AFRICAN DEVELOPMENT FUND

Language : French Original : French

DJIBOUTI

DJIBOUTI CITY SANITATION PROJECT APPRAISAL REPORT

WATER AND SANITATION DEPARTMENT: NOVEMBER 2007

TABLE OF CONTENTS PROJECT INFORMATION SHEET, LIST OF TABLES, LIST OF ANNEXES, CURRENCY EQUIVALENTS AND MEASURES, LIST OF ABBREVIATIONS, BASIC DATA, LOGICAL FRAMEWORK OF PROJECT, EXECUTIVE SUMMARY

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i-ix 1. PROJECT ORIGIN AND HISTORY

2. WATER AND SANITATION SECTOR

2.1 Water resources 2.2 Drinking water supply and sanitation 2.3 Institutional framework of sector 2.4 Main water sector constraints 2.5 Sector development policy and strategy 2.6 Donor interventions 2.7 Lessons learnt from donor interventions

3. THE URBAN SANITATION SUB-SECTOR 3.1 Organizational framework 3.2 Institutional development, billing system, cost-recovery and financial performance 3.3 Program of priority sanitation works

4. THE PROJECT 4.1 Design and rationale of project 4.2 Project area and beneficiaries 4.3 Strategic context 4.4 Project objectives 4.5 Project description 4.6 Impact on the environment 4.7 Project costs 4.8 Financing sources

5. PROJECT IMPLEMENTATION 5.1 Executing Agency 5.2 Institutional arrangements 5.3 Implementation and supervision schedule 5.4 Procurement arrangements 5.5 Disbursement arrangements 5.6 Monitoring and evaluation 5.7 Financial and audit reports 5.8 Coordination of assistance

6. SUSTAINABILITY AND RISKS OF THE PROJECT 6.1 Recurrent expenditure 6.2 Project sustainability 6.3 Main risks and mitigative measures

7. PROJECT BENEFITS 7.1 Financial analysis 7.2 Economic analysis 7.3 Social impact analysis 7.4 Sensitivity analysis

8. CONCLUSIONS AND RECOMMENDATIONS 8.1 Conclusions 8.2 Recommendations

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This report was written by Mr. A. OUTAGUEROUINE (Project Manager, Water and Sanitation Engineer) and Mrs. C. WALENDOM (Financial Analyst) after an appraisal mission to Djibouti from 19 May to 2 June 2007. Questions on this report should be referred to them, or to Mr. S. JALLOW, Division Manager, OWAS.2 (Extension 2191) and Mr. K. BEDOUMRA, Director OWAS (Extension 2055).

LIST OF TABLES

N° Title Page

Table 4.1

Annex 4.2

Annex 4.3

Annex 5.1

Estimated project costs by component

Estimated project costs by expenditure category

Financing sources

Procurement arrangements

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LIST OF ANNEXES

N° Title Nbr of Pages

Annex 1

Annex 2

Annex 3

Annex 4

Annex 5

Annex 6

Annex 7

Annex 8

Annex 9

Annex 10

Annex 11

Annex 12

Annex 13

Map of Djibouti

Djibouti - Bank Group operations as of July 2007

Organization structure of ONEAD

Water and sanitation rates

ONED balance sheets – from 2002 to 2006

ONED Income Statement for 2002-2006 (in FDJ millions)

ONEAD Income Statement for 2002-2006 (in FDJ millions)

Project costs, financing sources and expenditure schedule

Supervision schedule

Financial and economic analysis assumptions

Calculation of the financial internal rate of return (in FDJ million)

Calculation of the economic internal rate of return (in FDJ million)

List of documents consulted

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AFRICAN DEVELOPMENT FUND

Temporary Relocation Agency (TRA –Tunis) Tel.: (216) 71 10 21 91, Fax : (216) 71 33 36 80

BP 323, 1002 Tunis Belvédère, Tunisia

PROJECT DATA May 2007

The information given hereunder is intended to provide guidance to prospective suppliers, contractors and all persons interested in the procurement of goods and services for projects approved by the Board of Directors of the Bank Group. More detailed information and guidance may be obtained from the Executing Agency of the Borrower. 1. COUNTRY : Djibouti 2. PROJECT NAME : Djibouti City Sanitation Project 3. BENEFICIARY : Government of Djibouti 4. PROJECT AREA : Djibouti City 5. EXECUTING AGENCY : National Water and Sanitation Authority of Djibouti (ONEAD) Tel: 253 35 86 71 – Fax: 253 35 44 23 6. PROJECT DESCRIPTION : The Program comprises the following

components:

A. Institutional support and capacity-building:

B. Rehabilitation and development of sanitation infrastructure

C. Project management. 7. TOTAL COST : UA 20.96 million Foreign exchange : UA 14.67 million Local currency : UA 6.29 million 8. BANK GROUP FINANCING ADF grant : UA 6.5 million 9. OTHER FINANCING SOURCES European Union : UA 13.41 million Gouvernment of Djibouti : UA 1.05 million 12. APPROVAL DATE : December 2007 (Projected)

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13. START-UP DATE AND DURATION : Second quarter of 2008, for 3 years 14. PROCUREMENT OF GOODS AND WORKS : International competitive bidding for the

supply, construction and rehabilitation of sewage networks, pumping stations and rainwater conduits. National competitive bidding and international and national shopping for the supply of goods.

15. CONSULTANCY SRVICES REQUIRED : Consultancy services will be required for

the update and digitalization of plans, the recruitment of a procurements expert, training and external audit.

16. ENVIRONMENTAL CATEGORY : I.

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CURRENCY EQUIVALENTS, ACRONYMS AND ABBREVIATIONS

Currency Equivalents (May 2007)

Currency Unit : Djibouti Franc UA 1 = US$ 1.52418 UA 1 = € 1.12031 UA 1 = DJF 268.392

Fiscal year 1st January – 31st December

Units of measure

1 km = kilometre = 1,000 m 1 km2 = square kilometer = 1,000,000 m2 = 100 ha 1 ha = hectare = 10,000 m2

1 ml = linear meter 1 m3 = cubic meter 1 m3/d = cubic meter per day 1 hm3 = million cubic meters l/s = liters per second Inhab/ha = inhabitants per hectare l/inhab/d = liter per inhabitant per day

Abbreviations ACP Action contre la pauvreté (Action against poverty) ADB African Development Bank ADF African Development Fund AFESD Arab Fund for Economic and Social Development AWV African Water Vision CAPEF Action Framework for the Promotion of Girls’ education CDC Community development centers CEDAW Convention on the Elimination of all Forms of Discrimination against Women CERD Djibouti Studies and Research Center CSO : Civil society organization DAF Administration and Finance Department DATE Department of Territorial Development and the Environment DJF Djibouti Franc DPHP Department of Prevention and Public Hygiene DS Department of Sanitation EDF European Development Fund EU European Union FNA National Sanitation Fund FNE National Water Fund JICA Japanese International Cooperation Agency (grants) MAEM Ministry of Agriculture, Livestock and the Sea, in charge of fishery resources MHUEAT Ministry of Housing, Town Planning, the Environment and Territorial Development

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NGO Non-governmental organization ONEAD National Water and Sanitation Authority of Djibouti ONED Djibouti National Water Authority of Djibouti OPEC Organization of Petroleum Exporting Countries PE Population equivalent PICE Public industrial and commercial establishment PRSF Poverty Reduction Strategic Framework PVC Polyvinyl chloride RBCSP Results-based Country Strategy Paper SDNE National Water Master Plan ST Sewage tax TEOM Solid Waste Management Tax UA Unit of Account UNESCO United Nations Educational, Scientific and Cultural Organisation USTDA US Trade and Development Agency WHO World Health Organisation

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N.B: The data provided by the Government and contained in the text does not always tally with the data in the above table.

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DJIBOUTI

DJIBOUTI CITY SANITATION PROJECT

STRATEGIC RESULTS FRAMEWORK OF THE PROJECT

HIERARCHY OF OBJECTIVES

EXPECTED OUTCOMES SCOPE (beneficiaries)

PERFORMANCE INDICATORS OBJECTIVE INDICATORS AND TIMEFRAME

ASSUMTIONS / RISKS

SECTOR GOAL To improve the living and health conditions of the people living in Djibouti City

LONGER-TERM RESULTS By 2015

(1) Attain national MDG targets on sanitation (2) Attain MDGs on the reduction of infant mortality, the improvement of maternal health and the promotion of a sustainable environment

The people of Djibouti City (824,000 inhabitants)

(1) Access rate to sanitation 2.1 Under-5 mortality rate 2.2 Maternal mortality rate Sources: National surveys (Statistics center) UNDP Human Development Report Population and Health Surveys Project progress reports

(1) The sanitation access rate rises from 15% in 2005 to 57% in 2015. 2.1 The under-five mortality rate will drop from 94‰ to 45‰ between 2005 and 2015 2.2 Reducy maternal mortality by 3/4 before 2015

Government commitment to implement structural reforms in the sector The Government continues to give priority to the sector The Government raises all the resources needed to finance the priority program

PROJECT OBJECTIVE Ensure sustainable access to sanitation services, better health and protection of the environment and fishery resources

MEDIUM-TERM RESULTS (1) Sustainable access to hygiene and sanitation services (2) Socio-health conditions of the people are improved (decline in water-borne disease incidence); (3) Protection of the environment and fishery resources

Urban population of Djibouti City (i.e. 2/3 of the national population), or 549,330 inhabitants

1.1 Access rate to community sanitation 1.2 Cost-recovery rates (2) Water-borne disease prevalence rate (3) Elimination of marine ecosystems pollution; Sources: Statistics Center reports; Documents and publication of the Department of Epidemiology and of the Ministry of the Environment ONEAD follow-up reports

1.1 The sanitation access rate in Djibouti City rises from 18% (28,945 inhabitants) in 2003 to 37% in 2003 (64,010 inhabitants). 1.2 The cost-recovery rate surges from 0% to 70% in 2011 and to 100% in 2015 (2) Reduction of mortality due to water-borne diseases by 38% from 2011 (3) A 90% reduction in the volume of sewage discharged into the sea by 2011

