Document of The World Bank

FOR OFFICIAL USE ONLY

Report No. 47535-MA

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

PROGRAM DOCUMENT

FOR A PROPOSED LOAN

IN THE AMOUNT OF EURO 100 MILLION (US$132.7 Million Equivalent)

TO

THE KINGDOM OF MOROCCO

FOR A

MUNICIPAL SOLID WASTE SECTOR DEVELOPMENT POLICY LOAN

February 24,2009

Sustainable Development Department Middle East and North Africa Region

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

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MOROCCO-GOVERNMENT FISCAL YEAR January 1"-December 31st

AFD CAS C D M CERs

DGCL EC ERF'A EIA ESA ESIA FDI FEC FHII GDP GHG G o M GTZ IMF K F W LFG MAD MAEG METAP MoEF M o I M S W MSWM P N D M PPIAF PSP SWE S W M VAT

CN-PNDM

CURRENCY EQUIVALENTS (Exchange Rate Effective as o f (February 19,2009)

Currency Unit Moroccan Dirham U S $ l .oo MAD 8.7

WEIGHTS AND MEASURES Metric System

ABBREVIATIONS AND ACRONYMS

Agence Franqaise de Developpement Country Assistance Strategy Clean Development Mechanism Carbon Emissions Reductions National Commission for the National Municipal Solid Waste Management Program General Directorate o f Local Communities European Commission Emissions Reductions Purchase Agreement Environmental Impact Assessment Environmental and Social Audit Environmental and Social Impact Assessment Foreign direct investment Fonds d'Equipement Communal Fonds Hassan I1 Gross Domestic Product Greenhouse Gas Government o f Morocco Gesellschaft fir Technische Zusammenarbeit International Monetary Fund Kreditanstalt fur Wiederaufbau Landfil l Gas Moroccan Dirham Ministry o f Economic and General Affairs Mediterranean Environmental Technical Assistance Program Ministry o f Economy and Finance Ministry o f Interior Municipal Solid Waste Municipal Solid Waste Management National Municipal Solid Waste Management Program Public-Private Infrastructure Advisory Facility Private Sector Participation Secretariat o f State in charge o f Water and Environment Solid waste management Value Added Tax

Vice President: Daniela Gressani Country Director: Mats Karlsson

Sector Director: Laszlo Lovei Sector Manager: Anna Bjerde

Task Team Leader: Jaafar Sadok Friaa

FOR OFFICIAL USE ONLY KINGDOM OF MOROCCO

MUNICIPAL SOLID WASTE SECTOR DEVELOPMENT POLICY LOAN

TABLE OF CONTENTS Page No.

LOAN AND PROGRAM SUMMARY .......................................................................................................... ii

I. INTRODUCTION ................................................................................................................................ 5

11. COUNTRY CONTEXT ....................................................................................................................... 6 A. RECENT ECONOMIC DEVELOPMENTS IN MOROCCO ....................................................... 6 B. MACROECONOMIC OUTLOOK AND DEBT SUSTAINABILITY .... ....................... 11

THE GOVERNMENT'S PROGRAM AND PARTICIPATORY PROCESSES ............................ 14 A. SOLID WASTE SECTOR ISSUES ..... B. THE GOVERNMENT'S PROGRAM ........................................................................................... 16

Reform Area 1 -- Governance of the Solid Waste Sector .......................... 17

Reform Area 3 -- Mainstreaming Environmental and Social Dimensions

111.

Reform Area 2 -- Enhancing Sustainability ...............................................

IV. BANK SUPPORT FOR THE GOVERNMENT'S PROGRAM .................................................... ..22 A. LINK TO CAS .......... B. COLLABORATION C. RELATIONSHIP TO D. LESSONS LEARNED E. ANALYTICAL UNDERPINNINGS ............................................................................................ 26

THE PROPOSED MUNICIPAL SOLID WASTE SECTOR DEVELOPMENT POLICY LOAN 27 A. OPERATION DESCRIPTION ... 27 B. POLICY AREAS ........................................................................................................................... 29

Policy Area 1 - Governance of the Municipal Solid Waste Sector ............................................... 30 Policy Area 2 - Sustainability o f Municipal Solid Waste Se Policy Area 3 - Environmental and Social Considerations ..

V.

' ................................. ........................................ 32

VI. OPERATION IMPLEMENTATION ....... A. POVERTY AND SOCIAL IMPACTS .......................................... B. ENVIRONMENTAL ASPECTS ......... C. IMPLEMENTATION, MONITORING AND EVALUATION.. D. FIDUCIARY ASPECTS ..................... E. DISBURSEMENT AND AUDITING.. F. RISKS AND RISK MITIGATION ............................................................................................... 40

ANNEX 1. LETTER OF SECTOR DEVELOPMENT POLICY (ORIGINAL FRENCH) ............... 41 LETTER OF SECTOR DEVELOPMENT POLICY (ENGLISH TRANSLATION) ........ 48

ANNEX 2. OPERATION POLICY MATRIX ...................................................................... 54

MANAGEMENT PROGRAM ........................................................................... 58 ANNEX 4. MOROCCO AT A GLANCE ............................................................................. 62

ANNEX 3. COST-BENEFIT ANALYSIS OF THE NATIONAL MUNICIPAL SOLID WASTE

This Loan was prepared by a World Bank team consisting of Jaafar Sadok Friaa (Task Team Leader and Senior Environmental Specialist), Elisabeth Sherwood (Financial Specialist), Paul Noumba Um (Lead Economist), Hocine Chalal (Lead Environmental Specialist'Regional Safeguards Advisor), Alexander Kremer (Senior Economist), Rafika Chaouali (Lead Financial Management Specialist), Stefan0 Paternostro (Lead Country Economist), Khalid El Massnaoui (Senior Economist), Sandra Cointreau (Solid Waste Senior Advisor), Andrea Liverani (Social Development Specialist), Agnes Marie-Ange Brigitt Biscaglia (Senior Carbon Finance Specialist), Luc Alain Vervisch (Municipal Finance specialist), Sherif Arif (Environmental Consultant), Sylvie Pittman (Program Assistant), and Lai la Moudden (Program Assistant). The team worked under the guidance o f Mats Karlsson (Country Director), Laszlo Lovei (Sector Director), Francoise Clottes (Country Manager), and Anna Bjerde (Sector Manager).

This document has a restricted distribution and may be used by recipients only in the performance o f their off icial duties. I t s contents may not be otherwise disclosed without Wor ld Bank authorization.

LOAN AND PROGRAM SUMMARY KINGDOM OF MOROCCO

MUNICIPAL SOLID WASTE SECTOR DEVELOPMENT POLICY LOAN

Implementing Agency

Borrower I Kingdom o f Morocco ~~ ~~~

Ministry o f Economy and Finance, Ministry o f Interior, and Secretary o f State in charge o f Water and Environment.

IBRD Loan, Variable-spread loan in Euro, with 26 years maturity and a 4-year grace period Financing Data

Amount: Euro 100 mill ion

The proposed operation i s the f i r s t DPL in a programmatic series o f up to two single-tranche DPLs Operation Type

Main Policy Areas Environmental and social dimensions

Governance o f the municipal solid waste sector Sustainability o f municipal solid waste services

Key Outcome Indicators

Governance: (i) Annual costed workplans and progress reports are reviewed and adopted by the National Commission for the National Municipal Solid Waste Management Program (CN-PNDM); (ii) total government financial support under the National Municipal Solid Waste Management Program (PNDM) allocated based on the adopted eligibility criteria; (iii) solid waste infrastructure supported through the PNDM i s consistent with national regulations, based on reviews o f projects; (iv) percentage o f tenders launched from 2010 onwards for projects supported by the PNDM based on the revised model bidding and contracting documents; and (v) level o f public and user willingness to pay for better solid waste management.

Sustainability: (i) Increase in the revenues generated from the municipal services tax in municipalities supported by the PNDM; (ii) additional revenue generated through the C D M mechanism and other new instruments; (iii) reduction in the average cost o f solid waste services provided by the private sector; and (iv) number o f contract monitoring and supervision units in place at local/ regional levels.

Environmental and Social Considerations: (i) Number o f EIAs related to solid waste investments reviewed and approved by national andor regional EIA committees; (ii) percentage o f collected waste disposed in sanitary landfills by 201 1; (iii) number o f open dumpsites closed rehabilitated by 201 1; (iv) percentage o f wastepickers benefiting from social inclusion initiatives; and (v) percentage o f contrats de partenariats and private sector contracts that include social considerations.

.. 11

Program Development Objective(s) and Contribution to CAS

Risks and Risk Mitigation

The development objective of the DPL program i s to support the GoM in implementing i t s program of reforms aimed at improving the financial, environmental and social performance of the municipal solid waste sector in Morocco. The first DPL (DPL1) supports the key foundations of the Government’s reform program, which establishes the enabling environment for an integrated and affordable municipal solid waste system. The planned second DPL (DPL2)’ which wil l be presented for Board approval by March 20 1 1, wi l l support capitalizing on the momentum gained during the first operation while deepening the reform through results-oriented actions at the regional and municipal level.

The solid waste sector was not specifically identified as a strategic objective in the 2005 Morocco CAS (31879-MA of June 14, 2005). However, the proposed operation wil l contribute to achieving the CAS’S first strategic objective of “Improving Competitiveness and Business Climate” by stimulating partnerships between the private sector and local government and by increasing Morocco’s competitiveness as a tourist destination. It wi l l also contribute to the second strategic objective of “Increasing access to basic services by poor and marginalized groups”, as the improved solid waste services wil l cover the urban poor and wil l support social inclusion o f informal waste pickers. In addition, the proposed DPL wil l contribute to the CAS’S cross-cutting objective of improving public governance.

There are three key risks associated with the DPL program:

Macroeconomic risk associated with the global financial contraction and economic slowdown: Morocco’s macroeconomy has so far weathered the negative impact of the global financial crisis because it’s financial sector was relatively insulated from the global context. However, it i s facing the impact of the global economic downturn and i s taking the necessary measures to respond. The Moroccan Ministry o f Finance forecasts a growth rate of 5.5 percent in 2009, mainly justified by the good winter rains. However, a sharper contraction in partner countries would see growth lower by 1 - 1 ’h percent of GDP, resulting in the IMF growth estimate of 4.5 percent in 2009. The fiscal stimulus package announced for 2009 should help to maintain domestic demand, but i s modest enough that the risk of macro-economic instability i s low, as i s the risk of fiscal pressures compromising the implementation of the national government’s solid waste program.

Commitments to the reform and implementation capacity risks: (i) Weakening of political consensus and commitment for municipal solid waste reforms which may delay or impact the effective implementation of the program. This risk i s mitigated by a strong and continuous cross- sector dialogue and consultation through the established National Commission for the Program; and (ii) weak capacity to implement complex sector reforms at the municipal level may affect the program’s results on the ground. This risk i s mitigated by (a) wide awareness and communication programs on the reform agenda; (b) strengthening of technical and financial capacity o f municipalities as a priority of the PNDM; and (c) coordinating with other donors active in the solid waste sector to reinforce potential synergies between the different programs (namely GTZ, which provides technical support in solid waste management to municipalities, and Agence Francaise de ...

111

Developpement - AFD, which provides assistance to the municipal finance and local fiscal agenda).

Social acceptance risks: Lack o f social acceptance o f reforms by the public including the waste pickers and service users. This i s being mitigated respectively through the implementation o f a social inclusion program targeting waste pickers and through increasing accountability o f the service providers for improved quality.

Operation ID P104937

iv

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT PROGRAM DOCUMENT FOR A

PROPOSED MUNICIPAL SOLID WASTE SECTOR DEVELOPMENT POLICY LOAN TO THE KINGDOM OF MOROCCO

I. INTRODUCTION

1 . Most Moroccan cities are characterized by high population densities and rapid growth and suffer from several forms of environmental degradation. Out o f a total population o f 30 million, 18 million live in urban areas. With the urban population growing at 2.85 percent per year and per capita consumption increasing, municipal solid waste management has become one o f the most serious environmental challenges in urban areas, with adverse effects on the quality o f life, human health, natural resources and the environment, and economic and social development.

