Document of

F70 ~~~~~The Woirid 1Bank

IOIFa ODF7fCfAL USE ONLY

Report No. P-1958-TUN

REPORT AND RECOMMENDATION

OF THE

PRESIDENT OF THE

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

TO THE

EXECUTIVE DIRECTORS

ON A

PROPOSED LOAN

TO

SOCIETE TUNISIENNE DE L'ELECTRICITE ET DU GAZ

WITH THE GUARANTEE

OF THE

REPUBLIC OF TUNISIA

FOR A SECOND

POWER PROJECT

December 13, 1976

This idoement bs n mrescdeed fstafbemai Qnnsl my be usd by recipients only to the peirfonmmce of |theAr oflcki denties. lts eomtemts may uno oftierwise be d3isclsed wifitout World ffi3rnk anthoriztion.

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Currency Unit Tunisian Dinar (TD)

The exchange rate of the Tunisian Dinar is floating. The rateused in the appraisal report, which approximates the current rate, is:

US$ 1 TD 0.429

TD 1 US$ 2.33

TD 1,000 US$ 2,330

TD 1,000,000 US$ 2,330,000

Fiscal Year January 1 to December 31

Abbreviations

BDET Banque de Developpement Economique de Tunisie

COFACE Compagnie Franqaise d'Assurance pour leCommerce Exterieur

COFITOUR Compagnie Financiere et Touristique

GAFSA Compagnie des Phosphates et du Chem:Ln de Fer deGafsa

STEG Societe Tunisienne de l'Electricite et du Gaz

FOR OFFICIAL USE ONLY

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

REPORT AND RECOMMENDATION OF THE PRESIDENTTO THE EXECUTIVE DIRECTORS ON A PROPOSED LOANTO SOCIETE TUNISIENNE DE L'ELECTRICITE ET DU

GAZ WITH THE GUARANTEE OF THE REPUBLIC OF TUNISIAFOR A SECOND POWER PROJECT

1. I submit the following report and recommendation on a proposed loanto Societe Tunisienne de I'Electricite et du Gaz with the guarantee of theRepublic of Tunisia, for the equivalent of US$14.5 million to help finance asecond power project. The loan would have a term of 14 years, including 2-1/2years of grace, with interest at 8.7 percent per annum. Additional financingof about $9.2 million for the project would be provided by a consortium ofprivate banks. Their loan is expected to have a term of about eight years,with interest at 7 1/2 percent per annum.

PART I - THE ECONOMY

2. A report entitled "The Economic Development of Tunisia: A BasicReport" was distributed to the Executive Directors in January 1975. Sincethen, two updating economic reports, both entitled "Memorandum on the EconomicPosition of Tunisia", were circulated on May 23, 1975 and September 17, 1976.The main conclusions of the basic economic report and the updating missionsare reflected below. Country data sheets are attached in Annex 1.

3. Tunisia's development has been hampered by scarcity of natural re-sources. Much of the country is arid or semi-arid, and agriculture is highlydependent on rainfall. Minerals are mostly of low quality and, apart fromphosphates, limited in quantity. Relatively small quantities of petroleumwere discovered in the mid-1960's and have since become an increasinglyvaluable source of revenue and export earnings. Industrial development hasbeen handicapped by the small size of the domestic market as well as a lackof skills and experience. Tourism has developed rapidly and workers' remit-tances have become a significant item in the balance of payments. Tunisiahas enjoyed a large amount of external aid and used it to expand economicand social infrastructure, broaden the industrial base, make available a widerange of social and welfare services to a large part of the population, andincrease the rate of growth. Per capita GNP increased by 4.2 percent annuallyfrom 1961 to 1975. Like most countries, however, Tunisia has not yet foundadequate ways to cope with unemployment and poverty and to achieve a balanceddistribution of consumption among income groups, between urban and ruralareas, and among regions.

4. Government strategy in the 1960's relied heavily on central plan-ning of investment and resource allocation, with the public sector playing amajor role in production as well as providing infrastructure and services.Foreign exchange shortages and concern with inflation led to recourse to apervasive system of price determination and controls. An unusually long

This document has a restricted distribution and may be used by recipients only in the performanceof their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

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series of poor crop years due to shortage of rainfall slowed the growth ofoutput. Many of the investments in public enterprises proved to be un-economic and private initiative in most sectors except tourism and petroleumwas limited.

5. The Government's present development strategy was introduced in theearly 1970's. Its principal objectives are: (a) accelerating growth based onexport-oriented industries, by encouraging private initiative, reducing directGovernment involvement in production and relaxing administrative regulations;(b) creating jobs, primarily in the expanding industrial sector, encouragingworker emigration, reducing population growth and improving education andtraining; and (c) maintaining internal and external financial stability. The1973-76 Fourth Plan set a target rate of GDP growth of 7 percent, providingfor a 5.4 percent growth rate in per capita private consumption. Investmentwas projected to increase by 80 percent above the level of the 1969-72 Plan.National savings were to finance three-quarters of investment. Exports ofgoods and services were projected to grow at 8.8 percent per year at constantprices and imports at 12.2 percent. The Plan foresaw net external capitalinflows increasing by 55 percent over 1969-1972 average levels and providing23.5 percent of total investment. Debt service was to be held to below 20percent of exports. The original Plan targets were conservative in termsof both growth and savings potential, particularly in view of the favorableimpact of the changed petroleum and phosphate prices on the Tunisian economy(paras. 9 and 10).

6. The real growth of GDP has accelerated since 1970, reaching 9.6percent per annum during the period 1970-75, compared with 4.6 percent duringthe previous decade. The acceleration can be attributed partly to fortuitousfactors such as good weather, leading to record cereal and olive crops, partlyto important growth in tourism, petroleum and phosphate revenues and workers'remittances, and also to the general reorientation of Government policy since1970, which renewed self-confidence and initiative in the private sector. Ex-pansion of manufacturing and phosphate production has been significant. By1975, per capita GNP reached $760 (1976 Bank Atlas estimate). Investmentremained high in relation to GDP - 22 percent in 1970-75 compared to 23 per-cent during the 1960s - while national savings rose sharply from an averageof 13.5 percent of GDP at current prices during the 1960's to 19 percentduring 1970-75. Consequently, the share of external borrowing in financinginvestment dropped from 44 percent in the 1960's to 13 percent during 1970-75.

7. The balance of payments was in overall surplus from 1967 to 1974 andsince late 1973 benefitted greatly from sharply improved terms-of-trade. How-ever, in 1975 the terms of trade began to deteriorate, the demand for Tunisianexports sharply decreased, and despite substantial disbursements on externalborrowing, international reserves declined by 11 percent. At the end of 1975,net reserves amounted to $344 million, equivalent to about 3 months of imports.

8. Tunisia has maintained relative price stability, thanks to prudentfiscal and monetary policies and a skillful use of price controls and of price

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subsidies for basic consumer goods. Consumer price increases averaged 4.2percent annually during 1970-74. There was, however, a 9.6 percent increasein consumer prices in 1975, largely because of increased export and importprices. During 1970-74, the official GDP deflator rose at an average annualrate of 8.9 percent and average investment costs increased by 9.6 percent.The increases in these two price indices in 1975 were 5.2 percent and 14percent, respectively.

9. Despite the terms-of-trade loss in 1975, Tunisia still is on balancea beneficiary of the changes in world market prices since late 1973, but thisfavorable situation will probably change in later years. MIainly because ofsharply higher prices for petroleum, phosphates and olive oil, export earningsrose from $714 million in 1973 to $1,254 million in 1974 and $1,328 million in1975. On the other hand, increases in import prices, combined with higherdomestic demand, caused payments on imports to grow from $782 million in 1973to $1,242 million in 1974 and to $1,525 million in 1975. The gains fromchanges in terms of trade since 1973 are projected to disappear around 1978or 1979, as a result of the expected stabilization or decrease in the pricesof Tunisia's major exports, and further increases in the prices of importedindustrial goods. At the same time, workers' remittances may continue to berestrained by slower economic growth in W4estern Europe. Taking into accountlikely capital inflows through direct investment and external aid, the levelof net reserves is projected to be equivalent to about 2.4 months of importsat the end of 1976 and to remain at this level during the remainder of thedecade, when the balance of payments may reemerge as a serious constrainton Tunisia's development.

10. The recent changes in Tunisia's balance of payments position and

in Government savings do not call for a substantial revision in developmentstrategy. They suggest rather that Tunisia should continue its efforts toachieve high investment and GDP growth rates. Since workers' emigration toEurope and Libya is now limited, the effort to increase investment, particu-larly in labor-intensive industry and agriculture, should be increased. Withan adequate savings level and continuing external aid, the Tunisian economyhas the financial resources that should enable it to sustain an average an-

nual growth rate of between 7 and 8 percent during 1976-81. The level offuture growth would also depend on continuing efforts to stimulate privateinvestment, to increase the international competitiveness of industry, andto improve the planning and implementation of public investments.

11. Tunisia has made impressive social gains. By 1974, primary schoolenrollment had reached 96 percent, and secondary enrollment, 20 percent, ofthe relevant age-groups. Public health services have been greatly expanded

with many provided free. A family planning program has been introduced.Total social expenditures during 1970-75 increased by about 10 percent perannum and on average accounted for 9 percent of GDP and for 30 percent oftotal public expenditures. Nonetheless, major social issues remain. Further

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progress is needed in land reform and in creating employment. The unemploy-ment rate was estimated at 18 percent in the non-agricultural sectors in1975, and underemployment in the rural sector is high. There has been agrowing concentration of productive activities in a few urban areas, espe-cially in Tunis.

12. So far as can be judged from available data, there has been agradual improvement in income distribution. During the 1960's, real incomesincreased in all sectors but by a higher percentage in the modern sector thanin the rural sector, due partly to the series of poor harvests. In the modernsector, especially in industry, increases in real incomes in the 1960's ex-ceeded the rise in productivity; the income distribution trends favored in-dustrial workers. Thanks especially to the income redistribution efi-ects offree social services, the proportion of the total population living in povertywas substantially reduced during the decade. About 90 percent of the povertygroup lived in rural areas. Since 1970, higher agricultural output, increasesin minimum agricultural wages, tax exemptions for low incomes, the inflow ofworkers' remittances from abroad and the stabilization of basic commodityprices through Government subsidies seem to have improved the absolute, andpossibly also the relative, position of the poorest social groups. [n ruralareas substantial income disparities remain, in part as a result of thestructure of land tenure.

13. During 1970-75, agriculture provided nearly half of total employ-ment, 29 percent of merchandise exports and 19 percent of GDP. Food process-ing accounted for another 3 percent of GDP and over a third of value added inmanufacturing. During this period agricultural production rose substantially,largely as a result of favorable weather. The potential for further growthis clear. While large infrastructure investments were made during the 1960's,current policy has emphasized projects that make a rapid and direct contribu-tion to production and recognized various constraints on agricultural develop-ment: absentee ownership, insecurity of tenure, inadequate access to agricul-tural credit, inadequate extension services, insufficient agricultural educa-tion, and underutilization of irrigation investments. Under the Fourth Plan,more than $140 million was allocated to a rural development program executedby the provincial administrations.

