be disbursed immediately after effectiveness and release of the second tranche of US$30 million will be subject to implementation of specific actions described below. 120. Other Financing Instruments. Various donors of the rural water supply subsector (CCCi, Conseil de l'Entente) have expressed interest in financing actions whicli are complementary to the implementation of the action plan for the transfer of maintenance of rural water points to villagers, such as rehabilitation of boreholes and evolution of village water supply towards piped systems. In addition, arrears owed to the Treasury as of December 31, 1989 will be consolidated in parallel with the provision of additional funds from the Budget to restore the sector's financial equilibrium. MONITORABLE ACTIONS 121. Prior to negotiations, the Government took the following measures: (a) urban water supply subsector: signature of the concession contract awarding all investment-related responsibilities to SODECI; formulation of a new financing strategy, aiming at self-financing of investments by SODECI; reduction of 0 & M costs by 20 percent; abolition of the "take or pay* provisions benefitting SODECI; establishment of guidelines for periodic reviews of SODECI's compensation in order to create incentives for productivity gains; first reduction of water rates; formulation of new budgeting and payment procedures for water bills of the Government and parastatals; (b) rural water supply subsector: cancellation of SODECI's lease contract; decision to transfer 0 & M responsibilities of water points to villagers and to rehabilitate facilities; reformulation of the financing strategy, based on budget financing of the construction of new water points; comprehensive diagnostic review of 13,500 water points; selection and training of 114 community development agents and trainers; preliminary community development activities carried out in six regions; training of 600 area mechanics; (c) sanitation subsector: contract for maintenance of Abidjan system awarded to SODECI after LCB; reduction of maintenance costs by 35 percent; formulation of technical guidelines for sanitation systems in urban and rural areas; development of urban sanitation systems tied to the municipalization strategy; (d) envi:onmental protectiont new legislation on groundwater protection, extending the private water extraction fee levied in Abidjan to the whole country; preparation of a decree establishing a permit system for private extraction of water and giving legal enforcement rights given to SODECI for billing and collection of fees; decision to proceed with the execution of environmental protection works for Abidjan Lagoon; and - 38 - (e) sector financess abolition of FNH and PNA; creation of FN6; inventory of cross debts between sector institutions, suppliers, CAA and Treasury. 122. During negotiations, the Ivorian delegation transmitted to the Bank the following documents which were found satisfactorys (a) the five-year (1988-1992) investment program for urban water supply; (b) the investment program for sewerage, drainage and environmental protection, including the formulation of acceptable terms and conditions for financing; (c) the final version of the action plan and time schedule for the transfer of rural water points to villagers; (d) the plan for restructuring sector finances, including the consolidation of sectoral arrears and the settlement of cross-debts; and (e) the outline of the legislation concerning the discharge of domestic and industrial liquid wastes, to be enacted and enforced at the completion of the environmental protection works executed under the ASP Project. 123. Accordingly, there is no special Condition of Effectiveness (First Tranche Release) apart from the submission to the Bank of the standard legal opinion. Satisfactory execution of the macroeconomic program is a condition for continued Bank support for the water supply and sanitation sector adjustment operation. 124. The second tranche of US$30 million will be released based on satisfactory progress in the implementation of the Government's comprehensive program as detailed in its Sectoral Policy Statement (Annex 3) and the compliance with the following specific conditions: (a) satisfactory execution of the concession contract for urban water supply, particularly of provisions concerning: (i) costs control through periodic revis.tons of SODECI's compensation; (ii) execution of the investment program; and (iii) setup of sectoral assets registers; the overall evaluation would then cover the first two years of the concession contract; (b) satisfactory implementation of the action plan to transfer rural water points to rural comunnities, including the effective transfer of at least 2,500 working water points to the villagers taking over maintenance costs and res?onsibilities; (c) preparation of an investment program for rural water supply and formulation of criteria and procedures for the financial participation of rural communities to investments and renewal ; (d) initiation of a study on the prospective of water supply systems for rural communities (beyond the handpump option); - 39 - (e) reduction of the industrial block water rate to CPAF 350/rn and parallel reduction of the groundwater extraction fee; (f) issue of the decree on groundwater extraction, including a system of drilling notification and the preparation of the inventory of private wells subject to the private water extraction fee; and (g) satisfactory progress of the consolidation and of the liquidation of FNH and FNA, in accordance with verifiable monitoring indicators of the settlement of cross-debts and of the liquidity position of FNE (completion of the first phase of the financial restructuring of the sector as defined in para. 111). '4ONITORING AND REPORTING 125. The Government will ensure supervision of the sectoral adjustment program outlined in Part III by appointing a Supervisory Board, composed of members representing the Ministry of Economy and Finance, the Ministry of Public Works and Transportation and DCGTx, the latter providing the technical secretariat to the Board. Ministries and other governmental bodies in charge of execution of specific aspects will submit quarterly reports to the Supervisory Board, which is responsible for the preparation of status reports to the Government with copy to the Bank. The Board will submit to the Bank a final report on the program's implementation upon full disbursement of the proposed loan. 126. Adjustment measures that will take place beyond the loan period, i.e. the implementation of the new legislation on wastewater disposal will be monitored under the Abidjan Environmental Protection Project. PROCUREMENT, DISBURSEMENT AND ADMINISTRATION 127. Procurement. Loan proceeds will finance eligible imports by both the private and public sector. All imports are subject to preshipment inspection carried out by a specialized inspection agency. Eligible imports will be subject to simplified ICB procedures for amounts exceeding US$5 million equivalent. For lesser amounts, (a) imports by private entities will follow established normal commercial practices, provided that, to the extent practicable, quotations will be obtained from eligible suppliers from at least two different countries ; and (b) imports by the public sector will be in accordance with normal Government procedures, which were reviewed and are considered acceptable since these mostly involve competitive bidding. The Borrower will furnish to the Bank, prior to the submission of the related withdrawal applications from the Loan Account, such documentation and information as the Bank may reasonably request to support the withdrawal of funds from the Loan account in respect of such contracts, including, in the case of contracts awarded after simplified ICB, copies of contracts together with the analysis of the respective bids and recommendations for award and a description of the advertising and tendering procedures. Identical procurement documentation regarding contracts for which payments were made out of the Special Account will be furnished to the Bank prior to the submission of requests for replenishment of the Special Account. Under a ceiling of US$l million for using statements of expenditure (SOE) procedure, - 40 - documents are to be retained by the Borrower for examination by Bank missions and auditors. 128. Disbursement. The proposed loan will reimburse the foreign exchange cost of imports, except specific excluded items such as luxury goods, military and paramilitary equipment. Bank financing of imports of foodstuffs and petroleum products will be limited to an aggregate amount of US$32 million. Prefinancing will be allowed for expenditures incurred no more than 120 days before loan signature, up to an aggregate amount of 20 percent of the loan. Disbursement will be facilitated by the establishment of a US$16 million equivalent Special Account in CAA. The proposed loan will be disbursed against statements of expenditure (SOEs) for all eligible contracts. The nature and origin of the goods as well as the payment date will be indicated on the SOEs. Expenditures for goods procured under invoices for US$15,000 equivalent or less will not be eligible for financing out of the loan proceeds. The minimal withdrawal application size will be US$0.7 million equivalent. 129. Accounts and Audits. The CAA will be responsible for collecting the supporting documentation (copies of the invoices and evidence of shipment and of payment), for preparing withdrawal applications and will maintain records of all transactions under the proposed loan in accordance with sound accounting principles. An audit report, conforming to internationally accepted standards and prepared by independent auditors acceptable to the Bank, will be submitted within six months after the end of each fiscal year of the government. The audit report will include a separate opinion on the disbursements made under the SOE procedure. BENEFITS, RISKS AND ENVIRONMENTAL IMPACT Benefits 130. Impact on Rural Communities. The thrust appliedi by reforms introduced under the WASAL towards the restoration and the sustainability of rural water services, will benefit about four million villagers. The scope and comprehensiveness of the transfer of water points to rural communities largely exceed those contemplated in any previous project in the subregion. The social desirability of the approach is confirmed by the findings of the C8te d'Ivoire Poverty Profile. This Poverty Profile gives evidence of profound spatial imbalances in the availability of services such as education and health, and shows that the incidence of poverty in rural areas is 44 percent, compared to 5 percent in Abidjan and 13 percent in other urban areas. There is no doubt that the deterioration of existing facilities, by compelling women and children to turn back to surface water and traditional wells, has had a negative social, health and economic impact, particularly in the Savannah region, the poorest of COte d'Ivoire. The restoration of the water service will induce substantial time-savings. Conservative estimates show that the time spent by women and girls in fetching water would be eventually decreased to 10 percent of the activities. 131. The development of community-managed 0 & M will generate local employment opportunities, preferably for young adults, with the training of about 600 area mechanics, the establishment of a network of spare parts for - 41 - handpumps and the training of about 7,000 village pump repairmen. It will also pave the way for the development of other basic services and for the gestation of local initiatives. Moreover, donors should resume dialogue for new projects in the rural water supply subsector, which should easily attract concessionary lending. 132. Impact of the Pricing Policy Reforms. The long-awaited reform of the rate structure will, for the first time in 15 years, alleviate the burden imposed on the industrial sector, and particularly on agro-industrial units which are water intensive. Low-income consumers already benefitted from the abolition of the fixed monthly fee which often represented the major part of their water bills. The corresponding reduction of 25 percent of the monthly bill has already boosted the demand for social connections which has increased by 50 percent since January 1988, and for the first time since 1983, the annual water consumption grew by more than 4 percent. Tariff reductions also translate into a 1 percent decrease of the consumer prices index. Finally, the sectoral adjustment will result in a retrenchment of the public sector and a decisive relief of the insidious pressure exerted by the water and sanitation sector on public finances since the mid-1980s. Risks 133. Major risks are related to the perpetuation of the liquidity crisis that would bar the Government from implementing the financial restructuring of the sector, and particularly to complete in a six-month period the settlement of cross-debts and the effective payment of arrears due to SODECI. One may observe that the reduction of the domestic arrears constitute one of the priority objectives of the stabilization program agreed with the IMF. other risks pertain to the effectiveness of the transfer of rural water points to villagers. These risks are limited in view of the strong commitment towards sector adjustment manifested by the Government, the level of progress already attained in carrying out the restructuring actions, the experience already accumulated through the Eau Toujours program and the proposed close monitoring of implementation. Environmental Impact 134. The outline of a new legislation concerning industrial and domestic liquid wastes has been prepared under the WASAL. In parallel with the physical implementation of Abidjan environmental protection works, policy reforms introduced under the WASAL allow to streamline investment and maintenance responsibilities and to restore the equilibrium of sector finances. These measures are prerequisites for the sound operation and the adequate development of the Abidjan sewerage system. Moreover, the Statement of Policy outlines in very strong terms the Government's commitment to environmental protection. The sectoral adjustment program specifically addresses environmental issues linked to water resources, by introducing effective enforcement of regulations concerning private water extraction. Apart from financial considerations, the improved knowledge on groundwater utilization obtained from the inventory of private wells and boreholes will facilitate the management of water resources. - 42 - PART V. BANK GROUP OPERATIONS IN COTE D'IVOIRE 135. Since 1968, when Bank Group operations in C8te d'Ivoire commenced, lending has expanded rapidly and now includes 65 operations totalling about US$2,331 million, including US$14.0 million from the Third Window and an IDA credit of US$7.5 million. Of these, 23 have been for agriculture, supporting cotton, cocoa, rubber, forestry, oil palm and coconut development, rural development in the North-East Savannah and Center-West regions, and one sector adjustment loan. There were six road projects and two highway sector projects. The remaining loans were for education, telecommunications, the Abidjan sewerage and drainage system, Abidjan environmental protection, water supply, urban development, petroleum exploration and development, power distribution, energy sector adjustment, tourism development, small and medium-scale enterprises, a regional cement project, a regional railway project, structural adjustment and related technical assistance, an industrial finance and development and a health and demographic project. IFC has supported textile, fertilizers, flour milling, development banking and agricultural plantation operations. In general, implementation of Bank projects has been satisfactory. A statement of Bank Group operations in CMte d'Ivoire is presented in Annex 2. 136. Until the early 19808, Bank lending was project-oriented with the emphasis on agricultural diversification, development of infrastructure and education. The deterioration of the country's economic situation in the 1980's led to a substantial shift in the direction of Bank lending toward the s' pport of the Government's adjustment program which has been supported by t ree Structural Adjustment Loans (SALs) from the Bank and by direct sup,irt to productive sectors (agriculture, industry and energy). Provided the Government embarks upon and further strengthens the recently initiated financial and economic adjustment program, the Bank intends to continue to provide a mix of policy-based and high-priority investment lending. 