AFRICAN DEVELOPMENT BANK LANGUAGE: ENGLISH ORIGINAL: ENGLISH

APPRAISAL REPORT REPUBLIC OF MAURITIUS

PLAINES WILHEMS SEWERAGE PROJECT

STAGE 1

WATER & SANITATION DEPARTMENT OWAS December 2006

TABLE OF CONTENTS Page PROJECT INFORMATION SHEET, CURRENCY AND MEASURES, LIST OF TABLES, LIST OF ANNEXES, LIST OF ABBREVIATIONS, MAURITIUS SOCIO-ECONOMIC INDICATORS, PROJECT LOGICAL FRAMEWORK, EXECUTIVE SUMMARY i - xi 1. ORIGIN AND HISTORY OF THE PROJECT ......................................................................................... 1

2. THE ENVIRONMENT AND THE WATER & WASTEWATER SECTOR ........................................ 2

2.1 DEVELOPMENT AND THE ENVIRONMENT 2 2.2 WATER RESOURCES AND THE COASTAL ZONE 3 2.3 WATER USES AND WASTEWATER 4 2.4 INSTITUTIONAL SET-UP 6 2.5 POLICY ISSUES, CONSTRAINTS, OBJECTIVES AND STRATEGIES 7 2.6 SOCIAL ISSUES 8 2.7 BANK GROUP STRATEGY 9

3. THE WASTEWATER SUB-SECTOR...................................................................................................... 10

3.1 THE NATIONAL SEWERAGE PROGRAMME 10 3.2 INSTITUTIONAL STRENGTHENING AND LEGISLATIVE REQUIREMENTS 10 3.3 FINANCIAL ACCOUNTING 12 3.4 FINANCIAL PERFORMANCE OF THE WMA 12 3.5 COMBINED FINANCIAL PROJECTIONS (GOVERNMENT AND WMA) 13 3.6 FINANCIAL PROJECTINS OF THE WMA 14

4. THE PROJECT............................................................................................................................................ 15

4.1 PROJECT CONCEPT AND RATIONALE 15 4.2 PROJECT AREA AND PROJECT BENEFICIARIES 15 4.3 STRATEGIC CONTEXT 17 4.4 PROJECT OBJECTIVE 17 4.5 PROJECT DESCRIPTION 17 4.6 PRODUCTION, MARKETS AND PRICES 19 4.7 ENVIRONMENTAL IMPACT 20 4.8 PROJECT COSTS 22 4.9 SOURCES OF FINANCE AND EXPENDITURE SCHEDULE 23

5 PROJECT IMPLEMENTATION.............................................................................................................. 25

5.1 EXECUTING AGENCY 24 5.2 INSTITUTIONAL ARRANGEMENTS 25 5.3 SUPERVISION AND IMPLEMENTATION SCHEDULES 25 5.4 PROCUREMENT ARRANGEMENTS 26 5.5 DISBURSEMENT ARRANGEMENTS 28 5.6 MONITORING AND EVALUATION 28 5.7 FINANCIAL REPORTING AND AUDITING 28 5.8 DONOR CO-ORDINATION 29

6 PROJECT SUSTAINABILITY AND RISKS........................................................................................... 29

6.1 RECURRENT COSTS AND REFORMS 29 6.2 PROJECT SUSTAINABILITY 29 6.3 CRITICAL RISKS AND MITIGATING MEASURES 31

7. PROJECT BENEFITS ................................................................................................................................ 32

7.1 FINANCIAL ANALYSIS 32 7.2 ECONOMIC ANALYSIS 32 7.3 SOCIAL IMPACT ANALYSIS 33 7.4 SENSITIVITY ANALYSIS 34

8. CONCLUSIONS AND RECOMMENDATIONS .................................................................................... 34

8.1 CONCLUSIONS 34 8.2 RECOMMENDATIONS AND CONDITIONS FOR LOAN APPROVAL 34

This report was prepared by Mr. Yasser Ahmad, (Financial Analyst, OWAS.2), Ext 3448, Mr. Yogesh Vyas, (Lead Environmentalist, OIVP), Ext 2178 and Mr. William Joiner, (Consultant Water Engineer, OWAS.2), Ext 3439. Any enquiries should be addressed to the authors or Mr. Bedoumra, Director, OWAS (Ext. 2055), and Mr Sering Jallow, Division Manager, OWAS.2 (Ext. 2191).

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AFRICAN DEVELOPMENT FUND 01 BP 1387, ABIDJAN 01

Tel: (225) 20-20-44-44 Fax: (225) 20-20-42-20

PROJECT INFORMATION The information given hereunder is intended to provide some guidance to prospective suppliers, contractors, consultants and all persons interested in the procurement of goods and services for projects approved by Boards of Directors of the Bank Group. More detailed information and guidance should be obtained from the Executing Agency of the Borrower. 1. COUNTRY : Mauritius 2. NAME OF PROJECT : Plaines Wilhems Sewerage Project – Stage 1 3. LOCATION : Plaines Wilhems District 4. BORROWER : The Republic of Mauritius 5. EXECUTING : Wastewater Management Authority (WMA) AGENCY The Celicourt Celicourt Antelme Street Port Louis, Mauritius Tel: +230 206 30 00/206 30 90 Fax: +230 211 70 07 Email: wma@intnet.mu 6. PROJECT : The project comprises the following components: DESCRIPTION

i) Expansion of St. Martin Wastewater Treatment Plant ii) Construction of trunk sewer iii) Construction of Sewer Reticulation System and house

connections ♦ Lot 1A: Southwest Quatre Bornes and West Rose Hill ♦ Lot 1B: West Rose Hill ♦ Lot 2: Central Quatre Bornes, NE Quatre Bornes and Sodnac ♦ Construction of additional house connections in unsewered

pockets of sewered areas of Curepipe, Vacoas and Phoenix.

7. TOTAL COSTS (UA): 132.37 million Foreign Exchange : 88.30 million Local Costs : 44.07 million

ii

8. ADB LOAN a) Amount : UA 13.72 million b) Currency : TBC c) Duration : Twenty (20) years, including a five year grace period. d) Interest Rate : Floating rate in respect of the amounts disbursed and

outstanding. e) Repayment of : 30 Semi-annual instalments with first payment Principal beginning after grace period.

9. OTHER SOURCES OF FINANCE EU : UA 25.290 million EIB : UA 30.027 million Chinese Government : UA 18.212 million GOM : UA 44.449 million 10. DATE OF : June 2007 APPROVAL 11. ESTIMATED : December 2000 (144 months) – Whole project

STARTING DATE February 2008 to February 2011 (36 months) – ADB Component

OF PROJECT& DURATION

12. PROCUREMENT : In accordance with the Rules of Procurement of the

respective funding agencies. Procurement of works for the ADB financed component will be in accordance with the Bank’s Rules of Procedure for the Procurement of Goods and Works using the relevant Standard Bidding Documents for large contracts.

Civil Works - Procurement of civil works for the ADB financed component shall be through International Competitive Bidding (ICB).

13. CONSULTANCY : The Consultancy services Contract, funded by the EIB,

has been SERVICES awarded to the Italian firm C. Lotti and Associati S.p.A

after open REQUIRED AND tendering exercise. STAGE OF SELECTION

14. ENVIRONMENTAL CATEGORY : 1

iii

EQUIVALENTS CURRENCY AND MEASURES

CURRENCY EQUIVALENT

(December 2006)

Currency Unit = Mauritius Rupee (MUR) UA 1.00 = MUR 51.01 UA 1.00 = US$ 1.51 US$ 1.00 = MUR 33.78

FINANCIAL YEAR

July 1 – June 30 MEASURES l/cd = litres per capita per day m3 = cubic metre m3/d = cubic metre per day mg/l = milligram per litre Ml/d = million litres per day Mm3 = million cubic metres km = kilometres Kg = kilogram

LIST OF TABLES Table 2.1 Magnitude of Sector Pressures on Environmental Resources Table 3.1 Capital Expenditure for WMA

Table 4.1 Average Tariff Rates per Cubic Metre – Actual and Planned Table 4.2 Summary of Project Cost Estimates by Component – Whole Project Table 4.3 Summary of Project Cost Estimates by Component – ADB Component Table 4.4 Summary of Project Cost by Category of Expenditure – Whole Project Table 4.5 Summary of Project Cost by Category of Expenditure – ADB-funded Component Table 4.6 Financing Plan by Component and Source Table 5.1 Expenditure Schedule by Component Table 5.2 Expenditure Schedule by Source of Finance – ADB Component Table 5.3 Procurement Arrangements

iv

LIST OF ANNEXES

Annex No. Number of pages 1. Location Map of Project 2 2. National Sewerage Programme - Priority Projects 1 3. Organisation Chart of WMA 1 4. Projected Financial Statements of WMA 1 5. Bank Group Operations in Mauritius 2 6. Project Implementation and Detailed Expenditure Schedules 1 7. Financial Internal Rate of Return Calculation Assumptions 1 8. Financial Internal Rate of Return Calculations 1 9. Economic Internal Rate of Return Calculations Assumptions 1 10. Economic Internal Rate of Return Calculations 1

LIST OF ABBREVIATIONS ADB/ ADF = African Development Bank / African Development Fund AFD = Agence Française de Développement APA = Advanced Procurement Action CWA = Central Water Authority DOE = Department of Environment EIB = European Investment Bank EIRR/FIRR = Economic/Financial Rate of Return EU = European Union FAD = Finance and Administration Department GDP = Gross Domestic Product GOM = Government of Mauritius GPN = General Procurement Notice IA = Irrigation Authority ICB = International Competitive Bidding JBIC = Japan Bank for International Co-operation KF = Kuwait Fund for Arab Economic Development KfW = Kreditanstalt fuer Weideraufbau LRMC = Long Run Marginal Cost MOFED = Ministry of Finance and Economic Development MLG = Ministry of Local Government MEQL = Ministry of Environment and Quality of Life MOF = Ministry of Finance MPU = Ministry of Public Utilities MUR = Mauritius Rupee NARV = National Annual Rentable Value NEAP = National Environmental Action Plan NSP = National Sewerage Programme O&M = Operation and Maintenance PCU = Pollution Control Unit PMU = Project Management Unit SPN = Specific Procurement Notice

v

UA = Unit of Account VI = Verifiable Indicators WB = World Bank WRU = Water Resource Unit WMA = Wastewater Management Authority

vi

Year Mauritius AfricaDevelo-

pingCountries

Develo-ped

CountriesBasic Indicators Area ( '000 Km²) 2 30 307 80 976 54 658Total Population (millions) 2006 1.3 924.3 5 253.5 1 211.3Urban Population (% of Total) 2006 43.4 38.4 43.1 78.0Population Density (per Km²) 2006 615.6 30.5 60.6 22.9GNI per Capita (US $) 2005 5 260 955 1 154 26 214Labor Force Participation - Total (%) 2005 44.4 42.3 45.6 54.6Labor Force Participation - Female (%) 2005 34.0 41.1 39.7 44.9Gender -Related Development Index Value 2004 0.792 0.475 0.694 0.911Human Develop. Index (Rank among 174 countries) 2004 63 n.a. n.a. n.a.Human Poverty index (HPI-1) (% of Population) 2004 11.3 38.0 32.0 20.0

Demographic IndicatorsPopulation Growth Rate - Total (%) 2006 0.9 2.1 1.4 0.3Population Growth Rate - Urban (%) 2006 1.1 3.5 2.6 0.5Population < 15 years (%) 2006 24.2 41.3 32.4 18.0Population >= 65 years (%) 2006 6.7 3.4 5.5 15.3Dependency Ratio (%) 2006 44.7 80.8 57.8 47.8Sex Ratio (per 100 female) 2006 98.6 99.9 102.7 94.2Female Population 15-49 years (% of total population) 2006 32.8 26.8 27.1 25.0Life Expectancy at Birth - Total (years) 2006 72.8 51.4 64.1 76.0Life Expectancy at Birth - Female (years) 2006 76.2 52.2 65.9 79.7Crude Birth Rate (per 1,000) 2006 15.6 36.5 22.8 11.0Crude Death Rate (per 1,000) 2006 6.9 14.9 8.7 10.4Infant Mortality Rate (per 1,000) 2006 14.0 82.5 59.4 7.5Child Mortality Rate (per 1,000) 2006 16.5 137.7 89.3 9.4Total Fertility Rate (per woman) 2006 1.9 4.7 2.8 1.6Maternal Mortality Rate (per 100,000) 2000 20.0 622.9 440 13Women Using Contraception (%) 2000 50.8 26.6 59.0 74.0

Health & Nutrition IndicatorsPhysicians (per 100,000 people)* 2004 105.7 38.2 78.0 287.0Nurses (per 100,000 people)* 2004 369.0 110.7 98.0 782.0Births attended by Trained Health Personnel (%) 2002 99.0 43.7 56.0 99.0Access to Safe Water (% of Population) 2004 100.0 62.3 78.0 100.0Access to Health Services (% of Population)* 2000 99.0 61.7 80.0 100.0Access to Sanitation (% of Population) 2004 94.0 44.2 52.0 100.0Percent. of Adults (aged 15-49) Living with HIV/AIDS 2005 0.4 4.5 1.3 0.3Incidence of Tuberculosis (per 100,000) 2004 135.0 310.2 144.0 11.0Child Immunization Against Tuberculosis (%) 2005 99.0 78.1 82.0 93.0Child Immunization Against Measles (%) 2005 98.0 68.0 73.0 90.0Underweight Children (% of children under 5 years) 2003 6.0 39.0 31.0 …Daily Calorie Supply per Capita 2004 2 999 2 435 2 675 3 285Public Expenditure on Health (as % of GDP) 2002 2.2 5.6 1.8 6.3

Education Indicators Gross Enrolment Ratio (%) Primary School - Total 2004/05 103.0 96.7 91.0 102.3 Primary School - Female 2004/05 103.0 90.4 105.0 102.0 Secondary School - Total 2004/05 85.0 43.1 88.0 99.5 Secondary School - Female 2004/05 85.0 36.5 45.8 100.8Primary School Female Teaching Staff (% of Total) 2004/05 62.9 47.5 51.0 82.0Adult Illiteracy Rate - Total (%) 2006 15.6 43.3 26.6 1.2Adult Illiteracy Rate - Male (%) 2006 11.6 34.5 19.0 0.8Adult Illiteracy Rate - Female (%) 2006 19.5 52.4 34.2 1.6Percentage of GDP Spent on Education 2001 3.3 4.7 3.9 5.9

Environmental IndicatorsLand Use (Arable Land as % of Total Land Area) 2005 49.3 6.0 9.9 11.6Annual Rate of Deforestation (%) 2000 0.6 0.7 0.40 -0.20Annual Rate of Reforestation (%) 2000 2.0 10.9 … …Per Capita CO2 Emissions (metric tons) 2005 2.4 1.0 1.9 12.3

Source : ADB Statistics Division Databases;

World Bank Live Database; UNAIDS; UNSD; WHO, UNICEF, WRI, UNDP; Country ReportsNote : n.a. : Not Applicable ; … : Data Not Available; * : latest data available within 1995-2000

COMPARATIVE SOCIO-ECONOMIC INDICATORSMauritius

January 2007

Infant Mortality Rate ( Per 1000 )

0

20

40

60

80

100

2001

2002

2003

2004

2005

2006

Mauritius Africa

GNI per capita US $

0100020003000400050006000

2000

2001

2002

2003

2004

2005

Mauritius Africa

Population Growth Rate (%)

0.0

0.5

1.0

1.5

2.0

2.5

2001

2002

2003

2004

2005

2006

Mauritius Africa

Life Expectancy at Birth (years)

111213141516171

2001

2002

2003

2004

2005

2006

Mauritius Africa

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PLAINES WILHEMS SEWERAGE PROJECT

PROJECT MATRIX

Hierarchy of Obje Expected Results Reach (Target Population)

Objectively Verifiable Indicators

Means of Verification

Assumptions And Risks

Sector Goal/Theme Long Term Outcome Beneficiaries Verifiable Indicators Important Assumptions 1. Environmental

protection • Reduce health risk due to

inadequate collection, treatment and disposal of sewage

• Growth in the economy • Meet the MDGs on reducing

child mortality, improving maternal health and promoting environmental sustainability

• Entire population of Mauritius

• Reduction in waterborne or water related diseases by 50% by 2012/13

• Reduce infant mortality

rate from 13.2 in 2005 to below 10 by 2012.

• Increase in GDP • • Diarrhoea incidence rates

amongst whole population reduced by half by 2012.

• National health statistics •

Project Objective • Medium term outcome • Beneficiaries Verifiable Indicators and Timeframe Medium term outcome

Means of Verification • Important Assumptions

1. Environmentally appropriate collection, treatment and disposal of sewage and sludge from the Plaines Wilhems District.

• Reduced pollution of coastal and fresh waters.

• Reduced incidence of water-

borne diseases • Increased irrigation output

• Population of Plaines Wilhems

• Reduce the incidence of faecal contamination in water bodies to half by 2012.

• Central Statistics Office & Ministry of Environment publication

• CSO & Min of Health

statistics • National wastewater

coverage increased from a served population of 25% to 50% by 2012/13 (CSO)

• Government continues to give the sector the priority it deserves.

• Complementary

programmes are implemented to reduce environmental degradation of surface, ground and seawater

Project Outputs Sector/Theme

Beneficiaries Verifiable Indicators and

Timeframe Means of Verification Important Assumptions

1 Increased & improved sewage treatment capacity

2. Improved collection

and transmission capacity of sewage

2. Increased number of

household connectivity.

• Increased volumes of sewage effluent meeting standards for discharge into coastal waters and for irrigation

• Improved treatment at St.

Martin Treatment Plant • Treated sludge for use as soil

conditioner or for dumping at landfill site.

• Methane gas generated for

power generation • Increased sewage flows to St.

Martin Treatment Plant • No overflow of sewage in the

Plaines Wilhems District • Reduction of seepage to the

groundwater. • Increased household

connectivity to sewerage network

• 288,000 people resident in Plaines Wilhems

• Sewage overflow ing streets negligible by 2012

• Effluent from the St.