14. During the 1960's, manufacturing production in Tunisia increasedby 8 percent annually. There has been a remarkable acceleration of growth inthe 1970's due in part to record years for the olive oil processing industryand to favorable developments in the textile and chemical industries. Theearly thrust of industrialization was supplied by large import substitutionprojects in the state sector. These suffered, however, from the limiteddomestic market and shortages of experienced staff and management. Mloreemphasis has been put on export-oriented private industries since 1970.Under the Fourth Plan, private manufacturing investment, particularly in foodprocessing, textiles, fertilizers and metals transformation, was expected toaverage D 25 million per year, compared with D 12 million in 1972, and to

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account for two-thirds of total investment in manufacturing; these targetshave been exceeded. Foreign and domestic private investment is now stimulatedby a comprehensive incentive framework, and facilitated by the streamlinedapproval procedures of the investment promotion agency. Foreign investorsare expected to contribute know-how and overseas marketing. A new agreementbetween Tunisia and the European Community was signed in April 1976. Itprovides for duty-free entry into the countries of the Community of nearly allTunisian industrial products. The Government has established a special fundto encourage growth of small industries and industrial decentralization, andhas started a program to establish industrial estates.

15. The development of tourism in Tunisia is relatively recent. Foreign-visitor arrivals reached a level of 780,000 in 1972, with an annual rate ofgrowth over the period 1961-1972 of 30 percent -- higher than that of anyother Mediterranean country. While 1973 saw a drop in the number of visitornights, and 1974 registered another overall drop, there was a very strongrecovery in 1975, with over one million visitor arrivals. Since 1970, earn-ings from tourism have been a major source of foreign exchange, having reached$300 million in 1975. The rapid development of tourism in Tunisia has unfortu-nately been accompanied by an inadequate development of infrastructure (par-ticularly recreational facilities), shortages of trained manpower and inade-quate services. The Government is endeavoring to alleviate these constraintsthrough a variety of measures, including revised investment incentives, in-creased marketing and training efforts, codes to enforce quality standardsand more stringent zoning laws.

16. Since the early 1960's Tunisia has obtained relatively large amountsof official aid. A Consultative Group provides a forum for aid-coordinationamong major donors (see para. 25). During 1970-74, annual loan commitmentsfrom public sources averaged $136 million, or about $26 per capita. About 69percent of these commitments came from bilateral public sources, chiefly fromFrance (14 percent), the United States (13 percent), and the Federal Republicof Germany (11 percent). About 12 percent came from oil-producing countries,whose share rapidly increased from 8 percent in 1970 to 26 percent in 1974.Commitments from the Bank Group during 1970-74 accounted for 29 percent oftotal public commitments. Most aid has been obtained on concessionary terms:during 1970-74, the average terms of borrowing from bilateral sources were3.5 percent interest and 23 years to maturity, including 6 years of grace;from multilateral sources, they were 6.0 percent interest and 26 years tomaturity, including 5 years of grace. During the same period Tunisia alsoreceived annually some $40 million in grants. Loan commitments from privatesources average $32 million a year. Direct foreign private investment hasbeen comparatively small, but recently it has picked up momentum followingincreased activity in the petroleum sector and new incentives offered toforeign investors in manufacturing. Thus, net direct foreign investmentincreased from $19 million in 1970 to $76 million in 1975.

17. Tunisia's total public debt outstanding (including undisbursed) in-creased from $846 million at the end of 1970 to $1,444 million at the end of1974 and an estimated $1,700 million at the end of 1975. The disbursed portion

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outstanding at the end of 1974 was $956 million, equivalent to 27 percent ofGDP, compared with 40 percent in 1970; it is estimated at $1,160 milLion atthe end of 1975. Debt service payments in 1975 were 7.8 percent of exportearnings compared with 19.5 percent in 1970. This significant decline in thedebt service ratio was mainly due to the sharp increase in export earningsfollowing the changes in world market prices in 1973 and 1974; it alsoreflected reduced borrowing abroad, and Government efforts to change thestructure of the foreign debt. In the future, Tunisia will have to continueto rely heavily on foreign financial assistance in order to reach its develop-ment goals. While Tunisia is capable of servicing substantial additional debton less concessionary terms than in the past, it nonetheless should continueto seek a large part of its external resources on concessionary terms in orderto maintain the debt service at a manageable level in the long run.

PART II - BANK GROUP OPERATIONIS IN TUNISIA

18. Since 1962, Tunisia has received a total of twenty-six loans and tencredits amounting respectively to $326.9 million and $70.1 million, net ofcancellations and refundings. Annex II contains a summary statement of BankLoans, IDA credits and IFC investments as of October 31, 1976, and notes onthe execution of ongoing projects.

19. The Bank's lending strategy aims at supporting Government effortsto (a) increase employment, (b) encourage more balanced growth and distribu-tion of income among regions and income groups, and (c) promote export-oriented policies and investments. The key supporting feature of this lend-ing strategy is to encourage the Tunisian authorities in timely and well-coordi-nated preparation of projects, with emphasis on technical assistance. TheBank is also cooperating with the Government in its efforts to increase themobilization of domestic and foreign resources, in part through encouragingproject co-financing; the latter is particularly important in view of theextent of Tunisia's external resource needs, the large scale of many priorityprojects, and the limited availability of Bank resources. This latter effortis a prime objective of the proposed project (see para. 38) and is alsosupported through the Consultative Group (see para. 25).

20. Within this broad framework, past Bank Group lending has emphasizedsupport for long-term investments in infrastructure and social development.Lending for urban and social development, including water supply, education,family planning and the Tunis urban planning and public transport project hasaccounted for 33 percent of Bank/IDA commitments in Tunisia. Lendirng fortransport, power and tourism infrastructure has accounted for a further 33percent. Agriculture and fisheries have received 12 percent of total commit-ments. Industrial and hotel financing through the Banque de DeveloppementEconomique de Tunisie (BDET) has accounted for 16 percent, and the GAFSAphosphate development project received 6 percent of total commitments. Whilethere have been some problems, project implementation on the whole has beensatisfactory. In a number of sectors, important institutional improvementshave been achieved and independent agencies have been created or strengthened.

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21. In agriculture, Bank involvement in several sub-sectors has met insome cases with success, in others with difficulties. The first agriculturalproject financed by the Bank Group was the 1967 Cooperative Farm Project,completed in 1973 after substantial delays and revisions causecd by changes inGovernment agricultural policy in 1969. The First Agricultural Credit Project(Loan/Credit 779/263-TUN, $8 million, of 1971) should be fully disbursed bythe end of 1976. A 1971 IDA-financed Fisheries Project (Credit 270-TUN, $2million), aimed at development of Tunisia's inshore fisheries, is expected tobe fully disbursed in 1977. A loan for an Irrigation Rehabilitation Project(Loan 1069-TUN, $12.2 million) became effective in September 1975; projectexecution is in its early stages. The Bank has also attempted to play a moreactive role in rural development in Tunisia, but no specific project in thisfield has as yet materialized. Our experience to date has, however, served tounderline the necessity for very close coordination and careful preparation offuture projects in this difficult but high priority sphere.

22. Lending in the current fiscal year and the period ahead will seek toapproach the problems of rural and regional development increasingly throughan emphasis on projects promoting agricultural and industrial production, suchas the Second Agricultural Credit Project recently approved by the ExecutiveDirectors, and urban and social development. Complementary to this primaryfocus, the program would also finance selected priority projects in infra-structure, particularly in power, such as the project proposed in this report,and in roads. The project proposed in this report meets the latter criterion,as it would contribute to ensuring continuity of electricity supply and wouldstrengthen the institutional framework of the power sector. The Sidi SalemMulti-purpose project, also to be processed in the current fiscal year, wouldsupport the first phase of execution of the Water Master Plan for NorthernTunisia, consisting of: (i) construction of the Sidi Salem dam and reservoirproviding water for potable, industrial and irrigation purposes; (ii) con-struction of an interconnection canal to Tunis and the Cap Bon Peninsula;(iii) irrigation infrastructure and rehabilitation for some 16,600 ha, and(iv) a 25 MW hydro power plant. Other projects under discussion with theauthorities include a fourth Water Supply Project, a second Fisheries Project,a Rural Roads Project, and a seventh development finance company project.Further direct lending for priority industrial sub-sectors in which Tunisiahas a comparative advantage will depend on progress achieved in the formula-tion of sound projects. In addition, an economic mission to review the FifthPlan is examining the Government's rural development plans in an effort toidentify areas where Bank lending could be focused.

23. The Bank Group accounted for about 17 percent of disbursementsof official assistance to Tunisia between 1970 and 1974. The Bank Group'sshares in total debt outstfanding and disbursed at the end of 1974 (includingloans from private sources) and in debt service during 1974 were 14 percent

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and 12 percent respectively. Over the rest of the decade, the Bank Group'sshare in disbursed external debt is expected to decrease to about 10 percent,as will its share in debt service.

24. IFC has invested in NPK Engrais (a fertilizer plant), in BDET, inCompagnie Financiere et Touristique (COFITOUR, a company to promote and investin tourism projects), in Societe Touristique et Hoteliere RYI (a large hotel

development) and in Industries Chimiques du Fluor, which will produce alumin-ium fluoride from local fluorspar for export. IFC's most recent investment,in May 1975, was in the Sousse-Nord integrated tourism development project.IFC's net commitments in Tunisia total $15.9 million. IFC's Board has ap-proved the sale of IFC shares in NPK to the Tunisian Government.

25. Since 1962 the Bank has chaired the Consultative Group for Tunisiabringing together the principal donor countries and institutions concernedwith the country's development. The most recent meeting of the Group was heldin Paris in June 1975. New participants in the Group included Saudi Arabia,Japan, the Arab Fund for Economic and Social Development and the Commissionof the European Communities.

PART III - THE POWER SECTOR

Power and Energy Resources

26. Tunisia's main energy resources are oil, natural gas and a very smallhydro power potential. Recoverable oil reserves are estimated at about 70million tons. Annual oil production was about 4.6 million tons in 1975 and isexpected to reach 6.5 million tons annually by 1980, as a result of additionaloutput from new offshore fields in the Gulf of Gabes. Additional resourceslie in an area of the continental shelf on which the frontier between Libyaand Tunisia is currently in dispute. The two Governments have recently agreedto submit the dispute to the International Court of Justice in The Hague.

27. Some 300 million cubic meters of oil-associated gas can be trans-ported annually from El Borma to the Gabes area through a Bank-financedpipeline (Loan 724-TUtI) to supply a power station and various industries. Thereinforcement of this pipeline to increase its capacity to about 500 millioncubic meters annually by 1981 has recently been financed by the Kuwait Fund.Preliminary estimates of offshore natural gas reserves in the Gulf of Gabesare between 70 and 160 billion cubic meters. If the volume of gas reserves isconfirmed and exploited, this could dramatically change the energy supplypattern in Tunisia, where the main benefits generated by the substitution ofgas for oil would be incremental oil exports. Some 3.5 billion cubic meters oflow-heat value gas from Sidi Behara and Sidi Agareb (20 miles west of Sfax)could be economically used for power generation. Tunisia's hydro-powerpotential is insignificant, but so far about 30 tIW has been developed. tNofavorable sites exist permitting further development except for a 25-MW power

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plant at Sidi Salem, which is part of the large multipurpose project (seepara. 22) proposed for Bank financing, and a pumped storage plant at Kassebwhich appears to be less economical and therefore has not been includedin the development plan for energy.

The Electric Power Sector

28. The power sector is mainly served by the Societe Tunisienne de1'Electricite et du Gaz (STEC), a Government owned corporation, which is re-sponsible for the production, transmission and distribution of electricity andgas in Tunisia. Its principal activity is the sale of electricity; gas salesaccount for only 3.5 percent of its total revenues. In 1975 it suppliedalmost 90 percent of the electric energy consumed in the country, the remain-ing 10 percent being captive plant supplying individual industries.

