World Bank Documentdocuments.worldbank.org/curated/en/608891468779948149/pdf/mul… · I meter (m) 3.2808 feet (ft) I kilometer (km) 0.6214 miles (mi) GLOSSARY OF ACRONYMS ARA Sul

Document of

The World Bank

Report No. 17274 -MOZ

PROJECT APPRAISAL DOCUMENT

ON A PROPOSED CREDIT

IN THE AMOUNT OF SDR 26.2 MILLION

TO

THE REPUBLIC OF MOZAMBIQUE

FOR A

NATIONAL WATER DEVELOPMENT I PROJECT

January 20, 1998

Water & Urban 1Africa Region

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CURRENCY EQUIVALENT(as of December 31, 1997)

Currency Unit Mozambican MeticaisUS$1.00 Mt 11,604

FISCAL YEAR

Government & Public Enterprises = January I to December 31

WEIGHTS AND MEASURESI meter (m) 3.2808 feet (ft)

I kilometer (km) 0.6214 miles (mi)

GLOSSARY OF ACRONYMS

ARA Sul = Administra,cao Regional de Aguas do Sul(Southern Regional Water Administration)

CIDA = Canadian International Development AgencyCOGEA = Commissao de Gestao de Empresas de Agua

(Commission for the Management of Water Services)GOM = Government of MozambiqueDNA = Direc,cao Nacional de Aguas (National Directorate of Water)GRI = Gabinete dos Rios Intemacionais (Office of International Rivers)HRD = Human Resources DevelopmentMOPH = Ministerio das Obras P6blicas e Habita,ao (Ministry of Public

Works and Housing)ND National Director of WaterNDF = Nordic Development FundNWD I = National Water Development INWD II = National Water Development IINWP = National Water PolicyPL = Project LeaderPRONAR = Programa Nacional de Agua Rural

(National Rural Water Program)PSM = Private Sector ManagementRWSS = Rural Water Supply and SanitationSDC = Swiss Development CooperationSIDA = Swedish International Development AuthoritySPS = Small Piped SystemsWRM = Water Resources Management

Vice President: Callisto MadavoCountry Director: Phyllis PomerantzSector Manager: Jeffrey RackiTask Leader: John Shepherd

Republic of MozambiqueNational Water Development I Project

Project Appraisal Document

Table of Contents

Project Financing Data I

Block 1: Project Description I1. Project development objectives 12. Project components 23. Benefits and target population 34. Institutional and implementation arrangements 3

Block 2: Project Rationale 45. CAS objectives supported by the project 46. Main sector issues and Government strategy 47. Sector issues to be addressed by the project and strategic choices 58. Project alternatives considered and reasons for rejection 79. Major related projects financed by the Bank and/or other

development agencies 710. Lessons learned and reflected in project design 811. Indications of borrower commitment and ownership 812. Value added of Bank support 9

Block 3: Summary Project Assessments 913. Economic assessment 914. Financial assessment 915. Technical assessment 1016. Institutional assessment 1017. Social assessment I 118. Environmental assessment 1119. Participatory approach 1120. Sustainability 1121. Critical risks 1222. Possible controversial aspects 13

Block 4: Main Loan Conditions 1423. Effectiveness and Disbursement Conditions 1424. Assurances 14

Block 5: Compliance with Bank Policies 15

List of AnnexesAnnex 1: Project Design SummaryAnnex 2: Detailed Project DescriptionAnnex 3: Estimated Project CostsAnnex 4: Economic AnalysisAnnex 5: Procurement and Disbursement ArrangementsAnnex 6: Project Processing Budget and ScheduleAnnex 7: Documents in the Project FileAnnex 8: Status of Bank Group Operations in MozambiqueAnnex 9: Country at a Glance

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENTINTERNATIONAL DEVELOPMENT ASSOCIATION

Africa Regional OfficeCountry Departnent 2

Project Appraisal Document

Mozambique

National Water Development I

Date: December 12, 1997 [] Draft [x] FinalTask Manager: K. John Shepherd Country Manager: Phyllis R. PomerantzProject ID: MZ-PE-39015 Sector: Water Supply & SanitationLending Instrument: Sector Investment Credit PTI: [] Yes [X] No

Project Financing Data [ Loan [X] Credit [ Guarantee [I Other [Specifyl

For Loans/Credits/Others:Amount (USSm/SDRm): US$36.0 million/SDR 26.2 million

................................................................................................................. .......... ........................................................................................................................ .............................................................

Proposed Terns: [X1 Multicurrency [1 Single currencyGrace period (years): 10 years [] Standard Variable [] Fixed [] LIBOR-based

Years to maturity: 40 yearsCommitment fee: not exceeding 1/2 of 1%

Service charge: 0.75%

.... i~........................ ........................................... .....", ............ ..................... ....... ................................ ...............Financing plan (US$m):Source Local Foreign TotalGovernment 2.5 0.0 2.5Cofinanciers 4.6 13.8 18.4IDA 10.0 26.0 36.0Total 17.1 39.8 56.9Borrower: Government of MozambiqueGuarantor: Government of MozambiqueResponsible agency: National Directorate of Water (Direc9ao Nacional de Aguas, DNA) of the Ministry of Public Worksand Housing (Ministerio das Obras Puiblicas e Habitacao, MOPH).Estimated disbursements (Bank FY/US$m): 1998 1999 2000 2001 2002 2003 2004

Annual 1.1 4.0 7.0 8.0 8.5 5.5 1.9Cumulative 1.1 5.1 12.1 20.1 28.6 34.1 36.0

Expected effectiveness date: May 15, 1998 Closing date: Oct. 31,2003

Block 1: Project Description1. Project development objectives (see Annex I for key performance indicators):

............ ........................................................................................................ .........................................................................................

The project will reorient the institutions of the sector in line with the strategic vision set out in the National Water Policy(NWP), increase their capacities, prepare for the private sector management of the urban water supply systems of thecities Maputo, Beira, Quelimane, Nampula and Pemba ("the five cities"), and reorient and reform the management andimplementation of rural water supply and sanitation, so that sector organizations can provide sustainable water supplyand sanitation services to an increasing proportion of the community, and can manage Mozambique's water resources.The project will have an initiating and integrating role within the Government's National Water Development Program,which will consist of a set of sector reforms, studies and investments implementing the NWP and will be supported by theGovernment and several donors. As the first IDA water project to be undertaken in Mozambique, it would implementkey preparatory steps for the proposed second such project, National Water Development II (NWD-II), FY99. NWD-II

Project Appraisal Document Page 2Country: Mozambique Project Title: National Water Development - Sector Support

would improve water supply coverage and service to communities of the five cities through private sector management ofthe city water supply systems, and investments in the water supply infrastructure. The proposed Urban EnvironmentProject, FY01, would implement the plans for sanitation infrastructure prepared under this project, NWD-I....................................................................................................................................................................................................

2. Project components (see Annex 2 for a detailed description and Annex 3 for a detailed cost breakdown):

Component Category Costs % of Bank % ofUS$m Total financ'g Bank

US$m financ'gA. Institution Building and Policy Development Institution 6.2 11 5.1 14* build capacity in planning and management, particularly in building/

finance; policy/* develop a regulatory and monitoring framework and capacity; physical* undertake studies for development of water sector policy.B. Preparation for Private Sector Management of Urban Institution 8.5 15 8.1 23Water Supply building/* support the bidding process for the private sector management studies/

of the water supply systems of the five cities; physical* design and construct emergency works to ensure more secure

operation of the headworks systems of city water suppliesincluding Beira and Pemba;

* prepare a strategy and plans for the provision of sanitationservices in the five cities, required because of increasingwastewater generation, and to improve public health.

C. Rural Water Supply and Sanitation (RWSS) Institution 18.2 32 10.3 29* reorient and reform the management and implementation of building/

RWSS and build capacities at central and provincial levels; studies/* in Inhambane Province, mobilize stakeholders, rehabilitate pilot social

works for small piped systems and prepare for investment in devel./point source water supplies and sanitation. physical

D. Water Resources Management (WRM) Institution 14.6 26 6.6 18* strengthen ARA-Sul (Administra,ao Regional de Aguas do Sul, building/

Southern Water Resources Administration) to provide self studies/supporting bulk water supply service, and GRI (Gabinete dos physicalRios Internacionais, Office of International Rivers) to undertakeinternational joint studies and negotiations.

* develop a national water resources management strategy;* undertake studies of options for development and management

of key international rivers, in line with the priorities of thenational water resources strategy and including the Incomatiand Pungue Rivers, and carried out jointly with upstreamriparian states;

* safety-related rehabilitation works at Corumana Dam andfeasibility and design studies for a future increase in capacity.

E. Human Resources Development Capacity 5.2 9 1.8 5Training and human resources development with initial emphasis buildingon HRD planning and on management training and development.F. Project Management Proj. mgt. 2.2 4 2.1 6G. PPF Refinancing PPF 2.0 4 2.0 5

Total 56.9 100 36.0 100


3. Benefits and target population:

The main benefit of the project will be provision of a sound foundation for GOM to proceed with its planned program ofreformed management of, and investment in, the water sector, such that all management reforms and investments canresult in sustained benefits to the people of Mozambique. The project's institution building, policy and human resourcesdevelopment components would enable the National Directorate of Water (Direccao Nacional de Aguas, DNA) toprovide strong strategic leadership to the sector, and would enable other organizations of the sector to manage efficientlyand sustainably their physical assets and other resources entrusted to them, and to provide improved and more sustainableservices throughout the country. The project's support of the bidding process for engaging private sector operators forthe five city water supply systems, and the associated investments in water supply infrastructure, would constitute theprimary preparatory steps for the proposed NWD-II project. Similarly, its sanitation planning component would preparefor the Urban Environment Project. While some benefits, including greater supply reliability, would accrue immediatelyto an estimated 750,000 people as a result of the emergency works, most of the potential benefits would result from anddepend upon the success of the two subsequent projects. The RWSS component would help ensure the widespreadadoption of principles and practices based on decentralization and community demand. This should result in futureRWSS investments providing rural water services that are more reliable and better matched to community needs. Thewater resources management component would help GOM to secure equitable allocations of water on the internationalrivers, ensure more efficient and sustainable management of intemally available water resources, and rehabilitateCorumana Dam to eliminate safety risks. These measures are aimed at ensuring that future national development will notbe unduly constrained by the cost or availability of water.

........................... .......................................................................................................................................................................................................................4. Institutional and implementation arrangements:

Implementation period: Five years.Executing agency: DNA, MOPH.Project coordination: The project will be implemented under the direction of the National Director of Water Affairs

(ND). The ND will be supported by a Project Leader (PL) who will be responsible for planning and coordinating projectactivities, and who will be assisted by a team of administrative staff including an accountant, an engineer and, for the firsttwo years, a procurement specialist. A financial management specialist will be appointed with responsibility for theestablishment and development of financial management functions. In addition, a manager of human resources will beappointed to plan and manage the human resource development component. The Minister of MOPH will chair a ProjectSteering Committee consisting of scnior representatives of the ministries of Finance, Foreign Affairs, Health, Agriculture,Local Administration and Environment, and the Bank of Mozambique. Task Forces chaired by the ND will beestablished to supervise the implementation of the Transition Plan for rural water supply, and the reform of other units ofDNA. A small implementation unit will be established in Inhambane Province to manage implementation locally, andthis will hand over progressively to the permanent team as it is recruited and trained.

Project oversight and policy guidance will be provided by the Minister and the ND. The Government has establishedan interministerial Commission, COGEA (Commission for the Management of Water Services), chaired by the ND, todirect the reform of the urban water companies, and this body will give policy guidance in regard to the bidding,evaluation and award of contracts for private sector management of urban water supplies, and associated studies.

Accounting, financial reporting and auditing arrangements: DNA, through its project unit, will be responsible forproject financial management, reporting and auditing, following systems and procedures acceptable to IDA. An auditoracceptable to IDA will be appointed. Each implementing agency will submit quarterly progress reports, with copiesgoing to the PL, who will immediately provide copies to IDA and to the other co-financiers. The format of theseprogress reports was agreed at negotiations, and will be included in the Project Implementation Manual. For the purposesof project supervision, a "Project Supervision Team" will be assembled with representatives from the Bank, NDF, CIDA,SDC and GOM, and this team will participate in the annual reviews of the project. The team will also include consultantscontracted to assist in the implementation of the RWSS and WRM components. A mid-term review will be conducted bythe project supervision team. Project accounts will be externally audited yearly. Yearly audits will be conducted for allcomponents. These audits will feed into the audit of the project accounts. For ARA-Sul, audits will include in addition tothe financial audit, a technical audit.