Sound management of the facilities and mastery of the activated sludge technology Connection to the sanitation network and payment of levies

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ACTIVITIES/INPUTS 1. Rehabilitation and development of sanitation infrastructure 2. Update of plans 3. Institutional support and capacity-building: 4. Sensitization campaign and impact monitoring Project management INPUTS/RESOURCES ADF loan: UA 6.5 million EU : UA 13.41 million GOV : UA 1.05 million TOTAL : UA 20.96 million

SHORT-TERM OUTPUTS 1. Treatment station, sewage networks of the city, rainwater collector, pumping/sewage lift stations, and a pilot unit for treating drainage water 2. Update and digitalization of plans 3. Conduct of training, procurement of various equipment, technical assistance 4. Recruitment of an NGO and an agreement with DPHP 5.1 Staff appointed and available 5.2 Equipment provided

Population of Djibouti City (Districts 1, 2 and 3), or 170,900 inhabitants ONEAD, Consultant ONEAD, Consultants

NGO, DHPH and population of Djibouti City ONEAD

1.1 Activated sludge purification station 1.2 Sanitation networks 1.3 Rainwater collector 1.4 Pumping and sewage-lift stations 1.5 Drainage water treatment pilot unit 2. Number of digitalized plans 3. Number of staff members trained by category and number of equipment procured 4. % of the population affected by the sensitization campaign, quality of water in beneficiary areas and disease reduction rate 5.1 Staff deployment plans; recruitment contracts; attestations of assumption of duty 5.2 Equipment delivery slips Sources: Quarterly status reports Project supervision reports Financial statements and annual audit reports

2011 : 1.1 A treatment station with a capacity of 40 000 PE 1.2 Rehabilitation of 14 sewage collectors 1.3 Rehabilitation of a rainwater collector 1.4 Rehabilitation of 11 umping and sewage-lift stations 1.5 Construction of a drainage water treatment pilot unit 2. All the City’s sanitation infrastructure updated and digitalized 3.1 10 experts trained 3.2 Field equipment procured 3.3 IT equipment procured 3.4 Transfer of technology 4. 100% of the population in Djibouti City sensitized and

quantification of the positive impact of the project 5.1 Staff deployment plans; recruitment contracts;

attestations of assumption of duty available in March 2008

5.2 Delivery slips for all equipment available in December

2008

Improvement of procurement and disbursement procedures as well as monitoring of ONEAD projects

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EXECUTIVE SUMMARY 1. PROJECT ORIGIN AND HISTORY Nearly all the sanitation facilities in Djibouti City have virtually stopped functioning, leading to sewage overflow in all the city’s neighborhoods and the discharge of untreated waste into the sea. This poses a major risk of pollution to the watertable (main source of drinking water for the city), environmental degradation and a threat to national fishery resources and community health. Indeed, diseases caused by sanitation system failure account for 42% of child consultations, 35% of hospitalization days and 38% of deaths. The introduction of better sanitation systems will boost disease prevention and reduce human pressure on health establishments. Mindful of the crucial role of healthy living conditions and a clean environment in combating poverty, the State of Djibouti has prepared a strategic sanitation plan for the city of Djibouti, with the support of the African Development Fund (ADF). The design of the current project, which is an emanation of that plan, is based on priority needs retained by the National Water and Sanitation Authority of Djibouti (ONEAD) under its short-term (0 to 5 years) priority investment program. In addition to ADF support, the priority program also received financial support from the European Union. 2. PURPOSE OF GRANT The ADF grant of UA 6.50 million, representing 31.01% of total project costs, shall cover 31.44% of costs in foreign exchange and 30% of costs in local currency. 3. SECTOR GOALS AND SPECIFIC OBJECTIVES OF THE PROJECT The sector goal of the project is to help improve the socio-economic and health conditions of Djibouti City with a view to attaining national MDG targets on access to sanitation and better health. Its specific objective is to improve access to sanitation services for Djibouti City residents (from 18% to 37% in 2011), reduce water-borne disease incidence (38% of deaths) and protect the environment and fishery resources. 4. PROJECT COMPONENTS The main components of the project are:

A. Institutional support and capacity-building: B. Rehabilitation and development of sanitation infrastructure C. Project management.

5. PROJECT COST The estimated project cost, net of taxes and customs duties, is UA 20.96 million, of which UA 14.67 million is in foreign exchange and 6.29 million in local currency.

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6. FINANCING SOURCES The project shall be financed by an ADF grant of UA 6.50 million (31.01% of project costs), an EU loan of UA 13.41 million (63.99% of project costs) and a Djibouti Government contribution of UA 1.05 million (5% of project costs). 7. PROJECT IMPLEMENTATION Project implementation is planned to cover 36 months from 2008 to 2011. The National Water and Sanitation Authority of Djibouti (ONEAD) set up by a law enacted in February 2006 and a decree signed on 21 May 2007 to define its statutes, shall be the project executing agency. 8. CONCLUSION AND RECOMMENDATION The Djibouti City Sanitation Project is technically feasible, and financially and economically viable, especially as the necessary institutional reforms have been implemented. The mitigative measures for this project, which is classified in Category I, were implemented during its implementation. Project execution will support the priority program which entails generalizing sanitation access to the whole city, thereby providing an adapted solution to wastewater pollution and wastewater usage in agriculture. This project is the Bank’s main contribution to Government efforts to provide the people with sustainable liquid and solid waste management systems.

1. PROJECT ORIGIN AND HISTORY 1.1 The sanitation problem, by virtue of its scale, is one of the main environmental threats faced by Djibouti. It is particularly acute in Djibouti City which holds 2/3 of the country’s population of 800,000 inhabitants (2006). Indeed, the sanitation sub-sector is plagued by a series of constraints that hamper the city's development. Such constraints include a weak institutional framework prior to the construction of project infrastructure and the absence or inadequacy of a cost-recovery system that is crucial to the functioning and sustainability of the facilities. 1.2 Nearly all wastewater collection and disposal facilities have stopped functioning, generating a sewage overflow in all the city’s neighborhoods. The rainwater conduits in Djibouti City receive a high volume of liquid waste and overflow and thus constitute a health risk, since they are found in residential areas, where an indigent population, with no access to drinking water, has settled on the fringes. Moreover, the discharge of raw sewage into the sea – a common practice in many parts of the city - causes a wide range of diseases such as conjunctivitis, dermatitis, or gastro-intestinal infections. 1.3 Mindful of the above constraints which underscore the need to adopt a coherent sanitation policy that will curb these health and environmental risks, the African Development Fund financed the Strategic Sanitation Plan for Djibouti City at the request of the Djibouti Government. Prepared in December 2005, this study led to the design of a priority investment program that will run till 2015 for both liquid and solid waste management. During the ADB appraisal mission of 19 May to 2 June 2007, the Bank was requested to finance: (i) the rehabilitation and extension of the wastewater interception, collection and pumping facilities in Djibouti City; (ii) the rehabilitation and extension of a rainwater conduit; and (iii) institutional support and capacity-building for ONEAD. Apart from contribuiting to the financing of wastewater collection and pumping infrastructure, the European Union will finance a wastewater treatment plant in Douda as well as the “solid waste” component. 1.4 The Djibouti City Sanitation Project is in line with the Poverty Reduction Strategy Paper (PRSP) adopted in July 2004. The project also tallies with the main guidelines of the Results-based Country Strategy Paper (RBCSP 2007-2009) which retained sanitation sub-sector development as the sole intervention area for ADF-X allocations. This report was prepared based on the data collected and the work done during the project appraisal mission. 2 WATER AND SANITATION SECTOR 2.1 WATER RESOURCES 2.1.1 The Republic of Djibouti is situated south of the Straits of Bab Al Mandad at the entrance to the Red Sea and has a maritime front that opens out to the Red Sea and the Gulf of Aden. Given its peculiar geodynamic context – the country straddles three major tectonic rift systems (Red Sea rift, Aden Gulf rift and the East African rift) - Djibouti is located in a seismic and volcanic region. As a result, 90% of its geological formation is dominated by volcanic rocks, and the remaining 10% is composed of sedimentary rock formations found mainly in the coastal plains. 2.1.2 According to UNESCO’s classification, the Republic of Djibouti is located in an arid zone with hot winters (20 to 30°C) and very hot summers (above 30°C). It has very low rainfall all year round and the water balance (rainfall minus evaporation) is negative; this accounts for Djibouti’s notoriously low rainfall which cannot produce a runoff or replenish the watertable, except in cases of intense and localized storms. Hence, there is no permanent watercourse on the national territory and the drinking water supplied to urban areas, especially Djibouti City, is extracted exclusively from underground aquifers (boreholes). It can be tapped from a shallow depth in dry wadis or deeper in

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fractured volcanic rocks. In Djibouti City in particular, the water supply problem is very acute. Indeed, all the water resources are unidentified and limited, since their availability depends on the rise in water levels. Moreover, the quality of the water collected is very variable in terms of salinity. 2.1.3 According to the Djibouti City drinking water supply masterplan study conducted in September 2005, the estimated theoretical capacity of Djibouti’s watertable is 13.5 million cubic meters per year and the operating flow is about 13.9 million cubic meters per year. This means that the aquifer is overtapped from several boreholes situated in the coastal areas. The study concluded by defining measures that need to be taken to gradually address these shortages, such as recourse to sea water desalinization through the reverse osmosis process.

