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DOCUMENT OF INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENTINTERNATIONAL DEVELOR4ENT ASSOCIATION

Net For Pubc Ueu

RePAPt No. 157a-TUN

TDUISIA

APPRAISAL OF THE

TUNIS DISTRICT URBAN PLANNING AND PUBLIC TRANSPORT PROJECT

July 25, 1973

Urban Projects Department

This report was prep.red for off"iil mse only by tdm Bank Gmup. It mnay nlot be publled, quotedor cited without Bank Group authoitation. The Bank Croup doun ot accpt responslbillty for theaccuracy or coplemteJas of the report.

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Currency Equivalents

National currency is the Dinar (D)divided in 1,000 Millimes (M)

US$ 1.00 * D 0.4hUS$ 2.272 : D 1.0US¢ 0.23 = M 1.0US$ 1 million D 440,000

Weights and Measures

I Metric ton = 2.205 lbs1 Kilogram (kg) 2.2 lbs1 Xilometer (km) = 0.62 miles1 Meter (m) = 3.28 feet

Fiscal Year

January 1 - December 31

Acronyms

SNT - Societe Nationale des TransportsSNCFT - Societe Nationale des Chemis de Fer TunisiensTGM - Tunis - La Goulette - La Marsa RailwaySTIA - Societe Tunisienne d' Industrie AutomobileSNI - Societe Nationale d' InvestissementCIF - Cost, Insurance and Freight

TUNISIA

APPRAISAL OF THE TUNIS DISTRICT URBAN PLANNING AND PUBLICTRANSPORT PROJECT

Table of Contents

Page No.

SUMMARY AND CONCLUSIONS

I. INTRODUCTION 1

II. BACKGROUND 3

A. The Economy 3B. Tunis Metropolitan Area 3C. The Center City and the Medina 4D. Urban Growth Pattern 4E. The Inatitutional Framework -

Metropolitan Tunis District 5

III. THE TRANSPORT SYSTEM 7

A. Vehicles, Roada and Traffic 7B. Public Transport 8

IV. TRANSPORT POLICY AND URBAN PLANNING ISSUES il

A. Towards a Transport Policy for Tunis ilB. The Urbau Focus of the Project 12C. Urban Planning and Investments 12

V. THE PROJECT 14

A. Main Features 14B. Cost Estimates 16C. Project Financing Plan 18D. Project Execution - The Institutional

Arrangements 19E. Procurement 19F. Diabursement 21

This report is based on the findings of a Bank/IDA appraisal missionwhich visited Tunis from January 15 - February 7, 1973, and comprised Mr. N.Carrere (Urban Projects), Ma. I. Bradfield (Consultant), Messrs. R. Postgate,P. Ongley, G. Hafter (Consultants - London Transport), A. latz (Consultant -British Rail), M. Thraya (Consultant - SOTUETEC). Messrs. R. Venkateswaran(Urban Projects), and A. E. Elmendorf (EMENA - Programs Il) also participatedin the mission. Mr. Boutros-Ghali (UNDP) visited Tunis concurrently to pre-pare the draft UNDP project document. Me. C. Tager (Urban Projects) assistedin the final preparation of the report. A subsequent mission from June 19-29,1973, comprising Messrs. Venkateswaran, Elmendorf and D. Rowe (Consultant)reviewed the procurement arrangements.

Table of Contents (Continued)

Page No.

VI. THE SNT PUBLIC TRANSPORT COMPONENT 22

A. The Executing Institution SNT 22B. Financial Aspects 23C. Economic Analysis 30

VII. AGREEMENTS REACHED AND RECOM MENDATIONS 32

ANNEXES

1 Population (Table)2 The Metropolitan Tunis District3 Public Transport in Tunis4 Traffic Analysis and Forecasts5 Estimated Needs of Rolling Stock6 Analysis of TGM Modernization Program7 Traffic Improvements8 Sfax Urban Study9 Detail Cost Estimate10 Outline Terms of Reference - SNT Consultantsil Outline Terms of Reference - Traffic Consultant12 Societe Tunisienne d'Industrie Automobile (STIA)13 Disbursement14 Financial Aspects of SNT - Results, Projections,

Assumptions15 SNT Tariff Structure16 Economic Analysis

CHARTS

7662(R) Project Implementation Schedule7659 Organization of SNT

M4APS

10419 Tunisia - General10420 Tunis - Metropolitan Area - By Major Zones10421 Tunis - Main Infrastructure10422 Tunis - Bus Network10423 Tunis - TGM Line10424 Tunis - Traffic Improvement Program

TUNISIA

APPRAISAL OF THE TUNIS DISTRICT URBAN PLANNING AND PUBLICTRANSPORT PROJECT

SUMMARY AND CONCLUSIONS

i. Forces of urbanization are creating extreme pressures on the urbanfacilities in Tunis. Without corrective action the accelerated urban growthcoupled with deteriorating public transport services vill aggravate urbansprawl in the next decade. Urban development policy planning is needed toavoid unnecessary urban investments in light of the scarce resources available.

il. Recognizing the need for prompt action, the Government has createdan agency for urban policy planning and development and is taking steps toassure its effective functioning. To this end, the Government seeks Bank andUNDP aid in strengthening the District's planning, programming and supervisioncapability, as well as assistance in rehabilitating the public transport system.

iii. The transport part of the project consists of: the purchase of newequipment to renew and expand the bus and rail facilities operated by theSociete Nationale des Transports (SNT); the construction of a bus maintenancedepot; technical assistance to improve SNT's managerial and operating effi-ciency; and a supporting program of traffic engineering and control. Addi-tionally, to begin to focus growth outside of Tunis, the project will financeconsultant services for an urban development study of Sfax, the second largestcity in Tunisia, which is experiencing rapid growth.

iv. The project is estimated to cost US$28.6 million equivalent includ-ing contingencies for which a Bank loan of US$11 million and an IDA credit ofUS$7 million are recommended. The foreign exchange cost amounts to 68% oftotal project cost. Of the overall amount, US$10.8 million will be used forthe purchase of up to 210 buses, US$9.5 million for the modernization of theTGM railway and purchase of 26 electric rail cars, US$3.8 million for a busmaintenance depot, US$1.8 million for traffic engineering, and the remainderof US$2.7 million for technical assistance to SNT, the work program of theTunis District, and for the Sfax study. The UNDP will contribute US$850,000towards the cost of the Tunis District program.

v. The Borrower would be the Government of Tunisia. The major portionof the Bank loan and IDA credit would be relent to SNT for the public trans-port improvement program. The Municipality of Tunis, aided by a foreign traf-fic and transport consultant, will execute traffic engineering and controImeasures. The Tunis District with consultant assistance will execute theurban planning and programming studies.

vi. Rapid urbanization in Tunis itself demands that action be taken toformulate a long-term growth strategy. Population has more than doubled from400,000 in 1956 to 900,000 in 1972. By 1980 the population is expected toreach 1.5 million, an increase that can be adequately accommodated within themetropolitan area only if supported by multisectoral development policies.Crowding in the Medina or city center has resulted in uncontrolled outward

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expansion, with an industrial area to the south, squatter settlements on thewestern periphery, and residential areas for the higher income families inthe northern suburbs. In the absence of an adequate planning framework,urban infrastructure investments have contributed to an excessive separationof home and work places. Costly infrastructure has been constructed in cer-tain sections of the city while other areas have been inadequately serviced.The faults of these investments are currently reinforced by inadequate publictransport services and the absence of effective restraints on private auto-mobile use.

vii. To date, the net effect of disorderly development has been to in-crease home-work trips and traffic across the congested central core despitet:ie fact that private ownership of automobiles is confined to only 5% of thefamilies. Because taxis are relatively expensive, lower income groups areforced to rely on public bus and rail services. The increased demand forurban mobility is reflected in the 6-7% annual growth of public transportpatronage in recent years. However, public transport passengers are bur-dened by steadily deteriorating services characterized by frequent break-downs, delays and severe overcrowding.

viii. Nlost of the present suburban rail equipment for the northeast cor-ridor, running on a network built in 1902, is 60 years old and is expectedto last no more than five years. The bus system is also outmoded and poorlymaintained. The Bank's analysis of traffic demand indicates that if currenttrends continue without immediate corrective measures, there will begin arelative decline in public transport ridership by 1976, accompanied by anincrease in car ownership from the present 5% to perhaps 20% of the popula-tion before the end of the decade, with serious economic and social cost tothe entire community. At the same time, the lowest income groups may not beable to afford the anticipated higher public transport costs.

ix. Continued decline in the quality of public transport services isonly one part of the overall urban problem. The city stiîll has the time toplan and design its land use to accommodate efficiently the expected grawth,without heavy social costs. The prolect is designed to establish the frame-work for a rational approach to urban growth. The short-term impact of re-habilitating the public transport system will make it possible for the Gov-ernment to initiate orderly land use development and introduce disincentivesto private automobile use. The Government already imposes high purchase taxesand restrictive import quotas on automobiles and will consider other restraintmeasures such as parking bans in congested areas.

x. The economic evaluation of the project indicates satisfactory ratesof return, ranging up to 30% for replacement and expansion of the bus fleetand construction of new maintenance facilities, and 16% for modernization ofrail services. The major quantifiable economic benefits arise from the re-duced costs of SNT's bus and rail operations. The modernization of the TGMrailway under electric power is justified as the least cost method of provid-ing public transport service in the area presently serviced. The benefitsof reduced operating costs and the foregone costs due to avoidance of otherless desirable alternatives contribute to the satisfactory rate of return.

