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This report is for official use only by thc Bank Group and specifically authorized organizations
or persons, It may not be published, quoted or cited without Bank Groutp authorization. The
Bank Group does not accept responsibility for the accuracy or completcness of the report.
Public Disclosure Authorized
OF THE
Public Disclosure Authorized
PRESIDENT
TO THE
EXECUTIVE DIRECTORS
ON A
PROPOSED LOAN
TO THE
Public Disclosure Authorized
5. Since 1950,when Ethiopia was the recipient of the Bank's first loan
in Africa, Ethiopia has received eleven Bank loans totalling US$97.8 million
and eight IDA credits amounting to US$55.2 million. Four loans are fully
repaid and four others are fully disbursed. A summary 'statement of Bank loans,
IDA credits and IFC investments in.Ethiopia at February 29, 1972 is attache'd
as Annex I.
9. Duz'ing 1966-70 the'.Bank and IDA-were the largest source o'f official
loans, contributing .36% -of -gross inflows. A summary of recent external
assistance to Ethiopia by source and by sectors.can-be seen at Annex II.
IBRD's share of the total debt outstanding excluding undisbursed amounts has
decreased from 34% in 1965 to 31% in 1971, and due to an expected softer
blend in Bank Group lending to Ethiopia-, IBRD's share of total outstanding
debt will continue to decrease.
-3-
12. Ethiopia is well endowed with water but the population is widely
dispersed in the country which makes the provision of community water
supplies difficult. The urban population is approximately 10% or about
2.4 million persons, about half of whom live in the two principal cities
of Addis Ababa (850,000) and Asmara (230,000), and the balance in some
250 communities scattered throughout the country. The rate of movement
from rural to urban areas is expected to increase. While the overall
annual rate of increase of population is about 2.5%, the rate for the
urban population is about 6.5%. At this rate the present urban population
would increase by more than two and a half times to around 6 million in
1985.
13. Due to low incomes, poor housing standards and inadequate distri-
bution networks, most of the urban population relies for water on public
taps; only 10% of the houses have private connections. Organized sewerage
and sewage disposal systems are non-existent, except in Asmara. Bank Group
involvement in Ethiopia's water supply and sewerage aervices thus far was
limited to a technical assistance grant for management and feasibility
studies for the proposed project and financing a small water supply project
in Humera under Credit 188-ET for an agricultural development project.
i1. The water supply and sewerage problems of Addis Ababa are bigger
and more urgent than elsewhere. Addis Ababa is the political, economic
and cultural center of Ethiopia. It is also of international importance
as the headquarters of the United Nations Economic Commission for Africa
and seat of the Permanent Secretariat of the Organization of African Unity.
Some 23% of all industrial jobs in the country are in Addis Ababa where
industrial growth has averaged 11% per annum in recent years. Population
growth in the city has been about 6.5% per annum and the average population
density in the built-up areas reaches about 13,000 persons per square
kilometer. As population is expected to continue growing rapidly in the
coming years, the rate of growth of demand for water supply and sewerage
services will increase.
16. Following the drought in 1964, Addis Ababa's main source of water
supply, the Gafarsa reservoir, became almost dry and the city suffered from
acute water shortage during 1965-66. The Bank had reviewed the situation
with the Municipality of Addis Ababa in 1966 and recommended the construc-
tion of a small reservoir to relieve the immediate water scarcity, combined
with detailed feasibility studies for longer-term solutions. The Municipality,
however, was persuaded that it would be cheaper to proceed immediately with
the construction of a large reservoir, and decided to award a turn-key con-
tract for the construction of a new reservoir and treatment plant at Lagadadi,
about 28 kms from Addis Ababa. These were substantially completed in Novem-
ber 1970, making available an estimated 50,000 cubic meters per day, to
supplement the daily supply of about 25,000 cubic meters from Gafarsa reser-
voir. With this addition, the water supply would be sufficient to meet the
city's need6 for the next several years. However, because the distribution
system consists mostly of old pipes of small diameter, the supply to consumers
is inadequate and uncertain and there is little control over quality.
17. A Bank Technical Assistance grant of $180,000 was made in July 1969,
to finance feasibility and preliminary engineering studies for a water dis-
tribution and sewerage project in Addis Ababa and management services for
the reorganization of the Water Supply Administration of the Addis Ababa
Mmnioipality. The Eigineering studies were carried out by Bureau Central
d'Etudes pour lea Equipements d'Outre-Mer (BCEOM) of Paris, France. The
studies, completed in November 1970, provide the basis for the proposed
project.