2.2 DRINKING WATER SUPPLY AND SANITATION 2.2.1 Until May 2007, the country’s drinking water supply (DWS) was ensured by the National Water Authority of Djibouti (ONED) through boreholes. After this date, the National Wather and Sanitation Authority of Djibouti (ONEAD) took over. The DWS population coverage rate was about 86% in urban areas and 42% in rural areas. Water is conveyed through backstreaming into storage tanks where it is chlorinated before distribution through a collective network. In urban areas, some of the households are not connected to the network and so get their water from public taps or secondary connections to neighbors’ homes, or still, purchase it from tank trucks. In rural areas, the people sometimes have to cover long distances to fetch water which they then transport all the way back home. 2.2.2 In Djibouti City, in particular, drinking water is tapped through a group of 33 boreholes disseminated in two well fields. Of the currently operational boreholes, 12 are newly constructed, including 11 by the Japanese project (JICA) and one by ONED. The water harnessed through these boreholes is channelled into the reservoirs of the Ambouli and Balbala pumping stations for redistribution in the Djibouti and Balbala distribution areas. To offset the deficit of drinking water supply from groundwater, the city of Djibouti recently opted for sea water desalination. 2.2.3 On sanitation, apart from a few districts of Djibouti City that have a collective system, the rest of the country has private sewage disposal systems composed of septic tanks and dry latrines which may cause soil and watertable pollution. Djibouti City’s sanitation network has a total linear capacity of 26.3 km, of which 17 km is gravitational and 9.3 km is based on discharge. It mainly covers the downtown area, the residential areas near Salines Ouest and the southern and eastern districts. Most connections to the sanitation network are found in the first 3 districts of Djibouti, and the city’s total connection rate is about 18%. Balbala town has a very small sewage disposal network, since the dominant practice is private sewage disposal. Nine (9) sewage lift sub-stations are distributed within the sanitation network, of which 7 (seven) were managed by the defunct Department of Sanitation (until September 2007) and 2 (two) by private operators. The main axis of the sanitation network skirts the eastern coast of the City to join the activated sludge treatment plant of Douda, south of the airport which is currently out of service. 2.3 INSTITUTIONAL FRAMEWORK OF SECTOR 2.3.1 Water management is the responsibility of the Ministry of Agriculture, Livestock and the Sea in charge of Water Resources (MAEM), which has delegated drinking water management and sanitation to the National Water and Sanitation Authority of Djibouti (ONEAD). However, the Ministry retains the responsibility of providing water to rural communities through its village water supply service. Other structures also intervene in the sector. These are the Ministry of the Home Affaires which intervenes in urban drainage and solid waste collection in the districts; the Ministries of Health and Commerce which intervene in the bacteriological quality control of potable water; the Ministry of Finance, Economy and Planning in charge of Privatization responsible for investment programming and resource mobilization; and the Presidency of the Republic through CERD, a research body with a laboratory for conducting physico-chemical tests on water.

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2.3.2 Apart from these structures, the civil society is also active through several NGOs like the National Union of Djibouti Women (UNFD), Action Against Poverty (ACP), Community Development Centers (CDC), Bender Djedid (new land), Feminine Solidarity Association, Djibouti Association for Family Balance and Promotion, and Association Oui à la Vie (for AIDS control). 2.3.3 All these institutions work sectorally without any overall vision and are subject to legislation that is incomplete and not applicable across the board. To address these constraints, the Government adopted an integrated national water and sanitation policy in 2006, based on the establishment of a single operator, namely ONEAD. In the same vein, the Government decided to endow the Technical Services Department of Djibouti District with a more flexible structure that will enable it to perform its missions, especially those related to solid waste management, by creating the Djibouti Highways Authority (OVD) whose texts of establishment were adopted in 2007. 2.4 MAIN SECTOR CONSTRAINTS 2.4.1 Water and sanitation sector development is plagued by a series of constraints, most of which are institutional, financial, technical and organizational in nature. The institutional constraints include: (i) the absence of an autonomous structure, (ii) a dissipation and even duplication of actions, and (iii) few relations with the community. 2.4.2 The financial constraints include an inefficient cost-recovery system and the absence of an adequate financing policy for the sanitation sector. Technical constraints include: (i) infrastructure management and maintenance difficulties; (ii) the selection of technological options without support measures to ensure sustainability; and (iii) a disparity of actions. Organizational constraints include: (i) an inappropriate legal framework; and (ii) the non-enforcement of existing health regulations. 2.5 SECTOR DEVELOPMENT POLICY AND STRATEGY 2.5.1 The Government is fully aware of the gravity of the situation and has placed the water and sanitation policy among its key concerns. This has translated into major institutional reforms such as the publication of the Water Code (1996), the creation of a unified Water Department (1999), as well as an interministerial coordination organ. The National Water Master Plan (NWMP) was prepared and approved in 2000. With the adoption of an integrated national water and sanitation policy, based on the establishment of ONEAD as sole operator, the Government addressed the main obstacles undermining sector development. In a bid to consolidate gains and continue with structural reform, economic growth and poverty reduction actions, the Government prepared an Economic and Social Development Program for 2006-2010 that cost US$341.1 million. This program is a translation of the priority actions defined in the PRSP into sectoral projects. Water and sanitation feature prominently therein (US$ 117.4). 2.5.2 For the particular case of Djibouti City which holds close to 2/3 of the country’s population and to tackle the currently acute problems in the drinking water supply system and take the necessary measures to address water needs right up to 2030, the Government of Djibouti, acting through the defunct ONED, conducted studies on the Drinking Water Supply Master Plan in 2007. These studies focused on all aspects of urban water supply, making a solid assessment and diagnosis of the status of production, storage and distribution facilities, and identifying water sources and facilities needed to ensure adequate supply to the city and address various planning needs. On sanitation, Djibouti authorities have worked in conjunction with development partners to launch a study on the city’s sanitation strategic plan. This study, prepared in December 2005 with ADF financing, made it possible to: (i) define an institutional and financial plan together with a legal and statutory component that is indispensable to its enforcement; (ii) prepare a priority investment plan; (iii) conduct environmental impact assessments; and (iv) conduct studies on the implementation of the priority program. The cost of the priority investment program stands at DJF 15,557 million (or about UA 61.25 million).

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2.6 DONOR INTERVENTIONS 2.6.1 Sector development is ensured by the Government with the support of a certain number of bilateral and multilateral donors (see table below).

Donor Amount Completed Ongoing Planned World Bank US$ 7 million Institutional reforms

(2004)

African Development Fund

UA 0.53 million Strategic study on sanitation in Djibouti City (2005)

AFESD DJF 120 million Water Master Plan for Djibouti (2007)

OPEC DJF 325 million Stormwater drainage project (2001)

European Union €15 million Institutional support to

water sector reform and rehabilitation of District 4 in Djibouti City

ADF and EU UA 20.96 million Djibouti City Sanitation Project

Al Ghanim Group Kuwait/China

US$ 150 million Doraleh Water Desalination Unit

EU US$ 2 million Quality analysis and reinforcement of quality control

Arab financial institutions

US$ 117.4 million Water and sanitation sector development.

2.6.2 Since it started operating in Djibouti, the Bank has approved 7 (sept) opearations in the sector, amounting to cumulative commitments of UA 26.8 million. Its last operation is the study on the sanitation strategic plan for Djibouti City completed in December 2005. 2.7 LESSONS LEARNT FROM DONOR INTERVENTIONS 2.7.1 The main lessons learnt from donor interventions relate essentially to the disparate nature of actions in the sector with no common vision, and the lack of attendant measures to ensure the sustainability of project facilities. This is the case with the former activated sludge treatment station in Douda built in 1991 with ADF funding. It has been out of service since its commissioning because no provision was made for technical assistance or training for the staff responsible for operating it. Moreover, there are problems also in project implementation, such as delays in the project cycle (design, effectiveness, procurements, and finally completion). These delays are usually attributed to the weak institutional capacity of the executing agencies. 2.7.2 Moreover, there are other problems that are generic to most Bank-funded projects in Djibouti, namely: (i) the unavailability of counterpart funds, (ii) delays in structural reform implementation, and (iii) the suspensions to which the country is often subjected. 2.7.3 These lessons and problems were factored into the design of the current project and are also examined under the 2007-2009 RBCSP.

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3. THE URBAN SANITATION SUB-SECTOR 3.1 ORGANIZATIONAL FRAMEWORK 3.1.1 The main government institution responsible for water and sanitation, as indicated above, is the Ministry of Agriculture, Livestock and the Sea, in charge of Water resources (MAEM). Sanitation sub-sector infrastructure was managed by the Department of Sanitation while solid waste collection and treatment was entrusted to District Technical Services under the supervision of the Djibouti District. 3.1.2 An analysis of the organizational structure of the sanitation sub-sector and the other services operating in the sector shows widespread dissipation of sanitation efforts, even though the texts clearly define the prerogatives of each service. Mindful of these institutional shortcomings and conscious of the fact that a deficient sanitation policy will undermine the quality of life and health of its citizens, the Government has decided to intitate reforms in the sub-sector. These reforms, recommended by an ADF-funded study and prepared in 2005, are based on three strategic areas, namely: (i) the reorganization of the sanitation sector, (ii) the institutional development of the sector, and (iii) the financial sustainability of sanitation services. Reorganization through reform is conducted at two levels: central and regional. The goal of these reforms is to build the institutional capacity of the management structure and give it more powers and autonomy with a view to improving the financial viability of the sub-sector through a rates system that takes into account the affordability of the service to consumers. 3.1.3 Consequently, a new law was adopted by the Council of Ministers on 8 February 2006 to set up ONEAD (the National Water and Sanitation Authority of Djibouti) which henceforth manages drinking water supply and sanitation together. The decree defining the status of ONEAD was signed on 21 May 2007. Pursuant to the provisions of Act No. 145/AN/06/5ème L of 1 June 2006, ONEAD is a public enterprise and a limited liability company subject to the law governing commercial corporations. Its main mission is to implement the national potable water and sanitation policy and manage potable water supply and sanitation in Djibouti City, the urban centers and ultimately in the whole country. The ONEAD organization structure approved in July 2007 is presented in Annex 3. 3.2 INSTITUTIONAL DEVELOPMENT, BILLING SYSTEM, COST-RECOVERY AND FINANCIAL

PERFORMANCE

3.2.1 The strategic plan study funded by the Bank clearly identified human capacity-building programs through technical assistance and specific training in the areas of mechanical engineering, information technology and accounting. 3.2.2 By placing water supply and sanitation under one entity, the reform process makes it possible to optimize billing and conveniently finance operating expenditure and sanitation sub-sector development through joint billing of sanitation and potable water. The new rate structure is based on average water consumption by customers estimated at about 2,475 m3/day in 2005; 5,095 m3 in 2010; and 8,186 m3 by 2015. Sanitation revenue shall be composed essentially of a pollution charge and a sewage tax. The pollution charge represents 10% of the water rate and is applied to all consumption tranches, while the sewage tax is 10% for the first three tranches and 30% for the last three tranches which are composed essentially of heavy water consumers 3.2.3 The advantage of the new rate system is that it provides for the billing of sanitation services for each cubic meter of water billed to the customer. A single bill shall be issued but presented in a way that makes a clear distinction between sewage taxes and levies and the water bill. The possibility of suspending water supply shall often be used as an coercive measure to facilitate cost recovery. Rate levels shall be reviewed annually in keeping with variations in production cost price indices (electricity, fuels, labor, products and services).