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The impact of long-range urban development planning, the major justificationof the project, cannot be quantified in economic benefits. This planningshould make it possible to determine the need for or avoidance of those in-vestments to guarantee adequate transport and mobility for the majority ofthe population.

xi. The project is economically sound and thus provides a suitablebasis for the proposed Bank loan and IDA credit.

TUNISIA

APPRAISAL OF THE TUNIS DISTRICT URBAN PLANNING AND PUBLICTRANSPORT PROJECT

I. INTRODUCTION

1.01 The Government of Tunisia has requested Bank/IDA assistance infinancing an urban project for Tunis designed to:

(i) strengthen the technical capabilities of the Tunis District,to plan, program, and supervise public investments andestablish suitable urban policies for metropolitan Tunis; and

(ii) improve public transport services by purchasing new equipment,by increasing the efficiency of public transport management,and rationalizing traffic movement.

The District provides the institutional framework for the urban policy andplanning aspects of the project. The immediate improvements in public trans-port facilities would be carried out by the Societe Nationale des Transports(SNT). The District's staff would prepare a comprehensive urban developmentstrategy, encompassing a review of current urban land use, which would assistin conducting a series of special policy and feasibility studies leading toadditional urban projecta.

1.02 In the Tunis area, the Bank Group has already financed industrialdevelopment through the Tunisian development finance company, the SocieteNationale d'Investissement (SNI), port facility expansion at La Goulette,national highway access routes to the city, water supply, and tourism infra-structure. An urban sewerage project is in preparation. In its metropolitanapproach, the project would set a new direction in Bank Group lending oper-ations contrasted with the sectoral orientation of past investments.

1.03 The proposed project is an outgrowth of previous Government invest-ments in the transport sector. The suburban rail system serving South Tunisis part of the national railway network run by Societe Nationale des Cheminsde Fer Tunisien (SNCFT) which modernized its rolling stock under a Rankloan and IDA credit in 1969. This project financed a study, undertaken bythe French consulting firm SOFRERAIL, to lay the groundwork for the SNCFTmodernization progra'm and to modernize the Tunis-La Goulette - La Marsa (TGM)suburban railway operated by SNT. The present Government request for Bank/IDAassistance to rehabilitate the TGM line and SNT bus fleet is based on theSOFRERAIL study and a 1972 report on SNT's bus needs prepared by BCEOM.

1.04 The proposed project is estimated to cost about D 12.5 million(US$28.6 million equivalent) for which Bank financing of US$11 million andIDA financing of US$7 million are recommended.

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1.05 The project was first discussed vith the Tunisian authorities inearly 1972. Preparation and preappraisal missions were undertaken in July,October and December 1972, and the project was appraised in January 1973.This report is based on the findings of the appraisal mission composed ofMr. N. Carrere (Urban Projects), Ms. I. Bradfield (Consultant), and Messrs.R. Postgate, P. Ongley, G. Hafter (all Consultants, London Transport Execu-tive), A. Hatz (Transmark-British Rail), and Mr. Thraya (SOTUETEC). Mr. R.Venkateswaran (Division Chief, Urban Projects) and Mr. A.E. Elmendorf, (EMENA,Programs II) participated in the mission and contributed sections of the re-port. Mr. M. Boutros-Ghali of the UNDP undertook a parallel mission to pre-pare the draft UNDP project document for assistance to the Tunis district.Ms. C. Tager (Urban Projects) also contributed to the final preparation ofthe report. A subsequent mission in June 1973, comprising Messrs. Venkateswaran,Elmendorf and Rowe (Consultant) reviewed the proposed procurement arrangements.

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II. BACKGROUND

A. The Economy

2.01 Tunisia's economy grew at a relatively moderate rate of 5% a yearduring the past decade. In preparing its Fourth Plan for 1973-76, the Gov-errment reexamined past development policies. The Plan reaffirms the recentlyadopted economic policy of liberalization and aims at reducing the high levelof rural and urban unemployment through emphasis on job creation in agricul-ture, export-oriented industry and tourism. To this end, the Government isbeginning to relax administrative controls and strengthen support to produc-tive activities in the private sector. Despite the emphasis on rural devel-opment, however, Tunisia's options are limited by the physical constraintsof land abutting the Sahara. About 43Z of the total population and 70% ofthe urban population live vithin 10 km of the coast, where natural conditionsfavor continued growth.

2.02 In 1972, GDP at constant factor co0t rose by about 18%, comparedwith a 9% average in 1971. This accelerated growth was due, to a large ex-tent, to increased agricultural production aided by favorable weather condi-tions, higher tourism receipts, workers' remittances and oil revenues. Aidedby the adoption of simplified import procedures for raw materials and spareparts, growth also induced a high level of public and private investment, asreflected in increased construction activities and concentrated industrialexpansion.

B. Tunis Metropolitan Area

2.03 Tunis, the capital of Tunisia, is the country's largest and mostimportant urban area -- the focus of Government and economic activity anda major tourist center (Hap 10419). With a population of 400,000 in 1956,the year of independence, Tunis has grown rather rapidly increasing to900,000 in 1972.

2.04 The metropolitan Tunis population (see Annex 1) comprises 14% ofthe national total of 5.4 million and accounts for 35Z of the total urbanpopulation in municipal areas of 50,000 or more. Growing at 5% annually,Tunis has been projected to reach 1.5 million by 1980. The Municipality ofT,unis, with some 558,000 inhabitants, is the largest of the 13 communes 1/in the metropolitan area.

1/ Ariana, Ben Arous, Carthage, Ez-Zahra, Hamman-Lif, La Goulette, LaMarsa, Le Bardo, Megrine, Manouba, Rades, Sidi Bou Said, and Tunis.

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2.05 In 1971, per capita income in Tunis was estimated at US$450 equiv-aient, almost double the national average of US$255, and four times the levelprevailing in rural areas. Metropolitan Tunis accounts for more than halfthe nation's total commerce and trade, construction, administration, andother white collar jobs. Moreover, Tunis contains Tunisia's major bankingactivities as well as its only university. These factors, combined with theexpectation of higher incomes each year, draw a large number of immigrantsaspiring to better employment opportunities and living conditions. The in-migration annually adds half of the overall growth in population or roughly35,000 a year. This growth has already contributed .o housing and watershortages, inadequate public transport services and rising unemployment. In1971 the number of unemployed persons was officially listed as 13.8% of thelabor force. The small size of the labor force 1/ vould appear to indicatea much higher figure.

2.06 The full thrust of urbanization has not yet overtaken Tunis. Only13% of the gross area of the Tunis District is truly urbanized. The gridstreet pattern of the modern city cons.tructed in the nineteenth and twentiethcenturies to the east of the older sections is adequate and now only has toaccommodate the more than 45,000 vehicles currently in use. However, whileautomobile ownership is still small, it is expected to grow rapidly unless afaster and more efficient public transport alternative is soon made available.

C. The Center City and the Medina

2.07 The central core of Tunis consists of a restricted land area be-tween two bodies of water, the Lake of Tunis to the east and Sebkha deSedjoumi to the west (Map 10420). At the center is the Medina, the ancientwalled city of historical Tunis. The Medina has an extremely high densityof 50,000 per km2 (comparable to the central city densities of Bombay andCalcutta), with compact and overcrowded residences bordering a maze of wind-ing streets and alleyways permitting pedestrian traffic only. The souks(shops) in the Medina, while serving as a main tourist attraction, also sup-ply 50% of all goods consumed in Tunis and its suburbs. Most government of-fices are located in or near this area, as are the principal commercial andfinancial activities. In all, it is estimated that 70% of all jobs are lo-cated in the city center, in and around the Medina.

D. Urban Growth Pattern

2.08 Overcrowding in the city center and the lack of available landnearby have precipitated a sprawling expansion, stratifying income groupsand dispersing employnent opportunities.

1/ In 1971 the active labor force numbered 237,100 or 26.6% of total pop-ulation. The low labor force participation rate is primarily explainedby the nearly 51% of the population aged 20 and below.

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2.09 The poorer inhabitants, accounting for one-third of the total met-ropolitan population, reside mainly in squatter settlements in the southcoastal and western sections of Tunis. Low-income residents are also clus-tered near the port of La Goulette in the coastal zone to the east and north-east of the center, while middle- and high-income dwellers reside in areasto the north and northeast of the central business district. To the eastand northeast, development has been mixed, from the port area of La Goulette,past the archeological sites of Carthage and Anibal, and proceeding north tonewly emerging tourist development areas. About 50% of all new industrialestablishments in the Tunis area are located south of the central core, be-cause of better transport connections with the rest of the country. South-ward, especially along the GP-1, the major national highway to and from Tunis,is the industrial area, composed chiefly of chemical, textile, timber andsmall industries and major warehousing facilities.

2.10 The beginnings of urban sprawl have already caused substantial in-creases in the number and length of work trips and have generated greaterthrough traffic across the congested central part of the city. Inadequatepublic transport services have added to the difficulty by forcing travellersfrom the suburbs to change buses one or more times if they must cross thecenter city.