2. Since independence, Morocco’s municipal solid waste services have been defined only in terms of “cleanliness”, with the main focus on waste collection and limited attention and resource allocation to waste disposal. This has led to significant environmental and social impacts. Morocco currently produces about 5.0 million tons o f municipal solid waste (MSW) per year,’ a figure that could reach 6.2 million tons by 2020. In the absence o f an active and strategic role at the central government level, most municipalities equate solid waste management (SWM) only with the removal o f waste from visible public areas. Waste disposal in sanitary landfills has been entirely neglected by municipalities, and waste i s generally disposed in open dumps.

3, Environmental degradation, which the Mediterranean Environment Technical Assistance Program (METAP) has estimated costs at least 3.7percent of GDP (2003)) is a significant hindrance to Morocco’s development, as it impacts the health of citizens and environmental resources and interferes with Moroccan integration into the environmentally conscious EU and U S markets. Litter and accumulations o f solid waste along roadsides and channels jeopardize the country’s high tourism potential. The contribution o f poor solid waste management to the cost of environmental degradation i s estimated at around MAD 1.7 billion per year (or 0.5 percent o f GDP), one of the highest levels in the Middle East and North Africa region (0.2 percent in Egypt and 0.1 percent in Algeria, Lebanon, Syria and Tunisia).

4. Major issues and challenges faced in the sector include: (i) a weak legal and institutional framework, which constrains effective governance o f the sector; (ii) poor cost effectiveness o f services; with doubtful long-term financial sustainability of the sector; (iii) the urgent need for integrated and modernized solid waste management systems, which will mitigate negative economic, environmental, and social impacts o f the existing systems; and (iv) missed opportunities available under international climate change mechanisms i.e. the Clean Development Mechanism (CDM), while supporting the global effort in climate change mitigation.

5. Due to its impacts on the quality of life, public health, environmental and natural resources, and vital economic activities such as tourism, S W M is now recognized as a top priority by the

MSW includes non-hazardous waste generated in households, commercial and business establishments, institutions and light industrial process wastes.

5

Government. The Government has taken two key and significant f i rst steps toward the reform of S W M . First, the Solid Waste Management Law 28-00 was passed in November, 2006. Second, it has developed and approved the Programme National de Gestion des De‘chets Me‘nagers (PNDM - the National Municipal Solid Waste Management Program), which i s a 15-year, 3-phase program launched in 2008 in support of Law 28-00. The PNDM was formally adopted by the newly appointed Government in i t s program announced in October 2007 and sets out, among other objectives, service and disposal standards for urban areas, quantitative goals for collection coverage (90 percent by 2021), the introduction of sanitary landfills (100 percent of urban areas equipped by 2021), and the closure and rehabilitation of 300 existing open dumps as well as the promotion of solid waste reduction, recovery and valorization.

6. The PNDM is one of the core elements of the Government’s overall reform program for Municipal S W M (MSWM). The reform prggram, which overlays the PNDM, targets three areas of reform:

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7.

Enhance the governance of the sector through additional legal, regulatory, and institutional measures designed to establish a clear framework for the sector, eliminating overlap and/or gaps in the policy-making, regulatory, and operational structure;

Improve the sustainability of the sector through the introduction of financial mechanisms and incentives for municipalities designed to support the sustainability of investments and services; and

Mainstream social and environmental considerations into the planning, implementation, and operations of municipal solid waste services and investments.

The proposed Municipal Solid Waste Sector Development Policy Loan has been requested by the GoM to support the implementation of policy reforms and programs in the solid waste sector. The proposed operation i s the f i rst DPL in a programmatic series of up to two DPLs designed to provide budget support and to solidify, sustain and deepen the implementation and impact of the municipal solid waste reform program in Morocco.

8. An overall agreement has been reached with the Government on the scope of the reforms supported under the proposed operation. This agreement i s supported by the Letter of Sector Development Policy and the policy matrix, attached in Annexes 1 and 2 respectively. As agreed with the Government, the reform program i s expected to be fully implemented over the next 4 years. Support for the reforms has been structured into two single-tranche DPL operations that include measures as triggers according to their readiness for implementation and expected impact on improved SWM.

9. The proposed DPL of Euro 100 million was developed under the umbrella - and in support - of the GoM’s reform program in order to ensure full ownership of the process, actions and outcomes. It i s the first DPL operation Bankwide in the solid waste sector and the f i rst Bank operation in this area in Morocco.

11. COUNTRY CONTEXT

A. RECENT ECONOMIC DEVELOPMENTS IN MOROCCO

10. Morocco features sound macroeconomic fundamentals. The economy i s characterized by macroeconomic stability, solid growth, low inflation and declining unemployment, a strong external position, and sound fiscal balances (Figure 1). Consequently, Morocco’s sovereign debt was rated as investment grade in 2007 and again in June 2008, despite unfavorable world conditions.

6

11. The economy has been undergoing a structural shiji featuring faster growth in nonagricultural output. The vigor o f the nonagricultural sector continues to be driven by dynamism in the postal and telecommunications, finance and insurance, and construction and public works sectors. Structural reforms and liberalization and privatization policies have transformed these sectors into fast- growing areas. The three sectors have been growing between 8 and 10 percent per year on average over the last f ive years.

The postal and telecommunications sector grew by 11.2 percent in the first nine months o f 2008, fueled by the diversification o f services and the emergence o f a third private cell phone company, which triggered more competition and further reductions in prices.

The financial and insurance sector grew 19.1 percent in the nine months o f 2008, reflecting increasing demand for financial services f rom individuals and firms, invigorated by improved access to credit and lower interest rates.

The construction and public works sector confirmed i t s steady dynamism, increasing by 10.1 percent in the f i r s t nine months o f 2008, 1 percentage point more than i t s performance over the previous five years. It benefits f rom important public infrastructure projects and tourism and housing programs. Further strength o f the sector came about as a result o f the use o f public- private partnership policies and the transfer o f public land to private ownership.

12. The sound development o f these three sectors translated into a significant change in the structure o f production over the last decade. Their total share in GDP gained 5.3 percentage points since 1998, mostly at the expense o f the manufacturing and agricultural sectors.

0

0

0

Figure 1. Morocco: Macroeconomic Indicators

Higher growth despite the vagaries o f the agricultural sector (In percent)

9 25 8 20

15 7 10 6 5

5 0 -5

4

-1 0 3

2 -15 1 -20 0 -25

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Est.

-CDP (ion axls) - -Agricultural Value Added (Right axis)

Unemployment continues to decline, but i s still high for urban youth and women

The rise in food inflation is the main determinant of the increase in inflation

-cPI - Food - ~ - No" Food

Public debt i s declining and sustainable, in YO of GDP

7

1 5 % 1’ ._ , I 1 I I

60% .

50% - I * .

, I 1 I I

60% .

50% - I * .

10%

zo%% 0% 95 96 97 98 99 00 01 02 03 04 05 06 07 08

13. Strong growth is estimated for 2008. The pattern o f growth continues to mirror the cycles o f the agricultural sector, although with less intensity owing to more vigorous and stable nonagricultural activities. The agricultural sector, although s t i l l below the sector’s average performance, improved substantially compared to 2007; agricultural value added increased by 10.4 percent between January and September 2008. Despite the unfavorable global economic context and a consequent slowdown in the second hal f o f the year, Morocco’s growth rate i s therefore expected to be 5.8 percent in 2008, up from 2.7 percent in 2007.

14. The global economic downturn is having a moderate impact in Morocco. Although direct impacts upon the Moroccan financial sector are small, given i t s l imited linkages to international financial markets, the decline in world demand i s reducing Morocco’s current account receipts f rom remittances, merchandise exports and tourism, as we l l as FDI receipts. As at end-November 2008, remittances were down 2.4 percent, tourism by 3.5 percent, and FDI by 23.3 percent, while the country’s largest phosphate producer - the Oflee Che‘rifien des Phosphates temporarily suspended production. Nonetheless, economic indicators suggest that activity overall remains solid, with strong credit growth continuing, as wel l as resilient activity in construction, services, and agriculture.

15. Infation is expected to edge up to 3.9 percent in 2008, while unemployment will be around 9.7 percent. Since 2000, inflation has been less than 2 percent on average, but it i s expected to reach 3.9 percent by end-2008, compared to 2.0 percent for the same period in 2007. Inflation i s driven by rising food prices (up 6.8 percent), reflecting higher import prices and the impact o f drought on domestic production. Both these factors are expected to be reversed in 2009 as a result o f global recession and improved rains in Morocco. Policies to control domestic prices - food and fuel subsidies, temporary waivers on customs duties for cereals, and actions to fight price speculation - have helped contain inflation. On the employment front, strong economic performance has kept the unemployment rate in single digits (9.5 percent over Jan-Sept 2008), although urban youth and graduates s t i l l suffer f rom high unemployment rates (3 1.3 percent and 20.2 percent, respectively).

16. The current account is expected to run a small temporary deficit in 2008, primarily due to the rise in import prices between January and September and, more recently, a decline in tourism revenues and remittances from Moroccans living abroad. It i s expected that the trade deficit would increase to around 22 percent o f GDP (fob-fob: up from 19.2 percent in 2007), and that the current account would post a deficit o f around 3.5 percent o f GDP (provisional). These events are l ikely to lead to a decline in the level o f foreign reserves, although the overall level remains comfortable.

8

Table 1. Selected Macroeconomic Indicators (in percent of GDP) (as of Srd quarter ZOOS)

Percentage of GDP 2001 2002 2003 2004 2005 2006 2007 2008 Est.

I. National Accounts Gross Investment Gross National Savings Government Investment (National Accounts) Government Savings (incl. privatization) Private Investment Private Savings 11. Central Government Finances Total revenues (incl. VAT transferred to local gov.)

Tax revenue Nontax revenue (excl. privatization)

Wages Current Expenditure, Of which

Capital Expenditure (Inc. FHII and Fonds Routier) Primary Balance Global Balance (incl. FHII, excl. privatization & foreign grants) 111. Balance o f Payments Trade Balance (fob-fob)

Current Account Balance Foreign Direct Investment (inc. privatization Reserves (months o f GNFS imports) IV. Indicators o f Credit Capacity Public Debt of CG/GDP Memo: Consumer price (%, yearly average) GDP Growth Non Agriculture GDP growth

Remittances

26.1 30.4 2.6 1.8

23.5 28.6

22.4 20.4

2.0 21.7 11.3 5.3

-1.3

-5.7

-8.0 8.6 4.3 7.6 8.5

67.1

0.6 7.6 5.7

25.9 29.6 2.3 0.3

23.6 29.3

22.1 20.4

1.6 20.3 10.9 4.7

-0.2

-4.1

-7.6 7.1 3.7 1.4 9.3

63.7

2.8 3.3 2.6

27.4 30.5 2.3 0.8

25.1 29.7

21.6 19.8

1.8 20.4 11.2 4.5

-1.0

-4.6

-8.7 7.2 3.2 4.9

10.6

60.9

1.2 6.3 3.6

29.1 30.8 2.2 0.7

26.9 30.1

22.2 20.0 2.2

20.8 11.2 4.5

-0.8

-4.3

-11.4 7.4 1.7 1.9

10.1

58.3

1.5 4.8 4.7

28.8 30.7

2.2 -0.9 26.6 31.6

23.8 21.7

2.1 24.1 11.7 4.4

-2.4

-5.7

-13.8 7.7 1.9 5.0 8.7

62.1

1 .o 3.0 5.6

29.4 31.6

2.3 2.0

27.1 29.6

25.1 22.2

2.9 21.5 10.9 4.6 0.8

-2.5

-14.8 8.3 2.2 4.6 9.6

57.3

3.3 7.8 5.4

32.5 32.4 2.5 3.8

30.1 28.6

27.3 24.9

2.4 21.8 10.7 5.0 2.5

-0.1

- 19.2 8.9

-0.1 5.9 8.6

53.6

2.0 2.7 5.6

36.1 31.5 2.6 2.1

29.4 27.3

27.4 25.4 2.0

23.2 10.4 5.1

-0.1

0.1

-22.0 8.3

-3.5 4.5 6.9

48.4

3.9 5.8 5.3

Unemployment 12.5 11.6 11.9 10.8 11.0 9.7 9.8 9.7 Source: Ministry of Economy and Finance

17. The government maintained a satisfactory fiscal balance in 2008. The 2008 surplus came to 0.1 % of GDP (provisional) compared to a deficit of 0.1 percent the previous year. The rapid growth of revenues balanced out the budgetary impact of the rise of world food and fuel prices. Subsidies are expected to exceed MAD30 bi l l ion (MAD24 bi l l ion for fuels and MAD6 bi l l ion for food) by end 2008 - which i s equivalent to 4.5 percent o f GDP. This amount would almost be double that o f 2007. In addition, about MAD4 bi l l ion (0.6 percent o f GDP) o f arrears will accumulate. Given the high cost o f food and fuel subsidies and the fact that they mostly benefit the non-poor, reforming the subsidy system i s an urgent issue. The authorities are aware o f the complexity o f the reform and are proceeding in stages.