137. Bank lending in agriculture will continue to give high priority to subsectors with clear comparative advantage and with export diversification prospects. In addition, emphasis will be placed on strengthening agricultural services (research, extension, credit and input supply) to promote widespread productivity gains. Government efforts to halt the rapid degradation of natural forests and to introduce a more rational and sustainable management of the country's natural resource base are supported through a recently approved Forestry Sector Project. Bank lending will also give high priority to the improvement of rural living conditions through the financing of programs to upgrade basic infrastructure (rural roads, water supply) and social services (health, education) in rural areas. Following satisfactory completion of the WASAL program and execution of the Abidjan Environmental Protection Project, lending for rural water supply and for urban and rural sanitation is expected to continue at the project level, initially through a Rural Infrastructure Project to foster rural sanitation and to explore ways of supporting local initiatives for the improvement of rural water supply services. - 43 - PART VI. RECOMMAENDTION 138. I am satisfied that the proposed Loan would comply with the Articles of Agreement of the Bank and I recommend that the Executive Directors approve the Loan. Barber B. Conable President Washington, D. C. June 4, 1990 Attachments M I - Suint Table .0 VeW Zeicate. corn o1iv6il M˘ft iAREC OVAOTIR6 Actua Prejoctioe iwo lift iee low 91064 ie Me 1967 Iee. 19o t10o 1001 1002 leos i 1905 1096 1007 __ _._ _ ^ _-- -__ -- - -- - -- - - ---- -- _- _ _- -- -- - _ -- - _ - - _-- -- -- _- -- - - - -- -- --- - -- -- --- -- - - 9IP _Gle fete 8.S 0.2 -2.5 -2.0 4.0 8.4 -1.6 -1.9 -1.2 -8.0 -1.0 2.5 3.0 8.8 S.? 4.0 4.6 o gtow& meu 1.0 -4.6 -4.7 -0.4 5.2 5.4 -1.1 2.s -7.0 4.2 0.8 3.1 2.9 S.S 4.1 4.2 4.7 0/cpita oritb ra-t -2.1 .2.0 4.0 4.6 8.0 1.6 -4.8 -4.1 -10.1 -9.4 -2.9 -4.4 .6 0.1 0.6 0.6 1.1 COggeption /fewi;t grew" gat 4.1 -2.7 4.4 -4.6 1.5 t.8 -2.. -0.a -7.6 -41.2 -7.7 -4.8 .7 -1.1 4.6 40.2 0.8 Totl (is Us Wilt) 432.4 4470.0 301.0 401.1 S .5 521.1 em.6 7246.0 6S6.1 96296. 12160.8 104S.6 1204.7 18120.0 18634.2 14us9.6 15019.S 18804.2 us.e118.9 188.8 170.8 195. 167.7 187.0 1.4 107.8 246.6 200.4 S50.5 310.1 310.6 310.4 38C.6 296.6 276.7 2a.1 OM/MP 41.2 92.5 67.0 73.8 7.7 64.6 72.8 60.6 76.1 106.6 84.0 122.6 8.0 187.3 1I8.0 183.6 128.1 12.7 Dut Seriw. (i UW ";ill) 474.4 9n.2 9S6.5 707.6 -.S 901.0 630.7 627.6 46.1 1616.8 1906. 1800. 1407.5 t7.0 14.7 127. 146.3 52.6 Debt Se4rioe/S 24.0 51.6 30.0 f1.. 2.0 21.6 2.1 17.1 14.0 40.2 61.0 40.0 87.2 83.4 20.6 81.2 26.8 26.8 Debt Service/OP 0.8 10.0 12.7 12.0 0.7 0.9 0.2 6.0 4.7 17.4 21.1 8.6 IS.16 14.4 18.1 14.1 13.2 12.8 b1bw-W= 9.7 18.4 16.5 16.8 14.6 16.2 16.8 12.0 8.0 22.4 20.4 23.6 21.8 22.2 21.7 20.7 19.4 17.6 Inteet/w 8.4 4.0 6.2 6.2 6.6 7.4 6.8 4.2 2.8 7.0 10.2 0.8 0.2 0.s 0.6 0.8 0.0 6.s areas Ieaetemmt/P 28.2 26.0 26.2 20.6 10.0 12.6 11.1 11.7 18.2 10.8 6.5 0.1 10.4 12.7 14.8 15.5 16.5 17.0 _omatic Oevl.e/9P 1 22.2 18.8 20.0 10.6 22.4 26.8 28.1 I6.S 10.4 21.6 24.4 27.0 26.7 27.8 20.8 26.0 20.4 20.8 atieal Sevieo/P 1) 10.7 7.0 Q.4 5.1 0.6 28.7 18.5 5.6 12.6 10.0 12.0 16.0 s 2 17.1 16.2 10.8 20.1 20.8 .are;al national eaie rate 1.0 -o.0 0.6 1.4 7.0 0.0 0.6 -2.7 0.7 0.2 -13.0 0.4 0.6 0.8 0.8 0.5 0.4 Publc tevatnmt9P W 1U.1 14.0 18.2 11.3 7.6 7.2 6.8 a.0 4.7 8.1 2.0 8.4 4.5 8.7 6.3 7.0 7.8 8.0 I Pul Ic ev ieoa/66P 2/ 8.0 8.0 -o.0 -0.4 5.0 0.2 8.0 -0. 4-.8 -12.1 -4.1 -1.5 0.0 1.9 2.1 2.7 3.7 4*. Private Z _etaeet/6 10.1 11.0 6.0 0.2 8.8 5.4 4.7 7.6 10.8 7.2 8.7 5.7 8.0 7.0 6.0 6.8 0.0 0.0 Private vS ieA 4.6 4.0 0.8 8.8 8.8 4.8 0.6 6.4 ,16. 22.1 10.1 17.8 18.8 15.2 16.1 16.6 16.4 5.7 Ia, 11.8 20.8 -86.4 -7.2 2.6 8.2 -4.4 4.2 -12.8 -2.0 -6.2 8.7 8.5 8.7 8.6 8.9 8.7 eanveeet _aeeomueeP 2/ 26.8 27.0 27.7 20.2 84.0 85.6 01.7 26.7 27.0 26.7 27.6 20.7 81.1 80.0 30.0 80.0 81.1 31.8 Goveromewt Enpeediture/6P 2/ 40.7 80.7 48.6 40.0 86.7 84.6 34.0 81.8 85.5 86.0 86.5 34.7 84.7 84.6 85.1 85.2 34.0 a8.4 .Ce0li or surplueP 2/ -12.2 -12.0 -16.1 -11.7 -1.7 2.0 -2.4 -4.0 48.4 -15.2 -4.0 -.0 -8.6 -8.6 -4.2 -4.8 -3.8 -.1 Laporwt eeo rate S/ 1s.1 1.4 -4.0 10.8 4.0 4.7 -9.s -4.2 14.0 8.7 8.8 0.0 1.2 2.5 8.0 3.2 8.6 emportejP 84.0 85.2 06.4 86.8 45.8 45.1 89.6 3S.4 31.7 8s.8 84.6 80.5 42.0 48.0 44.1 46.0 46. 4*7.7 Iwore guth rate a/ -18.0 -11.0 -0.8 -4.6 -7.1 -S.1 -2.0 -34 -.5S -7.0 4.6 4.4 S.2 .1 4.0 4.7 4.6 Iowto/" 40.1 42.3 80.8 80.2 84.8 85.8 20.8 80.s 80.0 82.4 81.0 84.9 87.6 80.2 40.6 41.6 42.4 42.6 Correst Ac_ i U8 WIl -1860.0 -12.8 -.1s. -1062. .68. _45.4 10.6 483.0 44$0. .40.4 -1006.8 -768.7 -770.6 905.4 -977.6 -1022.1 -91.1 -41.2 t0 Cerrmt Ac_e/P -17.4 -17.0 -18.8 -18.7 -1.8 -0.2 0.1 -6.1 -6.2 -0.7 -11.8 4.6 4.7 -0.5 -0.6 -0.4 4.4 -7.0 <0 Trm. of Trade led, 122.6 80.8 67.2 60.6 101.8 114.8 116.0 100.0 60.4 78.8 64.6 66.8 67.6 60.0 70.0 70.7 72.9 75.8 3 ljVithout T,e_ ot Trade Adjweteat. 2Frm Cotol idatod Pbl ic S*ctor Accounta. S8oode and "on Factor Services. ./.etimated COTE O'NBDR - tTWL aCMrs att_ S t9S P t Cmplt eW Is Mtf 740.0 t2 Historical (&%fe of CDP Is COrr"t PrImpo) t9S e.s t ses19 1984 l9S5 lsss t9Ss 1%QQ tS 990 19zt 1912 19e 1a 1e96 ls41 1 e arsO_teo* Pro *.P. tWO. t0. IW0 teD. tOD. 0 t W00 lO. lOD.0 9 tO. to. 116. 11i.S Iiir ltS. I tU.9- 1t2.6 -t. 110.0 Mte hele "t * / S. . s. e. 7. T.7o 8.1, 9. s. . 95 e8 10.4 10.S eacalt.~~~~~~~~~~~l S04 l0 ft': 4 27.e6' 21 'S. S7.2 St.l 11 6 81. 'S. J2.4 I .4 4'4-7 34. 45.Sa 4a.J 42.4 U1.7 Atch ~ ~ ~ t t7tewe T 21 T t 2 101 . 7 S. 0 $. 0.0 o 0 0 0. o 0 0.0 0.0 0.0 D. O . o. . Xvic._ 44.5 .. St . 47.9 4e.s 4S.0 4e.4 4U.S 41.4 4S.0 44.2 4S.S 4t.5 40.5 59.0 Sqs.* S3.1 S7.S lResore flsac S S 7 S. -17 5 S1. -16. t 4. 66 -4.4 -22 -160 2 -20.8S -18.t -1U. 41. -1tS -tS. -1 t Imports Of 4S So.s I sa2 SS.2 S4.S SS.S St.6 JO.S 81.4 sl.a S2.4 a2.s 82.e Wa.8 JIe 39.8 as.0 SS.S Tout _tpwitu c 9S.S e7.s tce.s 100.8 S41.S1 eo.4 es.4 e.2 07.2 e7.1 e6.7 ss.1 e4.7 97. t e7.4 Us. ee .2 ToWt C*tAWtIC n.4 74.3 St.l 77.4 74.2 79.2 SS.7 SS.6 es-e 87.2 s16.0 e4.1 S2.8 Go.. 7c.9 7e.s 77.5 Pr t _tEr.r eo e SB. s. e4.2 e2.S eo 00.3 <43 e6.24 4t4e 0 5. e7 49. 02 0. 1 S. ST S tS 0 1. s2 s Gro 0_otic lavesto 21.9 2S.2 SS.2 2 .2 12.6 11.4 I1.7 tS.7 11.4 9.9 10.7 12.0 14.4 #6.S 17.4 18.4 18.7 arose mottons$ Iacon_o - e s. 97.2 90. 49n.1 "o.4 91.4 st.4 91.4 92.1 92.s OR.& 41rap 1r1" prod"% 9s.8 wo0.e 10.7 1W.4. Mto. SWS 10S.0 UW4$ 104.J 1S.S 1e2.5 llrow 01_*eti S*virw "A 211.7 22-2 20-4 19.6 04 14.8 #1.S t4.1 12.4 lS.0 1s.s 17.7 19.1 20.1 Sl.J 22.S lt rb L= -e.1 -s.e .4.S -7. 1 -20.2 -4.8 -S.7 -2.4 -9.2 -1o.s e .4 -e.0 -e.6 -.4 -7.9 -7.7 -7.S to U"* cufo, IrT *t re - t.7 ; 4. S4. t 4. 9 e . -4 s8 -sl 4 st . -3.4 -3.5 -3.3 -3 I -2. -26 - S. lestiO _QW% GOtb RO (S) at CoMAtt Prie": ts1416 7 tsw1e) ise 19s2 lee 1se4 wees 1ee4 19ar 1ee4 se4 s-s 1e247 *Po oesi P . Mt U.. 87 7.oT 11.6 0.2 w-5. *O *.e9 S4 T-.7 _-X.e 7-1 --.I -.77 Atirklt t Wte e tU4.s "8b. 12-e -4.t -10- t2 4 t4a.S 0t6° O4 io t 44 a'. -s.s7 s t WIVeft 11.2 6.3 26.7 4.5 -1.5 O.S 4.1 1.7 -1.7 - .1 -s.9 -4.4 LS3 Toa ttxpwtres 8.9 W.1 6.0 -5.2 -2.9 -10.2 11.4 4.0 o0.e -1.6 -8.7 -5.0 4.6 teXl Co_otio 9.9 8.7 9.7 -2 8 -2.1 -1.S -S.6 7.2 -0.7 -.5. -4.2 -4.6 ts9 Prvf l"X X _tio 7.40 7.9 11.e -2.2 -1.7 2.9 0.6 *.4 -0.0 -10.9 -4.6 -s.e 3.8 *eeft .cer" u 4.8 ll.S 2.6 ..4 -3.4 -25.4 421.15 12.S 0.9 u7.7 -8.0 -7.4 1.0 t areas ozei b"__toa ? .a 14.4 e.4 -1s.r -e.9 -Sa. 47.7 7.S -0.4 27.1 412.7 -0.0 t4.0 Z2 Fl*dIt *_nsm -tS.9 20.4 2.S -ts.a -t4.2 -M(.7 -2.2 7.S -0.4 S@.l -S2.7 -e.e 14.0 Ca_p In Stdu W. . . . . . . . . . . . .r C0t6 6'1V- WitW. A8EtS (cowklm*0) Attachment so (PapeS of 2) C. PrtO. c diga (105410),t A_ea1 Ptel I*. Gowth atee (UP..) 19 191 106 tqout Ł06 low 1"? 1010-78 tW,,-. 110- low C A Priem (S64 10oo 0.0 1.6 US.7 1i.O 1S8.4 t#.S 1a4.7 4.2 18.2 4.6 1.4 "ait.. Pri. ..618 .. .. .. .. .. .. .. .. to =.0 P Sof laIMA1. 106. 118.40 186. 1815.9 USA. 181.0 8. 4 69 -8.6 twticlt tW St~ater Nl. e. X50.. t5§ t5* A. 14. 5.S . S loSt bead. MlAor 10.0 WA9.4 in.4 106.4 18.0 189.2 1t6.8 .? 1u.a 0.0 1.6 48 C,lm" ..te .. .. .. .. .. .. .. ..... 0. _Uie. ladltc_, h 19-73 1W7-60 100-6 10W-W ?196 1978 too 16 low 066 Bet.. (U ....) ~~4.8 4.6 8. 6.0 U.... fter Total breea bvoube.. Bros. SbtioeaI 5e*g4 . . .. 0.4 0. 6n Ore.. Cesseti. Sle_ s. 2.9 8.1 -0.4 -t.0 .Ilt6 P lwtw 0_ 4^ t.c. $~~.1 8.0 -0.2 48.0 zw t$ S gIP *) 0.0 t~~~~~~ ~~~~.7 -r. TV", lb,81.1 I"l R :no ,m # - t S"I7 ....:4 O.6 I= (p1d werit ges) .t4 4.2 14.6 10.2 L. m otol Ac_ Ca (l dal It ions of LtU& *S 16 WrIm), Aot%u ProjeceJe 1E067 1968l 19. 199.0 1t991 1999 1906[ 1994 1965 1t0 1997 are". osmotic Pradeot *.v. $811 5069 Uin g16 2i89 3909 204 09 OM1 188 849 Oat lAi .t l*o. as 2 14 218 201 216 229 S9" 261 27 14 2 5W AtritccltT wO 62 1020 1070 aUw 1m L1n 1167 11 10 274 1 IWtrj 62M S49 8 as 464 492 8A1 561 6e4 612 648 tn ofubld~Sh.dba cturiao) 0 0 0 0 0 0 0 0 0 0 ° r,Se..h 129 129 1101 1009 1 10 1068 10600 1066 11104 11405 1100 R..rc. Bauace -142 -10 -4 -454 40 -478 -445 -48 -41 -41 -437 fpor ff5of GO0 to10 16 I14 19 10 1 I107 1866 1897 1442 1495 e.r.of GO'S 961 926 6a" 606 799 a84 88 M 066 s011 i06n Totl Ep"diture 29 2429 2678 29 ts 1 248 26 2 27gm 2912 a8m Toul C uptioe 2611 2466 2151 2169 20 21 2164 2Z0 2964 260 2462 Private m ate 220 89 1807 177 1666 17156 1ol1 nu4 1912 lo0t 207W Oaeerl O r_t' 4S2 sn 54 4ft74 86 am 378 M10 S07 _re_t Dassetlo Is 6 464 812 246 280 M 8 444 44 6S2 94 P) sad Me.oaat464 812 an6 260 no0 so 444 496 on 504 OmagaeiStosck a1 0 a0 0 0 0 0 0 0 0 * Ccl to Zvt 1106 60 942 S"9 s 9 984 064 1S 1041 11:0 U178 TrdeAd3o t 0 -106 -272 -66 -401 -871 -81 -804 -85 -4f -81 aroma ostic mom 8ite 2150 2749 g6 24 7 m 21 248 gm6 BOB U1V? Grmow wihoSosl eee. 206 2070 2496 108 gm0 618 9469 5114 28211 2774 no4 Grms Mati Product 29m g9m 26 g 2610 26 2g8 2g 2907to 81 a m Ores b.aek Safta W07 S 2t5 2eo7 27 2 pi rt 8 C lrkodl 91 2109 l3 iS? t 15 s 24 27 1 20 24 24 24 97 27 27 othBer piv"g 0s zs 0i 0s 01 0t 04 0r Ł0 20 04 2 4 2. Privte "Guratee o o o o 0 o o o 0 o o o o o o 0 sTOWt (1#2) 1ue a" sto se4 ul Rt.7 4se me 141S 12511 t22 IIIII 1017 IW4 en2 toot SW F " _hoo o I" 42 SI Sso o 121 so 148 Be o O o o o o S. Toftl tncl. DF 4iM Or 14"t sam ttB us 4mJ 58r Ss e24 tset t2e t2 31IM 10t7 1004 et 100 it. it""t*. . Public 6 Publicly fOws LT no2 sf 191 l72 2tto ui7 27 ets2 "S sn set 4tt2 3ss 94 495 614 Offnciol crdtor st Stt e4 1C2 lo1f 1sl 428 ans wile S24 40e 365 S14 492 soe milesloter is a8 s ss so as oft is7 tle 1r 179 I90 lSS I"s 20e 22 m of oth l% MA 0 0 st 40 60 ° 0t t0 0 0 ° "° t o 0n 07 l sitzaewc so 2ii 10 7 1e 2e 24 2fs2 S" us1 s2e 2Vr 16 asO 270 2tN Privat Crouttore 4tt4 ste m ee 1S7 tl2 4b se9 s1 as a ss o o 4 a Supplier We 10 7 47 22 se o o o o a o o o O o o Finncil t*ko Mse 2b^2 el 77 119 tS2 4e 4Ss9 4S1 ss a7 u o o 4 s 2. Private rw tbneen_ O 0 O 0 0 O O O 0 O O O O 0 O O S. Taut (1*t tno sot 1es I?2 2eo tft 2n es es S71 Sol 452 s6 s 14 4ee S14 4 DIPR_ tourhs o 2 a eete146 lts lotl ll101 ftoo a 4S 79 e 7 a a 7 tS. not Short-or Cop tft tS. Total loi.e IF &ot* ST C. Iat ret 2. Public A IWiiilely LT. SS4 43 444 42 an2 39s 220 eFs eaB e7tt so 748 a14 Sol er4 91e Official Ct;t, to 72 eo tor 12 20B 218 1e1 41S Sll 570 418 6C2 70s 7S2 7t3S sol tblCt ti tir IS2 Si 77 e9i 107 1S2 170 17 191 21S 2S0 240 25 28S 249 315 of b;dbMe 22 40 tB St 100 in in6 14e IS? 16e 178 to6 1e4 201 207 214 B;I torl A 40 s°e so all °0 et° 22˘ 241t 20 an 38 415° 442 470 4b4° 491° Privote C editCow aa2 32S SW7 W20 S24 iss 24 2tl0 298 10e S1 as lot 10 lit ltS b"ppl io.t u 24 so 24 21 o o o O o O o 0 0 0 O Fiania Obirket 24B 249 SD7 2t soa in 2° 2lS0 2§ 10o 51 as loll we Illo 11o 2: Privt* AmCucrtto O O a O O O sToutl PMs LT tS" 43s .4 47n Si2 S" 2200 es o e6 e6 7400 814 ssl e94 e1s 4. Z˘ so"t Chi cl 0 o o O 45 42 42 S7 41 of 28 2S 1S t6 its g.Toa Inail. IW &Hot@e ST S604 4t°S 4t44 47 S2 an 4°t 21t2 7S°6 84°6 n7° 70°4 77°S an° e7°s 909 9S40 2/ Enclode Reiiduo*l XP f;nuclns. tawndu Item: Avetl ble lSfor_tto on *orer o nd rochihiitoF shud the reportd so _nwrd_ itt. (ca"Woud an otent pes) The Debt tcoo II ne W Q I u *th "p_"t tivl- *" the gan fe4i" concerned. Ism cwk*o*ne an stadoW Zo1 corIetint In the orso CItM D'IVOIN - EXT . ^ CAPITAL. AN 082 I/ Attochaeat 3d (As pi II ~~~~~~~~~~~(Pos a Of 2) (1 .3333... .3 C.tv,e Ae3me) 1. l_l Oubx @10111 MX§g-1 se s 19 "7 199 196 19"7 1. LT 4530 4918 496 a1 6778 747 6sn 9967 6" g6 14 u I 12114 1206 1I1 1"a 196 2802 am 4524 am 3 781 794" 60m 930 996 10414 Ml$1 12060 lbltlIeO.v.I 068~~~~ 994 103 136 1894 3016 218 3043 2787 296 5214 846 809 8912 4143 sMl nie 76 NS ius Ł67 1714 168 194 366 2189 368 23 2097 2668 g6m of mh 8 6 7 7 7 6 7 7 7 7 7 7 0 6 6 Di letoral$ 3 "a6 954 188 1661 3g6s so6" me 477 5gm am1 SW6 687 673 690 S46 Pri C.ditme 8119 834 539 am gm4 s1 2488 go6o 436 804 1UN8 120 U7S 1296 1e 84ppltev 406 81 804 287 36 0 0 0 0 0 0 0 0 0 0 0 PImiwleil lb,39 363 g 963 gm am7 8396 gm3 me1 2466 2 428 804 I1 124 1278 1296 181 63etw ppiv94 0 0 0 0 0 0 0 0 0 0 0 p. on cuweeta.el Toem 10.8 9.8 9.8 11.1 12.4 0.1 0.1 0.1 0.1 0 .11 0.1 0.1 0.0 2. wVit Verl.bl. lt. R_3. S.1 46.d 498. 47.6 40.8 87.6 6.0 29.4 28.7 5.1 6.6 11.7 11.2 10.9 10.7 10.6 IL Smok and MA 8431.. of ebst ow 1.-I180D @em °le 3.6 7.1 S4. 18.8 18.8 18.5 2S.0 21. 19.1 19.4 24.6 28.1 21.9 n1.8 21.4 21.8 21.0 3. KI wlnroi 7.1 0.2 0. 0. . . . . 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.0 8. 1o80.5 as I of Totl 7.2 14.0 18.8 1o.4 18.6 23.1 31.4 19.3 19.8 24.7 28.2 22.0 21.6 21.4 21.4 21.7 likor of LI A hubsew c 1. MM a. 3 of to.l 8.4 7. 15.S 19.0 19.8 lB .4 68.8 17.9 16.1 24.6 26.8 2o.7 80.0 2.0 2.7 o o .1 S. IDA me S of 7o941 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0,0 0.0 0.0 0.0 0.0 3. 1014 as I of Taft) 8.4 7.s 18.8 19.8 19.9 88.4 ea.s 17.2 10.1 24.6 36.e 28.7 WS.6 27.0 27.8 30.1 F. 00-t-btport 3.43. t.) 1. 1o.3I LT FM Deb re S31.0 168.2 188.4 188.8 197.5 246.5 2e8.7 819.8 239.0 248.0 282.9 247.2 2SS.0 23.2 204.e 2. 1e 3 _ e.8 28.7 28.6 80.4 04.8 48.5 52.4 48.9 82.0 59.0 57.8 55.6 88.4 81.0 47. 44.S c. C-o-P ft'4o 2.L: Tw D~. eb.b3/C 41:2 72.0 78:7 64.0 72.3 69.0 76.1 90.2 110.6 94.0 104.8 109.2 108.9 10.8 18. t. InD bVPPm 2.9 e 20. U5 ? 28 7 18.4 16.1 16.6 17.2 21.8 28.8 24. 1 28.9 28.8 20.0 3. 0 2e1.1 M. 04bt Sevct/xo (a) 1. FO Lr 0.b3 'ev,. 24.2 81.8 231.1 30.8 21.6 1.9 18.7 4.0 7.8 8.? 7 88.0 2.58 39.8 021.1 28.6 ?0.7 4. 180 0.6 3.4 8.8 4.0 4.8 5.8 6,7 0.8 9.8 0.0 0.8 8.6 0.1 7.8 7.1 6.7 2. _atert 84,4ef 2.3e.. 1. 1.94l 1a4rve3 PP0IW1P 8.4 * .1 6.8 6.8 8.7 4.2 2.8 7.0 9.4 0.1 7.0 8.1 8.2 0.1 ? .S 7.4 It. 38 e.e3P0.2 0.8 1.0 1.1 1.1 1.1 1.8 1.6 1.7 1.0 2.0 1.9 1.9 1.6 1.6 1.7 8.a7o941 Ia94r..t PPOjIap.r94 9.0 16.8 14.8 14.9 14.6 12.0 6.0 36.4 27.1 20.5 16.6 1S0. t107 1.9 16.7 18.4 *. IWa 0,6 1.6 2.8 2.6 2.7 8.8 4.6 4.5 6.0 4.0 4.7 4.5 4.8 4.1 8.6 8.5 10 O , - 51 - ANNEX 2 Page 1 of 2 Status of Bank Group Operations in REPUBLSC OF COT! O'NVORE PFDBR26 - Sumoary Statmnt of Loans and IDA Credits (LOA data of of 5/S0/SO) Amount In U# million (les cancel latione) Loan or Ftccal Undl- Closing Credit No. Year Bolrroer Purpoe BSank tDA bursd Date Credite 1 Cradit clsed 7.50 Loans 47 Loans closed 1 466.09 of which SAL. L20560 1982 REPUBLIC OF COTE 0'tVOlRE SAL I 160.00 0 00 12/01/02 L23320 1964 REPUBLIC OF COTE D'IVOIRE SAL It 260.70 0.00 12/31/84 L27110 1986 REPUBLIC OF COTE D'IVOIRE SAL III 250.00 0.00 12/31/07 Subtotal 650.70 0.00 L21300-IVC 1982 REPULSC OF COTE D'IVOIRE WATER SUPPLY It 43.00 4.77 09/30/91( ) L21670-IVC 1962 REPUBLIC OF COTE D'IVOlRE CENTRE-WEST R.D. I1 18.00 8.45 12/81/90(3 L232SO-SVC 1398 REPUBLIC OF COTE D'IVOlRE RUBBlER IV 82.20 2.62 09/30/900() L2490-ItVC 1165 REPUBLIC OF COTE DtVOtRE FORESTRY II 31.30 3.99 06/30/90 L26170-IVC 1986 REPUILIC OF COTE D'IVOtRE IO. FIN. AND DEV. 30.00 0.28 06/30/92 L26190-IVC 1066 REPUBLIC OF COTE D'IVOtR HEALTH I 22.20 6.02 06/30/92 L22tO-tVC 165 REPUBLC OF COTE O'NVOIRE PALM OIL V 13.40 2.13 06/80/94 L28960-INC 1NS REPUBLIC OF COTE D'tVOIRE TELECOMI It 24.60 14.28 00/30/91 L278N-IVC 1916 RUBLIC OF COTE D'VOIRE AG. EMNSION 34.00 3.19 06/30/92 L2790-tVC 1917 REBLIC OF COTE D'tVOlRE THIRD MUN PROJECT M2600 73.00 12/31/92 L25U11-tVC 1166 REPUBLIC OF COTE D'IVOtRE HIHWY SECTOR II 45.50 0.91 12/81/90(R) L2S740-IVC 1906 REUBLC OF COTE D'IVOIRE RW1BER V 11.90 7.36 12/31/92 L31270-IVC(S)1990 REPUALIC OF COTE D'IVOIRE AG. SECT. ADJ. 150.00 9.096 06/30/91 L81280-tVC 1900 REUBLIC OF COTE D'IVOIRE MNCIPAL DEVPT 66.00 56.50 12/311/4 LU1600-IVC(S)1980 REPUBLC OF COTE D'IVOlRE ENERIY SECTOR LOAN 100.00 6.097 06/30/91 - L8150-IVC 1m REPUBLIC OF COTE D'IVORE ABIDJAN ENV. PROTECTION 21.90 21.90 12/31/39 a LU1880-IVC 1160 REPUBLIC OF COTE D'IVOIRE FORESTRY SECTOR 60.00 80.00 08/30/95 TOTAL number Loans a 17 44.90 462.09 TOtA. 2 S30.98 7.60 of which repald 454.50 0.49 TOTAL held by Bank A IDA 1 O67.46 7.01 Amunt sold 5.10 of whieb repaid 5.10 TOTAL undisbursed 462.00 Notes: Not yet effective * Not yot signwd ea Total approved, Repaymnte, and Outstanding balance represent both active and Inactive Loans and Credits. (R) indicates formally revised Closing Date. (S) Indicates SAL/SECAL Loans and Credits. The Net Approved and Bank Repymento are historical value, all others are market value. The Signing. Effective, and Closing dates are based upon the Loan Department official date and are net taken frm the Task Budt ftile. - 52 - ANNrK 2 Page 2 of 2 REPUBLtC OF COTE D0IVOIRE SUMMAR OF IFC INVESlENS (Aof .SptemerNt 189) OrigG.rosa Co.maitnt Tot.l Fiscal rype"o - USS illion - Held Year Comany 8usiness Loan Ecuity Tot l bv !FC_* Undtisbursed 19865/1978 Banque Ivoirionne Development - 0.42 0.42 0.00 - de U6vuloppemet F)nance Industri-l, S.A. (BIDI) 1097 Ets. R.ontreville, Textiles S - 0.88 0.88 0.8n SA. Fibres 1980 eoualis du Food A Food 2.90 0.41 8.81 0.00 Sud-Ouest Prooessing 1979 St6. Zvoirlenne Fertilizers 5.12 1.27 8.89 S 11 - d'Engseis (SIYENG) 98w Ets. R.Contrevill, Textiles S 8.78 - 8.78 5.42 2.62 S.A. Procssing 1987 Omi1um Chimique Food A Food 2.18 - 2.18 1.81 - St Cosmhtique Processing S.A. (COSMIVOIRE 1987 Soc. Industries Food A eood 8.18 0.62 8.6 8.60 0.87 Alimentaires et Processing Laitl4res (SIALIM) 1988 Industri1l Capital - 0.88 0.88 0.8O - Promotion Services Market VS) TOTAL 422 08 _.88 26.89 17.62 =.7 g/ Amounts stated *t nm of repaymets, ancel nltione, write off aand exchange adjustments. IFC/AFRICA I 8884F October 16, 189 - 53 - ANNEX 3 Page 1 of 37 REPUBLIC OF COTE D'IVOIRE Ministry of Public Works and Transportation WATER SUPPLY AND SANITATION SECTOR ADJUSTMENT LOAN Statement of Policy March 1989 DCGTX - 54 - ANNEX 3 Page 2 of 37 WATER SUPPLY AND SANITATION SECTOR ADJUSTMENT LOAN Statement of Policy Table of Contents Page No. I. INTRODUCTIONs MACROECONOMIC CONTEXT ................... .... 