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					                                     Republic of Tunisia

                   Strategy for Water Supply and Sanitation in Tunisia

                                     Executive Summary


1. At the request of the Tunisian Government, the World Bank mobilized a team of
multidisciplinary specialists to prepare a strategy for the water supply and sanitation sector in
Tunisia.

2. This strategy is a comprehensive overview of the institutional, organizational and economic
aspects of the sector. Based on an analysis of the current situation, this strategy will examine
the strengths and weaknesses of the sector and review reform options of reform that address
upcoming challenges and provide the highest level of service at the lowest possible cost for
urban and rural beneficiaries, while guaranteeing the widest and most sustainable service
coverage.

3. Tunisia is a Mediterranean country with limited water resources of 4,860 million m3/year
of which 610 million m3are rarely renewable, 1,550 million m3/year are renewable and 2,100
million m3/year are surface water flowing into rivers that can be mobilized at a rate of up to
95%. The Water Code governs water resource allocations and gives priority to fulfilling the
demand for potable water in the urban and rural sectors, with secondary attention given to the
requirements of the industrial, tourist trade and agricultural sectors. The projected water
balance between available resources and demand between different sectors shows a slight
increase           by         the           year        2030,           provided          that:
(a) water resource mobilization efforts are maintained; (b) desalination of brackish water and
recycling of salt water are pursued; (c) water savings policies are implemented in agriculture
and other sectors; and (d) water pollution control measures are supported. Agriculture uses the
majority of the water resource base, although the potable water share of these resources will
slightly increase from 13.4% in 2010 to 17.7% by 2030. The industry and tourist sectors are
expected to maintain limited usage of water resources.

4. Even if the anticipated water balance between available resources and demand remains
positive by 2030, the margin will still. represent an incentive for improved management
efficiency of water resources across ail sectors.

5. The diagnosis and evolution of the water sector have lead to he following conclusions:

6. The sector has achieved remarkable results in the areas of water supply and sanitation with
highly positive impacts on the quality of life and economic development.

7. The continued improvements of water and sanitation services have always been priority
areas in the national economic and social development plans. Sector leaders,




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more importantly SONEDE and ONAS, have addressed these priorities with very satisfactory
results. Access to potable water has become permanent throughout the country, including in
marginal areas, and a large percentage of the population now has access to sanitation services.
Currently, the entire urban population has access to potable water and over 90% of the rural
population is supplied through SONEDE and other associations (GIC/GDA) Moreover, 80%
of the urban population now has access to sanitation services. This achievement is even more
remarkable given that water resources are limited, the climate is arid, the ecosystems are
fragile, and the required financial investments are high.

8. This performance has provided notable advantages, such as: (a) a marked improvement in
quality of life and economic development; and (b) improved health as shown by a net
decrease in the occurrences of diarrhea among children. Potable water service delivery bas
also had a positive impact on integrated development, and the urbanization of rural areas has
strengthened the community spirit and stimulated the development of small operation and
maintenance facilities.

9. The sector’s strong performance is due to the vision and experience of the operators, to the
institutional framework which has been implemented, and to the sustained growth of the
Tunisian economy over the past several decades.

10. The sector bas made advances on the basis of national Development Plan in coordination
with the national strategy for water resource development. 11e operators and the General
Directorate of Rural Works and Water Resources (DGGREE) have identified regional water
demands and have encouraged the development of long-and medium-term measures to ensure
a clear vision of the sector’s future. Through the establishment of successive five-year plans,
the DGGREE and operators has also improved the targeting of quantifiable objectives, water
resource mobilization and investment optimization.

11. The Operators have gained technical experience by merging proven technologies, while
adapting these to country specifics (i.e., handling iron in rural areas, adapting water treatment
techniques in desalination plants, pipeline corrosion control, odor control in treatment plants
and ventilation in activation basins).

12. The existing institutional framework has. facilitated sector development, although it
encourages urban water supply and sanitation monopolies at the national level. The lack of
adequate water service delivery and specialized skills 1960 to 1970 was remedied by the
training of competent operators on a national scale. Moreover, SONEDE and ONAS were
created as industrial and commercial entities governed by legislation tailored to their
respective mandates. The main actors also participate in these organizations’ board of
directors. Oversight is carried out by the responsible ministry, as well as by other specialized
ministries, i.e., the Prime Minister’s office, the Ministry of Finance, the Procurement
Commission, the Accounting Commission (Cour des Comptes), etc. This oversight exerts
strict control over operators, ensuring the required financial and administrative discipline.