The budget balance here defines does not include the expenditures o f the Hassan I1 Fund, which are around 0.3 percent o f GDP, but does not include privatization receipts, which were 0.5 percent in 2007 and 0.0 percent in 2008, and does not include foreign grants. Excluding FHII expenditures and including privatization receipts, the budget balance was a surplus of 0.7% in 2007 and a surplus o f 0.4% in 2008. The 2008 figure has been updated since the IMF’s January 2009 mission.

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On July 1, 2008 the o i l price indexation system was partially reactivated by increasing prices o f two fuel products - premium gasoline and low sulfur diesel - which are mostly used for personal transportation. The price increase i s small, but allowed budget savings o f MAD650 mi l l ion in 2008 - 0.1 percent o f GDP). The recent fallback in international food and fuel prices will reduce the cost o f commodity subsidies, at least in the short run, and will create fiscal space in 2009 to carry out countercyclical fiscal policy (notably, boosting spending on infrastructure and social services).

18. Government revenues are buoyant. Fiscal revenues are expected to strengthen further to reach 27.4 percent o f GDP, benefiting f rom the ongoing tax reform. The main corporate tax measures taken in 2008 include the reduction o f the tax rate f rom 35 percent t o 30 percent for non-financial institutions, and from 39.6 percent to 37 percent for financial institutions. The VAT also benefited f rom new measures with the aim o f simplification, transparency, and equity: the reduction in the deadline for VAT reimbursement f rom four months to three months and further unification o f VAT rates by shifting selected products and services taxed at a 14 percent rate to the normal 20 percent rate.

19. Measures taken so far have yielded significant results, as revenues steadily increased by 16 percent per year on average during 2006-07. They continued to grow further in the f i r s t nine months o f 2008, at a high 23.2 percent on a year-over-year basis. Enhanced collection o f corporate taxes and the VAT explain most o f this performance. Consequently, since 2006, the tax base has been reinforced by an increase o f 25 percent o f businesses liable for corporate tax and 20 percent o f individuals for income tax.

20. Total central government debt should slightly decline. Since 2006, total debt has remained below the target threshold o f 60 percent o f GDP. Indeed, it i s projected to decline to 49.7 percent o f GDP by end-2008, down from 53.6 percent o f GDP in 2007. External debt will edge down to less than 10.5 percent o f GDP. Because o f Morocco’s generally sound macroeconomic policies, major rating agencies have awarded an investment grade to Moroccan sovereign debt. They confirmed their rating in 2008, although one Fi tch revised i t s outlook f rom positive to stable in response to minor risks that may emerge from a more diff icult external environment, potentially affecting the banking sector.

21. Structural reforms have continued their momentum in 2008. The Parliament adopted in July 2008 a new law on debt securitization, which will contribute to diversifying debt market instruments and allow private and public economic operators to boost their financing and investment capacity. The mission o f the soon-to-be-established Economic and Social Council (ESC) will be to propose economic and social policies and play the role o f an open forum where social dialogue takes place on a regular and transparent basis. The government has also operationalized the “Emergency Plan” o f the industrial sector into a new Vision for the Development o f Industry (VDI), including the creation o f a new Investment Development Agency. Finally, the authorities have announced a “Green Plan” for the development o f the agricultural sector composed o f two pillars: one addressing growth in value added, and another addressing rural poverty through income-generation activities.

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Box 1: Morocco: A Decade of Structural Reforms

Trade Liberalization

Customs Reform in 1997. rn

Morocco joined the World Trade Organization on January 1, 1995 and amended the Trade Law in 1996, eliminating many quantitative restrictions and the use o f the customs tariff as a protectionist tool. Dismantling o f the staples imports’ monopoly, except wheat for the manufacture o f domestic flour.

Signing o f multiple Free Trade Agreements, including with the EU, the Arab free-trade area, Turkey and the U.S.

Financial Sector

0

Revision o f the Banking Law and granting o f a New Status o f Central Bank AI-Magrhib. Prudential ratios set in accordance with international standards, creation o f a new accounting framework for credit institutions, liberalization o f interest rates, and lifting o f credit restrictions. Consolidation o f the Insurance Sector with a new Insurance Code, new regulations for mutual insurance associations and l i f e insurance companies. Four public banks have been restructured and 20 percent o f the largest state-owned Bank (BCP) sold to the private sector. Launching of the new Gross Settlement System, as well as the new law on electronic signature. Adoption of multiple measures toward the full liberalization o f the exchange regime.

Price Liberalization

Issuance o f the Pricing Freedom and Competition Laws. All prices are freely set, except for flour, sugar, and tobacco until 2006. Liberalization o f land transportation for goods: conversion o f the National Transport Office into a regulator.

Privatization and Competition

New Telecommunication Law establishing a National Telecommunications Regulation Agency (ANRT) to regulate telecommunications services. De-monopolization o f energy production: Private entities can produce energy under concession agreements. Issuance o f the Hydrocarbon Law on petroleum exploration reducing the state share to 25% o f turnover. Concessions agreements for private service delivery in electricity, water, and solid and liquid waste services. New Public-Private Convention on Tourism under a “Vision 2010” strategy. Air transportation: Open Sky Policy that liberalizes charter and leisure transportation sector.

Business Regulations

Approval o f Copyright and Industrial Property Laws that reforms intellectual property legislation. Creation o f 16 regional investment entities with a one-stop decentralized regional units.

Social Sectors

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Approval o f the Education Charter in 2000. Approval o f the Family Code and the Citizenship Law. Launching o f the Human Development National Initiative, Adoption o f new schemes for health insurance in accordance with the Medical Coverage Code.

B. MACROECONOMIC OUTLOOK AND DEBT SUSTAINABILITY

22. Over the medium term, Morocco is expected to preserve macroeconomic stability and moderate to high growth (Table 2). While the Moroccan economy does not seem to have been strongly affected by the world financial crisis - i t s banking system and capital markets have no direct exposure to U.S. subprime assets and related securities - it has experienced moderate adverse effects o f the unfolding recession in i t s main trading partner countries. Moroccan banks are generally wel l capitalized and profitable, and the government i s encouraging them to use their 2008 profits to strengthen their capital in order to reach a capital adequacy ratio o f 12 percent by end-2009. However, preliminary forecasts show

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that GDP growth in 2009 would continue to reflect sluggish external demand, slowing tourism activities, stagnant workers remittances and FDI. However, the various forecasts available suggest that the impact on Morocco will be moderate. A reasonable central estimate i s that growth wil l be 4.5 percent in 2009. Even the “low case” of 3.5 percent growth would not entail macro-economic instability. The good rains o f winter 2008-9 should mitigate the impact o f the reduction of external inflows, and this factor may justify the Ministry o f Finance’s forecast of 5.5 percent growth in 2009. Consequently, the GDP growth rate i s projected to recover gradually after 2009, with domestic demand as its main driving force. Nonagricultural output growth should continue to grow at 5-6 percent a year, driven by construction, telecommunications, high value-added industrial sectors and service activities with export potential.

Table 2. Medium Term Scenario (as at February 2009)

Est. Proj. Proj. Proj. 2006 2007 2008 2009 2010 2011

GDP 7.8 2.7 5.8 4.5 5.4 5.5 Consumer Price Index 3.3 2.0 3.9 3.0 2.8 2.8

Gross Investment 29.4 32.5 36.1 32.5 32.4 32.3 National Savings 31.6 32.4 31.5 30.6 30.7 30.7 Primary Balance 0.8 2.5 -0.1 0.4 0.7 0.4 Fiscal Balance (incl.

FHII, excl. privatization &

Real Rate of Growth

Percent o f GDP

foreign grants) -1.5 -0.1 0.1 -2.5 -2.2 -2.1 Direct Public Debt 57.3 53.6 48.4 48.2 45.8 43.7 External Current Account 2.2 -0.1 -2.5 -1.9 -1.7 -1.5

Source: Bank staff estimates based on MEF data.

23. Despite the world recession, the external position is expected to remain sustainable in 2009 owing to gains in the terms of trade, despite a fall in workers’ remittances and tourism receipts. The trade deficit i s expected to improve owing to receding world commodity prices, particularly those o f oi l and cereals, and more dynamic exports. With a manageable current account deficit and steady inflows o f FDI and loans, the level of gross international reserves will remain at a comfortable level-above 7 months of imports. Investment and national savings ratios should remain high, at above 30 percent of GDP. To judge from the experience of 2006-8, the future course o f Morocco’s external position wil l be largely determined by world commodity prices.

24. The fiscal stance should remain sustainable. The fiscal accounts project two main outcomes during 2009. First, the fiscal balance should shift from a surplus of 0.1% to a deficit o f 2.5%, with the exact value depending upon the global downturn’s impact upon energy prices, upon the proposed fiscal stimulus package and upon revenue growth. The fiscal balance forecast i s based upon the conservative assumptions o f an oil price o f $lOO/barrel and of a large slowdown in the growth of government revenues. A new element i s the cost o f the 2009 fiscal stimulus package, consisting o f an increase in public sector wages, higher pensions and family allowances, an 18 percent increase in public investment and reduced income tax rates of 1 to 3 percentage points across al l income brackets, although in large part this i s expected to be offset by the drop in subsidy payments. Second, the public debt should continue declining as a percent o f GDP. Under a base case scenario, reaching both outcomes implies, first, success in ongoing tax reform to broaden the tax base, improve the efficiency of the VAT, strengthen tax administration, and remove tax exemptions. These measures would offset the negative impact o f the proposed measures to lower the marginal rates on corporate and personal income taxes. If so, tax revenues are projected to stabilize around 26 percent o f GDP despite declining customs duties, resulting from compensating higher VAT and consumption taxes (up 0.5 percentage point of GDP) o f the revenue losses arising from lower customs duties (down 0.4 percentage points) committed under the Free Trade

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Agreements. Furthermore, these outcomes imply at least three critical expenditure measures: sustaining the declining trend o f the wage bill (projected gains o f 0.4 percent o f GDP); reforming o i l and food subsidies (projected gains o f 1 percent o f GDP); and preserving an active debt management (interest savings o f about 0.4 percent o f GDP).

25. A comprehensive public debt sustainability analysis shows that the fiscal framework is robust to downside risk in the medium term. The sustainability o f the fiscal framework i s robust to shocks: Under alternative scenarios, several shocks to the baseline scenario are simulated, and public debt sustainability i s preserved in a l l o f them. In the medium term, the performance o f the external accounts i s also expected to remain strong, with ample foreign reserves (corresponding to about 7 months o f imports) helped with declining small deficits in the current account over 2009-1 1. Overall, these factors would make external outstanding debt fa l l over 2009-201 1.

26. Budgetary financing needs should remain restrained in the short run. Projected disbursements o f Municipal Solid Waste Sector D P L would help meet the Government’s objective o f diversifying financing sources as well as provide financing on more favorable terms. This, in turn, would support the Government’s strategy o f fiscal consolidation and diversification o f financing sources. The Wor ld Bank will cover a financing gap o f between US$300 mi l l ion to US$350 mi l l ion per year over the projection period (Table 3).