29. In 1970, STEG's installed capacity was 215 tMu generating 680 GWh.In 1975 the equivalent figures were 367 MW and 1,204 GWh. Almost all ofSTEG's installed capacity is interconnected. The major thermal power plantsare located in Tunis and Gabes. 14atural gas accounted for 59 percent, liquidfuel for 39 percent and hydro for 2 percent of STEG's power generation. Thetotal installed capacity in hydro plants of about 30 tW is concentrated in thenorthern part of the country. STEG's total diesel capacity of about 15 1MN, ofwhich the major part is installed in Sfax, Sousse and Robbana, has the role ofstandby capacity. The main transmission system, consisting of a 150 kV ringwith 150 kV and 90 kV secondary branches, has a total length of about 1,400km. The first 225 kV line of about 100 km was built in 1974 between Gannoucheand Maknassy. It will be operated at 150-kV until 1977 when it will beextended to Tunis and converted to 225-kV. The medium voltage lines (10-30kV) have a length of about 6,300 km, and low tension distribution lines andcables (220 V and 100 V) about 8,900 km. At the end of 1975 about 420,000households (40 percent of the total) were provided with electricity, of which35,000 were in rural areas (17 percent of total households in rural areas).

Tariffs

30. As a result of a tariff study financed under Loan 815-TUtU, STEGimplemented a new tariff system for electricy based on the marginal costconcept in April 1975, when electricity supply rates were raised an average of16 percent. STEC is planning a second stage of tariff reform for 1978-1979,both with regard to tariff structures and to the level of electricity rates.At the same time STEG expects to bring tariff calculation systematically upto date on the basis of marginal costs. Government approval of STEG's tariffsis required. At present, oil prices (excluding motor fuels) in Tunisia areonly about one fourth of international prices, enabling STEG to achieve satis-factory earnings without significant tariff increases. Assuming that exportsales of petroleum products could be increased if domestic consumption werereduced, this policy results in a substantial subsidy to users of oil productsand electricity. While the present price policy is part of a deliberateeffort to promote industrialization, and the Bank has no evidence that it hascaused an inefficient use of energy or distorted energy consumption patterns,it was agreed during negotiations that the Government would undertake an

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energy price policy study, with the assistance of consultants. The Governmentwill submit the recommendations of the study to the Bank by September, 1978,and exchange views with the Bank on them (draft Guarantee Agreement, Section3.04). STEG has also agreed to conduct a study of the level and applicationof connection charges in order to determine what effect its policy stipulatinga rather high level of customer contributions has on the extension of service(draft Loan Agreement, Section 4.04). The Government's pricing study wouldtake the results of this study into consideration.

STEG's Development Program

31. STEG's 1977-81 development program, as included in the Government'sdraft Fifth Plan, amounts to TD 207.3 million (US$483.0 million) of which 90percent will be for power, 1 percent for gas, and 9 percent for generaLdevelopment. To meet forecast electricity sales, which ar2 projected Lo riseby 88 percent in the next five years, the power program provides for a genera-tion component of TD 69.9 million (37.2 percent of the total power program).It consists of 290 MW of new capacity, of which 150 MIW is the gas turbine plantunder the project presented in this report, and 140 Mfl is steam plant. Thetransmission component of the program is TD 36.8 million (19.7 percent of thetotal program). It involves the construction of 775 km of transmission lines,including a new 225-kV transmission grid to increase the reliability of thesystem. A continuing program of substation construction to meet increasingurban and industrial demand is also planned. The distribution componentamounts to TD 80.5 million (43.1 percent) and is based on a master planprepared with Canadian assistance, which sets up targets for the 1990 horizon.Its main aim for urban electrification is to keep pace with plans for housingconstruction and to ensure in the shortest possible time the connections forexisting housing which at present is not supplied with electricity; thedevelopment of rural electrification is to improve the standard of living inrural areas and to meet the water pumping requirements for agriculture. Theintermediate targets for 1981 are to supply 85 percent of households in townsand 57 percent in villages as against 62 and 17 percent, respectively, in1974. The master plan, based on an analysis of forecast low-voltage consump-tion, appears to be adequate. A dispatch center for the power system, to becompleted in 1981, is also included in STEG's construction program.

32. The gas component is a small portion of the development program al-though parts of it may have important implications for the future developmentof the power sector. It includes the reinforcement of the El Borma pipelineto enable gas to be used rather than flared and to supply new consumers, thedistribution of gas in the Tunis area, connections for industrial consumersand, especially, studies for the offshore gas in the Gulf of Gabes. A deci-sion on the off-shore gas program would be taken by the Government at a laterstage on the basis of studies now underway. A Bank mission visited Tunisia inNovember, 1976 to review the gas sector and possibilities for Bank assistancein defining a hydrocarbon policy in general and in formulating institutionalarrangements for the development of the gas field and the training of person-nel. The planned introduction of natural gas on the Tunisian market would havean important impact on the industrial development of the country, providing

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opportunities for the development of industries based on the utilization ofnatural gas. For the power industry it would lead to the almost total sub-stitution of gas for liquid fuel in electricity generation. The direct impacton electricity consumption would be less significant, since it could be asubstitute mainly for electric heating and cooking, accounting at present foronly 0.7 percent of STEG's electricity sales. Preliminary estimates indicatethat the total investment required to develop the offshore gas field would bearound TD 330 million. The financing of this would be kept separate fromSTEG's development plan.

33. STEG's financing requirements for 1976 and the development planperiod (1977-81), excluding potential offshore gas development, amount to TD240.7 million ($561.1 million). STEG's internal cash generation includingcustomer contributions would cover 51 percent of this amount. Only 44 percentof the financing would come from borrowing, of which 35 percent from newborrowing, all to finance foreign costs, and 9 percent from drawdown of exist-ing loans. The proposed Bank loan would finance about 2 percent of the con-struction requirements. Remaining foreign exchange requirements would bemet through foreign government credits, bank loans and suppliers credits.

PART IV - THE PROJECT

History

34. The Bank has made two previous loans in the energy sector, totalling$19.5 million. Both were made to STEG. The first (724-TUN), a loan of $7.5million was made in 1971 in conjunction with a $2.5 million loan from theKuwait Fund for Arab Economic Development, to finance a gas pipeline. Thesecond loan (815-TUN), of $12 million, was made in 1972 to finance a powerproject consisting of two 20-MW gas turbines, transmission and distributionsystem expansion, and consulting services for future plant and institutionaldevelopment. The first project was satisfactorily completed in 1972 and inspite of technical difficulties connected with the compression and treatmentplant, the audit rate of return on the project is about 72 percent, primarilydue to higher oil prices. The second one is nearing satisfactory completionwith both gas turbines as well as all transmission lines and substations inoperation.

35. The proposed project was identified by a Bank mission which visitedTunisia in December 1975. Project preparation was carried out by STEG, andthe project was appraised in June 1976. Negotiations took place in Washingtonin November 1976. The-Tunisian delegation was headed by the General Mtanagerof STEG, Mr. Bahroun. A detailed description of the project is given in thereport entitled "Appraisal of the Second Power Project (STEG) - Tunisia" (No.1304b-TUN) dated December 7 1976, which is being distributed to the ExecutiveDirectors separately. A Loan and Project Summary is attached as Annex III, aSupplementary Project Data Sheet as Annex IV, and a map showing the locationof project components is also attached.

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Objectives and Description of the Project

36. The proposed project is the gas-turbine component of STEG's 1977-1981 development program for generating facilities. Its main objectives are(a) to ensure continuity of electricity supply; (b) to cover the need for peakpower capacity; and (c) to allow STEG to implement its next expansion programwith larger and more efficient steam turbine units than would be possiblewithout the prior installation of gas turbine units as proposed in thisproject. Lending for the proposed project would also enable the Bank tocontinue the provision of technical assistance to STEG in connection withseveral studies which are important to the future development of STEG and theenergy sector in Tunisia (paras. 30 and 44). Thus the Bank will continue itsinstitution-building effort which started under the two previous loans and hasled to improvements in STEG's organization and operations: decentralizationof financial activities, improvements in the accounting and billing system,introduction of budgetary controls and internal audit, and revision of thetariff structure for electricity. The project would also provide the firstoccasion for private co-financing in Tunisia; in view of the country'simportant external resource requirements for the Fifth Plan, this is a sig-nificant development.

37. The project consists of seven gas turbines of about 20 MW each. Thegas turbines would be heavy duty open-cycle units in their own housing so thatthey could in the future, if needed, be moved to other sites. Two each wouldbe located in Sfax and Menzel-Bourguiba, and one each in Tunis South, Korbaand Metlaoui. These sites are at the extremities of Tunisia's basic network,and are the centers in which actual and projected consumption is concentrated.The two units to be installed at Sfax would be operated with natural gasof low-heat value, recently discovered in the Sidi Agareb-Sidi Behara zone(about 20 miles west of Sfax). The others would be operated with gas oilpending conversion to natural gas should its feasibility be determined.

Cost Estimates and Financing Plan

38. The total cost of the project (including 10 percent physical con-tingencies but excluding price contingencies since the cost is based on firmprice bids (para. 40)) is $29.3 million with a foreign exchange component of$25.1 million. The proposed Bank loan of US$14.5 million equivalent wouldcover 58 percent of the foreign exchange cost of the project. The remainingforeign exchange cost would be met by S'FEG ($1.4 million) and by a consor-tium of private banks including the Societe Tunisienne de Banque and BanqueNationale de Paris, with the guarantee of COFACE (about $9.2 million equiva-lent-FF 46,000,000). The effectiveness of this loan would be a condition ofeffectiveness of the Bank loan (draft Loan Agreement, Section 7.01). Noretroactive financing is proposed since any payments prior to Bank loansignature would be covered by STEG or by the consortium loan. All localcurrency costs would be financed by STEG.

- 13 -

Project Execution

39. STEG would be responsible for project execution. The gas turbineunits would be installed by the suppliers under a supply and erection contract.Civil works and supervision of the erection and of the required testing wouldbe done by STEG's staff, which is competent and has undertaken similar work inthe recent past, as for instance under the first Bank-financed power project.

Procurement and Disbursement

40. Prior to appraisal STEG informed the Bank that in order to meet thedemand for electricity, the award of contracts would be necessary before theproposed loan could be submitted to the Bank's Executive Directors but thatSTEG would follow the Bank's Guidelines for Procurement in all steps. Shortlyafter appraisal STEG awarded the contract, on the basis of internationalcompetitive bidding, to take advantage of the favorable price offered for alimited term by the lowest bidder (ALSTHOM of France).

41. Disbursements from the proposed Bank loan would cover a portion ofthe gas turbines and installation expenses. Disbursement of the proposed Bankloan is expected to start after the proceeds of the private bank loan havebeen fully withdrawn; on this basis it was agreed during negotiations that theBank loan would be disbursed against 100 percent of foreign expenditures, upto $14.5 million, after the private bank loan and STEG's contribution had beendrawn down. The project is expected to be completed by December 31, 1980.

Environmental Impact

42. All five sites of the gas turbines are outside population centers,and the nearest habitations are situated about 2 miles away. Although the gasturbines will not create noise nuisances, the equipment would be providedwith special hoods in order to reduce noise to a minimum level. The gas oilhas a sulphur content of less than 1 percent, and the low-heat gas is sulphur-free. Thus the gas turbines would not cause any unacceptable atmosphericpollution.