13. As regards the populations of remote rural areas or those without SONEDE assistance, a
participative approach was developed through the creation of Collective Interest Groups
(AICs) which have today become Agricultural Development Groups (GDAs). This type of
success in a complex sector that includes numerous projects throughout the country, at times
in remote and rugged areas, is due to the strategy adopted by DGGREE. Their strategy was
thus able to harmonize and synchronize activities among different actors, i.e., consulting firms


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to develop studies, entrepreneurs to handle works, and IACs/GICs/GDAs for water
production.

14. The Tunisian economy’s strong growth during the past four decades, at over 5% per
annum, enabled the government to mobilize substantial internal and external resources to
finance sector investments. The increase in public revenue parallel to this growth was also
instrumental in ensuring sustainable project funding. Moreover, this economic growth greatly
stimulated household incomes, thus access to water supply and sanitation services.

15. In addition to improving economic growth and improvement in the quality of life,
relatively low cost, service delivery to low cost for low-income households has helped
increase overall service delivery to the majority of the population. The implementation of an
efficient cost recovery system has also played an important role in sector development by
providing a large portion of required financial resources. Thus, a relatively high cost recovery
for expenditures demonstrates the overall efficiency of the water sector.


Emerging Issues and Future Challenges


16. SONEDE and ONAS have increased their operations through the development nationwide
of activities throughout the country. Their staff complements are very high, perhaps overly so
compared to the amount of works and relative to international criteria for good performance.

17. The implementation of investment projects and modernization of management systems are
progressing at a relatively slow pace for several reasons, directly related — but not always —
to the operators.

18. The issue of infrastructure rehabilitation and upgrading is becoming problematic for the
sector. Financial constraints are impeding the rate of infrastructure upgrades. Also at risk is
the quality of service provided, especially for the sanitation sector.

19. SONEDE is not benefiting from increased revenues from the implementation of important
investments in sustainable potable water supply, i.e., as regards quality improvement, which
could increase its expenditures and jeopardize its financial viability. Also, the development of
water resources and transfers, including desalination facilities in the south of the country, will
be more costly in future, especially without clear policies on optimized cost recovery. The
transfer of potable water and sanitation services to SONEDE and ONAS could also
undermine these institutions’ financial situation.

20. Cost recovery issues are crucial for ONAS whose production deficit has lasted for the past
several years and whose investments are almost exclusively financed by the government.
Subsequent reductions in expenditure were implemented to forestall these financial
constraints, but the quality of sanitation services was negatively affected.

21. Tariff adjustment uncertainties preclude operators from preparing reliable financial
projections and undermine planning for current investment expenditures.

22. A lack of synergy between these two activities is an important issue, especially since
collaboration and pooling of funds could help to reduce costs.


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23. For the potable water sector, the major challenges include:
• Increasing costs of water resources due to longer transfer periods;
• The introduction of desalination facilities to increase the volume of water resources and
improve water quality;
• Ensuring the sustainability of water supply, especially for large urban areas;
• Management of extreme climate variations, especially drought;
• Water supply for rural and peri-urban areas;
• Demand of an increasingly well-informed population for water quality
• Over-staffing issues need to be addressed as well as management of human resources;
• Demand management;
• Modernization of institution management (SONEDE);
• Lower cost service provision at a lower cost;
• Tariffs, cost recovery and associated regulations;
• Upgrading/rehabilitation and expansion of existing infrastructure;
• Future sector financing;
• Autonomy and management tools;
• Delays in project implementation periods; and
• Compensation for implementation delays for new information technology methods (NTIC)
and new management tools.

24. For the sanitation sector, the major challenges include:
• Expanding the service delivery area to small towns where costs are higher than revenues;
• Rehabilitation and expansion of sanitation infrastructure, e.g., wastewater treatment plants
and pumping stations;
• Over-staffing issues;
• Delays in project implementation, hindering closer project phasing which would ensure
better use of financial resources;
• Modernization of facility management (ONAS);
• Tariff/cost recovery and their oversight;
• Service delivery at a lower cost;

• Compensation for delays in implementation of new information technology methods (NTIC)
and new management tools;
• Rural sanitation institutional issues;
• Industrial pollution in water treatment plants (STEP) hindering their operations;
• Quality demands from a better informed population (regarding odors, mosquitoes, and
spillage);
• Management of extreme climate variations, especially floods;
• Increasing the rate of treated waste water reuse to avoid costly spillage;
• Protection of economically viable activities, i.e., tourism area preservation;
• Identification of technical solutions to avoid waste water treatment waste (i.e., sludge, gases,
etc.);
• Wider scope of sanitation infrastructure to areas lacking services and follow-up of urban
development;
• National subsidies and solidarity, and subsidy targeting; and
• Future sector financing.