Project Appraisal Document Page 4Country: Mozambique Project Tite: National Water Development - Sector Support

Monitoring and evaluation (MIE) arrangements: Under the direction of the ND, and coordinated by the PL, projectMIE will be the shared responsibility of the implementing units within the Ministry of Public Works and Housing(MOPH): DNA, (including PRONAR), ARA-Sul, Office of International Rivers (Gabinete dos Rios Internacionais, GRI),and the Provincial Directorate of Public Works and Housing, Inhambane Province. M/E will be guided by the ProjectDesign Summary (see Annex 1), and the Implementation Plan, a draft of which has been provided by GOM to IDA, andwhich will be included in the Project Implementation Manual. M/E will be conducted through (1) regular meetings of theProject Steering Committee, chaired by the National Director, which will be open to IDA and other participating donors;(2) IDA supervision missions; (3) annual progress review during IDA missions before the end of the first quarter of eachfiscal year and the annual audit report within six months of the end of the fiscal year; (4) midterm review (MTR) ofproject implementation jointly with IDA and other donors no later than 30 months after effectiveness; and (5) beneficiaryassessments at implementation milestones as provided in the implementation plan. By July 31 and January 31 each year,the PL will provide IDA with progress reports on project implementation and outcomes, using the format agreed atnegotiations. An Implementation Completion Report will be prepared within six months after credit closing. GOM willcontribute to the ICR its own evaluation of the project and an operational plan.

Block 2: Project Rationale

5. CAS objective(s) supported by the project Document number and date of latest CAS discussion:Report No. 171 80-MOZ dated November 21, 1997, discussed by theExecutive Directors on December 18, 1997.

The overarching CAS objective is to support GOM's program for poverty reduction through sustainable economicgrowth. In support of this, there are three strategic priorities:* promoting rapid, broad-based private sector-led growth,. capacity building and development of human resources, and. strengthening development partnerships.The project is consistent with the Country Assistance Strategy, and contains actions that support each of the abovestrategic priorities. In regard to the first priority, the objective of the project is to address one of the major constraints togrowth, access to safe water. To do so, the project is supporting the introduction of private sector management to theurban subsector, and reform of the provision of rural water supply. New and improved infrastructure and services, inboth urban and rural settings, would be supported both directly as part of the project, and through preparations leading toprovision of sustainable water and sanitation infrastructure on a larger scale in subsequent projects. Under the secondpriority, the project contains substantial efforts in capacity building and human resources development, covering thesector comprehensively, and especially in DNA. Concerning the third priority, development partnerships, the project,together with GOM's larger National Water Development Program of which it is a part, is providing a framework withinwhich donors are for the first time working closely together and in a coordinated manner to support GOM in its efforts toplan and implement a program of development for the sector. The project also supports action by Mozambique andneighboring riparian countries working together to evolve partnerships for the joint development and management oftransboundary rivers............................................................................................................................... I. ............................................................................................................................

6. Main sector issues and Government strategy:

Sector Issues:

Water supply and sanitation services in Mozambique are characterized by extremely low coverage, poor service qualityand weak sustainability. Only some 30% of the population has convenient access to safe water, a significant cause ofMozambique's health statistics being amongst the worst in the world. The sector's poor performance is due to (1) nearly20 years of war, which resulted in the neglect or damage and destruction of most of the country's infrastructure; (2) until1995, poor policies, such as extremely low tariffs, inadequate financial and human resources management and excessivecentralization, which made it impossible for the Government-owned urban water companies and the provincial anddistrict administrations to operate and maintain facilities effectively and sustainably; and (3) the influx of several hundred

Project Appraisal Document Page 5Country: Mozambique Project Tdte: Natonal Water Development - Sector Support

thousand refugees.

Much of the water resources on which Mozamnbique must rely are those of its major rivers, almost all of which arise inother countries. Over the last three decades, upstream riparians have diverted much of the yield of several of these riversfor irrigation and other consumptive uses. From 1991 to 1996, Mozambique faced severe water shortages, withinsufficient water for irrigation requirements, saline water intrusion into estuaries, and water supply interruptions indifferent parts of the country. Unless satisfactory arrangements can be made for the more equitable sharing of waterbetween the riparian countries, Mozambique will face increasing economic constraints on development, and recurringcrises due to water shortages. Mozambique has little capacity to support the technically challenging negotiations that willbe required to reach such agreements, and its water resources management capacities are at this stage rudimentary, andnon-existent in much of the country.

Policy: In August 1995, the GOM adopted a National Water Policy (NWP). The policies to which GOM committed itselfinclude: increased beneficiary participation, recognition of water as an economic as well as a social good; decentralizedautonomous and financially self sustaining provision of water supply and sanitation services; a direction setting role forGovernment, which will withdraw from direct service provision; integrated water resources management takingenvironmental impacts into account; multi-objective investment planning, greater focus on capacity building; and anincreased role for the private sector.

Strategy: With support from the Bank, GOM has decided to: (a) reorient central management arrangements for the sector,away from direct service delivery, and towards strategic sector direction-setting, regulation and financial planning andmanagement, and continue the evolution of national water policy by further developing subsector policies and strategies;(b) reform the management of the water companies of the cities of Maputo, Beira, Quelimane, Nampula, and Pemba byarranging for them to be placed under private sector management; (c) reform tariffs, aiming at full cost recovery - theaverage tariffs for Maputo and the other four cities have already been increased from about 7 US c per cubic meter to 30and 20 US c per cubic meter respectively; (d) embark on a program of investment to bring water services in the five citiesto an acceptable level of service and coverage; (e) reform the provision of rural water supply services with the objectiveof implementing a demand oriented approach; (f) develop a strategy for water resources management and themanagement of bulk water for irrigation and other purposes; and (g) develop human resource capacities - with theassistance of SDC, the Dutch Government and the Bank, GOM has completed a human resources development strategystudy.

Program/project strategy: GOM has prepared and approved a proposed National Water Development Program, underwhich it will implement all of (a) to (g), its highest priorities for the sector, at an estimated cost of US$155 million overthe next five years. The first component of the Program to proceed is proposed to be this project. A subsequentcomponent of the Program, a proposed IDA-supported Project NWD-II, (MZ-PE-52240, FY99), is proposed to supportthe urban water supply components (b) to (d) above of the strategy. This project is under preparation. Bids will shortly becalled for proposals from private sector organizations and consortia to operate these companies. The remainder of theProgram, most of it investment associated with urban water supply, will be supported by other donors. The proposedIDA-supported Urban Environment Project will be external to the National Water Development Program. It is, however,consistent both with the CAS and the GOM's strategy for the development of urban infrastructure, including sanitation,and upgrading the capacity of local government.

7. Sector issues to be addressed by the project and strategic choices:

Consistent with its concept as a project supporting sector integration and preparations for subsequent projects, this projectwill support each of the elements of GOM's strategy outlined above. Its support of investments in urban water supplywould be limited to small scale emergency works sufficient to provide security of supply to cities where present supplyarrangements are subject to high failure risks, and, in addition, planning and design studies of sanitation and drainageinfrastructure to deal with the increasing volumes of wastewater in urban areas that will be generated by the plannedinvestments in urban water supplies.


(a) Institution building and policy, and preparationfor privatization of Urban Water Supply: Without policy andmanagement reform and a program of investment, the overall level and quality of urban water supply services wouldcontinue to deteriorate. GOM, having decided to take action, was faced with some important strategic choices concerningthe form of management of the urban water supply systems, the cities to be targeted, the investment priorities, and the roleof central sector management. (1) Form of management. To achieve improvement of the performance of the watersupply companies, the possible options ranged from technical assistance, through commercialization, with or withouttwinning, to the various forms of private sector management (PSM). The PSM options included management contractswith or without performance incentives, affermage/lease options, and full concessions. Evaluations of the relativeeffectiveness of this range of options, in Africa and worldwide, suggested that the options involving technical assistanceand commercialization only are unlikely to result in rapid performance improvement, especially for water utilities whoseperformance indicators are relatively unsatisfactory. It was therefore agreed that PSM provided the best prospect forMozambique. The PSM options to be used would be decided upon city by city, having regard to the scale and conditionof the systems, and of the scale and financial viability of the businesses that would result. (2) Cities to be targeted. Thesecond strategic choice was how many and which cities should be included in the ambit of privatization of management.Options ranged from Maputo only, through to Maputo plus all 12 provincial cities. At one extreme, Maputo, with thecountry's largest urban water supply system, appeared to offer an attractive opportunity for private sector managementand associated investment to benefit a large number of people. However, investing in this water supply system alonewould leave the water supplies of several other important cities continuing to degrade, cities whose improved viability isimportant to the growth and development of much of the rest of the country. At the other extreme, an attempt could bemade to place all 13 city water systems at once under private sector management. This would result in high risks ofproject failure, due to difficulties of communication, coordination, regulation, and the limited capacities available tomanage a project of such scale and complexity. It would be preferable to choose cities in which work was under way orplanned on the strengthening of local government, the upgrading of other municipal services, and the development ofstructure plans. It was therefore agreed that the cities to be included in the PSM initiative would be Maputo, Beira,Quelimane, Nampula and Pemba, the same cities whose planning and development is supported by the Local GovernmentReform and Engineering Project (PROL, Cr. 2530). (3) Investment priorities. This set of decisions also led to the choicesof investments in urban water supply systems to be included in this project. While all five of the water supply systemswill require continuing investment over many years, especially in rehabilitation of existing networks and construction ofextensions into new service areas, most of this investment should be undertaken within an environment of policies andmanagement that will assure sustainability, and should thus only be commenced when this environment is fully in place asthe proposed NWD-II project commences. However, some facilities in the headworks of some of the city water supplysystems are in poor condition, with significant risks of failure. It was agreed that NWD-I should include such works forBeira, Nampula and Pemba as are necessary to secure reliable supplies into the cities, and the planning and design of thelarger scale works that are likely to be required for Quelimane. This should reduce the risks faced by bidders for the PSMcontracts and reduce the costs of those contracts. (4) Central management. These decisions and those in relation toRWSS and WRM indicated below, enabled the role, scale of work and organization of DNA to be clarified, transitioning,in line with the NWP, towards a direction-setting, supervisory and regulating role, and moving out of direct serviceprovision.

(b) RWSS: In the past, GOM, donors and NGOs have in a number of cases undertaken physical replacement of failedrural water supply facilities, in a supply-driven manner, without use of a demand or community-driven approach. Thisapproach was generally, and understandably, used because of war emergency conditions. The result often was that therehabilitated/replaced system failed within a short time, resulting in hardship to the community served, particularly towomen, on whom usually falls the burden of collecting water and performing water-using chores. These experiences, andlessons learned in other countries indicate that significant sustainable progress in RWSS coverage would be betterattained through the demand-driven approach, supported by decentralized institutional arrangements. It was agreed thatthis methodology would be adopted for this component. The choices faced in seeking to implement a program in linewith these principles, are concerned with (1) choice of the province or provinces in which the RWSS component wouldbe operated (a single province, Inhambane, to focus effort and control costs), and (2) community eligibility criteria toensure community "ownership" of the system to be installed or upgraded, and ongoing financial viability (principles


adopted as part of GOM's Rural Water Supply Transition Plan).(c) WRM. Limited availability and declining quality of water resources available from the international rivers, andperiodic crises due to shortages of water, becoming more severe in risk level year by year, are increasingly likely to placeeconomic constraints on development. The Govermment of the Republic of South Africa has launched a new water policywhich, among other things, leaves room for allocations on South African rivers both for the environment and fordownstream nations including Mozambique. The South African Government, in promulgating this far-sighted position,has also indicated that the determination of such allocations places an onus on the downstream countries to ensure that thewater from such allocations is used legally and efficiently. Development of an operational regime within Mozambique tomanage the water within its boundaries is therefore strategically important. While there is adequate primary legislation tosupport this, subordinate legislation will be developed and proclaimed during the first year of the project to support thewater resources management organizations in their development of these systems and capacities. Corumana Dam, thekey regulating storage in the Incomati river basin, is subject to an increasing risk of failure due to successive spills fromthe reservoir eroding the streambed at the toe of the spillway. Rehabilitation is necessary to secure the safety of thestructure, and avert possible failure of power generation at the dam, and of water supply to 18,000 hectares of irrigatedagriculture. This is also a medium and long term strategic choice, as the Incomati River is likely to be the optimumsource of water for urban and major new industrial requirements in the Maputo area within 6 or 7 years.

8. Project alternatives considered and reasons for rejection:

During most of the preparation phase, this project and the NWD-II Project dealing with the privatization of the five citywater supply systems, were being prepared as a single large and complex project. In July 1997, GOM and the Bankagreed to split the project into two. This resulted not only in simpler, more manageable projects, but in the components ofthis project being able to proceed without awaiting the bidding and award process for the contracts for operation of thecity water companies.