Martin Treatment Plant meets the prescribed designed targets of 10mg/l for BOD and 15mg/l of total suspended solids by 2012/13

• Digested sludge from the St.

Martins Treatment Plant is compatible with the method of disposal outlined by the Ministry of Environment guidelines

• Influent flow to St. Martin

increased to 69,000m3/day by December 2012

• Households disposing

domestic wastewater through on-site disposal reduced by 32,500 by December 2012

• District statistics kept by the WMA & Ministry of Environment

• Performance reports of

WMA under the Contrat de delegation

• WMA Quarterly Progress

Reports • WMA operational reports

• Blockages are cleared quickly

• Households use network properly

• Tariffs remain affordable

Mitigation • Adequate and

sufficiently trained staff of WMA

• PR communicated regularly to users

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Activities Inputs/resources (in millions)

1. Construction of : • St. Matins

treatment plant • trunk sewer • reticulation

systems • house

connections 2. Supervision of works 3. Audit

• Reconstruction and extension

of St. Martin Sewerage Plant to 69,000m3/day treatment capacity.

• Construction of 27km of new

Trunk Sewer • Construction of 264.6km

Reticulation network in Districts of Plaines Wilhems

• Construction of 29,088 House

Connections Lots 1A, 1B & 2.

• Project Population of

233,000 reached in Vacoas, Phoenix, Quatre-Bornes and West Rose-Hill areas of Plaines Wilhems District

• 32,500 household

connections in Plaines Wilhems

ADB UA 13.72 EIB UA 30.03 EU UA 25.96 China (PRC) UA 18.21 GOM UA 44.45

Total UA 132.37

• WMA quarterly progress reports

• Project progress reports • Project supervision reports • WMA financial statements

& annual audit reports

• No public opposition to project implementation

• Households willing to

connect to system • Favourable site

conditions encountered

Mitigation • NGOs and public to be

well consulted • ESMP put in place • Household connections

pre-financed by project

• Penalties levied for non-connection

• Hydro-geological investigations conducted prior to detailed design.

ix

PROJECT EXECUTIVE SUMMARY PROJECT BACKGROUND 1. The rapid demographic and economic growth achieved by Mauritius over the last two decades led to a growing degradation of the island’s environment. Recognising the need for environmentally sustainable development, in 1990, the Government of Mauritius, with assistance from the World Bank, reviewed existing institutional and legislative arrangements for the protection of the environment and prepared a National Environmental Action Plan (NEAP). The NEAP identified inadequate disposal of urban wastewater as a growing threat to the quality of the country’s water resources and the marine and coastal ecosystems. 2. Within the framework of the NEAP, in 1994, the government produced a Sewerage Master Plan, with funding from the African Development Bank (ADB), and prepared the National Sewerage Programme to implement its recommendations. The Plaines Wilhems Sewerage Project, which is the subject of this appraisal report, is one of the priority projects within the Programme. The project was originally prepared in March 2001 and appraised in August 2001 by the ADB. Its total cost at the time was UA116.79 million of which the ADB would finance UA7.99 million using 2 loans. The difference was to be financed by other donors. 3. The 2 ADB loans were approved on 6 February 2002 by the Bank however the conditions precedent to entry into force and first disbursement had not been met as of December 2004. Delays in the implementation of the trunk sewer component (funded by the EU) meant that the Government did not expect to award the contract to be financed from the ADB until 2007. Consequently the Bank agreed with the Government to cancel the loans (effective 15 March 2005), to avoid excessive Government commitment charges and the fact that the cost estimates and assumptions made at appraisal in 2001 had become outdated. 4 In November 2005 a Bank mission visited Mauritius to participate in the Joint Donors Technical and Ministerial Meeting on the Wastewater sector. At that mission’s conclusion the Government reiterated its wish to secure ADB financing for Lot 1B of the project and led to the fielding of a preparation/appraisal mission to Mauritius in December 2006. The official Government request for Bank funding was also received in December 2006. PURPOSE OF THE LOAN 5. The ADB loan, equivalent to UA 13.72 million and amounting to 10.4% of the total project costs (UA 132.38 million), will be used to finance 15.5% of total foreign exchange (UA 88.30 million). PROJECT OBJECTIVE 6. The Project will contribute to the achievement of the overall goals of protecting the coastal environment; averting imminent pollution of surface and ground water resources; reducing the health risk due to the inadequate collection, treatment and disposal of sewage and contributing to sustainable socio-economic development. The objective of the project is

x to provide environmentally appropriate collection and treatment of sewage and disposal of effluent and sludge from the Plaines Wilhems district. BRIEF DESCRIPTION OF THE OUTPUTS

7. In order to achieve this objective, the project is focussing on:

(i) Reconstruction of the St. Martin Wastewater Treatment Plant and increasing its capacity from 48,000 m3/day to 69,000 m3/day to serve a population of 233,0001. Work on this component with financing by the European Union (EU) and the Government of Mauritius (GOM) has already been completed in 2005. It is now being operated and maintained by WMA under contract to a private firm, until March 2008.

(ii) Construction of a new 27km trunk sewer to increase trunk sewer capacity from

the Plaines Wilhems district to St Martin Sewerage Treatment Plant;

(iii) Construction of 262km of reticulation network in the Plaines Wilhems catchment areas to increase sewerage flows to St Martin Sewerage Treatment Plant; and

(iv) Construction of nearly 32,500 house connections in the municipalities of

Quatre Bornes, Beau Basin/Rose Hill, Curepipe and Vacoas/Phoenix and effluent out-fall to the La Ferme Irrigation System;

The construction of the reticulation network and house connections, points (iii) and (iv) above, is divided into 4 lots namely Lot 1A, Lot 1B, Lot 2 and a Lot for Additional House Connections. The Bank will finance construction of Lot 1B, which involves the construction of a sewer reticulation system in part of West Rose Hill. More specifically, the component consists of (a) construction of 41 km of sewers in diameters ranging form 200 mm to 600 mm laid to a depth ranging from 1.5 to 5.0 metres; (b) an estimated 823 access manholes at network nodes; (c) some 3,957 house connections and (d) replacement of 10km of water supply pipes. PROJECT COSTS 8. The total project cost is estimated at UA 132.38 million out of which UA 88.30 million (67%) will be in foreign currency and UA 44.08 million (33%) in local currency. SOURCES OF FINANCE 9. The proposed financing plan is as follows: The St. Martin Sewerage Treatment Plant was financed by the EU (36%) and the GOM (64%); the Trunk Sewer is being financed 100% by EU; Lot 1A Sewer Reticulation and House Connections will be financed by the EIB (85%) and GOM (15%), Lot 1B by the ADB (100%), Lot 2 Sewer Reticulation and House Connections will be financed by the Government of China for a fixed amount of MUR 929 million and the remainder by GOM. The financing arrangements for the Additional Reticulation and House Connections, as well as its supervision of works, will be undertaken by the Government of Mauritius.

1 The population served directly by the treatment plant.

xi PROJECT IMPLEMENTATION 10. Some of the project components being financed by other development partners are already under implementation with the whole project implementation period running for 144 months, from December 2000 to December 2012 followed by a Defects Liability Period of 12 months. The Bank-funded component of the project will be implemented over a 36 month period from February 2008 to February 2011 followed by a Defects Liability Period of 12 months. The Wastewater Management Authority shall be the Executing Agency. 11. Procurement for the ADB financed component will be in accordance with the Bank’s Rules of Procedure for the Procurement of Goods and Works using the relevant Standard Bidding Documents. As a single works contract is foreseen the Direct Payment methods of disbursement will be used. The Executing Agency (WMA) will submit quarterly progress reports on the implementation of the Bank Financed project component and the Borrower shall also submit to the Bank a Borrower’s project completion report (PCR), within six months of the end of the project. The Bank will supervise the Bank financed project component twice a year. A Mid-term Review after 18 months of project implementation will also be undertaken as per Bank requirements. CONCLUSIONS AND RECOMMENDATIONS 12. The project is an appropriate technical solution to the identified problems of degradation of the coastal waters in the environs of the outfall from the St. Martin plant, of the imminent pollution of the groundwater resources of the Plaines Wilhems aquifer, the surface waters of the area, and the health risks associated with inadequate drainage capacity resulting in overflows. It will improve the living environment for the people in the project area, contribute towards maintaining the earnings from the tourism industry, and benefit sugar cane-based as well as other farmers by providing treated effluent for irrigation water and compost for soil conditioning. 13. The project conforms with the Bank’s Environment Policy and Policy for Integrated Water Resource Management, which both advocate strategies to abate wastewater pollution through construction of adequate wastewater treatment and disposal facilities. The project also ensures that Mauritius meets its Millennium Development Goals, specifically on reducing child mortality, improving maternal health and promoting environmental sustainability and protection. 14. It is therefore recommended that a loan equivalent to UA 13.72 million from the ADB resources be granted to the Republic of Mauritius, for the purpose of implementing the Lot 1B component of the project described in the report, subject to the conditions specified in the loan agreement.

1. ORIGIN AND HISTORY OF THE PROJECT 1.1 Mauritius has a moderate tropical climate, and high average rainfall of about 2100mm, equivalent to about 4,000 Million m3. The population of Mauritius has now grown to 1.2 million, 45% of whom live in urban areas. This increase in population (at a rate of 1.1%), coupled with an economic growth rate of 5.5%, meant that municipal and industrial wastes were becoming a cause for concern to the Government of Mauritius (GOM). These pose a continuing challenge for policy makers aiming to safeguard the prosperity, environment, public health, and heritage of the nation. Consequently, the Government has set itself the objective of stopping and reversing the effects of environmental degradation and promoting environmentally sustainable development. 1.2 Since the early 1990’s, GOM, with assistance from the World Bank (WB), has adopted a clear environmental policy to protect, restore and manage the country’s environmental assets. A National Environmental Action Plan (NEAP) covering all sectors was formulated. It identified the inadequate disposal of urban wastewater as a growing threat to the Mauritian environment, and from this a Sewerage Master Plan (SMP) evolved in 1994 with funding from the ADB. The plan revealed that the existing wastewater infrastructure is inadequate to handle effluent in an environmentally sound manner. Consequently, a National Sewerage Programme (NSP) was prepared to operationalize the recommendations of the SMP. The Plaines Wilhems Sewerage Project, was identified as one of the priority projects of the NSP to be implemented (Location Map is in Annex 1). 1.3 In December 2000, the Government of Mauritius convened a Joint Lenders Meeting to solicit funding pledges for implementation of the project. In addition to the ADB, the meeting was attended by representatives of the World Bank, European Investment Bank (EIB), Japan Bank for International Co-operation (JBIC), European Union (EU), Agence Française de Développement (AFD), and Kuwait Fund for Arab Economic Development (KF). At the time of the meeting, GOM had already secured funding from the European Union for the St Martin Treatment Plant component for which construction started in January 2001 and was completed in March 2005. Also, the Government of the People’s Republic of China had made a pledge to finance part of the reticulation network. The EIB, EU, KF and the ADB made pledges to finance the remaining components. Following the meeting, the Bank prepared the project in March 2001 and appraised it in August 2001. Its total cost at the time was UA116.79 million of which the ADB would finance UA7.99 million, by way of 2 loans. The difference was to be financed by other donors and the GOM. 1.4 The ADB loans were approved on 6 February 2002 by the Bank however delays in the implementation of the trunk sewer component (funded by the EU) meant that the Government did not expect to award the contract to be financed from the ADB until 2007. Consequently the Bank wrote to the Government requesting a cancellation of the loans (effective 15 March 2005), to avoid excessive Government commitment charges and the fact that the cost estimates and assumptions made at appraisal in 2001 had become outdated. 1.5 In November 2005 a Bank mission visited Mauritius to participate in the Joint Donors Technical and Ministerial Meeting on the Wastewater sector. At that mission’s conclusion the Government reiterated its wish to secure ADB financing for Lot 1B of the project and led to the fielding of a preparation/appraisal mission to Mauritius in December 2006. The official Government request for Bank funding was also received in December 2006. This report is based on the mission of December 2006.

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2. THE ENVIRONMENT AND THE WATER & WASTEWATER SECTOR 2.1 Development and the Environment 2.1.1 Over the past fifteen years, Mauritius has achieved 5-6% annual growth in the economy and a steady growth in per capita incomes. During this time the economy has diversified from being dominated by sugar cane to a mixture of industry, agriculture, tourism and financial services. These changes are associated with a greater demand for resources of all kinds, greater consumption of products and increased volume of wastes. Hence, a holistic environmental management is required. The first NEAP (NEAP1) and the Environmental Investment Plan (EIP1) were prepared in response to concerns that environmental degradation was accelerating in the context of the rapidly expanding economy. The output of the exercise included the identification of the major environmental problems in Mauritius and proposals for short, medium and long term measures to address them. The recommendations were packaged into specific projects that included the Preparation and Implementation of a National Sewerage Master Plan and Implementation of Urgent Works. The current Mauritius NEAP's matrix of sector pressures on natural resources (Table 2.1 below) identifies six categories of resources (Land and Soils, Water, Air, Bio-diversity, Marine and the Coastal Zone) and nine categories of economic sectors which include resource uses (Agriculture, Fishing, Industry and Energy, Tourism and Recreation, Transport, Housing, Sewage, Solid Waste and Other Human Activities).

Table 2.1 Predicted Magnitude of Sector Pressures

on Environmental Resources

Resource Sector

Land & Soils

Water

Air

Biodiv-ersity

Marine Enviro-nment

Coastal Zone

Agriculture S M S M

Fishing S M Industry/Energy M H M M

Tourism/Recreation S M H Transport M M M H Housing H H Sewage H H

Solid waste M M S S Other non-human H

S = Small pressure M = Medium pressure H = High pressure Source: NEAP, 1999 2.1.2 A comprehensive Environment Protection Act (EPA) was developed under EIP1 to support the Ministry of Environment and provide the legal framework for environmental protection throughout the country. This is based on the National Environment Strategy 1999 – 2010 which reflects the Government’s policy objectives for the preservation of the environment. 2.1.3 Under the EPA, five ministries have retained responsibility of enforcing environmental law:

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• Ministry of Public Utilities – water resources; • Ministry of Health and Quality of Life – air, noise, odour, occupational

health; • Ministry of Agriculture, Fisheries and Co-operatives – fisheries, marine

resources, nature conservation; • Ministry of Local Government – wastewater management and pollution

control at local level; and • Ministry for Rodrigues in charge of environmental management in

Rodrigues. 2.1.4 To ensure co-ordination and co-operation of environmental management among enforcing agencies and other public departments dealing with environmental protection, cross-sectoral bodies have been established at several levels.

• The National Environmental Commission (NEC), a Cabinet-level inter-ministerial group chaired by the Prime Minister to consider and agree upon national environmental policy and strategy.

• The inter-ministerial Environmental Co-ordination Committee, chaired by the Permanent Secretary of MoE is responsible for agreeing a co-ordinated response to implement the policies and strategies emanating from the NEC.

• The Environmental Liaison Officers Meeting, attended by officers from the enforcement agencies, has a remit to address cross-sectoral issues at an operational level.

• The Environmental Advisory Council provides a channel for comments and suggestions on environmental policy and investment, with emphasis on membership on non-governmental officers.

2.1.5 One of the main features of the Act is the requirement for all undertakings listed in the First Schedule to carry out an EIA and to obtain a licence from the Minister before proceeding. 2.1.6 The Environmental Protection Act of 1991 has been superseded by the Environment Protection Act 2002 which is currently being updated to ensure that environmental standards stimulate desirable behaviour, innovation and business opportunities. In addition, enforcement of environmental laws is being decentralised to local authorities. The Ministry of Environment (MOE) itself has strengthened its environmental oversight, supervision and monitoring capacity significantly over the last 5 years. For example a full-fledged division, under the MOE, is now responsible for environmental safeguards in project implementation and a Pollution Control Unit (PCU) has been set up to monitor pollution levels along the coastline and conduct environmental audits on wastewater. 2.1.7 The goal of the sector is to stop and reverse the effects of environmental degradation and promote environmentally sustainable development across the country. 2.2 Water Resources and the Coastal Zone 2.2.1 Mauritius is heavily dependent on water resources to meet health and hygiene needs. Water is also important in agriculture, tourism, industry, and commerce. The quality of water resources has come under threat, mainly due to industrial pollution (textiles), but also due to agricultural runoff and sewage pollution, including dumping of treatment plant sludge.