Management and Organization of STEG

43. Except for general control by the Government, STEG is an autonomousbody, enjoying operational freedom in the conduct of its day-to-day business.The company's management is competent and effective. It is governed by aboard of eight members headed by a full-time General Mianager; all boardmembers are appointed by the President of the Republic. The operations ofthe entity come under the general supervision of eight departments. Thecountry is divided into 13 Districts which operate the local services. Afurther decentralization is being studied by STEG, which would consist ofthe creation of local agencies in towns.

- 14 -

44. STEG's present organization appears to be adequate for the fulfill-ment of the company's tasks for the next plan period. Nevertheless its man-agement is studying the company's organization with the assistance of con-sultants. This action has been supported by studies under the second Bankloan which have been successfully completed. The introduction of offshoregas on the Tunisian market is expected to bring new responsibilities to STEG,concerning the construction and operation of onshore facilities for transmis-sion and distribution of natural gas. Therefore, a study would be undertakenby STEG, under terms of reference prepared in consultation with the Bank, todefine these new responsibilities and to establish a new organizationalstructure for the company, its training needs and the required investments forthe gas transport and distribution program; the recommendations of the studywould be submitted to the Bank by June 30, 1978, and STEG would exchange viewswith the Bank on them by October 31, 1978 (draft Loan Agreement, Sections 4.04and 4.07).

Financial Position of STEG and Financial Covenants

45. Under Loan 815-TUN, STEG agreed to maintain tariffs at such a levelthat the ratio of operating surplus before depreciation to average value ofgross fixed assets in operation less average customer contributions would notfall below 8.5 percent in any fiscal year beginning with 1973. STEG has metthis covenant; its rate of return on this basis was 8.5 percent in 1973, 9.3percent in 1974 and 10 percent in 1975. Partly because of the then existinguncertainties about asset values, and to reduce temporary fluctuations in thereturn that would arise from fluctuations in depreciation charges on accountof commissioning of major assets, the rate of return was computed beforedepreciation. Since STEG's assets have now been identified and their valuesdetermined, it is no longer necessary to adhere to this covenant. Duringnegotiations STEG thus agreed to adopt a more conventional rate of returncovenant with an 8 percent rate of return on the net value of fixed assetsin service beginning with 1977 (draft Loan Agreement, Section 5.04). STEG'srate of return on the new basis would be, with present electricity tariffs,about 8 percent in 1977. Marginal adjustments in tariffs would be necessaryin subsequent years for STEG to continue earning an 8 percent return.

46. Loan 815-TUN also requires that STEG should not incur any debtwithout the approval of the Bank, except for financing the previous project,if it would raise the company's total debt to more than 45 percent of the sumof its equity and its total debt. Even after considering the large borrowingsnecessary for financing the total investment program, STEG's debt during the1976-1981 period is not estimated to exceed the level of 45 percent exceptin 1979, 1980, and 1981, and then only marginally. The same covenant wouldthus be extended to the proposed loan (draft Loan Agreement, Section 5.05).It would keep STEG's assumption of long-term debt under review and, togetherwith the proposed rate of return covenant, would ensure an adequate cash flowfor STEG vis-a-vis its debt service and construction requirements.

- 15 -

47. Finally, under Loan 815-TUN, STEG's financial statements were to beaudited and submitted to the Bank within four months after the end of eachfiscal year. In the past, this time schedule has not been observed by STEG;the 1975 audited financial statements were satisfactory but were receivedonly in August 1976. STEG attributes this delay to computer problems andto the fact that the auditors cannot start work until the annual report isavailable, generally in April. During negotiations, the Bank agreed to extendthe period for submission of STEG's audited financial statements to fivemonths after the end of each fiscal year (draft Loan Agreement, Section 5.02).However, in order to ensure that the rate of return covenant is met, STEG alsoagreed during negotiations that by October 31 of each year, it would prepareand submit to the Government and the Bank a forecast of operating revenues,operating expenses and the rate of return for the current and following year,a statement of the tariffs and assumptions underlying the forecasts, and astatement of measures proposed, if any, to meet the 8 percent rate of return(draft Loan Agreement, Section 5.04).

Benefits and Justification

48. The growth rate of STEG's electricity sales since 1966 has been11.5 percent per year and of system maximum demand 11.3 percent. The fore-cast adopted for system planning purposes implies an average growth rate of13.3 percent for STEG's electricity sales and of 12.5 percent for maximumdemand over the period 1975-1981. This forecast, which reflects the economicexpansion of Tunisia planned for the next five year period, is considereda suitable basis on which to plan expansion of the power system. Two alter-natives were considered regarding the size of power generating units andthe timing of their installation. The transmission program would remain thesame under each alternative. The proposed program providing for the instal-lation of 150 MW of gas turbines through 1980 combined with two 140 tMW steamunits at Sousse in 1981 and 1982 was found to have the lowest present value.

49. The estimated rate of return on the proposed project, at presentelectricity prices and using low-heat value gas for the Sfax power plant, andgas oil for the rest of the gas turbines, would be at least 13.2 percent. Ifoffshore gas is used after 1980 instead of oil for all gas turbines (with theexception of the Sfax power plant which will continue to be operated on low-heat value gas), the rate of return would exceed 24 percent due to the lowereconomic value assumed for the offshore gas. The rate of return is highlysensitive to variations in fuel costs and electricity rates and less sensitiveto increased capital costs. Project risks are no greater than can normally beexpected with operations of this type.

PART V - LEGAL INSTRUMENTS ANiD AUTHORITY

50. The draft Loan Agreement between the Bank and Societe Tunisiennede l'Electricite et du Gaz (STEG), the draft Guarantee Agreement between theRepublic of Tunisia and the Bank, and the Report of the Committee provided

- 16 -

for in Article III, Section 4(iii) of the Articles of Agreement and the text

of a draft Resolution approving the proposed loan are being distributed

separately to the Executive Directors. Features of particular interest in

the Loan and Guarantee Agreements are discussed in paragraphs 30, 38, and 44.

51. An additional condition of effectiveness of the proposed Bank loan

would be the effectiveness of the loan agreement between STEG and private

banks providing foreign exchange financing for the project.

52. The draft Loan and Guarantee Ageements conform to the usual pattern

for loans for Power Projects.

53. I am satisfied that the proposed loan would comply with the Articles

of Agreement of the Bank.

PART VI - RECOMMENDATION

54. I recommend that the Executive Directors approve the proposed loan.

Robert S. McNamaraPresident

AttachmentsDecember 13, 1976

ANNE[l Tago-1 of 4 pages

TABLE 3ATUNISIA, - SOCIAL INDICATORS DATA SHEET

LANG AREA (THOU KNZI ---------------- -------- TUNI SIA REFERENCE COUNTRIES 119701

TOTAL 164.2 MOST RECENTAGRIC. 74.7 1960 1970 ESTIMATE JOROAN IRAQ ORECE*E

GNP PER CAPITA IUSS) 230.0 380.0 760.0 350.0 590.0 1390.0

POPULATION AND VITAL STATISTICS_______________________________

POPIJLATION fMIO-YR. MILL InN) 4.1 5. 0 5.6 2.3 9.4 8.8

PnPULATION DENSITYPER SQUARE KM. 25.0 30.0 34.0 24.o 22.0 67.0PEP SO. KM. AGPICULTURAL LAND 49.0 67.0 165.0 92.0 99.0

VITAL STATISTICSAVERAGE BIRTH) RATE I/THOU) 46.6 44.7 4o.0 47.5 49.1 18.1AVERAGE DEATH RATF (/THOU) 21.5 16.9 13.8 17.8 17.9 9.0INFANT MORTALITY RATF I/THOU) .. 125.0 .. .. 104.0 29.6LIFE EXPECTANCY AT BIRTH IYRSI 46.1 51.6 54.1 50.7 50o2 10.9GQOSS REPROOUCTION RATE 3.1 3.4 3.4 3.5 3.5 1.0

POPULATION GROWTH RATE IT)TOTAL 1-6* 2.1* 2.3* 3.1 3.2 05.URBAN *- 3-0 0 *- 6.0 1.5

URPAN POPULATION (T OF TOTALI 35.6 /a 40.1 b *- *- 58.0 62.6

AGF STRUCTURE (PERCENTI0 Tn 14 YEARS 42.4 4 6 .3 /b 44.

647.0 /a 48.0 24.9

15 TO 64 YEARS 52.6 50.27i 51.2 49.5 7ii 48.0 64.065 YEARS ANO nVER 5.0 3.5/b 42 3.5 7 4.0 11.1

AGE DEPENDENCY RATTO 0.9 1.0/b 1.0 1.0 /a 1.1 0.6ECnNOMIC DEPFNDENCY RATIO 1.3 /Bb 1.8ajb 1.7 /- 2.4 7i.b 1.8 /a

FAMILY PLANNINGACCEPTORS (CUMULATIVE, THOU) .. 112.2 281.5USERS IT nF MARRED WOMEN) .. 12.0 ..

EMPLOYMENT

TOTAL LABOR FORCE ITHOUSANO) 1400.0 A 1300.0 / 1600.0 350.0 /a 2700.0LABOP FORCE IN AGRICULTURE (I) 69.0 7i 57.0 48.3 33.0 7; 52.0JNFMPLnyEO (2 OF LABOR FlRCE) 10.0 7i 12.O0 b 9.5 14.0 7Z 6.0

INCOME DISTRIBUTION

a nF DRIVATF INCOME REC D BY-HIGHEST 5 OF HOUSEHOLDS . .. ..HIGHFST 205 OF HOUSEHOLDS .. .. ..LOWEST 205 nF HOUSEHnLDS .. .. ..LPWEST 405 OF HQUJSEHOL'S .. .. ..

7ISTPIRUTION OF LAND OWNERSHIP

. rWNEn RY TnP 1O0 nF OWNERS .. 5

3-0

/d .. ..a ~WNEn RY SMALLEST IOT OJWNFRS .. . ..7..

HFALTH ANn NUTRITION

PnPoLATION PER PHYSICIAN 10000.0 5950.0 5220.0/c 2680.0 3270.0 620.0PIOPULATION PFR NURSING P RSCN .. 730.0/ 670.0 7 1050.0 5490.0 1140.0P OPULAT ION PEP HOSPITAL RED 360.0: 410.0 420.0 960.0 520.0 160.0

PFP CAPITA SuPPLY OF -CALnRIFS (t OF REOUIREMENTSI 86. 0 -94.0f 94. 940 93.0 L16 0PQROTIN (GRAMS PFO DAY) 54.0 63.0/Y 67.07 60.0 67.0 99.0

-OF WHICH ANIMAL ANn PULSE 13.0 14.0 *- 18.0 /c 17.0 /b 52.0 /b

nFATH RATF I/THOU) AGES 1-4 .. 1.5h .. 5.0

EDI'CATION

ADJUSTED FNROLLMENT RATI!PqIMARY SCHOOL 74.0 107.0 96.0/ 72.0 la 67.0 106.0SECONOARY SCHOOL 12.0 20.O 6 20.0 7b. 33.0 77 24 .0 66.0

YEARS OF SCHOOLING PPOVInFO0IFIRST AND SECOND LEVEL) 13.0 13.0 13.0 12.0 12.0 12.0

VOCATInNAL ENROLLMENTI2 OF SECONDARY) 24.0 34.0 .. 3.0 /ae 3.0 20.0

ADULT LITERACY RATE S12 .. .. 55.0 .. 26.0 82.0

HOUS ING

PERSONS PER ROOM (AVERAGE) .. 2.7OCCUPIED DWELLINGS WITHOUJT

PIPED WATER (1) 60.0/bACCESS TO ELECTRICITY

12 OF ALL DWELLINGS) .. 24.0k ..RURAL DWELLINGS CONNECTEO

TO ELECTRICITY (It) .. .. ..