The project level options are the choices of component size and scale, and the inclusion/exclusion of subcomponent items.(a) Institutional development and policy: Based on comparison of provisions of the existing NWP against assessment ofpolicy framework needs in areas proposed for action under this project, further policy development was shown to beneeded in RWSS and WRM to support decision making in relation to community driven options for rural water supplyprovision, and bulk water operations. (b) Preparation for privatization of urban water supply: The continuingexperiences of the communities, and the studies preparing for private sector management of the water companies, bothindicate urgent requirements for more secure headworks systems for Beira, Quelimane and Pemba. The requirement forthe planning and later provision of sanitation infrastructure was identified through the environmental assessment. Thechoices of locations will be dependent on the choices of new neighborhoods for water supplies, which will be based oncommunity and local government consultation. (c) RWSS: The plan for transition at central Government level and forcapacity building at provincial and district levels was prepared under the Rural Rehabilitation Project (MZ-PA-1796). (d)WRM: A tentative order of priorities and groupings of international river basin studies was determined from a preliminaryassessment of the risks faced by the communities dependent on those resources, and of the feasibility of options fordevelopment and management. Key basins include those of the Umbeluzi and Incomati Rivers, which could be operatedas sources of water for Maputo and water-using industries to be associated with the Maputo corridor, but are subject tofurther reduction of flow and releases to Mozambique, due to dam construction and irrigation diversions upstream.However these assessments are incomplete and preliminary, and a more complete determination of problems,opportunities and priorities will be undertaken as part of the development of the water resources strategy. (e) HRD: Scaleand design of this component is based on planned and projected growth and development of the sector.

9. Major related projects financed by the Bank and/or other development agencies (completed, ongoing andplanned).

There have been no previous IDA water projects in Mozambique. However, the Rural Rehabilitation Project (Cr. 2479),and the Urban Rehabilitation Project (PRU, Cr. 1949) each supported water studies and infrastructure provision. PRUdisbursed US$4.8 million from the IDA credit for water and sewerage infrastructure in Maputo and Beira, and, together


with the Dutch Government, supported the main engineering studies on urban water supplies in Maputo and 12 provincialtowns for the proposed NWD II Project. Preparation of the NWD II Project is continuing, and preparation of the UrbanEnvironment Project (which will include the provision of sanitation infrastructure) is expected to begin soon. The sectorhas been and is being assisted by the Netherlands, Swiss Development Cooperation (SDC), Caisse Francaise deDeveloppement (CFD), Italy, UNDP, Denmark, the European Union (EU), and Portugal. Most of these projectsconcentrated on works and/or technical assistance for the water supplies of individual towns, or rural water supplies inspecific provinces. The Dutch Government and the UNDP have supported, and are continuing to support, water resourcesand hydrology, and strengthening central sector management. Smaller projects have been supported by KfW, FINNIDA,and Austria. UNICEF is active in rural water supply. The donors cofinancing the NWD-I Project include SDC, NDF,SIDA and CIDA. Those planning to support the construction of urban water supply infrastructure as participants inGOM's National Water Development Program include the Netherlands, the African Development Bank, EU, CFD, KfWand the European Investment Bank. Austria will be supporting the establishment of the water resources managementbody for the central region, and the African Development Bank will be supporting the rehabilitation of Massingir Dam.

10. Lessons learned and reflected in the project design:

The project design draws on lessons from projects of the Bank and other development agencies in the sector and in otherinfrastructure and natural resources management areas. First, community consultation, mobilization and leadership areessential prerequisites for sustainability in water supply and sanitation services, particularly in rural services and themanagement of public standpipes in periurban areas. Second, water infrastructure development should be accompaniedby effective water resources management. Third, development of a workforce with relevant skills and qualifications, andongoing self-sustained programs of skill enhancement, are important prerequisites of service improvement andsustainability. The ICR for the recently completed PRU project reported several lessons from the experience of thatproject which have been drawn upon in designing this project. They are:* In a complex and uncertain environment, marked by weak capacity in the country, project design has to be well

focused on the key issues and constraints. Design should be clear and preferably simple, and above all, built on thecapacity of the involved agencies. Key issues include weak or non-existent capacity in financial and human resourcemanagement, and in the management of the three major subsectors: urban water supply, rural water supply andsanitation, water resources management. Strengthening these is a major emphasis of the project.

* Implementors must be diligent in enforcing appropriate policy measures. Without such, the sustainability of physicalimprovements is undermined. The project would establish an environment which would encourage long termsustainability of the present sound policy framework, in particular by means of the proposed private sectormanagement contracts for the urban water supply systems of the five cities, and through improved donorcoordination.

. More emphasis needs to be put on creating strong information systems and insisting on regular and timely progressreporting, throughout the life of the project. In the case of a ministry or similar government implementing agency,such systems should be applicable to general operations as well as to the project. The monitoring and reportingarrangements are being designed to achieve this..............................................................................................................................................................................................................................................................

11. Indications of borrower commitment and ownership:

In August 1995, GOM approved the NWP, in which it committed itself to the strategies discussed previously, and toprivate sector management of the five water companies of Maputo, Beira, Quelimane, Nampula, and Pemba. GOM hasapproved the RWSS transition plan, has implemented increases and improvements to urban tariffs in two major steps, andis completing its consideration of a new tariff policy, which builds on the NWP and proposes further steps in tariff reformfor urban water services. Bulk water supply tariffs for the southern region, covering urban water companies, irrigation,and industrial uses were recently increased substantially, and charges for water used for power generation at CorumanaDam were introduced. GOM has confirmed its commitment to the project in consultations with IDA, and throughrepresentations by delegations to the Bank in July and November 1997, led by the Minister. GOM has also confirmed itscommitment to the principle of community consultation and participation essential to success in this project. Consistentwith this, it has: (1) approved the RWSS reform; (2) displayed and presented the draft Environmental Assessment

Project Appraisal Document Page 9Country: Mozambique Project Tite: National Water Development - Sector Support

throughout the country and invited and accepted comment; (3) demonstrated its support for the beneficiary assessmentprocess under way with IDA and SDC support, and has used the results to enrich and support the submissions to theNational Council of Ministers on urban tariff reform; and (4) used consultative approaches in all of its policy andplanning initiatives on this project, including approval and promulgation of the NWP, its preparation and acceptance ofthe RWSS transition plan, and preparation of the HRD strategy document. GOM will urgently upgrade financialbudgeting and management within DNA.

12. Value added of Bank support:

Several bilateral and multilateral development agencies and a number of NGOs have been providing Mozambique withassistance for many years, with European bilateral agencies dominant in urban water supply, and most of the bilateral andmultilateral agencies and NGOs active in rural water supply and sanitation. While there have been limited localsuccesses, much of this assistance has not resulted in sustainable benefits. This has been due to a combination of factors:requirements to respond to war emergency situations, the lack of a national policy (until 1995), poor management,institutional arrangements that contained incentives favoring failure rather than success, and fragmented approaches bydonors. With assistance from IDA and other donors, particularly the Netherlands, SDC and UNDP, GOM has completedthe development of its NWP framework for sustainable action in the sector. The proposed project would assist and enableGOM to carry these strategies into action.

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Block 3: Summary Project Assessments

[x] Cost-Benefit Analysis for the Maputo Water Supply [I Cost [ Other13. Economic assessment: System, considering relevant components of this project Effectiveness

(See Annex 4 for Economic jointly with relevant components of the proposed NWD- Analysis:Analysis.) II Project: NPV=US$84.9 million; ERR = 26%The components of this project are in each case preparatory for other projects, or in the nature of sector reform. Theproject as a whole is thus not amenable to economic analysis. However, a preliminary assessment of the likely economicrate of return of the Maputo water supply system has been made and has shown a strong economic rate of return (Annex4). Similar water supply privatizations have in most cases resulted in substantial improvement in economic and financialperformance. Preliminary analysis indicates the same for ARA-Sul. The RWSS pilot schemes will be designed andimplemented in a beneficiary-led demand driven manner, and under rules which will require that as conditions ofeligibility, communities agree to contribute in cash and/or kind to the capital costs of the physical facilities, to cover alloperations and maintenance costs, and to make satisfactory arrangements for system operation and the collection andsafekeeping of funds. Demonstrations of willingness to pay in line with these provisions will contribute towards ensuringthat economic benefits exceed costs.

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14. Financial assessment:

This project has the characteristics of a technical assistance project in that it is oriented to sector reformn. The objectives othe investments proposed are primarily to create conditions for the reform of the subsectors. It is thus not possible tocalculate a financial rate of return for this project. However, the positive impacts of this project, in terms of the financialhealth and sustainability of the sector, are expected to be great. Perhaps as a result of Mozambique's history of centralplanning, knowledge and application of sound financial practices within the water sector are virtually non-existent. At thesector level, for example, to date there has been no person or section whose mandate is to monitor the sector's financialflows, whether from the Government budget or generated by the individual water authorities; this is particularlyproblematic in regard to disbursements of the sector investment budget, which have been dropping in real terms andreached their lowest level in six years in 1996. At the level of the water providers, including the five city water companiesto be assisted under this project and ARA-Sul, accounts are not kept adequately; only Agua de Maputo (once) and Aguasda Beira (twice) have been audited, and the auditors were unable to make a judgment because of poor quality.

Project Appraisal Document Page 10Country: Mozambique Project Tile: National Water Development -Sector Support

This project will initiate the introduction of sound financial management to the sector, built on the principles ofaccountability, cost recovery, efficiency and transparency. One of the most important results of this project will be thehiring of a financial management specialist for DNA whose mandate will be to design and develop a financial planningfunction for the sector, including liaising with and assisting water providers, and the implementation of accounting andbudgeting systems. At the level of the water companies, Government and the Bank have agreed that the most effectiveway to initiate sound financial processes is through the privatization of the management function. The operations ofARA-Sul will be strengthened through the consultancies to be financed under this project. The human resourcedevelopment component will complement and overlap this work, through its financial training activities.

The follow-on project to this project, National Water Development II, will, for the five city water supply services, build onand solidify the financial strengthening begun under this project.

Fiscal impact:The development of the sector planning and budgeting function is expected to have a strong positive impact on the fiscalsituation. In the short term, the development of this function should enable DNA to work with Ministry of Planning andFinance to improve the volume and timeliness of disbursements of the sector budget. In the longer term, the results of thisproject, combined with the follow-on project, will result in more autonomous and financially self-sufficient waterproviders, including ARA-Sul and the water companies of the five cities, thereby reducing their demands on centralGovernment resources and enabling these resources to be used for other productive purposes in the sector.

15. Technical assessment:

The physical works components of this project are small to medium scale, and consist of design and construction of (1)new and rehabilitated demonstration small piped systems and point source water supplies, (2) restoration of urban watersupply headworks and transmission systems, and (3) safety-related rehabilitation of Corumana Dam. The technical needfor the urban works was established in studies by international consultants financed through projects jointly funded byIDA and the Netherlands, and accepted by GOM. The process of selection of the demonstration rural water supplyprojects will take place through community consultation in line with the agreed demand oriented processes, assisted byqualified technical advice where required. The small restoration works for urban water supply were identified in thecourse of the above studies and subsequently reconfirmed during the investigations by the international consultancy onprivate sector management of the water companies. All design and construction work will be subject to normal inspection,acceptance and handover procedures, except that in case of the RWSS works, the benefiting community will also beinvolved in this process. Corumana Dam: The need for rehabilitation at Corumana Dam became increasingly apparentafter the flood of February, 1996, during which the spillway discharged and caused further erosion at the toe of thespillway. A subsequent inspection and report by a dam engineering specialist (Annex 7, reference 10) reconfirmed theneed for rehabilitation works. The works will not change the operating level and storage capacity of the reservoir or therelease, spill or water quality characteristics, and thus there would be no resettlement, and no adverse riparian or aquaticenvironmental effects. GOM will employ an independent panel of experts to review investigations, design, andconstruction............................................................................................................. I...............................................................................................................................................

16. Institutional assessment:

a. Executing agencies: By developing the NWP and using it effectively to support implementation of the first steps oftariff reform and private sector management of the urban water sector, and initiating a reform path for the RWSS andWRM subsectors, MOPH and DNA have demonstrated strong abilities to formulate and implement a reform-orientedpolicy agenda. All sector agencies are, however, weak in technical skills in their key specialties, and extremely weak infinancial and human resources management capacities. The project incorporates measures to redress these weaknesses inthe subsectors addressed by this project.

b. Project management: DNA has had experience in the management of projects consisting of individual works but notof an integrated project supporting reform of subsectors or of sector-wide functions like HRD. Accordingly GOM has

Project Appraisal Document Page 11Country: Mozambique Project Title: National Water Development -Sector Support

assembled a team for the leadership and coordination of the program, under a PL who reports directly to the ND................................................................ ................................................................................................................... .........................................