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Furthermore the coastal zone of Mauritius protects the island from the natural forces of the ocean, has coral reefs characterised by a large bio-diversity and provides abundant opportunities for economic development. Intense pressure from the sea (fisheries and water sports) and land based activities (construction, sewage disposal, industry and agriculture) is degrading this environment. 2.2.2 The country’s surface water resources consists of 25 main and 22 minor rivers and is regulated through a total of 10 manmade storage reservoirs with a combined total gross capacity of 70 Mm3 per year. Groundwater is available in five principal aquifers, of which Plaines Wilhems is one. Currently, water is used mainly for agriculture (estimated at 446 million cubic meters or 54%), followed by hydropower generation (305 million cubic meters or 28%), and finally domestic, industrial and tourism (210 million cubic meters or 18%). If effective water resources management is not introduced, demand for fresh water in Mauritius threatens to outstrip supply within 45 years. 2.2.3 Inadequate capacity for collection and treatment of sewage effluent from domestic and industrial water use in Mauritius contributes to pollution of surface and groundwater resources and the coastal zone within the vicinity of sea out-falls from the few sewerage treatment plants in the country. Use of pesticides and fertiliser in Agriculture has the potential to exacerbate the situation. The pollution, combined with inefficient water use in these sectors, could accelerate the reduction in overall availability of water and the related negative impact on the economy. 2.2.4 The impact of poor environmental management of the water resources would be increasing cost of water supply, deterioration in public health and well being, an increase in related medical costs, and reduction in socio-economic benefits and returns, especially from tourism. The environmental management of land-based water resources will also benefit the Mauritian marine environment in terms of better quality treated effluent being discharged at the sea outfalls and protection of marine life from harmful chemicals present in untreated wastewater. It is therefore crucial for the Government to adopt policies, strategies, and programmes aimed at conserving the quality and quantity of the country’s water resources. This requires reform and re-alignment of institutional arrangements, demand management in the user sectors and control of pollution at its sources. 2.3 Water Uses and Wastewater 2.3.1 Agriculture accounts for the largest water use (460 Mm3 or 54%), primarily for irrigation. Changing patterns in agricultural production have seen increased efficiency in the production of sugar cane and a substantial increase in the production of vegetables, pulses and fruits have accounted for the high consumption of water. Water use in this sector is consumptive and therefore reduces quantity available for other uses. Utilisation for the other purposes is 235 Mm3 or 28% for hydropower and 155 Mm3 or 18% for domestic, industrial and tourism. Around 60% of the total water demand is met by surface water and the remaining 40% by ground water2. 2.3.2 Intensification of agricultural production has been accompanied by increasing import of agrochemicals, mainly pesticides, but the use of fertilizers has declined. Fertiliser levels for sugar cane and vegetable crops are estimated at 700kg/ha. The tropical conditions and high soil microbiological activity and rapid recharge of aquifers have limited the impact of

2 Mauritius Central Statistics Office

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agrochemical run-off on water bodies and there is little evidence of agricultural pollution in either ground or surface water. This is probably also the result of good management in the industry in the past decade. Demand management in this sector includes emphasis on organic crops, improvement in irrigation efficiency, appropriate pricing, and increasing use of treated sewage effluent for irrigation, which the Government has begun to gradually implement. 2.3.3 The Central Water Authority (CWA) provides potable water to 98.8% of Mauritians (about 1,120,000) via six water supply systems. 84% of the population have in-house connections, 14% have access to yard taps, and 0.5% use public fountains. Per capita consumption of water is around 180 litres per day3. Groundwater constitutes 57% of municipal water supplies. Leakage is high with unaccounted for water representing between 37% and 50% of water put into the distribution system although CWA have been tackling this problem with a large-scale replacement programme of old pipes and equipment. 2.3.4 Water consumption in the industrial sector has increased substantially since 1989, but remains relatively small at around 5% of total treated water. However, the concentration of industry around Port Louis-Phoenix axis has put pressure on the Mare aux Vacoas water supply area and over-abstraction in coastal areas is contributing to saline intrusion. Textile industries in the Export Processing Zone have been associated with violation of standards and discharge of dyestuffs to surface water. There are a number of ‘hotspots’ caused by existing polluting industries particularly those in close proximity to residences. 2.3.5 The sections of the water supply system that are rather old have suffered from high levels of unaccounted-for-water (37% to 50%) of water put into the distribution system. However CWA has been replacing this older infrastructure and the population is now rarely affected by water shortages. For example under the Plaines Wilhems Sewerage Project CWA will be replacing large sections of its distribution pipe-work in tandem with the construction of the WMA reticulation network. Demand management, as part of long-term resource management is also being deployed to control and smoothen out water resource consumption. 2.3.6 About 98.8% of the island’s population has access to potable water supply, whereas less than 20% only are connected to a public sewerage system despite the fact that 89% of households use a waterborne system, and the remaining 11% of the population, pit latrines with or without water seals. Although wastewater coverage in Mauritius is high it presents a problem of an environmental nature. Among the 89% with flush toilets, only 19% are connected to piped systems with treatment and off-site disposal and 70% dispose through on-site absorption pits, septic tanks, and soak-aways. Given the high permeability of the aquifers in Mauritius, these together with the 11% using pit latrines create a risk of pollution of groundwater. Sewerage systems are confined to parts of Port Louis and Plaines Wilhems districts only, providing service to 15% of the population and 56% of industries. Where on-site disposal systems near to sensitive receptors are inadequate or poorly maintained, contamination has increased nitrate and pathogen levels. 2.3.7 Where sewerage systems exist, illegal connections between the storm and sewerage systems and direct leakage cause contamination of adjacent watercourses. In addition the wastewater disposal facilities in low cost housing (CHA) estates are in a bad state of disrepair, but are among the GOM’s priority projects. Unsewered industries discharge effluent directly to surface water often with little or no effluent treatment. The sectors with the most polluting effluent in Mauritius are the sugar manufacturing and the textiles industries.

3 CWA data, 1998

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2.3.8 Presently the disposal route for waste sludge generated by the various wastewater treatment works, is the landfill site at Mare Chicose. The expansion of existing works and the construction of waste water facilities will radically increase sludge production. If strict effluent standards are not strictly controlled, the sludge may also be toxic through heavy metal contamination. The option of disposing sewage sludge to sanitary landfill requires strict standards on industrial effluent and adequate dewatering. 2.3.9 Domestic solid wastes are estimated at around 0.63kg per capita per day. Commercial and industrial wastes lie between 130 and 180 tonnes per day. However, the pressure exerted by Solid Waste is considered insignificant on Water Resources and the Coastal Zone, and of medium significance on Air, Land and Soil resources. Plans are underway to sensitise urban households to reduce their output of solid waste and find means of use for the compost that is generated from solid waste. 2.4 Institutional Set-up 2.4.1 The primary responsibility for environmental management rests with the Ministry of Environment (MOE). The Ministry is responsible for environment policy formulation and implementation as well as environment law enforcement and benefits from a strong institutional supervision and monitoring capacity. For example a Pollution Control Unit (PCU) exists to monitor pollution levels along the coastline and conduct environmental audits on wastewater. The Environment Protection Act 2002 is currently being updated and a full-fledged division, under the MOE, is responsible for environmental safeguards in project implementation. This is overseen by the Environmental Coordination Committee, chaired by the Minister of Environment and at cabinet level the National Environmental Committee, chaired by the Prime Minister. An Environmental Audit Committee (EAC), chaired by the Ministry also exists to review environmental audits and make recommendations in the wastewater sector. 2.4.2 In the water supply and wastewater sector the Ministry of Public Utilities (MPU) is responsible for planning and co-ordination activities. On the water supply side according to the Central Water Authority (CWA) Act of 1971 the CWA is the sole party responsible for water supply as well as assessment, development, management and conservation of water resources in Mauritius. It undertakes this role under a mandate from the MPU. 2.4.3 On the wastewater side, the mandate of the MPU is carried out by the Wastewater Management Authority (WMA), a body that became operational in August 2001 upon proclamation of the Wastewater Management Authority Act (2000). WMA took over from its predecessor, the Waste Water Authority (WWA). The creation of the WMA was one of the major recommendations of the SMP to address institutional weaknesses and strengthen the day-to-day administrative and financial management capacity of the wastewater sector. The WMA Act (2000) was amended in 2004 to ensure a maximum number of premises get connected to the public sewer system; specify environmental and service standards, enforcement responsibility, and define responsibilities relative to the WMA and other agencies involved in the sector.

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2.5 Policy Issues, Constraints, Objectives and Strategies

Environment 2.5.1 The Mauritian environment is under high pressure as the economy grows, contributing to the erosion of land, soils, water and coastal zones. The Government’s national environmental strategy outlines its main goal as controlling pollution, promoting clean technology, educating people to be environmentally conscious, conserving resources and protecting the local and global environment. Significant progress has been made in the implementation of the strategy however environmental problems related to land use planning, water availability and quality, the increasing pressure on the coastal zones, and solid waste and wastewater management still need to be addressed. In this regard the Strategy is being reviewed and a new national environmental policy is being developed for the medium term. Water and wastewater Sub-Sector 2.5.2 The 1991 Water Resource Master Plan study and a complementary Vision 2040 - Integrated Plan for Harnessing Additional Water Resources represented the main policy framework for the water sub-sector in Mauritius up until the late 1990s. A new Wastewater Sector Policy Statement 2006 – 2010 has since been prepared and it contains the Government’s strategy to achieve 50% house connection level by the year 2011. In addition, a Master Plan for the wastewater sector will be prepared with a view to providing 80% of the population with access to public wastewater disposal facilities. The Master Plan will identify several issues requiring priority action to safeguard sustainable development of the sub- sector and the way to achieve the overall objective of improved and environmentally sustainable water service delivery and eventual 100% supply coverage. 2.5.3 A separate “Review of National Solid Waste Management Plan” was undertaken in 1998. Consequently, the constraints to the wastewater sub-sector’s development have been identified as: overall weak institutional capacity and arrangements, deficient legal base, lack of data on waste generated and its effects, lack of public awareness and insufficient investment. These are being addressed under the relevant section of the National Environmental Action Programme. 2.5.4 Other constraints are becoming evident as the reforms progress. Firstly, the absence of an independent regulatory institution for water supply and wastewater. Until now the Ministry of Public Utilities, responsible for administration of the management contracts (see paragraphs 3.2.3 and 3.2.4) between the Government and the Wastewater Management Authority, has undertaken this role however a new Utilities Regulation Act was proclaimed by the Government in 2004. Although this is expected to bring in a new independent Regulator with powers to administer the management contracts of the WMA, the Regulator has yet to be set up. Secondly, the need for more specific performance indicators in the management contracts; and finally, weaknesses in the Wastewater Management Authority Act (2000) in relation to laying out the powers of the WMA Board, its relationship with the MPU and the organisation’s mixed record in recruiting and remunerating its personnel under competitive terms. Government is addressing these constraints primarily through studies for the appropriate institutional solutions, see paragraphs 3.2.7 and 3.2.8. 2.5.5 The Government is also reviewing the wastewater sector tariffs and has adopted a policy based on the principles of integrated water resource management, full-cost-recovery based on ability to pay considerations, private sector participation including private-public

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partnerships, and development based on social and environmental viability. The Government is keenly aware that inadequate treatment and disposal facilities for wastewater represent a growing threat to the quality of groundwater, surface water, and marine and coastal zone ecosystems. This is exacerbated by institutional and legislative weaknesses. The Wastewater Sector Policy articulates 4 major objectives, namely expanding the sewerage infrastructure, implementing a cost recovery system, developing and enforcing easy-to-monitor environmental standards and promoting capacity building. 2.5.6 The Government has already amended legislation to provide for environmental protection and private sector participation in the sector; developed a map of environmentally sensitive zones in the country; began implementation of tariff revisions to ultimately reach the long run marginal cost level, and is implementing some projects to reduce water losses in the systems. 2.5.7 In view of these constraints, the policy details the following: to halt and reverse the trend of wastewater pollution on the island and its coastal zone; improve health and sanitary conditions of the population; and provide the technical, legal, institutional and financial framework necessary for sustainable development of the sector. The related policy strategy reforms include: rehabilitation and extension of wastewater facilities through the ongoing investment programme in the NSP; institutional strengthening through better legislation to give the newly established WMA more powers and autonomy; and improvement of sector financial sustainability through a tariff system that shall gradually move to full cost recovery, taking account of the consumers’ willingness and ability to pay. 2.6 Social Issues 2.6.1 The Government of Mauritius, considered water as a social good that was made accessible to its people at prices far less than `full cost recovery. The Government also recognised the importance of a developed water supply system in the country’s economic growth and invested heavily in water supply infrastructure in both urban and rural areas. This is reflected by the 98.8%4 water supply coverage. The wastewater sector is equally developed with more than 99% of the population having access to one kind of wastewater facility or other. In both the urban and rural areas, there are a large percentage of households using flush toilets. 2.6.2 In Mauritius, access to water supply and wastewater services is not particularly related to levels of income or the rural/urban dichotomy. In some of the low-income housing estates, the Government, using its own funds has already implemented some of the rehabilitation projects recommended by the SMP to improve the situation. In this context therefore, the usual negative social impacts of poor access to water and wastewater services: water borne diseases and the related burden of responsibility on women to care for the sick, loss of school time on the part of children and loss of time used on productive activities on the part of women, as a result of the disproportionate time spend on water collection are not common. 2.6.3 However, negative public health impacts from water pollution due to the excessive use of on-site wastewater facilities in the country and inadequate sewage collection and treatment capacity have been observed. This creates some socio-economic burdens including medical expenditures, loss of productive activity due to sick-leaves, loss of school time by

4 Central Statistics Office 2006

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sick children with the related pressure on women who are usually the ones responsible for taking care of the sick. Contamination of the coastal zone has led to loss of recreation facilities in the past when some parts of the coastal area were briefly closed to the general public around some of the sea-outfalls. This has negative impacts on tourism and national recreation as swimming at the beach is one of the major recreation activities of Mauritians. 2.6.4 As coverage for both water supply and sanitation is high, there are no known gender-based differences in terms of access to these services. To ensure that this achievement does not deteriorate, the Ministry of Women, Family Welfare and Child Development, in collaboration with the Gender Bureau, has identified a gender focal point in every Ministry to advise on gender mainstreaming in national and sector policies and programmes and projects. At a grassroots level, the Gender Bureau uses the existing platforms of the Regional Committees of the National Women's Council, Women's Associations, Women and Family Centres and Women's Bureaux to get direct feedback from the grassroots level on their needs, requirements and suggestions. The approach adopted is a participatory one, which ensures that all levels of society work towards greater gender equality. 2.6.5 The GOM sought support and collaboration from its development partners. The European Union, the European Investment Bank, the African Development Bank, World Bank, Kuwait Fund, Nordic Development Fund, Agence Française de Développement (AFD), KfW, Banque Arabe de Développement Economique de l’Afrique (BADEA) and the Chinese Government. The nine priority projects under the NSP were to have extended the sewered area in West and North-West of the island and eliminated the four existing short outfalls, with effluent being disposed of through long outfalls or treated and reused as irrigation water. The ADB is providing MUR 700 million as part of the funding requirements under the NSP. 2.7 Bank Group Strategy 2.7.1 According to the Bank’s 2004 – 2008 Country Strategy Paper for Mauritius, the Bank’s intervention on the island will support the Government’s efforts to ease the constraints to sustained social and economic development, with emphasis on poverty alleviation and improvement of social services. To this end, the Bank Group Strategy aims at supporting infrastructure development, essential for the diversification and re-engineering processes, and at strengthening Mauritius’ competitive edge in terms of an efficient functioning private sector. Within this framework, the Bank Group strategy and intervention in Mauritius will, among others, focus on the water supply and sanitation sector of the country placing this project in conformity with the Bank’s adopted strategy for the island. 2.7.2 To date the Bank Group has approved thirty one operations in Mauritius (Annex 5) of which 5 have been in the water and wastewater sector. The major overall lesson learnt from the Bank’s previous interventions in Mauritius is that although project management and performance have been generally satisfactory, there is a high rate of partial and full loan cancellations. As discussed in paragraphs 6.3.9 and 6.3.10 below, this is an issue that remains present today, particularly due to the country’s easy access to more competitive sources of capital however the chances of a loan cancellation are low for Plaines Wilhems. 2.7.3 Experience in the wastewater sector in particular is reflected in the Project Performance Audit Report (PPAR) on the Port Louis Sewerage III project. The report indicated that although the project extended sewerage services to all target areas, over a period of 10 years after appraisal, the system remained under-utilised with only 11,100 people connected out of 40,000 envisaged at appraisal. The main constraint to achieving the

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target was the high cost of connecting to the sewerage system and reluctance on the part of the target population to abandon their on-site systems. The PPAR recommended that the Government should devise a suitable financing scheme to enable the target population to connect to the sewerage system. Based on this experience and other similar cases of sewerage projects in the country the Government decided that household connections for this project would be pre-financed within the framework of the project. To overcome the risk of a low connection rate, a new law, the WMA Amendment Act 2004 (Acts # 26) of 2004 which came into force on 19 August 2004, has been enacted. This law requires people to connect to the public sewer system if there is a Trunk Sewer or reticulation nearby and WMA judge that it is technically feasible to connect. 3. THE WASTEWATER SUB-SECTOR 3.1 The National Sewerage Programme 3.1.1 As mentioned in paragraph 2.1.1 above, Mauritius has experienced rapid socio-economic growth over the past two decades. A development such as this is always characterized by acute pressures on infrastructure and resources to sustain the growth. This rapid growth has brought about increased demand for water by agriculture, industries and the municipality. The population that these industries attracted has exerted stress on the services both by their sheer numbers and by the ability of the population to afford to consume more as a result of their improved economic status. By similar token, the waste generated by both industry and humans, has had to be managed. If future development is not carefully managed, degradation of urban and coastal environments, e.g. by water pollution, congestion, noise, dust and litter, will impose increasing costs on the community. 3.1.2 The National Sewerage Master Plan (NSMP), which was developed in 1994, identified a MUR 7,300 million capital investment programme over the period 1993 – 2013 for the comprehensive development of wastewater facilities. The NSMP aimed to install sewerage systems to facilitate the connection of up to 50% of the population by 2011, and eventually to 80% by about 2030. This is to be achieved through nine priority projects. 3.1.3 Other projects under the NSMP include; i) the Grand Baie Sewerage Project being funded by AFD and GOM costing MUR 1.1 billion; ii) the Baie Du Tombeau sewerage project funded by EIB and GOM costing MUR 900 million and iii) the Montagne Jacquot sewerage and sanitation project funded by JBIC and GOM costing MUR 1.3 billion. These all seek to increase the household wastewater connection rate and the GOM is now shifting its focus to the west of the country which has to date not benefited from the NSMP. 3.2 Institutional Strengthening and Legislative Requirements 3.2.1 As stated in Chapter 2 above, the WMA is the authority responsible for service provision in the wastewater sector in Mauritius. It was created under the WMA Act of 2000 (the “Act”) as an autonomous Authority headed by a General Manager and controlled by a Board of Directors, in contrast to its predecessor, WWA, which was a division within the Ministry of Public Utilities. The Act transformed the WMA into a corporate autonomous agency with defined legal status as well as functions and responsibilities for wastewater standards and environmental enforcement. The WMA is a parastatal organization, under the aegis of the MPU.

