Algeria : Reimbursable Technical Assistance for water sector

By Maya Khelladi, Economist at the World Bank

Articles  Nawafid Maghreb 3 : water & environment Sites Web Ministry of Water Resources Sanitation National Agency (ONA) National Water Supply Agency (ADE) Document Water Supply and sewerage rehabilitation project

October 2006 - Algeria has crucial and urgent water related problems including ensuring water supply and sanitation in the most important regions of the country in terms of population and GDP.

During the last decades, water planners and policymakers targeted   infrastructure such as dams and transfers, rather than focusing on management and institution-building.The outcome of such policy was a purely “engineering approach” to the planning of infrastructure and investment portfolio. Institutional issues, such as limited accountability, transparency and user participation have not been solved yet. The sector lacked coordination at all levels.

Given the relaxed fiscal system, reforms were not a priority anymore. If not addressed soon, the current situation is clearly not sustainable. It constitutes already an obstacle to social and economic development.

Water utilities have a poor record of meeting delivery services standards, with relatively high access but a rather poor quality service. They are caught in the vicious cycle of poor maintenance with a bad delivery services, creating users’ reluctance to pay more for the service, thus depriving the operator from resources needed for the maintenance of the system. Most of the existing waste water treatment plants are not functioning due to a poor O&M. The average level of non ”revenue water” (both physical and commercial losses) for the country is estimated at about 40 percent. Intermittent supply is frequent when demand exceeds water available or when water resources and infrastructures are ill managed.

The average cost recovery for water and sanitation serviceswas 70 percent following the January 2005 tariff adjustment. When disaggregated, cost recovery appears to be far less than institutions actually require for assets operations and maintenance. Budget pays salaries first, leaving insufficient funds for operations and maintenance.

The Ministry of Water Resources (MRE) addressed these problems by reforming and enforcing utilities’ resources and management capabilities few years ago. Now, it prioritizes sustainable use of water. A new Water Law, passed in August 2005, provides for the private sector participation. In 2005, The MRE called for the Bank’s technical assistanceto introduce private sector participation in order to improve water and sanitation services in 3 major cities: Oran, Annaba and Constantine.

The Bank provided technical assistance based on a large participation of both national and local staffsof the national water supply agency (ADE) and the sanitation national agency (ONA). This participatory process was necessary to better apprehend what results to expect at the national level. The first and most important requirement of the MRE was to ensure as soon as possible a continuous supply of drinking water in the three cities. None of three of them has 24 hours water supply.

The MRE is building several large infrastructures, including desalination plants, dams and transfers, to ensure the necessary volume of water resources for the 3 cities. Still, the major challenges are human resources’ and asset’s management. After visiting and meeting local staffs it has been possible to assess both local conditions and needs. Oran’s water supply is highly dependent of the availability of the resource. Therefore, water supply is suffering from structural drought. Sanitation networks are barely managed by municipality’s untrained staff. Annaba is particularly prone to floods, sanitation networks are almost abandoned. Both cities are heavily polluting the coast. Then, a diagnosis of the sanitation networks will be unavoidable. In Constantine, sanitation networks are also in a bad shape. In the three cities, despite the efforts being made, non revenue water remains important.

Defining the exact parameters of the future utility was a difficult and long process. Due to poor O&M and to an unclear definition of responsibilities some of the water supply and sanitation assets were abandoned. After two months, the Bank’s team completed a technical assessment for each city.

Meetings with national civil servants allowed us to take duly into account the legal and institutional frameworks. Thus, it was easier to choose the right model for PsPs and to define the roles and responsibilities of every one within the new structures. As water and financial resources were being insured by the MRE, assessed risks were low. Therefore it was possible to advice on a performance based operators’ contractmodel for the 3 cities1. The main reference criterion was the volume of water levied. This criterion encompasses both the efforts made on reducing leaks and improving fees collection. This should guarantee that the private partner would make all the necessary efforts to ensure continuous water supply. A specific attention was put on know-how and technology transfers. Selected companies will have to establish training centers. After the five years of the contract, the performance of the three utilities should be in keeping with best international standards.

After a prequalification process, nine companies were short listed by both ADE and ONA. Then, a first draft of the bidding document was sent with the technical annexes for comments to both ADE and ONA. In the mean time, the team assisted both the ADE and ONA in setting the institutional framework. After exchanges of comments the tender was issued in June 2006. Technical offers were received for the three cities from several companies. Selection process is currently carried out both by ADE and ONA.

Bank’s assistance was necessary to ensure that the public private partnerships (PPP) will improve significantly water supply and sanitation services thanks to better management of all assets.The team provided the experience and best practices of the Bank in water and sanitation management. Client’s needs were addressed focusing on the fact that the population shall benefit from these PPPs. The quality of the bidding documents helped to mitigate the risk as perceived by the private sector. Such procedure guarantied better offers at a better price. At the end of these PPPs, the client shall decide which steps to follow and whether or not further partnerships will be necessary.