17. Social assessment:

Experience in Mozambique and elsewhere has demonstrated that beneficiary preferences as to the types, location, andmanagement of water sources, and existing informal vendors, all influence project sustainability via the willingness ofresidents to accept "ownership" of assets, pay the costs of operations and maintenance, refrain from vandalism, or tocontribute time to maintain investments. Preparations therefore included beneficiary assessments of the communities ofthe five cities to gain an understanding of these issues. Implementation of the RWSS and WRM components will alsoinclude beneficiary assessments, to assist in the identification of demand, and the social characterization of communitiesand stakeholder groups to assist in the design of involvement and consultation mechanisms, to ensure that decision makingis well structured, fully informed and soundly based. Beneficiary assessments and consultations so far have highlightedthe diversity of communities, the effects of past dislocation due to war, widely varying levels of income, and high levelsof willingness to pay for improved water services.

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18. Environmental assessment: Environmnental Category [ A [X] B [ ] C

An environmental assessment (EA) has been undertaken for this project and the NWD-II Project (MZ-PE-52240) jointly.The EA was subject to display and public discussion and comment in five towns and cities, and relevant comments havebeen incorporated in the final document. No adverse comments were received about the components of this project. Nocases of resettlement as a result of works in this project were identified during project preparation. Nevertheless, should arequirement for any resettlement be identified for any works under this project, resettlement plans acceptable to IDA willbe prepared and furnished to IDA for agreement, and funding identified for their implementation, before the workscommence. Through the EA, the beneficiary assessments and other consultations and studies, concerns were expressedabout improved water supplies generating more wastewater in the cities. This project responds by incorporating aplanning and design study for the provision of upgraded sanitation and drainage, in preparation for implementation underthe proposed Urban Environment Project. Environmental monitoring will be provided for in the terms of reference ofstudies which would result in works or management programs where environmental effects or management are issues,including the studies of international rivers and the sanitation planning studies, and will be coordinated through theMinistry of the Environment with other environmental programs. A requirement to undertake environmental assessmentswill be included in terms of reference for studies on the planning and design of works and for changes in the operation ofriver systems. The design review work preparing for the safety-related works for Corumana Dam (which will not result inany change in reservoir operating levels or release rules, and will involve no resettlement) will be accompanied by an EAto ensure effective identification, management and minimization of any environmental impacts. International Rivers:The project supports joint studies of the water resources of several international rivers. In compliance with the Bank'spolicies in regard to international waterways, GOM has provided IDA with copies of letters written to the upstreamriparian countries (South Africa, Swaziland, Zimbabwe and Zambia) advising them of GOM's intention to undertake suchjoint studies.

............................................................................................................................... I........................................................ ..................................................................19. Participatory approach: Identification/Preparation Implementation Operation

Beneficiaries/community groups CON CON and COL COLIntermediary NGOs CON CON and COL COL

Academic institutions COL (WRM) COL (WRM) COL (WRM)Local government IS IS IS

Other donors CON and COL CON and COL CON and COLPublic sector agencies participating in reforms CON and COL CON and COL COL

IS: Informnation Sharing. CON: Consultation. COL: Collaboration

20. Sustainability:The creation of conditions for sustainability is a primary focus of this project. Each component is designed to incorporate


the sustainability principles contained in the NWP: (1) Institutional Reform and Policy Development: Supportsdevelopment of policies and consequent institutional reform that will enhance sustainability in water services and resourcemanagement. (2) Preparation for Private Sector Management of Water Companies: Takes early steps towardssustainability of urban water supply services, the main vehicle for which will be IDA's NWD-II Project. (3) RWSS: Thiscomponent will re-orient institutional arrangements and practices to promote a demand driven approach. (4) WRM:Supports ARA-Sul to become self sufficient in the management of releases and diversions; (5) HRD: Sustainabilityrequires an adequately skilled workforce, the aim of this component.

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21. Critical risks (see fourth column of Annex 1):Project outputs to development objectives:

Risk Risk Rating Risk Minimization MeasureMacroeconomic and political instability. Modest

Lack of political will to invite private Modest Preparation includes full evaluation of the benefitsparticipation in private sector management of PSM and dialogue on the proposal with(PSM) of water companies, with good market stakeholders in Mozambique. Bidding and awardbased entry. of contacts will be competitive and based on

World Bank procurement guidelinesBacktracking on tariff policy for water Risk of delay may Continued policy dialogue between the Bank andcompanies and water resources management be high. GOM. Once a PSM contract for the water supplybodies. systems of the five cities is in place, contractual

penalties and other adverse effects on customersand governments tend to discourage tariffbacktracking. GOM's well structured internaldialogue on tariffs, which has built a succession ofdecisions on the NWP, has increased commitment.

Lack of commitment to policies for Modest Project supports (1) preparation of detailed changedecentralizing service delivery, stakeholder program, and (2) MOPH's planned consultationparticipation in decision making, and demand- with potential beneficiaries and advocacy of theirdriven implementation and operation of rural interests with other stakeholders.water supplies and sanitation.

International goodwill and cooperation decline to Varies with The participants in the Global Water Partnershipthe point where there is no cooperation in country from low including the World Bank are makingmoving towards equitable allocations of the to high arrangements to support SADC Water Unit, basedwaters of international rivers. in Lesotho, and the SADC countries, to create an

environment supportive of constructive dialoguebetween upstream and downstream riparians.

Budget allocations lower than agreed levels, and High At negotiations, GOM committed to: adequate anddisbursements to DNA from MPF are delayed or timely provision counterpart funding requirements;lower than the approved budget. and appointment of a finance manager in DNA.

Preparations have supported new efforts by DNAin budgeting, and dialogue with Ministry ofPlanning and Finance.

Inadequate management capacity on the part of Modest At negotiations, GOM committed to theDNA to implement the project successfully. appointment of managers for finance and HRD

functions. Project supports extensive HRD.

Project components to outputs:Risk - Risk Rating Risk Minimization Measures


Institution Building and Policy Development. Modest Clear designation of leadership responsibility andAs in almost every organization subject to authority and a fully consultative approachchange, some of the central units undoubtedly supported by detailed planning and schedulingcontain some individuals personally reluctant to should control these risks.contribute actively to GOM's change agenda.There is a risk that such opposition could slowdown reforms such as decentralisation.

Preparations for PSM of urban water supply. Modest PSM: GOM is publicly advocating the benefits ofControversy over PSM could affect political this proposal and its characteristic as contractedcommitment. The generally poor condition of management with GOM retaining asset ownership.the transmission systems and trunk distribution System risks: The proposed works address themains and tanks could result in system failure most serious known of these risks. Supportand consequent cessation of all or part of planned under the NWD-II project would enablerevenue until supply is restored. For some the PSM operators to assess and remedy other riskworks, flooding could delay completion. areas.RWSS: Low level of skills to support this major Modest The RWSS component is designed support thechange. The stakeholders may not have the change processes through stakeholder involvementcommitment to stay with the time consuming in more detailed planning and design, continuedprocess of community consultation that is information dissemination, responsive torequired. stakeholder feedback. Project supports extensive

stakeholder consultation.WRM: ARA-Sul has few of the skills to Modest For both ARA-Sul and GRI, the project supportstransform itself to a commercial-customer- skill development; for ARA-Sul, evolution oforiented organization. GRI has only limited business plans and administrative systems; foraccess to skilled experienced water resources GRI, supporting water resources studies.professionals, and little knowledge ofdevelopment and management options.Negotiations on international rivers will require SADC water sector initiative supports aeach party to adopt a consistent approach to multilateral approach which should strengthen theconfidence building. Departure of either party incentives of the parties to maintain positivefrom this could set back progress. negotiating relationships.HRD: Hitherto DNA has had insufficient Modest Appointment of qualified HR Manager, andmanagement capacity to implement such a creation of HR unit, and development of HRprogram. strategy.

Overall project risk rating:Risk Risk Rating

The overall risk that the project could fail to Modest Risks are mitigated in particular by the MOPH'sachieve its development outcome is moderate. strong management of the policy dialogue withinThe risk of it failing to achieve a satisfactory Government and the public sector.preparation for the two IDA projects for which itsupports preparatory studies and works is alsomoderate.

~ ~ ~~~~~; i.......................................................................................................................................................................................................................................22. Possible controversial aspects:

The Government's program of privatization has become controversial in Mozambique. This increases the scrutiny whichthe public is likely to give to the proposal for private sector management of the water companies, and the sensitivity of thepublic to concern which may be expressed about it. The Minister has emphasized publicly that (1) the water sectorproposals are receiving very thorough and careful preparation, and the operator(s) will be subject to strong regulatory

Project Appraisal Document Page 14Country: Mozambique Project ridle: National Water Development - Sector Support

oversight; and (2) the proposal differs from most previous privatizations in Mozambique in that the Government willretain ownership of the assets, and the Operators will be contracted managers. Public exposure of the components of thisproject during the Environmental Assessment process, discussion of the RWSS component among stakeholders, andreporting in the media concerning the international rivers issue, did not bring to light serious adverse concern on the partof the public, although some were concerned about the influx of foreigners that PSM would bring, and the likely increasein tariffs. Controversy, if any, other than about PSM, may be generated by (1) stakeholders within the public sector whomay see themselves adversely affected by the reforms proposed, and (2) illegal users of water, as water resourcesmanagement and urban water supply management improve and prevent or penalize illegal use.

Block 4: Main Loan Conditions

23. Effectiveness and Disbursement Conditions:

As conditions of effectiveness the Government would:* appoint the project accountant and the Manager Finance;* furnish a completed Project Implementation Plan satisfactory to IDA.

As conditions of disbursement, the Government would:* on works that contain or result in resettlement, provide resettlement plans acceptable to IDA and identify funding for

their implementation;* on HRD, appoint of the Human Resources Manager.

24. Assurances:

During negotiations, GOM gave assurances on the following:Project Implementation:* GOM would maintain within DNA, through the duration of the project, (a) a Project Leader who would report to the

National Director and be responsible for planning and coordinating project activities. The Project Leader would beassisted by a team of administrative staff, including an accountant, an engineer, and for the first two years aprocurement specialist, in accordance with TORs and qualifications acceptable to IDA, and (b) a financialmanagement specialist with responsibility for the establishment and development of financial management functions.

* GOM will monitor the implementation and progress of the project in accordance with performance indicators agreedupon in the DCA.

• Government will support the investment program with counterpart funds on a timely basis to fulfill the project cashflow needs.

* GOM will issue a decree, satisfactory to IDA, the provisions of which will support the management of water deliveryto and diversions by irrigators and other water users, by end November 1998.

* Reform of the provision of rural water and sanitation services will be carried out in accordance with the Rural WaterSupply Transition Plan.

* Beneficiary assessments (BAs) of stakeholders in rural water supply demonstration projects, and of users of waterreleased from storages by ARA-Sul, will be conducted at the milestones specified in the project implementationmanual.

* Within six months after the closing date of the project, GOM will prepare and furnish to the Bank a plan designed toensure the sustainability of the project.

Environmental Management:* GOM has agreed to criteria and procedures satisfactory to IDA for assessing the environmental impacts of

prospective investments and for mitigating possible adverse impacts.

Proect Appraisal Document Page 15Country: Mozambique Projec Title: National Water Development - Sector Support

Annual Reviews:* GOM will carry out an annual review of the project not later than March 31 of each year.

Mid-Term Review:* By December 31, 2000, GOM, with the Bank, will carry out a mid-term review of the project.

Block 5: Compliance with Bank Policies

I [x] This project complies with all applicable Bank policies.

Taf s eader: John Shepherd Country Manager: Phyllis Pomerantz

I

ANNEX 1Page 1 of 3

MOZAMBIQUENATIONAL WATER DEVELOPMENT I

Project Design Summary

Narrative Summary Key Performance Indicators Monitoring and Critical AssumptionsEvaluation

Sector-related CAS - Development of sectoral database, - Agency records of (Goal to Bank Mission)Goal: including information on population customers and Civil order, macroeconomicFoster a poverty with convenient access to safe, standards of service stability and growth withreducing pattern of reliable water supplies: February achieved (water equity in Mozambiquegrowth through 2000. companies); beneficiary continue.improved water assessments (DNA)infrastructure services, - Treaties withmanagement of natural upstream ripariansresources, and providing equitabledevelopment of human water allocations.resources. Measurement of flows

and quality of water atkey stations (GRI,ARAs).

Project Development - Central regulating body DNA and ARA-Sul (Objective to Goal)Objective: established and staffed in reports, and IDA/DNA Maintenance ofIncrease the capacities preparation for private sector reviews. macroeconomic and politicalof the organizations management of urban water supply stability.and people of the systems. Government supportsector, and prepare for continues for change agendathe private sector - Bids invited for private sector of National Water Policy.management of the management of five urban waterurban water supply supply companies, and evaluated by - No backtracking on tariffsystems of five cities, November 1998. policy for water companiesso that sector and water resourcesorganizations can - Pilot piped rural water supply Beneficiary management bodies.provide sustainable systems rehabilitated and in assessments.water supply and operation as autonomous entities Mozambique and upstreamsanitation services to an with full stakeholder participation; countries continue buildingincreasing proportion similarly for wells and boreholes. relationships to workof the community and towards equitable sharing ofmanage water resources - Proposals completed to develop intemational watersustainably. and manage the Incomati and resources, in line with

Pungue Rivers jointly with SADC Protocol onupstream riparians. ARA-Sul International Waters.operates with income fully coveringbulk water supply operations andmaintenance.