18. The Government submitted a request for a loan for a water supply
and sewerage project in November 1970 and the proposed project was appraised
by the Bank in December 1970. Negotiations were held in Washington in April-
May 1971. The Ethiopian delegation was led by His Excellency Dr. Haile
Giorgis Workneh, the Lord Mayor of Addis Ababa and included Ato Nega Fanta,
General Manager of AWSA. Agreement was reached on the technical aspects of
the project but agreement on a viable financial plan for AWSA could not be
reached at that time (see paragraph 25). Negotiations were therefore
suspended until a plan could be worked out. This has now been made possible
through rescheduling of payments on an existing loan for the construction
of the Lagadadi reservoir. In addition, the Imperial Ethiopian Government
has agreed to ensure availability of all funds required by AWSA for completing
the proposed project and meeting any financial shortfalls. Negotiations were
completed in February 1972.
19. A report entitled "Appraisal of the Addis Ababa Water Supply and
Sewerage Project" (No. PU-68, dated March 24, 1972) is being distributed
separately. A Loan and Project Summary is provided in Annex III.
later Supply
Sewerage
In addition, funds for the purchase of six vacuum trucks with accessories,
water meters and certain equipment needed for maintenance, and funds for
engineering services, management assistance to AWSA and training of staff
are included under the project.
21. The water distribution mains will replace some of the old mains,
strengthen parts of the existing network and extend supply to newly developed
areas. With the construction of the new reservoirs and pumping stations,
the supply to the high level zones in the northern part of the city will
improve. It would be possible to make full use of available water from the
Lagadadi reservoir.
22. The sewerage portion of the project constitutes the first phase
of a planned sewerage system which will eventually serve the entire city.
The project will serve a population of 110,000 in the southern part of
the city, encompassing the entire business center and the fastest developing
residential and industrial areas. The sewage collected from these areas
will be conveyed by an outfall sewer to a treatment plant which will be
built on a 20-hectare plot outside the city limits, where sedimentation
followed by biological treatment in oxidation canals will be provided.
The vacuum trucks to be purchased will assist in the collection of liquid
wastes from the unsewered areas. The wastes so collected will also be
treated at the proposed treatment plant. After being adequately treated,
the effluent will be discharged into the Akaki River. The proposed system
would substantially reduce water and soil pollution.
23. On the recommendation of the management consultants (Public Admin-
istration Service of Chicago) financed by the Bank, the former Water Supply
Administration of the Addis Ababa Municipality has been reorganized into the
Addis Ababa Water and Sewerage Authority, which was established in February
1971. It is now responsible for all water supply and sewerage functions in
the city and adjoining developed areas. AWSA is a commercial organization
with share capital and the right to pay dividends, with the Municipality of
Addis Ababa as the sole shareholder. All the powers of AWSA are vested in
a nine-man Board with the Lord Mayor of Addis Ababa as the Chairman and
including the Ministers of Interior, Public Health, Finance and Public Works
(or their representatives). The General Manager of AWSA is the chief executive
responsible for day-to-day operations. AWSA is empowered to borrow money
and fix, impose and collect fees for water and sewerage services. It is
exempted from all taxes and from customs duties on equipment and materials
used for water and sewerage works. AWSA is reasonably well staffed for a
new institution. However, to assist the new authority in its development,
finance is included in the proposed loan for an engineering advisor and for
assistance by management consultants.
25. The principal problem associated with the financing of this project
was the large debt incurred on account of the construction of the Lagadadi
Reservoir. In 1967, Istituto di Credito per le Impresse di Publicca Utilita
(ICIPU), an Italian semi-government financing institution, made a loan of
Eth$25.0 million at 5.9% interest for a term of ten years, of which $20.9
million remained outstanding at the end of FY1971. In order to finance a
cost overrun, ICIPU in 1970 made a second loan of Eth$7.5 million at 7.5%
interest commencing December 31, 1971, of which Eth$7.1 million is presently
outstanding. In spite of having one of the highest water rates in any major
city in Africa, AWSA's operational income could not be expected to cover
debt service on both of these loans in accordance with their original terms.
Further, AWSA may have to make payments arising from the contractor's claims
for an additional Eth$15 million for works on the Lagadadi project, which
have not been certified for payment. These claims are currently the subject
of dispute between the contractor and AWSA. The provisions concerning arbi-
tration in the various contract documents are not entirely clear, and there
are differences between the contractor and AWSA as to their application.