CONSUMPTION

BAnDI RECEIVERS (PER THOU POP) 41.0 77.0 74.0/b 160.0 180.0 111.0PASSENGER CARS (PER THOU POP) 11.0 13.0 18.0 7.0 7.0 26.0ELECTRICITY IKWH/YR PER CAP) 84.o 155.0 226.0 72.0 291.0 1072. 0NEWSPPINT (KG/YR PER CAP) 0.3 0.1 0.1 0.3 0.3 1.6

SEE__________NOTES_____________AND_________DEFINITIONS_________________________ON__________EVE_________SE____SEE NOTES AND DEFINITIONS ON REVERSE

NOTES ANhEX I

Page 2 of 4 pages

Ulsotherise noted, data for 1960 refer to any year betwee 1959 and 1961, fan 1970 bet.sen 1968 ond 1970,..ad for Stoat Rennt fatint- bet-nee1973 sod 1975.

Don to eetgr-ttn, PoPo1Laito geotb note is lone than rate of nato-ltcrso

00..eecehabeeslcdasnobjeetloeno. tr,. o t.th%he basis of h.s slee of ice popolotton, oodit.. to r.n.a ~,goor -pbcne e tiatn and t,, sco..nny,.ho peetass abflciys Th T ll~ wtrepent to natil.s.l reorees,. maket Siee,agclsrL-sdsoucs c iti-n

TUNISIA 1960 /n 1956, /b fato of papalatine ander 15 and 65 aod non to total labor forc; /c: 1963; Id 1962, bo -,ti;rrohos.pitals.

1970 In1956-66, /b 1966; In Rati.oef popolatiae ander 15 and 65 and -onr to tetal labor forc, Id oo inrig 4.2 .dIiln

bhonare of priosto, bond., ..clding P. ilo ntrsi ball ouerhip, and 2.1 na1iton hentar- of nl laicebnd,In er-onne io sno-rneIet sernioss ony G. _oneno t hopsitaL -sisl-sb-tor Only, [A 1964-66; /b Ren1ioterd

only, /t 12-16 yerst of age.

MUST REGENT ESTIMT.kT: I Roct- Of popolstiaa ander 15 and 61 and .ne. to tetl labor forc lb 1972; /o 1971 /d P--cnonIlo goer-et -nrt-e only; /n Gonerneen t bo-yctl estebl tebo-ts; /f 1969-71 sn-rag, [ 12-18

unara of age-

.bfoRDA 1970 I Last lank only; /b Ratio of popolati-n under 15 and 65 aind Ine to total labor force, Ic 1964-6b, /d 19i6,In lnclodlg UNRWA sobools.

IRAQ 1970 / Ratio of popalation ander 15 ond 65 sod One to tota labor fore; /b 196b-66.

bREtt 1970 /a Dun to eotg-atioo, fipepuLotl groth etef on 1eer thao rate Of e-turl c-oeas, Lb 1967.

ill, Neneber 29, 1976

DEPFINGTIONS Of S712L INDIICATORS

teod dA- (than 1052) oalto peou n osenn - PopuItotnur d-vdod 4, onainber of p~ c .ti-local - Total sarfao Stna neprioiof land see and ilansd -aters. ,n sale and feaegaIt uSee -tand'"rcrsfu ouu'onec. - NoseI.. reeteatteate af aigriculturl anna aed ceop-na,ily er nod cuiaypranlat riignn.oIp_rnc

potnIasetIy tee crps. p-t-crse -srie & bitches gs-dees On ce lie fal11 Poonlotleerbptlbd- Pouato edeidd by nlbe, of bhoputulbeds voloble n publno and prin-te genera aol epen..alnood licoyctal

LNP_norcapta /11_0uS) - UN? Per ospica eooenat ewr,,ent sarket pr,ices, and rshabllitatnon nceo eolnsnnuntg bones and entublloh,,iectoosloulsied by Seane IO-serobo anthod aso meld B-ek btlis (1973-75 basis); frneooladpeetv oe196;), 1)70 sod 1975 dot.._.t P_s % i-.t -CM ,d1- .y

squ-,ilnot of net foca sopplieu avao loble iu ouct-y per -apito perPeec1ocion and vealsanune day; on-ulble euppylte -oM-rse damStin psodnnt-e, unpurto leon

rorolalon fod-yr.Alliso) - Osf Jo1y fi-e if not -ilaltaR , etnois., sod oIhuges in stock, oet Suppl-e auld.` anS a - fond, needs,aenraf of cia sad-yearsa nre. 1960, 1970 o-d 1975 data qa,,O 0? I enusd no food pe ucesoon an,d lo-nes in dLnstrlbatt-o;r-

q-our -tset were esnunocd by FlO bused no phytiolo1-1a e-edo f-c

Pop_luiton denuley -pee S5am kon - Mid-year papalatfan pee atse kiflo- enst-o slcity otObolbrndanip hnetrennntl-top-rt-no

sienor (100hecarn) of tena aa.body On-ghte, og and s.. di,rbooc f popolucte, an,d ulincoingPPoe iaio den-ity-see 50-am Io:oSarf land - Gospoced aabone for lOS' for costs at, hns-hold ol-l.ogrtcoltnra land only. Per capIta supPly of -O ertn Ceroas pn day) - Proton cnteot of per

oapito ont suipply of fcdpr day; ot "'pply or nod to defined asvobsatstc above; r-qo-roentot feer all tointrteo established by USriA Ucoon ..Grade birch rc pee-t.o.o d - Anaaa lien births Pee che.....d1 e od- Reso-rh Isr-l- ne--de for noci-on ulocc.f11.- rA g-ru of nt.ti

year POPoaos nes-year aitticoel aen-ges ending is 196f and 1970. PteLnl cc dy. cot.' 0, to-,, -ttnc-l Pa,,s - i. ,e-adfloefea aerg oing In, 1975 for sea t -nooetstnae rm aite,Idn -1.1taclpio , .lo o...d.. I. aeltn,toUe

trode d-as rat pe th.uad-. ocldsi ertes e i-erOf 75 grott of total proteno old 23 granoi of --Iaca Pr-t-nn coon -r-PoPultInIte-yara.t..t aeeg-a enoding is 1960 asd 1970, and oge for thne teld, propose.d by FA0 O tine Trintd World Pond S-rvyfso-y_ae average ening in 175 fcr nose e-et estimate. "e"stoOetesopi rn anialtd"`unio - Pro teto au-cply an "ed

lefans -erclisy rate, (/cbgo - nnal taho of iefants andr oen yea of derived' fre oNieoe n 1 ooe o t erdyage per theossad line biribo. ~~De.ot..2th ±._EUS..2 -_ _/ntt,ol deoths, per tb-onad 10 gi, fgnap

Life -opecct-c at hirefrs A-deegn etabee of years of life emJainig i-i eces, to children 10 t/ito oge froop; nuggent,d as ao -ed-ot-at birth, osoally ft-y-pa -vrgendiog in 1960, 1970 nad 1915 far of enlanatriticun.

Ofece -ep-adaolo rte-deer-age nonthe of lIon daughte- a ma illEdotobear is.her -1ea enpredoeti- Peread if nine enpeere.... presses age- Adjooted -1 etrojnstraio -p1t~oho -nE-1aoll-et of nll ac- on

apefiofrilisy roenS, a-oa1y ftn-yea seagsending in 1960. Per eeotsg fpeaoy ool-g aplt cn oladen clsld-s oged19710 and 19175 foe, d-nlopisgIOaotrse'l. 6-I years bo aitdjusted nor dInf-rot lengthnon Itrop-oy ednononon;

PPonolaio oactI ra ts (%) - total -Ifesn..ad sssIgrewtk r-t- of eid- e enamoi-ss t odi - 1ivoroal elotloc, -elbtot may noond lfbe%peer ppulatin for1950-60, 1960-70, andL970-75. ntosonPupil ore belo or obo_ t/o offlin..l S.ohol oge.

fyniato POP'= t ran -orban - fosputed like gresth. rate of totalAlsedsreen ai secndary aohooll -.T-nnotItd 0 at.e..popntlotlos; dIfferent dsfbchitoco of uarban areas My affect aOsparo- unduly ed-tono rsq.nlran tolas unyyars f oppr-ved neonarybiliy of data among nont-use. hnoto1pr-id-s g--u1ril .. oatnonol or cole troocing tontto-

Urban yOpulotlsn (% of total) - Ratto of urbac. Io total popolctio; duf- ti... for ppitlo of 17 to 17 ynrc of agt; re...etondenn. o....ese Sifsfora-t defisitiono of annoy neesy offen,y toeparohujuty ef doto generou'.l _oolded.acoug ocooetriso. Tears1 of sehno1log urolded (f-ent and oeood l-eon3) - Tutul y...s o

AR. r,Rt-iyfr(ooreo..t) - Choldese (0-14n Y..-n). w-king-aigs (15-6L, y-so). oelioolisng;at neneda level, -onat loo-l ietnwnmy he paretal1land retired (655y-rs ond ou... Ososesetafe- of nld-ys.. ppouletlo or -ospletely e-e,uded.

Ag, dp,,d.nIy .1 ~~~~~~~~~ootosierolnu ( f 5010) - Pocutononol n-titotnocs nno,nleden depodfn oto-atoopotlto une75od6adner tO tehn-ont1, odocn or other p,og-an a'nc .o-nte icd,,p-cd-nlytho goffs I5 throgh 61. SEnoonect deeedenoy raio - IRun- of pool ooudsr 15 and 65 ond or as depa,t.onti on ..... od-y ononutus

to tins 'labor force in age group of 15-61 feors. Adnltl literacy r. L/%.A2 - ltote.e. adolt Cublls on -ead and wrte) afan-ly placbo -acemtors Ceauitv. hu --foeatatte camer of psresotago of tuto adult .popuat-on aged 15 yeu-t andovr

a-eptorsa of bletn-conetro devioo .nedve atap-iee of nationol familyplanning prugron SinoninceptIon. eooonrooCure)-Aeaeonheofpeno erctioo-

fonalyplaunug - usrs (9 f earnd seanon) -P- nrotagn ef earredoaped_coonntoal -aninoerto n-on oen dp--lngep eld cOn-r-sno of oiild-bearo age (15-414 ysara) who one birethn-onotl de- pd...eti..1 -Ingin b-- Sd.11g.ld .-vIne to all m-irnd -. wa to' Sams age group. Ptttanesit sletmtare and onooopned porto.

hyeged flcallsgyithoatpindetrC)- loonc,eod .ou.. oniEmmyesnt d`A.eil Thg.Iiu-ban and rrlonsotnu ionide or ont-oi pipod

TonThr fcron (thousand) - Eco....tcolly a tiv- pereono,. inolntdlng weter feo llito-s us perceontage of ill nonof td d-llo-go-arced fornes and ocetployad ho~t oncludng h-nsac-e-, stidaots, t10.; A-oose to eleotrinnitv (I faldelog) - C-nontiu... d-el1cgodefio,tt... In -anon. aoat ,ssor nt eunyrab-le. witb nleotrnity in -tung. qonroor as percet nf total dw-llnnge

tobr- foron ton anintcr %) -_blcttts mc forte (no faming, in lrb..an sd -eal .a..forestrY:,botIng sod asi)s. psrcentage of total labor force. Rurold.allin-o ~ouceted to e-LIneot S - (bmpoted an abov for