25. The major challenges in rural areas, are:

Potable Water Supply


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• Service provision should be in line with SONEDE standards;
• Limited level of financial resources for AICs/GICs/GDAs;
• Weak management of AICs/IGCs/GDAs;
• Water distribution methods not in line with beneficiary expectations; and
• Potable water supply in rural areas is a burden for SONEDE.

Sanitation

• Individual household connections will create hygiene problems;
• Institutional weakness of rural water sanitation services;
• Financial constraints in •water production and collective installation maintenance; and
• Identification and adoption of technical solutions for the rural areas.

26. These challenges require global reforms to promote the efficiency of the potable water
supply and sanitation sectors. The strategy addresses possible reforms, showing the
advantages and disadvantages of each scenario. The strategy also presents the option of
developing a regulatory framework for the potable water supply and sanitations sectors.

27. The objectives of these reforms are as follows:
• Create a forward-looking development framework focusing on an overall sector strategy;
• Ensure better coordination between potable water and sanitation sectors;
• Develop a beneficial synergy between the two activities;
• Create incentives for private sector participation, combining potable water and sanitation;
• Establish transparent relations between government and operators through delegation of
responsibility to the relevant entities;
• Develop an incentive program based on good performance and a more modem management
system; and
• Provide sustainable resources, taking into consideration the interests of marginalized social
groups.

28. The institutional options for the urban sector are as follows:
• Creation of regional water and sanitation entities linked to a national organization for water
production and supply and treatment
• Merging of SONEDE and SONAS;
• Maintaining both entities with better decentralization, more efficient management, and
increased private sector participation;
• Creation of concessions;
• Creation of a national water and sanitation holding company; and
• Multi-sectoral integration of potable water, sanitation, electricity and gas.

29. Since SONEDE. and ONAS activities are primarily concentrated in the southern part of
the country, the option of regional water and sanitation entities would entail the creation of
one of the largest organization serving the Tunis region, medium-sized entities for the regions
of Sousse and Sfax, and smaller entities for the other areas. Aside from the Tunis area, the
viability of this new structure would require substantial tariff increases in other regions which
would be contradictory to the objective of national solidarity. Moreover, regional entities
would be more likely to experience social pressures. However, this option would entail
additional expenditures for the creation of these new entities and would deprive the country of
knowledge sharing on regional endeavors. Moreover, the sector would require staff with a
high level of competency, which is not currently available, nor would these skills be used


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efficiently in view of some regional activities. However, this option may be better suited to
the development of concessions. International experience has shown that proposals made by
private companies to oversee these services are of a higher caliber if water and sanitation are
jointly managed.

30. The other option would be to merge the two national entities, SONEDE and ONAS,
however, this scenario is not recommended due to the large number of staff concerned,
currently 12,000 persons. The merge could also create social and management problems
because of status issues between the two institutions. Also, the only way to improve
efficiency and reduce costs would be through reorganization and reduction in staffing costs,
which would greatly reducing staff complements. This would be difficult under the current
conditions.

31. Long-term concessions to private companies for water supply and sanitation services
would not be the best solution for Tunisia since the two public enterprises are currently
operating efficiently. This management system would better suit a country where public
services are not performing satisfactorily. Moreover, this type of concession could imply
higher tariffs for water supply and sanitation since the private sector would be unable to
mobilize the required financial resources at a better rate than SONEDE and ONAS. In fact,
the private sector would not be able to benefit from increased revenue through a lower rate of
technical and commercial losses since the latter are weak compared to international standards.

32. The option of maintaining the existing two-entity structure would require greater
decentra1izationnd implementation of reforms for better efficiency in order to facilitate
decision making and improve service delivery to users. This option would also need a modem
administrative and technical management system, as well as a sound analytical accounting
system employed as a management tool. The creation of a dual ONASSONEDE entity would
provide the opportunity to explore possible synergies between water and sanitation and for
them to coordinate their policies accordingly.

33. The holding company scenario would have the advantage of providing better coordination
between water and sanitation services by developing their joint synergies. It would also
provide a strong tariff policy beneficial to the two entities, as well as to beneficiaries. The
current scenario would also stimulate the development of strategic options for services,
particularly by encouraging new technologies, private sector development, optimization of
financial conditions, provide required services for mega project development, and support
technical and financial planning. Finally, the holding would require a simplified and coherent
structure and limited expenditures.