4 II. SECTOR ADJUSTMENT POLICY ..................... . ............ 5 1. The 1973 National Program ...... ....................... 5 2. Sector Difficulties .. ................................. 6 3. General Adjustment Objectives ........................ 7 3.1 Increasing the Return and Self-financing of Investments ........................................ 3.2 Reduction and Control of Costs and Tariffs .. ...... 9 3.3 Strengthening Maintenance and Renewal ........... . 10 3.4 Protection of the Lagoon Environment . . 11 III. THE URBAN WATER SUPPLY SUBSECTOR ................. .......... 11 1. Diagnostic Study of the Subsector .................. 2. Adjustment Measures .............. . .................... 13 2.1 Redefinition of the Contractual Framework ......... 13 2.2 Reorientation of the Development Strategy ......... 14 2.3 Contractualization of Development ............. .... 15 2.4 Rigor and Flexibility in Tariff Management ........ 16 2.5 Public Consumption and Collection of Public Sector Bills ................ ....................... 17 2.6 Protection of Ground Water ....................... 17 IV. THE RURAL WATER SUPPLY SUBSECTOR ............. 18 1. Diagnostic Study of the Subsector ........... ....... 18 2. Adjustment Measures ......................... 20 2.1 Basic Orientations ....... ....... ...... 20 2.2 Action Plan ..... ..................................... 21 2.3 Development of the Subsector ..................... 22 - 55 - ANNEX 3 Page 3 of 37 Page No. V. THE SANITATION SUBSECTOR ......... ............. . . . .... . 23 1. Diagnostic Study of the Subsector .............. #* ..... 23 2. Adjustment Measures ........... ... ... ......... .. . 25 2.1 Redefinition of the Contractual Framework ......... 25 2.2 Environmental Protection Works, Abidjan ........... 26 2.3 Linkage to Interceptor and Service Connections .... 27 2.4 Development of Tertiary Networks, Abidjlan ... ...... 28 2.5 Prevention of Pollution of Environment ............ 28 2.6 Sewerage and Drainage Systems for Interior Cities . 28 VI. FINANCIAL RESTRUCTURING .................... .. ...... .. . 29 1. Diagnostic Study ....... . .................... ........... 29 2. Financial Adjustment Measures ..... . .................. 30 2.1 Abolition of FNE and FA .......................... . 30 2.2 The National Water Fund (PNE) . .................... 30 2.3 Financial Consolidation ....................... 31 VIII. IMPLEMENTATION OF ADJUSTMENT .................. . . .......... 31 1. Adoption of Adjustment Measures .................... 31 2. Status of Implementation ... ... . . . . . . ................. ....... . 32 2.1 Urban Water Supply Subsector ...................... 32 2.2 Rural Water Supply Subsector ...................... 34 2.3 Sanitation Subsector .0..* ........ .. . ......... . ....... . 35 ATTACHMENT: Calendar of Actions - 56 - ANNEX 3 Page 4 of 37 I. INTRODUCTION: MACROECONOMIC CONTEXT Since the beginning of the 19808 the Government of COte d'Ivoire has been engaged in a program to rehabilitate the national economy, the goals being to restore the main macroeconomic equilibria and stabilize debt service, with particular emphasis on the reform of the public and parastatal sectors. Notwithstanding the increasing effectiveness of this program, the hoped-for restoration of economic growth proved transitory (1985 and 1986) and the sudden and substantial deterioration in the external environment, specifically as regards the prices of COte d'Ivoire's exports, has considerably darkened the prospects for the renewal of growth, the reduction of indebtedness, and the efficacy of the switch to private initiative. Although the main lines of the plan for economic restructuring are the same as before, namely: - Government retrenchment and an expanded role for the private sector in the restoration of growth, in line with C6te d'Ivoire's free market option; - containment of the public finances; - control of external indebtedness; It now appears that the constraints associated with the trend in household incomes and the deterioration in external conditions make it necessary to implement this plan more gradually. In light of more cautious projections regarding the impact of structural adjustment measures and the level of activity in the private sector, where savings and investment capacity has been affected by the crisis, it is advisable in particular that public investments should at least be maintained at their 1986 level, so as to sustain the economy during the crisis now again beginning to affect C8te d'Ivoire, even at the risk of slowing down the ongoing process of debt reduction. The response to the crisis, whose causes are exogenous, must take the form not just of a continuation of the massive adjustment effort undertaken by C8te d'Ivoire over the past several years but also a sustained commitment by the donor community, rather than our inducing a lasting recession which would obliterate the positive impact of Cote d'Ivoire's efforts and would inevitably and permanently demobilize the population. In these circumstances, the Government adopted an adjustment program whose four main orientations were reiterated in a letter to the International Monetary Fund in November 1987, as followss 1. pursue an investment policy appropriate for sustaining economic activity; 2. improve the structure of incentives so as to enhance the competitiveness of the Ivorian economy and encourage growth; - 57 - ANNEX 3 Page 5 of 37 3. continue the effort to adjust and mobilize domestic resources so as to reduce external financial assistance and encourage productive utilization of domestic savings; 4. ease the debt burden in agreement with the donor community, in order to release the resources needed in the medium term and improve Cote d'Ivoire's repayment capacity in the long term. It should be pointed out that, as regards incomes policy, this letter indicates that the authorities do not plan to increase the civil service salary schedule and will maintain the SMIG at its present level. This policy is being specifically applied to the adjustment of the water supply and sanitation sector in view of the nature and volume of the investment involved, its financing and that of the associated debt, and also in light of the impact of the price of water on the cost of production factors and on household budgets. The technical, economic, financial and institutional analysis of the water and sanitation sector and the study of adjustment measures was begun in January 1987. In December 1987 the Government embarked on implementation of the range of reforms described below. II. SECTOR ADJUSTMENT POLICY 11.1 The 1973 National Program In 1973 C8te d'Ivoire initiated a very large program to supply water to both urban areas and villages, while in 1974 a study was begun on a program to extend Abidjan's sewerage and drainage system. There were two basic objectives of these programss - to strengthen the control of urban development by improving urban hygiene and public health; - to support agricultural development by Improving health in rural areas. In terms of investments, this involved: - providing all the subprefectures, before 1980, with water supply systems and strengthening existing or newly-built networks by 1985; - establishing 7,160 new water supply points (wells, boreholes or impoundments) for villages of more than 100 inhabitants, between 1973 and the end of 1980; - extending and upgrading Abidjan's sewerage network. - 58 - ANNEX 3 Page 6 of 37 Sector operations were made the responsibility of the COte d'Ivoire Water Distribution Company -- Societe de Distribution d'Eau de la COte D'Ivoire -- (SODECI). The physical targets of this program were all comfortably achieved. As of September 1988, there were 155 urban water supply piped systems serving more than 200 communities, the value of fixed assets being CFAP 125 billion. At the end of 1988 more than 14,000 village supply points had been installed in 8,000 villages (out of C8te d'Ivoire's total of 10,000), representing an investment of CFAF 40 billion. As regards sewerage (waste water) and drainage (rain water), very substantial expansion of networks and installations took place in Abidjan, especially between 1975 and 1982, with assistance from the World Bank, giving the city an excellent basic infrastructure. The current value of these assets is some CPAP 60 billion, of which CFAP 18 billion for sewerage installations and systems. Almost all of the urban and village water supply and sewerage investments were financed by foreign loans, debt service being guaranteed by a surcharge on sales of potable water in the cities; hence the debt resulting from village water supply systems has been borne by the urban consumer. II.2 Sector Difficulties X For the first ten years, the implementation and management of the National Water Supply Program were an undeniable success. Investments and the rate of coverage, both in urban and rural areas, increased at a steady rate hitherto unknown in Africa. Between 1974 and 1983 the annual increase in connections to the distribution networks was 24 percen. in the interior towns and 9 percent in Abidjan. Over the last ten years the annual increase in connections in all urban centers has been over 8 percent. Nonetheless, it became clear from 1980 onwards that the expansion in water consumption was beginning to slow down, principally owing to flat and then declining consumption by the large private industrial users. The continuing increase in household consumption could not offset the reduction in industrial consumption. The fall from 27 million ma to 20 million m' between 1981 and 1986 in the demand of large consumers reflected both the general reduction in economic activity and the impact of a tariff policy that increasingly inflicted the burden of the surcharge funding the National Water Works Fund -- Fonds National de l'Hydraulique -- (FNH) on a few hundred industrial and commercial users. The decline in the demand of these large consumers led to a fall in the average proceeds of the above-mentioned surcharge of some 20 percent. In 1986 PNH resources met only 60 percent of the debt service. The sector's own resources could not support the financial cost of an ambitious investment program based on a very optimistic projected growth rate of water consumption, viz. 9 percent annually for the period between 1978 and 1985, against 3 percent actual. The sector's financial autonomy no longer being guaranteed, the State had to step in to an increasing extent to honor the FNH's obligations. - 59 - ANNEX 3 Page 7 of 37 * Water tariffs having already reached high levels, both for households and industry, it was impossible in social and economic terms to raise them further in order to: - restore financial equilibrium to the sector, where the accumulated deficit at the end of 1988 was CFAF 18 billion; - enaure normal renewal of installations and networks over time; for some years replacements were limited to CFAF 200 million a year and involved electro-mechanical equipment only. * The high maintenance costs of village supply points, particularly resulting from the centralized management of this subsector, the belated requirement for a contribution by villages to these costs following a long period during which no charge was made, and from the absence of coordinated community development and training activities, largely explain: - the growing financial commitment by the State, in the form of its financing of sector deficits; - poor recovery of the amount billed each year to village communities to finance the maintenance of water supply installations (35 percent collection rate); - the high proportion of breakdowns (50 percent of installations, recorded in 1987). * The high unit cost of maintaining sewerage systems in Abidjan, the lack of planning and supervision of this maintenance, the low collection rate of the sanitation tax additional to the property tax assessment for improved lots and the partial reversion of the proceeds of this tax to the National Sanitation Fund -- Fonds National de l'Assainissement -- (FNA) explains - the inadequate financing of maintenance operations in this subsector (only one-third of requirements); - the poor operating condition of installations and networks; - the absence of renewal of assets of the subsector. Pending the completion of installatiouls for its discharge into the sea, waste water flows into the Ebrie Lagoon; the resulting pollution of this fragile environment is the reason for the lack of an active policy for connections to the existing main interceptor, which therefore is being used very much below its capacity. 11.3 General Adiustment Obiectives Recent years have been characterized by: - large, high-quality investments whose full potential is not being exploited; 60 - ANNEX 3 Page 8 of 37 - high operating costs; - deficient maintenance and inadequate renewals - a growing financial commitment by the State in the form of the financing of sector deficits. These facts point up the need fort - improved technical and economic management of the sector, specifically institutional reforms placing real responsibilities on the social partners; - radical changes in the financing strategy for the sector, which must henceforward be based on State disengagement and increased privatization. Within the framework of the structural adjustment of the economy, the new policy being implemented is designed to achieve the following four basic objectivess (a) to obtain a proper return on existing installations and increase the capacity for self-financing; (b) to reduce operating cost and tariffs and control the future evolution of both; (c) to strengthen the maintenance and replacement of 4nstallations and networks; (d) to prevent and eliminate pollution of the natural environment, in particular the Lagoon environment. II.3.1 Increasing the Return on and Self-financing of Investments Investment policy has hitherto essentially been based on the rapid extension of water supply services to urban and village communities throughout the country, on the one hand, and on the establishment at Abidjan of primary wastewater collection and treatment infrastructures, on the other. Henceforward investment policy will be oriented toward economically justified and finamcially viable investments, which will enable operating costs to be reduced over time. * As regards urban water supply, the investment policy is intended to progressively ease the impact of debt service on water tariffs. To this end, tariff policy must provide for the self-financing of investments in the upgrading and adaptation of installations. Priority is being given to investments in densification. This policy is being implemented within the framework of contract-plans signed by private operators and the State. The financing of investments with long-term returns through loans will be systematically pursued on conditions appropriate to the sector's repayment capacity. - 61 - ANNEX 3 Page 9 of 37 * Future investments in rural water supply and sanitation will no longer be borne by urban water consumers. They will be financed by resources earmarked for the purpose. * The provision of village water points will be financed by the State in the same way as all basic investments with a social purpose. The upgrading of village water points from a system of handpumps to a motorized system (pay standpipe or mini-network for supply and distribution direct to the consumer) will be studied on a case-by-case basis. This change will only be introduced to the extent that communities explicitly request it and agree to pay the associated financial cost in full. The possibility of integrating such systems into the concession for urban water supply will be considered only if their return does not threaten the overall operating equilibrium of the concession. * Investments directly related to sanitation are henceforward to be supported in the first instance by urban users under existing fiscal legislation (sanitation tax based on the property tax assessment for improved lots -- Law No. 74781 of December 26, 1974). 