Table 3. Morocco: Financing Requirements of the Central Government (in million US$) (as at February 2009)

2006 2007 2008 2009 Est. Proj.

Financing required 6805 7620 10126 9591 Budget deficit 1618 481 2579 2305 Principal payments 5187 7139 7548 7286

External 1064 1385 1453 1266 Domestic 4123 5753 6095 6021

Total Financing 6805 7620 10126 9591 Non-IBRD Financing 6629 7202 9826 9245

Domestic financing 5239 5092 6187 7126 External disbursement 582 1056 1622 1801 Change o f domestic arrears -79 30 308 -632 Others (privatization, FHII, grants) 888 1023 1709 949

IBRD Financing 176 418 301 346 Source: MoEF and Bank staff estimates.

27. I n the medium term, the Moroccan economy remains vulnerable to adverse domestic and external shocks. On the domestic front, risks arise f rom the possibility o f severe droughts and fal l in tourism receipts f rom potential security threats as wel l as worsening o f the global recession. If the business environment worsens, this could affect exports, tourism, workers remittances, and FDI flows. On the external front, possible main external shocks are: (i) a resurgence o f high international o i l and food prices, which would create inflationary pressures and worsen the trade deficit; (ii) a fall in main export commodity prices, which would have a negative impact on the current account, as the export structure remains concentrated in a few key exports; and (iii, tougher migration policies and possible decline in workers’ remittances due to the on-going recession in European markets. Labor recipient Schengen countries, l ike Belgium, France, Spain, the Netherlands and I ta ly are enforcing tougher regulations on migration. In addition, the per worker remittances sent by the current, so-called third generation o f migrant workers i s lower than the remittances sent by the previous generations. Combined, both factors

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could contribute to slightly dampening the overall level o f remittances, even though so far they have shown a remarkable degree o f resilience.

111. THE GOVERNMENT’S PROGRAM AND PARTICIPATORY PROCESSES

A. SOLID WASTE SECTOR ISSUES

28. The legal and institutional framework for the solid waste sector is at an early stage of development, constraining effective governance of the sector. In December, 2006 Morocco enacted i t s f i rst law on solid waste management - Solid Waste Management L a w 28-00 - as wel l as laws on environmental protection and Environmental Impact Assessments (EIAs). However, executive regulations remain to be prepared and adopted. As a result, monitoring, enforcement and compliance are ad hoc, at best. There i s an immediate need for the preparation and approval by the Government o f a relevant set o f regulations, including those related to: (a) regional and local planning tools for solid waste management; (b) waste classification and norms and standards for waste treatment and landfilling; (c) EIA procedures, institutional review mechanisms, and related public consultation; (d) cost recovery instruments such as solid waste fees (redevances des de‘chets) and other financial instruments; and (e) modalities for monitoring and supervision o f waste services at national, regional and municipal levels.

29. In accordance with the Charte Communale o f 2002 as wel l as the new solid waste Law, the collection, transfer and disposal o f municipal waste has been confirmed as the responsibility o f municipalities, which are under the administrative oversight o f the Ministry o f Interior (MoI). This decentralization was not accompanied by strengthening o f human and technical capacities in the local entities. Furthermore, S W M policies have long suffered from: (i) insufficient coordination between and within relevant line ministries and an absence o f strategic planning; (ii) poor solid waste technical and managerial capacity at regional and local levels; and (iii) lack o f inter-municipal cooperation,

I Box 2: Municipal management o f solid waste

The responsibilities o f Moroccan municipalities with respect to household waste are based in two laws: (i) Article 39 o f Law 78-00, or the Charte Communale, states that the elected municipal council i s responsible “for the establishment and management o f municipal public services, in particular in the following areas: the collection, transport, disposal and treatment o f household and mixed waste”; and (ii) articles 16 through 23 of Law 28-00 define the specifics tasks o f waste disposal and treatment, including planning, management and financing. With respect to financing, the law allows for user fees to be charged. These municipal responsibilities are consistent with the delegation o f other local services to municipalities, such as water supply and sanitation, public lighting, urban transport, and the provision of cemeteries. Municipalities are administered by an elected municipal council, which i s led by a president chosen from among the council. Council decisions are considered to have the approval o f the government

leading to inefficiencies and foregone economies o f scale. This situation has significantly affected the quality and cost efficiency o f municipal solid waste management systems and prevented cost-effective private sector involvement in the sector.

30. During the last few years, attempts have been made toward the promotion o f private sector provision o f municipal solid waste services. These include the enactment o f the new concession law as wel l as the provision o f ad-hoc subsidies by the Direction Ge‘ne‘rale des Collectivite‘s Locales (DGCL) for municipalities to upgrade their municipal solid waste management. Recent figures show that private f i r m s collect two-thirds o f urban waste nationwide. However, there i s a great need to improve competition and transparency at the bidding stage, while also strengthening accountability at the municipal level as wel l as enhancing the quality o f bidding documents. As an indicator o f the capacity to manage private sector contracts, it has been reported that one-third o f ongoing contracts with private operators are experiencing difficulties because o f inadequate bidding specifications, confusing contractual terms, unclear performance measures, and lack o f capacity to supervise and enforce contracted services. Another

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indicator o f l ow outsourcing capacity i s the significant increase in unit costs when S W M services are contracted out.

3 1. Municipal Solid waste management services are not currently cost-effective, and achieving long-term financial sustainability of the sector is a signijkant challenge. M S W M i s one o f the largest categories o f expenditures o f cities. Total recurrent municipal solid waste expenditures were estimated to MAD 1.3 bi l l ion in 2007, or about 10.5 percent o f the total municipal budgets in urban areas. Of this amount, MAD 1.1 billion, or 85 percent, i s allocated to collection and transfer services. Waste disposal i s today insignificant in terms o f allocated financial resources (less than MAD 200 million), as municipalities have not had political, economic, or regulatory incentives to finance disposal facilities.

32. Services contracted to private operators represent about MAD 900 mil l ion (2007), i.e. 70 percent o f total spending on SWM. In the private sector, the average cost i s MAD 360 per metric ton, and exceeds MAD 500 per ton in some cities. This average cost i s slightly higher than costs usually encountered internationally because o f several factors: (i) the limited size o f contracts (i.e,, o f the coverage area) and immaturity o f the market, which does not favor strong competition; (ii) poor knowledge o f private sector participation mechanisms, including differences between traditional public procurement (input-oriented contracts) and output- or performance-based contracts; (iii) poorly designed contracts (use o f standard bidding documents not customized for the specific local conditions, vague definition o f output specifications, leading to differences o f interpretation and litigation during the operational phase, etc.); and (iv) small contracts and loss o f economies o f scale due to the lack o f inter-municipal cooperation and regional planning for disposal/treatment facilities.

33. Additionally, the arrangements for financing municipal solid waste services are very poor. There i s very l imited knowledge o f the true costs o f service provision, and there are no provisions for cost recovery. In general, current municipal solid waste expenditures are usually covered through the general municipal budget o f each city. Notably, the General Directorate o f Local Communities (DGCL) has recently established an ad-hoc financial support mechanism to benefit some o f the main cities (as part o f the allocation o f a discretionary portion o f the VAT under the control o f the Ministry o f Interior (MoI)) to partially cover the first 2-3 years o f private operator contracts. But the ad hoc nature o f these transfers prevents municipalities relying on them for the long-term development o f solid waste services.

34. Meeting the requirements o f the new solid waste law will have significant fiscal impacts for municipalities. It i s estimated that annual investment and operating costs will double from the 2006 amount to MAD 2.2 bi l l ion in 2012, an increase o f 14 percent per year. Recent analysis on sector financial issues project annual financial shortfalls for municipalities o f MAD 300 mi l l ion over the next 3 to 5 years, even assuming increases in municipal revenues and VAT transfers resulting from the Government’s overall tax reform program. This clearly shows that municipalities cannot afford - at least in the short term - the additional costs o f modernizing and sustaining M S W M without increased central financing and/or improved cost-recovery arrangements.

35. Morocco’s municipal solid waste services have been defined in the past only in terms of “cleanliness”, with the main focus on waste collection and limited attention and resources allocated to waste disposal. This has led to significant environmental and social impacts. Currently Morocco produces about 5.0 mi l l ion tons o f municipal waste per year, a figure that could reach 6.2 mi l l ion tons by 2020. In the absence o f a more active role and strategic guidance by the central government, most municipalities equate M S W M only with the removal o f waste f rom visible public areas. Waste disposal in sanitary landfills has been neglected by municipalities, and waste has been disposed in open dumps.

36. As a result o f this focus on “cleanliness”, 70 percent o f municipal solid waste produced in urban areas i s being collected, while less than 10 percent of collected waste i s being disposed o f in an

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environmentally and socially acceptable manner. Problems resulting f rom disposal in about 300 uncontrolled dumpsites throughout the country include, inter alia: (i) poor location o f sites and failure to meet environmental standards; (ii) uncontrolled access by informal waste-pickers and children; (iii) uncontrolled access by domestic livestock to waste that includes infectious and toxic material; (iv) commingled collection and disposal o f healthcare and industrial hazardous waste with regular household waste; (v) lack o f safe and cost-effective waste treatment prior to final disposal o f treatment residuals; and (vi) lack o f incentives and programs to stimulate waste reduction and recycling. These practices pose serious health concerns and safety hazards l inked to air pollution and surface/ground water contamination and adversely affect the tourist, export agriculture, and service sectors, which demand a clean and healthy environment.

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37. In terms o f social concerns, about 3,500 waste-pickers, o f which about 10 percent are children, l ive on and around open dumpsites. Most waste-pickers face elevated health risks and occupational hazards and l ive in conditions o f severe poverty. The closure o f existing dumpsites and the opening o f new controlled ones may reduce and even eliminate opportunities for waste-pickers and affect their livelihoods. Thus, social inclusion activities should be developed as part o f any proposed reform agenda in order to mitigate such impacts. Ideally, programs would be developed to improve the income, living, and working conditions o f the waste-pickers.

38. There are untapped opportunities in the solid waste sector to support the global climate mitigation agenda and to mobilize additional financial resources for the sector under the carbon market umbrella. Morocco, as a developing country (non-Annex B Party) that has ratified the Kyoto Protocol, i s eligible to participate in the flexible mechanisms enabled under the Kyoto Protocol, such as the Clean Development Mechanism (CDM). Waste disposed in landfills generates gases typically composed o f 50 percent methane (a Greenhouse Gas [GHG]), which can be captured and flared or used to produce electricity. Emission reductions (ERs) from the capture or use o f landfi l l gas can be sold to Part 1 country (essentially developed countries except the United States and Canada) entities to generate revenue for the improvement o f current S W M practices.

39. There i s at present only one landfil l gas (LFG) capture project in place in Morocco, which results not only in global environmental impacts linked to GHG emissions, but also in financial losses - i.e., foregone revenues from the sale o f Carbon Emission Reductions (CERs) under the C D M . In addition to landf i l l gas capture, carbon finance i s available for composting or waste-to-energy projects that reduce methane emissions. Carbon revenues could be earmarked to support municipal efforts toward greater financial viabil ity o f municipal solid waste services, to support municipalities that provide land for solid waste treatment and disposal, and to upgrade livelihood conditions for waste-picking communities. The potential emissions reductions from solid waste in Morocco are estimated to be 0.7 - 1 .O mil l ion tones of C02eqlyear.

B. THE GOVERNMENT'S PROGRAM

40. Recognizing the urgent need for leadership and partnership in addressing the very serious issues in municipal solid waste management, the Government has begun to take vigorous actions toward the development and reform of the sector. Extensive consultations, conducted by a steering committee led by the Ministry o f General Economic Affairs (Ministire des Affaires Economiques et Ge'nerales - MAEG) involving key stakeholders, Le., Ministry o f Economy and Finance - MoEF, MoI, and Secretariat o f State in charge o f Water and Environment -SWE, and supported by the Bank and other donors, have enabled the Government o f Morocco (GoM) to initiate the development o f a comprehensive municipal solid waste sector reform program. This consultation and dialogue over the last two years, with strong commitment and ownership o f Moroccan stakeholders, has led to the elaboration o f the program

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detailed in the sector development policy letter and reform matrix provided respectively in Annex 1 and 2, and substantially outlined and discussed in the fol lowing paragraphs.