- HRD program in action, in linewith nationally agreed strategy.

Outputs: (Outputs to Objective)Central: Central Sector Management: Plan for Issue of bidding-Institutional capacity development of finance function documents for private Political will continues toestablished for financial within DNA is agreed, and sector management of invite private participationmanagement of DNA and implementation under way: water companies. in infrastructureto supervise and promote December 1998. management, with goodprivate management and Bids invited and evaluated for market based entry.commercialization of private sector management of thewater utilities. five water companies. Central Commitment continues to

regulating body established and policies for stakeholderstaffed in preparation for private participation in decisionsector management of urban water making, and a demand-supply systems: November 1998. driven decentralized

approach to rural waterUrban: Urban Water Supply and Sanitation: Supply reliability for supplies and sanitation.-Preparations completed Works to secure water supply Beira and Pembafor private sector reliability for Beira and Pemba improves by Budget allocations are inmanagement of five designed, constructed and in eliminating line with agreed levels, andurban water companies. operation: July 2001. Sanitation headworks-caused disbursements to DNA-Sanitation plans strategy, designs and documentation outages of >12 hours. from MPF are timely andcompleted for the five completed: January 2001. Supervision missions in line with the approvedcities. every six months. budget, as agreed by

RWSS: Rural water supply and GOM.RWSS: sanitation transition plan (RWSTP): Data on RWSS-Institutional capacity appointment of steering committee maintained by project. Salaries and conditionsestablished to manage a and directorate body: June 1998. adequate to retain a core ofdecentralized demand- Approval of central institutional trained staff.driven rural water supply strengthening plan and RWSTPand sanitation service; national communication strategy:-Pilot projects completed. June 1999. First small piped system

in Inhambane rehabilitated/improved under autonomousmanagement, with full stakeholderparticipation: December 2001.

WRM: Business Plan for ARA-SulWRM: approved: May 1999. Intemational Project and annual-Institutional capacity river basin management and reports (DNA andestablished to manage development plans started: March ARA-Sul). Outputs ofwater resources and 1999. planning studies onoperate a self-supporting water resourcesbulk water supply management andservice. sanitation.-Joint studies on keyinternational rivers. HRD: Strategy for human resources

development agreed upon, action Technical audits.HRD plan developed, and implementation-Training programs under way: February 1999.implemented.

Project Components/ Inputs (budgets for each Components to Outputs:Subcomponents: component): (USS)1. Institution building and 1. $5.6 million 1. Continuing policy As in almost everypolicy development: dialogue. organization subject to1.1 Build regulating and 1.1 $1.5m Biennial supervision change, some of the centralmonitoring capacity missions. units undoubtedly contain1.2 Upgrade and reorient 1.2 $3.Om some individualscentral management of personally reluctant tothe sector contribute actively to1.3 Upgrade National 1.3 $1.1m GOM's change agenda.Water Policy Assumed that such

opposition will not slow2. Preparation for down reforms.privatization of urban 2. $7.2 miDlionwater supply: 2.1 Programmed - Political commitment2.1 Evaluate and award 2.1 $2.0 m preparation of continuestenders for PSM of 5 city NWD-I1 Project. - Supply interruptions willwater companies 2.2 Design reviews. be few and will not result2.2 Design and construct 2.2 $3.2 m Construction in major revenue loss.emergency works supervision contract. -Assumed that the budget2.3 Prepare sanitation 2.3 $2.0 m 2.3 Study outputs. makes sufficient allowanceplans for extensive option

preparation due to poor3. Rural water supply and 3. $15.2 million drainage conditions.sanitation:3.1 Implement the Rural 3.1 $4.5m 3.1 Transition Task Commitment continues toWater Supply and Force Reports. a demand-drivenSanitation Transition Biennial supervision decentralized approach.Plan missions.3.2 Consolidate new 3.2 $5.Om 3.2 Constructionmethodologies through supervisionpilot projects in contracts.Imhambane Province:Small Piped System3.3 Ditto for Point Source 3.3 $5.7mSupplies

4. Water resources 4. $12.4millionmanagement:4.1 Strengthen ARA-Sul, 4.1 $4.5m Formalization of waterand GRI 4.1 Agency reports. rights and payment4.2 Water resources 4.2 $3.5m Minutes of meetings obligations of irrigatorspolicy and international of customer will be conducted in arivers representatives consultative manner,4.3 Rehabilitation of 4.3 $4.4m 4.2. Task force minimizing controversy.Corumana Dam reports. SADC

Water Sector Unitmeetings & reports.DNA design review. Assume that HRD

5. Implement HRD 5. $4.3million management skills andprogram DNA/IDA reviews organization are sufficient.

ANNEX 2Page 1 of 3


Detailed Project Description

Project Component 1 - US$5.6 million (total cost of component)

Institution Building and Policy Development. This component is aimed at reorienting the centralsector organizations and strengthening their capacities in areas identified by the National Water Policy as theirdesignated areas of sector leadership. In doing this it will be necessary at the same time to refresh and extendparts of the National Water Policy itself, to ensure that some of the sector agencies are provided with the strategicguidance required, and to ensure that the NWP continues to be the "living", constantly-used document that it hasso far proved to be. The subcomponents and their base costs are:

(a) Development of a regulatory framework, and monitoring and regulatory capacity (base cost US$ 1.5 million):Develop a regulatory framework and capacity to ensure that the interests of Mozambique and its urbancommunities are well served by the proposed contract(s) for private sector management of the cities of Maputo,Beira, Quelimane, Nampula, and Pemba and to provide a regulatory guidance to the water companies of the othercities.

(b) Development of capacity in planning and management, particularly in finance (base cost US$3.0 million):Reorient DNA in line with the NWP's vision of DNA withdrawing from involvement in direct service provision,but instead providing strategic direction to the sector. DNA will as an early priority be strengthened in planningand management, particularly in finance, and a management information system will be provided. The capacitiesof provincial level organizations will be strengthened. The strengthening of DNA and provincial organizationswill also be supported through the construction, refurbishment and furnishing of office buildings and of housingfor provincial staff.

(c) Development of sectoral policy and strategies (base cost US$ 1.1 million): Development of sectoral policy andstrategies, through stakeholder involvement supported where necessary by technical assistance and studies.Included will be (1) a refreshed and extended National Water Policy; (2) provincial development strategies; (3)strategies for urban sanitation provision, to provide a policy framework for sanitation provision under theproposed Urban Environment Project. Areas targeted for new and improved national policy include waterresources, sanitation and environment.

Project Component 2 - US$7.2 million (total cost of component)Preparation for Private Sector Management of Urban Water Supply.

(a) Studies -for Private Sector Management of Urban Water Supply (base cost US$2.0 million): Thissubcomponent will support the continuation of the studies for-the preparation for private sector management ofthe water supply systems of Maputo, Beira, Quelimane, Nampula and Pemba, including evaluation and award oftenders for the private sector management contract(s), and design of works, including the pumping station andpipeline from the proposed well field to Quelimane.

(b) Emergency Works (base cost US$3.2 million): Design and construction of emergency works to ensure moresecure operation of the headworks systems, including the Beira and Pemba water supplies, and including

rehabilitation, supply, installation and construction of well fields, pumping stations, power supplies, channels,channel control and regulating works, pipework, tanks, valves, meters, and road, culvert and bridge works.

(c) Sanitation Planning (base cost US$2.0 million): Preparation of sanitation feasibility studies and plans for thecities of Maputo, Beira, Quelimane, Nampula and Pemba, taking into account the increasing generation ofwastewater arising from the planned upgrading of water supplies in the cities, including the cleaning, inspectionof and minor repairs to the existing sewerage reticulation systems, and the preparation of designs and contractdocumentation.

Project Component 3 - US$15.2 million (total cost of component)Rural Water Supply and Sanitation. This component supports the Govermment in undertaking the first

steps towards its objective of providing increased coverage of rural water supply services to low income groups inrural areas, with all services operated and maintained so as to be sustainable.

(a) Implementation of the Rural Water Supply Transition Plan (base cost US$4.5 million): GOM will establishthe proposed Rural Water Supply Transition Task Force which will plan the day-to-day transition steps in detailand supervise its implementation. The Transition Plan includes programs (I) to change the mode ofimplementation and operation from a supply-driven mode to one which is demand driven and (2) to decentralizethe provision of rural water supply services. The component will therefore support the development andimplementation of processes that involve communities in determining the facilities required, sharing in the cost ofconstruction, and being fully responsible for the arrangements under which operations and maintenance arecarried out, and for their costs. In addition, the present arrangements in which the central agency responsible forRWSS, PRONAR (a department of DNA), has field implementation responsibilities, will be changed toarrangements in which implementation is undertaken at provincial and district level. The component will supportPRONAR to change its role to that of coordinator and facilitator of provincial and district programs, and willstrengthen capacities in selected provinces and districts.

(b) Small Piped Systems (SPS), Pilot Schemes, Inhambane (base cost US$5.0 million): Identification of a numberof candidate SPSs, selection of several for rehabilitation and extension, strengthening the relevant provincial anddistrict capacities to undertake RWSS work in a demand oriented manner, undertaking the required work with thecommunities in line with the demand oriented approach, design and construction of the works, and monitoringperformance. Prepare for investment in point source rural water supply and sanitation.

(c) Point Source Rural Water Supply, Inhambane (base cost US$5.7 million): Identifying community demandfor rural water supply assistance, determining candidate locations for point source rural water supply facilities,community mobilization, design and implementation of rural water supplies, and performance monitoring.

Project Component 4 - US$12.4 million (total cost of component)Water Resources Management. This component assists the Government in meeting its objectives of

securing adequate water resources to support future development in Mozambique, and managing those waterresources effectively.

(a) Strengthening ARA-Sul and GRI (base cost US$4.5 million): ARA-Sul, the water resources managementbody for southern Mozambique, will be supported in preparing a plan of action to become financially selfsufficient and an annual business plan, and in its efforts to implement these plans. Assistance will include: theprovision of operating equipment, and the establishment, with the aid of technical assistance, and equipment andworks for the control and measurement of water, of a system of administration and management of the release ofwater from its storages to water users downstream, in a manner which involves users in all decisions such aspolicing illegal use, the minimization of wastage and the tradeoffs between supply volumes and risks of shortfall.GRI, the Office of International Rivers, will be strengthened and supported in its work in negotiating withupstream riparian countries allocations of water for Mozambique from its international rivers, that will providefor future development and are fair and equitable to all riparian countries.

(b) Water Resources Strategy Development and Studies: (base cost US$3.5 million) The subcomponent willcommence with the development of a national policy and strategy for the Water Resources subsector. This wouldbe conducted through extensive stakeholder involvement supported by technical assistance and briefreconnaissance studies. It would include: (1) steps in the further decentralization of water resources including aprogram for the formation of additional regional water resources bodies (ARAs), (2) management of waterresources utilizing basin committees representing those who rely on the basin and have an incentive to manage itwell; (3) policies for the allocation and delivery of water for irrigation, and irrigator involvement in storagemanagement and system operation; and (4) bulk water pricing and cost recovery. A series of studies will beconducted, jointly with upstream riparian states (which have been notified), on the water resources of theinternational rivers and options for their further development and management, in order of priority as set by thenational strategy. River basins for early study would include the Umbeluzi, Incomati, and Pungue Rivers, theUmbeluzi and Incomati being investigated jointly due to possible conjunctive use of the water resources ofadjacent basins. Groundwater resources would also be included. This work will also include studies andfacilities relating to flow and diversion measurement, and prefeasibility studies including field exploration andtesting for potential diversion and storage works. The Terms of Reference of the studies would includeenvironmental assessments of proposals for works and changed river management rules, and will requireproposals for environmental monitoring of water resources.

(c) Safety-related rehabilitation works, Corumana Dam. (base cost US$4.4 million) The Corumana Dam,Mozambique's key dan in the Incomati catchment, is incomplete and is subject to safety risks, particularly due toerosion at the toe of the spillway. The work will consist of: (1) a design review, environmental assessment, andcompletion of bidding documents for phase I (safety/rehabilitation works) and Phase 2 (spillway gates and fusedyke to raise the operating level and storage capacity of the reservoir); and (2) construction and constructionsupervision for Phase 1 only. A panel of dam Experts will be appointed to advise GOM on the design andconstruction.