The contractor has placed the matter before an arbitrator nominated by the
International Chamber of Commerce. AWSA has objected to this procedure
and is not participating in it. In the meantime, there have been some
direct discussions between AWSA and the contractor, who has accepted the
proposal of AWSA to negotiate early in April. AWSA has stated that should
these negotiations fail, they would submit the dispute to a panel of arbi-
trators selected in accordance with the provisions of the contract they
consider to be applicable.
-7-
26. The Eth$25 million loan for the Lagadadi project has recently been
renegotiated by the Imperial Ethiopian Government with the Italian Government.
There will be a moratorium on all amounts of principal and interest which
would have been payable over the 5-year period ending June 30, 1976, and
the term of the loan will be extended by 5 years from December 31, 1979 to
December 31, 1984. No rescheduling of the second loan of Eth$7.5 million
is proposed. As noted above, the IEG has agreed to provide funds as necessary
to AWSA to enable it to complete the project and cover any financial short-
falls. These actions, together with the additional'capital to be provided
under the proposed Bank loan, will insure adequate funds for the construction
of the project. Once the project is constructed and the additional revenue
from increased water sales becomes available to AWSA, it would be able to
finance the debt service on the proposed Bank loan as well as its other debt
service obligations without difficulty.
29. The draft Loan Agreement between the Bank and the Addis Ababa
Water and Sewerage Authority, the draft Guarantee Agreement between the
Empire of Ethiopia and the Bank, the Report of the Committee provided for
in Article III, Section 4(iii) of the Articles of Agreement and the text
of a resolution approving the proposed loan are being distributed to the
Executive Directors separately.
30. The draft agreements conform to the normal pattern for loans
for water supply and sewerage projects.
31. I am satisfied that the proposed loan would comply with the
Articles of Agreement of the Bank.
PART V - RECOMMENDATION
Robert S. McNamara
President
Attachments
Wlashington, D.C.
March 28, 1972
ANNEX I
Page 1 of 2
(Amount US $ millions)
Year Company Loan Equity Total
Total undisbursed - .2 .2
ANNEX lI
Page 1 of 3
ETHIOPIA
Country Data
Gross Domestic Product at Current Factor Cost (1969): Eth $3.8 billion
Monetary: Eth $2.1 billion
Non-monetary: Eth $1.7 billion
Foreign Exchange Reserves (June 30, 1971): Us$68.1 million = 4.6 months' imports
($ millions)
Total Total %
1962 1966 1966
to to to
1965 1966 1967 1968 1969 1970 1970 1970
IBRD 14.3 7.8 6.3 4.8 6.8 5.6 31.3 23
IDA 5.8 2.7 2.7 4.1 4.6 2.8 16.9 13
U.S.A. 43.4 5.2 4.6 19.3 8.1 5.8 43.0 32
U.S.S.R. 5.9 3.7 3.8 2.1 .3 - 9.9 7
Yugoslavia 4.0 .4 .6 - - - 1.0 -
Italy .7 - 1.1 4.3 5.0 2.0 12.4 9
Germany 3.4 - 2.0 .1 .6 1.4 4.1 3
Sweden .8 - - - 1.6 1.0 2.6 2
Netherlands - 10.9 - - - - 10.9 8
Other 2.5 .4 - .3 .7 2.3 3.8 3
1965
.______
($ millions)
Total Total %
1962 1966 1966
to to to
1965 1966 1967 1968 1969 1970 1970 1970
Communications
and Power 59.5 22.4 12.9 18.0 12.2 8.4 73.9 54
Industry 13.8 3.6 4.5 4.9, 1.5 2.4 16.9 12
Agriculture 0.3 0.1 0.2 - - 0.3 0.6 -
Health 0.8 0.5 1.5 5.9 8.6 3.8 20.3 15
Education 0.4 - 0.4 2.4 2.2 1.2 6.2 5
DFC 3.0 0.1 - 0.7 1.8 4.2 6.8 5
Other 3.0 4.4 1.6 3.1 1.4 0.6 11.1 8
Total 80.8 31.1 21.1 35.0 27.7 20.9 135.8 100
ANNEX III
Page 1 of 2
ETHIOPIA
Guarantor: Ethiopia
ETHIOPIA
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AND SEWERAGE PROJECT
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