4 1. The Government initiated the solid waste reform program in 2006 with the enactment of the first Solid Waste Law 28-00 that established the fundamental principles and key rules that will govern the management o f solid waste in Morocco. This formed the foundation for Moroccan policy for the sector with two key objectives: to establish integrated and affordable solid waste management systems and to mitigate negative impacts o f the sector on public health and the environment. More specifically, this law (i) establishes the institutional framework for SWM; (ii) requires the development o f solid waste master plans at the national, regional, and municipal level; (iii) establishes cost recovery principles, including the “polluter pays” principle and user fees (redevances); (iv) introduces sanitary landfills as the standard for f inal waste disposal and requiring regulations establishing landfil l norms and standards; (v) introduces regulations for hazardous waste management; and (vi) establishes a system to monitor compliance with the law.

42. The Government also prepared and approved a national municipal solid waste management program (Programme National de DPchets MPnagers et Assirnilis - PNDM). The PNDM i s the result o f strong inter-sectoral collaboration and dialogue between the key ministries concerned. A 15-year, 3- phase program launched in 2008, it sets out objectives for the modernization o f SWM, in particular, expanding and professionalizing collection services, modernizing disposal practices and promoting recycling activities. It includes specific targets for the municipal waste sector, including: collection coverage increasing from 70 percent to 90 percent by 2021; 100 percent use o f sanitary landfills in urban areas by 2021; the closure and/or rehabilitation o f 300 open dumps; and sorting o f 20 percent o f recyclable materials.

43. above two government actions. I t focuses over the next four years on three areas of reform:

The overall reform program builds on the momentum gained through the introduction of the

(i) Improving governance o f the sector through additional legal, regulatory, and institutional measures designed to establish a clear framework for the sector, and eliminating overlap and/or gaps in the policy-making, regulatory, and operational structure;

(ii) Improving the sustainability o f the sector through the introduction o f financial mechanisms and incentives for municipalities to improve their S W M systems; and

(iii) Mainstreaming social and environmental considerations into the planning, implementation, and operations o f solid waste services and investments.

Reform Area 1 - Governance of the Municipal Solid Waste Sector

44. Reform measures in this area are intended to address fragmentation and legacies that affect policymaking and effective implementation. Policy actions aim at (i) policy planning and coordination in the sector through the establishment o f the National Commission (Commission Nationale - CN) as a pol icy and strategic planning coordination body for the PNDM; (ii) defining the eligibil i ty and allocation criteria for government subsidies to support municipal S W M operations and investments in an equitable, transparent, and cost-effective manner; (iii) strengthening the regulatory framework through the enactment o f executive regulations for S W M planning and for standard and norms for disposal facilities; (iv) improving competition, transparency, and accountability o f S W M Private Sector Participation (PSP) schemes by improving the quality o f standard bidding and contracting procedures and strengthening the capacity o f respective local governments; and (v) developing appropriate communications and public

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awareness programs. Responsibility for the implementation of these reforms rests primarily with the M o I and the SWE, with the CN serving as the main coordination entity. Specific actions are presented below:

Defining the eligibili@ and allocation criteria for

GoM actions program for reform area 1

Box 3: Government target financial support to municipalities in upgrading their municipal solid waste systems

will in principle support investment costs of sanitary landfills and the closure of open dumps and the costs of professionalized collection services. The system would be designed to incentivize inter-

government financial support for municipal S W M operations and investments. The MoEF and the S W E have prepared a draft policy note defining the principles, criteria, and application o f financial support to municipalities for MSWM. Financial support

criteria in their application for’ funds. Once those have bee; met, allocations will be determined based on the costs o f the investment (a cost ceiling applies), the quality o f the proposal; and the financial capacity o f each municipality. In total, the government’s commitment i s expected to be approximately 1.5 billion MAD, over five years, for the support o f investments in sanitary landfills, in improvements to collection services, and in the closure and/or rehabilitation o f uncontrolled dumpsites.

The Government has decided to support municipalities to upgrade their management of solid waste, in part to facilitate the objectives o f Law 28- 00. The support i s intended to be limited, in order to encourage municipalities to develop their own resources, and temporary, to provide financing while measures to improve local revenues take effect. The Government support has four objectives: (i) transparency in the allocation o f funds; (ii) the placement of municipalities on a level playing field; (iii) support for capital investments; and (iv) the integration of environmental and social considerations. MuniciDalities must first meet several eligibilitv

0 Monitoring o f the implementation o f supported projects would be facilitated by the signing of contrats de partenariat between municipalities and the government. When adopted by the CN, a ministerial circular will be issued stating how this system will be used in the allocation of financial resources for the upgrade o f municipal solid waste systems.

0 Strengthen the S W M regulatory framework by enacting missing

Box 4: Main funding sources of the Municipalities

Municipalities’ revenues come from three sources. The largest, which make up 40 percent o f the total, are taxes levied by the central government: housing taxes, municipal services taxes, and professional taxes. Despite being the largest, the recovery rates of these taxes are weak, as the central fiscal authorities do not consider them - because they are allocated to the municipalities - to be a priority. A recent tax reform law intends to revise the tax base and the application of these taxes. The second source o f funds, making up 27 percent, consists o f “own resources” - leases, various user fees, and indirect fees - that are collected by the municipalities themselves. Last, the central government transfers a part - not less than 30 percent - of revenues received from the Value-Added Tax (VAT). These revenues are transferred in a manner intended to equalize municipal finances. The VAT transfers comprise approximately one third of municipal revenues. It i s important to note that the above revenues, for the most part, only cover municipalities’ recurrent, operational costs; funds for capital investment are made available through loans, through grants from the government, or through municipal savingsisurpluses from revenues.

regulations. The GoM intends to enact, by end of 2010, the following regulations: (i) the elaboration o f regional and local planning tools for solid waste management; (ii) administrative procedures and technical standards for waste treatment and landfilling; (iii) guidelines for the determination o f solid waste fees (redevances des dkchets); and (iv) modalities for monitoring and supervision o f waste services at national, regional and municipal levels.

Establish regulatory mechanisms governing local public services. GoM has initiated the amendment o f the Charte Communale in order to introduce, among other changes, the concept of regulation of local public services, including solid waste management. The amended Charte will be enacted during 2009 and will provide greater legitimacy to regulatory actions in the sector.

Improving competition, transparency, and accountability of PSP schemes in SWM by improving standard bidding and contracting procedures. With the support of the Public-Private Infrastructure Advisory Facility (PPIAF), the Government i s currently undertaking a study on PSP in MSWM that aims to recommend areas where improvements or adjustments need to be made in order to improve efficiency in the sector. The study will review existing PSP contracts and will benchmark the Moroccan PSP experience to other relevant experiences before suggesting areas o f improvements in contract design, tender preparation and implementation, and contract management. The study will also propose options to improve transparency and accountability in PSP contract management by suggesting modalities to ensure greater participation from usedbeneficiaries. GoM will validate proposed changes by end 2009 and incorporate them in preparing new standard contracting documents and procurement procedures starting in 20 10.

Public communications and awareness program: The Journke de Communications, held on July 9, 2008, launched the Government’s communication strategy with respect to the reform program. The strategy will continue to be developed and implemented over the course o f the PNDM. Annual budget allocations will take place beginning in 2009 for the implementation o f a national communication and public awareness program. In parallel, the GoM will implement a national benchmarking system that will constitute an additional incentive for municipalities to improve their performance in this sector.

Reform Area 2 - Enhancing sustainability

45. The Government recognizes that sustainability of the municipal solid waste sector is critical. Sustainability factors include (i) short-, medium- and long-term financial sustainability, and (ii) improved municipal capacity to plan and manage S W M services; including regular monitoring and evaluation o f sector performance.

46. Financial Sustainability: There are two main aspects to the Government’s strategy to promote financial sustainability - improving municipal financial capacity to meet the financial requirements o f modernizing the MSWM system and improving the cost effectiveness o f services. In terms o f improving municipal financial capacity, measures include: (i) in the short term, the provision o f targeted subsidies to municipalities to cover the incremental costs due to the requirements o f the PNDM; (ii) supporting municipalities in mobilizing additional funds through the international carbon market; and (iii) exploring new revenue sources and mechanisms for generating additional revenues such as the earmarking o f local revenues and the creation o f solid waste fees (redevances) in application of Law 28-00 and possible introduction o f “eco-taxes” on packaging waste. In terms o f improving the cost effectiveness of services, the Government intends to: (i) introduce incentives and tools to promote inter-municipal cooperation and regionalization of solid waste disposal facilities; this will help municipalities to take advantage o f the significant economies of scale in waste management; and (ii) revise contracting documents and procedures for private sector participation in S W M .

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47. In the case o f smaller municipalities, contracting out for improved solid waste disposal may pose particular challenges as these have: (i) lower revenues from local taxes as a proportion o f their volume o f waste produced; (ii) are less able to realise technical economies o f scale in waste handling; and (iii) have limited financial capacity to smooth out the gap between their up-front investment costs and the annualized, tonnage-based subsidy from the GoM. The regulations on the technical arrangements for waste disposal will therefore be indicative rather than obligatory during the first phase of the PNDM, allowing smaller towns to opt out. The Phase 1 (2008-2012) focuses on the larger towns and cities, which represent around 70 percent o f national solid waste production in Morocco. A study on S W M arrangements in smaller towns i s planned for 2009 with possible KFW funding. I t i s envisaged that DPL2 will pursue and deepen reforms among smaller towns to allow them to participate in the program. It i s hoped that multi-town groupings will permit many smaller municipalities to realise technical and managerial economies o f scale and equally benefit from the PNDM.

48. Improved municipal capacity to plan and manage S W M services: The Government program includes a multi-year capacity building program targeting local authorities and aiming at improving (i) managerial and technical capacity in S W M at the municipal level, (ii) elaboration, review and approval o f environmental impact assessment o f solid waste investment; (iii) contracting out solid waste services; and (iv) municipal financial management.

GoM actions program for reform area 2

Government subsidies to support the implementation of the PNDM: GoM i s committed to allocating financial resources to support municipalities in improving their municipal solid waste management systems, and to annually transfer al l targeted subsidies committed to as part o f the Budget Laws. As a prior action, the Moroccan Government has already credited MAD 100 million to the National Environment Fund (Fonds National de 1 ’Environnement - FNE) under the 2008 budget as well as MAD 200 million as part o f the Programme d’emploi de la TVA to provide financial support for municipalities through the PNDM. Additional transfers will be included for the upcoming four fiscal years (2009-2012) on a yearly basis.

Supporting the municipalities to mobilize additional financial resources under the Clean Development Mechanism (CDM): The GoM i s committed to supporting municipalities in the identification, preparation and negotiations of a CDM programmatic project in the solid waste sector. The FEC has been appointed by the Government as the coordinating agency responsible for developing a programmatic CDM project in parallel with the implementation of the PNDM. Additional resources provided by carbon finance could help cover part o f the cost o f municipal solid waste landfilling. Concurrently the CDM program will also contribute to international efforts to reduce carbon emissions and therefore contribute to the international community effort to mitigate climate change.

Completion of a feasibility study on long-term financial sustainability: Based on Terms o f Reference prepared and finalized in 2008, the GoM will conduct in 2009 a feasibility study for the implementation of identified tools/actions for mobilizing new revenue sources, such as the earmarking o f local revenues; the creation of “eco-taxes” on packaging materials, and the establishment o f users fee (redevances) in application of the Solid Waste Law 28-00. Validation and implementation of the recommendations and findings o f the study will take place in 2009-20 10.

Strengthening the legal framework to promote inter-municipal cooperation GoM initiated in 2008 the revision of the Charte Communale in order to provide formal legal status (personalite‘juridique) to groupings of municipalities and enabling them to act as special purpose vehicles. The adoption o f

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the amended Charte communale by the Parliament took place in December 2008. This will help municipalities take advantage of the significant economies o f scale in waste management.