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3.2.2 The Act stipulates that the WMA shall be the main undertaker responsible for all matters relating to the wastewater sector in Mauritius, including collection, treatment and disposal of sewage. Among other powers, it may maintain and manage all existing public sewers, undertake treatment of wastewater, and provide for the repair and extension of house sewerage connections. Currently the role of the regulator is assumed by the Ministry of Public Utilities. The Utility Regulatory Authority Act 2004 has yet to be proclaimed. The Act specifies that the Regulator shall protect the interests of customers, encourage competition and promote efficiency in both operation and capital investment for various sectors including for wastewater. 3.2.3 In August 2001, when the WMA became operational, the Government signed a ‘Convention de Maîtrise d’Ouvrage Déléguée for Wastewater Works’ and a ‘Contrat de Délégation for Public Wastewater Management’ with the Authority. These contracts came into effect on 31 August 2001 and have durations of 10 years each. Under the ‘Convention’, the WMA is entrusted with the overall responsibility for construction of all projects under the NSP and shall, rehabilitate old sewerage systems and construct new ones on behalf of Government. 3.2.4 Under the ‘Contrat de Délégation’, the WMA is responsible for the operation and maintenance of all assets in the public sewerage system although these assets remain vested with the Government. The WMA’s explicit responsibilities include the collection, treatment, and disposal of wastewater and related solid wastes. It will charge fees to finance its activities (operations and everyday maintenance and repairs). Under both the Convention and the Contrat, the Government maintains full ownership of the fixed assets constituting the sewerage services facilities and is responsible for financing construction of new facilities and rehabilitation and maintenance works of existing ones. A user fee will be paid by WMA to the GoM for the use of the assets put at the disposal of the WMA. 3.2.5 The WMA will focus on managing the National Sewerage Programme as well as planning and managing future projects for sector expansion. It will also contract out to private firms those functions for which there is no in-house capacity. The big investment schemes defined under the NSP will be tendered through international competitive bidding and will include 1 to 3 years of operation and maintenance, subsequent to the commissioning of works. After this tendered period O&M will gradually be brought in house as the WMA expands its technical and project management capacity. O&M for larger investment schemes such as the St. Martin Sewerage Treatment Plant will likely remain under private tender owing to their complexity. 3.2.6 In order for the WMA to be able to carry out its mandate, the Authority’s human resource capacity needs to be strengthened. WMA have suffered from an unusually high turnover amongst its skilled staff and an inability to attract well-qualified engineers, who would be able to take over responsibility for its O&M commitments especially for its St. Martin, Grande Baie and Montagne Jacquot Treatment Plants. However WMA have put in place several measures, including incentive schemes, to attract and retain highly skilled project managers and engineers. These schemes are showing positive results now and the WMA is confident of its ability to adequately manage its responsibilities under the Plaines Wilhems Sewerage Project. The Authority’s current organisational structure is indicated in Annex 3 and has been reinforced by the implementation of a new Corporate Plan. 3.2.7 The EU is funding two Studies: Tariff Review Study (TRS) and the Institutional Review Study (IRS) both for the WMA. The Studies will be finalised by June 2007. The TRS has

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analysed various options open to the WMA in terms of cost recovery. Issues include full cost recovery option, part cost recovery, sensitivity analysis, integration of any tariff increases with the Sector Policy and a roadmap for implementation of any tariff changes. Between 2001 and 2004 the Government implemented a number of tariff increases. Currently the Government has yet to decide its strategy on any further tariff increases. However it is believed in the short term to favour a hybrid tariff model whereby part of the capital investment costs, depreciation of assets and interest on loans will be recovered from tariff increases, and to gradually move to full cost recovery in the long term. 3.2.8 The IRS has been analysing the present institutional set-up of WMA and its principal partners. Several weaknesses have been highlighted in the existing management structure of the firm which require a redefinition of the roles of the various stakeholders (the WMA Board, the WMA Management and the MPU), with a view to ensuring more autonomy of WMA. Currently the Government is scrutinising the proposals being made in order to segregate those that could be implemented in the short term from those that would require a longer approval process. 3.3 Financial Accounting 3.3.1 As of July 1, 2001, the predecessor to WMA had installed a new computerised accounting system which in addition to automating the existing manual accounting procedures provided financial and management information required for the efficient and effective management and control of the institution’s activities. The WMA has inherited this new system and kept the accounts on an accrual basis every year since. The accounts department are well trained in the maintenance of accounting documents, the accounting framework, cash management and preparation of financial statements in line with Generally Accepted Accounting Procedures. 3.3.2 An in depth revaluation of the assets of the WMA was carried out under a 2001 World Bank funded technical assistance project to enable the WMA to manage efficiently the investments entrusted to it. The revaluation covered the total physical inventory of the assets, financial evaluation, preparation of asset registers and establishment of a database and asset management plan. As a result, the WMA have built up adequate knowledge about the physical condition of their assets, their gross/net value, and their remaining useful life to plan for the future. The asset revaluation has also better enabled WMA to plan and calculate appropriate means for depreciation of different types of assets. 3.4 Financial Performance of the WMA 3.4.1 The financial performance of the WMA was evaluated on the basis of analysis of their Financial Statements for the years ended 30 June 2002 until 30 June 2006. The analysis of the statements indicated that the financial performance has steadily improved in the past five years however underlying weaknesses are evident. In the past weak financial performance was due to low and irregular tariff reviews, illegal connections to the system and poor billing and debt collection. Tariffs were not adjusted regularly in the past to take into account rising recurrent and capital expenditures. 3.4.2 The financial statements of WMA indicate a gradual increase in total income over the past five years to 2006. The firm has operated with a surplus since 2001 although this has dropped from 50% to 15.5% of total income. The adoption of revised sewerage tariffs in 1998, based on a cost recovery system had helped however these are still not sufficient to generate resources to finance the operations and maintenance, the depreciation expenses or

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make a contribution to the debt servicing of the sewerage installations. The current employee costs are about 23% of total recurrent expenditure and this is being closely monitored by WMA in terms of ongoing cost control measures, retrenchment of staff and better use incentive schemes to keep highly qualified engineers. This will further be assisted by the expansion of the WMA revenue base as new capital programmes come online. 3.4.3 Lack of efficient billing and collection practices has plagued the WMA in the past. However, as from January 2000, billing has been contracted to the Central Water Authority (CWA) for a fee of 5% on amounts collected from customers to improve billing system. Currently wastewater charges are based on CWA metered water consumption. The CWA produces a monthly bill with a wastewater and freshwater component and delivers it to each customer on behalf of the WMA. Wastewater billing has markedly improved because of the CWA’s billing efficiency, its sound customer database and its ability to categorise and strategically manage revenue by type of customer. 3.4.4 In the past, revenue collection lagged significantly behind billing. Currently debtors as of 30 June 2006 stood at MUR 118.8 million compared to MUR 38.5 million as at 30 June 2002. This is mainly due to the withholding of payment by large non-domestic customers who have complained about the tariff rises over the last 5 years. The failure of subscribers to settle their wastewater bills has had an adverse impact in the past on the financial sustainability of the WMA however the establishment of a Debt Collection Unit and closer cooperation with the CWA has enabled the WMA to pursue late payers on a regular basis and thus improve its collection efficiency. 3.4.5 As at 30 November 2006 the number of accounts billed for sewerage service was 50,721. With the completion of this project, the sewerage connection will be increased by about 64% (32,500 new accounts) and as a result revenues will improve. The continued restructuring of the WMA is also helping improve billing systems, credit collection, and accounting. 3.5 Combined Financial Projections (Government and WMA) Government owns the assets constituting the works and facilities of the wastewater service whose management it has delegated to the WMA. Thus, resulting from the Wastewater Management Authority Act 2000 and the current Contrat de Delegation, the accounts of WMA reflect only its purchase assets, current assets accruing from the day of proclamation of the Act and income and costs under its responsibility as a délégataire. The value of assets owned by Government, the costs of depreciation, the expenditure on rehabilitation and expansion as well as debt servicing is reflected in the books of the Government, under the MPU, as the delegating authority. WMA’s financial expenditure, actual and projected, from 2001/02 to 2009/10 indicates the massive investment being put into the wastewater sector. Considering that the total capital expenditure forecast for WMA rises from MUR 1,744 million in 2001/02 to MUR 12,142.6 million in 2009/10 (see table 3.1) the Government will have to continue to underwrite the costs of the capital projects in the wastewater sector at least until 2012. This is likely to remain the case even after any tariff adjustments are made because of the sheer size of capital costs in the sector. However this should not stop WMA from gradually paying its way towards full-cost recovery, including operations/maintenance, depreciation and interest on loans.

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Table 3.1 – Capital Expenditure projections for WMA (in million MUR)

3.6 Financial Projections of the WMA 3.6.1 Annex 4 presents the WMA projections of revenues and costs. Revenues from sewerage tariffs will increase from MUR 250.7 million in 2005/06 to MUR 317.7 million in 2011/12 representing an average annual increase equivalent to about 4%. The increase in revenue is based on two main factors. Firstly WMA will see an increase in revenue generated as more house connections become available under the NSP. For example by 2012/13 for Plaines Wilhems alone nearly 32,500 new house connections are projected. Secondly as WMA continues to sell more treated effluent to the farming industry the income generated will amount to MUR 20.6 million by 2011. This does not take into account any rise in tariffs however considering that the last increase came into effect in January 2004 and the 2007 Tariff Review Study is looking to recommend further tariff increases, WMA will benefit from a further rise in revenue. 3.6.2 WMA’s admin costs as a percentage of total expenditure are expected to gradually fall from 20.5% (2005/06) to 18.7% (2011/12). In addition between 2005/06 and 2011/12 the operating profit is expected to rise from MUR 84 million to MUR 170 million. 3.6.3 To conclude WMA is expected to improve its performance for the following reasons:

• There is expected to be a significant increase in average tariffs especially as the tariff has been frozen since January 2004 and the Government is keen on gradually moving towards a full cost recovery basis of charging for wastewater.

• There will be a significant increase in house connections due to the on-going

expansions of the sewerage network as result of the present project from 61,750 (2006) to about 92,000 by 2012/13.

• Billing and collection will continue to improve as a result of the close

collaboration between the Debt Collection Unit of WMA and the CWA responsible for Billing and Collection on WMA’s behalf.

• The ability of WMA to sell treated effluent at the rate of MUR 0.8 per cubic metre

from the St. Martin Treatment Plant up to a maximum of 46,000 cubic metres from January 2006. This could be enhanced by the sale of compost in the future.

2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 Grand Baie 193 521.4 843.4 931.51 1007.28 1046.7 1046.7 1146.1 1517.6 Baie du Tombeau 490 542.3 586.5 631.24 683.6 755.88 973.06 1048.72 1048.72 St Martin 338 668 886.3 1043.68 1161.98 1230.17 1302.17 1302.17 1302.17 CHA Estates 542 597 646.5 764.23 883.07 1040.93 1093.06 1187.85 1187.85 Plaines Wilhems - 6 6 79.56 398.75 1048.95 2050.41 2961.5 3900.61 Rural Areas - 1 3.7 3.7 3.7 3.7 3.7 363.7 851.4 Mt Jacquot 166 182.5 210.5 831.59 1150.16 1672.77 1847 1985.23 2030.74 Other 15 36 70.7 91.6 102.04 141.25 228.23 299.01 303.51 Cumulative Total 1744 2554.2 3253.6 4377.12 5390.59 6940.36 8544.33 10294.28 12142.6

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4. THE PROJECT 4.1 Project Concept and Rationale 4.1.1 The Plaines Wilhems Sewerage Project, which is part of the wastewater sub-sector, is one such project that was identified in the SMP and classified as urgent to reverse the effects of environmental degradation and promote environmentally sustainable development. It will provide the necessary sewerage infrastructure to ensure environmentally sound wastewater disposal for a population of approximately 233,000 in Plaines Wilhems, just south of Port Louis. 4.1.2 Comparative analysis of some alternatives of the project was carried out including the “Do-Nothing" option. The “Do-Nothing’ option was considered unsustainable because the existing trunk sewer is extremely overloaded. Deterioration of the fabric of the sewers had led to a large overload at the St. Martin Treatment Plant so that it was able to treat only part of the incoming sewage. So as a priority the Plant was upgraded first under the project. Doing nothing would lead to undesirable environmental conditions: most domestic and industrial effluents in the area would continue to be discharged into the ground or untreated into the sea; as existing soakage pits become inoperative due to reduced permeability there would be increasing problems with finding sites for new pits on existing plots; as the population in the catchment area increases the problems with ground water pollution and siting of soakage pits would be exacerbated; adverse health impacts would increase; and the existing system would become further overloaded leading to uncontrolled discharges of sewage, storm water and groundwater infiltration. 4.1.3 The two other alternatives to the project are: one, to replace the existing system at the present capacity and continue with on-site wastewater systems; and two, to build a number of small independent systems each with its own treatment plant. The first option was eliminated because it cannot meet the Government’s environmental objectives. The second option does not offer any worthwhile advantage compared to the proposed project solution. The present alternative is the most optimal from the environment point of view for which it is intended. Variations of the various aspects/components of the project were considered to determine the least cost optimal option. These included options for treatment method using oxidation ponds or the activated sludge system, reuse and disposal of treated sewage effluent (sea discharge, discharge to irrigation canals, discharge to new irrigation system, aquifer recharge); reuse and disposal of sludge (agricultural land, forestry, landfill, incineration & power generation, co-incineration, marine disposal, use in construction materials). The project as described was considered as the optimal option. The choice of the activated sludge system has enabled WMA to use land, a scarce resource, more intensively to treat increased wastewater flows. 4.1.4 To avoid the situation experienced in the past which led to low connection rates, the decision to pre-finance the house connections will ensure that the system is beneficial to all more quickly. 4.2 Project Area and Project Beneficiaries 4.2.1 The project area covers, Vacoas, Phoenix, Quatre-Bornes, and West Rose-Hill in the Plaines Wilhems District. The district is located in the central part of Mauritius and has a population of 288,000 or 24% of the population of the country, with 98.8% of them living in urban areas. There is significant industrial activity in the area, where some 300 industrial premises are located. These consist mainly of textile factories (about 80%), but tanning, food

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processing, brewing, edible oil and soft drinks manufacturing also occur. These currently contribute about 10% of total dry weather flows in the existing sewer system. 4.2.2 In the Plaines Wilhems district, 99.7% of the population have access to piped water supply of which 96% have in-house connections and 3.7% have yard taps. Only 0.3% use tankers, wells, rivers or other sources of water. Wastewater coverage is 100% with 29% of the population connected to the sewerage system, 68% use flushing toilets connected to absorption pits or septic tanks and soak-aways, while 3% use pit latrines. The absorption pits and soak-aways however, present serious environmental concerns including groundwater pollution. 4.2.3 The economy as a whole will benefit from the positive environmental impact of the project. Both the general population and visitors to Mauritius will benefit through the prevention of water-borne diseases, the protection of economic activity (including tourism), the protection and enhancement of environmental quality, and the conservation of natural resources that will result from the project. The ADB component of the project (Lot 1B) is located in a predominantly low-income area of the district. 4.2.4 Sugar cane farmers in the vicinity of the St Martin Sewage Treatment Plant will benefit from availability of additional irrigation water from treated and disinfected effluent. This will lead to an increased area of cultivated land under irrigation, thereby raising individual and national incomes from agriculture. Possible future use of the compost from the sludge that is generated could also be considered although at present this is being stored at dedicated sites. Job opportunities will be also created during implementation and operation of the new reticulation system. After the connection of premises, the space occupied by septic tanks and soak-aways will be available for other development. 4.2.5 With only about 15% of the population and 56% of industries provided with sewerage systems, the risks to the underground water are high. This impacts on the health of people due to the high bacteriological and nitrate levels that may occur. The project will bring about a reduction of infectious and parasitic diseases and prevent the disturbance of the riparian ecology due to high biological oxygen demand and subsequent low dissolved oxygen levels. Toxic elements such as heavy metals and pesticides will also be properly managed. 4.2.6 Some waterborne diseases such as schistosomiasis and malaria are under control on the island but others such as infective hepatitis, leptospirosis and typhoid fever are still a concern. For example with infective hepatitis there have been a number of outbreaks between 1984 and 1994. The project will further consolidate the progress already made in the control of these water related diseases and gastronomic disorders. 4.2.7 The WMA in-house PR unit was set up in 2006 to enhance the customer focus of WMA and to provide it with the means to better communicate WMA’s role in improving the Mauritian wastewater sector. The unit is already operational and actively involved in the presently ongoing trunk sewer construction project. The PR-unit will work as a project task force and be responsible for ensuring reliable and effective public information and communication with affected members of the general public. Considering the high internet penetration rate in Mauritius the unit will set up an interactive continuously updated project website link within the WMA website, to provide the public with easily available information on the project for example related to possible traffic disruptions as a result of planned work.