E. The Metropolitan Tunis District

2.11 The tendency towards dispersal of residential development and em-ployment zones created by the city's location has been strengthened by theinadequacy of the planning and institutional framework for dealing with thearea's problems. Ministries and decision-making are highly centralized ona sectoral basis, and inter-ministerial coordination on investments affectingthe growth and development of metropolitan Tunis is weak. lndividual minis-tries and agencies tend to follow the narrowly conceived demands of theirparticular responsibilities, and not to take the implications of their pro-grams for the activities of other public bodies adequately into account.

2.12 The Government has recently begun to view the absence of effectiveplanning and the pattern of Tunis' development with concern. In 1972, ittook an essential initial step by setting up the Tunis District, designed tocreate an institutional structure within which the areats development could beseen and guided as a whole. The principal task of the District is to plan,coordinate and supervise public investments at the metropolitan level. The stafffalls under the authority of the Governor-Mayor of Tunis; a Board of localrepresentatives chaired by the Governor-Mayor and a ministerial level Coun-cil chaired by the Prime Minister exercise supervisory and decision-makingresponsibility.

2.13 Establishment of the District constitutes a major step towardsdecentralization and sets a precedent for the eventual regionalization ofpublic administration in Tunisia. Such fundamental change cannot easily beput into effect and practical measures are only now being taken to establish

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a staff and make the District operational. When it reaches its full effec-tiveness, the District is to have a major role in planning the public invest-ment program for the Tunis area, in preparing the state capital budget forTunis and in supervising the execution of projects. Agreement was reachedduring negotiations on a draft decree concerning the District's organization,staffing, financial authority and relations with other agencies; issuance ofthe decree is a condition of effectiveness. Agreement was also reached on theestablishment of a technical coordinating committee for the District bringingtogether decision-making level representatives of the interested ministriesand public corporations.

2.14 The District will have three directorates, responsible respectivelyfor planning and studies, programming and the public investment budget, andsupervision. In close cooperation with the ministries and other publicagencies concerned, the Planning and Studies Directorate will prepare medium-and long-term development plans for the District. It will examine fiscal andfinancial problems, as well as other public policy issues, concerning thedevelopment of the Tunis area. Before any commitment to an investment projectin the area is made by a ministry, a commune, or, when a state grant is re-quired for its realization, by a public corporation, the Planning and StudiesDirectorate will review the project. The Directorate will also initiate andprepare specific investment projects through its own staff or with the assist-ance of consultants.

2.15 The Directorate for Programming and the Budget will participate,in close cooperation with the Planning Ministry, in the preparation of thestate investment budget insofar as the Tunis area is concerned. The Super-vision Directorate will ensure the conformity of projects being executed withagreed plans, and will arrange cooperation with three public land corporationsrecently established to ensure the timely availability of land for housing,industry and tourism.

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III. THE TRANSPORT SYSTEM

3.01 The transport system serving metropolitan Tunis is in many wayscomplicated by the walled Medina and by the constricted location of the citycenter between two lakes. The major roads and railways serving the area areshown in Map 10421, which reveals the following distinctive features:

(a) the radial access pattern to the city center;

(b) the absence of north-south and east-west links which.would avoid the need to traverse the center of town;

(c) the lack of direct access from the southern industrialareas to the main port area at La Goulette, with theundesirable result that the main road to the south fromthe port, enters the city at its most congested inter-section, the Place d'Afrique, before being connected tothe southern access road;

(d) a constrained circulation pattern around the Medina andthe discontinuities in the road system within the centralbusiness district due to the Medina's location; and,

(e) the inadequacy of the relatively narrow street system-in the center to handle increasing traffic flows withoutstricter enforcement and perhaps modification of trafficregulations.

A. Vehicles, Roads and Traffic

3.02 In 1970, vehicle registrations in the Tunis metropolitan areaamounted to some 45,000, nearly 50% of the national total: 31,450 privateand commercial automobiles, 7,350 trucks and lorries and 650 buses and motor-coaches. In addition, some 20,000 vehicles registered elsewhere in Tunisiaare normally in use in the Tunis area. At present, private vehicle use islow relative to other cities of comparable size and wealth, but is increasingannually at 5% a year, in spite of high customs duties and high prices fornew and second hand purchase. Private vehicle ownership has been estimatedat an average of one automobile for every 27 persons in Tunis although inwealthier sections of the city the rate is as high as one in two families.

3.03 Traffic growth has averaged 4-5% a year in recent years on mostmajor roads and has been as high as 9% a year on some sections. Traffic'volumes on the main approaches to the city reach some 20,000 vehicles perday (vpd) at the most congested entry point, the main access to the south,and vary on a typical day between 2,000 vpd to 10,000 vpd. The proportionof private automobiles varies from as high as 80% to as low as 20% on the

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1heavily industrialized sections of the access routes. Several routes carrya high proportion of two-wheeled vehicles (bicycles, motorbikes, motor-scooters and motorcycles), comprising up to 40% of total traffic.

3.04 Physical constraints, such as narrow lane widths in the city centerslow down traffic flows during the peak hour at several key intersections andon many streets; together with the lack of systematic intersection controland anarchic driving and parking practices, they contribute to mounting innercity congestion. Average speeds in peak hour traffic range from 12-15 km/h,while the average speed of public transport vehicles is about 10 km/h. With-out improved traffic organization the projected increases of about 40% in bustraffic over the next few years would further reduce commercial speeds.

3.05 The Municipality of Tunis is responsible for traffic engineeringmeasures to facilitate circulation. A 1970 traffic engineering study resultedin a plan for the regulation and improvement of Tunis' traffic flows. TheMunicipality has implemented some of the recommended measures in selected areas,eliminating congestion at some points in the network only to transfer it toothers. The lack of a systematic data base on traffic movements and travelcharacteristics hampers development of a broader approach to the problem.

B. Public Transport

3.06 Public transport in Tunis is provided by:

(a) the bus system run by Societe Nationale des Transports (SNT);

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(i) The Urban Bus System

3.07 The SNT urban bus system (see Annex 3) consists of some 55 urbanand suburban routes totaling nearly 750 km (Map 10422). The fleet comprises355 vehicles, of which 104 vehicles are more than 12 years old. Average dailyfleet availability is about 58Z, a rate far below the 85% utilization factorachieved by efficient public transport undertakings. During peak hours, busesare usually filled to some 10-15% over rated capacity. Prior to 1972, noregular preventive maintenance vas provided by SNT, and parts were replacedouly when they became defective. Due to the difficulty in obtaining spare parts,10Z of the fleet is now no longer in use, and a high proportion of vehiclesbreak down during daily operation. 1/ The sole maintenance depot at Bab Saddouncannot adequately handle mechanical defects or accident repairs nor fully accom-modate the vehicle fleet resulting in serious congestion and late departures.A second depot nearing completion at Cherguia should temporarily ease thesituation, but a third to be constructed under the project is needed to meetfuture demand.

3.08 The number of bus (and trolley bus) passengers has increased stead-ily fron 50 million in 1963 to 130 million in 1972. The discontinuance oftrolley bus operations in 1969 caused a relative drop in total SNT traffic.Without improvements to SNT operations and complementary measures to improvebus circulation to be provided under the project, bus ridership in Tunis isexpected to decline in absolute numbers by 1979 (see Annex 4 for a detailedAnAlysis of traffic demand).

5ii) The TGM Suburban Railway

3.09 The TGM line operated by SNT serves the northeast corridor (Map10423) of the metropolitan area. Starting from Place d'Afrique in the cen-ter, the double track railway crosses the Lake of Tunis on a causeway and con-tinues up to La Marsa, some 19 km from the central business district. Thenortheast corridor, with a 1971 population of 82,000, contains high concen-trations of both louer and higher income groups, the former clustered at thePort of La Goulette, the latter residing in areas further northeast.

3.10 The line vas bulît in 1902 and uses rolling stock (some dating backas far as 1907) which has largely exceeded its useful life. Between 1963and 1971, total passengers transported climbed from 11 million to 16 million.During peak hours (between 7 and 8 a.m.) the number of trains is six to sevenper hour, sometimes even ten, and on the La Goulette-Tunis section, the numberof passengers averages about 3,470 per hour, with an average of 3,000 per hourfor the whole line (see Annex 3). Despite its high level of ridership and highload per car (68-75) the overaged equipment is all but impossible to maintain.It iL estimated that, in the absence of a major modernization program, servicecould not be maintained more than five years.

1/ In 1972 there were daily breakdowns of 40 vehicles in every 100 averagevehicles. Of these 23 had to be towed back to the garage and the restcould be repaired on the spot.

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(iii) The Southern Suburban Diesel Railway

3.11 Operated by SNCFT, the southern suburban diesel railway is part ofthe national railways system which benefited by a modernization of rollingstock under a Bank loan and IDA credit in 1969. Total passengers transportedgrew from some 10 million in 1966 to about 13 million in 1971. The suburbansection is approximately 17 km long and serves part of the southern industrialarea.

(iv) Taxis

3.12 In 1972, there were over 1,100 licensed small taxis, ten large taxisfor public hire and a handful of unlicensed tourist taxis plying the citystreets. The umall taxi fleet grew by nearly 40Z since 1967, but has leveledoff since the end of 1970. The number of taxis operating in 1973 is likelyto be saaller than in 1972, due chiefly to a steady erosion of the profitmargin of the owners, the result of rising costs of gasoline, spare partsand maintenance, and an unchanged tariff level fixed by decree in 1967. Forshort distance travel, however, taxis offer a competitive service in thecentral area due mainly to their greater mobility. The transport policy studyto be carried out by the District is expected to lead to policy measures toimprove taxi service and to provide alternatives for potential private autousersa

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IV. TRANSPORT POLICY AND URBAN PLANNING ISSUES

A. Towards a Transport Policy for Tunis

4.01 The availability of reliable snd efficient transport has an impor-tant impact on the direction of Tunis' future growth. Given the spatial con-straints of the central city, an unrestricted increase in private automobileswill make circulation all the more difficult. The Government has decided toaccord priority to public transport. Nevertheless, improved public transportfacilities are clearly ouly one step. The project therefore emphasizes theneed for metropolitan-vide planning.