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Financial performance of structures that existed before the creation of ONEAD 3.2.4 The former Department of Sanitation produced no financial statements owing to poor commercial management of sanitation services and the fact that it had no autonomous budget. The Department’s income and expenditure were included in the budget of the Ministry. Hence, the Department’s finances were limited to revenue from budget allocations through TEOM and TA. In 2005, the sum of DJF 100 million was earmarked in the budget estimate for solid and liquid waste management. For the same period, expenditure rose to DJF 253 million for the staff and DJF 38.59 million for goods and services. Analysis of these figures shows a negative gap of about DJF 192 million between revenue and expenditure, reflecting the financial difficulties faced by the Sanitation Department. 3.2.5 The financial performance of the former water management structure which constitutes the skeleton of ONEAD was assessed on the basis of its financial statements for 2002-2006 presented in Annex 5. Analysis of the accounts of this Authority reveals a rather fragile financial structure. A study of the ratios presented in Annex 5 reveals limited financial autonomy with equity capital that barely covers liabilities for the period under consideration. 3.2.6 The total turnover for 2005 shows a relative growth rate of 4.25% owing to better distribution of water sales (+2%) and an increase in new connections, reconnections, repairs and network extension. Such growth does not stem from an increase in the water sales rate, but rather from an increase in the volume sold, following an improvement in network performance, obtained by combating wastage and fraud. However, this growth is not high enough to absorb rising operating expenditure which stands at 11% for the same period. Considering the rise in the price of raw materials and cost-recovery difficulties, the income statement for 2005 showed a deficit of DJF 224 million. Financial projections of ONEAD 3.2.7 ONEAD’s balance sheet at start-up is based essentially on the assets and liabilities of the defunct National Water Authority whose balance sheet was analysed by an independent auditor. Meanwhile, the former Department of Sanitation which was under the Ministry has no appropriate balance sheet. The assets and liabilities of this Department are currently being assessed. 3.2.8 ONEAD’s cost and revenue projections for 2007-2012 are presented in Annex 7. The new sanitation rates adopted in July 2007 (Annex 4) should make it possible to cover operating and maintenance costs for sanitation services. The sewage tax collected constitutes about 80% of the ONEAD’s operating resources, while the pollution charge and other income represent 20% of revenue. The sewage tax is about DJF50 on average per m3 of water sold. This average hides wide disparities with DJF 8 per m3 for Tranche 1 (social tranche with consumption of less than 30 m3) and DJF 83 and DJF 105 per m3 respectively for Tranches 5 and 6. Hence, the major consumers contribute more to revenue than consumers in the social tranches. The latter represent about 80% of the customer base but generate barely 2% of annual revenue. More than 95% of ONEAD’s revenue will come from the big consumers (tranches 4 to 6). 3.2.9 Any increase in ONEAD revenue will depend on an increase in the number of connections and the application of the new water and sanitation rates. With the new tariff structure and billing system, ONEAD’s revenue will surge from DJF 288 million in 2007 to DJF 671 million in 2010, while its costs will grow from DJF 324 million to DJF 619 million. This relatively slower increase in costs stems from control of certain expenditure items such as staff costs. Indeed, the plan is to refrain from systematically filling positions left by workers going on retirement.

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3.2.10 ONEAD’s performance in the initial years will slightly improve from a negative result of DJF -74 million in 2007 to DJF 44 million in 2009 because of high operating costs in the first few years. Its operating balance will evolve satisfactorily from 2009. Its operating ratio will grow from 0.89 in 2007 to 1.08 in 2012, reflecting greater coverage of operating expenditure by income. 3.3 PROGRAM OF PRIORITY SANITATION WORKS 3.3.1 In 2005, the authorities of Djibouti, with ADF financing, prepared the study on the sanitation strategic plan for Djibouti City which made it possible to: (i) define an institutional and financial plan together with a legal and statutory component that is indispensable to its enforcement; (ii) prepare a priority investment plan; (iii) conduct environmental impact assessments; and (iv) conduct studies on the implementation of the priority program. 3.3.2 The main elements of the priority investment program defined for the short-term (0-5 years) are to: (i) encourage private sewage disposal wherever this is possible; (ii) rehabilitate collective sanitation networks and pumping stations; (iii) build a treatment station in Douda with a capacity of 40,000 PE that uses activated sludge technology and another in Balbala with a capacity of 10,000 PE; and (v) conduct a community information and sensitization campaign. For the medium-term (5-10 years), the main elements of the this program are to: (i) continue with rehabilitation and extension of the wastewater and rainwater collection networks; (ii) expand the Douda and Balbala treatment stations in order to raise their respective capacities to 80,000 PE and 20,000 PE; and (iii) prospect for a new waste disposal site from 2008 so that it can go operational from 2012. 3.3.3 The estimated investment costs for these priority works, based on 2005 prices, are DJF 8 414 million (or UA 33.13 million) for Phase I and DJF 7 142 million (or UA 28.12 million) for Phase II. The cumulative cost of the two programs stands at DJF 15,557 million (or about UA 61.25 million). 4. THE PROJECT 4.1 DESIGN AND RATIONALE OF PROJECT 4.1.1 The project was designed based on the priority needs programmed by ONEAD in its short-term investment program (0-5 years) and following implementation of the various institutional reforms necessary for sector development, namely: (i) adoption of an integrated national water and sanitation strategy focused on the creation of ONEAD in September 2007 as sole operator; (ii) submission to the authorities of a sanitation sub-sector strategic planning document prepared with consideration for Government policy, diagnosis of the current situation, community participation and affordability of connection to the sanitation network; and (iii) the institution of a rate system based on water consumption that will make it possible to cover the operating and maintenance costs of sanitation. The project therefore establishes continuity with the actions undertaken by other development partners and is executed in harmony and complementarity with the efforts made by the authorities of Djibouti. 4.1.2 On technological options, several sewage treatment processes were submitted to detailed comparative analysis: activated sludge, naturally aerated lagoon, and infiltration-percolation systems. The activated sludge system was retained by the Djibouti authorities. Building on past experience, the institutional support, capacity-building and technical assistance components, jointly defined with the European Union, were made to cover human resource training and infrastructure sustainability in the project’s design. Hence, the contract for construction of the sewage treatment station, provides that the enterprise which wins the bid should provide technical assistance and training to ONEAD experts for a period of 3 (three) years from the date of project completion. Such training will focus on the operation and maintenance of the Douda treatment station and the management of sanitation facilities.

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4.1.3 The priority program which is part of the current project will also receive financial support from the European Union. This program’s design goes beyond sanitation to cover issues like community mobilization, user capacity-building, cost-recovery and health in urban areas. Hence, in addition to sanitation, the program provides for sustained IEC actions to sensitize and educate the people on the impact of sanitation on health, sanitation system sustainability and cost recovery. Lastly, the working designs and bidding documents for the various project infrastructures have been prepared. 4.2 PROJECT AREA AND BENEFICIARIES 4.2.1 The project concerns the urban part of Djibouti which is subdivided into 3 districts. In 2011 and at the commissioning of the project, the population is estimated at 45,110 inhabitants for the 1st district, 101,140 inhabitants for the 2nd district and 26 750 inhabitants for the 3rd district, making a total project beneficiary population of about 173,000 inhabitants. The 1st and 2nd districts have the best access rate (35% and 42%, respectively) to the sanitation network. Apart from the Gadobé military camp and the aviation area, the 3rd district has very limited access. In terms of the population profile and according to socio-economic survey conducted under the Djibouti City strategic sanitation plan study (2005), these 3 districts have the highest proportion of rich people since they have shown a willingness and capacity to pay for appropriate community sanitation services. 4.2.2 The project shall have other equally important beneficiaries such as: ONEAD, which will be able to address growing demand for sanitation services by increasing its sewage collection and treatment capacity; the State of Djibouti which will be able to provide adequate access to sanitation while reducing expenditure on water-borne diseases; the environment, following a reduction in environmental pollution; and national and international companies that will win procurement contracts for goods, works and services to build facilities under the different project components. 4.3 STRATEGIC CONTEXT 4.3.1 The Djibouti City sanitation project is in line with the Poverty Reduction Strategy Paper (PRSP) adopted in July 2004. Indeed, the development of the sanitation sub-sector is an integral part of PRSP Strategic Thrust No. 3 which aims to promote integrated local development through actions that help to improve access to basic social infrastructure for the poor. 4.3.2 This short-term project is in accordance with the Bank Group’s drinking water supply and sanitation strategy, its poverty reduction policy and the African Water Vision (AWV). The project also takes into account the main guidelines of the Results-based Country Strategy Paper (RBCSP 2007-2009) which retained sanitation sub-sector development as the sole intervention for ADF-X allocations. 4.4 PROJECT OBJECTIVES 4.4.1 The project’s sector goal is to help improve the socio-economic and health conditions of Djibouti City residents with a view to attaining the country’s MDG targets on access to sanitation and better health. 4.4.2 Its specific objective is to improve the access rate to sanitation services for Djibouti City residents (from 18% to 37% in 2011), curb water-borne disease incidence (38% of deaths) and protect the environment and fishery resources.

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4.5 PROJECT DESCRIPTION 4.5.1 The Djibouti City Sanitation Project to be implemented over a three-year period (2008-2011) has the following main components:

A. Institutional support and capacity-building; B. Rehabilitation and development of sanitation infrastructure; and C. Project management.