Unsccleyed nf labor fcre) - fn_spleYsd ore usnally defloed soIpersons .. ns-l. _crct boe are able and wiling To take a Job, not of a Job no a giv- day, Go sto

ISMtattd out of a job, and Seeknbg ank for a spetclfied olnii-,ne Radio tssno (e1hu2U)-61tpeo oeaeofnrdobodpeeled cot sooeodiang one week; maY cot be neenParable hetenn 010 Radto 9In grenepra thbi Per) thuAld ofp. popfonn eacloda o boll-Inne3 due In differonit defioittlon Of uneeployed and nomnof data, -etne tengonnl inbcunties thand inyarf i nep,lt-soget,Rutton radio

el.g,.t inst ...t... of-ennlto,sml eny,espleyaa-nt o oeffeot; datb for recant year may not bc coetpoeoble alonploysseet tnoaraeos. oon~~~~~..t noantrt- ahnlilhed licensig.

loen distribation - Pse-notga of pefeane iones (beeb in cask and bled) Passenger aors (per tho. ooo) -P.Sonegnr ears maprs otor oars east-reneled by richest 5%, rleheac 20%, po-rnt 20%, and pseret 40% af leg las t1bSn sight persons; nonludeo inalO-ce- hearoso ond ault-he-heblda. they -vekl-ln

bob! et (1hj5Pr ca) kAnmal nuonnnytion tf ednateta1, oat-Distriboti-on f land ese-rebt - Pr-nntagns of lend osened aby wealth- CCri,iCal,piklWipl_t Ils-triotty to kclo-ett bea,m pe capital

lest 10% -d p..,..t of lend ~~~~~~~geenrlly b.end on prodtiante data, cethout ootnefor I oons islest 109 end oorest 10% e lend 000Cm.grid. b-at aloigfee utportn and epqnnrn of eIsot,iolty.

HIlgath Nn ittlnletPon Clkg/yr one opl - Per oapcta annoail costn.ieton to kilog-omopatton oner physlla - Popoistine dividnd by nn-be- of praotitlog fataed fro dannstle peadnetion plus net Supects of newsprint.

Physicians qolif le freei a editdl1o Shbol at anteerniy lanai.

ANNEX IPage 3 of 4 pages

TUNISIA - ECONOMIC DEVFLOPI4RNI DATA SHEET

Actual Rat. Pr ece 1 965- -19'70- 1 976"-19611 1970 1974 195 17 17 91 1970 1 975, 19117

Dinars Millions at Canstant 1966 Prices Avernge Ann.a1 GowItt Rote Sh.r of CDP

A. NLATIONAL ACCOUNTSIr oetcP_od-ct 536 660 984 1,074 1,196 1.268 1,577 4.9 9.6 5 7 100.0

Grains frno Ter-s of Trade - 3 - 83 43 20 12 6 - - -4.0

Gross Dsneutoc Ir,cOe 533 680o 1,067 1,117 1,216 1.190 1,583 5.5 10.4 5 4 104.0

Inports (G and NFS) 167 189 305 320 3.50 386 478 2.1 11.1 4 p9.p.Esports (0 a-d NGS) (laport coparsty) 99 117 308 230 280 199 432 9 7 12.3 I 2b.1Nenour.e Gap 68 32 -3 40 70 87 46 57

C-nn-pslo- 460 572 841 888 932 1.047 1,269 4.5 9.2 5 5 ,A27Isn-tmeet 141 040 223 269 301, 321 361 - 14.0 3.21.0

D-netic Savings 73 108 226 229 234 233 314 8.1 16.2 6.. 21.5Nat-oal Savings 60 95 220 224 225 224 2853 9.8< 18.7 5.7 20.9

GDP at rnrr-n plices (U1S$ lias 1.004 1,444 3,541 4,392 4.784 5.490 8,943 7 5 25.0 15

B SECTROUT-PUT Share In GOP at Cosatant 1966 Price. is Percent Av-r.an As...al G-rowh R.LeAg,i-Itc,- 22.1 17.3 19.3 18.3 13".5 17.0 15 3 - 11.3 L1.9Indastry 22.8 25.7 26.1 26.- 26.4 27.5 31.8 6.3 11.5 9.)Serice 55 5 58.0 54.6 55.4 59.1 51.5 52.9 1.8 9 0 5.

C. MERCNANDISE TRADE Millions o-f US SrlI.am Average Annual Growth la.

TExPort.Soe -,1 26 17 164 81 (4 91 221 -9.1 36). 5 2.Other grlc-lu-a1 prod.cta 32 40 44 30 .51 38 61 4 5 -s 6 14.1Ptrro1es. - 41 314 317 294 336 561 48.0 iP..;Rock phOsphate 22 24 107 93 77 100 133 1.9 31.0 IIJ.Ma...facta,red goods 41 6.3 282 304. 322 402 1,085 -9 70 r_Total goody 121 189 911 825 798 967 2.061 9.3 34.3 21.0T-si-n 19 65 190 2 93 331 359 490 28.0 35.4 .1IOcher IFS 49 62 153 201 220 250 402 T4.8 27.0 12.8Total goods and NFS 189 316 1.254 1.328 1,34 5,76 .5 T73. 17.0

InP.rts (off)Foodstu.ffs 34 66 206 180 183 227 359 14.0 22.2 14.4Other c.--ne goodn 42 41 144 185 204 238 370 - 35 0 12.6,Enegy 11 13 130 106 115 136 97 - 10.0 -3.4I"tensodiate goods 88 126 382 490 543 612 1205 7.5 31.0 17.5Capital goads 77 74 258 410 475 592 946 -1.0 41.0 14.11Total goods 252 320 1,120 1,371 1.520 1.841 2,977 4.9 34 0 14.4Ocher NFl 68 61 122 154 170 190 - 292 . 2 I 20.5 11.4Total goods and NFS 32 0 38-1 1,-242 -1,5215 1,690 2.035 5, 269 3.6 32.0 14 1

E). PRICES 1966- 150 Ave,rag Asn..al Growth Rate

Export price index 97.5 106.2 243.1 226 9 221.2 233.8 295.2 1.7 16.4 f.0Export pr-ce Indes 100.8 105.9 177.5 192.0 205.2 224.2 290.9 1.0 12.6 7 5Terns of trade Index 96.7 100.3 137.0 118.2 107.~3 104.2 111.5 0.7 3.3 -1..l

GDP deflator 98.3 111.5 i56.9 165.1 170.0 184.0 241.0 2.6 8.2 7 2Aveage nochango rate (TO per 5) 0.525 0.525 0.436 0.404 0.425 0.425 0.425 - - 1.1

E. PUBLIC FINANCE Is v..arnet of GDP at C,rrant Pricec F. DETAIL ON GOV'T Ipercn of Total1961 50 1971 393 SECTOR INVESTMENT 968 71 972-75

G-ar..st Revenue 1-9.6- 291.80 24.6 22.0Csrrenrt Expenditure 15.0 17.9 18.6 16.6. Social Sectsr 19.6 iE 6Current S-rplan (Central Gn-'t) 4.6 3.9 6.0 19.4 Ag-c.It,nre 23.8 1, 0Other GonE Sector Savinga 0.9 - 5.5 0.3 I 4 Trenaport and C-nnvxlcit- 12 2

7.5 1~~~~~~~~~Ifr-strc-or 16.0 18 6,Control Goo- Inscet . 3.9 4.0 4.1. Onher 2/29.4 J39 Total Gov't lnv-tmeet 2/ 11 7 8.1 8.0 10.1 Total 100.0 100.0

G. DETAIL ON CURRENT EXPENDITUIRE In Percent of Total Financing

(CENTRAL GOV'T) 1961 1970 1975 1976 3 P.hlic Sector Savings 29.9 59.2Othnr Financing 15.5 20.8

Edscatio. 25.7 32.1 22.3 26.5 Danestic Borroning (net) 1.8 -2.1Other Social Services 15.5 16.7 11.1 13.1 Foreign Borro-ong (nat) 52.8 22.1AgriculIture 5.0 3.4 5.4 7.2 Total Financing 100.0 100.0 -Other Econoxic Se-ricen 17.7 17.7 16.2 14.1.Ad.lnistrati.n and Defence 36.1 30.1 41.o0 H80 . LABOR FORCE (th.suand) 1972 197LI

100.0 100.0 100.0 100.11 Agriculture ~/773 758

Ind.ntry 255 321

Services 332 356~U-eployed 160 151

15-20 1.670

_L' Projected by World Rank Staff EMENA O;P 112j Budget Septenker, 19,762_/ Includen trasafers to Public Enterprises4/ Renidna1

ANNEX IPage 4 of 4 pages

TUNISIA - bALANCE OF PATMENTS AND EXTENAL ASSISTANCE(Arounts Is millions of US dollars )S/

Actual tat. ___ Projected 1/1970 1971 1972 1973 1974 1975 197 1977 1980 1981

A SIYARY BALANCE OF PAYME!IS

Exports (oo1. NFS) 316 408 567 714 1254 1328 1349 1576 2516 2953

Imports (icol Nf5) 381 442 593 782 1242 1525 1690 2035 2930 3269

R.-soorc Balocce -65 -34 -26 -68 12 -197 -341 -459 -414 -316

Net lt-erest Povyex-o -50 _a --18 -13 2 -6 -11 -11 -103 -13D

of which- Interest o Public Lasso (-17) (-20) (-22) (-27) (-31) (-34) (-39) (-53) (-163) (-198)

LIreor lorest-ert Iotr-- -9 -10 -25 -35 -36 -51 -54 -62 -103 -116

Work-ro R-oiCtoao-- 29 44 62 98 118 144 141 148 171 180

Oth-r Net Factor Service- -8 -39 -41 -82 -102 -113 -122 -128 -148 -158

Corent Trass.ers (-et) 10 16 6 4 1 7 5 2 2 2

BslsIce on Current A.o,oat -93 -41 -42 -96 -5 -216 -382 -510 -595 -538

Pri-tse Di.r.t Invost-men 19 24 31 57 49 76 67 110 146 161

offic(al CapiLtl Grants 43 35 .37 45 43 47 45 45 40 38

Public P + LT Loas:Dfoburaeme-nc 82 106 140 153 177 282 335 589 698 718

- An.ortication -45 -48 -70 -59 -59 -70 -65 -69 -214 -294

Net Dlobursenests 37 58 70 94 118 212 27.0 520 484 424

C.piral Trac.s.tior. n-. i. !/ 13 7 -26 -25 -134 -165

Chassgo to Net Reserves (Inoroose o -} -19 -83 -70 -75 -71 46 - -165 -75 -85

Net Foreign Renoerve 15 114 192 290 387 344 344 509 732 817

(noo.hs af imports sq.i-sl-ot) 0.5 3.1 3.9 4.5 3.7 2.7 2.4 3.0 3.0 3.0

B PUBLIC LA2w C1O1ISHENIS ACtal Debt OutetamdtmE en Dec. 31 1974

IRD1 - 37 36 25 64 37 Disb. Only Sm Porcer.t of Toral

IDA 10 10 10 7 - - C. EXTERNAL DEBT

Other MuStSlateral - - I - 12 11 Sorld Bock 88.6 9.3

Gccernne-ts 100 75 94 138 63 254 IDA 42.8 4.4

Suppliers 8 5 19 11 2 - Other MNltilateral 2.9 0,3

F,oacial oIotitntooos 21 37 28 17 12 20 Gc-ernoent. 596.3 62 4

Totnl Poblie M + LT Lo..s 139 164 188 198 153 322 Suppliers 101.1 10.6

Pinancial Institutions 114 5 12 0Bunds 1.3 0.1Peblio Debt n..1 3 0.9

Tornt Publit M + LT Debt 956.0 100.0

D DENT ANPDEBT SERVICPublic Dobt OutCt + Disbursed 524 604 680 807 956 1156

Intorest an Public Debt 17 20 22 27 31 34

A-torli-slio 45 48 70 59 59 70

Total Poblic Debt Sereice 62 68 92 86 90 104Burdon on Export Earninss 4/ (%)

