Africa Growing Together Fund provides $42 million loan for Arusha Sustainable Urban Water and Sanitation Delivery Project (Linked to Umbrella Project ID#36104)

On May 22, 2014, the African Development Bank (AfDB) and the People's Bank of China (PBOC) signed an agreement for the Africa Growing Together Fund (AGTF) (see Umbrella Project ID#36104). The purpose of this $2 billion loan facility was to finance large development projects in Africa between 2014 and 2024. The AGTF is sponsored by the PBOC and the administered by AfDB. Then, on October 23, 2015, AGTF signed an $42 million loan agreement (ID#5050130000101) with the Government of Tanzania for the Arusha Sustainable Urban Water and Sanitation Delivery Project. On the same day, the African Development Bank (AfDB) issued a $143.65 million loan (ID#2000130014084) and the African Development Fund issued an $25.32 million loan agreement (ID#2100150033744) to the Government of Tanzania for the same project. The borrowing terms of the AGTF loan, which entered into force on February 18, 2016, are as follows: an 20-year maturity, an 4-year grace period, and an interest rate of 6-month LIBOR plus a 0.6% margin. The first AfDB, ADF, and AGTF loan disbursements took place in November 2016. The purpose of the project is to improve quality of water supply and sewerage services in the service area under Arusha Urban Water Supply and Sewage Management Authority (Auwsa). The project has three main components: (a) Sanitation Infrastructure and Services Improvement; (b) Water Supply Infrastructure and Services Improvement and (c) Institutional Support and Project Delivery. Component A involves rehabilitating and expanding the sewerage network and sewerage treatment facilities and will support decentralized sanitation systems including sanitation marketing for on-site sanitation technologies and gender sensitive community sensitizations in order to address sanitation challenges in the areas not covered by the sewerage system. Activities include: Consultancy services for design review (including review of both technical aspects and non-technical, covering financing, management and PPP options), preparation of tender documentation and supervision of the works; Construction of new sewerage treatment facilities, design of which takes into account latest technology as well as financing and management options, including PPP options; Expansion of the sewerage network (by 135 km) to improve coverage from 7.6% to 30%; and rehabilitating the existing network; Construction of a workshop and installation of operational facilities/equipment; together with supply of equipment and working tools to enhance smooth operations; Carrying out measures to promote use of improved and environmentally safe on-site sanitation facilities in areas not covered by the sewerage system including construction of public sanitation facilities; Construction of decentralized sanitation facilities; Construction of sanitation blocks for schools. Component B involves increasing water production capacity and improving the transmission and distribution network; and enhancing the Utility’s operational efficiency. Due consideration will be given to water quality of sources as groundwater in the area generally contains high fluoride from its geological content. Activities include: Consultancy services for studies and review of water sources plus design, tender documentation and supervision of works; to assure protection of sources, the consultancy ToR will include provision to ensure that communities around water sources have access to pipe-borne water. Peri-urban areas and adjacent rural communities to be also addressed; Improving water operations and reducing NRW from 48% to 25%; Increasing water production capacity from 40,000m3 /d to 109,000 m3 /d; Construction of 3 new conventional water treatment plants (33,000 m3 /d); Rehabilitating and expanding the transmission and distribution network (about 355 km) to improve water supply coverage from 44% to 100%; Construction of 17 water storage tanks (19,045 m3 ); Construction of a new water quality and testing laboratory; Supply & installation of 5 new fluoride removal units, one nitrate removal unit and chlorination units and refurbishment of chlorination units; Water resources management including catchment and water sources conservation; and Installation of water kiosks. Component C involves enhancing AUWSA institutional capacity in water and sanitation services delivery and provide Project management support. Activities include: Implementation of environmental and social / gender management plans; Institutional and organizational review study; Training and capacity building of AUWSA staff; Support to AUWSA Corporate Social Responsibility Program (CSR); Support to AUWSA to adopt and implement the national gender strategy; Implementation of integrated financial management information system; Tariff and affordability study and awareness; Supply of Project equipment; construction of new office building; Project management support; Project auditing; compensation, Communication and media coverage The project covers greater Arusha, comprising Arusha city and surrounding areas. Following the upgrading of Arusha from a municipality to a city in 2010, the service area of the water utility (i.e. AUWSA) has more than doubled from 93km2 to 208 km2. Upon completion, the project is expected to benefit a resident population of more than 600,000 (288,000 male and 312,000 female) people in Arusha city and 250,000 additional people, who commute to the city for business purposes, during daytime. Beijing Construction Engineering Group is the contractor responsible for implementation. It signed a commercial contract with Arusha Urban Water Supply and Sewage Management Authority (Auwsa) in August 2018. All major procurements have been concluded and works implementation is on going, but the project’s precise implementation start date is unknown. Major implementation challenges have included contractor payment delays by the Government (GoT) through the Ministry of Finance and Planning (MoFP), and COVID-19 restrictions which have forced some of the contractors to reduce their work forces. The project was originally expected to reach completion on June 30, 2020. However, due to delays in obtaining water sources and delays in issuing VAT exemptions the project completion date was extended to June 30, 2022.

Additional details

1. The AfDB project identification number is P-TZ-E00-008. 2. The total project cost is USD 233.92 million. The project was financed with a USD 143.65 million AfDB loan, a USD 25.32 million ADF loan, a USD 42 million AGTF loan, and USD 22.95 million of funding from the Government of Tanzania. 3. The project’s economic rate of return is estimated at 17.6%. The value is higher than the opportunity cost of capital and thus the Project is considered economically viable. Sensitivity analysis to test the robustness of the EIRR was carried out to determine the impact of adverse variations. The EIRR changes to 15.6% assuming that investment cost increases by 15%, and changes to 15.1% when the benefits of the Project are decreased by 15%. The analysis shows that the project is economically viable and socially beneficial for Tanzania. 4. The all-in interest rate (1.128%) was calculated by adding an 0.6% margin to the average 6-month LIBOR rate in October 2015 (0.528%). 5. The margin of 0.6% is calculated by adding the Funding Cost Margin (unknown) to the Lending Margin (0.6%). 6. Chinese project title: 坦桑尼亚阿鲁沙新供水系统建设项目.

Number of official sources

5

Number of total sources

5