11.3.2. Reduction and Control of Costs and Tariffs * The objectives of an immediate reduction in water tariffs and the control of future changes are determined by the need to: - reduce the costs of industrial production factors, thereby helping to improve the competitiveness of industry; - soften the impact of the cost of water on household budgets, per capita income having declined sharply (a real drop of 32 percent between 1980 and 1988). These objectives are to be achieved by the following essential measures; - SODECI's disengagement from the rural water supply subsector, which has been a heavy burden on its operating costs; - the definition of maximum operating costs, particularly as regards overhead costs, to induce the operator to realize productivity gains; - periodic negotiation of an overall, lumpsum remuneration per mP sold for the operator, adjustable according to a review formula designed to encourage productivity gains; - annual evaluation of the technical and economic management of the concession agreed as part of the privatization of subsector operations. * A reduction in the cost of maintaining village installations is a prerequisite for the full and effective transfer of the associated costs to the villagers. - 62 - ANNEX 3 Page 10 of 37 This objective is being achieved through the decentralization and privatization of maintenance work, making it possible to: _ eliminate the general expenses associated with centralized management; _ reduce repair costs by using the services of self-employed repairmen operating in the vicinity of the village water points; - ensure swift and regular intervention, thereby improving the prevention of breakdowns, which in turn reduces the need for major repairs and their associated costs. * Reducing the unit costs of operating and maintaining sewerage and drainage networks and installations in Abidjan is a prerequisite for improving the operation of these infrastructures. It is also a necessary preliminary to expanding the number of service connections that will increase the return on existing infrastructure. This objective is being achieved through the following essential measuress - use of competitive bidding for contract award purposes; determination of precise quantities of remedial and preventive activities, together with their planning. 11.3.3 Strengthening Maintenance and Renewal * Maintenance of urban water supply systems is henceforward being entirely financed by the operator as part of his overall, lumpsum remuneration (maximum base price). In addition, the water tariff provides for the systematic financing of a renewal program covering the entire range of installations and networks. This program has been prepared in the form of an ad hoc five-year program. * A program to rehabilitate village water supply points has already been introduced for the renewal of installations currently not in use. Effective take over of pump maintenance by the inhabitants of the villages is being prepared through awareness-building, training of self-employed repairmen and the introduction of a private network for the supply of spare parts. * The monitoring and technical and economic evaluation of maintenance work in the sanitation subsector must be strengthened to enable service standards and costs to be determined. The proceeds of the sanitation tax are financing a renewal program in the subsector that is compatible with the normal depreciation of installations and networks. - 63 - ANNEX 3 Page 11 of 37 11.3.4 Protection of the Lagoon Environment The very rapid growth of the city of Abidjan, whose population has risen from 125,000 in 1955 to some 2 million and 1988, in which contains most of the industries in the country, has inevitably entailed a deterioration in the quality of the water in the lagoon. Drainage works carried out up to the present time have helped to carry rainwater runoff toward the lagoon and therefore have had a negative impact on the quality of its water. The sewerage programs already implemented have had as their main objective the removal of wastewater from inhabited neighborhoods in order to improve their salubriousness. While undeniably beneficial for the neighborhoods concerned, these \ )rks have intensified the flow to the lagoon of wastewater carrying most of the city's domestic and industrial pollutants. Furthermore, the works have had the effect of concentrating discharges of wastewater at a limited number of outlets, thus hindering the natural elimination of pollution in the lagoon. In recent years, therefore, Abidjan's environment has deteriorated rapidly and the lagoon is threatened with irreparable damage in the short term. The Government has made it one of its objectives to restore the quality of the water in the Ebrie Lagoon, one of the most attractive features of the location of Abidjan and which has given the city the title of "the Pearl of the Lagoons.' This objective will be basically achieved through the impending implementation of the "Abidjan Environmental Protection Project' which will entail completion of the main interceptor and the discharge of wastewater into the sea through a long submarine outfall, after pretreatment adapted to the capacity of this new receptor environment. When these works are completed the emphasis will be put on the development of: - linkage of secondary sewerage systems to the main interceptor; - tertiary wastewater collection networks; - service connections to the sewerage network. III. THE URBAN WATER SUPPLY SUBSECTOR III.1 Diagnostic Study of the Subsector * Two contracts between the State and the COte d'Ivoire Water Distribution Company (SODECI), of whose capital the State holds 2 percent, had governed the provision of potable water to urban centers. She first was a concession dating from 1959 to supply water to Abidjan, whose scope was considerably reduced in 1967, when SODECI's role in investments was - 64 - ANNEX 3 Page 12 of 37 confined to boreholes only. Subsequently a lease contract dating from 1974 provided for the supplying of the interior urban centers and villages. * From the beginning, the profits deriving from the concession had fully covered losses under the lease contract, although between 19e3 and 1986 the cumulative losses resulting from the latter wiped out almost three-quarters of the profits from the former (CFAF 9.4 billion of losses and CFAF 12.6 billion of profits, respectively). During this period the accumulated losses on rural water supply accounted for 30 percent of total lease contract losses (CFAF 2.2 billion for rural water supply and CFAF 7.2 billion for interior urban centers, respectively), burdening the profit and loss account to the tune of some CFAF 0.5 billion per year. During the period 1983-1986 water sales fell by about 1 percent a year, while the operating costs of the two contracts increased more than twice as fast as inflation (10 percent per year, as opposed to inflation of 4.2 percent). General expenses and overhead rose 15 percent and 8 percent per year respectively. The operating costs of water supply networks in the interior towns (excluding rural water supply), in relation to sales, were more than twice as high as in Abidjan, while overhead costs were more than three times as high. * Abidjan, the consumption of which accounts for two-thirds of the total water distributed by SODECI, is supplied exclusively from ground water. Water production capacity in Abidjan was about 50 percent greater than current needs. This sizable anticipation of demand was the result of very high projections for consumption and urban growth, investments having been undertaken accordingly. However, some more recent zones of urban development (Djibi, for example) are not served. This is a consequence of the lack of coordination between urban planning and the programming of water supply investments. Production capacity (pumping and treatment) for the interior towns as a whole is more than 3.6 times greater than current needs. The coverage rate for the urban centers as a whole is estimated at 72 percent (87 percent for Abidjan and 60 percent for the interior towns). The number of SODECI network customers was 200,000 in 1988, 51 percent of these being in Abidjan and 49 percent in the other urban centers. * Throughout the country, SODECI operates a range of installations and equipment consisting of 32 dams, 306 boreholes and 48 river intakes, 244 treatment plants, 267 storage installations (reservoirs) and more than 6,000 km of pipes. The network being recent, particularly in the interior towns, its overall yield (relationship of volume billed to volume produced) is excellent at 88 percent. * The conception and planning of investments (except for boreholes at Abidjan, as indicated above) was the responsibility of the supervisory agency (Ministry of Public Works and Transportation - Water Department), SODECI not being consulted but being obliged to operate the works as soon as they were delivered. - 65 - ANNEX 3 Page 13 of 37 * The structure of the average tariff per in of water, on the conditions in effect since 1984, had been made up as follows: 2 percent for investments exclusively earmarked for free connections to benefit low-income groups; 43 percent to finance, though only in part, the sector's debt service and 55 percent to remunerate SODECI. * SODECI was only responsible for the renewal of electro-mechanical equipment of Abidjan boreholes, in the amount of CFAF 0.2 billion per year on average, this representing 0.8 percent of the total proceeds of sales of potable water in urban centers. * Under the provisions of Decree No. 68-528 of October 21, 1968 governing the supply, conservation, preservation and utilization of water resources in the Abidjan region, all private boreholes for commercial and industrial purposes were subject to a user charge for the exploitation of ground water, this charge going to the FNH. In practice, the tax has actually been collected on less than 20 percent of the boreholes inventoried. III.2 Adjustment Measures III.2.1 Redefinition of the Contractual Framework The National Water Works Program introduced in 1973 established the need for two legal systems (concession and lease contract) to govern the provision of potable water to urban centers. The substantial investments required in the interior towns within a very short period, on the one hand, and the adoption of a uniform tariff throughout the country for water, on the other, could not provide an acceptable return for private operators. The lease contract approach was therefore required for water supplies to the interior towns, while the profitability of the Abidjan network made it entirely suitable for a concession. At the present time, 73 percent of the 135 communes and 59 subprefectures without communal status are equipped with piped water systems. Supplying the 53 urban centers not yet thus equipped on terms offering a satisfactory return would involve investments of about CFAP 100 million per center. Meanwhile the network densification investments needed to increase the rate of coverage would provide an opportunity to improve the operating equilibrium in a number of interior urban centers at reasonable cost. This creates an auspicious context in which to unify the legal framework for the operation of urban supply systems, in the form of a public service concession which: - gives the private sector greater responsibility than was possible hitherto; - relieves the State of the direct costs of developing the subsector. The exclusion of SODECI from the rural water supply subsector is one of the necessary but not sufficient conditions for improving the equilibrium of urban water supply operations. - 66 - ANNEX 3 Page 14 of 37 To make the concessionaire fully responsible for subsector operations, the contract between it and the State gives it exclusive control over: - exploitation of ground water; - production and distribution of urban potable water throughout the country; - activities associated with network operation and management; - maintenance and repair work on all the assets assigned to the service; - renewal of these assets; - new network adaptation, reinforcement and extension works required to maintain the quality of the service and to expand the coverage potential. The responsibilities entrusted to SODECI do not preclule Governmewt oversight of the managemt of the public service concession, without this oversight limiting or reducing the obligations of the concessionaire. 11I.2.2 Reorientation of the Development Strategy The potential capacity of existing infrastructures, taken together with the prospect that urban growth will be both slower than in past years and better controlled under the new rural development policy (diversification of agricultural production and installation of young modern farmers), is leading to a new phase in the development of urban water supply systems. The wide-ranging basic investments in production and transportation under the 1973 National Plan, which deliberately took a long-term view of the return on these investments and required no immediate renewal, must be followed by a policy for rational utilization of existing assets. This policy is henceforward being based on: - systematic pursuit of productivity gains, particularly through the intensification of tertiary distribution investments; - preserving the potential of installations and networks through the introduction of planned renewal. The establisbment of new urban water supply systems will be pursued subject to the following two essential conditions: - no undermining of productivity gains achieved in other ways; - keeping the subsector's financial charges at a level compatible with the steady reduction of certain tariff categories. - 67 - ANNEX 3 Page 15 of 37 In addition, the policy of free connections for low-income groups is being continued; the eligibility conditions for access to this status have been redefined precisely in order to ensure its social nature. Application of the above-mentioned principles, taken together with the significant (20 percent) reduction in operating costs since July 1987 following the negotiation of the concession agreement with SODECI and the new tariff structure adopted, have made it possible to replace the almost complete dependence on loans for financing by a very large measure of self-financing of subsector investments. In line with the general law governing public service concessions, the installations and networks (production, treatment, storage, transmission lines and distribution installations) and connections and meters are maintained and repaired by the concessionaire, at its risk and expense, without the costs involved affecting the resources allocated to finance investments. III.2.3 Contractualization of Development The convergence of the State's economic, social and financial objectives and the return sought by the concessionaire has led to the contractualization of development policy for the subsector, as regards both investment and renewal, within a framework of concerted planning. The concession agreement stipulates that the concessionaire must submit to the authority granting the concession, for approval, a draft five-year development program prepared on its own initiative and distinguishing between; _ renewal; - investment in new works to strengthen, adapt and extend systems; - free connections for low-income groups. The objective of making five-year plans for urban water supplies produce a return will only be achieved if the development of the subsector and urban development policy are made mutually consistent, both at the planning stage and as regards the execution of operations. This two-fold harmonization, also a prerequisite for improving the management of urban development and the return on the investments involved, is henceforward to be governed by the following principless - coordination of tertiary water supply system investments (for priority execution in urban zones already possessing infrastructures) with land management processes in the same zones (priority cession in these zones of sites for development and priority equipping of sites to be ceded); - planning of water supply system extensions in accordance with master plans and urban development plans; - urban planning to take into account both existing and future primary water supply infrastructures; - 68 - ANNEX 3 Page 16 of 37 - coordinated adjustment of water supply and urban development plans in light of the pace of their execution. To allow for inevitable fluctuations in the overall economic context, the actual rate of urban development, demand, operating costs incurred and the financial equilibrium of the concession contract and the subsector as a whole, the five-year plans will be adjustable either at the request of the concessionaire or at that of the authority concerned. Full execution of the five-year plan is legally required of the concessionaire. Financing of these plans is fully and exclusively ensured by a specific development levy' on sales of water, collected by the concessionaire as part of the billing process, the amount being determined in light of annual financing needs as established in the plans. This solutions - enables the concessionaire to honor its obligations without undermining the financial equilibrium of the contract, coverage of current operating costs and the concessionaire's margin being guaranteed in other ways (maximum base prices); - allows plans to be timely executed so that the desired return can be quickly achieved. The accounts for the development levy, as regards both the proceeds and their expenditure, are maintained by the concessionaire in three separate third-party accounts (investments, renewal and free connections) so as to avoid any confusion between the current operation of the public service and its development. The concessionaire is entirely free to finance from his own resources any complementary investment to the five-year plans that it regards as appropriate; these investments are subject to the general rules regarding oversight by the authority granting the concession. 111.2.4 Rigor and Flexibility in Tariff Management A major change in the tariff policy hitherto in effect is required in order tot - bring about a selective reduction in certain tariff categories in light of the Government's economic and social objectives and to control the average price of water; - ensure a balanced operation for the concessionaire; - maintain the subsector's financial autonomy. Tariff policy is therefore now based on the following principles: . 