Project Component 5 - US$4.3 million (total cost of component)Human Resources Development. (base cost US$4.3 million): This component is aimed at alleviating

one of the most important constraints on good performance of the water sector in general, with special attention tothe needs and requirements of the urban water activities of NWD-II Project. A human resources developmentstrategy will be prepared and agreed based upon a comprehensive options paper developed through extensiveconsultations and stakeholder involvement during project preparation. This component will then support theimplementation of the strategy. Elements of the strategy would include (a) support of the institutions providingeducation and training of managerial and professional personnel, and other personnel involved in the process ofinstitutional reform and development, in key management functions such as finance, human resources, planning,>.regulation and monitoring; (b) support of candidates undertaking training and the temporary plugging of gaps in <

the water sector organizations providing key officers for training; (c) the development of personnel policies andpractices based on equality of opportunity, performance evaluation and consistent emolument policies andsanctions; (d) the support of incentives encouraging consistent good performance; (e) adequate personnel policiesand incentives, as well as other measures, should aim to promote the full utilization and retention of existing staff,in parallel with the recruitment of additional selected personnel. An initial emphasis of IDA-supported training inthis project will be at the management and professional level, later widening to subprofessional and basic skillstraining.

ANNEX 3Page 1 of 2


Estimated Project Costs

Project Component Local Foreign Total-------------US $ million--------

1. Institution Building and Policy Development(a) Capacity building: regulation and monitoring 0.6 0.9 1.5(b) Capacity building: planning and management 1.1 1.9 3.0(c) Policy studies 0.1 1.0 1.1

1.8 3.8 5.62. Preparation for Privatization of Urban Water Supply

(a) Studies -Private Sector Management 0.2 1.8 2.0(b) Emergency Works 1.3 1.9 3.2(c) Sanitation Planning 0.2 1.8 2.0

1.7 5.5 7.23. Rural Water Supply and Sanitation

(a) Implement RWSS transition plan 1.6 2.9 4.5(b) Small piped systems, Inhambane Province 2.0 3.0 5.0(c) Point source RWSS, Inhambane Province 2.3 3.4 5.7

5.9 9.3 15.24. Water Resources Management

(a) Strengthen ARA-Sul and GRI 0.8 2.3 3.1(b)Water Resources Policy and International Rivers 0.5 4.4 4.9(c) Rehabilitation of Corumana Dam 1.4 3.0 4.4

2.7 9.7 12.4

5. Human Resources Development 1.5 2.8 4.3Project Management 1.8 0.2 2.0

PPF refinancing 0.8 1.2 2.0

Total Baseline Cost 14.6 34.1 48.7

Physical Contingencies 0.9 2.1 3.0Price Contingencies 1.6 3.6 5.2

Total Project Cost 17.1 39.8 56.9

ANNEX 3Page 2 of 2


Financing Plan

Component IDA NDF CIDA SDC SIDA GOM TOTALUS$ million %

1. Institution Building and Policy Development(a) Capacity building: regulation and monitoring 1.6 1.6(b) Capacity building: planning and management 2.2 0.7 0.4 3.3(c) Policy studies 1.3 1.3

5.1 0.7 0.4 6.2 11%2. Preparation for Privatization of Urban Water Supply

(a) Studies -Private Sector Management 2.3 2.3(b) Emergency Works 3.5 0.4 3.9(c) Sanitation Planning 2.3 2.3

8.1 0.4 8.5 15%3. Rural Water Supply and Sanitation

(a) Implement RWSS transition plan 4.8 0.4 5.2(b) Small piped systems, Inhambane Province 5.5 0.6 6.1(c) Point source RWSS, Inhambane Province 6.9 6.9

10.3 6.9 1.0 18.2 32%4. Water Resources Management

(a) Strengthen ARA-Sul and GRI 0.9 4.2 0.1 5.2(b)Water Resources Policy and International Rivers 0.7 2.7 0.6 4.0(c) Rehabilitation of Corumana Dam 5.0 0.4 5.4

6.6 6.9 0.6 0.5 14.6 26%

5. Human Resources Development 1.8 3.3 0.1 5.2 9%Project Management 2.1 0.1 2.2 4%

PPF refinancing 2.0 2.0 4%

Total Project Cost 36.0 6.9 6.9 4.0 0.6 2.5 56.9 100%Percentage 63% 12% 12% 7% 1% 4% 100%

ANNEX 4Page 1 of 4


Economic Analysis

IntroductionThis discussion of the economic assessment of the NWD-I project takes the broad interpretation of economic assessment.It commences by identifying links between the economics of the project and the main categories of project preparation.This is then followed by a summary of the economic analysis of the proposals for urban water supply to be commencedunder this project and completed under the proposed NWD-II project. This summary includes a sensitivity analysis.

Links to CAS and ESWThe CAS identifies three strategic priorities (paragraph 41):. promoting rapid, broad-based private sector-led growth,* capacity building and development of human resources, and* strengthening development partnerships.Interventions in line with these three priorities are the main thrusts of this project, in some cases (for example, urban andural water supply, alleviating the limited access to water which is a major constraint to private sector-led growth, see

paragraphs 43 and 44) as preparatory activities for subsequent implementation projects, in others (for example, humanresources development, see paragraph 49, and the creation of partnerships with riparian countries for the joint develpmentof shared water resources, see paragraph 54) as implementation, or as a mixture of the two (water resources where thestudies should lead to works subsequent to this project, and/or to changed river management regimes, such as reservoirrelease rules changed to give greater basin-wide benefits).

Four Sector Studies had important impacts on the design of this project:* The "Provincial Towns Water Sector Study" (Annex 7C (3)) included economic analysis of the proposals to provide

physical investment to upgrade the urban water supply of 12 provincial cities and Maputo, concluding that suchinvestment would be economically justified, with the greatest net benefits occurring in the cases of the larger cities.Both that study and later project preparation confirmed that measures to ensure financial viability were, however,required to ensure sustainability. ( See note on Private Sector Participation (PSP) below)

* Two beneficiary assessments of urban water supply, obtained social and economic information on the effects ofinadequate water supplies on those, mainly poor people, who pay high prices in the informal water supply market, andestablished willingness to pay data. The study specifically for this project ("Beneficiary Assessment on Urban Waterin Mozambique - Maputo and Quelimane, Final Report", see Annex 7C (6)), showed that high prices were being paidby the urban poor for informal water services (of inadequate reliability and quality). For example, the great majorityof the poor in Quelimane were paying US$0.87 to US$1.49 per cubic meter, at a time when the price being charged toformal users was US$0.19. Through extensive surveys and focus groups, the study established willingness to pay athigher levels than was expected. The basic information for the price elasticity curves (for the different districts inwhich the communities face a range of different scarcity and monopoly conditions in each of the two cities) wascollected by this study.

* The "Study of the Institutional Arrangements for the Provision of Rural Water Supply and Sanitation Services inMozambique" (Annex 7C (5)) presented recommendations and a proposed Rural Water Supply Transition Plan (sinceadopted in principle by the Government) which is aimed at reforming the sector such that service provision becomesdemand driven and sustainable, with the communities contributing to the provision of the facilities, participating inplanning to ensure a good match with community needs, and full community responsibility for 0 & M.

* The Environmental Assessment (Annex 7C (7)) contains an extensive discussion (in its Appendix B) of theeconomics of the former NWDP. Much of the discussion focuses on the urban water supply issues including tariffs,on most of which the Government has already taken strong positive action. Its conclusions relating especially to the

NWD-I include the need for resolution of a bulk water pricing policy, and for a program to ensure that the increasingquantities of urban waste water do not become a problem.

Adequacy of Policy EnvironmentThe policy framework, as described in Paragraph 6, main text, has matured from very poor at the commencement ofproject preparation, to the point where: (1) it is adequate to support the implementation of this project, (2) the policiescovering the transition to private sector management of urban water supply, including tariff policy, are comparativelystrong, (3) the Govermment has provided much evidence over the last two years that it is using its policy framework in amature and sophisticated way, building an evolving set of subsector strategies upon a basically sound fundamentalframework, and (4) the Government recognizes that some of the subsectoral policies require further development, and isseeking to use this project as the vehicle to support the necessary work to achieve this.

Public/Private JustificationThis project not only prepares for private sector operation of the urban water supply companies, but also takes steps toensure that communities and community-determined private contracting, become the dominant mode of service deliveryof rural water supply services. This applies also to 0 & M.

Cost Benefit, Alternative DesignsCost benefit analysis below demonstrates cost benefit justification for PSM of urban water supply. For alternatives/donothing options, see paragraphs 7 and 8 in the main body of this document

Sensitivity /Risk AnalysisSee below for sensitivity analysis of Urban water supply cost benefit analysis. demonstrates satisfactory robustness.See paragraph 21 for risk discussion of all project components.

Fiscal Impact/ Cost RecoveryThis project takes first steps to ensure urban water supply companies and the southern region water resourcesmanagement and bulk water supply agency become self supporting. Rural water supply and sanitation programemphasizes full community responsibility for 0 & M. and some of capital cost. See paragraph 14. Elimination ofsubsidization of these agencies from the fiscus, and from sources such as unpaid debts to the electric supply agency, istherefore a primary focus of this project.

Institutional CapacityPrior to 1995 serious policy and management neglect and the exigencies of war over many years, have resulted in lowhuman resources capacities in the sector. The HRD component is the main project response to this. The sector isespecially weak in financial management, strengthening of which is a key commitment of GOM.

Poverty AnalysisSee Beneficiary Assessment discussion in sector studies section above.Results show that the urban poor pay very high prices for extremely poor water services, and the design of this projectjointly with the NWD-II Project, FY99, and the Urban Environment Project, FY99, will result in lower prices and betterservices for the poor, and better service meeting the main concerns and desires expressed by the communities to the BAteams, and in the responses to the questionnaires. Similar results were obtained by these beneficiary assessments to the"contingent valuation" analyses by Pinheiro and Whittington1 of residents of a rural town in Mozambique served bysmall piped systems.

For example: Armando Castelar Pinheiro and Dale Whittington: "Introducing a Demand-Side Approach to Rural Water Investmentin Mozambique: A Rapid Appraisal of Household Demand for Improved Water Services in Marracuene." June 1996, CVM Inc., P.O.Box 328, Chapel Hill, North Carolina, 27514, USA.

Environmental AnalysisConsistent with the above. The most important finding is the need to ensure through planning and implementation ofsanitation and drainage that increased wastewater generation resulting from higher levels of water use do not result inincreased disease and other hardship.

Performance indicatorsSee Annex 1.The indicators differ in nature from component to component. As this is a project which initiates reforms in each of fivesubsectoral areas, each component has its specific indicator(s), some as reform milestones, others as financial andphysical performance.

Discussion and Analysis - Rural and Urban Water Supply, and Water Resources Management

Rural Water Supply, Water Resources Management, and Urban Water Supply - Common considerations: Theprimary institutional aims of this project are to restructure rural water supply provision and water resources managementfor improved efficiency and responsive delivery, to strengthen human resources capacities, to reorient and decentralizesector management, and to make essential engineering preparations for upgrading five water companies through privatesector management and investment. The selection of service technologies and levels of locally proposed projects in ruralareas will be pioneered through a demand-driven approach, and similar principals will guide urban water supplyinvestment. Investments in the rural program will be determined by the users' proposals approved by GOM, rather thanbeing predetermined. The improved water resources management will include commercializing operations, making theoperations more responsive to client needs, and the planning and management of international rivers.

Benefits from the project will increase, although to an extent that is difficult to quantify, as a result of the project'ssupport for the implementation and further development of the recently adopted National Water Policy. In particular, theNWP's support of tariff policy reform which recognizes water as an economic good, and which would implement bulkwater pricing to achieve cost recovery, has received strong commitment and action by Government, and will lead to moresustainable operation of the water companies, water resources management bodies, and rural water supply facilities.More importantly, this would have significant implications for the efficient development of the water sector in the longrun.

Evidence from the beneficiary assessments in the urban areas indicates that there is considerable excess demand inMozambique for increased coverage of the population and improved services for those currently served. It is expectedthat this will continue to be the case even at substantially higher future tariffs. Beneficiary assessments yet to be carriedout are expected to validate the assumption that there is sufficient excess demand to permit negotiated cost-sharing inrural areas to cover part of the capital costs and all of 0 & M costs. To the extent that this is true, there is primafacieevidence that economic benefits exceed costs and the project is economically justified.

Urban Water Supply: The benefits in the urban water supply subsector will result from the combined set of measures ofthis project (NWD-I) and of the proposed NWD-II Project (private sector management, investments system rehabilitationand extension, cost recovery improvement etc.) being prepared in parallel. These benefits are likely to include sharplyimproved managerial practices, higher operating efficiencies, improved attention to customers, and gains in productiveefficiencies. Due to the non-quantifiable nature of the benefits of the components of this project and the fact that all of itscomponents other than rural water supply are essential for the success of the NWD-II Project, the economic analysis thatwas undertaken focuses on the economic outcome for urban water supply, taking all inputs into account including thosecontained in this project.