34. In many countries, power and gas distribution is managed by the potable water and
sanitation provider. This multi-sectoral approach could be useful as a means to developing
trade synergies, i.e., as regards client relations as well as technical interventions in the field.
The dual responsibility of this joint sector approach could also be appealing to the private
sector.

35. In addition to institutional restructuring, the two existing entities would need to develop
decentralization measures and implement certain reforms to ensure better overall efficiency.
Moreover, efficient decentralization would require the delegation of certain responsibilities to
facilitate decision-making and improve service delivery for users. Priority actions can be
summarized as follows:


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• Lower Staffing Costs. Assistance would be required to align the number of staff with
ongoing activities. A satisfactory solution would need to be identified by negotiations with
both parties.
• Private Sector Participation in Activities of Both Entities. This action could be taken in
conjunction with staff reductions, and would be an incentive for private sector participation.

• Modernization of Facilities Management. New information and communication
technologies (NTIC) would need to be incorporated into the management systems of both
entities to ensure modernization and upgrading.

Institutional Elements of the Rural Areas


36. It is recommended that the current participatory approach and management of potable
water systems by GDAs be maintained. However, it would be beneficial to consolidate these
elements and to modify their collective distribution system into an individual scheme. The
participatory approach remains fragile and would require government assistance. Appropriate
measures would be required such as tariff modifications, production subsidies for potable
water supply similar to those in place for investments, etc. Remote and sparsely populated
areas would continue to be supplied through individual connections (individual water sources,
water tanks, etc.).

37. Rural sanitation services should not be managed by ONAS since this would deplete its
financial resources. It would be more advisable to implement a specific financial and
institutional system based on rural potable water services. The approach of a “Strategic Sector
Study of Sanitation Services in Rural Areas” would be more realistic, even though upgrading
and detailed studies would be required. This study would allocate tasks among GDAs,
DGGREE and ONAS. It would be useful to further develop this scheme and implement it on a
pilot basis. The technical findings of pilot schemes have recently been applied, whereas
institutional applications have not been implemented.

Development of Regulatory as a Priority

38. Sector regulations are currently implemented at different levels of oversight. Staff
recruitment and new positions are handled by the government and are based on the needs of
both operators. Expenses are submitted to the Internal Procurement Commission for specific
amounts; expenses in excess of the threshold are reviewed by the Superior Procurement
Commission. Water and sanitation services must also be in line with national health and
environmental standards. Water tariffs are established by the government following a review
of cost and tariff adjustment requests from operators. Following the amendment of legislation
on contractual agreements, partnership activities with the private sector are controlled through
contracts signed by the public operator and his private partner. Finally, performance
monitoring is carried out under five-year program contracts which outline the objectives of
water service delivery, production, and other service quality indicators.

39. This regulatory arrangement has facilitated sector development through the allocation of
additional responsibilities for operators in control of national monopolies. However, these
regulations have reached the limits of political and administrative standards inherent to
important decision-making. However, quality and service demands are very high and thus
more expensive and a new institutional framework will need to be developed to ensure


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coherence between these requirements and cost recovery. The creation of a legal regulatory
system could resolve .the information imbalance between government and operators and the
new institutional and independent framework would also ensure better performance
monitoring of operators. Transparent terms of reference will be prepared to alleviate sector
bottlenecks and giving operators a better vision of the methodology needed to achieve
government’ s goals. Indeed, the creation of a regulatory body would improve the current
disconnect between the legal authorities and the entities regarding tariffs for water and
sanitation services. Both entities have expressed concerns regarding the lack of tariff
adjustments needed to ensure their level of operation, often over several years (such as the
case of ONAS) and the Government also believes that management systems for entities could
be improved and that costs could be reduced.

40. A legal Regulatory Commission would ensure a better balance between the demand of
quality services and cost recovery, and facilitate decision-making on tariff and subsidy levels.
This Commission would also establish regulations for tariffs, monitor the quality of service,
and create more transparent relations between operators and government on the basis of
objective data and regular monitoring. Additionally, the Commission would have the
authority to oversee the power sector, and eventually the transport sector, although its role
would not be identical to a structure managed by the private sector. The proposed
Commission will have no decision-making power over tariffs and subsidies, which will
remain under government oversight. Its role would solely be to provide objective information
to government on the entities’ management efficiency and on their required funding to
achieve government goals. The Commission will be independent and will incite more
transparency in data provided. It will be staffed by qualified individuals and will control
performance indicators. Since it will have no decision-making authority to set tariffs, this will
guarantee its independence. If government does not deem it advisable to raise tariffs, the
Commission can then recommend alternative measures such as limiting the investment
programs. Proposals put forth by the Commission would carry more weight with government
and will encourage entities to adopt management tools and performance indicator monitoring
systems.