69 - ANNEX 3 Page 17 of 37 - automatic but partial adjustment of the concessionaire's remuneration (maximum base price) in line with observed changes in the cost index of its production and operating factors; - detenmination of the amount of the surcharge earmarked for financing the debt service assigned to the subsector in light of the schedule of maturing obligations; - selective reduction of certain tariff blocks within the limit of covering the average cost of supplying a cubic meter of water and subsector financing needs, as determined in the five-year development plans; - adjustment of the average tariff in light of changes in consumption, any increase in the latter enabling tariff reductions and the sector's development to be pursued. In December 1987 measures were taken to reduce tariffs for low-income and industrial consumers. 111.2.5 Public Consumption and Collection of Public Sector Bills In recent years consumption by the public administration and the parastatal sector has risen uninterruptedly and now accounts for a quarter of SODECI's total annual sales. In addition to the major impact of water consumption on the public finances, the lengthy payment delays in the public administration (12 months) and the parastatal sector (15 months) are a burden on SODECI's cash flow position. To achieve the economies sought as part of the process of adjusting the national economy and the reduction in the costs of operating the concession, particularly financial costs, requires the adoption of measures designed to: - limit the expenditure on water by the State and the parastatal sector; - expedite procedures for payment of governmental bills and improve those of public bodies. 111.2.6 Protection of Ground Water The exclusive right to exploit ground water (an integral part of the State's public domain under Articles 538 and 539 of the Civil Code) is directly linked to the public service regulations governing the concessionaire and obliging it, in particular, to ensure uninterrupted urban distribution of high-quality water. In return, the authority granting the concession must protect the concessionaire against any uncontrolled exploitation of a scarce and fragile public resource. To this end, private exploitation of ground water must be authorized on a case by case bacis; the concessionaire must be in a position to avert any threat of pollution or harm to its normal supply. Although in the past not all the urban demand for water could be satisfied given the then existing production and distribution capacity, this is - 70 - ANNEX 3 Page 18 of 37 no longer true, except in cases where the zone to be served is remote from an urban distribution system. Nowadays, the option exists either to be connected to the public network or to obtain an authorization to exploit ground water directly. Private exploitation of a public resource provides grounds for the imposition of a charge as a contribution to the financing of the debt contracted in order to create the public network, except as regards water destined exclusively for agricultural or household use or provided by a village borehole. Measures have been taken to extend the protection of ground water resources throughout the entire territory of COte d'Ivoire. IV. THE RURAL WATER SUPPLY SUBSECTOR IV.1 Diapnostic Study of the Subsector e The target of the 1973 National Water Works Plan was to supply 10-15 liters per capita per day in rural areas. To achieve that the villages had to be equipped at the rate of one pump for every 100 inhabitants plus an additional pump for every 600 inhabitants after the first 900. Originally, the creation of a water point was conditional on a village participation of CFAP 150,000 (well) or CIA? 200,000 (borehole). This requirement was very quickly abandoned because of the disparity of village resources between regions. The goal was fully achieved, at the rate of 1,000 village water points installed per year. * Debt service of the village water works loans was the responsibility of the urban water works subsector and financed by the FNH surtax charged on the sale of water. * Maintenance and renewal of village facilities were entrusted to SODECI by government decision of January 1973. This responsibility was confirmed in the lease contract of 1974 concerning water supply to interior towns. Following the example of financing of the subsector 's debt service through urban water sales, maintenance financing, deriving from the lessee company's operating expenditures, was charged to urban water production and distribution cost. In February 1981 the Government decided that the villagers should bear directly village maintenance and renewal costs of rural water points, relieving the urban water supply subsector's costs accordingly. To that end SODECI had to bill and collect an annual flat-rate charge per water point, initially set at CFAF 60,000 but later reduced to CFAP 55,000. With the steady increase in the number of water points, SODECI eventually set up 40 maintenance teams, with an average of 300 pumps or 200 villages each to visit. * The handpump market has essentially been shared by two pump suppliers, ABI and VERGNET, with the following distribution: - ABI-MN equipment 50 percent; - 71 - ANNEX 3 Page 19 of 37 - JVERGNET equipment 25 percent; - pumps manufactured jointly by ABI and VERGNET (ABI-ASM) 25 percent. A large proportion of the equipment was procured on very good terms, the ABI pumps being manufactured in Cote d'Ivoire. Owing to their simple technology (expandable chamber), the selection of the VERGNET and ABI-ASK pumps -- about half the stock -- brought the possibility of a very low maintenance cost (light in weight and easy to disassemble). * As soon as 1982, a diagnostic study of the condition of the pumps, beginning in 1982, revealed that 18 percent of facilities were out of order and 42 percent were experiencing operating problems. To try to remedy these maintenance deficiencies, several regional experiments were undertaken: - awareness-building among the villagers concerning the health benefits of potable water; _ training of village repairmen; _ informing and training repairmen through a combination of the preceding two activities and improving the technical qualities of the pumps (Water Always -- Eau Toujours -- Program). Evaluation of these activities revealed that: - the breakdown rate had fallen by 40 percent as a result of the awareness campaign; - the combination of the awareness and repairmen training activities made it possible to reduce the breakdown rate to 10 percent, the villagers organizing themselves to fully finance the (reduced) cost of maintaining the facilities. Owing to the limited scope of these activities, the national breakdown rate was still 50 percent in 1987. * The following are the main causes of the maintenance shortcomings: - ignorance by the villagers of the health advantages of modern water points over traditional surface-water supply; - remoteness of the maintenance teams from the village water points. This ignorance, which is due to lack of initial awareness-building among the villagers to prepare them to agree in advance to the construction of a well, militated against self-organization of the villages in order to: - alert the maintenance teams quickly, before a breakdown can worsen; - 72 - ANNEX 3 Page 20 of 37 - provide the necessary resources to finance the repair costs. The regionalization of the maintenance teams was not sufficient to bring them closer to the maintenance sites. In addition to heavy travel costs, it resulted in long action delays, consequent worsening of the breakdowns and lack of regular monitoring to prevent them. This remoteness, combined with the poor motivation of salaried staff (in contrast to the interest an independent repairman can take), reinforced the villagers' lack of interest in wells. Finally, the relative over-qualification of the maintenance staff in relation to the importance of the breakdowns and suitable solutions helped to increase service costs. IV.2 Adiustment Measures IV.2.1 Basic Orientations In the rural water supply subsector, the basic sectoral adjustment objectives of State disengagement and restoration of the availability of equipment and services are being pursued through: transfer of maintenance and renewal responsibilities and costs to the villagers; - redefinition and reorientation of the State's role. * To strengthen maintenance (speedy and regular action) and reduce costs (by eliminating the administrative expenses of centralized management), the repair staff have to be brought close to the water points. This involves: - direct service by a self-employed repairman remunerated on the basis of service rendered; - that the villagers directly and immediately take care of repair costs. * In this context the State is ipso facto relieved of all technical and financial responsibility and costs for maintenance and renewal. In return, its role should be to bring about, at the local level, all necessary conditions for effective privatization of maintenance and renewal first of existing and second of future facilities. The State continues to be responsible for rehabilitating works out of service or in poor operating condition and for programming and financing future investments. These guidelines are being implemented in accordance with the plan of action described below, which aims at: _ privatizing all existing village water points within three years, 2,500 facilities being transferred as of the end of 1989; - 73 - ANNEX 3 Page 21 of 37 - resuming the construction of new water points, the operation of which will also be privatized in accordance with the above principles and actions. IV.2.2 Action Plan IV.2.2.1 Institutional Restructuring * Regional branch offices of the Water Directorate Setting up the local organization required for the transfer of responsibilities and costs requires to increase the number of the Water Directorate's regional "rural water supply" offices from 7 to 12. Strengthening the regional offices' logistical resources involves setting up 56 teams, each comprising: - a community development specialist; - a technician/instructor (technologue). These teams, provided with the necessary vehicles and communications equipment and having received specific prior training, are responsible for: - information and community development; - identifying, selecting and training village repairmen and area mechanics (600 for the whole of C8te d'Ivoire); - preparing the status survey/diagnostic study prior to dtafting of the rehabilitation program; - executing the rehabilitation works. Once the rehabilitation phase has been completed, the number of teams can be reduced; the teams will then be responsible fort - carrying out activities preliminary to the construction of new water points (community development, information); - monitoring and evaluating private management of the subsector. * Village organization The local organization must include: - designation by the villagers of a waterworks official responsible for: -- small running repairs; -- management of the village fund; -- alerting the repairman; - 74 _ ANNEX 3 Page 22 of 37 - establishing a repairman comon to several villages (area mechanic). * Spare parts supply network A contract must be negotiated with the private sector to set up a commercial spare parts procurement network under the following essential conditions2 - 12 sales points Installed in the localities where the Water Directorate's regional offices are located; - schedule of conditions and specifications calling for the management of a minimum stock of spare parts, previously identified, sold at approved prices. The setting up of this network is an essential precondition of any rehabilitation operation. The operation will be implemented following the facilities status surveyldiagnostic study described below. IV.2.2.2 Activities Timetable Privatization of operation of the subsector will be implemented in four stages: * Status surveyldiagnostic study and preliminary awareness-building in order tos - - make an inventory of the condition of the pumps and evaluate the rehabilitation works; - - prepare a list of candidates for training as repairmen, selected from among local mechanics. i Training, selecting and setting up artisan repairmen. * Community development, through repeated visits, to assess the villagers' motivation first to assume responsibility for management of the facilities and second to decide on rehabilitation. * Rehabilitation activities, conducted jointly by the training technician and the repairman after the village organization has been set up. IV.2.3 Develovment of the Subsector The development of the subsector will follow a two-prong approach. * Construction of new water points Once 2,500 existing water points have been effectively transferred, the Government will program new works to equip villages that lack service or whose equipment needs to be expanded owing to the size of the population. The estimated target is 500 water points per year. These investments will be financed by the State. - 75 - ANNEX 3 Page 23 of 37 * Transition to mini urban distribution networks Except where a village center is transferred under the urban water supply concession (on the terms set forth in para. II.3.1), transition from a village equipped with handpumps to a mini urban network will be studied case by case in light of the following criterias - the villagers' actual capacity and willingness to pay the resulting price per cubic meter of water; - actual or feasible connection to the national electricity grid; - assessment and actual raising of the necessary resources by the villagers with a view to independent financing of the equipment and its maintenance and renewal. V. THE SANITATION SUBSECTOR V.1 Diagnostic Study of the Subsector * The basic guidelines of national sanitation policy as enacted in 1973 were: - in Abidjan, design and construction, with priority status, of basic sewerage and drainage infrastructures in order to protect the health and environment of a rapidly expanding agglomeration (the annual urban growth rate at that time was over 10 perce.c); - In the interior cities, focus on storm drainage: the sewerage problems were less acute owing to the low housing density and city size. * In the case of Abidjan, three solutions were available, depending on the type of sewage receptor: - the subsoil, used for example in the case of individual sewerage disposal systems in which the sewage is usually filtered through a leach pit after passing into a septic tank; - the Ebrie Lagoon, which receives the runoff water and is therefore also the most accessible receptor for the sanitation networks; - the Atlantic Ocean, which is undoubtedly the least sensitive receptor but is inconvenient to use by reason of, in particular, the technical difficulties and the cost of the discharge works. The study of the Abidjan Master Plan for Sewerage and Drainage, started in 1974, concluded in favor of discharge into the sea for reasons of economic efficiency. This choice was also technically sound. The ecological considerations pertaining to protection of the Lagoon advocate sea discharge and demonstrate that, in the future, discharge into the sea of wastevater purified by conventional stations would not guarantee a - 76 - ANNEX 3 Page 24 of 37 lagoon water quality consistent with the survival and reproduction of its aquatic fauna. Finally, discharge into the sea is perfectly compatible with marine uses. It would be an illusion to think that discharge into the lagoon would afford better protection of marine fauna: toxic wastes discharged by the stations would reach the sensitive zones of the lagoon where many marine species reproduce. * A large investment program was initiated in 1975. Two phases of the program were implemented, the second of which was completed in 1982. The purpose of these operations was to dispose of the liquid organic waste of the neighborhoods by discharge into the Ebrie Lagoon. The network is largely a separate system and includes a small portion of unitary networks. The investments made comprise: - 1,900 km of buried piping; - 500 km of open culvert; - 28 sewage pumping and booster stations; - 4 treatment plants. * The sewerage investments amounted to CFAF 18 billion. They were financed in particular by four World Bank loans. * The following institutions were involved in management of the subsectors - the governmental supervisory body (the W%ter Directorate), for investment design and programming; - the Urban Development Company -- Societe d'Equipement des Terrains Urbains -- (SETU), established in 1971, as executing agency; - the COte d'1voire Water Distribution Company (SODECI) for system and facilities maintenance, under the terms of the lease contract concluded in 1976 between SETU and SODECI; - the National Sanitation Fund (PNA) for management of the subsector's debt service and financing of maintenance costs, with financing deriving froms -- the FNA surcharge on urban potable water sales; -- the sanitation tax additional to the property tax on improved lots, the rate of collection of which up to 1986 never exceeded 20 percent at most of the amounts assessed. * The resources allocated to maintenance declired