For the five water companies, investments are primarily of a rehabilitatory nature. In addition, some new worksare also envisaged. The user benefits estimated are of two types: (i) arresting the deterioration of service levels andcoverage due to system malfunctions and (ii) additional service coverage attributable to improvements in production anddistribution capacity. The incremental service provided (weighted for domestic and non-domestic consumption) is valuedat the tariffs expected. Based on tariffs levels as at December 1996, the average ERR for the 5 cities was estimated atabout 18%. The tariff levels have since been increased further in real terms, indicating a more rapid likely attainment of

full cost recovery and a higher ERR, about 21%. However, these tariff levels understate the prices that consumers arewilling to pay; the difference being the estimated consumer surplus. Using available data from household surveys ofactual prices paid and water consumed in Maputo, Beira, and Quelimane for which data are available at the present time,and assuming Nampula's and Pemba's elasticity's to be the same as Maputo and Quelimane respectively, a straightdemand curve is assumed and the total consumer benefits are calculated. Using this willingness to pay as a proxy forconsumer surplus, the ERR under this scenario increases to 26%.

Sensitivity analysis was carried out determine the robustness of the rate of return to changes in key variables. The resultsof this analysis are presented in Table 1. These results indicate that the ERR is fairly robust for the adverse scenariospresented. Two variables are relatively the most sensitive - tariffs and demand. If tariffs were to drop back to the pre-December 1996 levels, the ERR drops to its lowest (12%). A drop in demand by 20% reduces the ERR to 16%. A 20%drop in demand in conjunction with a one-year delay reduces the ERR to 13%. The importance of this variable isunderscored by the fact that due to the paucity of data, the demand forecasts assume a conservatively low rate of increasefor all five cities.

Table 1. Sensitivity Analysis Results

Scenario ERR (%)Base Case 27.2

Capital Costs:Up 10% 23.3Up 15% 22.4Up 20% 21.5

Delay by I year 21.3Delay by 2 years 19.7

Capital costs up 10% and a 1-year delay 19.6Drop in demand by 10% 21.4Drop in demand by 20% 16.0Drop in demand by 10% and delay by 1 year 18.2Drop in demand by 10% and delay by 2 years 15.9Drop in demand by 20% and delay by 1 year 13.4Drop in demand by 20% and delay by 2 years 11.1

Future Tariffs:Revert to 1996 levels 12.0As at December 1996 18.0Increase 50% above December 1996 expected levels 23.0

ANNEX 5Page 1 of 5


Procurement and Disbursement Arrangements

Procurement

Procurement methods (Table A)

Procurement for Project Preparation. The three major consultancies undertaken duringpreparation work for the project were: the Water Supply Study for 12 Towns and Maputo, the Consultancy toadvise GOM on Private Sector Management Options for the Five Cities, and the Study on a Demand OrientedApproach to Rural Water Supply and Sanitation, financed respectively by the IDA PRU project jointly with theDutch Government, the PPF of this project and the IDA Rural Rehabilitation Project. These were contracted byshort listing of consultants. Other project preparation work was contracted following IDA guidelines for the useof consultants. The summary of proposed procurement arrangements are presented at Table A.

Procurement under the Project. Total value of IDA-supported consulting assignments will be US$9.7million. These assignments mainly comprise policy analysis, planning and design work, specific studies, anddesign and construction supervision. Consultants would be hired in accordance with the Bank's Guidelines forSelection and Employment of Consultants (January 1997). Most consultant selection will be addressed throughcompetition among qualified short-listed firms in which the selection will be based on Quality-and-Cost-BasedSelection (QCBS) by evaluating the quality of the proposal before comparing the cost of the services to beprovided. Short lists for contracts estimated under US$100,000 may be comprised entirely of national consultantsif a sufficient number of qualified (at least three) are available at competitive costs. However, if foreign firmshave expressed interest, they will not be excluded. In addition, US$2.9 million will be spent on technicalassistance, mainly in the form of hiring of individual short term consultants (individual contracts not exceedingUS$100,000). Contracts less than $100,000 each may be awarded on a sole source basis subject to adequatejustification and prior review by IDA. Training (total value US$1.9m) will comprise hiring of individual shortterm consultants and support for training programs.

Larger works contracts (individual contract value - local costs and IDA support -- US$0.5 million andabove) will be awarded on the basis of ICB for an aggregate value equivalent of US$11.0 million approx. Thiscomprises contracts for rehabilitation of the Beira, Pemba and other water supply headworks and severalcontracts for Rehabilitation of Small Piped Water Supply Systems. Smaller-value works contracts (individualvalue less than US$0.5 million equivalent) will be awarded on the basis of NCB for an aggregate value of US$1.1million equivalent. It has been agreed that procedures for NCB to be used by DNA will be consistent with IBRDGuidelines on NCB; and the tender documents used are based on the Standard Bid Documents of IBRD for allICB, and NCB suitably modified. Contracts for the procurement of goods supported by IDA (individual valueUS$250,000 equivalent and above) will be awarded on the basis of ICB. Smaller value goods procurementcontracts, for an aggregate value of US$2.2 million (individual value less than US$250,000 equivalent) will beawarded on the basis of NCB, and contracts less than $50,000 each may be awarded through International/National Shopping using approved procedures or from the Inter-Agency Procurement Services of the UNDP(IAPSO), for an aggregate value of US$0.5 million equivalent (US$0.4 million international and US$0.4 millionnational shopping).

The General Procurement Notice will be published in the Development Business Forum at least 60 daysprior to the issue of bid documents. Specific Procurement Notices will be issued before preparation of shortlists

in respect of consulting contracts above US$200,000. The Procurement Planning Schedules for consultancies,goods and works are included in the Project Implementation Plan (PIP).

Implementation Arrangements. The procurement for the contracts other than training will beundertaken by the DNA procurement unit, with inputs regarding specifications and terms of reference from ARA-Sul in the case of WRM, and the Provincial Directorate of Public Works and Housing, Inhambane Province, inthe case of RWSS works. The procurement unit will consist of a Procurement Specialist (already in position), aprocurement officer, and secretarial support as necessary. The procurement unit will report directly to the ProjectLeader. The Training component will be managed by the Manager, Human Resources of DNA, who will reportto the Project Leader. The procurement unit will assist him as needed.

Prior review thresholds (Table B)

For procurement of works and goods, all cases valued at US$ 250,000 or more will require priorreview by IDA. The Bank will review the selection process for the hiring of consultants proposed by theborrower for those consultancy contracts to be awarded to firms; contracts worth US$ 100,000 and above will besubject to IDA prior review; for individual consultants the prior review threshold will be US$ 50,000. However,the exception to IDA prior review will not apply to the Terms of Reference of such contracts, regardless of value,to single-source hiring, or assignments of a critical nature as determined by IDA or to amendments of contractsraising the contact value above the prior review thresholds. All contracts during the first year of the project, andselective contracts thereafter, will be subject to post-review.

Disbursement

Allocation of credit proceeds (Table C)

The proceeds of the IDA credit would be disbursed against:(a) 100% of foreign expenditures and 85% of local expenditures on works contracts;(b) 100% of foreign expenditures and 85% of local expenditures for vehicles, equipment andmaterials (procured outside of the currently proposed works and supply and install contracts);(c) 100% of expenditures for studies, other Consultancy and advisory services and training; and(d) 90% of expenditures on operating costs.

As projected by Bank's standard disbursement profiles, disbursement would be completed by four months afterproject closure. Disbursement would be made against standard IDA documentation.

Use of statements of expenditures (SOEs):

Disbursement would be made on the basis of statement of expenditure (SOE) for contracts and purchase orderswith an individual value less than those requiring IDA's prior review.

Special account:

In order to ensure the timely provision of funds available to finance the costs of the project, it is proposedthat the Government establish a Special Account in the amount of US$500,000. Funds in this Special Accountwould be available to finance only eligible expenditures under the Project. During negotiation, agreement wouldbe reached regarding the arrangements for establishing and operating the Special Account.

Table A: Project Costs by Procurement Arrangements

(in US$million equivalent)Expenditure Category Procurement Method Total Cost

ICB NCB Other NBF

1. WorksUrban Water Supply Headworks 2.9 0.3 3.2

(2.6) (0.3) (2.9)Rural Water Supply & Sanit'n (IDA) 3.7 0.5 4.2

(3.4) (0.4) (3.8)Rural Water Supply & Sanit'n (CIDA) 6.0 6.0

Buildings, staff housing, secure storage 1.2 0.1 1.3(1.1) (0.1) (1.2)

Water control & measure't wks 0.2 1.0 1.2(0.2) (0.2)

Rehab of Corumana Dam 4.4 4.4(4.0) (4.0)

2. GoodsEquipment 0.7 0.2 0.4 1.3

(0.6) (0.2) (0.8)Vehicles, Computers 1.2 0.4 0.2 1.8

(1.2) (0.2) (1.4)Materials and furniture 0.3 0.1 0.4

(0.3) (0.1) (0.4)

3. ServicesEng. Services & Studies 9.7 6.2 15.9

(9.7) (9.7)Technical Assistance 2.9 0.8 3.7

(2.9) (2.9)Training 1.9 3.7 5.6

(1.8) (1.8)

4. MiscellaneousOperating costs 1.0 0.3 1.3

(0.9) (0.9)PPF 2.0 2.0

(2.0) (2.0)Unallocated 4.6 4.6

(4.0) (4.0)

Total 12.2 3.3 22.8 18.6 56.9IDA (11.1) (3.1) (21.8) (0.0) (36.0)

Note: NBF = Not Bank-financed.Figures in parenthesis are the amounts to be financed by the IDA credit

Table B: Thresholds for Procurement Methods and Prior Review

Expenditure Contract Value Procurement Contracts Subject toCategory (Threshold) Method Prior Review

i. Works< 500,000 NCB > 250,000> 500,000 ICB > 250,000

2. Goods <250,000 NCB >250,000> 250,000 ICB >250,000< 50,000 InternationallNational -

Shopping

3. ServicesQCBS 100,000 (firms)Individual 50,000 (individuals)Single Source All

4. Miscellaneous

Total

Table C: Allocation of Credit Proceeds

Expenditure Category Amount in US$million Financing Percentage

Civil Works 8.3 100% foreign and 85%local

Works and Goods for Rural Water Supply and 3.8 100% foreign and 85%Sanitation Schemes local

Goods(a) Equipment 0.8 100% foreign and 85%

local(b) Vehicles, Computers and Software 1.4 100% foreign and 85%

local(c) Materials and furniture 0.4 100% foreign and 85%

local

Services(a) Engineering services and Studies 9.7 100%(b)Technical Assistance 2.9 100%(c) Training 1.8 100%

Operating costs 0.9 90%

Refinancing of PPF 2.0

Unallocated 4.0

Total 36.0

ANNEX 6Page 1 of 1


Project Processing Budget and Schedule

A. Project Budget (US$000) Planned Actual(At FEPS stage)

(NWDP was divided into two NWD-I: US$415.65 consistingprojects in July 1997. See PreApp.: US$253.85paragraph 8, main text) Appra. : US$161.8

B. Project Schedule Planned Actual(At FEPS stage)

Time taken to prepare the project: NWDP NWD-IFirst Bank mission (identification) 02/03/1995 02/03/1995Appraisal mission departure 06/24/1996 06/24/1996Negotiations 03/24/1997 11/26/1997Planned Date of Effectiveness 06/30/1997 05/15/1998

Prepared by: DIREC(AO NACIONAL DE AGUAS (DNA)

Preparation assistance: PPF: US$2m. Trust Funds: PreApp.: US$115.50; App.: US$174.65

Bank staff who worked on the project included: John Shepherd (team leader), Catherine Seibert(financial analyst), Martin Gambrill (water and sanitation engineer), Subhash Dhingra (sr.procurement specialist), Nga Nguyen (sr. staff assistant) (all of AFTU 1), Mamta Murthi(economist) (ECSHD), Shobha Shetty (economist) (MNSRE), Roberto Chavez, (AFMMZ),John Briscoe, (senior water advisor) (ESDGW), Mike Garn (economist) (TWUWS), AlisonRosenberg, (principal cofinancing off.) (AFTK1), Kishor Uprety, (legal counsel), (LEGAF).Consultants included Torbjom Damhaug (water resources engineer), Sarah Keener (beneficiaryassessment and participation specialist), and Alvaro Carmo Vaz (hydrologist). The QualityAssurance Team comprised John Roome (chair), David Grey, Bob Roche (all of AFTUl) andGerhard Tschannerl (AFTSA). The Technical Manager was Jeffrey S. Racki and the CountryDirector was Phyllis S. Pomerantz.