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4.3 Strategic Context 4.3.1 In 1990 the GOM published the National Environmental Action Plan (NEAP) which identified the inadequate disposal of urban wastewater as a growing threat to the Mauritian environment. As a follow-up the Sewerage Master-plan (SMP) was completed in 1994 to establish a long term commitment and maintain water quality goals. Within the framework of the SMP the National Sewerage Programme (NSP) was developed to increase the coverage of the national sewerage system and provide adequate wastewater treatment in response to growing demand and aging infrastructure. The Plaines Wilhems project is in line with the SMP and the NSP. The Bank’s current CSP is being reviewed to ensure that it takes into account the ongoing reforms and changes in the country’s wastewater sector and maintains Plaines WIlhems as a priority intervention, by the ADB, in the country. 4.3.2 The sewerage sector policy objectives and the national sewerage programme are also in line with the Bank’s Environment Policy and Policy for Integrated Water Resource Management, which both advocate strategies to abate wastewater pollution through construction of adequate wastewater treatment and disposal facilities. The additional benefit of increased availability of treated wastewater for irrigation purposes will also boost the agricultural sector and ties in with the Millennium Development Goals, specifically on reducing child mortality, improving maternal health and promoting environmental sustainability. 4.4 Project Objective The objective of the Plaines Wilhems Sewerage Project is to provide an environmentally appropriate collection, treatment of sewage and disposal of effluent and sludge from the Plaines Wilhems District. It will improve the sewerage system and increase connectivity of properties in the Plaines Wilhems district. It is intended to avert and reverse the potential for environmental degradation of surface and groundwater resources by wastewater through improved collection and treatment of sewage and disposal of effluent and sludge from the Plaines Wilhems catchment area. 4.5 Project Description 4.5.1 The Plaines Wilhems Sewerage Project consists of the expansion of a sewerage Treatment Plant at St. Martin, construction of a trunk sewer, construction of sewer reticulation systems and house connections and replacement of parts of the freshwater pipe-work system. The works are divided into 3 components as follows:

A) Expansion of St. Martin Sewerage Treatment Plant: The St Martin Treatmant Plant serves 233,000 residents and industries in the Plaines Wilhems district. The treatment process changed from a system of oxidation ponds to the introduction of the more complex low rate activated sludge process with biological nutrient removal followed by tertiary treatment with rapid gravity sand filters and UV disinfection. The new Plant currently has the capacity to treat 69,000 m3 per day of wastewater. The sewage is predominantly from domestic and light industries. Sludge removed from the process is stabilised and can be used as fertiliser. Bio-gas is obtained from the sludge stabilisation process and is used to generate 20-25% of the Plant’s electricity needs. The treated effluent is sold to the Irrigation Authority for use in sugar cane cultivation. The expansion was completed in

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March 2005. The Plant is now being operated and maintained by WMA under contract to a private firm, until March 2008.

B) Construction of trunk sewer: A 27km trunk sewer is being constructed on the

western half of the Plaines Wilhems area from Curepipe in the south to the St. Martin Sewerage Treatment Plant in the northwest. The trunk sewer varies in diameter from 300mm to 1100mm. 11km of CWA pipes are also being replaced. To allow connections to be made to the already commissioned treatment works, the trunk sewer will be commissioned in at least two sections. The lower section, which will collect flows from the present project's works, will be commissioned first. Two major interceptor sewers are to be constructed to reduce the flow from the existing trunk sewer to the St Martin Treatment Plant. Nearly 60% of the construction is already done and is expected to be completed by February 2008.

C) Construction of Reticulation and House Connections as follows:

(i) Construction of Reticulation System Lot 1A: This will involve the

construction of 103km of sewer reticulation system in Southwest Quatre Bornes and Sodnac. It will also include the construction of 12,175 house connections and the replacement of about 50km of water supply pipes. This portion is expected to begin in December 2007 and be completed in late 2012.

(ii) Construction of Reticulation System Lot 1B: This will involve the

construction of 41km of sewer reticulation system in West Rose Hill. It will also include the financing of 3,957 house connections and the replacement of about 10km of water supply pipes. This portion is expected to begin in February 2008 and be completed by early 2011.

(iii) Construction of Reticulation System Lot 2: This will involve the

construction of a 91km sewer reticulation system in Central Quatre Bornes and Sodnac, the construction of 12,956 house connections as well as the replacement of about 50km of water supply pipes. This portion is expected to begin in October 2007 and be completed by late 2012.

(iv) Construction of Additional House Connections (AHC) in Unsewered

Pockets of Sewered Areas: This will involve the extension of the sewer network in already sewered areas to unsewered pockets in Curepipe, Vacoas and Phoenix. This will involve the construction of 29.6km of sewer reticulation system and the financing of 3,500 house connections. Funding and scheduling of this component is yet to be finalised.

The ADB financed component

4.5.2 The Bank will finance construction of reticulation system Lot 1B, which involves the construction of a sewer reticulation system in part of West Rose Hill. More specifically, the component consists of (a) construction of 41 km of sewers in diameters ranging form 200 mm to 600 mm laid to a depth ranging from 1.5 to 5.0 metres; (b) an estimated 823 access manholes at network nodes; (c) some 3,957 house connections and (d) replacement of about 10km of water supply pipes. Each house connection includes installation of a Y branch, construction of a house

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sewer with an inspection chamber, connections to existing chambers and the de-commissioning of soakage pits. 4.6 Production, Markets and Prices

Production 4.6.1 When completed the project works above will not only add technical capacity to treat 69,000 m3/day of normal municipal sewage but also enhance the wastewater coverage in areas of low-income housing. In the most likely scenario however it will not be possible to access the existing network for rehabilitation and hence reduce infiltration significantly until after commissioning the project works. But infiltration in the new parts of the network will be at the normal design levels. After allowing for a saturation level industrial inflow of 5,000 m3/day, the total maximum (incremental) number of connections at the end of the project will be 32,500. Beyond the present project, investment in rehabilitation to reduce infiltration will open capacity for further connections. 4.6.2 By-products of the treatment process are of course the effluent that has a seasonal demand resulting in no more than 60% available for use in agriculture, and treated sludge.

Market and Prices 4.6.3 The main categories of potential customers that will provide a market for the project’s product, sewerage services, are residential, industrial, commercial and Government institutions. As indicated in paragraph 4.2.2 above, in Plaines Wilhems district, due to inadequate sewerage network and treatment capacity, only 29% are connected to the sewerage system. A further 68% already use flush toilets but are connected to either absorption pits or septic tanks and soak-aways. This category of people, encouraged by tighter environmental guidelines and legislation, has been identified as critical to ensuring maximum connection to the wastewater system. 4.6.4 However, experience in other parts of the country has shown that, even in areas where there is some capacity, there are currently very low levels of connections because households are not willing to abandon their functioning on-site systems and pay for connection to the sewerage system. Under the Government’s past policy whereby the user was financially responsible for connection, the required number of connections for the whole Plaines Wilhems district would not be achieved. So the programme would not be financially viable. Other options include: (i) Forcing the customers to connect at their own cost; (ii) Charging customers even if not connected; (iii) Setting up a revolving fund for assisting customers to get connected; (iv) Designing, building and financing of house connections left to the private sector; and (v) Providing “free” connections through pre-financing and recouping the costs through tariffs. 4.6.5 The Government felt that the last is the optimal solution that would ensure sustainability. Hence it decided to include a house connection programme as an integral part of the project. The market for the sewerage services to be provided by the project will therefore be ensured within the framework of the project itself. It may be expected that in order to avoid making regular payments for sewage disposal, some residents would continue to operate the on-site systems even after the project. However legal provisions exist empowering the WMA to enforce connections where sewers have been laid. The recalcitrant household would receive the normal bills for water and sewerage and risk being disconnected from water supply for failure to pay sewage bills. 4.6.6 Regarding tariffs for provision of sewerage and sewage services, the Government adopted new tariffs outlined in the 1998 Sector Policy. First tariff increases became effective on

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the 1st January 2000 by Government Notice No.202 and 203 of 2000 – The Waste Water (Tax) Regulations 2000. The increase for 2001 was effected in January 2001. There was a further increase in 2004 so that the average tariffs, as they stand at present, are in Table 4.1 below.

Table 4.1 Average Tariff Rates in Rupees per M3 (actual)

User Category 2000 2001 2002 2003 2004

Domestic 2.3 4.4 6.0 6.9 6.9 Non-Domestic 6 8.6 12.0 15.0 15.5

4.6.7 Indications from the tariff analysis carried out by WMA show that the maximum affordable tariff at current prices, based on the current real income growth of 1.8% pa, is higher than the tariffs set out in the Policy Letter. It is the Government’s aim to gradually introduce the higher rates after the 1998 Sector Policy tariffs have been fully implemented and to arrive at a full cost recovery stage eventually. 4.6.8 Regarding the sale of the effluent treated at St Martin Sewerage Treatment Plant for irrigation purposes, it is expected that the demand will be from the western coast where there is currently a shortage of irrigation water. Water availability is particularly inadequate during the dry season from August to December. In general, the 6,500 hectares of irrigable land in the area is under-irrigated and there are about 500 hectares planting land (60% of this land would fall within the Magenta/La Ferme irrigation command to which the treated effluent will be released) that has been abandoned primarily because of shortage of irrigation water. Average satisfaction of overall demand for irrigation water is about 60%, with 40% of the demand remaining unsatisfied over a year. Hence, there is clearly a need to mobilise more irrigation water. It is within this context that the WMA has been selling treated effluent to the Irrigation Authority. 4.6.9 Based on full cost recovery principles, the effluent is being sold at MUR 0.80/m3. This is against the highly subsidised current rate of MUR 0.11/ m3 that the target farmers are currently paying to the Irrigation Authority. Given the shortage of irrigation water that is currently prevailing, it is expected that the farmers will be willing to pay a higher price for the additional water. However, the Government recognises that the difference in price may be on the high side, hence it intends to continue the current policy of subsidising irrigation water. The Government will pay the subsidy directly to WMA hence there will be no financial shortfall on the side of the Authority. 4.7 Environmental Impact

4.7.1 The project will bring numerous social and environmental benefits to the Plaines Wilhems district and beyond, although some adverse impacts are likely to be generated. In line with national environmental legislation, and in conformity with ADB policies and guidelines, the project falls in environmental category I. A full Environmental Impact Assessment (EIA) has already been done in 2001 to evaluate the impacts and this Assessment has been reviewed in light of project developments to date. The EIA Summary, for category 1 project, was updated and posted on the Bank website, March 2007. As it brings the existing EIA into line with developments to date there will not be a need to wait 120 days before the project can go to the Board. 4.7.2 Positive impacts of the project will largely accrue as a result of reduced industrial and sewage effluents entering surface water bodies leading to their improvement. The scheme

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will also reduce use of soakage pits and septic tanks in the project area, thereby improving the groundwater quality. By significantly reducing on-site facilities for disposal of sewage, risks of groundwater pollution and the spread of excreta-related diseases will be greatly reduced. From a socio-economic point of view, the project will have significant indirect benefits for the whole island as improvements in wastewater lead to a more efficient use of resources. Protection of the marine environment will enhance tourism activity, thereby securing existing and future employment opportunities. Opportunities for employment will, moreover, be enhanced with the project, particularly during the construction phase. 4.7.3 Negative impacts will largely be limited to the construction phase. For example during the construction of the St. Martin treatment plant, there was decreased air quality, particularly during excavation for the foundations of the tanks and large structures, and earth moving operations. The impact on surrounding land uses from noise generated was slight to significant, but temporary. Similar impacts are expected from the sewer reticulations and house connections and will be managed using the system put in place for the trunk sewer. 4.7.4 The trunk sewer generally follows the natural slope in order to minimise the depth of excavation, as the Plaines Wilhems catchment slopes generally in a south-north direction. Its route is, however, along major traffic routes and major road crossings. In view of the number of vehicles per 1000 resident rising rapidly in recent years, the impact during the construction phase has been significant. Considerable traffic disruption has been witnessed with road closures and diversions being necessary. These are being managed through collaboration with the Traffic Department and careful on-site monitoring and supervision. Measures to reduce the potential impacts include the use of dust suppression measures, covered stock piles, washing facilities maintained, roads kept clear of mud, vehicle speeds controlled, working areas kept damp, service vehicles regularly maintained, and vehicles routed away from housing. Work has been restricted to daytime, noisy operations moved away from housing, a vegetation screen maintained as a sound barrier, and vehicle speed limits are being strictly enforced. Impacts related to the sewer reticulation and the house connection works will also be limited mainly to traffic disruptions, dust and noise from excavation works on account of their location in fully urbanised areas. 4.7.5 During construction use of hydraulic equipment is being encouraged and excavated material is being returned to the trenches for backfill and temporary storage close to the trench works. In order to limit visual impacts, construction is being carried out in segments and in short sections, and on completion of the works, the areas shall be returned to their original condition. As far as effluent discharges are concerned, appropriate wastewater treatment technologies have been selected to ensure compliance with national standards and international chemical water quality guidelines for irrigation and discharge into water bodies or land. An environmental monitoring and management plan has also been designed to ensure that all institutional arrangements are provided to implement and monitor the mitigation measures and environmental aspects during the construction phase. The plan includes a Waste Minimisation Plan to help reduce waste at source and promote recycling. Monitoring of noise and dust is being carried out regularly. 4.7.6 Furthermore, monitoring programmes will be organised to assess the impact of the effluent reuse on water quality in the irrigation canal system; health of local populations and field workers; salinity and soil effects in relation to crop yield; and aquifer water quality. Such programmes shall be undertaken through consultation between the Wastewater Management Authority, the CWA, the Irrigation Authority, the Department of Environment

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and the Ministry of Health. In addition, coastal water quality shall be monitored with the help of the Department of Fisheries at Albion. 4.7.7 As the project is being implemented in a densely populated and therefore sensitive urban environment, WMA’s in-house PR unit has been playing an active role during the preparation and implementation of the project5. The unit was set up in 2006 to enhance the customer focus of WMA and to provide it with the means to better communicate WMA’s role in improving the Mauritian wastewater sector. The unit is already operational and actively involved in the presently ongoing trunk sewer construction project. The PR unit will work as a project task force and be responsible for ensuring reliable and effective public information and communication with affected members of the general public, for example via an interactive website. 4.8 Project Costs The estimated total cost of the project is MUR 6,752.53 million equivalent to UA 132.38 million. A summary of this cost estimate net of taxes and duties, by component is given in Table 4.2 below and 4.3 for the ADB assisted component. Cost estimates by category of expenditure are in Table 4.4 for the whole project and Table 4.5 for the ADB-funded component. The costs are based on recently tendered work in the sewerage sub-sector in Mauritius. For the reticulation and house connections physical contingencies of 10% of base costs are used except for consultancy services where no allowance is made, and for the price contingencies a figure of 5% per annum has been used. These contingencies have been used after a recent revision in cost estimates of all the project components, that WMA undertook in February 2007, to account for significant increases in prices of raw materials, local and regional inflation and changes in the Mauritian rupee exchange rate against major currencies.

Table 4.2 Summary Cost Estimates by Component – Whole Project

MUR Million UA Million

Components Project Cost Summary Local Foreign Total Local Foreign Total % Forex

A. St. Martin Wastewater Treatment Plant Extension 485.06 604 1,089.06 9.51 11.84 21.35 55

B. Trunk Sewer 717.87 173.34 891.21 14.07 3.40 17.47 19 C. Reticulation and House Connections Lot 1A (Zones 6, 9B) 196 1056.16 1,252.16 3.84 20.70 24.55 84 Lot 1B (Zone 9A) 56 504 560.00 1.10 9.88 10.98 90 Lot 2 (Zones 7, 8, 8A) 508.96 743.2 1,252.16 9.98 14.57 24.55 59 Additional House Connections in Existing Areas 51.2 460.8 512.00 1.00 9.03 10.04 90

Subtotal Reticulation and House Connections (excluding contingencies) 812.16 2,764.16 3,576.32 15.92 54.19 70.11 77 Physical Contingencies (10%) 81.216 276.416 357.63 1.59 5.42 7.01 77 Price Contingencies (5%) 121.824 414.624 536.45 2.39 8.13 10.52 77 Total Civil Works costs 2,218.13 4,232.54 6,450.67 43.48 82.97 126.46 66 TOTAL PROJECT COSTS6 2,248.32 4,504.21 6,752.53 44.08 88.30 132.38 67

5 At present, WMA’s PR Unit has 5 staff, including media / communication experts According to the PR Director 1 additional staff will be recruited shortly. 6 Includes consultancy service costs of MUR 30.19 million (local) and MUR 271.67 million (foreign) for supervision of works, equivalent to UA 0.59 million (local ) and UA 5.99 million (foreign)

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Table 4.3 - Summary Cost Estimates - ADB Component

(MUR Million) (UA Million)

Component Local Foreign Total Local Foreign Total %FE

A. St. Martin Wastewater Treatment/Plant Ext. - - - - - - - B. Trunk Sewer - - - - - - - C. Reticulation and House Connections Lot 1B (Zone 9A) 56 504 560 1.10 9.88 10.98 0.9 Total baselines costs (excl. contingencies) 56 504 560 1.10 9.88 10.98 0.9 Physical Contingencies 5.6 50.4 56 0.11 0.99 1.10 0.9 Price Contingencies 8.4 75.6 84 0.16 1.48 1.65 0.9 Total project costs 70 630 700 1.37 12.35 13.72 0.9

Table 4.4 - Summary of Project Cost by Category of Expenditure – Whole Project

MUR million UA million Local Forex Local Forex

Categories

Total

Total

A. Civil Works 2,218.13 4,232.54 6,450.67 43.48 82.97 126.46B. Consultancy Services 30.19 271.67 301.86 0.59 5.33 5.92

TOTAL 2,248.32 4,504.21 6,752.53 44.08 88.30 132.38

Table 4.5 - Summary of Project Cost by Category of ADB Expenditure (Lot 1B)

MUR million UA million Local Forex Local Forex

Categories

Total

Total

A. Civil Works 70 630 700 1.37 12.35 13.72B. Consultancy Services 0 0 0 0 0 0

TOTAL 70 630 700 1.37 12.35 13.72 4.9 Sources of Finance and Expenditure Schedule 4.9.1 The Government has received written commitments for the financing of all the project components from all the development partners. The proposed financing plan is as follows: The St. Martin Sewerage Treatment Plant was financed by the EU (36%) and the GOM (64%); the Trunk Sewer is being financed 100% by EU; Lot 1A Sewer Reticulation and House Connections will be financed by the EIB (85%) and GOM (15%), Lot 1B by the ADB (100%), Lot 2 Sewer Reticulation and House Connections will be financed by the Government of China for a fixed amount of MUR 929 million and the remainder by GOM. The financing for the Additional Reticulation and House Connections, as well as its supervision of works, will be paid for by the GOM. 4.9.2 The Government of Mauritius has already secured EU funding for the trunk sewer connection which has a direct impact on the proper functioning of the ADB financed component. According to the WMA the costs of contracts has significantly increased, up to 60% in some cases, due to rising oil prices and more expensive construction material inputs. The consultant (C. Lotti) overseeing Lots 1A, 1B and 2 has taken these into account when revising the cost estimates, in February 2007, for the sewerage reticulation and house connections.