4.02 A comprehensive transport policy must be designed for Tunis. Anincrease in the supply of buses and complementary measures to improve the

traffic flow are part of the overall urban development effort, as is alsothe establishment of a policy to prevent an increasing diversion to privateautomobiles by those who are marginally able to afford a car but continue touse public transport. Increasing private automobile use is not only un-economic but also leads to demands for the costly infrastructure necessaryto support an auto-dependent urban society. Moreover, the high cost of re-liance on the auto is self-reinforcing; the mobility provided by the autoencourages the dispersed urban sprawl that requires still further investnentin costly infrastructure.

4.03 The Government already imposes high import duties on private auto-mobiles, amounting to soue 55%-65Z of the CIE price. Under a Governnent quotasystem, the number of locally manufactured and imported vehicles has remainedat about 2,500 a year between 1965-1970. The tax component on the localvehicles is also nearly as high as on imported vehicles and the high tariffsand quotas have the effect of limiting private automobile ownership. Theimport duties are also not designed to protect the local enterprise, SocieteTunisienne d'Industrie Automobile (STIA), which has ouly a 30-40% share ofthe market for new vehicles in Tunisia (see Annex 12).

4.04 Improvements in public transport can only be effective with comple-mentary efforts to improve traffic flows (see para. 5.06) and regulate pri-vate automobile use in the city center. Under the project, a consultant tothe Municipality of Tunis vould make recommendations concerning the enforce-ment and, as necessary, modification of traffic regulations, (including thepossibility of organizing a municipal towing service to remove illegallyparked vehicles), the level of fines for illegal parking, and controls overthe utilization of existing parking areas. It should also be noted that theGovernment is currently studying the level of private automobile insurancepremia in relation to the real costs of insurance services. It is expectedthat this study will lead to a revision of insurance rates in about one year. 1/

1/ Recent studies of the insurance industry indicate that all companies,public and privately owned, lose money on their automobile insuranceoperations and subsidize the losses internally through profits on otheroperations. The Governument fixes insurance rates and insurance is com-pulsory for all automobile owners.

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For the longer term, issues relating to restraints on private automobileownership and use vill be taken up in the District's transport policy study.During negotiations, the Government confirmed that it vould consult and agreewith the Bank/IDA on follow-up action to be taken on the recommendations re-sulting from the studies. The record of action in this field will be animportant element in the consideration of a possible second Bank Group projectfor the development of metropolitan Tunis.

B. The Urban Focus of the Pro]ect

4.05 The formulation of an urban transport policy cannot be undertakenin a vacuum. In the past, transport investment decisions in Tunis have beentaken in response to the haphazard expansion of a city whose land optionsare limited by its constricted location and historical evolution. With theresidential settlements now expanding to the east and west of the city center,the traditional focus on the north-south transport axis must be reexamined.Decisions regarding transport as well as other priority urban projects dependon the location of urban structures and activities, their densities, theirphysical arrangement, and the interrelations among housing, places of work,shopping, recreation, and other services.

4.06 The project places special emphasis on the effective establishmentof the Tunis District, as the institutional framework for systematically iden-tifying urgent needs, and guiding future growth by promoting the execution ofprojects that vill influence such growth patterns. Rational physical patternsdeveloped in this way will make a major contribution to reducing transportrequirements, thus releasing scarce resources for other priority needs.

C. Urban Planning and Investments

4.07 Past Bank Group lending operations in the Tunis area did not havethe benefit of well-defined guidelines for urban development, thereby pre-venting activities such as improvement of inter-city highways to the outskirtsof Tunis and development of industry through SNI, from achieving their maximumimpact. The assistance to be given in developing appropriate urban policiesand investment programa is, accordingly, of direct relevance to the effective-ness of these projects, as well as of future projects in the Tunis area.

4.08 A Bank-financed project for improving the capacity and characteris-tics of the GP-1 highway to Tunis is in execution and feasibility studies onits southern approach and western and northern access routes are underway.The feasibility study of the northern access route will examine its impacton a north-south link (called Z4) to traverse the city center, as proposed bythe Directorate of Roads in the Ministry of Public Works and Housing. Thefeasibility study will be confined to the effects of the road on the city'straffic distribution system, to the exclusion of assessing its impact on landuse and other development.

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4.09 The proposed north-south link would have a direct negative effecton the rational development of the city, further emphasizing its north-southorientation at the expense of east-west movement. In the absence of detailedstudy, construction of the full Z4 would appear to be inconsistent with theGovernment policy of improving public transport services. During negotiations,the Government agreed that, until the Bank has been consulted on the conclusionsof the Tunis District's transport policy study, funds will not be committed tonew arterial highway investments in the District, including all but a portionof the proposed Z4 and extension of the Tunis-La Goulette highway which par-allels the T"? railwav line to the TGM terminus at La Marsa.

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V. THE PROJECT

5.01 The project con'sists of:

(a) consu:.tant services to the Tunis District, to aid it incarrying out its planning, prograrming and supervisionfunctions and in training its personnel;

(b) purchase of up to 210 buses, including an initial stockof spare parts, to renew SNT's urban bus fleet and helpmeet its needs for new vehicles;

(c) purchase of 26 electric railway cars, signaling equipmentand other materials required to renew the TGM railway lineof SNT;

(d) construction of a new bus maintenance depot for SNT;

(e) improvement of key traffic intersections and purchase andinstallation of related signaling equipment for theMunicipality of Tunis; and

(f) consultant services for technical assistance to the Goveru-ment, SNT and the Municipality of Tunis.

A. Main Features

1) The Planning Effort - Tunis District

5.02 The project provides consultant services for technical assistanceto the Tunis District to prepare a long-range comprehensive urban developmentstrategy, which should aid in identifying and coordinating both short-termand long-term inter-sectoral investment decisions. The District will alsoundertake special policy studies on transport, housing and public finance.During negotiations it was confirmed that the Government will review withthe Bank/IDA and agree on follow-up action in the light of study recommenda-tions. Feasibility studies for housing and industrial zones will be part ofsuch follow-up action and consultant assistance to this end is also providedfor in the project. The content and timing of the program of urban studieste be carried out are detailed in Annex 2.

5.03 A major effort will be necessary by the Government to build upthe District staff to the required size and competence. To this end, theproject will provide, under joint Bank/IDA and UNDP financing, for a teamof consultants to assist the District in executing its work program andtraining its staff. Additional consultants would be made available forspecial, short-term assignments. The Bank would act as Executing Agencyfor the UNDP project. Agreement was reached during negotiations on the

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text of the UNDP Project Document; employment of the consultants is a condi-tion of loan and credit effectiveness.

2) Public Transport Improvement - SNT

(a) Bus Operations

5.04 The project provides assistance to renew and expand SNT's bus fleetto meet vehicle requirements for the 1973-75 period. The purchase of 210 newbuses would enable SNT to replace equipment which has passed its economic lifeand to increase its capacity to accommodate future passenger demand. To im-prove bus maintenance, the project includes the construction and equipmentof a new maintenance depot at Bir Kiassa which will ensure the proper overhauland maximum use of available vehicles and permit more efficient bus schedul-ing. Provision for an initial stock of spare parts needed in routine main-tenance is also included. It is expected that fleet renewal and expansionshould permit SNT to increase bus utilization from 58% in 1973 to 85% in1976. (See Annex 5 for an analysis of bus fleet requirements.)

(b) TGM Rail Services

5.05 The project provides for the purchase of 26 new rail cars (13 motor/trailer sets) to replace the overaged fleet, track renovation to permit higheroverall performance, installation of modern signaling equipment and improve-ment of maintenance. Maintenance and renewal of the line through provision ofelectrically powared rolling stock would be the most economic solution. (SeeAnnex 6 for an analysis of the modernization program.)

(c) *anagerial and Technical Assistance

5.06 To ensure that SNT reaches a satisfactory level of operation andadopts sound management practices, the project provides for four consultantsto assist SNT over a two-year period in the management of bus and TGM opera-tions and maintenance and to assist in use of modern managerial control andcost accounting procedures. Short-term technical assistance will also beprovided to review the technical specifications of the equipment to be ac-quired, to assist in preparing tender documents, and to assist in evaluatingtenders. The employment of consultants by SNT on terms and conditions satis-factory to the Bank/IDA was confirmed during negotiations; hiring by SNT ofall consultants except the railway expert (whose services are not requireduntil the new equipment begins to arrive in mid-1974) is a condition ofeffectiveness.

3) Complementary Traffic Engineering Improvements

5.07 To improve traffic flows and facilitate circulation of buses in thecongested areas of the city, the project would help finance the Municipality'spriority program (see Annex 7 for details) of intersection improvements, in-stallation of traffic lights, and construction of pedestrian crossings andunderpasses (Map 10424). In particular, the project includes:

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(i) the redesign and reconstruction of six major inter-sections to control traffic flows more efficiently;

(ii) installation of traffic signals at fifteen intersections;

(iii) synchronization of signals at the six redesigned intersec-tions; and

(iv) construction of pedestrian underpasses at five major squares,including two of the above six intersections.