Implementation of a national capacity-building program in SWM: As a prior action, the Government will implement a multi-year training plan for local municipalities within the framework o f the PNDM in order to address the lack o f managerial, technical and financial management capacity at the municipal level. The program will be co-managed by the Ministry o f Interior and the Secretariat o f State in charge o f Water and Environment. The Government has already mobilized national and international actors for the implementation o f this program including the FEC, GTZ, JICA, AFD’and PPIAF. A first series o f capacity building and technical assistance has been launched in 2009 and should cover the first phase of PNDM covering the period 2009-20 1 1

Reform Area 3: Mainstreaming environmental and social dimensions

49. The GoM is committed to promoting environmentally and socially sound disposal facilities. Given the current situation in terms of final disposal and the huge potential social and environmental impacts, the primary focus o f this aspect o f the reform program i s to (i) support the implementation o f environmentally and socially sound disposal facilities; and (ii) improve the social and working conditions o f wastepickers, whose livelihoods will be affected by closure o f existing dumpsites.

50. The Government recognizes the need to upgrade the existing EIA system. The GoM i s committed to removing the regulatory, administrative, technical, and managerial shortcomings o f the current EIA system so that a harmonized EIA platform can facilitate direct investment and donor support and elevate Morocco’s environmental image in the international arena. These shortcomings include: (i) absence o f established criteria, guidelines and rules for reviewing EMS, approving EIA reports, and including the EIA mitigating and monitoring measures in services and work contracts; (ii) incomplete standard TORs for preparing EIA reports for solid waste management, and lack o f TORs for environmental audits for landfills; (iii) absence o f procedures and modalities for integrating social concerns into the EIA process for projects in general and, for S W M projects in particular, those related to wastepickers; (iv) lack o f technical staff, resources and operational manuals for local staff to review EIA reports, and (v) lack of monitoring and enforcement o f EIA mitigating measures at the national and local levels.

5 1. The reform program also supports the international agenda on climate change. Morocco i s committed to promoting projects and activities to reduce GHG emissions, with particular focus on the solid waste sector. The FEC, a government agency specialized in the funding of municipalities, has already been appointed to support the municipalities in promoting the CDM agenda in municipal solid waste, including: (i) to assist in developing, preparing and sustaining CDM projects in parallel with the implementation of the PNDM; and (ii) to assist in selling Certified Emission Reductions (CERs) under a programmatic approach under which the FEC will act as the coordinating entity o f a nationwide CDM Programme of Activities. Because o f the potential reduction in GHGs and the resulting stream o f revenues that can be generated, CDM related activities contribute to mitigating short- and medium-term financial shortfalls in the sector.

GoM action program for reform area 3

52. The measures to be implemented under this reform area are presented below.

Enactment of EM-related decrees toward effective implementation of the E I A Law: As part o f the reform program and as an indication of the Government’s commitment to improving transparency in

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the EIA process, the Government i s committed to enacting the decrees required in the EIA law, namely, (i) the responsibilities and operations of the national EIA committee and regional EIA committees, and (ii) procedures for EIA-related public consultations.

Operationalize the EL4 system as whole through: (i) the preparation of a comprehensive EIA operational manual detailing steps and procedures for EIA preparation, review and approval; and (ii) the provision o f training and capacity building on EIA preparation and review. The Government will also (i) prepare model TORs for Environment and Social Impact Assessments (ESIAs) for sanitary landfills; (ii) prepare model TORs for environment and social audits (ESA) for the closure/rehabilitation o f open dumpsites; and (iii) establish best-practice guidelines for including mitigation and monitoring measures in work and services contracts.

Preparation and implementation of a multi-year plan (Phase 1 of the PNDM) focusing on municipal waste disposal: For the first phase o f the PNDM (2008-2012), a detailed action plan has been prepared and adopted by the three concerned ministries (MoI, MoF and SWE) in order to help local authorities improve SWM, including the modernization o f collection services; the construction of transfer stations and new sanitary landfills in eligible municipalities; the closure o f 63 open dumpsites; and the preparation o f seven regional master plans benefiting 52 municipalities and provinces.

Preparation and implementation of a program to improve social performance of solid waste management: Implementation o f this plan has been agreed based on the findings o f Phase 1 o f a Poverty and Social Impact Assessment (PSIA) conducted during preparation o f the present operation. The plan will include: (i) providing wastepickers access to health care; (ii) in-depth consultations by the municipalities with wastepickers and discussion o f options for their reemployment, possibly by private S W M operators ; and (iii) involving local NGOs, through a call for proposals, which will work closely with wastepickers, ensuring that they receive appropriate health and hygiene services, assisting in their finding alternative employment, and monitoring the implementation and follow-up of the PSIA recommendations. As first steps in this regard, the CN-PNDM has adopted the key principles under which social aspects will be incorporated into the implementation o f the PNDM, and two pilot social inclusion initiatives were launched in 2009.

IV. BANK SUPPORT FOR THE GOVERNMENT’S PROGRAM

A. LINK TO CAS

53. The solid waste sector was not specifically identified as a strategic objective in the 2005 Morocco CAS (3 1879-MA of June 14, 2005). However, the Government of Morocco requested support from the Bank in the light of recent policy developments in this sector, as it became increasingly clear that managing municipal waste under a “business-as-usual” approach would not only negatively affect quality o f life, public health, and environmental and natural resources but would also jeopardize the development o f many sectors, particularly tourism.

54. Furthermore, this DPL will contribute to achieving the CAS’S first strategic objective o f Improving Competitiveness and Business Climate by stimulating partnerships between the private sector and local government and by increasing Morocco’s competitiveness as a tourist destination. I t will also contribute to the CAS’S second strategic objective of increasing access to basic services by poor and marginalized groups, as these improved services will cover the urban poor and will support social inclusion o f informal waste workers. In addition, the proposed DPL will contribute to the cross-cutting CAS objective o f Improving Public Governance. Finally, the lending approach i s consistent with the CAS

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recommendation on the use o f policy lending instruments under a results-framework approach. Table 4 details the links between this DPL and the CAS.

55. Bank support i s deemed necessary at this junction to help the Government in the process o f promoting an enabling environment for the solid waste sector, particularly towards improving i t s financial, environmental and social performance. The proposed support builds upon the policy dialogue and advisory role the Bank has played in the environmentlsolid waste sector over the last five years, particularly under METAP.

Table 4. Links between DPL and CAS Outcomes

CAS Objectives

Improve competitiveness and business climate

~~

Increase access to basic services for poor and marginalized populations

Improve public governance

CAS Outcomes to which DPL contributes

Increase efficiency o f public administration

Improve investment climate

Poor and vulnerable populations living in rural, peri-urban and urban areas have improved access to basic services, social programs and economic opportunities Support transparency, accountability, and inclusiveness

DPL’s contribution

- stimulates partnerships between the private sector and local government, e.g., by involving NGOs and civil society in improved SWM - creates jobs by establishing small and medium enterprises and integrating informal actors such as wasetpickers

- increases the country’s competitiveness as a tourist destination by ensuring a cleaner environment - enhances the access to waste collection services for the urban poor

- provides wastepickers access to health care - establishes an empowered national commission for the PNDM through a ministerial circular

- promotes transparency, equity and performance through adoption o f eligibility criteria for the allocation o f Government subsidies to municipalities under the PNDM

- adopts SW Law-related decrees on SWM planning, waste classification, norms and standards for waste treatment and landfilling

B. COLLABORATION WITH THE IMF AND OTHER DONORS

56. The World Bank and the ZMF maintain close collaboration in Morocco. Regular contacts between the IMF and World Bank country teams are customary, with discussions focused on the respective work programs, country priorities, recent developments and prospects. Collaboration between

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the Fund and the Bank in Morocco has been seamless, with general understanding on the division o f labor and a shared assessment o f the critical macroeconomic challenges facing the country.

57. The Fund participates in Bank project review meetings where relevant. Similarly, Bank staff contributed to the IMF’s 2008 Article IV consultation mission to Morocco. The ongoing analytical work being carried out by the Fund team, which was welcomed by Bank counterparts, focuses on (i) the medium-term outlook for public finances in Morocco; (ii) an analysis o f the real exchange rate; and (iii) the macroeconomic implications o f the global financial crisis and economic downturn. This analysis i s incorporated in this document in Section I1 A and B.

58. The Bank and Fund share information and analysis o f evolving public finance issues, including on subsidies, and, more broadly, on the activities o f the respective institutions, including technical assistance. There i s broad agreement on the division o f labor between the two organizations, with the Fund continuing to focus on critical macroeconomic areas, and in particular exchange rate, monetary, and overall fiscal policy. The Bank continues to focus on strengthening economic management, improving the business environment, and sectoral reforms. The recent Financial Sector Appraisal Program (FSAP) update has been a collaborative work between the Bank and the IMF which will continue for the dissemination and follow-up o f i t s recommendations.

59. several years in the following areas:

The IMF has provided technical assistance to Morocco on regional activities over the last

(i)

(ii)

Business environment, reform, and growth prospects. A regional seminar was held in Rabat in November 2005.

Regional integration and Jinancial sector development. A regional conference on financial sector reform and prospects for regional integration in the Maghreb took place in Rabat at end 2006.

(iii) Monetary and exchange rate policies. A high-level regional conference took place in 2007 to discuss issues related to a possible transition to an inflation-targeting framework.

(iv) Regional integration and trade liberalization. The IMF i s conducting follow-up on the action plan adopted after the November 2005 Algiers Conference. Morocco subscribed to the IMF Special Data Dissemination Standard (SDDS) in December 2005.

Relationship with other donors

60. The proposed DPL operation was prepared in consultation with donors active in Morocco’s solid waste sector. Close collaboration has been developed with KFW, AFD and GTZ to ensure full coordination with ongoing donor support activities and to share insights on reform progress and constraints. As a result, the proposed operation will expand on AFD and GTZ operations supporting the development o f local capacity under the decentralization agenda and assisting the SWE and M o I in strengthening the solid waste legal and institutional framework.

61. All active donors in the sector are keen to see improvements in the regulatory and institutional framework, and AFD and GTZ expressed interest in funding technical assistance to accelerate the enactment o f reforms. GTZ has already agreed to fund a second phase o f the poverty and social impact analysis (PSIA) on willingness to pay o f users, especially the poorest segment o f the population, whereas AFD i s supporting an assessment o f financial management systems at the local level. Also, KfW has expressed interest in this D P L and i s considering collaborating with the Bank in the follow-up DPL, including funding technical assistance and investments.

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C. RELATIONSHIP TO OTHER BANK OPERATIONS

62. Engagement between the Bank and Morocco on S W M has steadily strengthened and deepened since 2002 through dialogue and technical assistance, in large part through METAP. In parallel with the preparation o f the proposed DPL operation, the Bank provided the sector with technical support and advisory services for the elaboration of the PNDM, including support for (i) the identification o f priority areas for technical and financial support to municipalities as well as eligibility criteria; (ii) the design o f an appropriate system to channel this support to municipalities committed to reform o f the sector; (iii) the development of a PSP strategy in the solid waste sector; and (iv) the development of a Clean Development Mechanism (CDM) programmatic project in the municipal S W M area.

63. The Bank has closely coordinated the preparation of the proposed solid waste management DPL with the implementation of the Water Sector DPL and Energy Sector DPL, both approved in FY 07. The three sectors covered by these DPLs are all the responsibility o f the Ministry of Energy, Mining, Water and Environment. Consistent approaches have been adopted regarding the need to strengthen the legal and institutional framework, to maintain consistent coordination, and to ensure the financial transparency of water, sanitation and power distribution and solid waste management services.