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4.9.3 The St. Martin Wastewater Treatment Plant was completed under EU/GOM funding in March 2005. EU funding for the Trunk Sewer was finalized in 2002 and the works are on track for completion by February 2008. Funding for Lot 1A from the EIB has also been approved. As regards Lot 2 financing the Peoples Republic of China has signed an Agreement of Principle (conventions cadre) for the Government to enter into a financing agreement with the China Export/Import Bank, and it is expected that the appropriate instruments will be executed sometime in 2007. 4.9.4 Table 4.6 depicts the financing plan by component and source. GOM counterpart funds totaling UA 44.45 million, have been incorporated in the national medium term expenditure framework and will be made available for the project. The funding of the project was through direct pledges by each development partner to the Government, for a particular part of the project.

Table 4.6 Financing Plan by Component and Source

Components by Financiers (UA million) GOM E U E I B A D B China Total A. St. Martin Wastewater Treatment/Plant

Extension 13.613 7.737 - - - 21.35

B. Trunk Sewer - 17.471 - - - 17.471 C. Reticulation and House Connections Lot 1A (Zones 6, 9B) 4.803 - 25.881 - - 30.684 Lot 1B (Zone 9A) - - - 13.723 - 13.723 Lot 2 (Zones 7, 8, 8A) 12.468 - - - 18.212 30.680 Additional House Connections 12.546 - - - - 12.546 Subtotal Reticulation and House Connections 29.817 - 25.881 13.723 18.212 87.633 Supervision of works for Trunk Sewer - 0.752 - - - 0.752 Supervision of works Lots 1A, 1B and 2 - - 4.146 - - 4.146 Supervision of works for Additional House Conn. 1.019 - - - - 1.019 Total 44.449 25.960 30.027 13.723 18.212 132.38

5 PROJECT IMPLEMENTATION 5.1 Executing Agency 5.1.1 The Wastewater Management Authority (WMA), assisted by technical consultants, will be responsible for project implementation. The Wastewater Management Authority Act of 2000, which became effective under Proclamation No. 14 of 31st August 2001, authorises the Authority to enter into a convention de maîtrise d'ouvrage with any person interested in owning and establishing or financing a wastewater system. Under such a "convention" the WMA is responsible for the expansion of sewerage works all over the country. This makes it the most suitable executing agency for the implementation of the Bank assisted project. 5.1.2 The Authority has demonstrated its ability to manage large externally funded projects such as the WB funded Montagne Jacquot Environmental Sewage and Sanitation Project, the EU assisted St Martin Treatment Plant forming part of the present project as well as the AFD’s Pointe de Sable and Grande Baie Projects. 5.1.3 The WMA’s staff consists of 64 women and 280 men with women being represented mostly in the role of administration.

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5.2 Institutional Arrangements 5.2.1 The Executing Agency has a Project Management Unit (PMU) which is responsible for implementation of all investment projects under the National Sewerage Master Plan (NSP) of 1994. Within the PMU, Project Managers have been identified for the different components under the Plaines Wilhems project and have been involved in the various preparation activities of the project. For implementation of the Bank funded component (Lot 1B), the project manager, will be assisted by a qualified engineer, 1 trainee engineer and 2 technical officers. Other parts of the organisation shall provide support for example the accounting department, for project financial records and accounts keeping. 5.2.2 The PMU of the WMA has clearly demarcated responsibilities and is thus geared towards carrying out one of the major duties of the WMA, including the co-ordination of studies and activities for the implementation of projects which are intended for the collection, conveyance, treatment and safe disposal of wastewater. WMA have a capable PMU team to manage the project. 5.2.3 Implementation of the project shall be overseen by the existing water and wastewater sector National Steering Committee (NSC). The Committee was set up to co-ordinate, guide and monitor implementation of the National Sewerage Programme. This Committee is chaired by the Ministry of Finance and Economic Development, however, owing to internal re-organisations it has been inactive for the past year. Within the framework of its functions, the Committee ensures co-ordination and timely implementation of the project and national inter-agency co-ordination among all donor funded activities in the NSP. It shall be a condition precedent to first disbursement that the Committee is reactivated by the Government and that minutes of the Committee’s meetings are submitted to the Bank on a quarterly basis. 5.3 Supervision and Implementation Schedules 5.3.1 All co-financiers have agreed that, to ensure co-ordinated implementation, supervision of the reticulation network and house connection components would be carried out by one consultant. The consultant C. Lotti, being financed by the EIB, began work in October 2006 and is overseeing Lots 1A, 1B and 2. A separate consultant, Sogreah, being financed by the European Union, is supervising the Trunk Sewer component. This component is now nearly 60% complete and expected to be finished by February 2008. 5.3.2 The Bank-funded component of the project is to be implemented over a period of 36 months beginning in February 2008 and ending in February 2011. The implementation schedule is given in Annex 6 wherein the start and finish dates for the contracts financed by others are given in outline form while the ADB assisted component is given in more detail starting from the projected date of Board Presentation in June 2007. 5.3.3 The expenditure schedule by component is given in Table 5.1 and by Source of Finance in Table 5.2 for the ADB component.

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Table 5.1 Expenditure Schedule by Component (UA million)

Components (in UA

million) Actual to Feb 2007

Mar – Jun 2007

‘07/08 ‘08/09 ‘09/10 ‘10/11 ‘11/12 ‘12/13 ‘13/14 Total

Design and tender Documents Preparation

0.08 0.27 0.35

Trunk Sewer 5.61 2.79 4.70 0.39 1.61 15.11

Supervision trunk Sewer

0.13 0.07 0.20 0.08 0.28 0.75

Reticulation and House Connections

0.00

Lot 1A (Zones 6, 9B) 4.41 6.86 7.84 9.31 5.88 2.94 1.96 39.21 Lot 1B (Zone 9A) 1.37 3.92 5.88 1.86 0.69 13.72 Lot 2 (Zones 7, 8, 8A) 5.88 7.84 7.84 7.84 7.84 3.92 1.96 43.13 Supervision reticulation and house Connections

0.56 0.78 0.69 0.69 0.69 0.59 0.10 0.05 4.15

Additional House Conn.

3.39 4.27 4.27 0.31 0.31 12.55

Supervision Add. H. Con.

0.38 0.17 0.20 0.20 0.04 0.04 1.02

6.31 2.94 18.00 23.33 28.60 24.17 15.35 7.31 3.97 129.98

Table 5.2 Expenditure Schedule by Source of Finance- ADB Component

(UA million) UA millions Actual to

Feb 2007 Mar - Jun 2007

2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 Total

African Development Bank

- - 1.37 3.92 5.88 1.86 0.69 0.00 0.00 13.72

The Government - - - - - - - - 0.00

European Investment Bank (supervision of ADB component)

0.56 - 0.78 0.69 0.69 0.69 0.59 0.10 0.05 4.15

Totals Including Contingencies

0.56 0.00 2.16 4.61 6.57 2.55 1.27 0.10 0.05 17.87

5.4 Procurement Arrangements 5.4.1 Procurement of works for the ADB financed component will be in accordance with the Bank’s Rules of Procedure for the Procurement of Goods and Works using the relevant Standard Bidding Documents. Civil Works 5.4.2 Procurement of civil works for the ADB financed component shall be through International Competitive Bidding (ICB). It shall consist of one civil works contract valued at UA 13.72 million for the construction of sewer reticulation systems and house connections

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in catchment area 9A Rose Hill B, see table 5.3. An assessment of the national contractors’ capacity revealed that there is adequate local know-how for simple house connections but owing to the size of the Lot 1B contract, International Competitive Bidding (ICB) after pre-qualification is the agreed mode of procurement. A preference weight of 10% will be given in favour of local contractors. Given that the WMA has scheduled the commencement of the works early next year and that the supervising consultants for Lot 1B have already been deployed, the Bank has given its no objection for WMA to undertake Advanced Procurement Action (APA), subject to the Bank’s APA procurement safeguards listed in section 2.2 of Appendix II of the Bank’s Rules of Procedure for Procurement of Goods and Works.

Table 5.3 Procurement Arrangements

PROCUREMENT METHOD (UA million) International N.B.F. Competitive Bidding Total A. Civil Works Contracts Non-Bank Financed (NBF) - 114.514 114.514 Lot 1B (ADB financed) 13.72 (13.72) - 13.72 (13.72) B. Services Supervision Services (for

ADB component) - 4.146 4.146

TOTAL 13.72 (13.72) 118.66 132.38

(13.72)

(Bank-financed portion is shown in brackets) (NBF includes all civil works being financed by other development partners, such as the EU in the case of the Trunk Sewer and the EIB and the Governments of China and Mauritius for the St. Martin Treatment Plant and the reticulation networks and house connections)

Consulting Services

5.4.3 Supervision of the ADB-financed component is being financed by the EIB, and has been procured in accordance with EIB rules. The supervising firm, C. Lotti of Italy was awarded a contract for this amounting to MUR 211.49m in October 2006. The supervision of the Trunk Sewer component was by restricted tendering in accordance with the rules of the respective donor. Funding for the supervision of the Additional House Connections is yet to be finalised.

National Procedures and Regulations 5.4.4 The national procurement laws and regulations have been reviewed and determined to be acceptable. For donor-financed projects, they allow for the application of the procurement rules of the donor. Both the approval of the donor and the Central Tender Board are required as per their respective Rules of Procedure.

General Procurement Notice 5.4.5 The text of the General Procurement Notice (GPN) and Specific Procurement Notice (SPN) has been agreed upon with WMA. The GPN has been published on 30 April 2007 in the UN Development Business and the SPN will be issued for publication in the UN Development Business on 31 May 2007, subject to the Bank’s APA conditions.

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Review Procedures 5.4.6 The following documents are subject to review and approval by the Bank before promulgation:

i) The General and Specific Procurement Notices (GPN and SPN) ii) Pre-qualification Invitation Documents iii) Tender Documents

iv) Prequalification and Tender Evaluation Reports, including recommendations for

Contract Award

v) Draft contracts, if these have been amended, from the drafts included in the tender invitation documents.

5.4.7 Items (i) and (ii) have already been reviewed and approved by the Bank. 5.5 Disbursement Arrangements

The WMA will be responsible for the management of the project funds on behalf of the Government, including approval of payments and preparation of disbursement applications during the implementation of the project. Since a single works contract is foreseen under Lot 1B the Direct Payment method of disbursement will be used. The Bank will deposit the funds into an existing dedicated Government account. 5.6 Monitoring and Evaluation 5.6.1 The WMA will submit quarterly progress reports on the implementation of the project in accordance with the Bank’s established format. The reports will cover all aspects of project implementation including project status, expenditures, commitments and disbursements by components and donors, main issues, and recommended solutions. The Borrower shall submit to the Bank within six months following project completion, a Borrower’s project completion report (PCR). The PCR will form the basis for Bank post evaluation of the project. 5.6.2 The Bank will supervise the project twice a year in conjunction with WMA and when possible, other development partners. The Bank will carry out a Mid-term Review after 18 months of project implementation to assess the progress achieved. WMA on its part will carry out a Project Completion Report within six months of project completion. 5.7 Financial reporting and Auditing

WMA will maintain a separate account for the project including expenditures by component, category, and source of finance. An independent external audit of WMA is done annually and WMA have confirmed that they will ensure that this audit takes into account the Bank-funded component as well. A WMA project accountant will assist the PMU in the preparation of financial reports when the auditor and Bank require them. The project’s accounts will be audited annually, in accordance with the Bank’s financial reporting and auditing guidelines, before being submitted to the Bank within six months of the end of each financial year.

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5.8 Donor Co-ordination 5.8.1 During the project implementation stage, the WMA, through its mandate as the “Maitrise d’Ouvrage Délégué” with responsibilities for implementation of the NSP, shall co-ordinate the activities of the various components of the project. Although the financing will be in parallel, the various components will all be implemented by the same Project Management Unit within the WMA, hence, from a practical point of view, co-ordination will be focussed. In the same manner that WMA has done for other co-financed projects, annual donor meetings, which would be arranged to coincide with supervision missions, shall be organised to maximise co-ordinated project supervision and monitoring. 5.8.2 WMA already prepares a common quarterly progress report for submission to all the financiers and it has adapted the report to take account of the different requirements and formats for the information to be presented. This arrangement will continue until the whole project is completed. 6. PROJECT SUSTAINABILITY AND RISKS 6.1 Recurrent Costs and Reforms The latest tariff structure that was put in place in January 2004 has been adequate to meet current operating and maintenance costs for WMA but this is likely to change as WMA completes more capital investment projects and commences operating them. By the time that Plaines Wilhems is complete the total recurrent cost is estimated at about MUR 205 million. However as WMA takes over more O & M responsibilities for treatment plants and works, under the NSP, further tariff increases will become necessary for full cost recovery. This has been recognised by the Government who are currently considering various tariff increase options with a view to introducing them later in 2007. In the meantime the Government will continue to subsidise capital expenditure projects as investment in the wastewater sector and provide WMA with assistance as effective underwriter for costs that WMA cannot meet from its generated revenue. In parallel the WMA on its part is going through a major restructuring in order to control costs and help it generate enough revenues to meet its projected expenditure responsibilities. 6.2 Project Sustainability 6.2.1 The sewage treatment method being introduced which uses the complex low rate activated sludge process with biological nutrient removal followed by tertiary treatment introduces new technology to the area which the WMA has little or no experience in. To permit transfer of skills, the civil works contractors operate and maintain the schemes initially for up to 3 years before handing them over to WMA. WMA also seconds its staff so as to ensure continuity and an effective skills transfer should O&M be brought in-house in the future. Beyond this initial period, under the ‘contrat de délégation’ WMA may contract out operation and maintenance to competent private sector companies if it feels that it cannot meet the specific O&M responsibilities. 6.2.2 Financial sustainability will be ensured by regular tariff reviews in accordance with the approved levels in the Sector Policy Letter of 2005-2010. Except for the St. Martin treatment plant, which is on a tendered O&M contract, projected WMA revenues are more

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than adequate to cover Operations and Maintenance costs thereby guaranteeing technical sustainability for the project after final handover. Billing and revenue collection for sewerage services will continue to be done by the CWA on behalf of WMA in accordance with a contract signed between the two bodies. To ensure that there are enough consumers connected to the sewerage system, the Government has decided to finance the house connections to ensure that minimum flows are maintained, that maximum wastewater is collected for treatment before disposal and to assist in cost recovery. 6.2.3 In terms of revenue collection WMA have consistently reported about 15% of their billed revenue is not collectible because of persistent non-payment by mostly large industrial clients in the textile industry. WMA are following a two-pronged strategy firstly by making provisions for this as ‘bad debts’ in their financial accounts and secondly by encouraging the debtors to settle their outstanding balances by introducing incentives, such as waiving interest, to settle the debt. 6.2.4 WMA have an Operation and Maintenance Unit which will undertake the operation and maintenance of the sewer reticulations in house. As with the St Martin Treatment Plant currently, the operation and maintenance of the pumping station is planned to be contracted out to specialized wastewater treatment/mechanical and electrical contractors. These contracts to private firms will be closely monitored for performance by the WMA as is the case at present. 6.3 Critical Risks and Mitigating Measures 6.3.1 The generic risks associated with the likelihood of delays in the start up of the project, higher levels of price escalation or currency devaluation than allowed for, etc. are considered to not be critical in the case of the project, given the plan for contingencies, the fact that one component is already under implementation and another, the St Martin Treatment Plant, has been complete since March 2005. Standard monitoring of physical and financial progress within project management will signal any adverse tendencies and permit corrective action. 6.3.2 Large portions of the public may decide to continue with their on-site septic tank and soak-away arrangements rather than connecting to the sewerage system. The project will only be able to meet its environmental goals if these people are convinced and cajoled to connect. This risk is critical and rated as high but it will be mitigated by existing legislation encouraging people to connect to the public sewer system if there is a Trunk Sewer or reticulation nearby and WMA judge that it is technically feasible to connect. 6.3.3 There is a risk that the National Steering Committee (NSC) might not remain active during the project’s implementation. However this is classed as medium and will be mitigated by an undertaking from the MPU and MOFED that the NSC will undertake its work, as the overall steering committee, and continue to do so until the end of the project. 6.3.4 Claims from the public and litigation measures are also risks to consider however, the WMA and the supervising consultant have a robust mechanism of insurance in place to mitigate any adverse effects. The process followed for compensation is the following: i) affected members of the public make a complaint to a dedicated unit within WMA and a team assesses their claim on site; ii) repairs are enacted normally within 1 week of the problems being detected and regular follow up afterwards is done to ensure that the structure remains stable. Further compensation claims are considered normally on a case by case basis. The risk of any adverse implications from litigation is medium.