Component A: Institutional support and capacity-building 4.5.2 This component comprises the following two sub-components:

A1 Institutional support, which focuses on: (i) the supply of material means, (ii) the

provision of a procurements expert to ONEAD; (iii) the procurement of office furniture, IT equipment and accounting software by ONEAD; (iv) the update and digitalization of sanitation infrastructure plans; and (v) the procurement of field equipment needed to monitor the operation of the treatment station and the quality of treated water.

A2 Sensitization activities, aimed at implementing an information/sensitization

campaign for urban communities to educate them on issues like sanitation, water-borne diseases, sanitation system sustainability and cost recovery.

A3 Monitoring of project impact on environmental health: This sub-component is

aimed at implementing monitoring of project impacts on environmental health to be ensured by the Department of Prevention and Public Hygiene in the Ministry of Public Health, under an agreement with ONEAD.

Component B: Rehabilitation and development of infrastructure 4.5.3 This component focuses on: (i) the construction of a new activated sludge treatment station in Douda with a capacity of 40,000 PE; (ii) the construction of a solid waste burial center on the Douda site with a capacity of 44,000 to 62,000 tons/year; (iv) the construction of a pilot human waste treatment unit to conduct a multi-year test on a procedure that could be generalized to the rest of the country; (v) the rehabilitation and expansion of sewage networks; (vi) the rehabilitation and construction of 11 pumping stations; and (vii) the rehabilitation and construction of a rainwater conduit. 4.5.4 Under this component, skilled consultants shall be recruited to control and supervise liquid waste management. In the contract of the enterprise responsible for building the treatment station, provision shall be made for the enterprise to provide technical assistance services for a period of 3 years after the commissioning of the project. Component C: Project management 4.5.5 This component covers the following activities: (i) procurement of IT equipment, vehicles, office furniture and other supplies needed for smooth project implementation; (ii) training of ONEAD project management unit staff on procurements and the monitoring/evaluation of urban sanitation projects, and the organization of familiarization trips to ADB headquarters; (iii) recruitment of a specialized consultancy firm to carry out a financial audit of the program for the 3 fiscal years concerned (2009, 20010 and 2011); and (iv) the conduct of an ex post evaluation.

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4.6 IMPACT ON THE ENVIRONMENT 4.6.1 The project is classified in environmental category I, considering the nature of the works, problems with managing sludge produced by the Cheikh Osman treatment station, and the presence of protected ecological areas (Haramous natural reserve) near the project sites. However, the project will help to improve the health situation of Djibouti City residents after the construction of the sewage treatment plant and cessation of the practice of raw sewage disposal in nature (sea or soil). 4.6.2 An environmental impact assessment of the priority program was prepared in 2005 and included in the sanitation strategic plan for Djibouti City. For the Douda treatment plant, there is the risk that the treated effluent could contaminate the watertable. Moreover, the community could spontaneously use such water for household needs. Another environmental risk that needs to be mitigated relates to industries which are not connected to the network or which are connected but do not comply with industrial control standards. This equally applies to ports, hotels and the two military bases in Djibouti. 4.6.3 The main positive effects of the project are: (i) limited raw effluent infiltration into the soil and limited contamination of the watertable which is tapped for potable water; (ii) limited proliferation of undesirable species that can endanger the sensitive environment in neighboring protected areas (Haramous natural reserve); (iii) preservation of marine coastal environments and their current or potential use; (iv) improvement of the economic, health and environmental situation following infrastructure rehabilitation and the procurement of suitable equipment to ensure sustainability; (v) the possibility of developing semi-urban agriculture (reutilization of treated wastewater) and (vi) the reduction of contaminants and water-borne disease proliferation. 4.6.4 The main negative impacts of the project are: (i) the risk of project site contamination if the pumping or treatment station breaks down; (ii) implementation delays or non-implementation of the institutional reforms that should accompany the project; and (iii) health risks that stem from the inappropriate use of treated wastewater. 4.7 PROJECT COSTS 4.7.1 Total project costs, presented in greater detail in Annex 8, are estimated at UA 20.96 million, or DJF 5.63 billion (at the exchange rate of May 2007: UA 1 = DJF 268.392). A 10% provision is made for physical contingencies and another provision of about 2% of the amount thus obtained (including "physical contingencies") was made for price variations. These provision rates are set in accordance with the standards followed in Djibouti for similar projects. The breakdown of project costs by component and by category, net of taxes and customs duties, is presented in Tables 4.1 and 4.2.

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Table 4.1 Estimated project costs by component

Table 4.2 Estimated project costs by expenditure category

4.8 FINANCING SOURCES 4.8.1 The project shall be financed by the ADF with a grant of UA 6.5 million (31.01% of project costs), the European Union with the sum of UA 13.41 million (63.99%) and the Government with a contribution of UA 1.05 million (5%). The Government’s contribution will be used to cover some of the local currency costs. The other costs, net of taxes and customs duties, shall be financed by an ADF and EU grant and shall cover all expenses in foreign exchange and 83.32% of expenses in local currency.

Table 4.3 Financing sources

UA

Financing sources Foreign exchange Local currency Total

% Total

European Union 10,060,057 3,353,352 13,413,409 63.99

ADF 4,613,681 1,886,323 6,500,004 31.01 Government 0 1,049,070 1,049,070 5.00

Total project costs 14,673,738 6,288,745 20,962,483 100%

4.8.2 The expenditure schedules by financing source and by component are also presented in the tables in Annex 8.

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5. PROJECT IMPLEMENTATION 5.1 EXECUTING AGENCY 5.1.1 The project shall be executed by ONEAD under the coordination of its General Manager. According to its new organization structure, the Department of Studies and Projects (DSP) shall be responsible for managing all technical aspects of the project, procurements (goods, services and works) and contracts. It shall work in close collaboration with the different services of the Department of Technical Sanitation Management. The measures for mitigating project impact on environmental health shall be monitored by the Department of Disease Prevention and Public Hygiene in the Ministry of Public Health, under an agreement with ONEAD in collaboration with the Department of Territorial Development and the Environment (DATE) of MHUEAT. 5.1.2 The project execution team shall be located within the DSP and shall be assisted by consultants who will be responsible for works control and supervision and for the technical assistance provided for under the project. The DSP, whose Director has just been appointed, shall be composed of the engineers from the defunct ONED and DS with have longstanding experience in sanitation. 5.2 INSTITUTIONAL ARRANGEMENTS 5.2.1 Project implementation shall be headed by the Director of the DSP who shall coordinate the process. He shall be assisted by an international expert with relevant experience in procurements. This expert shall be recruited through a competitive process and remunerated from ADF grant resources. 5.2.2 The team shall also include: (i) two hydraulics engineers, with one of them responsible for monitoring/evaluation; (ii) an accountant; and (iii) support staff (secretary, driver, messenger, etc…). The Government shall submit the CVs of proposed national experts (2 hydraulics engineers, 1 accountant) to the ADF beforehand for approval. Proof of appointment of the said experts, whose experiences and qualifications shall have been deemed acceptable by the ADF, shall be a condition precedent to the first grant disbursement. 5.2.3 The accounting branch of ONEAD already has a computerized accounting system which has automatized accounting procedures and also made it possible to obtain financial and administrative data in real time and ensure efficient control of activities. This accounting system shall be boosted through procurement of the latest version of the SAGE software. This technology has been used by the defunct ONED for some time and it gives satisfaction. It is also well understood by employees of the accounting and finance service. Cost accounting shall be done to make a clear distinction in performance between sanitation and water activities. The staff in the accounting department is well trained in bookkeeping, cash management, and the preparation of financial statements according to standard accounting procedures. 5.3 IMPLEMENTATION AND SUPERVISION SCHEDULE 5.3.1 Project implementation is planned to last for a period of 36 months from 2008 to 2011. This timeframe is deemed reasonable, considering the conventional nature of the work to be done. The project is expected to start in the first quarter of 2008. The various facilities to be constructed under the project shall gradually be commissioned as each is completed. The project should be end in December 2011. The projected project implementation schedule is summed up as follows:

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Activities Authority Dates Approval of grant by the Board ADF December 2007 Recruitment of a consulting engineer ONEAD March 2008 Invitation of bids from companies ONEAD March 2008 Evaluation of bids ONEAD/ADF May-June 2008 Award of contracts ONEAD/ADF July - August 2008 Execution of works Contractors September 2008 – June 2011 Works supervision and control Consultant/ONEAD September 2008 – June 2011 Completion Report ONEAD September 2011 ADF Completion Report ADF December 2011

5.4 PROCUREMENT ARRANGEMENTS Procurement arrangements 5.4.1 Procurement arrangements are summed up in the general procurements table below. All procurement of goods, works and services financed by the ADF shall be made in accordance with the ADF’s relevant rules of procedure on procurement, or where necessary, the Bank’s rules of procedure for the recruitment of consultants. In all cases, the Bank’s standard bidding documents shall be used. 5.4.2 Civil works: The following shall be procured through international competitive bidding (ICB): (i) supply and laying of the sewage network for the sum of UA 2.74 million as a single lot; (ii) pumping and sewage lift stations for the sum of UA 1.01 million as a single lot; and (iii) a rainwater conduit for the sum of UA 1.12 million as a single lot. 5.4.3 Goods: Field equipment amounting to UA 0.15 million shall be procured through national competitive bidding because there are companies in Djibouti that can supply such equipment. The following goods shall be procured through international shopping because they are of standard quality: 8 vehicles as a single lot (UA 0.24 million), IT equipment as a single lot (UA 0.12 million) and office furniture as a single lot (UA 0.22 million). Lastly, other goods such as supplies and consumables (UA 0.25 million) shall be procured through national shopping because there is a sufficient number of national suppliers and representatives of foreign suppliers to guarantee competition.

Table 5.1 Procurement arrangements

The shortlist applies only to the use of consultants. "Others" refers to international shopping, national shopping and negotiated contracts. The figures in parenthesis are amounts financed by the ADF. Non-ADF financing refers to all EU financing and part of the Government contribution.