D. LESSONS LEARNED

64. While preparing this operation, lessons learned from METAP assistance have been incorporated, as well as those from the overall ongoing dialogue in the solid waste sector in Morocco and from the Bank’s wider experience with environment technical assistance and DPL operations across sectors and regions, including those in the energy, water, housing and administration sectors in Morocco. These lessons include:

65. The Government of Morocco has shown a keen interest in development policy lending and the Bank has so far delivered DPLs in Public Administration, Housing, Water and Energy. The single- tranche Public Administration Reform Loan I11 (PARL 111) was approved in May 2008 and i s making considerable progress in budget management modernization, human resources management and payroll control. The coordination o f several donors around the PARL, along the principles of the Paris Declaration, i s also an important achievement. The Housing Sector DPL was a two-tranche operation o f US$150 million equivalent and supported a program of reforms to strengthen the institutional, regulatory and fiscal environment for a well functioning housing market and to increase the access of low-income and severely disadvantaged households to more affordable and higher quality housing. The ICR o f the Housing Sector DPL was completed in December 2008 and concluded that the reform program supported by the DPL i s having a profoundly beneficial impact on the functioning o f the housing sector in Morocco. In 2007 the Government requested Bank support for a water sector DPL to support reforms to improve sector governance, integrated water resources management, irrigation efficiency and water supply and sewer service. This built on a previous long-term engagement in the water sector by the Bank in Morocco, with six investment projects to date. The Government appreciates the support provided through the first Water DPL but has requested that the Bank continue to provide investment support to the sector. The Programmatic Energy DPL i s currently under implementation, with DPL 1 approved in May 2007 and DPL 2 scheduled for delivery in May 2009. The experience to date with the energy DPL has shown that the Bank’s involvement can be crucial to ensure that key government agencies cooperate effectively to carry out sector reforms.

66. Accounting for the technical assistance needs of reform and building donor support. Consultations with GoM, GTZ and AFD helped focus on institutional capacity issues. A key precaution

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o f the DPL has been to identify the technical and financial support needs of the agencies in charge o f reform implementation, and to make GoM explicitly responsible for the timely funding of such needs through the general budget. As a result, the GoM has already allocated the necessary TA funding and i s effectively engaging other donors, Le., GTZ, KFW and AFD, in supporting the reform program.

67. Assisting reform implementation through close supervision and continued high-level dialogue. Based on prior experiences, GoM welcomes sustained DPL supervision by the Bank as a means to regularly evaluate reform progress and provide support on specific issues. Close supervision i s to be coupled with continued high-level policy dialogue directed towards mobilizing GoM leadership on monitoring and decision-making.

68. Strategic communication is needed to promote the reform program. Lack o f public outreach on S W M policy may have contributed to slow progress in the past. Pushing the S W M agenda requires strategic communication to increase the level of understanding and build social and political support. A communication and awareness program i s included in the first pillar of the DPL to promote dialogue among stakeholders and to induce behavioral changes, as well as to manage stakeholder concerns and expectations.

69. Monitoring and evaluation of sector reform implementation is necessary. One key lesson i s the importance o f ensuring that GoM prioritizes achievement of reform objectives over the implementation of a set of measures. To that effect, the proposed operation includes strengthening o f the accountability framework for reform implementation and impact evaluation as part of the monitoring and evaluation (M&E) process. To facilitate monitoring and evaluation, the Bank has made considerable efforts during preparation to encourage the Department o f Environment to take on the responsibilities o f monitoring the progress and impact o f sector reform.

E. Analytical Underpinnings

70. The solid waste management sector has been supported by the EU-financed regional solid waste management project for the Mashreq and Maghreb Region and implemented by the Mediterranean Environmental Technical Assistance Program (METAP) of the World Bank (2003- 2006). This regional project was the major catalyst of solid waste management reform in Morocco. It developed the necessary policy and institutional studies upon which this DPL was structured, strengthened the technical capacity o f MoI and S W E in waste collection and disposal, and provided training to several municipalities on contract management and monitoring and the role o f the private sector, as well as on the opportunities offered for the sector under the CDM.

7 1. I n addition, the cost assessment of environmental degradation, conducted by the World Bank in 2003, formed the basis for engaging the Government in a policy discussion in solid waste management and water quality. This environmental sector work was the first step in using such an assessment to set policy and investment priorities while integrating environmental issues into economic and social development.

72. I n parallel with the preparation of the proposed DPL operation, the Bank provided technical support and policy advisory services in many areas, including (i) municipal finance, including the development o f a set of matrices to guide the allocation o f state financial support for the implementation o f the PNDM; (ii) a technical note on the main options to improve the financial sustainability o f the sector; (iii) a PPIAF granted study for the development o f a strategy for private sector participation in the sector; and (iv) support o f the MoI and Department o f Environment for elaboration o f their draft decrees, generic TORS, and a capacity-building program in the solid waste sector.

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73. The SWMprogram is also supported through the GTZ Environmental Program in Morocco (Programme de Gestion de Protection de L’Environnement, PGPE). GTZ has assisted in the development o f the four laws on solid waste management, EIA, environmental protection, and air pollution. More recently, it has engaged in providing technical assistance and capacity building in the solid waste sector. Also, AfD has financed expertise and capacity building to the municipalities through its Fonds d’Expertise et de Renforcement des Capacitks de‘die‘ aux collectivite‘s locales. A D will also be conducting studies to support MoI in strengthening financial management at the municipality level.

74. work, including:

In summary, the program has an extensive analytical foundation in the form of recent sector

The Poverty and Social Impact Analysis (Phase l), September 2008 Morocco-Environmental fiscal reform Study, June 2007 Assessment of Environmental Impact Assessment System, GTZ, 2007 National Municipal Solid Waste Management Program, June 2006 Morocco - Solid Waste Management Study, January 2006 The Municipal Solid Waste Financing Note, METAP, 2006 Morocco - Solid Waste Recycling Sector Study des Dechets, METAP 2005 Country Solid Waste Management Report, METAP, May 2004 Cost Assessment of Environmental Degradation, June 2003

75. These studies helped the policy dialogue with the GoM on the key sector issues and provided a better understanding of the economic and social benefits o f the reforms. Additional analytical work will be conducted in parallel with the implementation o f the DPL, with close coordination and support from other involved donors. The ongoing work wil l help develop detailed medium-term reform plans.

V. THE PROPOSED MUNICIPAL SOLID WASTE SECTOR DEVELOPMENT POLICY LOAN

A. OPERATION DESCRIPTION

76. The proposed DPL, the first in a programmatic series of two single-tranche DPLs (the DPL program), i s designed to provide budget support and policy advice for the implementation of a national program for the reform o f the municipal solid waste sector in Morocco. It was developed in close coordination with the GoM’s reform program, to ensure full ownership o f process, actions and outcomes.

77. The GoM and the Bank recognize that under GoM leadership, the Bank can play a critical role in strengthening cross-sectoral policy dialogue between the various government entities and sustained commitment toward effective reform of the sector, and that a DPL program i s the best suited instrument to structure such commitment. A program o f two single-tranche DPLs designed to provide budget support i s thus envisioned to sustain further and accelerated implementation of an integrated program o f solid waste reforms between 2009 and 201 1, as described in the draft Letter o f Development Policy (Annex 1). The first operation of the DPL program (DPL1) supports the key foundations of the Government’s reform program, which aims to establish the enabling environment for an integrated and affordable solid waste system. The planned second DPL (DPL2), which will be presented for Board approval by early 201 1 (Le. within the required 24-month timeframe for Programmatic DPLs), will aim to support capitalizing on the momentum gained during the f i rst operation while deepening the reform through results-oriented actions at the regional and municipal level.

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78. Operation Policy Matrix provided in Annex 2.

The objectives, prior actions, indicative triggers, outcomes and indicators are described in the

Effective inter-ministerial coordination o f policies and programs in the municipal solid waste sector.

79. The higher-level objective of the program is to improve thefinancial, environmental and social performance of the municipal solid waste sector in Morocco. The overall benefits expected from this operation are related to the mitigation o f the political, environmental, social and economic impacts o f the existing municipal solid waste management system. The Government i s committed to addressing these impacts as part o f its policies to improve the governance and the performance of the sector as well as the sustainability o f related services in urban areas, and the Loan i s expected to provide support to coherent implementation of the necessary reforms.

Legal and institutional framework enables the effective implementation and management of integrated and affordable municipal solid waste

80. The specijic benefits expected from the implementation of the reform program supported by this operation are: (i) improved environmental and social conditions which would result from the progressive elimination o f the existing uncontrolled dumpsites and construction of sanitary landfills; (ii) enhanced access to waste collection services for the urban poor; (iii) reduced cost o f waste landfilling resulting from more cost-effective planning regulations and standards; (iv) more efficient use o f resources allocated to the solid waste sector and better targeted public subsidies to the sector; and (v) growth and job creation resulting from the creation o f small and medium enterprises, the promotion o f recycling and integrating informal actors such as wastepickers.

81. An overall agreement has been reached with the Government on the design and implementation of the reforms supported under the proposed programmatic operation. In agreement with the Government, the proposed DPL directly supports the entire reform program over the 2009-1 1 period. The 2009-201 1 reforms are a continuation o f the reform actions implemented since 2007. The agreement on a long-term strategy, intermediate steps and immediate actions i s reflected in the Letter o f Sector Development Policy (Annex 1) and Policy Matrix (Annex 2). The Policy Matrix includes prior actions proposed to be met for the proposed first loan and triggers for the second loan. Continued engagement o f the Bank to support the medium-term reform process will depend upon progress and success in implementation o f the action program and confirmation o f the long-term perspective of solid waste sector reforms - amended as needed in light o f the experience with the implementation o f the first two-year reforms and the mid-term review o f the DPL program.

82. The reform program will benefit from the support of other donors to fund technical assistance needs, as well as from GoM commitment to support local authorities to develop and modernize their municipal solid waste systems. In coordination with GoM, the preparation o f the DPL involved consultation and coordination with other donors involved in the solid waste sector as well as in the municipal development agenda, resulting in broad alignment on reform needs, and in commitments to support, through TA activities, the design and implementation of key policy actions at both national and local levels. For instance, the support provided by AFD to support the decentralization program as well as the work being done by GTZ in terms of institutional strengthening and capacity building in the solid waste and environmental fields are factors for success o f the reform, and were firmed up as part o f the preparation of this proposed DPL.

Table 5. Municipal Solid Waste Sector DPL Program Outcomes

I I Program Outcomes Longer Term Outcomes I I Improve governance I

Program Outcomes

Alignment of financial support granted to municipalities with sector policy priorities and national program objectives.

Municipal solid waste management systems in place are more consistent with national policies, regulations, and standards.

Local decision-makers and service users are i s better informed and supportive o f improved solid waste management practices.

Enhance sustainability

Budget allocation available in a transition period to support the additional costs o f upgrading municipal solid waste systems.

Additional sources of revenues generated through CDM mechanism and other new instruments..

Solid waste fees in place to support sector cost recovery, consistent with provisions of Solid Waste Law 28-00.

Key players at municipal and regional levels are able to plan and efficiently manage solid waste systems.

Mainstream environmental and social considerations

An EIA system i s in place to reduce social and environmental impacts in SWM investment and operations.

Environmentally and socially sound disposal practices are in place in municipalities supported by the PNDM.

Social impacts associated with solid waste services are mitigated..

Longer Term Outcomes

systems,

municipal solid waste services. Cost-effective private sector participation in

Improved cost recovery of MSW services.

Financial and managerial capacities at the municipal level well established.

Service users and public benefiting from improved and integrated municipal solid waste services, and willing to contribute.

Near-universal municipal waste collection services in urban areas.

100 percent disposal o f municipal solid waste in acceptable social and environmental conditions.

Closure and/or rehabilitation of al l open dumpsites.

Recycling activities promoted in a manner to incorporate the informal sector.

Social considerations f i l ly integrated into solid waste management.

B. POLICY AREAS

83. The DPL program policy matrix consists o f key actions based on and aligned with the GoM’s reform program matrix, which are detailed in Annex 2. Eight policy actions are retained as agreed prior actions for the first DPL; they are listed in Table 6, below and explained in greater detail in the following paragraphs. Verified completion o f the eight agreed actions i s a prerequisitefor Board presentation o f the DPLl.

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84. fo l lowing paragraphs also describe these triggers, which are included as wel l in Annex 2.