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6.3.5 There is unlikely to be any risk from the fact that the consultant, overseeing the Bank’s component, is being funded from another development partner. This is because the consultant’s contract included Lot 1B already and will extend beyond the expected completion date of Lot 1B to accommodate the other components of the project. The consultant began work on 25 October 2006. Therefore this risk is classified as low. 6.3.6 The recruitment of key staff was not possible while the WWA was still a Government department. In contrast the WMA has put in place several measures, including incentive schemes, to attract and retain highly skilled project managers and engineers. These schemes are showing positive results now and have minimized any risks from staff turnover. However a situation may arise where the build-up in assets under the new Authority's management takes place at a faster rate than the capacity to manage them. The risk of this happening can be controlled by careful planning so it is low and as a mitigating factor, the WMA has the option to outsource those parts of its system that it cannot easily operate and maintain. 6.3.7 Complementary actions are required to realise the full benefits of the project. These actions include campaigns to disconnect cross connections to storm sewers and public sensitization drives to encourage house connections. In the event that a customer does not undertake the storm sewer disconnection the WMA Act empowers the Authority to execute the works and recover the costs from the customer. 6.3.8 An agreement has been reached with the Ministry of Local Government for the sludge from St. Martin Treatment Plant to be disposed off at the Mare Chicose landfill site. In the event that more stringent standards are set, then more investment will be required for the St. Martin Treatment Plant to meet the tougher standards. Among the actions aimed to minimise this risk, WMA is collaborating with various research institutions to explore the possibility of applying the sludge as a soil conditioner for application on agricultural land. Initial results are positive but firm conclusions will be drawn after two or three more harvest periods. The treated effluent that WMA sells to the irrigation industry will likely be used for other purposes as the beneficiary farmers gradually diversify out of the sugar cane crop. 6.3.9 Finally, it should be mentioned that there is a possibility that the Government may cancel the loan if cheaper sources become available; a trend that has been observed in the Bank’s previous interventions in the country. Mauritius has a high rate of partial and full loan cancellations. Out of the Bank’s 25 approved operations, eight (8) have been cancelled between 1980 and 1999. Combined with other partial loan cancellations, overall, 53% of total commitments have been cancelled. 6.3.10 Discussions with the Government revealed that some of the main factors that have led to this loan cancellation trend include (i) the Government’s inability to commit or fulfil certain politically and socially sensitive loan conditions, (ii) availability of internal resources including concessional funding for projects with a high social impact, and (iii) Mauritius’ improved international credit standing that allows it to tap the international capital markets at competitive interest rates, in a quick, efficient, and untied manner. To the extent that (ii) and (iii) remain valid, the Government could eventually decide to cancel the loan, which the Board approves for this project, in favour of cheaper loans. Given the large investment required in the wastewater sector and the fact that the Government has already incorporated and approved all the anticipated expenditure for Plaines Wilhems, in its Medium Term Expenditure Framework, the likelihood of the Bank loan being cancelled is very small.

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7. PROJECT BENEFITS 7.1 Financial Analysis The Financial Internal Rate of Return of the project is 16% based on a 15-year time frame. The Net Present Value of the project at 8% weighted average cost of capital (WACC) is positive MUR 19.33 million (Annex 7 presents the assumptions used in calculating the FIRR and financial projections and Annex 8 contains the FIRR calculations). The Financial analysis examines only the quantifiable benefits accruing to the project namely revenues from sewerage and irrigated effluent sales. The project will generate substantial additional income, which will contribute to the WMA’s profitability, for example in terms of the new household connections. 7.2 Economic Analysis 7.2.1 The analysis of the economic costs and benefits of the project covers the construction period and the assumed economic lifetime of the system. On the cost side, the inputs considered are investment and recurrent costs expressed at border prices and net of import duties, taxes or subsidies. The prices and wages used are the same as those adopted for the financial analysis with no shadow pricing because market distortions in Mauritius are insignificant. In the labour market, there are no formal minimum wage rates and the relatively high construction labour wages of MUR 12,061 (US$ 355) per person-month are considered to reflect the relative scarcity of this type of labour in the country. Similarly, there are no foreign exchange market restrictions, foreign exchange can be freely traded hence the market rate is assumed to be the equivalent to the economic rate. 7.2.2 The economic benefits include the incremental revenues from the provision of sewerage services and the sale of treated effluent for irrigation purposes. The revenues from service provision are the same as those adopted for the financial analysis. Regarding the price of treated effluent for irrigation, the Government intends to continue with the current policy of subsidising farmers for the purchase of irrigation water (paragraph 4.6.9). With the current irrigation water subsidy of up to 86%, instead of MUR 0.80/m3, they would pay MUR 0.11/m3. For the purpose of the economic analysis, the subsidy part of the price is excluded hence it is the former price that is considered to estimate the revenue from sale of treated effluent. The project would also benefit the tourism and the fisheries sectors through avoided loss of foreign exchange earnings. However, it is not easy to estimate because of the difficulty of quantifying the impact of pollution on the coastal waters. Other benefits that were quantified and taken into account are:

(i) The net value of additional sugarcane production that will result from use of treated effluent for irrigation;

(ii) The net value of compost;

(iii) Benefits from employment creation (generating wages and salaries) during the

construction period, assuming full impact of the country’s estimated multiplier of 1.933;

(iv) Avoided health costs estimated on the bases of cost of treatment from diseases

resulting from contact with contaminated waters;

(v) Avoided cost of treating contaminated ground water.

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7.2.3 Based on the foregoing, and the related assumptions as presented in Annex 9, an economic cost-benefit analysis was carried out (Annex 10) and yielded a Net Present Value of MUR 21.24 million at a discount rate of 8%, the opportunity cost of capital in Mauritius7. The Economic Internal Rate of Return (EIRR) of the project is 23%. 7.3 Social Impact Analysis 7.3.1 The main social benefits shall be improvement in the health and sanitary conditions of the population and industries in the Plaines Wilhems district. The project will improve environmental living conditions and will have a direct impact on public health by protecting potable, irrigation, and coastal water resources from industrial and household wastewater pollution. The improvement in public health will reduce the burden of nursing sick household members that usually falls on women and reduce school absenteeism due to contaminated water related illnesses. 7.3.2 Protection of the water resources will avert an increase in the cost of supplying potable water which would result if water resources are significantly polluted, in turn causing cost of production in the industrial sector to increase and threaten job security. Similarly, it will avert negative environmental impacts on the tourism sector, thus reducing the risk of loss of jobs in the sector that would in turn impact negatively on the standard of living of the population. Hence, the project will contribute towards environmentally proactive prevention of poverty and improvement of health in the country. 7.4 Sensitivity Analysis 7.4.1 The Sensitivity analysis is based on the following assumptions: a) a 10% increase in investment costs; b) a 10% reduction in revenues; c) 10 % increase in operating costs and d) a simultaneous 10% reduction in revenue and 10% increase in operating costs. The sensitivity tests carried out to determine the impact of adverse variations indicated that the FIRR is fairly stable to variations in operating income, revenue and investment costs however the Net Present Value (NPV) changes. If revenue generated declines by 10% the NPV drops to MUR 16.74 million. An increase in operating costs by 10% will reduce the NPV to MUR 18.68 million, while the NPV remains at MUR 19.33 million when the investment costs rise by 10%. A combined 10% reduction in revenue and 10% increase in operating costs decreases the NPV to MUR 16.09 million. 7.4.2 The sensitivity of the EIRR was tested against a reduction in the indirect benefits. In the first case, it was assumed that production of compost from the sludge produced at St. Martin Treatment Plant for soil conditioning would not be viable nor would the sale of treated effluent to the Irrigation Authority (IA). The assumption is based on the fact that at re-appraisal WMA had not obtained any revenue from the sale of effluent or compost even though it was providing it to the IA. In the second case, the avoided health costs and avoided cost of treating contaminated ground water were ignored. According to the results, the EIRR is most sensitive to the benefits from use of compost as soil conditioner, but in both cases, it remains well above the opportunity cost of capital (8%). The Plaines Wilhems Sewerage Project is therefore economically and socially sound. 7 The opportunity cost of capital was estimated with the help of WMA and the CSO, using the December 2006 rate of inflation prevalent in the country.

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8. CONCLUSIONS AND RECOMMENDATIONS 8.1 Conclusions 8.1.1 The project is an appropriate technical solution to the identified problems of degradation of the coastal waters in the environs of the outfall from the St. Martin Treatment Plant, of the imminent pollution of the groundwater resources of the Plaines Wilhems aquifer and the surface waters of the area as well as the health risks associated with inadequate drainage capacity resulting in overflows. It will contribute towards the protection of the tourism industry from potentially disastrous losses resulting from diseases caused by inadequate wastewater management and treatment. It will also benefit farmers by providing additional irrigation water and compost for soil conditioning. Rehabilitation of the aged network should have ideally preceded the expansion project. However, due to the overload it has not been possible to access the sewers and this will only now be rendered possible by the project since it will relieve the system to permit the in-situ rehabilitation. 8.1.2 Although the proposed extended aeration treatment with dis-infection, nutrient removal and sludge digestion is relatively new to the WMA the proposed arrangement whereby the contractor operates the works for an initial period of up to three years will permit a transfer of skills to the national personnel and consequently ensure sustainability. 8.1.3 The main loan conditions precedent to first disbursement, in the previous Bank appraisal of this project (2001), have already been superseded. Consequently this appraisal has taken into account developments since then and updated the applicable loan conditions, indicated below. 8.2 Recommendations and Conditions for Loan Approval It is recommended that a loan not exceeding UA 13.72 million, be granted to the Republic of Mauritius for the purpose of implementing the project as described in this report, subject to the following particular conditions.

(i) Conditions Precedent to Entry into Force

The entry into force of the Loan Agreement shall be subject to the fulfilment by the Borrower of the provisions of Section 5.01 of the General Conditions.

(ii) Conditions Precedent to First Disbursement

The obligation of the Bank to make the first disbursement of the loan shall be

conditional upon the entry into force of the Loan Agreement as provided in (i) above and the fulfilment by the Borrower of the following conditions:

The Borrower shall have, to the satisfaction of the Bank:

(a) Provided evidence that the National Steering Committee (NSC), set up to co-ordinate, guide and monitor implementation of the National Sewerage Programme is reactivated (paragraph 5.2.3) and that minutes of the Committee’s meetings are submitted to the Bank on a quarterly basis;

35

(iii) Other conditions

The Borrower shall show commitment to implementing the findings of the EU-funded Tariff Review and Institutional Reform Studies (paragraphs 3.2.7 and 3.2.8) whose final findings are expected to be made public in June 2007.

LEGEND:

TOWNS

MAJOR VILLAGES

DISTRICT BOUNDARY

FLIC EN FLAC BLACKRIVER

SAVANNE

PLAINESWILHEMS

GRANDPORT

MOKA

FLACQ

RIVIEREDU

REMPART

PAMPLEMOUSSES

PORT

LOUIS

GRAND GAUBE

GRAND BAIE

TRIOLET

BALACLAVA

TERRE ROUGE

PORT LOUIS

PLAINE LAUZUN

GOODLANDS

RIVIERE DU REMPART ROCHE NOIRES

CENTRE DE FLACQ

TROU D’EAUDOUCE

MAHEBOURG

LE MORNE

CUREPIPE

VACAOSPHOENIX

QUATRE BORNES

ROSE HILL

BEAU BASSIN

COROMANDEL

ST PIERRE

MAURITIUS PLAINES WILHEMS SEWERAGE PROJECT

PROJECT LOCATION

This map was provided by the African Development Bank exclusively for the use of the readers of the report to which it is attached. The names used and the borders shown do not imply on the part of the Bank and its members any judgement concerning the legal status of a territory nor any approval or acceptance of these borders.

Annex 1 Page 1 of 2

Approx. scale: 1 cm = 5km

ANNEX 1

Page 2 of 2 MAURITIUS

PLAINES WILHEMS SEWERAGE PROJECT PROJECT LOCATION

This map was provided by the African Development Bank exclusively for the use of the readers of the report to which it is attached. The names used and the borders shown do not imply on the part of the Bank and its members any judgement concerning the legal status of a territory nor any approval or acceptance of these borders.

ANNEX 2 Page 1 of 1

Mauritius – Plaines Wilhems Sewerage Project National Sewerage Programme

DESCRIPTION FINANCIERS AMOUNT

(Million MUR)

1 Urgent works for Construction/Rehabilitation in Plaines Wilhems and Port Louis South - Lower Beau Basin

Nordic Investment Bank & Nordic Development Fund; GOM

100

110 2 Immediate improvements at St. Martin TW for

supply and installation of various equipment GOM 60

3 Grand Baie Sewerage Project for construction of sewer network, pumping station and treatment plant

AFD GOM 1,135

4 Rehabilitation of Infrastructure on CHA estates Phase II

GOM 97

5 Rehabilitation of Infrastructure on CHA estates – Extension of Phase II

EU grant (partly) 105

6 Baie du Tombeau Sewerage Project for construction of sewer network, pumping station, treatment plant, and marine out-fall.

KfW/EIB GOM

900

7 Plaines Wilhems Sewerage Project for construction of new treatment works at St. Martin (stage I & II), Plaines Wilhems Trunk Sewer, and Sewer reticulation and house connections

EU, EIB, Chinese Govt., GOM, AfDB

6,750

8 Environmental Sewerage and Sanitation (Montagne Jacquot) Project for construction of sewer network, pumping station and treatment plant for Port Louis, South, Lower Beau Basin and Coromandel

World Bank OECF GOM

1,318

In addition to the physical component of the Montagne Jacquot, the project’s institutional component is pivotal to the effective implementation of the government sector policy for institutional strengthening. This includes two components: Sector Studies (MUR 50 million) and WMA Institution Building (MUR 80 million). These components are to assist with: sectoral legislative reform and the progressive participation of the private sector; development of senior expertise to support government strategy to increase regional sewerage services; inter-agency co-ordination; the introduction of full cost-recovery mechanisms; and the gradual application of economic incentives for industrial compliance with effluent standards.

GoM

MPU

Technical Department

Sec. to Board

PMU OPERATION & MAINTENANCE DEPARTMENT

POLLUTION CONTROLUNIT

Finance Department

Admin/HR Department

House ConnectionUnit Finance

Section Store HR Admin/

Registry

1- PART A: Executive Management

3-PART C:Administrative Department2- PART B:Technical Department

WMA Board

General Manager

Internal Audit

Admin Asst.

Doc. Centre &Library Unit IT

Unit

DGM (Admin)

DGM (Tech)

A

B C

O &M Unit

Annex 3 – WMA Organogramme (pg 1 of 1)

ANNEX 4 Page 1 of 1

WMA Financial Accounts (actual up until 30 June 2006 and projections until 30 June 2012) Year ending June 30 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12Retained Earnings 64423972 177217173 248811798 286394594 325195805Income - WW fee domestic 47742380 69128186 73521376 75613433 81977136 84109236 88571328 99604428 110964588 120161184 120161184Income - WW fee non-domestic 66596382 101813486 122010113 120193809 121891939 123110858 124341967 125585386.6 126841240.5 128109652.9 129390749.4Income - other 4349833 16783927 17374660 18073664 24410895 25143222 25897519 26674444.06 27474677.38 28298917.7 29147885.24Income - sale of treated effluent 0 0 0 0 2216888 13432000 14500000 16000000 17500000 19000000 20060400Income - Capital Projects Remuneration 11345271 16200655 13999575 22470365 20270211 22297232 24526955 26979650.84 29677615.93 23742092.74 18993674.19Income total 130033866 203926254 226905724 236351271 250767069 268092548 277837769 294843909.5 312458121.8 319311847.4 317753892.9Expenditure - O&M 45968031 51180067 55695928 73499040 83541180 91895298 101084828 111193310.6 122312641.6 134543905.8 147998296.4Expenditure - Admin 13511695 21066758 29501096 50101216 48777000 49752540 50747591 51762542.62 52797793.47 53853749.34 54930824.32Expenditure - Depreciation 776312 2326215 1715606 3694677 3417377 3485724.5 3555439 3626547.811 3699078.768 3773060.343 3848521.55Expenditure - Commerical 4250509 16549018 27829274 21449654 26046785 26567721 27099075 27641056.62 28193877.75 28757755.3 29332910.41Expenditure - Financial charges 1103347 10995 20011215 50023888 50183516 51187186 52210930 53255148.65 54320251.62 55406656.65 56514789.79Expenditure total 65609894 91133053 134753119 198768475 211965858 222888470 234697863 247478606.3 261323643.2 276335127.4 292625342.5Surplus for the year 64423972 112793201 92152605 37582796 38801211 45204079 43139906 47365303.27 51134478.57 42976719.92 25128550.42

Surplus as % of total income 0.4954399 0.5531078 0.4061273 0.1590125 0.1547301 0.1686137 0.1552701 0.160645351 0.163652263 0.134591686 0.079081802Surplus as % of total expenditure 0.9819246 1.2376761 0.6838625 0.1890783 0.1830541 0.2028103 0.1838104 0.191391506 0.195674903 0.155523912 0.085872776Admin as % of total expenditure 0.2059399 0.2311648 0.218927 0.2520582 0.2301172 0.2232172 0.2162252 0.209159666 0.202039864 0.194885644 0.187717249

Operating Profit 84065835 152746187 171209796 162852231 167225889 176197250 176752941 183650599 190145480.2 184767941.6 169755596.5 Assumptions:

i) 1% growth pa in non-domestic wastewater income from 2006 onwards ii) 3% growth pa in other income from 2006 onwards iii) For effluent sale assume 46,000 cubic metres sold at MUR 0.8 pcm for 365 days a year iv) 10% increase in capital project remuneration pa until 2010 when it drops off as projects are completed v) O&M expenditure rises in same proportion as capital project remuneration vi) Admin, depreciation, commercial and financial charges expenditures all rise at 2% pa

ADB ADF NTF ADB ADF NTF ADB ADF NTF1. AGRICULTURE1. Northern Plains Irrigation 28-Aug-78 25-May-80 - 8.00 - - - - - 0% 8.00 - - 100% - Cancelled2. Flour Mill & Grain Storage 11-Dec-81 25-Feb-82 31-Dec-83 10.00 - - 0.05 - - 1% 9.95 - - 100% 0.05 Cancelled3. Rose Belle Sugar Rehabilitation 17-Jun-91 2-Aug-91 6-Nov-92 6.30 - - 0.67 - - 11% 4.68 - - 74% 1.62 Completed4. Farmers' Services Centres 13-Dec-93 24-Feb-95 - - - 2.00 - - - 0% - - 2.00 0% - Cancelled5. Northern Plains Irrigation 16-Mar-05 7.74 - - - - - 0% - - - 0% 7.74 Ongoing

Sector Sub-total 32.04 - 2.00 0.72 - - 2% 22.63 - 2.00 66% 9.41 2. INDUSTRY1. Industrial Sector Loan I 25-Mar-87 11-May-87 24-Sep-87 30.00 - - 15.00 - - 50% 15.00 - - 50% 15.00 Cancelled