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5.4.4 Services: The following services shall be procured in accordance with the Bank’s Rules of Procedure for the use of consultants: (i) update and digitalization of plans by a consultancy firm (UA 0.18 million); (ii) recruitment of a procurements expert (UA 0.24 million); (iii) training to be provided by a consultancy firm (UA 0.15 million); and (v) audits (UA 0.12 million). For the recruitment of the consultancy firm responsible for digitalization of plans and training, as well as the audit firm, the selection procedure shall be the comparability of technical proposals and consideration of the lowest bid. The selection method for recruitment of the procurements expert shall be based on technical capability and consideration of the lowest bid. The monitoring of project impact on environmental health (UA 0.27 million) shall be done under an agreement with the DPHP because this institution provides technical and financial support (on own resources) for monitoring project impact on environmental health and has a database on waterborne diseases caused by sanitation problems in Djibouti. . For services costing less than UA 350,000, the donor may limit publication of the procurement notice to national and regional papers. However, any eligible consultant, regardless of origin, may apply for inclusion on the shortlist. 5.4.5 Functioning: Procurements for the functioning of the executing agency (UA 0.42 million) - insurance and vehicle maintenance costs, air conditioners, telephone/fax, postage, fuel, etc. - shall be done through national shopping because there is a sufficient number of national suppliers and representatives of foreign suppliers to guarantee competitive prices. General Procurement Notice 5.4.6 The text of the general procurement notice was adopted with ONEAD and shall be issued for publication in the UN’s Development Business as soon as the grant proposal is approved by the ADF Board of Directors. Review procedure 5.4.7 The following documents shall be submitted to the Fund for study and prior approval before publication: bidding notices and documents or invitation letters to consultants; bid evaluation reports of enterprises and suppliers or proposals of consultants containing recommendations on contract award; draft contracts in case of amendment of the drafts included in the bidding documents or invitation letters to consultants. National laws and regulations – Executing Agency 5.4.8 National laws and regulations on procurement were examined and deemed acceptable on the whole. However, administrative bottlenecks such as incessant meetings of the different bid evaluation and contract award commissions, have made it necessary to regularly follow-up bidding documents to ensure that the project is implemented within the prescribed timeframe. ONEAD shall be responsible for awarding contracts. Its resources, capacity and past experience in applying the Bank’s regulations during the implementation of six previous ADB-funded projects, is a guarantee that the bidding process will be conducted smoothly. Moreover, the project team shall be reinforced with a procurements expert recruited as technical assistance. 5.5 DISBURSEMENT ARRANGEMENTS 5.5.1 To ensure implementation of this project, disbursements shall be made through the special account and direct payment methods. The special account method shall be used for the operating expenses of the executing organ, the remuneration of the procurements expert, training, auditing of project accounts and contracts costing less than UA 20,000. To that end, ONEAD shall open an account in a bank deemed acceptable by the ADF, which shall receive the grant resources. This account

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shall be provisioned according to a schedule previously approved by the Fund. Disbursements for its replenishment shall be authorized after expenditure justification of at least 50% of the last disbursement and of all previous payments. A second special account shall be opened in a bank acceptable to the Bank and shall hold national counterpart funds. The direct payment method shall be used for contracts on: (i) the supply and construction of wastewater conduits, pumping and sewage lift stations, and rainwater conduits; (ii) the supply of goods; and (iii) other services that are not financed from the special account. 5.5.2 Proof of opening of the special account in a bank acceptable to the Fund, to receive ADF resources, shall be one of the grant conditions. 5.6 MONITORING AND EVALUATION 5.6.1 ONEAD, the executing agency, shall have the primary responsibility of monitoring project execution and shall prepare quarterly project status reports covering all aspects of implementation, in the format recommended by the Bank. These reports shall essentially evaluate project status, expenditure, commitments and disbursements by component and by financing source, the main problems and recommended solutions. 5.6.2 The Department of Territorial Administration and the Environment (DATE) of MHUEAT, shall monitor the environmental and social mitigation measures defined in the project’s environmental and social management plan, with the support of ONEAD, the Statistics Center and DPHP. A project launching mission has been planned to ensure smooth project implementation and take advantage of the lessons learnt from previous Bank interventions in the sector. In this vein, recourse shall be made to appropriate procurement methods and measures to address the project’s implementation requirements. A mid-term review and regular project supervision missions have also been planned. The status reports and financial statements of ONEAD to be submitted to the Bank must include actions taken to implement mitigative measures so that the Bank can conduct environmental monitoring of the project. The projected schedule for supervising project components is presented in Annex 9. 5.7 FINANCIAL AND AUDIT REPORTS 5.7.1 ONEAD shall produce and submit a quarterly project status report to the Bank no later than one month from the end of the quarter. The reports shall present the physical status of works, the problems encountered and the solutions envisaged. They shall also provide the status of disbursements by project component and relate any environmental problems. Such monitoring shall, at the end of the project, analyze the performance, efficacy and viability of the project. The Coordination Unit shall submit the Borrower’s completion report to the Bank within six months following project completion. 5.7.2 An audit firm shall be recruited for a maximum period of three years to conduct an annual audit of project accounts. However, to enable this firm to also carry out a periodic review of accounts at any time of the fiscal year, it shall also be allowed double as the statutory auditor of the project. The annual audit reports, including the audited financial statements, shall be forwarded to the Bank at most six months from the close of the fiscal year, in accordance with the provisions of the general conditions applicable to loan agreements and the Bank’s guarantee agreements. 5.8 COORDINATION OF ASSISTANCE 5.8.1 The project shall be funded by the Government, the European Union (EU) and the Bank. Hence, the Bank paid special attention to its collaboration with the EU during the different project preparation phases. This collaboration materialized through several technical meetings and the sharing of information and documentation on various aspects of the project. It will continue through joint missions to supervise and study the different project reports. The Bank will continue sharing information on the project with the EU and other development partners, either directly or through the executing agency.

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5.8.2 Several other donors have agreed to finance other projects of the 2005-2015 priority program. A financing request from the Government to support the mobilization of water resources for household use and farming in rural areas, is being examined by the African Water Facility. The Ministry of the Economy, Finance and Planning, in charge of Privatization, coordinates all donor interventions in Djibouti through the Department of External Investments. 6. SUSTAINABILITY AND RISKS OF THE PROJECT 6.1 RECURRENT EXPENDITURE 6.1.1 The recurrent costs of the project are mainly composed of the operating, maintenance and repair costs of the facilities. These costs are composed of expenditure on staff, energy for the pumping and treatment stations, reagents for the treatment stations, and costs related to the purchase of spare parts and routine repairs. Such expenses surge from DJF 324 million in 2007 to about DJF 620 million in 2010, or an annual average of DJF 558 million. These costs represent about 10% of total investments. To cover these expenses, the institutional reforms currently underway such as the setting-up of a new structure, the new sanitation and water rates policy and the consolidation of the cost-recovery system will make it possible to accumulate the necessary means from 2010. Revenue will jump from DJF 288 million in 2007 to DJF 671 million in 2010. All homes with access to the sewage system installed under the roadways to channel household wastewater, either directly or through private conduits or passageways, must mandatorily be connected to the network within a period of two years from the date of commissioning of the sewage system. After this deadline, those who fail to comply with the obligation to connect to the network shall automatically be liable to the payment of a sum that is at least equivalent to the sanitation charge that should have been paid if the said home were not connected to the network. 6.2 PROJECT SUSTAINABILITY 6.2.1 Project sustainability depends essentially on the following main points: (i) Government-initiated sector reforms; (ii) technical assistance; and (iii) cost recovery. Under the new reforms, water and sanitation shall be managed by a single entity, namely ONEAD, which shall be endowed with a structure that is more adapted to sanitation management, greater means and financial autonomy, as opposed to the pre-reform situation during which sector management uncoordinated. To ensure sustainability of the facilities; provision is made for long-term technical assistance which shall, inter alia, train ONEAD staff in various areas such as the operation and maintenance of sanitation facilities. Moreover, provision is made for a training program for the employees who shall manage the main project components. A new rates policy which takes into account sewage taxes and a pollution charge was implemented to facilitate coverage of maintenance costs and ensure sanitation system sustainability. Considering past experience when the Department of Sanitation had no cost-recovery system, the commercial department of ONEAD shall be reinforced and decentralized in order to facilitate cost-recovery. 6.2.2 The project proposes certain facilities needed to address the legitimate needs of the people especially in the areas of health, hygiene, security and better living conditions. At the same time, provision is made for attendant measures aimed at promoting community access to sanitation services, and informing/educating the project area community on best practices, in order to ensure community ownership of the infrastructure and consolidate infrastructure sustainability conditions provided for by the project.

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6.3 MAIN RISKS AND MITIGATIVE MEASURES 6.3.1 During the project development phase, poor mastery of activated sludge technology could undermine project performance. To mitigate this risk, ONEAD plans to institute training programs and recruit specialists in the operation and maintenance of this system. There are plans to resort to consultatncy services in the form of technical assistance for the project. Moreover, the company responsible for building the treatment plant shall provide technical assistance and technology transfer to ONEAD workers over a period of 3 years from the date of commissioning of the facilities. 6.3.2 Poor management of the project facilities and a lack of maintenance and repairs could constitute a risk since they could lead to rapid deterioration of project achievements. This risk shall be mitigated through sensitization and regular monitoring by ONEAD. This entity shall conduct regular sensitization and follow-up actions targeting customers, district leaders, local authorities and the entire population. 6.3.3 Slow implementation of ongoing institutional reforms or their limitation to the creation of a new autonomous entity is a major risk that could undermine smooth project implementation. This risk can be mitigated through the effective implementation of reforms, the Government’s determination to provide ONEAD with the necessary means to pay its utilities and pay for part of the social services. The continuation of dialogue between the Government and the main donors intervening in the sub-sector (European Union, Arab financial institutions and the ADB) will contribute to the effective implementation of the reforms envisaged for the sector. 6.3.4 Defrayment of the project’s recurrent expenditure requires the availability of adequate financial resources on a sustainable basis. To mitigate this risk, ONEAD intends to review its recovery system by reinforcing the team, apply late fees, make local councils pay their outstanding bills and rigorously apply the new billing policy. The technical assistance which shall be provided with the interventions that come with the EU’s investment program in the areas of water supply and sanitation will build ONEAD’s capacity in the area of billing and cost-recovery. 6.3.5 Part of the population in the project area could decide to continue with current practices rather than connect to the community network. Another part of the population with limited purchasing power could, for financial reasons, find it difficult to connect to the network. The project may be able to attain its objectives only if these segments of the population could be convinced and aided to connect to the network. This risk shall be mitigated through (i) sensitization campaigns planned under project implementation, and (ii) the obligation (legislation) to connect to the network, that shall be enforced during reform implementation. These measures entail encouraging the people to connect to the network without compulsion within a period of two years. After this deadline, an obligatory connection tax shall be applied. In addition to the enforcement measures, mechanisms to facilitate the payment of connection costs, such as instalmental payments spread over several water bills, shall be set up, if need be, for people with limited purchasing power. 7. PROJECT BENEFITS 7.1 FINANCIAL ANALYSIS The financial analysis of the project was based on revenue generated from sanitation services offered to customers. The projects financial internal rate of return stands at 6% over a period of 25 years. This relatively low rate is characteristic of social development projects such as sanitation projects. A detailed calculation of the financial rate of return and financial projections is presented in Annex 11.