Poblio Debt 5ervice 19 5 16.8 t1.3 12 0 7.2 7 6

TDS + Di-ect I--est Icc. 22.5 19.1 21.7 17.0 10.1 11,7

A-ereag Terms of Public DebtInt a5 of Prior Yeor DO + D 3 3 3 8 3.6 4.0 3.8 3.6Anort. os 2 Prior Year DO + D 9 5 9.1 11.6 8.2 7.3 7.3

IBRD Debt Out. + Disb.re.d 18 26 40 52 70 89

IBRD as 7 of Public Dcbt 5.0 6.5 7.7 8 7 9 3 10.1IBRD as % of Pu.blic Debt Service 4.2 5 3 6 5 9.5 12.0 11.8

(BA Dlbt Oat sod Disbaroed 13 16 "I 28 37 43

IDA s 7. of Public Debt 3.1 3.5 4.1 4 5 4.4 4.8IOA as 2 of Publie Debt Service 0.1 0 2 0.2 0.4 0J& 0 4

1/ Eso g sor races osed for the various storks and flo.- correspond to Chose published in IFS7/ Pr-o-ctod b- world Bosk Stcff. EMENA CP II

3/ Ioclodiog errors sod oi .isaln. Septe.ber 1976

4/ Teclodlog moo-factor orevices

ANNEX IIPage 1 of 6 pages

THE STATUS OF BANK GROUP OPERATIONSIN TUNISIA

A. STATEIENT OF BANK LOANS AND IDA CREDITS (as of october 31, 1976)

Loan orCredit Amount (less cancellationlNumber Year Borrower Purpose Bask IDA Undin.

Fourteen loans snd credits fully disbursed 60.9 38.0

581 1969 SONEDE Water Supply 15 0 1.1209 1970 Republic of Tunisia Water Supply 10.5 0.7238 1971 Republic of Tunisia population 4 8 1 1746 1971 Republic of Tusisia Highways 24.0 4.4

779 1971 Basque Nationale de Tuniaie Agricultural Credit 5.0 0.4270 1971 Republic of Tunisia Fisheries 2.0 0.7798 1972 Societe Natisnale d'Investissement Developm.et Finance Co. 10.0 1.0815 1972 STEC Power 12.0 0.5

858 1972 Republic of Tunisia Tourism, Infrostructure 14 0 14.0329 1972 Republic of Tunisia Tourism Infrastructure to 0 4.0881 1973 Societe Nationale d'Investissesent Development Finance Co 14.0 0.8937 1973 Republic of Tunisia Urban Planning & Public 11 0 7.1

Transportation989 1974 SONEDE Water Supply 23.0 13.1

1029 1974 Republic of Tunisia Hotel Training 5.6 5.61042 1974 Compagnie des Phosphates et

Chemio de Fer de GAFSA Phosphate Development 23.3 22.91068 1974 Republic of Tunisia - Irrigation Rehabilitntion 12.2 10.9

1088 1975 Republic of Tunisia Urban Sewerage 28.0 27.11155 1975 Republic of Tunisia Education 8.9 8.91188 1976 Banque de Developpement Economique Development Finance Co 20.0 19 1

de Tunisie1189 1976 Republic of Tunisia Highways 28.0 28 0238-1 1976 Republic of Tunisia b/ Population , 4.8 4.8

TOTAL: 314.96 70.1 176 1of which has been repaid 27.0 0.2

Total now outstanding -2B7.9 -hi9.9Amount Sold 4.8of which has been repaid 2.8 2.0

Total now held by Bock and IDA a! 725 69.9

Total undiobursed 164.9 11.2 176.1

a/ Prior to emchange adjustment. b/ Not yet effective

* A loam to BEanque Nationale de Tuniaie for a Second Agricultural Credit Project of$12.0 million was approved by the Emecutive Directors on November 23, 1976 raisingthe total amount of Bank Loans to $ 326.9 million.

B. STATEMENT OF IFC INVESThENTS IN TUNISIA (as of October 31, 1976)Amosnt in US $ million

Year Obligor Type of Businens Loan Eqsity l'otal

1962 NPK Engrais Fertiliners 2 0 1 5 3 51966 Societe Nationale dInvestissement Development Finance Co. 0.6 0 6

(SNI) now (BDET)1969 COFITOUR (Tourtism) Development Finance Co. 8.0 2.2 10.21970 SociAt6 Nationale d-Inveotisoemeot

(SNI) now (BDET) Development Fineace Co. 0.6 0.61973 Societe Touristique 6 HNotelire RYM SA. Tu.rism 1.6 0 3 1.9

1973 SociAti d'Etudes 6 de Developpeent deSousse-Nord Tourism X

1975 Societe d'Etudes & de D-velopponont doSousse-Nord Tourism 2 5 0 6 3 1

1974 Industries Chimiques ds Fluor Chemicals _ 0 7 0.7

Total gross commitments 14.1 6.5 20.6

Less cnncollations, tenminations, repayments and sales 3.2 _1 5 4 7

Total commitments now held by IFC 10.9 5.0 15.9Total undisbursed 10.5 0.3 10.5

Less tban $50,000.00

ANNEX IIPage 2 of 6

C. PROJECTS IN EXECUTION 1/

Cr. 238: Population Project; US$4.8 million credit of April 5, 1971; Dateof Effectiveness: December 29, 1971; Closing Date: (Original)June 30, 1976; (Current) June 30, 1978.

Since January 1974, steady progress has been made both in thteNational Family Planning program and in the management of the project. TheGovernment has welcomed and acted upon the recommendat[ons of the IDA sectormission, and there are strong indications that the program will now continueto develop positively. However, delays in project execution resulted in costoverruns of more than 300 percent over the amount originally projected. Inan effort to fill the financing gap, and following a procedure necessitatedby the 1973 Agreement between the Bank Group and the Kingdormi of Norway, IDA'sExecutive Directors approved, on August 10, 1976, an increase in the IDA creditfrom $4.8 million to $9.6 million, the additional amount representing theparticipation of NORAD, Norway's Agency for International Development. TheProject is expected to be completed by December 31, 1977.

Cr. 270: Fisheries Project; US$2 million credit of September 24, 1971; Dateof Effectiveness: May 24, 1972; Closing Date: (Original) December31, 1976; (Current) July 31, 1978.

Project implement tion is proceeding satisfactorily after earlierdifficulties and delays experienced in design of an economic project: vesselsuitable for operation by traditional fishermen; 87 boats have now been coM-pleted and 62 delivered. After a period of reduced demand for project boats,due to early construction shortcomings as well as difficulty of fishermen toadapt to the more sophisticated Perkins engine, effective follow-up) actionhas resulted in an increase in approved loan requests, wliclh now total 163.However, since there is a considerable time-lag between sub-loan approval andboat delivery due to the administrative procedures involved and since therewill be a rather high percentage of sub-loans which do not mlaterialize andfor which new customers will have to be found, the completion date is nowestimated at March 1978.

1/ These notes are designed to inform the Executive Directors regaIrding theprogress of projects in execution, and in particular to report any prob-lems which are being encountered, and the action being taken to remedythem. They should be read in this sense, and with the understandingthat they do not purport to present a balanced evaluation of strengthsand weaknesses in project execution.

ANNEX IIPage 3 of 6

Ln. 581: First Water Supply Project; US$15 million loan of January 16, 1968;Date of Effectiveness: May 29, 1969; Closing Date: (Original)December 31, 1973; (Current) December 31, 1976.

Cr. 209: Second Water Supply Project; US$10.5 million credit of June 30, 1970;Date of Effectiveness: December 12, 1970; Closing Date: (Original)December 31, 1973; (Current) December 31, 1976.

Ln. 989: Third Water Supply Project; US$23 million loan of May 29, 1974;Date of Effectiveness: September 24, 1974; Closing Date: June 30,1979.

Because of problems with locally manufactured asbestos-cement pipecompletion of the First Project has been delayed. Constraints resulting fromlack of capacity in the local construction industry required that the ClosingDate be further set back until the end of 1976. Final project costs are ex-pected to be about 6 percent below appraisal estimates (but 7 percent higherin dollar terms because of devaluation). The Second Project is also behindschedule for the same reasons as well as because of initial delays in finaldesign, but all major supply works have been completed, and only minor worksunrelated to the provision of water remain to be completed. Final costs maybe about 5 percent higher than original estimates because of current infla-tion rates, but 20-25 percent higher in dollar terms. Because of delaysin execution, the Closing Date has also been extended to the end of 1976.Bidding has been completed for all major components of the Third project.Construction is on schedule, and disbursements are higher than anticipated.

Ln. 746: First Highways Project; US$24 million loan of June 9, 1971, Date ofEffectiveness: October 26, 1971; Closing Date: (Original) June 30,1976; (Current) June 30, 1977.

Ln. 1188: Second Highways Project; US$28 million loan of January 26, 1976;Date of Effectiveness: June 16, 1976; Closing Date: December 31,1979.

Progress in reconstruction and rehabilitation of roads and bridgesis good under the first project. All works are expected to be completed bythe end of 1976 or early 1977 (more than one year after the expected completiondate in the loan documents). The delays were mostly caused by delayed acquisi-tion of right-of-way. The closing date has been extended by one year to June30, 1977. Cost overruns have required the elimination of the Tunis-Turkisection of the Tunis-Hammamet expressway and considerable reductions in thewithdrawal percentages. Construction of the expressway section is now beingfinanced by the Kuwait Fund.

After prequalification of contractors under the second project, theGovernment has invited bids for the improvement of one road; other improvementworks will be executed in accordance with the agreed timetable. Consultantshave been invited to submit proposals for a Pilot Rural Roads Project. Aseparate invitation has been mailed to consultants to submit proposals forthe updating of the 1978 Transport Survey.

ANNEX IIPage 4 cf 6

Ln. 779: Agricultural Credit Project; US$5 million loan and US$3 millionCr. 263: credit, both of July 12, 1971; Date of Effectiveness: January 25,

1972; Closing Date: (Original) July 31, 1975, (Current) December31, 1976.

Project implementation was slow during 1973 and 1974, mainly dueto competing credit programs with softer terms than those of the Bank loan.These difficulties were resolved in early 1975, when the Government finallytook steps to exclude use of these programs by potential Project subbcorrowers.Since then Project implementation and disbursements have been satisfactory.All Project funds are committed and the Loan/Credit is expected to be fullydisbursed by the end of 1976. Major agricultural credit policy issues, suchas the establishment of eligibility criteria for concessional credit, interestrate levels and credit organization were addressed in the context of thesecond agricultural credit project approved by the Executive Directors inlate November.

Ln. 815: Power Project; US$12 million loan of April 20, 1972; Date of'Effectiveness: August 4, 1972; Closing Date: (Original) July 31,1975; (Current) December 31, 1976.