Sector Sub-total 30.00 - - 15.00 - - 50% 15.00 - - 50% 15.00 3. TRANSPORT1. First Highway 10-Feb-76 5-May-76 - 2.70 - - 2.70 - - 100% - - - 0% 2.70 Completed2. Roads - Bridges Rehabilitation 27-Mar-80 25-Jun-80 - - 3.41 - - 3.40 - 0% - 0.01 - 0% 3.40 Completed3. Grand River Northwest Bridge 24-Aug-82 18-Mar-83 31-Dec-83 - - 3.30 - - 2.88 0% - - 0.42 0% 2.88 Completed4. Port Louis Road 22-Aug-84 25-Feb-85 7-Apr-86 4.18 - - 4.17 - - 100% 0.01 - - 0% 4.17 Completed5. Nouvelle - France Plaisance Road 19-May-87 2-Nov-87 4-Apr-89 6.52 - - 4.65 - - 71% 1.87 - - 29% 4.65 Completed6. Rose - Hill Reduit Roundabout 15-Dec-94 23-May-95 - 11.50 - - - - - 0% 11.50 - - 100% - Cancelled7. Southeastern Highway 13-Jun-01 19-Nov-01 16-Dec-02 15.13 - - 1.17 - - 8% - - - 0% 15.13 Ongoing

Sector Sub-total 40.03 3.41 3.30 12.69 3.40 2.88 27% 13.38 0.01 0.42 29% 32.93 4. WATER SUPPLY AND SANITATION1. Port Louis Water Supply 18-Feb-75 2-Jul-75 - 4.00 - - 4.00 - - 100% - - - 0% 4.00 Completed2. Port Louis Sewerage 23-Feb-77 29-Apr-77 31-Dec-79 5.00 - - 5.00 - - 100% - - - 0% 5.00 Completed3. Port Louis Water Supply II (Suppl.) 8-Jun-78 20-Jun-78 - 1.60 - - 1.60 - - 100% - - - 0% 1.60 Completed4. Development of Waste Water 23-Feb-89 30-May-89 29-Oct-91 0.91 - - 0.79 - - 87% 0.12 - - 13% 0.79 Completed5. Plaines Wilhems Sewerage 6-Feb-02 29-Apr-04 - 8.19 - - - - - 0% 8.19 - - 100% - Cancelled

Sector Sub-total 19.70 - - 11.39 - - 58% 8.31 - - 42% 11.39

CANCELLED

BANK GROUP OPERATIONS IN MAURITIUS

STATUS% % NET AMOUNT

(UA Million)

PROJECT NAME DATE APPROVED DATE SIGNED

DISBURSEDDATE EFFECTIVE

AMOUNT APPROVED

Annex 5 Page 1 of 2

5. POWER SUPPLY1. Electricity Transmission 19-Nov-97 19-Feb-99 - 9.30 - - - - - 0% 9.30 - - 100% - Cancelled

Sector Sub-total 9.30 - - - - - 0% 9.30 - - 100% - 6. FINANCE1. First Line of Credit to DBM 16-Dec-75 5-Jan-76 31-Dec-76 2.00 - - 2.00 - - 100% - - - 0% 2.00 Completed2. Second Line of Credit to DBM 25-Feb-82 18-Feb-83 9-Jan-83 3.00 - - 2.96 - - 99% 0.04 - - 1% 2.96 Completed3. Third Line of Credit to DBM 23-Feb-88 2-Aug-88 31-Dec-89 5.00 - - 3.93 - - 79% 1.07 - - 21% 3.93 Completed4. Fourth Line of Credit to DBM 25-Nov-91 - - 10.00 - - - - - 0% 10.00 - - 100% - Cancelled

Sector Sub-total 20.00 - - 8.89 - - 44% 11.11 - - 56% 8.89 7. SOCIAL1. Education I 25-Dec-91 12-Jan-92 22-Feb-93 9.25 0.40 - 2.24 0.07 - 23% 6.88 0.33 - 71% 2.44 Completed2. Regional Hospital & Training Centre 23-Feb-94 26-Oct-94 - 10.16 - - - - - 0% 10.16 - - 100% - Cancelled3. Support to the National Health Plan 5-Dec-01 1-Aug-02 10-Oct-02 16.71 - 5.10 - - - 0% - - - 0% 21.81 Cancelled

Sector Sub-total 36.12 0.40 5.10 2.24 0.07 - 6% 17.04 0.33 - 47% 24.25 8 MULTI SECTOR1. mic Grant in support of Reform Program 18.07.2006 18.07.2006 18.07.2006 0.9 On-going

Sector Sub-total 0.90 - - - - - Grand-total 188.09 3.81 10.40 50.93 3.47 2.88 1.88 96.77 0.34 2.42 3.89 101.87

Private Sector Operations (USD Million) 202.30 57.28 99.53 102.77 49% 102.77

1. Oberoi Balaclavia Hotel Limited 27-May-94 - - 5.00 - - - 0% 5.00 100% - Cancelled2. Equity Investment in AIG Fund 1998 22-Sep-99 50.00 - - 34.12 68% - 0% 50.00 Ongoing3. Equity Investment in Indian Ocean Reg. Fund September-00 28-Dec-00 3.00 - - 1.83 61% - 0% 3.00 Ongoing4. Regional Line of Credit to MCB 4-Jul-01 23-Feb-02 - 100.00 - - 54.00 54% 46.00 46% 54.00 cancelled

158.00 - - 89.95 57% 51.00 32% 107.00

Annex 5 Page 2 of 2

MAURITIUS – PLAINES WILHEMS SEWERAGE PROJECT PROJECT IMPLEMENTATION

ANNEX 6 Page 1 of 1

Implementation Schedule

ID Task Name

1 St. Martin Treatment Works2 Construction of Trunk Sewer3 Lot 1A reticulation4 Lot 1B Reticu lation5 Review of pre-qual ifi ca tion documents6 Publ ication of ESIA report7 Prep. & review of detailed design & tender docs8 Approval CTB, CWO, WMA, etc9 Tender Period10 Evaluation, Recommendation11 Award and Mobi lisation12 Contract Execution13 Mid-Term Rev iew14 Defects Liabi l ity Period15 Lot 2 Reticulation16 Supervision for Lots 1A, 1B and 217 Administration18 Loan Negotiation19 Translation & Reproduction20 Board Presentation21 Loan Signature22 Loan Effectiveness23 First Disbursement24 Last Disbursement25 Project Completion Report

3/9

4/205/2

6/67/2

11/3012/17

3/30

H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H12003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

ANNEX 7

Page 1 of 1 PLAINES WILHEMS SEWERAGE PROJECT

ASSUMPTIONS FOR PLAINES WILHEMS LOT 1B FINANCIAL ANALYSIS

Financial Projections 1. The financial projections are based on WMA financial statements from Financial Year ended 2002 until

2006; 2. The inflation indices are based on Ministry of Finance and Economic Development forecasts; 3. The base data for financial projections such as capital investments programmes for the sector, population

connected to the system., water flows treated and effluent sales are based on the National Sewerage Master Plan figures, provided by WMA during the December 2006 preparation mission and the 2000 Census;

4. Capital investments in the sector are funded mainly from long term loans received from multilateral and

bilateral institutions, grants, and Government of Mauritius contributions.

Financial Analysis 1. The financial analysis of the project is prepared on 15-year period beginning 2007. 2. Investment Costs:

a) The entire house connection costs are included in this project. The average cost is estimated at 35,000 MUR per connection. The cost for additional house connections in unsewered pockets is estimated at 50,000 MUR per connection.

b) No provision for contingencies has been included in the base hypothesis, but the impact of variation of investment costs is given in the sensitivity analysis.

c) As most of the Investment costs are to be met by MOFED a scaling factor of 10% has been used to account for this when looking at the financial analysis of WMA.

3 Nearly 32,500 new house connections will be added to the sewerage network. 4 Operating Revenues:

(a) The future waste water tariff levels will follow the existing Sector Policy letter until 2004; (b) The selling price of water for irrigation is 0.80 MUR/m3 in 2006 and the rate is adjusted in real

terms annually 60% of water treated is assumed to be sold as irrigation; (c) On average it is assumed that 85% of users regularly pay their bills so 15% will become debtors

to WMA;

Operating and Maintenance Costs: For the project, fixed costs are estimated at 1% of the initial fixed investments;

a) The Operating and maintenance costs (O&M) of the project are based on the 2001 to 2006 WMA financial accounts. The O&M costs have been increased in order to allow for advanced age of the system;

a) Common billing with Central Water Authority (CWA). WMA has agreed to pay a management fee of 5% of the collected amounts to CWA. This is assumed to be constant for the analysis.

b) All O&M costs for the St Martin Treatment Plant are based on WMA awarded contract figures. b) Taxes. No VAT has been taken into account. Further, the Corporate Income Tax rate is 0% and

it is assumed that it will remain the same. Financial Structure:

The existing sewerage network reinvestment would be financed by the state.

FINANCIAL INTERNAL RATE OF RETURN CALCULATION – PLAINES WILHEMS PROJECT ANNEX 8

Page 1 of 1

Year Investments Operating costs Total costs WW income Net benefits2007 600000 55695928 56295928 226905724 1706097962008 600000 73499040 74099040 236351271 1622522312009 7956000 83541180 91497180 250767069 1592698892010 39875000 91895298 131770298 272968225.9 141197927.92011 104895000 101084827.8 205979827.8 287881664.6 81901836.762012 205041000 111193310.6 316234310.6 310363678.8 -5870631.7932013 296150000 122312641.6 418462641.6 333777295 -84685346.652014 3120488000 134543905.8 3255031906 355673913.6 -28993579922015 0 147998296.4 147998296.4 368626240.6 220627944.22016 0 155398211.2 155398211.2 375998765.4 220600554.22017 0 163168121.8 163168121.8 383518740.7 220350618.92018 0 171326527.8 171326527.8 391189115.5 219862587.72019 0 179892854.2 179892854.2 399012897.8 219120043.62020 0 188887497 188887497 406993155.8 218105658.82021 0 198331871.8 198331871.8 415133018.9 216801147.1

FIRR 16%NPV $19,327,470.50

ANNEX 9 - Page 1 of 1

MAURITIUS – PLAINES WILHEMS SEWERAGE PROJECT

Assumptions for Economic Analysis

1. All the FIRR assumptions presented in Annex 8, Section B, apply to the EIRR analysis except for the price of treated effluent used as stated in (2) below.

2. The full cost-recovery selling price of treated effluent for irrigation is MUR 0.80/m3 in 2006.

However, the Government is going to subsidise farmers, but the level of the subsidy is still under discussion. For the purpose of the economic analysis, it is assumed that the current maximum subsidy of 86% applied for irrigation water from other sources will be maintained. As subsidies are not assessed in the economic analysis, the rate used for sale of treated effluent is MUR 0.80/m3.

3. Direct employment generated from construction activities is estimated to be 25% of construction

Costs. The wage rate per month is assumed to be same as the average wage rate per month of construction workers in Mauritius at MUR 12,061.

4. Estimation of the overall impact of the project employees’ expenditure from the wages earned on

the project on the economy has been estimated by assuming that the full effect of the country’s estimated multiplier (1.933) will be felt one year after the payments are effective.

5. Health benefits have been estimated based on the costs of treatment from diseases resulting from

contact with contaminated waters. A figure proportional to the connections envisaged under the project was used for the analysis.

6. The benefits accruing from the prevention of ground water pollution has been estimated by

considering the cost of treating contaminated ground water. 7. The following assumptions8 were used for the purpose of calculating the estimated benefits from use

of the treated effluent for irrigation and additional compost generation and use:

i) Value of compost accrues from Year 4 and is estimated at MUR 500k with a 5% increase pa. ii) Value of additional sugar cane from use of compost accrues from Year 4 and is estimated at MUR 1m with a 5% increase pa. iii) Benefits from use of compost as soil conditioner accrue from Year 4 and are estimated at MUR 250k with a 5% increase pa. iv) Benefits from employment accrue from Year 2 and are estimated at MUR 250k with a 5% increase pa. v) Benefits from avoided health costs and cleaning of contaminated water accrue from Year 4 and are estimated at MUR 1m with a 5% increase pa.

8 These assumptions are based on discussions with the WMA and economic statistics gathered from the Central Statistics Office in Mauritius, during the 2006 appraisal. The analysis also relies on a combination of the WMA Financial model, used by the 2001 Bank appraisal team, developed with assistance of the World Bank and an economic model that was developed to assess the feasibility of the project by the consultants who carried out the detailed designs of the project.

ANNEX 10 - Page 1 of 1

ECONOMIC INTERNAL RATE OF RETURN CALCULATION – PLAINES WILHEMS PROJECT

Year InvestmentsOperating costs Total costs WW income

Value of Compost

Value of additonal sugar cane from use of compost

Benefits from use of compost as soil conditioner

Benefits from employment

Avoided health costs and cleaning of contaminated water Total Benefits Net benefits

2007 600000 55695928 56295928 226905724 0 0 0 262500 0 227168224 1708722962008 600000 73499040 74099040 236351271 0 0 0 275625 0 236626896 1625278562009 7956000 83541180 91497180 250767069 500000 1000000 250000 289406.25 1000000 253806475.3 162309295.32010 39875000 91895298 131770298 272968225.9 525000 1050000 262500 303876.5625 1050000 276159602.5 144389304.52011 104895000 101084827.8 205979827.8 287881664.6 551250 1102500 275625 319070.3906 1102500 291232610 85252782.152012 205041000 111193310.6 316234310.6 310363678.8 578812.5 1157625 289406.25 335023.9102 1157625 313882171.4 -2352139.1332013 296150000 122312641.6 418462641.6 333777295 607753.13 1215506.25 303876.5625 351775.1057 1215506.25 337471712.3 -80990929.362014 3120488000 134543905.8 3255031906 355673913.6 638140.78 1276281.563 319070.3906 369363.8609 1276281.563 359553051.7 -28954788542015 0 147998296.4 147998296.4 368626240.6 670047.82 1340095.641 335023.9102 387832.054 1340095.641 372699335.7 224701039.32016 0 155398211.2 155398211.2 375998765.4 703550.21 1407100.423 351775.1057 407223.6567 1407100.423 380275515.2 2248773042017 0 163168121.8 163168121.8 383518740.7 738727.72 1477455.444 369363.8609 366501.291 1477455.444 387948244.5 224780122.72018 0 171326527.8 171326527.8 391189115.5 775664.11 1551328.216 387832.054 329851.1619 1551328.216 395785119.3 224458591.42019 0 179892854.2 179892854.2 399012897.8 814447.31 1628894.627 407223.6567 296866.0457 1628894.627 403789224.1 223896369.92020 0 188887497 188887497 406993155.8 855169.68 1710339.358 427584.8395 267179.4412 1710339.358 411963768.5 223076271.52021 0 198331871.8 198331871.8 415133018.9 897928.16 1795856.326 448964.0815 240461.497 1795856.326 420312085.3 221980213.5

EIRR 23%NPV $21,238,336.91

Annex

MAURITIUS PLAINES WILHEMS SEWERAGE PROJECT

CORRIGENDUM

1. The following corrections and additions were made to sections of the Appraisal Report:

No. Section of Document Corrections 1. Project Information,

page (iii) 6. Project Description

Point (i) should read “Construction of a new Sewerage Treatment Plant at St. Martin.”

2. Project Information – ADB loan currency (page (iv))

The loan currencies will be: USD 10.36m Euros 7.82m

3. Currency Equivalent Information (page (v))

The currencies will include: 1UA = Euro 1.14 (December 2006)

4. Paragraph 2.2.2 Replace the figures in the paragraph as follows: (i) “22 minor river basins” with “21 minor river basins”; (ii) “10 manmade storage reservoirs” with “11 manmade …”; (iii) “70 Mm3 per year” with “91 Mm3 per year”; (iv) “446 million cubic meters or 54%” with “466 million cubic

meters or 46%”; (v) “305 million cubic meters or 28%” with “331 million cubic

meters or 32%” (vi) “210 million cubic meters or 18% with “214 million cubic

meters or 21%” 5. Paragraph 2.3.1 Replace the figures in the paragraph as follows:

(i) “Agriculture accounts for the largest water use (460 Mm3 or 54%)” with “(466 Mm3 or 46%)”

(ii) “Utilization for other purposes is 235 Mm3 or 28% for hydropower” with “331 Mm3 or 32%”; and

(iii) “155 Mm3 or 18% for domestic, industrial and tourism” with 214 Mm3 or 21%”

(iv) “Around 60% of the total water demand is met by surface water and 40% by ground water1” with “84%” and “16%”.

6. Paragraph 2.4.2 Delete the last sentence and replace with: “The MPU, through the Water Resources Unit, is administratively responsible for the assessment, development, management and conservation of water resources in Mauritius.”

7. Paragraph 4.5.1 This should start with: “The Plaines Wilhems Project consists of the construction of a new sewerage treatment plant at St. Martin…..” Point (A) should start with: “Construction of a new sewerage treatment plant at St. Martin.”

1 Mauritius Central Statistics Office

2

8. Paragraph 5.2.3 The last line should read: “It shall be a condition precedent to first disbursement that the Committee is reactivated by the Government. It shall be an other condition that Minutes of the NSC shall be submitted to the Bank on a semi-annual basis. ”

2. The Loan Conditions: Section 8.2 (ii)(a), (iii) of the Appraisal Report were reformulated

and an undertaking (iv) added as follows:

(ii) Conditions Precedent to First Disbursement. The obligations of the Bank to make the first disbursement under this Agreement shall be subject to the satisfaction by the Borrower of the following condition:

(a) Provide evidence of the reactivation of the National Steering Committee

(NSC) set up to co-ordinate, guide and monitor implementation of the National Sewerage Programme.

(iii) Other Conditions

The Borrower shall submit Minutes of the NSC’s meetings on a semi-annual basis, as from the project year 1.

(iv) Undertaking: The Borrower will undertake to implement the approved recommendations of the ongoing Tariff Review and the Institutional Reform Studies.