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7.2 ECONOMIC ANALYSIS 7.2.1 The economic analysis of the project is based essentially on the assessment of the general economic benefits generated by the infrastructure that will be built under the project. The economic cost/benefit analysis of the project covers the construction period and the presumed economic life of the project. For estimation of costs, the inputs considered are investment and recurrent expenditure expressed in border prices, net of all import duties, taxes and subsidies. The wage and salary rates used are those of the market since interventions on markets in Djibouti are not very significant. The official minimum wage on the labor market is DJF 39,000. There are no exchange restrictions in the country and so foreign currency can be exchanged freely. Moreover, the market rate was considered as equivalent to the economic rate. The economic benefits estimated and taken into account are health expenditure, education expenditure, the cost of treating contaminated groundwater and the creation of jobs during the construction phase of the project. The project will also bring environmental benefits, although it is difficult to estimate such benefits since it is not possible to quantify the direct impact of pollution on the living conditions of the people. The project’s cost/benefit analysis conducted gives a net present value of DJF 2,080 million, based on 12% as the opportunity cost of capital. Its economic internal rate of return (EIRR) stands at 17%. 7.2.2 The net benefits generated by project implementation are many. Analysis of these benefits highlights, first of all, benefits in terms of time gains resulting from the evacuation of wastewater. More specifically, such gains express the opportunity cost resulting from the time gained by beneficiaries after construction of the sanitation system. The project will have a positive impact on the health sector. Indeed, the reduction in the number of water-borne disease cases and their incidence on the health system (time loss by medical staff, immobilization of the medical system, drugs) and on the community (medical bills, costs related to absenteeism at work by parents of sick children) create benefits for the whole country. According to the Djibouti City strategic plan study, diseases caused by sanitation system failure account for 42% of pediatric consultations, 35% of hospitalization days and 38% of deaths. These rates will be reduced substantially once the project is implemented. All indirect benefits generated by health expenditure gains, time gains and improvement of the environment represent more than 70% of total project benefits for the period under consideration. Gains from the economic and health sectors could be reinvested in other economic activities that can improve the incomes and living conditions of the people. 7.2.3 The project will also contribute to private sector development. Private sector participation in the sanitation sub-sector is limited for the moment. However, there is a pool of consultant engineers, civil engineering contractors and spare parts suppliers who can supply appropriate services. Increasingly, NGOs in Djibouti are also showing a growing interest in the sanitation sub-sector and are determined to intervene actively. ONEAD shall invite private sector participation in the construction and maintenance of drainage networks as well as the construction and maintenance of certain infrastructure items. ONEAD and private sector staff who shall be mobilized for the project shall benefit from the revenue and technical expertise coming into the country as technical assistance. 7.3 SOCIAL IMPACT ANALYSIS 7.3.1 This project will help to improve access to sanitation services in several districts of the city. Rehabilitation of the sanitation network, the pumping station and the treatment plant in Douda will improve health conditions and curb the spread of water-borne diseases (especially dysentery and typhoid) which mainly affect children. By helping to raise the sanitation access rate from 18% in 2006 to 37% in 2011 and 57 % en 2015, the project will promote community wellbeing through: (i) the reduction of water-borne disease prevalence, especially for children; (ii) the reduction of health expenditure for households and the State; (iii) the development of a sanitation culture within the community; and (iv) healthcare tasks generally performed by women. The project will thus help to reduce health expenditure, generating gains that will be better spent on household management.

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7.3.2 It should also be noted that by guaranteeing a reliable network and sewage treatment in the Douda center, the project contributes to the promotion of the Government’s public health policy by providing better sanitation services and a healthy environment for Djibouti city residents. Similarly, the cessation of raw sewage disposal into the sea will improve the quality of water for swimming and ultimately give a fresh boost to the tourism sector. 7.3.3 On gender considerations, apart from the positive impact on women’s health, women shall be the primary target for the sensitization and hygiene campaign provided for in the project. 7.4 SENSITIVITY ANALYSIS 7.4.1 The sensitivity analysis was based on the following assumptions: (i) a 10% increase in investment costs; (ii) a 10% increase in operating costs; (iii) a 10% reduction in revenue; and (iv) a simultaneous increase and reduction in revenue and operating costs. The financial rate of return is not sensitive to variations in investment and stands at 5%. However, it is fairly sensitive to a 10% decline in revenue, falling from 6% to 3%. In case of a simultaneous 10% decline in revenue and 10% increase in expenditure, the rate falls from 6% to 2%. 7.4.2 The sensitivity of the economic rate of return was tested by taking into account health expenditure, the cost of treating groundwater, environmental impact and time gains. The results show that the economic rate of return is less sensitive to a rise in investment costs than to a simultaneous 10% variation in revenue and operating costs. A 10% increase in investment costs brings down the rate of return from 17% to 15% whereas the same reduction of 10% in benefits takes the rate of return to 14%. In a joint variation scenario, the economic rate of return declines from 17% to 13%. 8. CONCLUSIONS AND RECOMMENDATIONS 8.1 CONCLUSIONS 8.1.1 The Djibouti City Sanitation Project is technically feasible, and financially and economically viable, especially as the necessary institutional reforms have been implemented. The mitigation measures of the project, which is classified in Category I, have been factored into the project design. Project implementation will support the 2005-2015 priority program which is focused on generalizing access to sanitation in the city, and constitute an adapted solution to the problem of pollution caused by raw sewage disposal. Sanitation in Djibouti City remains a major challenge that needs to be tackled to obtain satisfactory quality of life and health conditions. Execution of the infrastructure projects and the implementation of institutional reforms should effectively help to improve the health and living conditions of the people. This project is the Bank’s major contribution to Government efforts aimed at providing citizens with sustainable sewage management services. 8.2 RECOMMENDATIONS: 8.2.1 It is recommended that a grant, not exceeding UA 6.5 million from ADF-X resources, be awarded to the Republic of Djibouti for implementation of the project described in this report, subject to the following conditions: A. Conditions precedent to grant effectiveness 8.2.2 The grant agreement shall become effective subject to fulfillment, by the Government of Djibouti, of the conditions outlined in Section 4.01 of the General Conditions applicable to ADF grant agreements and its signature.

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B. Conditions precedent to first grant disbursement 8.2.3 The Government shall have to:

i) Forward to the Fund the CVs of the 2 hydraulic engineers and the accountant for

approval (Paragraph 5.2.2); ii) Provide the Fund with proof of the opening of a special account to receive grant

resources (Paragraph 5.5.2).

C. Other conditions

i) Provide the Fund, by 30 June 2008 latest, with proof of signature of the agreement with DPHP for the implementation of environmental impact monitoring activities (Paragraph 4.5.2).

ANNEX 1 Page 1/1

MAP OF DJIBOUTI

ANNEX 2 Page 1/1

DJIBOUTI - BANK GROUP OPERATIONS AS OF JULY 2007 (UA million)

Djibouti-Ethiopia Electrical Connection Project ADF 13-Dec-04 22-Jul-05 31-Dec-10 17.6 0.5 0.0 17.1 17.6 Ongoing

FINANCE 3.4 2.8 0.6 0.0 2.8 Credit line I ADF 18-Aug-87 30-Oct-87 31-Oct-99 3.4 2.8 0.6 0.0 2.8 Completed

SOCIAL SECTOR 38.8 27.9 0.1 10.8 38.7 Technical study on a high school ADF 24-Feb-86 7-May-86 31-Dec-03 0.9 0.8 0.1 0.0 0.8 Completed

Industrial and commercial high school ADF 24-Feb-86 1-Dec-89 30-Jun-99 10.1 10.1 0.0 0.0 10.1 Completed

Education II 13-May-93 31-Dec-04 11.6 11.6 0.0 0.0 11.6 CompletedADF 15-Dec-92 14-May-93 31-Dec-04 7.6 7.6 0.0 0.0 7.6 CompletedNTF 14-Dec-92 15-May-93 31-Dec-04 4.0 4.0 0.0 0.0 4.0 Completed

Development Social Fund ADF 8-Jul-98 25-Aug-98 31-Dec-07 6.5 4.5 0.0 2.0 6.5 Ongoing

Support to women's empowerment TAF 28-Nov-01 11-Mar-02 31-Dec-07 0.7 0.2 0.0 0.6 0.7 Ongoing

Reinforcement community health services I 31-Dec-08 4.0 0.1 0.0 3.9 4.0 Ongoing Loan ADF 17-Jul-02 13-Jan-04 31-Dec-08 3.0 0.1 0.0 2.9 3.0 Ongoing Grant TAF 17-Jul-02 13-Jan-04 31-Dec-08 1.0 0.0 0.0 1.0 1.0 Ongoing

Education III 31-Dec-10 5.0 0.6 0.0 4.4 5.0 Ongoing Loan ADF 17-Jul-04 28-Sep-04 1-Jan-11 4.6 0.6 0.0 4.0 4.6 Ongoing Grant TAF 14-Jul-04 28-Sep-04 2-Jan-11 0.4 0.0 0.0 0.4 0.4 Ongoing