steadily from 1983 onward and this caused a serious technical deterioration in discharge and treatment capacity. The inadequacy of the maintenance budget led SODECI - 77 - ANNEX 3 Page 25 of 37 to behave as a service contractor rather than as a fully responsible lessee operator. * Projects concerning linkages of secondary networks to the main interceptor and promotion activities for private service connections were deferred because of: - the need to limit the concentration of pollution to a few points of the lagoon and maintain the widest possible diffusion; - the progressive deterioration in discharge and treatment capacities caused by inadequate system and facilities maintenance. V.2 Adiustment Measures * The low rate of connection to the sewers (estimated at 20 percent of the population), due to the causes stated above, is reflected in under-utilization of the primary sewerage infrastructures of Abidjan. To obtr'n a full return on these national-interest investments it will be necassary to: - strengthen system and facilities maintenance and renewal; - complete the basic interceptor and build the sea outfall; - finally, after these prior conditions have been met, to construct private connections and tertiary collection system works. e The policy to be followed for the sewerage and drainage service of the interior cities is directly tied to the municipalization strategy pursued by the Government since 1980 and the basic provisions of Law No. 85-578 of July 29, 1985 (amending Law No. 80-1180 of October 10, 1980) setting forth the system of transfer of responsibilities from the State to the municipalities and the city of Abidjan. This law, which is actively implemented, reflects all the consequences of the Government's wish to clarify the sharing of responsibilities between the Government and municipalities with respect to urban facilities -- both infrastructures and superstructures. V.2.1 Redefinition of the Contractual Framework As a first step, the 1976 SODECI-SETU lease contract was cancelled and replaced by a maintenance And operation contract which was put out for tender. The schedule of conditions and specifications of the contract included, inter alia: - a complete inventory of the systems and facilities to be maintained; - projection of annual senvice quantities; - service rules regulating relations between users and contractor; - a schedule of unit prices. - 78 - ANNEX 3 Page 26 of 37 This contract is financed by the proceeds of the sanitation tax additional to the property tax. During a second phase the Goverrment will eventually conclude a comprehensive lease contract transferring full responsibility for, and the risks inherent in, sound operation and maintenance of all systems and facilities to the operating company. Achievement of this goal will be subject tot - rehabilitation of certain facilities; - complete and detailed assessment of the technical obligations that will be imposed on the future lessee-operator and the corresponding costs. V.?.2 Environmental Protection Works, Abidian The sewage collected in Abidjan is discharged into the Ebrie Lagoon and in the present state of development of the systems is already a source of serious pollution of the receptor. Cases of destruction of aquatic fauna due to pollution have been observed in Bietry Lagoon, and catch volumes have fallen substantially in the Abidjan region over the past decade. 'Wide sections of the lagoon are becoming anoxic, and the harmful effects of this situation are already being felt by the inhabitants of Abidjan. This worrying situation is hampering sanitation development; in particular, it is preventing work on additional service connections and connection of existing systems to the interceptor which would aggravate the aggression to which the lagoon environment is exposed. If nothing is done to bypass the lagoon and discharge the sewage into the ocean, it is to be feared that 20 years from now the deterioration will be such that the lagoon will no longer be amenable to any productive use. That would affect both recreational uses and the value of shore lands, which would fall sharply. The lagoon neighborhood of the residential and industrial areas would resemble an open sewer. The solution to the problem does not lie in the construction of conventional treatment plants ahead of lagoon discharge. The development of the city and particularly of tertiary networks and service connections would very quickly lead to intolerable residual pollution for the lagoon environment. It is therefore necessary to conduct the sewage to the ocean and thereby relieve the lagoon of the bulk of the domesti. and industrial pollution generated by Abidjan. The environmental protection works in Abidjan are therefore a priority project for the Government. They comprises - completion of the Abobo-Port-Boult sewage interceptor; - 79 - ANNEX 3 Page 27 of 37 - construction of a treatment station suited to the method of discharge selected; - construction of a sea outfall off Vridi. This investment should be financed by the World Bank and the European Investment Bank. Debt service of the corresponding loans vill be financed as follows: - 50 percent by the proceeds of the sanitation tax with respect to the part of the investments pertaining to sanitation in the strict sense; - 50 percent by the national budget with respect to the part of the equipment specific to environmental protection. The subsector is fully responsible for maintaining the sanitation-related systems and facilities of the Abidjan environmental protection project. Maintenance is therefore financed by the proceeds of the sanitation tax. V.2.3 Linkage to the Interceptor and Service Connections Investments, Abidian These vill be programued and executed as part of a Revised Abidjan Sanitation Master Plan taking into account population growth and foreseeable development of the city as indicated by the most recent urban planning studies. * Action in neighborhoods that can be connected quickly The policy will be to connect to the basic interceptor the neighborhoods already equipped with tertiary networks, beginning with those that involve the lowest investment expenditure for maximum pollution elimination. In these neighborhoods the policy will be to construct service connections that improve health and hygiene conditions and help to earn a reasonable return on the systems and facilities. * Action in other neighborhoods In the peripheral neighborhoods where connection to the sewerage system will not be feasible for many years, the system of independent individual disposal with infiltration into the soil must be developed. Where this solution is not practicable, watertight sewage tanks will be built which will be emptied periodically and the septage disposed of into the base interceptor via dumping stations placed all along its length. The peripheral areas will thus also benefit; this will further increase the return on the sewerage and lagoon environmental protection works. - 80 - ANNEX 3 Page 28 of 37 V.2.4 Development of Tertiary Collection Networks in Abidjan In neighborhoods not yet equipped, tertiary networks will be built later, as financing capacity permits and in accordance with the Revised Master Plan. In the case of the development of urban sites, however, tertiary networks will be constructed along with the other sites and services works whenever the location of the site is compatible with their connection to the main sewerage system. In these subdivisions, a full return on the sanitation investments will be assured by private service connections constructed at the same time as the networks. V.2.5 Prevention of Pollution of the Environment Regulation of discharge into the public system and direct discharge into natural environments is essential in order to reap the full benefit of the investments that have to be made. The regulations will need to take into account the sewerage system adopted, the treatment processes used and the capacities of the receptors to handle the various types of pollution. The Government will issue rules regulating discharge into the public system and discharge into the natural environment of liquid industrial effluent, taking into account the solution adopted for sewage disposal in Abidjan and protection of its lagoon environment. The Government will provide the ministerial departments involved with the necessary resources to put these regulations rapidly into effect and monitor compliance with them for the pretreatment of waste by industrial operators authorized to discharge their effluent into the public system or complete treatment of effluent discharged directly into the lagoon. At the same time the Government will develop, within the competent agencies and services, a system of control and monitoring of the quality of lagoon and coastal ocean water. V.2.6 Sewerage and Drainage Systems for Interior Cities The following technical guidelines were set forth in a communication in the Council of Ministers, the conclusions of which were adopted by the Government, on October 19, 1988. 0 Sewerage Some interior towns possess a rudimentary sewerage system. They include public systems in Ayame, San-Pedro, Yamoussoukro and Bouake and, particularly in Yamoussoukro, a fairly large number of sewage collection and treatment facilities connected to school buildings. Maintenance and operation of these systems and facilities is in many cases less than satisfactory. The Government will make a point of promoting their rational operation, ensuring that adequate budgets are allocated to these tasks. - 81 - ANEX 3 Page 29 of 37 In the case of sewage disposal, in most of the towns and villages the Goverment will promote the development of individual independent sewage disposal systems or the construction of improved latrines, which in the villages often offer an acceptable solution at minimum cost. Where the construction of a system is essential, the treatment process and level will be adapted to pollution loads and receptor capacity. Whenever possible, intensive treatment in conventional purification stations will be rejected in favor of extensive treatment using the "natural lagooning method. This type of station, which does not require energy, has been tested in COte d'Ivoire with particularly encouraging results. * Drainage In most towns and villages of the interior, the sanitation problem in the broad sense of the term is more one of rainwater discharge than of sewage disposal; the latter problem can often be resolved without recourse to the construction of expensive separate systems and collector facilities. In the future the Govermuent will promote investments relating to storm water discharge (drainage) as part of operations receiving international assistance, such as for example World Bank, US-AID and KfW projects. VI. FINANCIAL RESTRUCTURING VI.l Diagnostic Study * Although the programming of investments for the sector as a whole was carried out by the supervisory agency, financing was the responsibility of the FNH and FNA, set up in 1976 as public establishments and managed by the Caisse Autonome d'Amortissement (CAM). * Salient features of the financial management of the sector were the following: - Investments were programmed by the Water Directorate, without due account being taken of the real potential for the sector to contribute to its own financing. As a result, the programs were not adjusted when water sales declined; - Financing was based almost exclusively on borrowing; - External borrowing did not take into account the return in the sector (medium and long term); nearly two-thirds of loans carried high (commercial) interest rates and/or were for short terms (12 years or less); - Loans were obtained from the Central Bank of West African States (BCEAO) to finance the local counterpart for the projects; - 82 - ANNEX 3 Page 30 of 37 - There was total separation between the PNH, which was running a deficit (the debt service on the village water supply sector accounted for more than a third of the Fund's financial obligations) and the FPA, which had a surplus. * Under the tariff conditions in force since 1984, and disregarding the consequences of the new rate schedule adopted in December 1987, the accumulated sector deficit at the end of 1989, would be CFAF 18 billion, of whichs - CFAF 12 billion in arrears of debt service; _ CFAF 6 billion of consolidated liabilities of the FNH and FNA. * The cumulative obligations of the National Treasury and the CAA for debt servicing were CFAF 20 billion in June 1988. VI.2 Financial Adjustment Measures VI.2.1 Abolition of the FNH and FlA The structural cause of the deficits accumulated by the sector was fragmentation of responsibilities for investment programming and financing and, lastly, for the operation of networks and facilities. The situation made it impossible to implement a coordinated financing strategy based on a systematic economic and financial analysis of projects in relation to the real resources of the sector. The initiative for investment planning being handed over to private operators and financing assured by the tariff policy, there was no reason not to abolish the FNH and FNA. VI.2.2 National Water Fund (FNE) * The Government established a financial account in the CAM in the name of the National Water Fund -- Ponds National de l'Eau -- (INE), which replaces the former national funds in their rights and obligations. The function of the FNE is limited to: - keeping the accounts for the surcharge collected by SODECI on urban water sales, the sanitation tax collected by the Treasury and the user charges paid by operators of private wells; - payment of maintenance and operating costs of sewerage networks and facilities in Abidjan, under the contract concluded with SODECI; - payment for works fianmced through borrowing. * The surcharge on water sales and the user charges for private wells finance the debt service on the water supply and sewerage components of loans contracted prior to adjustment. - 83 - ANNEX 3 Page 31 of 37 * The sanitation tax additional to the property tax is used to finances - operating and maintenance costs of sewerage and drainage networks; - the debt related to future investments in the subsector and in particular the sewerage component of the Abidjan environmental protection project; - works for new connections of tertiary networks to the interceptor and service connections; - renewal of facilities and networks classified as being in the national interest, at the rate of 2 percent of revalued net fixed assets. Following computerization of the cadastre, it was determined that the collection rate of the sanitation tax was 25 percent of billings in 1987. The Government will take all necessary steps to increase this rate in order to ensure the financial equilibrium of the sewerage subsector. * The Managing Committee of the PNE, responsible in particular for management oversight of that account, will have a study conducted to determine the appropriate accounting procedures for the Fund. VI.2.3 Financial Consolidation * Prior to the dissolution of the FNH and FNA, in May 1988 the PIA repaid CFAP 4.5 billion of an advance made by the CAA for the FNH's debt service. * The sector's cumulative deficits will be consolidated by the National Treasury under the sectoral adjustment loan. * Settlement of mutual debts (State, nationwl public establishments, state-owned companies, local communities, FRE and SODECI) will take place as soon as the first tranche of the adjustment loan is released. VIZ. IMPLEMENTATION OF ADJUSTMENT VII.1 Adoption of Adjustment Measures * On December 17, 1987, the Government adopted the basic adjustment measures for the water supply and sanitation sector, namelys - Decree No. 87.1471 approving the concession of the urban potable water public distribution service in COte dlIvoire and organizing public control of the concession; - Decree No. 87.1472 creating the National Water Puwd, to be known by the acronym FNE, and setting the means of its operations; - 84 - ANNEX 3 Page 32 of 37 - Decree No. 87.1473 dissolving the National Water Works Fund, known by the acronym FNH, and the National Sanitation Fund, known by the acronym FNA, and setting the means of their dissolution; - Decree No. 87.1474 setting the price and rate for water sales and determining eligibility for the special water supply arrangements for low-income groups. * At the same session of the Council of Ministers, the Government authorized: - the launching of a rehabilitation and training program for village water supply and the financing of the program from the remainder of World Bank loan 2130-IVC; launching, by the Directorate of Large Works -- Direction et ContrOle des Grands Travaux -- (DCGTx), of competitive bidding for the proviseln of services and works for the maintenance of the sewerage and drainage systems in Abidjan; negotiation of the sectoral adjustment loan with the World Bank, for CFAF 25 billion. * Lastly, under the Tax Schedule -- Annexe Fiscale -- to Law No. 87.1476, the finance law for fiscal 198R, the National Assembly on December 18, 1987 adopted Article 15 regarding user charges for the use of groundwater. VII.2 Status of Implementation VII.2.1 Urban Water Supply (a) Reducing Water Tariffs Retroactive to October 1, 1987, the rates for industrial and low-income consumers were cut by 10 percent and 23 percent respectively. As part of the structural adjustment of the economy, and in particular of the support to