ANNEX 7Page 1 of 1


Documents in the Project File*

A. Project Implementation PlanDetailed Cost Tables

B. Bank Staff Assessments: Detailed cost benefit analysis.

C. Other1) National Directorate of Water, Republic of Mozambique: "National Water Policy"; Maputo, 8 August, i9952) National Directorate of Water, Republic of Mozambique: "The Present Condition of the Water Sector in

Mozambique" March 19953) National Directorate of Water, Republic of Mozambique: "Provincial Towns Water Sector Study" PU'V

Consultants BV, Consultec Consultores Assoc. Lda, Fernando Braz de Oliviera Consultores de Eng. Lda4) The World Bank: "Proposed Mozambique National Water Development Project - The Water Resources

Management Component" T. Damhaug, May 19965) National Directorate of Water, Republic of Mozambique: "Study of the Institutional Arrangements fot the

Provision of the Rural Water Supply and Sanitation Services in Mozambique." Cowater International 1&.iMarch 1997

6) National Directorate of Water, Republic of Mozambique, and the World Bank: "Beneficiary Assessment onUrban Water in Mozambique - Maputo and Quelimane, Final Report, Executive Summary." SAWA, Jtiiy1997

7) National Directorate of Water, Mozambique, and the World Bank: "Environmental Assessment of theMozambique National Water Development Project", Noragric, Norway, August 1997.

8) National Directorate of Water, Mozambique: "Training and Capacity Development in the Water Sector",Draft Final Report, Stephen Hugman, February 1997.

9) National Directorate of Water, Mozambique: "Programa Sectorial de Investimentos - Proposta de Integtaolodo PNDA na Programacao de Investimento do Sector de Abastecimento de Agua". Draft, Volume 1Laurence Solomianski, Maputo, April 1997.

10) DNA, NORAD and the World Bank: "Report from participation in the World Bank mission to Mozambi4qeSept. 30 - Oct. 4. 1996, regarding Corumana Dam and preparatory study of strengthening of management ofshared water resources," Odd Morkrid, October, 1996

*Including electronic files.

Annex 8

MOZAMBIQUENATIONAL WATER DEVELOPMENT 1

Status of Bank Group Operations in MozambiqueIBRD Loans and IDA Credits in the Operations Portfolio

DifferenceBetween expected

Original Amount in US$ Millions and actual Last ARPPLoan or Fiscal disbursements a/ Supervision Rating bl

Project ID Credit Year Borrower PurposeNO. IBRD IDA Cancellations Undisbursed Orig Frm Rev'd Dev Obj Imp Prog

Number of Closed Loans/credits: 15

Active LoansMZ-PE-1784 IDA 20810 1990 GOVT INDUSTRIAL ENTERPRIS 0.00 50.10 0.00 25.72 19.92 .92 NS SMZ-PE-1776 IDA 22000 1991 GOVT EDUCATION II 0.00 53.70 0.00 8.24 6.67 6.67 S SMZ-PE-1790 IDA 23740 1992 GOVT OF MOZAMBIQUE FIRST ROAD & COASTAL 0.00 74.30 0.00 25.51 6.17 0.00 S SMZ-PE-1781 IDA 23370 1992 GOVT. AGR.SER. REHAB. 0.00 35.00 12.30 12.12 14.80 0.00 S SMZ-PE-1791 IDA 25300 1993 GOVT LOCAL GOVERNMENT EN 0.00 23.20 0.00 15.31 15.61 0.00 S SMZ-PE-1801 IDA 24870 1993 GOVERNMENT FOOD SECURITY 0.00 6.30 0.00 3.84 3.13 0.00 S SMZ-PE-1796 IDA 24790 1993 GOVERNMENT RURAL REHABILITATION 0.00 20.00 0.00 11.83 10.77 0.00 S SMZ-PE-1802 IDA 24540 1993 GOVERNMENT MAPUTO CORRIDOR 0.00 9.30 0.00 4.02 -2.45 -2.45 5 5MZ-PE-1810 IDA 24370 1993 GOM LEG & PUB SEC. CAPAC 0.00 15.50 2.93 4.88 6.21 -. 34 S SMZ-PE-1797 IDA 24360 1993 GOM CAPACITY BUILDING(HU 0.00 48.60 0.00 30.43 23.99 0.00 S SMZ-PE-1780 IDA 26290 1994 GOVT GAS ENGINEERING(ENGY 0.00 30.00 0.00 12.72 4.63 0.00 8 HSMZ-PE-1811 IDA 26070 1994 GOM FINANCE SECTOR CAPAC 0.00 9.00 0.00 5.85 4.40 0.00 HS SMZ-PE-1804 IDA 25990 1994 GOVERNMENT 2ND ROAD AND COSTAL 0.00 188.00 0.00 110.44 29.29 0.00 S SMZ-PE-1792 IDA 27880 1996 GOVT NEALTH SEC RECOVERY 0.00 98.70 0.00 85.73 29.59 0.00 S SMZ-PE-35922 IDA N0100 1997 GOVT ERC III 0.00 100.00 0.00 47.12 50.34 0.00 S S

Total 0.00 761.70 15.23 403.76 223.07 4.80

Active Loans Closed Loans TotalTotal Disbursed (IBRD and IDA): 340.64 861.70 1,202.34

of which has been repaid: 0.00 2.56 2.56Total now held by IBRD and IDA: 746.47 833.81 1,580.28Amount sold 0.00 0.00 0.00

Of which repaid 0.00 0.00 0.00Total Undisbursed : 403.76 26.40 430.16

a. Intended disbursements to date minus actual disbursements to date as projected at appraisal.b. Following the FY94 Annual Review of Portfolio performance (ARPP), a letter based system was introduced (HS - highly Satisfactory, S satisfactory, U unsatisfactory,

HU N highly unsatisfactory): see proposed Improvements in Project and Portfolio Performance Rating Methodology (SecM94-901), August 23, 1994.

Note:Disbursement data is updated at the end of the first week of the month.

0s

ANNEX 9Page 1 of 2


Country at a Glance

Sub-POVERTY and SOCIAL Saharan Low-

Mozambique Afrta Income Development diamond

Populatlon mid-1996 (mlons) 19.0 600 3229GNP per capita 1996 (USS) 90 490 500 Ufa expectancyGNP 1996 (billonrs U$) 1.8 294 1.601

Average annual growth, 199046T

Population (%) 4.0 2.7 1.7LaborbreX - . 2e6 1.7 qtNP _\-Gros

Mot recent stimate (lsles yearavailable since 1969) caita pe illrnt

Pover"t: headcount Index (% ofpopulatton)Urban popula tion(% total populat/on) 34 31 29Ufa expectancy at birth heats) 47 52 63Infant mortalty (per 1,000 live brth) 128 92 69Child malnutrition (% of childrn under5) 0 .. .. Access to safe waterAccess to salg water (% ofpopultlfon) 28 47 53lliteracy (% of'populateon age 154.) 6o 43 34Grosprimary enrolment (% ol'school-age populaton) 61 72 105 - Mozambique

Male 89 78 112 -Lrw-ncomegoupFemale 45 65 98Lw4cmegu

KEYr ECONOMIC RATIOS and LONG-TERM TRENDS

1976 198 1 1996 1996

GOP (billons USS) .. 28 1.5 1.7 Economic ratloeGross domesatc InvestmentlGDP .. 17.0 51.2 48.3Exports of goods and servicestGOP .. 5. 27.4 27.8 Openness of economyGross domestic savingslGOP .. 3.8 18.0 19.9Gross national savings/GOP .. 4.0 17.7 17.5

Curent account balancetGOP 11 .. -17.2 45.6 -38.9Interest paymerrntaGDP 21 .. 3.0 3.4 3.0 SavIngs InvesstmentTotal debttGDP 21 .. 258.0 807.5 542.0 .a-.ngTotal debt service paldtexports 2 .. 96.5 26.9 2e.3Present value of det/GOP .. .. .. ..

Present value of debt/exports ..Indebtedness

1975.88 1986-96 1985 1998 1997408(average annual growth)GOP -6.5 5.8 1.4 6.4 8.1 - MlozamblqueGNP per capita .. 2.8 -1.8 5.7 3.8 Low-Income goupExportsofgoodsandservices . 10.0 10.1 14.5 8.3

STRUCTURE of the ECONOMY1975 19S5 1995 1996 Growth rtes of outputand lnvestmentI%)

(X of GOpt)Agriculture .. 47.5 34.9 38.8 TIndustry .. 13.2 23.2 23.8 s QManufacturing .. .. .. 0.0 1

Services .. 39.3 41.9 39.3

Private consumpton .. 75.3 89.4 68.1 -3 ! goGeneral government consumption .. 21.0 12.6 12.0Imports of goods and services 0.. 18.8 80.8 68.0 - -- OP

(average annual growth) 197S64 1986t96 1996 195 s Growth rates of exports and Imports (# I

Agriculture .. 3.1 6.7 6.0 soTIndustry .. -1.6 12.2 10.2 l

Manufacturing .. . .. .. TSevIces .. 12.5 *9.3 a.1 Y /

Private consumption .. 0.9 -4.7 7.3 °79General govemment consumption .. 2.6 -37.7 1.4 .oTGross domestic investment . 4.3 1.2 8.6Imports of goods and services . 0.1 -13.4 10.1Gross national product .. 8.5 3.0 9.3 'o 0 "'"f

Note: 1996 data are prlIlminary estimates.* The diamonds show fbur key indicators In the country In bold) compared with its incomegroup average. If data ar missing, the diamond will

be Incomplete.1/ Before official capital grants. 2/ Paid after debt relIef.

ANNEX 9Page 2 of 2


Country at a Glance

PRICES and GOVERNMENT FINANCE

Domestic prices 1975 1N95 1995 1996 Inflation (1/6)(% change) soConsumn prices 1/ _ 30.8 54.4 44.6 8_

Implcit GOP deflator .. 33.1 50.4 37.9

Govoiment finantnce 2(% of GOP) e - _,Current revenue 1 .. 17.3 18.3 15.0 _- -ol.- 85 83 '4 85 94Current budget balance .. .12.4 1.7 Z0 GOP W. CPSOveradl surplus/defidt .. -18.4 -20.8 -17.2 .

TRADE

(millions USS) 1975 1985 1995 1996 Ksport and Import levels (mIlL USs)Totalesport (fob) .. 77 174 22e *2.

Cashrewnutsandraw . .. 12 13 45 iPrawn 33 73 80 asr,Manu acturs 0 7

Total imports (ci) .. 381 727 802 n11* 1111Food .. .. 44 29 2t2Fuel and enegy .. .. 68 78 2,Capital goods .. .. 168 152 __l ___ittli iUi! i ____* it _ _

CixportprleIndex(1987-100) .. 8d 94 9 so 91 92 a3 .4 ff islmportpriceindex(19a87100) .. 121 133 133 oa 'p.at atmpoitTarmns ottrade(1987-100) .. 70 70 75

BALANCE of PAYMENTS

(millions USSJ 1975 1985 1995 1996 f Currnt account balance to GOP ratio%iixportsofgoodsandservices .. 143 407 479 oImportsi d goodsand serv .. 481 e8g 973 * .2 '. j4 j .5 'Resource balance *- -39 492 494 s | ;

Net income .. -102 -185 -174 1 INaetcurentranafars 0 0 0 0 1!Current account balance I!

beftre oicial capital ransfers .. 440 .877 487 1 i iFinancing items (net) .. 420 736 826Changes In net reserves .. 21 40 *158 ,0 '- iMemo:

Reserves including gold (mill. USS) 21 .. 18 225 384Conversion rate (loca&'tJSS) 25.6 43.2 8,889.8 11,293.8

EXTERNAL DEBT and RESOURCE FLOWS

(millions USSJ 1985 199f | Composaidon of total debt, 1994 (mill. US$)Total debt outstanding and'disbursed 3/ 0 2,706 9,017 9,300

IRO a 0 0 0IDA 0 5 890 1,079 G: 159 8:1079

Total debtservAce4/ a 42 422 375 F: 1846S C.DitIBRD 0 o 0 0 - ,:52IDA 0 1 7 8

Compositon of net resourme flowsOffcial grants 0 149 339 283 )Official creditors 0 309 153 202Private creditors 0 64 S9 75Foreign direct Investlnewt .. 0 45 73Portiolo equity 0 0 - 0 0 8.5g2

World Bank programCommintents 0 4e 99 0 A - tis BilateralDisbursements a 5 180 221 8-IA 0 .Otnert tatrltwal F-PivatlaPrIncipal repayment 0 1 1 1 C - IMf 0- Shert-twNet flows 0 3 189 220 .Interest payments 0 0 6 7Net transfers 0 3 1S3 213

1 Period average.2 Gross foreign assets of the banking system.31For 1995 and 119s8,tguindude nonguanted private seordet anddebtto Russia.4/ Scheduled before debt relIef.