The project also provides consultant services for assistance to the Munic-ipality of Tunis, to establish methods for systematic observation and analy-sis of traffic patterns, and to aid in introducing priority schemes for pub-lic transport. This work would be carried out within the broader frameworkof the transport policy study to be undertaken by the District (paras. 4.04and 5.02) and would lead to the formulation of a short and medium-term actionprogram based on the consultant's report. FolLow-up action on the consultant'srecommendations would be agreed with the Bank/IDA within one year of effective-ness of the loan and credit. The consultant's report would alo serve as abasis for the establishment of traffic improvement targets to be agreed withthe Bank/IDA and monitored and supervised by the Tunis District. Emplaymentof the consultant on terms and conditions satisfactory to the Bank/IDA wasconfirmed during negotiations and is a condition of effectiveness.

4) Urban Study of Sfax

5.08 The project includes financing for an urban study of Sfax, Tunisia'ssecond largest city, located 280 km south of Tunis. While Sfax's growth hasbeen rapid, it has been haphazard and uncontrolled. The main objective of thestudy would be to evaluate the development options recently proposed in a Gov-ernment report (see Annex 9) and lay the groundwork for urban projects suitablefor future consideration by the Bank/IDA and other sources of external finance,with a view towards developing Sfax as the main industrial growth center inthe south. The study would be undertaken under the direction of the Ministryof National Economy - Regional Development Directorate wJth the aid of con-sultants. It was confirmed during negotiations that consultants will behired on terms and conditions acceptable to the Bank/IDA.

B. Cost Estimates

5.09 Project cost estimates are summarized in the table below and derailedin Annex 9. The estimated cost of the project, including contingencies, isabout D 12.5 million (US$28.6 million equivalent). The foreign exchange com-ponent is estimated at nearly D 8.5 million (US$19.5 million equivalent),or 68% of the total.

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Summary Cost Estimates

(Tt '000) (US$ '000)Local Foreign Total Local Foreign Total Z Foreign

1) Tunis DistrictStudy Program 137 533 670 316 1,225 1,541 79

Contingencies /1 14 53 67 32 122 154 79

Subtotal /2 151 586 737 348 1,347 1,695 79

2) Public Transport (SNT)

Bus Procurement 2,142 2,226 4,368 4,868 5,059 9,927 51

TGM Modernization 141 3,458 3,599 324 7,950 8,274 96

Bus Maintenance Depot 584 811 1,395 1,343 1,864 3,207 58Technical Assistance 95 191 236 218 439 657 67

Contingencies /3 381 839 1,220 858 1,920 2,778 69

Subtotal 3,343 7,525 10,868 7,611 17,232 24,843 69

3) Traffic Engineering Improvements

Improvements Program 365 256 621 839 589 1,428 41

Technical Assistance 30 45 75 69 104 173 60

Contingencies /1 40 30 70 92 69 161 43

Subtotal 435 331 766 1,000 762 1,762 43

4) Sfax Urban Study

Study Program 51 75 126 118 172 290 59

Contingencies /1 5 8 13 12 17 19 59

Subtotal 56 83 139 130 189 319 59

TOTAL 3,98S 8.525 12,510 9,089 19,530 28,619 68

/1 Physical and price contingencies of 10%./2 Includes UNDP financing of US$850,000./3 Physical contingency 5%, price escalation 5% a year over procurement period.

5.10 Cost estimates for the bus procurement and TOM modernization elements

of the project are based on consultant studies, SNT's (and SNCFT's) past ex-

perience and on consultation during appraisal. The estimates take into accountthe recent cost experience of large public transport undertakings in Europe inthe purchase of similar equipment.

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C. Project Financing Plan

5.11 The proposed Bank loan of US$11 million and IDA credit of US$7 mil-lion would cover 92% of the foreign currency costs of US$19.53 million, whichrepresent 68% of total project costs of US$28.6 million. The UNDP contribu-tion of US$850,000 would cover about 4% of the foreign currency cost, andTunisian financial institutions will cover the remainder (i.e. US$680,000equivalent fcr materials imported by STIA in the marufacture of bus bodies).The Tunisian institutions will also cover some US$5.5 million equivalent ofthe local currency costs of the project. A su=rary of the financing requiredis as follows:

D uillions US$ millions z

Sources of Funds

Proposed IBRD Loan and IDA Credit 7.852 18.000 63UNDP Contribution (for Tunis District) 0.374 0.350 3Government (for District, TrafficImprovements, Sfax Study) 0.642 1.478 5

Government (for Public Transport-SNT) 0.937 2.154 8Tunisian Banks (for Public Transport-SNT) 2.705 6.137 21

Proposed Project Expenditures 12.510 28.619 100

5.12 The financing plan does not show an estimated D 7.1 million induties and taxes on imported rolling stock and other equipment for whichSNT would normally be liable. The Government indicated during negotiationsthat SNT would be exempt from these taxes and duties in view of the natureof the capital investments involved.

5.13 The Borrower would be the Government of Tunisia. The portion ofthe IBRD loan and IDA credit (i.e. US$16.552 million equivalent) representing96% of foreign currency expenditures for SNT public transport improvementswould be relent by the Government to SNT on terms and conditions applicableto the Bank loan to the Government. The term of the loan has been determinedequal to the weighted average economic life of the major project components;a term of 22 years including four years of grace, at the prevailing interestrate on Bank loans, 7.25%, would be appropriate. During negotiations, agree-ment was reached that Bank and IDA funds will be relent on the terms and con-ditions of the proposed Bank loan to the Governnent. Signature of a subsid-iary loan agreement between the Governnent and SNT is a condition of effec-tiveness. The local financing would probably be made available to SNT througha consortium of Tunisian Banks headed by SNI, and would assist in the purchaseof buses manufactured by STIA on chassis to be imported under the project (seepara 5.17). The terms of this local financing are expected to be ten yearsat 3% interest. The finally agreed terms are subject to Bank/IDA approval.

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D. Project Éxecution - The Institutional Arrangements

5.14 The metropolitan Tunis District will be responsible for overall

supervision of project execution, and'will effect coordination among the

different entities involved. To ensure the District's effective operation,

the following measures have been taken:

(a) The District's organization, staffing pattern, financialauthority and relations with other agencies, vere discussedand agreed during negotiations, on the basis of a draft de-cree; issuance of the decree is a condition of effectiveness.

(b) The future Director-General of the District participated inthe negotiations on the project. The assignment of Tunisianstaff to the District vill begin during the second half of1973. The hiring of suitably qualified counterpart staff forthe consultants to be provided under the project (para. 5.02)is a condition of effectiveness.

(c) The establishment of a Technical Coordinating Committee bringingtogether senior officials of the interested ministries and publicagencies is a condition of effectiveness.

5.15 SNT will begin executing the public transport improvements duringthe fourth quarter of 1973. Procurement of buses, TGM rail cars and othernecessary equipment will take place over a three-year period. A detailedproject implementation schedule is shown in Chart 7662(R).

5.16 The Tunis Municipality will be responsible for executing the traffic

engineering and control measures. Construction of intersections and pedestrianunderpasses and installation of signaling equipment vill be contracted out.

E. Procurement

5.17 During negotiations, the Government requested that the Bank Groupfinance imported chassis and mechanical sub-assemblies for buses; the compo-nents would be assembled by the Tunisian automobile and bus manufacturingenterprise, Societe Tunisienne d'Industrie Automobile (STIA). To ensure that

the cost to the project of the STIA assembled buses is not unreasonable, itwas agreed during negotiations that buses would be procured through STIA onlyif STIA's firm offer does not exceed by more than 15% an international refer-ence price (CIF Tunis) for comparable buses to be established by SNT with theassistance of a consultant and agreed by the Bank. If STIA's price exceedsthis limit, SNT will acquire complete buses through international competitivebidding.

5.18 Local procurement of buses should help to build up STIA's capacityto manufacture bus bodies and thus provide the impulse for a new industrial

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activitv in an area where, because of low priced labor, Tunisia has a com-parative advantage. STIA already has experience in assembling buses fromimported components, and it has recently launched an expansion program, whichwould' become operational with the project buses, under which it will manufac-ture bodies largeiy from locally produced. naterials and compiete the bDseswith imported chassis and mechanical sub-assemblies. STIA wilI receive tec-h-nical assistance rrom. van Hool, a well-known European body manufacturer, withw..h4ch it has recently signed a licensing agreement. The expansion programwill create some 300 new lobs ir. STIA, în addition to an unspecii-ed rtutberof Dositions in domestic supplying industries. SLIA's participation in theproject would be consistent with the recommendations of recent Bank economicreports, which proposed that Tunisia concentrate on labor-intensive pro4uctionsuch as assembly operations.

5.19 STIA has invited bids for the supply of bus chassis and mechanicalsub-assemblies on the basis of international competitive bidding. The Bankhas reviewed the bidding procedures followed by STIA on the offers, and issatisfied that the procedures conform with the Bank'e Procurement Guidealines.STIA is expected soon to subtlit its evaluation report wd recommenéations tothe Banxk for approval before commencing contract negotiations for the awardof contracts.