41. In view of the sector’ s current situation, establishing the Commission is considered a
priority,    regardless       of        the      institutional     framework       selected.


Financing and Cost Recovery


42. Tunisia’s tariff system focuses on cost recovery, efficiency, and solidarity between budget
lines and inter-regional issues. In light of these objectives, tariff scales have become national
and progressive. Although tariffs ensure cost recovery for water, they have been lagging for
sanitation.

43. Subsidies established for water consumption and the regions have helped to achieve social
objectives, in spite of insufficient targeting. The ideal policy would be to make direct transfers
to disadvantaged households instead of imposing the lowest tariffs with unreliable targeting.
Certain countries have been successful with the direct transfer method, but the required
conditions for this system do not yet exist in Tunisia.




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44. The current water tariff system does not distinguish between domestic water consumption
and economic uses, except for the tourism sector which enjoys the same tariff as the highest
domestic segment of the population. Thousands of retailers, small-scale industrialists and
artisans thus benefit from reduced tariffs.

45. However, the application of new tariffs for this specific group of users is not
recommended since the amount of revenue generated would be low.

46. SONEDE finances activities through its own resources, except rural investments which
are funded by government. Future tariff policies should focus on the financial stability of
SONEDE. The creation of an official Regulatory Commission would allow a more thorough
review of tariff adjustment cases and could provide an incentive for better cost reflection
resulting in improved oversight.

47. For the sanitation sector, accumulated deficits have hindered its development and the
quality of its service delivery. Sanitation is as important as potable water, especially in view
of the fragile state of the environment which is critical for quality of life and economic
activity. Although government has financed the majority of ONAS’ investments and a portion
of sector development, the institution must also develop its independent financing capacity
through user contributions for the following reasons: (a) even if beneficiaries living in
healthier environments are dispersed, pollution is essentially due to potable water
consumption. As a result, the application of the polluter pays principal implies that the latter
will be charged for pollution control efforts; and (b) financing of this activity must be separate
from public finances and macroeconomic issues. In the long term, sanitation should be
financed by the users. This goal will only be achieved progressively, however, since tariffs
will require readjustment to avoid financial problems within ONAS and to give this institution
a degree of financial capacity.

48. In rural areas managed by AICs/GICs/GDAs, investments are entirely financed by
government. Operation and maintenance expenses are financed through potable water tariffs
paid to AICs/GICs/GDAs. However, even if these tariffs are higher than those for SONEDE
(with a comparable consumption rate) and they adequately cover operating costs, they do not
meet the demands of maintenance nor upgrading expenditures. When AICs/GICs/GDAs face
breakdowns due to lack of maintenance, they will not have the required funding for large-
scale repairs and upgrades of equipment and works. It is therefore recommended that
Government cover maintenance and upgrading costs through the creation of a maintenance
fund for AICs/GICs/GDAs.

49. Some collective sanitation pilot projects implemented by ONAS for government are
financed by the State. Individual sanitation installations are financed by the owners. It is
recommended that operating costs for collective works be financed partly through sanitation
charges, and the balance by a state subsidy which would cover operating costs for wastewater
treatment plants and pumping stations.

50. Tunisia has now established higher service delivery standards for the quality of potable
water and sanitation. Accordingly, financial assistance should support this trend, whether
collections are made from the users (i.e., the urban sector for water) or divided between users
and the state (i.e., sanitation). Tariff policies must ensure that urban water activities can
financially support their own operations and that cost recovery for water production is
sustainable in the sanitation sector. The creation of an official Regulatory Commission would


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be useful to better assess costs in view of targeted objectives, especially for quality issues, and
to prepare the tariff adjustments with more transparency.

51. Finally, it is recommended that a detailed study on the option of an “urban water and
sanitation holding” be prepared to better formulate its context and implications for ail sectors.
The merging of SONEDE and ONAS scenario would be worth assessing in the context of this
study to identify’ the best possible option. The creation of an official and independent
Regulatory Commission is, however, crucial at this point and should be a priority. Pending the
results of the study, reforms eau be implemented to ensure the efficiency of both operators.




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