The project is nearing completion. Both gas turbines as well asall transmission lines and substations are in operation. The cost of theproject is not expected to exceed the original estimate. A tariff increasein 1975 raised STEG's overall electricity revenues by 12 percent, therebyincreasing the rate of return to 10 percent in that year (as compared with8.5 percent in 1973 and 9.3 percent in 1974).

Ln. 858: Tourism Infrastructure Project; US$14 million loan and US$10 millionCr. 329: credit, both of September 28, 1972;Date of Effectiveness: June 26,

1973; Closing Date: December 31, 1977.

After considerable delays in 1975 caused by the redefinition of theproject, the project is now moving ahead expeditiously. The last contractsfor infrastructure works are being awarded and supervising the constructionof works has already started. Recently revised estimates set the projectcost at about D 31 million, or 16 percent more than the appraisal estimates.Although most infrastructure works will be completed by the end of 1977, theproject as a whole is unlikely to be completed before July 1978.

ANNEX IIPage 5 of 6

Ln. 798: Fourth Development Finance Company Project; US$10 million loan ofFebruary 9, 1972; Date of Effectiveness: April 13, 1972; ClosingDate: (Original) March 31, 1976; (Current) April 30, 1977

Ln. 881: Fifth Development Finance Company Project; US$14 million loan ofFebruary 20, 1973; Date of Effectiveness: MIay 24, 1973; ClosingDate: Miarch 31, 1978.

Ln. 1189: Sixth Development Finance Company Project; US$20 million loan ofJanuary 26, 1976; Date of Effectiveness: June 7, 1976; ClosingDate: June 30, 1980.

Loan 798-TUN is fully committed but disbursements are slightlybehind schedule; the undisbursed balance (about $1 million) is expected tobe disbursed by December 1976. Loan 881-TUN is also fully committed and theundisbursed balance is expected to be drawn down by December 31, 1976, threemonths ahead of the original estimated schedule. Under Loan 1189-TUtN, $3.8million had been committed as of September 30, 1976; disbursements are ex-pected to be slower than projected for 1976 and 1977 but substantially toincrease thereafter to conform to the estimated schedule. Over the pastmonths, the effectiveness of BDET's management and the quality of its port-folio have vastly improved. Progress was also made in loan arrears collec-tion, validation of mortgages and overall working procedures. Prospects forfuture development remain good.

Ln. 937: Tunis District Urban Planning and Public Transport Project; US$11Cr. 432: million loan and US$7 million credit, both of October 5, 1973; Date

of Effectiveness: September 24, 1974; Closing Date: December 31,1976.

Project execution is about a year behind schedule particularly asregards construction of the bus depot by SNT and the execution of trafficimprovements by the Municipality of Tunis. Action has been taken by theseagencies to speed up execution on these two components and to minimizefurtlier delays. Bidding for civil works is expected to take place soon.Most other project components have proceeded with few delays. Procurementof major equipment by SIJT has been completed and deliveries are beingreceived on schedule and will be completed by mid-1977. Ways of financingcost overruns on the suburban railway equipment are under discussion. TheClosing Date for the loan, currently December 31, 1976, will have to beextended.

Ln. 1029: Hotel Training Project; US$5.6 million loan of July 17, 1974; Dateof Effectiveness: November 4, 1975; Closing Date: October 31,1978.

Substantial progress has been made over the past mnonths. Thetechnical assistance team has completed classroom courses and are testingthem in the present school year. Final design for the first two schools andprequalification procedures have been completed. It is expected that con-struction contracts for the two schools will be awarded in early 1977.

ANlNEX IIPage 6 of 6

Ln. 1042: Gafsa Phosphate Project, US$23.3 million loan of October 1, 1974;Date of Effectiveness: March 14, 1975; Closing Date: June 30,1979.

Due to poor performance in the longwall methods trials, the Sehibsub-project (underground mining development) is expected to be delayed by atleast one year. As a result of this slippage and higher inflation than fore-seen, project cost estimates have risen appreciably; it is expected that theycan be financed partly by suppliers' credit and partly by internal cash gen-eration. The modernization program has experienced some difficulties. Thesevere drop in phosphate prices has seriously altered the financial perform-ance of the company, possibly making difficult the financing of the expansionprogram. The Government has proposed that the regional development studybe deleted from the project. Before agreeing to this request, the Bank hasasked for supplementary data on the development of the Gafsa region.

Ln. 1068: Irrigation Rehabilitation Project: US$12.2 million loan ofDecember 31, 1974; Date of Effectiveness: September 18, 197:jClosing Date: June 30, 1982.

Progress in the Miedjerda subproject area has been satisfactory withthe exception of enforcement of certain key provisions of the land reformlegislation. A Government report has been requested on the progress made onland reform. In Nlebhana, land reform implementation continues. Consultantshave been recruited and are preparing various studies necessary for projectimplementation. Rehabilitation and construction works are ongoing. The Gov-ernment and the agricultural credit Bank (BNT) have recently concluded anon-lending agreement setting the terms and conditions of sub-loans underthe credit component of the project.

Ln. 1088: First Urban Sewerage Project; US$28 million loan of February 18,1975; Date of Effectiveness: August 15, 1975; Closing Date: June15, 1979.

Despite a six month delay in the early stages of project execution,works are expected to be completed on schedule and disbursements shouldl reachforecast levels by the end 1976. Consultants have been retained to studymeasures to improve the implementation capacity for public works and buildingprojects. Total project cost may increase by 10 percent over estimates, allthe increase being in the local cost component.

Ln. 1155: Third Education Project; US$8.9 million loan of August 13, 1975;Date of Effectiveness: March 1, 1976; Closing Date: June 30, 1980.

Since effectiveness, progress on this project has been good, partic-ularly fronm a pedagogical point of view, although improved planning is stillnecessary on the physical aspects. Five vacancies in the Planning Unit areexpected soon to be filled. The amended draft Government/UNESCO agreementfor implementation of the technical assistance component of the projectwill soon be forwarded to the Bank for review and comment, as will alsothe outlines of the studies to be undertaken.

ANNEX IIIPage 1 of 2

TUNISIA

SECOTD POWER PROJECT

Loan and Project Summary

Borrower: Societe Tunisienne de 1Electricite et du Gaz (STEG).

Guarantor: Republic of Tunisia.

Amount: US$14.5 million equivalent.

Terms: 14 years including 2-1/2 years of grace, with interestat 8.7 percent.

Project The Project is the gas-turbine component of STEG's 1977-Description: 1981 development program for electricity generation. It

consists of about 150 MW in seven gas turbine units ofequal size to be installed two each in Sfax (1977) andMenzel Bourguiba (1978), and one each to be installed inTunis South, Korba and 11etlaoui (1980). The main objec-tives of the Project are: (1) to ensure continuity ofelectricity supply; (2) to cover the need for peak powercapacity, and (3) to allow STEC to implement its nextexpansion program later with larger and more efficientsteam turbine units than would be possible without theprior installation of gas turbine units as proposed inthis Project.

Estimated Cost: The cost of the Project is estimated at about $29.3million equivalent, with the following main components:

------- $ Million -------Local Foreign Total

Electro mechanical equipment 1.52 21.47 22.99Civil works 1.69 0.09 1.78Engineering 0.09 0.36 0.45Transport, erection and

supervision 0.81 1.81 2.62Spare parts - 1.01 1.01Total Base Cost 4.11 24.74 28.85

Physical Contingencies 0.06 0.37 0.43

Total Project Cost 4.17 25.11 29.28

Since the estimated Project cost is based on the firmprice included in the contract signed by STEG in July1976, no allowance for price contingencies is shown.

ANNEX IIIPage 2 of 2

Financing Plan: The proposed loan of $14.5 million would finance 58percent of the foreign exchange cost of the Project.The remaining foreign exchange costs will be providedby STEG ($1.4 million) and private French and Tunisianbanks with the guarantee of Compagnie Francaised'Assurance pour le Commerce Exterieur (approximately$9.2 million). The local currency costs of $4.2 mil-lion will be financed by STEG.

EstimatedDisbursements: ($ million) CY1977 CY1978 CY1979 CY1980 CY1981

Annual 6.2 3.2 2.8 1.9 0.4Cumulative 6.2 9.4 12.2 14.1 14.5

Procurement STEG has already awarded the contract for the procurementArrangements: of the seven gas turbines in accordance with the World

Bank Guidelines for Procurement, in order to take advantageof favorable prices.

Rate of Return: The estimated rate of return on the Project at presentelectricity prices is at least 13.2 percent.

Appraisal Report: No. 1304b-TUN, dated December 7, 1976.

ANNEX IVPage 1 of 2

TUNISIA

SECOND POWER PROJECT

SUPPLEMENTARY PROJECT DATA SHEET

Section I: Timetable of Key Events

(a) Time taken to prepare Project: About one year in the period 1974-75(b) Agencies which prepared Project: STEG(c) Project first presented to Bank: During Bank's Identification Mission

in December 1975(d) First Bank mission to review Project: Identification Mission of

December 1975(e) Departure of Appraisal Mission: June 1976(f) Completion of Negotiations: November 17, 1976(g) Planned Date of Effectiveness: End of March 1977.

Section II: Special Bank Implementation Actions

Shortly after the field appraisal of the Project STEC awarded thecontract, on the basis of international competitive bidding, to take advantageof the favorable price offered for a limited term by the lowest bidder.During negotiations, the implementation schedule in the light of the contractwas discussed and agreed. Also during negotiations, a set of key indicatorsto monitor STEG's performance was discussed with STEC. STEG would submit tothe Bank by June 30, 1977 for its comments key indicators for monitoring itsperformance.

Section III: Special Conditions

(a) Government to undertake a study with the help of consultants acceptableto the Bank with a view to determining an appropriate pricing policy foroil, gas and electricity, taking into consideration STEG's policies onthe level and application of connection charges for electricity, tosubmit to the Bank not later than September 30, 1978 the recommendationsof such a pricing study and to exchange views with the Bank on theserecommendations;

(b) Government to provide the funds to carry out the Project in the eventof STEG's inability to arrange these funds;

(c) Government to ensure that STEG's tariffs for electricity supply areadequate for it to earn the agreed rate of return;

(d) STEC to undertake a study of the level and application of connectioncharges. for electricity supply, to submit by June 1978 the recommendations

ANNEX ].VPage 2 of 2

of this study to the Government and the Bank and to exchange views withthe Bank on them by October 31, 1978;

(e) STEG to undertake a study to determine its organizational structure,its training needs and the necessary investments for the implementationof the program concerning the transmission and distribution of naturalgas throughout Tunisia, to submit by June 1978 recommendations of thisstudy to the Government and the Bank and to exchange views with theBank on these recommendations by October 31, 1978;

(f) STEG to earn an annual rate of return of 8% on average net fixed assetsin operation as revalued from time to time less customer contributions;

(g) STEG to discuss with the Bank revision of the proposed rate of returnformula, which excludes customer contributions from revenue and theassets base, should the proposed study of connection charges indicatethat a change in policy would be desirable;

(h) STEG to submit to the Bank before October 31 of each year a forecastof its earnings for the current and next years showing the tariffs onwhich the computations are based together with a statement of any actionwhich it intends to take in order to achieve the agreed rate of return;

(i) STEG to obtain the approval of the Bank before incurring any debt, exceptfor financing the Project, if it will raise its total debt to more than45% of the sum of its equity and its total debt; and

(j) STEG to utilize the services of independent auditors acceptable tothe Bank and to submit to the Bank audited financial statements withinfive months after the end of each fiscal year except those relatingto 1976, which would be submitted by the end of June 1977.

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