5.20 The Bank has reviewed and found satiseactory STIA's financial andorganizational capability to manufacture and deliver on schedule the busesrequired by SNT under the project (see Annex 12). On the basis of Bank es-timates, it appears unlikely that the price of a STIA-manufactured bus wiliexceed the international reference price (C1F Tunis) for comparable busesby more than 15%. SNT will employ a consultant financed under the proposedloan and credit to aid irn evaluating STIA's bid price against thea prevailinginternational market prices prior to award of the contract to STIA. Tàe eval-uation will be sent ta .he Bank for review and approvai of the internatîonalreference price and the award. Arrangements satisfactory to thr Bank to com-plete the f inancing of the buses to be acquired by SNT uou_d be a conditionof Bank approval of SNT's contract with STIA.

5.21 With the exception of the traffic improvement program of theMunicirality of Tunis all project-financed items, including particulsrly theTn,}f rail equipment and the construction and equipment of the bus maintenancedepot, would be procured through international competitive bidding. Apreference of 15% or the applicable customs duties, whichever fs lower, wouldbe applied to hids from local equipment manufacthrers; preferential tariffswill not be taken into account in bîd evaluation. Standardization of theMunicipality's traffic signaling equipment calls for new purchases to bemade from existing suprliers through normal commercial channels; the Munici-pality's constructîon works under the project will be carried out in smallunits and procureinent of construction services will be undertaken In accordancewith Tunisian Government procurement regulations.

5.22 Under present SNT regulations, contracta over D 50,000 requireprior approvai by SNT's Board and by the Government - a process which istime-consuming. To avoid delays in the award and execution of contracts,

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agreement was reached during negotiations that the General Mianager of SNTwill be authorized to commit up to D 100,000 (US$230,000) without priorapproval of the SNT Board or Government.

F. Disbursement

5.23 To prevent delays in procurement, the Bank has agreed to reimbursepayments by SNT for project-related consultant services from June 1, 1973.The amount of retroactive financing will not exceed US$50,000.

5.24 Foreign goods are expected to be imported largely in 1974 and 1975,and the loan and credit to be fully disbursed by the end of 1976. (See Annex13 for the disbursement schedule). Diabursements from the loan and creditaccounts would be made against:

(i) the CIF cost of all imported goods, spare parts and equipment;

(ii) 45% (representing the estimated CIF costs of bus chassis andhomogenous mechanical sub-assemblies) of total expenditureson the purchase of any locally procured buses;

(iii) 50Z (representing the estimated foreign component) of totalexpenditures on construction of the bus maintenance depot;

(iv) 35Z (representing the estimated foreign component) of totalexpenditures on other civil works;

tv) 100% of foreign costs of consultant services, except in thecase of the Tunis District, for which the loan and creditwould finance only 35% of the total expenditures on consul-tant services, the UNDP providing the remainder of the for-eign exchange cost.

5.25 The IDA credit would be disbursed before the Bank loan.

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VI. THE SNT PUBLIC TRANSPORT COMPONENT

A. Orgaiiization, Financial Aspects, Economic Analysis

1) The Executing Institution - SNT

6.01 SNT is a public corporation created by statute in March 1963 tosucceed the Tunis Transport and Electricity Company and other nationalizedtransport undertakings. There are no compensation disputes outstanding.In addition to urban bus and rail services, SNT was authorized to provideinter-urban bus service and operate a small fleet of tour coaches, hirecars and taxis. The SNT Statute provides for control of the undertaking bya Board of eight members appointed by the Government. Four Board members(including the Chairman) are Government officials, two represent the staff,and two are selected from the public and private sectors for outstandingtechnical or financial competence. All executive responsibilities arevested in the General Manager (President Director-General), who is chosenby the Government and serves as Board Chairman. The powers of the Boardare limited by the overriding authority of the Government, whose prior ap-proval is required for: (i) any decision, which under corporation law re-quires approval of the gcneral assembly of shareholders; (ii) operating andcapital budgets; (iii) staff rules and regulations; (iv) tariffs; (v) saleof assets; and (vi) borrowing. The freedom of SNT in day-to-day operationsis not affected by these requirements.

6.02 A management reorganization of SNT was undertaken in early 1972.The new General Manager has introduced important changes in administration,maintenance and operations to increase efficiency. He has also establisheda Planning Unit, to complement the work of the four departments: Adminis-tration, Finance, Operations and Engineering.

6.03 SNT's present organization (see Chart 7659) is adequate to handlefuture operations. There is, nonetheless, a lack of sufficient awarenessof modern management practices and, in particular, operationally orientedresearch. In addition, senior staff are burdened with day-to-day operatingproblems. To remedy this situation, in addition to assisting SNT throughthe period of expansion and modernization, the consultants to be providedunder the project will help it establish and utilize modern managerialcontrol and cost accounting procedures (para. 5.05).

6.04 At the end of 1971, total personnel of SNT numbered about 2,500.Productivity was estimated at about 320,000 pass-km per man-year on the bussystem, and somewhat more than twice this figure on the TGM railway line.Staff costs have been rising since 1967; additional wage increases are anti-cipated as SNT follows the pattern of other public enterprises which haverecently granted major vage increases. The large number of staff reflectsexceza personnel remaining after discontinuance of SNT's trolley bus and taxiservices, and the general pressure in Tunisia to maintain an unnecessarily

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large work force in order to reduce unemployment. During negotiations, itwas agreed that SNT would keep its staffing position under review, and im-plement policies to improve manpower tutilization and training; SNT vill in-crease its staff only if managerial efficiency or the execution of the Proj-ect warrants employment of specialized personnel. The performance targetsto be developed with the assistance of consultants (see para. 6.21) are ex-pected to include manpower and productivity targets that would be the subject

-of consultation and agreement with the Bank/IDA prior to follow-up action bySNT.

B. Financial Aspects

1) General

6.05 SNT's financial position is deteriorating. Its urban bus and TGMoperations, while not yet in deficit, have declined in profitability in re-cent years. Its inter-urban operations were in deficit for the first timein 1971 and the prospects are for increasing deficits.

2) Past Finapcial Performance

6.06 The table below summarizes SNT's operating results in the recentpast:

in D '000

1969 1970 1971SNT SNT SNT SNT SNT SNT

Total Urban Total Urban Total Urban

Revenue 4,660 3,031 5,148 3,474 5,582 3,730

Operating Expenses 4,257 2,657 4,912 3,268 5,496 3,610

Net Operating Income 403 374 236 206 86 120

Although past operations have been moderately profitable as evidenced above,SNT's inter-urban operations have been contributing a declining share of netincome and in 1971 were in deficit. The urban operations also show a declin-ing trend on profitability.

6.07 Although SNT maintains separate income accounts for its urban andinter-urban operations, methods for allocating common charges require review.As detailed in Annex 14, amendments have been made to SNT's financial state-ments to conform to generally accepted accounting principles. The financialstatements also overstate the profitability of the enterprise as maintenancelevels have been far from satisfactory in the past and inconsistencies in ac-counting practice are also evident. To remedy this situation and establish

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the cost accounting system needed to provide more reliable indicators of per-fornmance and ensure greater consistency in allocating common charges, SNT

will hire a financial consultant (see para. 5.05) under the project; out-

line terms of reference are provided in Annex 10.

3) Present Financial Position

6.08 SNT's present Balance Sheets do not show a breakdown of current

assets or liabilities into the urban and inter-urban operations. The Bal-ance Sheet for the year 1971, (the latest year for which Government inspected

statements are available), also does not reflect SNT's true financial posi-tion in that there is an underestimate of fixed asset value in respect of

TGM railway track and signaling equipment. In the course of the financial

analysis, a tentative evaluation of the assets was made on the basis outlined

in Annex 13, in order to estimate the financial position with respect to theurban bus and TGO operations. This is summarized in the table below:

(As at Dec. 31, 1971)(D '000)

SNT SNT SNTTotal Total Urban Operations

(Actual) (Revalued) (Revalued)

Current Assets 4,411 4,411 2,909

Net Fixed Assets 5t309 6,951 4,990

Total Assets 9,720 11,362 7 899

Current Liabilities 3,837 3,831 2,437Long-term Debt 1,575 1,575 1,322Equity 4,308 5,950 4,140

Total Liabilities 11,362 7,899

6.09 The above amendments have been used as the starting point for the

financial projections on SNT's urban operations. A similar starting pointneeds to be established for SNT's inter-urban operations, in order to sepa-

rate the financial implications of operating policies and practices on theurban and inter-urban activities. A separation of the urban operations into

the bus and TGM components would also be needed as part of the cost account-ing system to be developed by the financial consultant (para. 6.07). Duringne-otiations, agreement was reached that independent external audits will be

carried out starting with the fiscal year ending December 31, 1973 and thatseparate accounts for SNT's urban and inter-urban operations will be estab-lished starting with the fiscal year ending December 31, 1973, and maintainedseparately thereafter. Agreement was also reached that independent externalauditors acceptable to the Bank/IDA will be appointed and that accounts andfinancial statements will be audited in accordance with sound auditing prac-tices.

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4) Tariffs and Subsidies

6.10 SNT's present tariff level and structure are detailed in Annex 15.Passengers paying ordinary fares at single journey rates account for onlyabout 45% of the total traffic but contribute nearly 72% of total revenues.Students form some 32% of the traffic but yield only 5% of total revenues.For the past 20 years, the only tariff increases have been on the TGt4 in1967 and on bus operations in 1969, each averaging 15%. The f nancial re-lationship between the Government and SNT, as spelled out in the SNT Statute,includes a provision that the Government, when imposing any redutced tarif'fstructure (as for students and other special classes of passengers) wouldcompensate SNT for an amount up to the differences between the normal andthe reduced tariff level in question. The Statute provides for an annualpresentation by SNT of the compensation required prior to the start of thenew year and for payments to be made during the year.