MULTI-SECTOR 5.3 4.1 0.3 0.9 5.0 Institutional Support Planning Directorate TAF 17-Sep-90 8-May-91 31-Dec-98 1.7 1.4 0.3 0.0 1.4 Completed Structural Adjustment Loan I ADF 6-Feb-02 11-Mar-02 31-Dec-04 2.4 2.4 0.0 0.0 2.4 Completed Institution Building, Good governance and Public Finan TAF 28-Nov-01 11-Mar-02 31-Dec-06 1.2 0.3 0.0 0.9 1.2 Ongoing

Multinational Projects ADF 17.6 0.5 0.0 17.1 17.6 OngoingGuarantee 0.0 0.0 0.0 0.0 0.0Secteur privé ADB 6.7 5.3 0.0 1.4 6.7 Ongoing

TOTAL 124.9 88.6 4.2 31.8 120.4ADF 113.2 78.6 4.2 30.4 109.0NTF 4.0 4.0 0.0 0.0 4.0ADB 6.7 5.3 0.0 1.4 6.7SRF 1.0 0.7 0.0 0.0 0.7

* Special Relief Fund

ANNEX 3

Page 1/1 Organization structure of ONEAD

ANNEX 4

Page 1/1 REPUBLIC OF DJIBOUTI

DJIBOUTI CITY SANITATION PROJECT

ANNEX 5

Page 1/1

REPUBLIC OF DJIBOUTI DJIBOUTI CITY SANITATION PROJECT

ONED BALANCE SHEETS (2002 – 2006)

ANNEX 6

Page 1/1

REPUBLIC OF DJIBOUTI DJIBOUTI CITY SANITATION PROJECT

ONED INCOME STATEMENT FOR 2002-2006 (IN DJF MILLIONS)

ANNEX 7

Page 1/1

REPUBLIC OF DJIBOUTI DJIBOUTI CITY SANITATION PROJECT

ONEAD INCOME STATEMENT FOR 2002-2006 (IN DJF MILLIONS)

ANNEX 8 Page 1/3

REPUBLIC OF DJIBOUTI DJIBOUTI CITY SANITATION PROJECT

Table 8.1

Detailed project costs

ANNEX 8 Page 2/3

Table 8.2

Financing sources by component

Table 8.3 Expenditure schedule by financing source (in UA)

ANNEX 8 Page 3/3

Table 8.4

Expenditure schedule by component (in UA)

ANNEX 9

Page 1/1

Supervision schedule

Approximate dates Activity Specialty ADB staff

Person/weeks Launching mission Water and sanitation engineer

Procurements officer

3/1

2008 Disbursements officer

Supervision mission Water and sanitation engineer Financial analyst

2/1

2008 Supervision mission Water and sanitation engineer Financial analyst

2/2

Mid-term review

Water and sanitation engineer Financial analyst Environmentalist

3/2

2009 Supervision mission Water and sanitation engineer

Financial analyst 2/1

Supervision mission Water and sanitation engineer Financial analyst

2/2 2010

Supervision mission Water and sanitation engineer Financial analyst

2/1

2011

Completion mission

Water and sanitation engineer Financial analyst Environmentalist

3/2

ANNEX 10 Page 1/1

Financial analysis assumptions

Financial projections are based on ONED's financial statements and customer database for 2002-2006, information collected from the Department of Statistics and studies conducted by consultants. The population of Djibouti City is estimated at 533,300 with an estimated annual growth rate of 3%. The sanitation access rate which was 18% in 2006 will rise to 37% in 2011 and 57% in 2020. Investment costs (net of physical and price contingencies) stand at DJF 5,014 (UA 18,683 million) at current prices for the 2008-2010 period. Investment costs, including physical and price contingencies, amount to DJF 5,626 million (UA 20,962 million). Operating expenditure

Equipment operation and maintenance costs are calculated on the following bases: (i) Douda treatment plant : 10% (ii) Sewage networks : 1% (iii) Pumping and sewage-lift stations : 7% (iv) Drainage water treatment pilot unit : 5% (v) Rainwater collector : 2% Operating revenue Average water consumption per day for commercial and industrial customers is estimated at 7805 m3 in 2006, 8202 m3 in 2010 and 10,289 m3 by 2020. The estimated average daily consumption for households is 7251 m3 in 2006, 13 938 m3 in 2010 and 22 064 by 2020. The average water rate per m3 is DJF 43 for the social tranches (1 to 3) and DJF 313 for the last three tranches (3 to 6). For sanitation, the average rate is DJF 14 for the social tranches and DJF 85 for the last three tranches. The pollution charge will be about DJF 15 for the first three tranches and DJF 31 for the last three tranches. Rate revisions are estimated at 2% per year on average for major consumers and shall depend on the inflation rate and the cost of consumer products.

Economic analysis assumptions

Calculation of the economic rate of return is based on financial calculation which was later revised by taking into account the appropriate conversion factors and by quantifying certain socio-economic benefits of the project. Estimated economic gains The economic benefits likely to have a substantial impact on the situation of the people as a result of the project include time gains for adults, the improvement of school enrolment for children and the reduction of health expenditure for the people and the State. These benefits were converted into monetary gains estimated on the basis of the following assumptions:

(i) Time gains: Time gains for adults estimated at 48 days per year and per household. Quantification of such time gain in money terms by comparing it to the average salary of DJF 39000.

(ii) Healthcare gains: The reduction in water-borne diseases (dysentery, neonatal diarrhea and

typhoid) translates into a decline in health expenditure. It is estimated that the resulting gains represent 1/3 of annual costs borne by households and about 2% of the State health budget which was DJF 6,000 million in 2006. The benefits resulting from prevention of groundwater pollution were estimated by considering the cost of treating contaminated groundwater.

ANNEX 11 Page 1/1

REPUBLIC OF DJIBOUTI

DJIBOUTI CITY SANITATION PROJECT

CALCULATION OF THE FINANCIAL INTERNAL RATE OF RETURN (IN DJF MILLION)

ANNEX 12 Page 1/1

REPUBLIC OF DJIBOUTI DJIBOUTI CITY SANITATION PROJECT

CALCULATION OF THE ECONOMIC INTERNAL RATE OF RETURN (IN DJF MILLION)

ANNEX 13 Page 1/1

LIST OF DOCUMENTS COLLECTED AND/OR CONSULTED

1. General documents:

- Five-year assessment of the activities and prospects of MHUEAT, 1999-2004. - Five-year assessment of the Department of Sanitation, MHUEAT/DA - ONED progress report, 2001-2004. - Various documents on the organization of MHUEAT, its status, duties, sanitation rates

policy, human resource management, training policy, billing and cost recovery, financial projections, etc – MHUEAT, ONED, February 2006.

- ONED Financial statements – Balance sheets, 2000 - 2004. - Public Procurements Code – Djibouti. - Health and Hygiene Statistics – Ministry of Health, CD-Rom - Preliminary legal analysis by the EU as support in the preparation of an updated water

and sanitation sector policy text, EU Delegation, May 2005 - Rates analysis by the EU as support in the preparation of an updated water and

sanitation sector policy text, EU Delegation, May 2005 - Institutional reform options for electricity, water and sanitation – World Bank,

November 2004 - Statement on donor recommendations on the institutional aspects of the water,

sanitation and waste management sector – MHUEAT, 2005

2. Sanitation in Djibouti City and institutional reforms:

- Study on the strategic sanitation plan for Djibouti City – ADB, November 2005. - Terms of Reference of the Study. Terms of Reference for technical assistance that

accompanies the EDF investment program in the area of water and sanitation – EU Delegation in Djibouti, October 2005

- Bill creating ONEAD (the National Water and Sanitation Authority of Djibouti) –

MHUEAT, February 2006.

DJIBOUTI: PROPOSAL FOR A GRANT OF UA 6.50 MILLION TO FINANCE

THE DJIBOUTI CITY SANITATION PROJECT OUTCOME OF NEGOTIATIONS*

Representatives of the Government of the Republic of Djibouti and of the African Development Fund (ADF) met on 12 and 13 November 2007 at the Bank’s Temporary Relocation Agency in Tunis for negotiation of a UA 6.50 million grant to finance the Djibouti City Sanitation Project. The two teams reviewed the grant agreement and discussed it in detail. The Djibouti delegation accepted the grant terms and conditions.

AFRICAN DEVELOPMENT FUND

BOARD OF DIRECTORS

RESOLUTION NO. F/[ ]/2007/[ ]

ADOPTED ON A LAPSE-OF-TIME BASIS ON [ ] 2007

GRANT TO THE REPUBLIC OF DJIBOUTI TO FINANCE PART OF THE FOREIGN

CURRENCY COST AND PART OF THE LOCAL CURRENCY COST OF THE DJIBOUTI CITY SANITATION PROJECT

THE BOARD OF DIRECTORS,

HAVING REGARD to Articles 1, 2, 11, 12, 14, 15, 16, 19 and 26 of the Agreement Establishing the African Development Fund (the "Fund"), the ADF-X Financing Policy Guidelines, the currently applicable ADF-X Country Resource Allocation and the Grant Proposal contained in Document ADF/BD/WP/2007/114/Approval (the "Appraisal Report");

DECIDES as follows:

1. To award to the Republic of Djibouti, a Grant of an amount not exceeding the equivalent of Six Million Five Hundred Thousand Units of Account (UA 6,500,000) to finance part of the foreign currency cost and part of the local currency cost of the Djibouti City Sanitation Project;

2. To authorize the President of the Fund to conclude with the Republic of Djibouti, a Protocol of

Agreement on the terms and conditions specified in the General Conditions Applicable to Protocols of Agreement, and in the Appraisal Report, but not before he shall have certified to the Board in writing that there are available to the Fund sufficient resources to enable the Fund to commit the amount of the Grant;

3. The President may cancel the Grant if the Protocol of Agreement is not signed within one hundred and

eighty (180) days from the date of approval of the Grant;

4. This Resolution shall become effective on the date above-mentioned.