the industrial sector, where productivity needs to be improved, the Government, following the same approach as in the planned reductions in electricity rates, will again reduce water charges to industry in 1989. If the debt of the water supply sector is to be paid in full and its financial autonomy restored, the industrial rate cannot be reduced by more than CFAF 62Im0, bringing it to CFAF 350/Im, i.e. in total a 23.5 percent cut in relation to the rate in force prior to the sectoral adjustment (CFAP 458/in). This measure will also apply to the user charges for private wells, which are based on the surcharge applicable to the industrial tariff. Thus, user charges (excluding the flat rate charge of CFAF 5Im? due to SODECI for billing and collection costs) will fall from CFAF 250Dm' to CFAF 179/in, i.e. a reduction of 28 percent in relation to the amount charged since October 1, 1987. As a result.of the negotiations on operating costs and the tariff policy adopted, the relative share of the components of the average selling price changed as follows: - 85 - ANNEX 3 Page 33 of 37 Tariff Components Base October 1984 Base October 1987 Remuneration to SODF^I 55 X 51 2 Surcharge 43 2 39 ? Development levy 1/ 2 2 10 2 11 The previous rate included a flat service connection fee. In addition to decreasing debt service, the tariff policy aims at gradually aligning the rates charged to each category of user with the marginal cost per in. (b) Reduction in Operating Costs Compared to fiscal 1985-86, the operating charges for urban water supply were reduced by 26 percent following the July 1987 negotiations. Sector overhead was cut by 67 percent and now accounts for only 11 percent of total charges, as against 24 percent in the past. This substantial cut in costs led the concessionaire to make a sweeping organization of its management methods and structures. A comprehensive review of procedures, which led to greater standardization of tasks and the setting of productivity targets, resulted in a recasting of the organization chart, including: - a reduction in line services and paring of hierarchical intermediaries; - greater decentralization through more numerous and strengthened decision-making centers. Implementation of the reorganization meant: - elimination of certain regional departments; - the strengthening of personnel management (personnel qualification and selection procedures); - adoption of a microcomputer development plan for processing in real time. Immediate savings were moreover achieved through: - reductions in staff; - reduction of vehicle fleet and longer vehicle depreciation period; - better inventory management, a longer period for suppliers' credit and more advantageous discount con1itions; 0 0 - 86 - ANNEX 3 Page 34 of 37 - development of subcontracting through competitive bidding for certain works. (c) Effectiveness of the Concession Contract The contingencies on the effectiveness of the concession were lifted on July 2, 1988 and the notification to proceed was sent that day to the concessionaire. The draft five-year plan for the development of urban water supplies, stipulated in Article 26 of the concession contract and formulated by SODECI, will be available by the end of March 1989. The regulations governing the operations of the concessionaire (Article 10 of the concession contract) are now being prepared. (d) National Uater Fund (FNE) Under a law voted on July 5, 1988, the National Assembly approved the dissolution and liquidation of the FNH and FNA. Liquidation will begin in the first quarter of 1989. The Managing Cosmittee of the FNE, envisaged in Article 5 of Decree No. 87.1472, was officially installed on December 22, 1988. (e) Miscellaneous Provisions Two decrees regulating the operation of private wells and the rate-setting for specific services provided by the concessionaire will shortly be submitted to the Government for its approval. A memorandum (communication) from the Council of Ministers will soon be submitted with a view to the adoption of budgeting procedures for the water expenditures of the State and public establishments on the one hand and for rapid payment of the invoices received by public entities on the other. Under the concession contract, SODECI will prepare a detailed inventory of urban water supply fixed assets. VII.2.2 Rural Water SupplY Subsector Following the adoption by the Government on December 17, 1987 of the conclusions of the memorandum on the restructuring of the water supply and sanitation sector, the timetable for adjustment actions in the village water supply subsector was set as follows: - March 1988s field testing by the 15 teams under the former "Water Always" program; - July to September 1988: training seminars for the field teams (leader/trainer and technician/trainers); - 87 - ANNEX 3 Page 35 of 37 - third quarter 1988s diagnostic review and preliminary comuwnity development activities. The analysis of this review is now being carried out and will be completed in January 1989; - January to March 1989: training, selection and setting up of repairmen; upgrading seminar for field teams; finalization of negotiations and establishment of the commercial network for the supply of spare parts; - April 1989: village awareness-building and evaluation of village capacity and motivation for the complete taking over of facilities; start of rehabilitation operations; - July 1989s evaluation and upgrading seminar for field teams; review of commuity development activities, first rehabilitations and adjustments to methodology, if necessary. VII.2.3 Sanitation Subsector On December 17, 1987, the Government authorized DCGTx to issue a call for bids to let a service and works contract for the maintenance of the sewerage networks in Abidjan. In 1983 that Department had took over all technical studies and costs for completing primary sewerage infrastructure in Abidjan (main collector and outfall for discharge into the sea). The timetable for adjustment actions in the subsector is as follows: (a) Maintenance and Renewal of Networks and Facilities - December 29, 1987: call for bids on the maintenaace contract. Ten companies were asked for quotations. Four bids were submitted representing six companies; - May 1988: award of the contract to SODECI, which had submitted the lowest bid. The competitive bidding made it possible to lower maintenance costs by 35 percent and resulted in a substantial increase in the quality of service. The three-year contract envisages annual expenditures of CFAF 850 million; - October 1988: general policy guidelines for the interior towns adopted by the Government; - December 1988: installation of the Managir Committee of the PNE responsible for financing the above-mentioned contract and inclusion of corresponding costs in the FNE budge'. In addition, after SITU had been abolished and liquidated by Decree No. 87-365 of April 1, 1987, under the Third Urban Development Project: , - monitoring of the operations of networks and facilities is the respousibility of the Water Department; - 88 - ANNEX 3 Page 36 of 37 investments in the subsector are monitored by DCGTx. (b) Abidjan Environmental Protection Proiect - End 1988s completion of project studies and preparation of bidding documents. The studies made it possible to cut the investment cost for comparable technical alternatives in half; - January 1989: start of international competitive bidding; - End 1989: start of works, expected to last 18 months; - The regulatory and administrative provisions for environmental protection will be finalized by the end of 1989. _ 89 - ANNEX 3 Page 37 of 37 ATTACHMENT Calendar of Actions Date Inventory of assets March 1990 Effective transfer of at least 2,500 rural water May 1990 points to villagers Submission of three-year investment program for Effectiveness rural water supply + Five months Launching a study on village water supply Effectiveness + One month Decrease of industrial block rates and fees November 1989 Adoption of decree on private water extraction Effectiveness and inventory of private wells + Four months Completion of first phase of financial Effectiveness restructuring + One month August 7, 1989 Note: Given the slippage in presenting the WASAL to the Board, some of the above dates have been revised. They have been flagged in the appropriate sections of the report. 4 , a - 90 - ANNEX 4 REPUBLIC OF COT! D'NVODRE WATER SUPPLY 7AW SrA W1uIN SEC_TOR AJUSTMEN1 LOAN Pro2rom of PolIcy Veasures and Actions Policy ArosmeIssues M.asu Ae AIrady Taken Measures to be Taken I. Institutional Frawork Urban Water Supply Inappropriteo Investment dew- SOOECI plans, finances and Satisfactory and tiomly ex- lsions by DE. executes all Inv st ents in scutlon of concession con- the subse cor, under a con- tract provisions rgarding cesion contract effectiv In rvwisions of SODECI'. compen- July 188. sation and xecution of the investoent program. J Five-year tnvestment program prepared by SODECI. (June 1060) Unequitable risk-sharing bet- Full commercial risk to be weon SODECI and the public borne by the concessionaire; sector; limited incentiv" to procedure of revision of SOD- control operating cost.. KCIs compnsation dosignedto increas, productivity emboled tn concession contract. Sanitation Inadequate 0 a V of Abidjan Award of adequate 0 & M con- sceerago end dr Inago systems. tract for Abidjan swerage and drainage systems to a private operator through LCS. (Mabch Investment program noeds to be Preparation of a three-year Masutr plan for sanitation redefined and updated. tnvetmont program for sewer- and environmental protection ago, drainage and environon- to be opdabsd under the AEP tel protection. (June 1908) Project. Rural Water Supply Inadequate Institutional ar- Official Government coimit- Succossful transfer of at rangements causing poor sent to shIft 0 & M rspon- least 2,600 water points to maintenance of rural water sibilities to villagers; ter- villagers (including reha- points; lack of villagers' mination of SODECI loose con- bilitation as needed). e participation, tract for rural water poite approved by Government. (Dce- mber 1it?) Preparation of an implemntn- tion plan for the transter of 0 4 M rponsibilities throu- gh the extension of onoing comunity development and trainitn programs. (June 1989) Investment criteria and sor- Prepration of a three-year vice levels In rural reas Investment program for rural must be redefined. water supply, Including ti- nancing and Investment crlt- erl. * Initiation of a study on the perpectives of rural water supply. e ndicates condition of second trenche release. - 91 - ANNE 4 Page 2 on REPUIC OF IE D'ZVOIRE WATER SUPPLY NO SANITATIN SECTOR ADJUSTIMNT LOAN PrWoram of Policy Measure *and Actions Po)I ey Areas/Issues Measures Alrady Taken Measures to be Token Environmental Protection Groundrater protection mut be L l frameork for genral Ixa- enhancoed nd enforced. Ing groundwater protection outeide Abidjan adopted In January 18B. Preparation of deree organis- Adoption of decree. lg e systse of drillin noti- f ieation and giving onforce- mnt right to SODECI. (June 1989) Growing pollution of Abidjan Decision to proceed with the Lagoon induced by unorganized execution of environmental discharg of organic and ln- protection works In Abidjan. dustrial w stes; lack of ade- quate discharge facd lties. Outline of legielation on do.- Enforcement of legislation at estic and Industrial woe- completion of environmental tewater prepared In June 1919. protection works under AEP Project. U. Pricina Framework Urban Water SuDI IA bon Wto istortions In tariff struc- Revision of urban tariff stru- Industrial block ratt to be ture ponalizing Industrial and cture Including a IOX dbere- reduced to CdAF 86O/0m . iw-incomo consumer and gene- so of Industrial rates op- raeIng volatilty of revenues. roved by Government In D eo- ror 198?. Poor performance In collet- Revislon of regulations con- Completion of the Inventory tag fees levied on private eorning private extraction of of private water wells sub- wells and boreholes due to water. (se above) ject to extraction fee six Inadequate legal framework. months after enactmnt of the above decree. Fes to be reduced to CFAF Rural Water Supuly Low level of cost recovery for Action plan to ensure cott Maintenance coats financed by maintenance of water points. recovery for maitenonce in villagers for at lNet 2,500 parallel rith transfer of res- water point. ponsibilitles to villagers prepared In June 1989. Absence of financial par- Review of criteria and pro- ticipation of villages toward cedures for villagers' fi- Investment and renewal of nancial participation. PM". e indicates condition of second trenche relesse. - 92 _ peso a or REPUBiUC OF COTE D'IVIRE WATER SUPPLY AND SANITATIQN SECTOR ADJUSUTENT LOAN Prosram ot Policy Measur and Actiorse Polt Ic Atesi7esues Masu r /I Aoady Taken Measure to be Taken III. Fiancitn Strq$ ar nd Financial Re tructurins Poor financial oanagement of Abolition of FNH/FNA approved the sector by FN0/FNA by Government; creation of FNE within CAA. (July 1988) Lack of clear and true Establishment of sound accou- Setup of *ectoral assett reg- financial picture at ectr nting procedure for FNE. istere. (July 1090) level. Inventory of cross-debts bet- woen FPA, FNH, SCDECI, CM, Treasury and suppliers. Inappropriate financing Self-generation of cash to Definition of acceptable bor- strategy. finance urban water supply rowing terms and conditions Investment, embodied In for rural water supply as- SODECI concession contract. toe. s budget financing of rural water supply investment . Restructuring of SeJtor First rpayment of sectoral Consolidation of sectoral finnces required to restore arrears (CFAF 4.5 billion) to arrears towards the Treasury financial autonoy. the CAA. (May 1986) and completion of the first phase of financial restruc- Adoption of liquidation plan turing. * of FNN/FNA. (June 1098) Flanl sottlement of cross Adoption of consolidation plan debts. (End 1900) for sectora 1arrears. (June o indietes condition of second tranche release. - 93 - ANNEX 5 Page 1 of 7 Table 5.1: FNH Account. 1906-A88? (CFAF mil lI on) INCOME STATEMENTS UANGES IN WORKING CAPITAL 1985 1986 198? 1985 1986 1987 REVENUES ------------ ~ ~ ~ ~ ~ ~ --------- REVEES Inventorles 440 482 431 Water Surcharge 10 818 10 416 9 863 Interest Earne 15 146 100 Recaevable Afcounta: CEAO Participation 0 128 201 .Disbtaursemnt 12 91 0 Other 0 2 171 .CAA (Public Debt) 144 218 257 Total-- --_ j--- J.Cr.doc 8 8 a Total 10772 10 691 10835 .SODECI 7 696 7 004 6 924 .FNA 0 84 0 EXPENDITURES .Works 260 266 5 .3re-ta 2 980 2 980 0 CA Operating Cost 44 144 140 .Accrued Interest 2B 15 a Ministry of Health 200 50 50 .CEAO 0 0 201 Non Opoeratln Cost 0 228 a 026 -- - --_4- -;2- -- Sub-total 11 079 10SOS 6 898 Total 244 422 a 81 Cash 2 290 2680 4 067 NET REVENUES 105 28 10 269 S619 Total 13 608 1S 8a8 11 895 Minus: Debt Service .Interest 4 067 4 055 8 625 Payable Accounts: .Repayments 8 079 9 322 10 023 .CA (ubllc Debt) 5262 5000 5 041 Incr. in Working Capital 1 SS (4 083)(10 110) *Treasuy 5 894 10 028 16 681 Foreign Exch. Adjust. (56) (69) (118) .BSIE 1 841 1 647 1884 ------- - .FNA 46 16 17 Sub-total 11 645 9 226 8 424 Contractors 51 67 1 043 Internal Cash Generation (1 118) 1 043 3 096 Sub-total 8a 093 16 064 28 56 Capital Expenditures 7 762 4 474 6 708 Working Capital 718 (8 021)(11 700) Variation (8S) (8 737) (8 679) Balance to be Financed 8 900 3 481 3 811 Working Capital Other than Cash (1 574) (5 657) (15 767) Loans 6 104 2 914 8 905 Variation 1 566 (4 098)(10 110) Grants 1 156 868 1 137 Sub-total 7 29 8 777 5 042 Cash Variation (1 640) 346 1 431 Source: Audited Accounts - 94 - ANNEX 5 Page 2 of 7 Table 5.2t FNA Account. 1965-1667 (CFAF mil lI on) INCOME STATEMENTS OOES IN 10211 CAPITAL 1385 191 6 18o 1985 198 1987 REVENUES Invnorles 0 0 0 Seeage Surcharg 1 025 668 749 Interest Earned 487 8 6 Receivable Accounte: Sanitation Tax 1 964 1 62 2 994 .CAA (Public Debt) l0 152 221 - ------ .SODECI 252 201 118 Totl 8 47 2 804 4 106 .FI i 16 17 .Treasury 1 826 896 2 994 EXPENDITURES .Accrued Intert 1i8 128 115 CM Operating Coot 107 86 22 Sub-toal 1846 66 8 460 0hm Costa SewerageDrainag 812 816 692 Non Operatini Co0t 0 0 0 Coeh 4 96 5 786 4 697 Total 019 652 714 Total 6 881 6 672 6 857 NET REVENUES 2 657 1 952 a 82 Payable Account.: Minus: CAA (Public Debt) 0 0 2 Debt Service .Treasury 0 0 0 .Interest 709 720 654 .6SIE 812 t6 806 .Repayments 984 1 087 68U J.H 0 0 0 Incr. In Working Capitol (2 268) (GM7) 2 492 .Contractors 80 262 292 Sub-total (598) 949 0 999 Sub-total 1 120 1 017 1 099 Internal Csh Gonratton a 150 1 008 (607) Working Capital 6 711 656 7 28 Capital Expenditures 1 661 289 K(1 Varlation (148) (68) 1 608 Working Capital Other Balance to be Financed (1 599) (714) 906 then Cost 720 (181) 2 861 Variation (2 288) (67) 2 492 Loans 48 968 20 urszx urn=Ss.s Grants 42 0 0 Sub-total 525 68 20 Cash Variation 2 128 602 (669) Source: Audited Accounts - 95 - ANM 5 Page 3 of 7 Table 5.8: Allocation of WteOr Tariffs and Revenumw 198S 19 197 199LO 1989 IM 39A 1998 1094 1905 1996 Water Sold (mIllIon e3) 78.2 70.0 77.8 00.7 90.2 05.6 99.2 90.9 98.8 96.4 99.8 102.8 Number of Connections (Thousands) 176 166 198 210 220 2J0 240 25* 260 270 280 290 Allocation of Water Tariff, (CFAF'm) SODECI Compensation: .Operating Costs 147 148 150 184 184 184 187 189 142 145 148 151 .Investments US 0 0 0 28 29 29 29 a 40 69 76 94 Water Surcharge 162 144 182 105 101 88 94 88 87 7s 00 55 Subtotal 29 292 282 267 264 251 259 260 269 2z 289 299 Allocation of Revenues (CFAF mlMlion) Water Sales 21 872 280 08 21 98 21 US 521962 21 494 22 8U 28 587 2C 184 26 874 29 709 so 624 Social Connect. Charges\!15 I8 1 587 1 8S4 0 0 0 0 0 0 0 0 0 Private Abstraction Fe"s 527 $07 840 185 809 004 681 622 516 480 420 877 28 98B 25 751 28 007 21 68 22 771 22 088 28 480 24 109 25 700 27 840 29 185 81 001 SODECI Operating Costs 10 700 11 878 11 061 10 010 11 14C 11 479 12 OM 2 072 18 815 18 988 14 090 15 440 SODECI Investments 0 0 0 2 20 2 897 2 468 2 510 2 879 8 744 5 055 7 481 9 594 SODECI Connection FeeA& 1 584 1 587 1 04 0 0 0 0 0 0 0 0 0 12 844 12 910 18 295 18 078 18 542 18 985 14 5S 15 651 17 059 19 048 22 176 25 084 Water Surcharges Available to Sector Funds 11 089 11 804 10 12 6 010 9 229 9 18 8 88 0 0 641 7 697 959 8 67 \ Social connections charge abolished as of D". 