6.11 Until 1972, SNT had not specifically requested that statutory com-pensation. This oeission stemmed from a false sense of profitability of itsoperations, as evidenced by modest, though declining, levels of operating in-come. The absence of adequate maintenance practices and satisfactory costaccounting were in part responsible for the profitability picture despitethe relatively low tariff levels.

6.12 SNT now faces a period in which extensive replacement of its capi-tal stock will be needed over the next ten years. The project would coverSNT's capital expenditure requirements on its urban operations through 1975although some elements of the project would not be completed until mid-1976.SNT will face fleet replacement and fleet expansion needs beyond this stagein order to sustain the level of improved operations. Accordingly, financialrequirements have been estimated up to 1981 in order fully to appreciate thelikely financing gap. Given SNT's present tariff structure, SNT's urban busand TGM operations are expected to show increasing operating losses risingfrom some D 65,000 in 1972 to nearly D 2.9 million in 1981 despite major im-provements in maintenance practices and better control of operating costs;(see Table, para. 6.14). To assist SNT in reducing these losses, the Gov-ernment has agreed that it vill comply with its obligation under the SNTStatute to compensate SNT to the extent that it imposes reduced tariffs forcertain categories of passengers. This compensation is expected to coversome 50% of SNT's operating cash losses including debt service. The remain-ing gap between cash income and cash expenses will be largely covered througha revision of SNT's tariffs on urban services. During negotiations the Gov-ernnent agreed that, as a first step toward a longer term policy, SNT's tariffswould be increased by mid-1975, se as to effect an overall increase of not less

* than 15% in SNT's operating income on its urban services. This tariff increasewould represent the minimum financial worth to the community of improvementsundertaken through the project. SNT's inter-urban operations, which areoutside the scope of the present project, have experienced sericus lossesin recent years, and the company has agreed, no later than December 31, 1974,to modify its inter-urban tariffs so that operating revenue (including anycompensation for reduced tariffs) will cover operating expenses and debtservice requirements on this branch of its operations.

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6.13 Long-term tariff policy for SNT's urban operations will be con-sidered in the context of an urban transport policy study to be carried outby the District. The Government and SNT will adjust tariffs in agreementwith the Bank in light of the economically and socially desirable level rec-ommended by the study. Any Government subsidies will be linked to a set offinancial and operational performance criteria to be elaborated by SNT withthe assistance of consultants and agreed by the Bank by the end of April 1974.These criteria will cover the introduction of improved financial controls,operating and maintenance targets, including manpower, and indices of laborproductivity. An annual review of performance and financial requirementswill be carried out by SNT, the Government and the Bank.

6.14 This approach to urban transport differs from the Bank's usual con-cept of the financial autonomy and viability of enterprises whose investnentprograms it supports. Subsidization of metropolitan public transport systemsmay be justified, however, since the external benefits of improved publictransport and balanced urban growth cannot be fully captured financiallythrough tariffs. Since low-income groups would be the main beneficiariesof such subsidization, this would also be in keeping with the social desir-ability of income transfers to such groups. The studies to be carried outunder the project, and especially the attempt to relate subsidization toperformance, will contribute to the Bank's knowledge in this new area.

5) Forecast Operating Results

6.15 Forecast Income Statements for 1972/81 are detailed in Annex 14,Table 4, together with the assumptions used in deriving the forecasts. Asexplained earlier (para. 6.09), the forecasts only cover SNT's urban busand TGM operations. The results shown and operating loss of D 65,000 in1972, rising up to D 2.9 million in 1981. The effect of Government com-pensation and tariff adjustments (para. 6.12) on the forecasts is alsoshown in Annex 14, Table 4. The forecast results are summarized below:

1972 1973 1975 1976 1977 1978 1979 1980 1981

Revenue 4,016 4,191 4,477 4,865 5,091 5,294 5,504 5,715 5,922 6,1L43

Operating Expenses 4,081 4,379 5,202 6,116 6,566 6,985 7,476 7.993 8,533 9,054

Operating Income (Lose) (65) (188) (725) (1,251) (1,475) (1,691) (1,972) (2,278) (2,611) (2,911)

Less: Interest 131 146 331 603 801, 829 826 845 868 838

(196) (334) (1,056) (1,854) (2,279) (2,520) (2,798) (3,123) (3,479) (3,749)

Add: Compensation forReduced Tarif.Ç - 950 1,000 1,150 1,150 1,250 1,250 1,40o 1,400 1,400

Additional Revenue - - - 666 762 1,515 1,571 2,231 2,313 2,398

Net Income (Loss) (196) 616 (56) (38) (367) (245) 23 508 234 49after Interest,Compensation andTarir£ Revi3ions/Subsidies

Item: Passengers on SNT 145.9 153.6 165.6 189.1 197.7 206.9 220.7 232.2 246.4 261.5Services (millions)

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6.16 The above results indicate the likely implications of continuedGovernment compensation for revised tariffs, of possible tariff revisions,and subsidies to cover shortfalls in tariff revenues. In view of SNT'sstrong dependence on the Government, it would not be meaningful to specifythe financial ratios on its urban operations that normally apply to commer-cially viable entities. Instead, a set of operational-cum-financial targets,such as discussed in para. 6.22, would provide an objective frame of refer-ence.

6) Ten-Year Financing Plan for SNT

6.17 The financing plan for SNT's urban bus and TGM operations for theperiod up to 1981 is indicated in the table below. It is derived from thedetailed forecast sources and applications of funds statement shovn in Annex14, Table 5.

Total Total Ten Year1973-76 1977-81 Total %

(D'000)

Requirements of Funds

Operating Losses 3,639 11,461 15,100 41.6Debt Service 3 512 7,895 11,407 31.5

7;151 19,356 26,507 73.1Less: Depreciation 3,484 6,197 9.681 26.7

3,667 13,159 16,826 46-.4Working Capital Requirements 907 3,018 3,925 10.8

Net Operating Cash Requirements 4,574 16,177 20,751 57.2

Capital Investments

Proposed Project 10,868 - 10,868 30.0Other Capital Needs 1,166 3,477 4,643 12.8

Total Capital Investments 12,034 3,477 15,511 42.8

TOTAL 16 608 19 654 36 262 100.0

Sources of Funds

Borrowings

Proposed Bank Loan and IDA Credit 7,226 - 7,226 19.9Other Loans and Credits 3,704 2,926 6,630 18.3

Total Borrowings 10,930 2,926 13,856 38.2

Government

Compensation Article 23(Reduced Tariffs) 4,250 6,700 10,950 30.2

Additional Revenues throughTariff Increases and/orGovernment Subsidy 1.428 10,028 11 456 31.6

5,678 16,728 22,406 61.8

TOTAL 16,608 19,654 36,262 100.0

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6.18 Thle proposed borrowings under the financing plan are:

(a) The proposed borrowing of Bank/IDA funds of D 7.226million (US$16.552 million equivalent) to be providedon terms of 22 years, including a grace period of fouryears, with interest at 7.25% p.a. (para. 5.13).

(b) A borrowing of D 3.0 million (US$6.9 million equivalent)through a consortium of Tunisian Banks possibiy headed bythe SNI to complete the financing needed for the bus ac-quisition program through 1975, to be provided on termsof ten years with interest at 8% p.a.

(c) Other loans and/or suppliers' credits of D 3.630 million,necessary to cover the remaining capital expenditures forthe ten year program. They are assumed to be made for termsof ten years with interest at 9% p.a., which are comparableto terms obtained by SNT in 1970/72.

During negotiations, assurances were obtained that until the end of 1978,SNT will not undertake or execute any new major investment for its urbauoperations other than the project or the acquisition of the additional 110buses estimated by the Bank/IDA to be required from 1976-1978 -without firstsatisfying the Bank/IDA that such action would not interfere with its obliga-tions under the Project Agreement. Agreement was also reached that for cap-ital investments for its urban operations during the period 1976-80, SNT villprepare and present before December 31, 1975, for Government and Bank/IDA re-view, technical and financial justification of the proposed investment pro-gran. Consultant services being provided under the project vill assist inthis task, which will be carried out in cooperation with the District.

6.19 SNT's inter-urban operations are also expected to require heavycapital expenditures in order to modernize the outdated coach fleet and toimprove passenger services. In view of the continuing deficits on this op-eration and, in addition to the assurances on the separation of accounts(para. 6.04), agreement was obtained that, until the national transportstudy currently in execution 1/ is completed, SNT will not undertake throughborrowings major new capital investments for this operation without priorconsultation with the Bank/IDA.

7) Future Financial Position

6.20 Forecast Balance Sheets of SNT's urban bus and TGM operations forthe years ending December 31, 1971-Si are detailed in Annex 14 and indicatethat SNT's revalued financial position on its urban operations would remain

1/ The study covers coordination of road and rail services in Tunisia andis being carried out by the Directorate of Transport in the Ministry ofNational Economy with the aid of consultants, financed under Loan 746-TUN, (Highway Project).

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satisfactory. With the Government providing the necessary compensation andwith the net additional revenues as postulated, the current ratio is neverbelow 1, which is adequate. The ratio of long-term debt to equity will notbe higher than 73:27.

6.21 In order to ensure that SNT's operating cash income remains at alevel sufficient to permit systematic and satisfactory scheduling of main-tenance, assurances were obtained that SNT's net annual revenues on its urbanoperations will cover cash operating expenses including adequate maintenanceplus estimated future debt service. For this purpose, net revenues will in-clude the amounts to be provided SNT as Government compensation for reducedtariffs and to be obtained through tariff increases and/or Government sub-sidies in lieu thereof.

8) Monitoring - Financial and Operating Targets

A.22 SNT's financial dependence on the Government makes it difficult touse conventional financial ratios as targets to measure performance. On theother hand, a set of operating targets as indicators of increased managerialefficacity and financial performance of fers a suitable alternative for moni-toring and control purposes. The principal improvements in operations andmaintenance that are expected at the end of the project period are summarizedbelow:

1973 Indicative DateFigure Target Expected

A. Bus Operations

1) Operations

- Passenger Trips (million) 136.7 170 1975- Percentage of Overload 10 - 1975- No. of Vehicles in Service 300 392 1975

2) Maintenance

- Fleet Availability (Z) 65 85 1975- Fleet Utilization (Z) 58 85 1975- Average No. of DaysImmobilized/Vehicle/Year 162 55 1975

- Average Maintenance Cost/Bus/Year(Dinars) 2,273 1,577 1975

B. TGM Operations

1) Operations

- No. of Cars in Service 22 26 1975- Passenger Trips (million) 16.9 19.1 1975

2) Maintenance

- Annual Maintenance Costs/Car iuService (Dinars) 6,500 1,250 1975

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All the indicated targets have a direct impact on SNT revenues and operatingand maintenance co0ts. The detailed cost functions can only be developedthrough study. This linking of operating targets and financial performancewill be done by the financial consultant to be hired by SNT in cooperationwith the technical consultants (para. 5.05), and is expected to take somesix months to complete. A set of monitoring guidelines will be proposed bySNT. These guidelines will encompass the principal targets set out above,but would also include manpower targets for each operation, indices of laborproductivity, budget control targets and other indicators that emerge as aresult of the economic and financial studies to be undertaken by SNT's teamof consultants.

6.23 During negotiations, assurances were obtained that not later thanApril 30, 1974, a report detailing the system of performance targets, includ-ing targets relating to financial controls, staffing, organization, urban busand TGM operations, traffic and maintenance vill be submitted to the Govern-ment, the District, and the Bank/IDA for approval. SNT will report to theGovernment, the District and the Bank/IDiL, every six months on the progressin implementing the agreed targets, and review annually such program withthe Government, the District and the Bank/IDA. Assurances vere also ob-tained that any additional Government subsidy payments to be provided SNTin lieu of tariff adjustments would be linked to the system of performancecriteria.

C. Economic Analysis

6.24 The economic evaluation of the major investment components of pub-lic transport improvement has been calculated in accordance with the method-ology contained in Annex 15. The main features are summarized below:

1) The Bus Component

6.25 Important quantifiable benefits are obtained from the three sub-components essential for improving bus services:

(i) upgrading of maintenance facilities;

(ii) replacement of vehicles over twelve years old; and

(iii) fleet expansion to reduce present overloading andaccommodate the anticipated traffic.

To determine economic feasibility, a comparison was made of the effects onoperating costs of building the proposed maintenance depot and replacingthe aged vehicles - as against no improvement. For expansion of the fleet,an analysis of the investment timing was undertaken in order to assess thedelayed effects on level of ridership and operating costs.

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6.26 Maintenance and vehicle replacement are interdependent. Withoutproper maintenance, the replacement of old vehicles would have little impactand the serviceable life of new vehicles would be decreased by about halfthat obtainable with improved maintenance. The internal economie returu ofthe replacement components, assuming prior investment in improved mainten-ance, is 19%. The analysis also shows that the investment in improved main-tenance without vehicle replacement would be an uneconomic proposition. Themaintenance costs per vehicle rise in proportion to the average age of thefleet even with the improved maintenance without the related investment infleet replacement.

6.27 Providing only proper maintenance and replacement, without increas-ing the vehicle fleet, would mean continued overcrowding, discomfort and in-ability to capture anticipated traffic growth. As the replacement of old ve-hicles would be just sufficient to accommodate the present level of trafficand future replacement needs would not be met, potential traffic would belost to other forms of travel. The expansion of the bus fleet, combinedwith the provision of adequate maintenance, assures greater reliability ofservice and lower overall costs of operation as the age composition of thefleet declines appreciably. The incremental impact of this aspect leada toan economic rate of return on the bus component as a whole that exceeds 29%.The highest rate is obtained when all three sub-components are undertakenconcurrently.

2) The TGM Railway Component

6.28 As detailed in Annex 6, the analysis of six alternative approachesto TGM modernization shows that the replacement of present stock with newelectrically powered equipment is the least cost solution. The rate of re-turn of this component foeuses on two main quantifiable benefits:

(i) reduction in TGM operating costs; and

(ii) foregone costs of alternative modes of transportin the absence of the project.

The internal rate of return is calculated at about 16%. When user time sav-ings are quantified, it rises marginally to about 17%.

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VII. AGREEMENTS REACHED AND RECOMMENDATIONS

7.01 During negotiations, the following agreements were reached:

(a) The Tunisian Government will -

(i) agree with the Bank/IDA on follow-up action to betaken in the light of the District's special policystudies (para. 5.02);

(ii) within one year of effectiveness of the loan/credit,agree with the Bank/IDA follow-up action to be takenin the light of a traffic study by the Municipalityof Tunis (para. 5.07);

(iii) ensure that until the Bank has been consulted on theconclusions of the study of transport policy to becarried out by the Tunis District, funds will not becommitted to new arterial highway investments in theDistrict (para. 4.09);

(iv) compensate SNT for imposed reduced tariffs as requiredunder Article 23 of the SNT Statute (para. 6.12);

(v) ensure that SNT's net annual revenue, including com-pensation for reduced tariffs and any subsidies, onits urban operations would cover cash operating ex-penses including adequate maintenance plus estimatedannual debt service (para. 6.21).

(b) The Societe Nationale des Transports will -

(i) introduce policies and training programs to improvemanpower utilization and only employ additional staffif managerial efficiency or project execution requirehiring of specialized personnel (para. 6.04);

(ii) establish separate accounts for its urban and inter-urban services from the beginning of fiscal year 1973(para. 6.09);

(iii) not undertake any other new major investments for itsurban operations prior to the end of 1975 other thanthose under the proposed project without first satisfy-ing the Bank/IDA that such action would not interferewith its obligations under the Project Agreement (para.6.18); for the period 1976-80, submit for Bank/IDA re-view before December 31, 1975, technical and financialjustification of its proposed five-year investment pro-gram (para. 6.18);

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(iv) until the national transport study is completedundertake no major new capital investments throughborrowing for inter-urban operations vithout priorconsultation with the Bank/IDA (para. 6.19);

(v) not later than June 30, 1975, increase its tariffs soas to realize a net increase of 15% in its income fromurban operations (para. 6.10);

(vi) modify tariffs suitably by December 31, 1974 to eliminatedeficits on its inter-urban operations (para. 6.12);

(vii) not later than April 30,1974, submit to the Government,the District and the Bank/IDA for review and approvala proposed system of performance targets (para. 6.23).

7.02 During negotiations, agreement was reached on the following con-ditions of effectiveness of the proposed Bank loan and IDA credit:

(a) Appointment by the Municipality of a traffic engineeringconsultant, acceptable to the Bank/IDA, on terms andconditions satisfactory to the Bank/IDA (paras. 4.04 and5.07).

(b) Appointment of all consultants to assist SNT, but the TGMrailway expert, acceptable to the Bank/IDA on terms andconditions satisfactory to the Bank/IDA (para. 5.06).

(c) Promulgation of a decree, satisfactory to the Bank, estab-lishing the Tunis District's organization, staffing pattern,financial authority and relations with other agencies (paras.2.14 and 5.14 (a)).

(d) Hiring by the District of suitable counterpart staff to workwith the consultants to be provided under the project (para.5.14 (b)).

(e) Appointment of the consultants to assist the District underthe project (para. 5.03).

(f) Establishment of a Technical Coordinating Committee for theDistrict bringing together decision-making level officialsof the interested ministries and other public agencies (para.5.14 (c)).

7.03 On the basis of the above conditions, the project provides a suit-able basis for a Bank loan of US$11 million on terms of 22 years includingfour years of grace and an IDA credit of US$7 million on the usual terms andconditions.

TUN!ISIA

TUNIS DISTRICT URBLAN PLAD.IG AND PUBLIC TRANSPORT PROJECT

Po-n lâtion of Greater Tunîs la l966 and 1971Projections for 1976

(In thousanid)-

Rate of Total AnmlualIncrease Total

Total1966 1966-71 1971-76 1971 1976

Sector & Comnmis/1

Commune of Tunis 449 4.3 4.4 55.8 69.3

Sector 1 67 4.0 3.4 82 982 78 3.6 3.0 93 1093 61 4.1 3.5 74 894 38 5.1 4.6 49 625 59 4.2 3.3 73 876 51 4.1 4.7 63 807 17 8.8 6.6 26 368 10 5.2 9.7 13 219 47 4.1 4.6 58 72