81 1907 d Included In s800Ks compensation. Evolution of Slelk Rt. 1968-1990 (CFAF/40) Block 188 14 1967 1990 Social (los then 81 m'/quarter) 18i s 187 S 159 169 Domestic (81 n8 to 100 MP) 2B1 261 209 209 Normal (101 e to 800as) 800 80 807 807 Industrial (more than 00 ) 22 458 412 850 Administrative 261 21 261 261 \ Including the socal connclon foe abolle in Oec. 197. - 96 - ANNEX S Page 4 of 7 Table 654: Sector Finencial OutlOok Sore R estriActurina (CFAF milloh) -FNAFNH --------- FNE INCOME STATEMENTS 1987 1988 1989 1990 1991 1992 1993 1994 1995 1990 REVENUES Water and S.wrsg Surcharegs 10 612 6 610 9 229 n108 688 3 58 86 41 7 097 6 959 6 987 Interest Earned 483 445 206 106 108 98 se 79 70 268 Sanitation Tax 2994 2 676 2 652 2 64 80 94 8 186 8 441 8 717 4 014 4 885 Other 872 220 2 764 208 195 137 178 170 162 154 Total 14 441 11650 14 861 1188? 12260 12024 12i84 11663 11205 10?19 EXPENDITURES CAA Operating Cost 162 166 170 174 179 168 166 198 19? 202 OWY Cost Sewrge/Dra nag 92 600 183 1 500 1 77 1 T67 1 961 2 022 2 087 2 154 Non Operating Costs 8 76 5 064 5O 60 sO sO SO sO 5O sO Total 458 6050 1858 1 724 2 008 2 108 2 199 2 265 2 884 2 406 NET REVEUES S st 5 800 13 496 9 012 10 274 9 16 10 147 9899 6 30 68 18 Minus: Debt Service 1S 1SS 17 286 12 946 6 871 7 649 7 299 6 50 624 6 105 4 258 .UwS (FM) 6 412 9 549 7 622 4 624 4 272 86 94 8 m 2 567 2 502 2 649 .RWS (FNH) 5 818 0 251 8 940 2 01 2 027 1 729 1 512 18 01 1 088 18B .Senitation (FNA and AEP) 1 427 1486 1 880 1 446 1550 186 1 702 1 71 1 S6 1 223 Increase In Working Capital (7 016) (9 545) 8 686 841 1 086 1 778 2 706 2 796 2 569 2 597 Foreign Exchange Adjust ant (118) 0 0 0 0 0 0 0 0 0 Sub-totl 7 424 7 691 18680 6788 12 4484 0 072 9 212 6 422 7674 06 8S Internal Cash Generation 2 467 (1 991) (8 186) 900 791 848 05 9"7 1 197 1 457 Capital Expenditure .Investment s \! 6 706 2 88 1100 1 100 420 0 0 0 0 0 .Investments Sanitation 801 1 614 O6N 4 544 0 752 6 214 1 117 1 072 1 889 1 448 Sub-total 7 007 4647 175SC 56644 172 6214 1117 1 072 1 89 1 448 Balance to bo Financed 4520 0568 4 98 4 744 6 81 5 871 182 95 192 (14) Loans 8 924 1569 1 01 4 170 6 841 4 189 0 0 0 0 Consolidation of Arrears 0 0 0 0 0 0 0 0 0 0 Grants 1187 746 74 658 582 1 067 07 0 0 0 Sub-total 62 2814 1766 4728 228 5 226 7 0 0 0 Cash Variation U41 (4 224) (8 186) (21) (156) (145) (95) (95) (192) 14 Cash *t end ot year 6964 4 740 1 02 1 664 1 5S0 1861 1 286 1 170 976 m \ Excluding urban water supply investment made by SODECI from 1988 onwards. - 97 - ANNEX 5 Page 5 of 7 Table 6.4: Sector Financial Outiook bfore Restructurln (cont'd) (CFAF aliIIon) -FNA/fNH - ------ - NE-------- WORKING CAPITAL VARIATION 187 1088 1039 1990 1991 1902 1998 1994 1996 1996 Inventorie. 481 0 0 0 0 0 0 0 0 0 Receivable Accounts: .CAA (Public Debt) 478 0 0 0 0 0 0 0 0 0 .SODECI 7 087 7 087 S e24 o 644 8 788 0084 0 704 65 0o *94 0 870 .Trosaury 2 994 0 8 966 4 681 4 780 4 2 4 825 46 4 4 969 5 049 .Other 849 116 0 0 0 0 0 0 0 0 Sub-total 106s 715 958 11325 11474 11 455 11c29 1 460 11 462 11419 Cash 8 964 4 740 1 602 1 664 1 50 18 6 1 26s 1 170 978 m Total 20 268 11 9 11 191 12 989 12 979 12 816 12 795 12 6o5 12 440 12 411 Payable Account.: _CA (Pubilc DCbt) 5 048 6 0 195 1 808 1 217 1 04 987 8"1 710 :Treasury 15 061 19 464 20 914 20 914 19 514 17 814 15 814 12 614 10 114 7 614 .BSIE 2 689 2 68 0 0 0 0 0 0 0 0 Contractors 1 047 28a 283 283 298 288 28s 298 288 288 .SODECI 288 76 5 7 655 7655 7e65 7 f e6 7 655 7 655 76 55 76 55 .Other 17 0 0 0 0 0 0 0 0 0 Sub-total 269e4 o0 1829S2 80 247 29760 26 99 24 8 214490 189s0 16 262 Working Capitol (4 442) (16 211)(17 661)(17 256)(15 782)(14 158)(11 542) (6 880) (6 468) (8 851) variation ( 076) (s 8769) 550 408 1 476 1 2s 2 611 2 08 2 n8 2 012 Working Capital OthMr than Cash (18 406) (22 950)(19 268)(18 922)(17 287) (15 514)(12 607)(10 009) (7 441) (4 848) Variation (7 1e8) (9 646) 8 e6 841 1 685 1 7 2 708 2 796 2 569 2 597 Sources: I987* consolidIated FNA and FNH accounts 1906: fNE Accounts 1969-1996: Bank estimatee - 98 - ANNEX S Page 6 of 7 Tebl- 6.51 Soatgr Fnlangll Oudlook Afttr Restructuring (CFIF atIliIn) -FM/Mt- FNE ------------------------------- INCOME STATEMENTS 1687 1638 1698 1990 1991 1992 1998 1994 1996 1996 REVEiJES Water and SeJrag Surch. 10612 9610 9 229 31 066 05 5 C8 3 41 7697 8 959 5 c7 Interest Earned 46S 446 200 145 199 222 287 254 26 263 Sanitation Tax 2 964 2 6 26 5 OS2 2 *04 3094 8 186 a 441 8 717 4 014 4 36 0ther an 220 2 764 208 195 187 170 170 16? 164 Total 14 441 1180 14 8651 1t875 12 a76 12i12 t2 49 1166 118 10 719 EXPENDIURES CMA Operating Costs 162 166 170 174 176 168 183 198 197 202 o06 Cont S.wesra/Draing 6on s0c 1 1t8 I 5O0 1 m77 1 675 1 961 2 022 2 087 2 154 Non Operating CoSt " 676 6084 50 60 60 60 5o 60 50 s0 Total 4 680 050 I 86 1 724 2 000 2 108 2 199 2 265 2 84 2 406 NET REVENUES 9 911 56 00 19 496 9 61 10, 70 10 044 10 209 9 578 9 063 0 318 Mlnus: Debt Service 15 15 17 28 12 948 3 371 68640 3799 9 000 8 124 7605 6 756 .FMA/FNH Det 15155 176 US 12 94 201 75 t80 6650 5 977 4 975 4 U1 8 48 AEP Project 0 0 0 110 269 440 29 649 774 n78 .Consolidation 0 0 0 60 1 000 15 00 2 50 2 50O 2 so0 2 50 Incr. In Worknlg Capital (7 SI" (9 545) 668 19 621 152 (10) 40 98 69 97 Foreign Exch. Adjust. (118) 0 0 0 0 0 0 0 0 0 Sub-total 7 428 761 1 66 26 892 9 001 89769 9 046 6222 76 74 6 a6s Internel Cash G˘nration 2 4S7 (I 691) (8 18)(18 741) 1 870 1 255 1 258 1 851 1 390 1 457 Capital Expni tprs .Inv.otment. aS Z 6 706s 2 88 1 1oo 1 100 420 0 0 0 0 0 .invontmsnta S;nntation go0 1 914 S6 4 644 672 6 214 1 117 1 072 1 69 1 448 Sub-total 700? 447 1 7565 644 71 2 6214 1 117 1 07 1 89 1 448 Selenc to be Flnanced 4 520 65S6 4 8s 248 65 56 2 4 969 (186) (279) (1) (14) Loans 8984 1 56 1 81 4 170 641 4 189 0 0 0 0 Consolidation of Arrars 0 0 0 20 914 0 0 0 0 0 0 Grant. 11 i 745 74 65 s52 1 087 37 0 0 0 Sub-total 606 2a814 1755 25 6228 5226 37 0 0 0 Cash Variation $42 (4 224) (8 188) 1 252 421 267 228 279 1 14 Cash t ond ofytr 3 #4 4 740 1 o2 2 654 8 274 541 8 76 4 044 4 045 4 059 - Esms -WS - = M= mt \~Excluding urban water spply inwestsnfte mad. by 600MC frme 1933 onwards. - 99 - 'Pa 7 of 7 Toble .s Sfctor FPinamial Outlook Afte, RestrolUrInA (.o*td) (CA ml I Iion) -FNA4W- e-- W(XINO CAPITAL viAnaT 1 1989 16" lUG 1091 1992 196 1994 1996 199 ~~~~~~~~~~~~~~~~~~- - --* --------- Inventorl 431 0 0 0 0 0 0 0 0 0 Receivablo Accounts: .CAA (Publioce b) 476 0 0 0 0 0 0 0 0 0 .SGDECI 7 087 7 037 6 24 1 020 1 111 1 070 1 0@0 962 8?0 746 .tr.asury 2 994 0 8 n 716 774 70? 9e 9O9 1 004 1 064 .Other 349 lie 0 0 0 0 0 0 0 0 Sub-total 10656 7 15 0860 176 16 16 1040 1 O 01 178 1 6 Cash 69984 4 740 16 0 2 664 8 274 8541 87 65 4 044 4 045 4 059 Total 202a 11 n8 11191 4 590 5150 5406 8 7 0 ON 6 50s 1 889 Payablo Accounts: .CAA (Publie Xbt) 5 048 6 0 1 479 1 475 1 46? 1 601 1 664 1 266 21 26 .Treasury 1566 10 464 20 914 0 0 0 0 0 0 0 .3SIE 26 80 26e8 0 0 0 0 0 0 0 0 .Contractors 1 047 26a 28 0 0 0 0 0 .SOECI 2g8 7 6 5 7 n 0 0 0 0 0 0 0 .Other 17 0 0 0 0 0 0 0 0 0 Sub-total 24 64 8010620652 1470 149 7 1467 151 184 1268 1126 U*NM UUMMS __~ _ Mw Soom s$ a _ Working Capital (4442) (18 211)(176 1) S 112 8 64 8 941 4 204 4 52 4 61 4 7 Variation ( 076) (18 760) NO 20 m 572 267 6" 77 6 112 Working Capital Other than Cash (18 406) (22 OEM)1(S 28) 266 410 400 439 57 6o0 703 Variation (7 610) (90 5) 8 6 19 621 152 (10) 40 96 60 97 Soureo: 17:conso idatd FIA and FlN aceeunts 1088: FNE Accournt 189-1996: Bank estimates - 100 - ANNEX 6 Page 1 of 3 REPUBLIC OF COTE D'IVOIRE WATER SUPPLY AND SANITATION SECTOR ADJUSTMENT LOAN Impac:t of Policy Reforms on Public Secto' Revenues 1. The proceeds of water bills have been divided, since 1974, between the private company SODECI and the two national funds FNH and FNA, which belong to the public sector. The reforms pursued under the WASAL reduce the share of the public sector and thus its revenues by: (a) decreasing water rites; and (b) allocating a greater portion of the tariffs to SODECI for financing all new investments in the urban water supply subsector. 2. A first reduction of water tariffs took place in October 1987, and a further reduction of industrial water rates should occur in July 1990. They will bring the average water rate to a level 20 percent lower, in real terms, than the one achieved in 1986. In addition SODECI has retained, from 1988 onwards, a portion of the water tariff for financing the investment program prepared by the private company. Urban water supply investments of about CFAF 2.5 billion per year will cover: (a) expenditures for the renewal of txisting assets (CFAF 0.9 billion); (b) the costs of a social connections program that will provide about 10,000 free service connections to low-income households (CFPA 0.6 billion); and (c) the costs of expanding distribution networks as needed to maximize the use of existing water systems (CFAF 1.0 billion). 3. Estimates of the water surcharges transferred to the sector funds for servicing the sectoral debt have been carried out under two scenarios. In a first scenario, it is assumed that, in the absence of sectoral reforms of tariff and investment policies, the amount of the water surcharge would have been maximized by maintaining the water tariff at the level reached in 1986 (in real terms) and that no additional investment will take place. The second scenario gives the actual amount of the water surcharges under the pricing framework resulting from the reforms. 4. The allocation of water tariffs between SODECI and the sector funds under the two scenarios is given in the following tables - 101 - ANNEX 6 Page 2 of 3 Tebie 6.1: Allocation of Water Tarifft (CFAF/68) 1080 67 1986 S8 1889 1890 Scenario 1 (without sectoral 1. SODECI Compensation .Operation and maintenonc 148 150 184 184 184 .Investente 0 0 0 0 0 Subtotal 148 160 184 184 184 2. water surcharge (FNH/FA 144 145 185 180 190 Total Water Rate 2 25 299 814 824 Scenario 2 (with seoWral 1. SODECI Compensation .Op.ratlon and mlaitenance 148 160 1IL 184 184 .!nvestmento 0 0 28 29 29 Subtotal 148 150 162 168 168 2. Wstor surcharge (FNH/FNA) 144 182 106 101 95 \I Total Water Rate 292 282 287 264 268 I Industrial tariff dcrese scheoled In July 1990. 5. The analynis of past water sales showed that the price elasticity of water consumption and. particularly industrial water consumption is significantly different from zero. Therefore, water consumption under the first scenario that assumes kI7gher tariff levels should have been lower than the actual consumption observed in 1987-1989. Regressions over the period 1974-1988 have provided the following estimates of the price elasticity of water consumption: Industrial consumetion (IC): Los ICt ° 0.2 + 0.71 Lao t - 0.47 Log PIt R2 . 0.969 (0.027) (0.22) (0.05) Standard Error Where: CDP a Gross Domestic Product (constant pries); PI a Industrial block rate (deflated) Total consumption (C)t Lao TCt u 0.468 + 0.86 Log OPt, * 0.45 Log CONt - 0.21 Lg Pt, 2 a 0.992 (0.024) (0.07) (0.08) (0.08) Standard Error Where: CDP a Cro Domestic Product (constnt prices); COMN a Average numbr of connections; P a Average tariff (deflated) 6. Estimates of vater ansumption over the period 1987-1990 under the first scenario (without reforms) have been computed by reference to the above price elasticity of - 0.2 for total consumption. They also took into account a reduced growth in the number of service connections (4,000 connections per year). 102 - ANNEX 6 Page 3 of 3 7. The financial Impact of the sectoral refonms on the revenues of the public sector La suuuariued In the following table. Over the period going from October 1987, date of the Initiation of the refotms, to the end of 1990, the accumulated losses In water surchargee are estimated to ClAF 17.4 billion (US$61 million). Table 6.2: FIeaaetl lsc1 .1 Setor Reform (CFAF blI IIon) Le 1667 LaEf ,1f9 3190 Wator sold (ml IIton as) .Scenrle 1 70.6 . 77. .2 77.4 77.4 .Sconarlo 2 70.6 77.8 0.? 68.2 86.2 Wer surharge r s .Scsaarlo 1 11.0 11.8 12.0 18.9 14.7 .Sconarlo 2 11.0 10.2 8.5 0.4 8.1 Difft rec 0.0 1.1 4.8 5.6 6.6 Accumultion .M 14 ,; .3 - 4 - 103 _ ANNEX 7 Page 1 of 2 REPUBLIC OF COTE D'IVOIRE WATER SUPPLY AND SANITATION SECTOR ADJUSTMENT LOAN SUPPLEMENTARY LOAN DATA Section Is Timetable of Key Events (a) Project Identification March 1984 (b) Preparation Responsibility Governmentliank (c) Bank Appraisal Mission May 1985 (d) Post Appraisal Mission I November 1985 (e) Post Appraisal Mission II July 1987 (f) Post Appraisal Mission III July 1988 (g) Negotiations July 1989 (h) Board Presentation June 1990 (i) Planned Date of Effectiveness July 1990 Section II: Special Imolementation Actions Working with Supervisory Board appointed by Government to monitor progress in the Implementation of the adjustment program. Section IlIs Special Conditions (a) Conditions of Board Presentation None (b) Conditions of Effectiveness and First Tranche Release (US$50 million) None except standard conditions. tc) Conditions of Second Tranche Release (US$30 million) (i) Satisfactory Execution of the Concession Contract Provisions regarding Tariff Revisions, Investment Program and Assets Registers; (ii) Transfer of at least 2,500 Working Water Points to Villagers; Wii) Preparation of Investment Program for Rural Water Supply; - 104 - ANNEX 7 Page 2 of 2 (Uv) Initiation of a study on the prospective of water supply systems for rural communities; (v) Reduction of the Indu3trial Block Rate to CFAF 350/nP and parallel reduction of the groundwater extraction fee; (vi) Issue of the decree on groundwater extraction, including a system of drilling notification and the preparation of the inventory of private wells; (vii) Completion or the first phase of the financial restructuring of the sector. - 105 - A.INEX 8 Page 1 of 2 REPUBLIC OF COTE DIVOIRE WATER SUPPLY AND SANITATION SECTOR ADJUSTMENT LOAN DOCUMENTS AND DATA AVAILABLE IN THE PROJECT FILE Document Title AISC Reference A. Reports by SAFEGE ttude institutionnelle des secteurs de l'eau et de l'assainissement: -- Analyse de la situation actuelle (September 1984) D 29 483 -- Analyse prospective et propositions D 29 484 organisationnelles (May 1985) -- Analyse des variantes (November 1985) D 29 485 -- Rapport general de synthase (November 1985) D 29 486 B. Reports by DCGTx: PrOt d'ajustement du secteur de l'eau et de l'assainissement: -- Secteur de l'eau: mise A jour de la situation D 29 487 financi&re (June 1986) -- Observations sur les contrats actuels de concession et D 29 488 d'affermage (December 1986) -- Restructuration de la dette du FNH (January 1987) D 29 489 -- Hydraulique villageoise (May 1987) D 29 490 -- Situation et consolidation financiares (January 1988) D 29 491 -- Resultats de l'enquete hydraulique villageoise D 29 492 (March 1988) -- Restructuration hydraulique villageoise - Methodologie D 29 493 et objectifs (March 1988) C. Selected Documents on Rural Water Supply: -- ttude de l'entretien des points d'eau villageois D 29 494 by Geomines (January 1983) -- Operation Eau Toujourst Mode operatoire D 29 495 by Rasel Tecbnoservices (December 1984) -- Politique d'entretien des points d'eau villageois D 29 496 by Direction de l'Eau (February 1985) - 106 - ANNEX1 8 Page 2 of 2 Document Title AISC Reference Rapport d'etude sur l'hydraulique villageoise en D 29 497 d'Ivoire (pompes, sensibilisation organisation) by Rasel Technoservices (February 1985) tvaluation de la deuxzime phase du prograxze D 29 498 d'hydraulique villageoise du Conseil de l'Bntente by BRGHIIURGEAPICINAM (April 1986) Post *valuation des interventions du service national D 29 499 d'education sanitaire en hydraulique villageoise by BURGEAP (April 1986) Rapport d'actions pilotes sur la rentabilisation du D 29 500 point d'eau by Rasel Technoservices - (October 1986) 'hydraulique villageoise en COt2 d'lvoire by SODECI D 29 501 (February 1987) D. SODECI Contractual Documents: Convention de concession des services de distribution 221.138 (A) to (N) d'eau et d'assainissement d'Abidjan - Original Contract and 13 amendments - (1959-1982) Alimentation en eau potable urbaine et villageoise 221.137 (A) to (E) dans lee centres de l'linterieur - Convention et cahier des charges d'affermage - Original Contract and Amendments - (1974-1984) Concession du service de distribution publique urbaine D 29 502 d'eau potable en CMte d'Ivoire (October 1987) Contrat d'esploitation et d'entretien du r6seau D 29 948 d'assainissement d'Abidjan (April 1988) - > r 4 6 I ~~~~~~~BU RK I NA F AS O 146,,~t. f_ ,6- ; E s /;--tswe_O:\s 44 108 F t \t GUIE ut I 44 o >i- 60 i-92 9 - 3702 ~~~~~~~~3 462 --'--e-'n\ .S, ~~~~~~~~~~~~~~~713 3 __S.~~_#__J _ 73 _