Nine policy actions have been agreed as triggers to initiate the preparation o f DPL2. The

85. All the prior actions for the first D P L have been met as o f February 6,2009.

POLICY AREA 1 - GOVERNANCE OF THE MUNICIPAL SOLID WASTE SECTOR:

86. Three prior actions and four indicative triggers have been agreed as essential to achieving the fol lowing key objectives under this policy area: (i) to promote consistency and transparency o f government actions in the solid waste sector, (ii) to ensure implementation o f Solid Waste L a w 28-00, and, through it, implementation o f the national solid waste policy, (iii) to improve transparency, competitiveness, and accountability in private sector contracting in SWM, and (iv) to change public behavior and improve municipal decision making with respect to solid waste management practices.

87. Issuance of a circular by the Secretary of State in charge of Water and Environment establishing the National Commission of the National Municipal Solid Waste Management Program (CN-PNDM)). The CN-PNDM i s the main platform for enhanced governance o f the solid waste sector, particularly in terms o f sector policymaking, priority planning, and the allocation o f government financial support for modernization o f solid waste management systems. The CN-PNDM will contribute as wel l to (i) the establishment o f cross-sectoral partnerships and coordination among the key concerned government institutions; (ii) enhanced consistency o f government technical and financial support to local authorities; and (iii) close supervision and monitoring o f reform program actions and outcomes as wel l as implementation o f the PNDM. The CN-PNDM will be chaired by the Secretary o f State in charge o f Water and Environment and will include representatives o f the MoI, MoEF, MAEG, FEC and the PNDM program management unit. The Department o f Environment will be responsible for the CN-PNDM secretariat.

88. Adoption by the CN-PNDM of eligibility criteria for the allocation of Government financial support to municipalities under the PNDM: The definition o f these criteria have guided by four key principles: transparency o f the allocation system, equity (pe're'quation) to take into account resource inequalities between municipalities, quality o f investments, and the integration o f environmental and social considerations. Allocations will be based on (i) investment costs; (ii) tonnage o f waste handled by the municipality; and (iii) financial capacity o f the municipality. Allocations would also be adjusted to reflect factors such as innovation, inter-municipal collaboration and community involvement in waste management. This one-time government financial support to eligible investments would be disbursed over a maximum period o f f ive years. This action and subsequent triggers and benchmarks will help shift f rom ad-hoc to transparent and equitable allocation o f government financial support for the modernization o f municipal solid waste management systems.

89. Publication in the Bulletin Offciel of a decree related to the classijication of waste, and submission to and approval by the Ministry of Interior and the Secretariat of State in charge of Water and Environment of the two draft decrees related to (0 procedures for the elaboration of a provincial or prefectural master plan for municipal solid waste and (io administrative procedures and technical standards for municipal solid waste landfilling. This action i s the f i rst step toward implementation o f Solid Waste L a w 28-00. The f i rs t and third decrees will establish technical standards for the management o f solid waste disposal and treatment facilities. The second decree will introduce regional planning tools (master plans) for solid waste management that sets long-term objectives and i s responsive to demographic and industrial growth based on local urban needs.

90. Four triggers for the preparation of DPL2 under the policy area of governance have been identijied that solidify and put into implementation the prior actions identified above. These are: (i)

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that the CN-PNDM meet at least twice a year to coordinate, review and evaluate the implementation o f the PNDM, including review and approval o f progress reports; (ii) that regional committees for the review and validation o f provincial and prefectural M S W master plans are established and operational in at least two regions consistent with the relevant legislation; (iii) adoption by the CN-PNDM o f revised model bidding and contracting documents to be used beginning in 2010; and (iv) launch in 2009 o f a fully- funded communications and public awareness program on solid waste issues through the PNDM. The first trigger has been selected to ensure the operationalization o f entities necessary for the transparent coordination and consultation in preparing and adopting the annual P N D M work program, as wel l as ensuring appropriate allocation o f resources. The second trigger i s the f i rs t step to be undertaken by the government to ensure a consultative and decision-making process for the review and validation o f solid waste planning at the regional level involving regional governmental entities, professional associations, and c iv i l society representatives. The third trigger provides one o f the key means to municipalities to enable them to achieve, on the ground, the program objectives in terms o f transparency, competitiveness, and accountability for better private sector participation in M S W management. The fourth trigger i s directed toward implementation o f the communications strategy o f the PNDM, which i s a necessary input into behavioral changes among the public as wel l as into establishing communications between municipal decision makers and the public regarding priorities, concerns, and expectations.

POLICY AREA 2 - SUSTAINABLITY OF MUNICIPAL SOLID WASTE SERVICES

91. The modernisation o f M S W in Morocco will entail significant increases in investment and recurrent costs. The P N D M will support municipalities’ short- and medium-term investment costs, however, cost-savings and increased municipal contributions will be needed to ensure the reforms’ long- term financial sustainability. The key objectives under this policy area are therefore: (i) to strengthen municipal financial capacity to meet the financial requirements for modern, integrated MSW, (ii) to improve cost effectiveness o f M S W services, and (iii) to strengthen municipal capacity to efficiently manage solid waste services. The three Prior Actions below have been identified as essential to achieving these objectives:

92. Appropriate funding has been made available to the PNDM for 2008, and the Loi de Finances of fiscal year 2009 includes appropriate budget allocations in support of the PNDM. This formalizes the central government’s commitment to help municipalities to (i) end current open-dumpsite practices and equip urban centers with sanitary landfills; and (ii) close or rehabilitate uncontrolled dumpsites. It represents a major G o M commitment towards reducing the negative health and environmental impacts o f existing practices. The allocations will help the municipalities to narrow the short- and medium-term financing gap resulting f rom the shift o f focus from waste collection to an integrated system addressing collection and sanitary disposal.

93. Appointment by the Minister of Interior of a coordinating entity in charge of the development of a national CDM Program to facilitate municipalities’ access to the carbon market. This action, the f i rs t o f i t s kind in Morocco, creates an institutional framework for local government to participate in the C D M through a programmatic approach. It should thus help municipalities to benefit from the international carbon market while contributing to international efforts to mitigate climate change. The potential additional revenues generated through C D M projects will support the sustainability o f the solid waste sector. It i s estimated that the potential CERs o f the solid waste sector in Morocco amount to 0.7- 1 .O mil l ion tons equivalent C 0 2 .

94. Launch of a fully funded capacity development program in the solid waste sector targeting municipalities. Many municipalities lack technical and managerial capacity to manage solid waste services, particularly to plan, contract out, supervise, and evaluate services. This action i s the first step in the implementation o f one o f the major non-investment components o f the PNDM. The Direction de

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Formation at the Ministry o f Interior will be the coordinating unit for the implementation o f this nationwide program with the support o f national and international agencies (FEC, GTZ and JICA) and focusing on project preparation, local and regional planning, environmental impact assessment, municipal financial management, and the monitoring and evaluation o f solid waste services. The implementation o f this program wil l be funded through the Ministry o f Interior (Program d’Emploi de la TVA) and donor contributions.

95. Two indicative triggers for DPL2 have been identified under thispolicy area. These are viewed as key to implementing the policy reforms identified for DPLl and enabling municipal implementation o f reforms on the ground. The triggers are: (i) signature by the Minister o f Interior o f a circular on the application o f Article 23 o f L a w 28.00 on user fees (redevances) for municipal solid waste; and (ii) continued implementation o f a multi-year capacity building program. The envisaged approach i s t o ensure the long-term financial sustainability o f solid waste management reforms, first by facilitating municipalities’ mobilization o f new sources o f financing, and second by controlling unit costs through improved management and contracting. Article 23 o f L a w 28.00 authorized local authorities to establish new user fees (redevances) for municipal solid waste services; a study in early 2009 will propose modalities for applying this legislation and a circular from the Minister o f Interior will be issued for their effective implementation. It i s likely that the user charges wil l focus on a small number o f easily- identifiable high-volume producers o f household-type waste. This includes entities such as hotels, restaurants and offices. If practical, user charges may also be applied to specific products that create particular household waste disposal costs. The long-term intention i s thus to reduce municipalities’ dependence upon central transfers for SWM. In parallel, four actions have been identified as benchmarks o f progress in improving sustainability o f the sector; these are included in Annex 2 in italics.

POLICY AREA 3 - ENVIRONMENTAL AND SOCIAL CONSIDERATIONS

96. T w o prior actions have been agreed as essential to achieving the fol lowing key objectives under this policy area: (i) to upgrade and operationalize the existing EIA system at both national and regional levels, and (ii) to improve the environmental and social performance o f the solid waste sector.

97. Publication in the Bulletin Officiel of the decrees related to (0 the responsibilities and operations of the national EIA committee and regional EIA committees, and (ii) procedures for EIA- related public consultations. This action represents a major achievement in terms o f effective implementation o f the EIA law, and it confirms the Government’s determination to formalize the EIA committees and to decentralize EIA reviews and approvals. The decree related to public consultation - which represents a major shift from previous practice - increases public involvement and transparency in EIA decision making.

98. Adoption by the CN-PNDM of principles for the inclusion of social considerations in the framework of the PNDM. These principles, as adopted by the CN-PNDM, are: (i) the inclusion o f social considerations into SWh4 planning; (ii) the inclusion o f social considerations into criteria for P N D M financing o f S W M investments; (iii) the inclusion o f social measures into contract with private contractors; (iv) the participation o f NGOs and public agencies responsible for social programs, employment and j o b training, etc. in assistance to socially vulnerable groups related to SWM; and (v) public communications and training related to social issues in the sector. This prior action represents a key step towards systematic consideration o f social concerns as part o f the overall sector reform program and the PNDM.

99. Three triggers for DPL2 have been identified under the environmental and social policy area: (i) the establishment and operationalization o f at least three regional EIA committees; (ii) launch o f the construction o f at least three new sanitary landfills and closure or rehabilitation o f at least three open

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dumpsites before March 201 0; and (iii) extension o f social inclusion programs to PNDM-supported disposal investments. The intention o f the f i rst trigger i s to demonstrate the commitment o f the government towards reaching a consistent and comprehensive framework for environmental management in general and an effective EIA process for the establishment o f sanitary landfills in particular. The second trigger represents government action demonstrating the reality o f the reform program by the actual establishment o f sanitary landfills and rehabilitation and closure o f open dumpsites. The related quantitative target indicator reflects a realistic time frame and potential implementation challenges for such disposal infrastructure. On-the-ground results will provide incentive for additional municipalities to apply for financial support for M S W investments, increasing the momentum o f reform implementation whi le incorporating lessons learned from init ial investments. The third trigger has been selected to demonstrate the commitment o f the government to mainstreaming social concerns into projects supported by the PNDM.

Table 6: Prior actions for Board presentation of DPLl

Governance o f the municipal solid waste sector

1. Issuance o f a circular by the Secretary o f State in charge o f Water and Environment establishing the CN-PNDM.

2. Adoption by the CN-PNDM o f eligibility criteria for the allocation o f financial support to municipalities under the PNDM.

3. Publication in the Bulletin Oficiel o f the decree related to classification o f waste and submission to and approval by the Ministry of Interior and the Secretariat o f State in charge o f Water and Environment o f the draft decrees related to (i) procedures for the elaboration o f a provincial or prefectural master plan for municipal solid waste (MSW); and (ii) administrative procedures and technical standards for MSW landfilling.

Sustainability o f municipal solid waste services

4. Appropriate finding has been made available to the PNDM for 2008, and the Loi de Finances of fiscal year 2009 includes appropriate budget allocations in support o f the PNDM.

5. Appointment by the Minister o f Interior o f a coordinating entity in charge o f the development o f a national CDM Program to facilitate municipalities’ access to the carbon market.

6. Launch o f a fully funded capacity development program in the solid waste sector targeting municipalities.

Environment and social considerations

7. Publication in the Bulletin Oficiel o f the decrees related to (i) the responsibilities and operations o f the national EIA committee and regional EIA committees, and (ii) procedures for EIA-related public consultations.

8 . Adoption by the CN-PNDM of principles for the inclusion o f social considerations in the framework o f the PNDM.

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Table 7: Good Practice Principles on Conditionality Principle 1: Reinforce ownership. This operation has been client driven and enjoys solid country ownership. Its preparation was guided by: (i) the new government declaration announced in October 2007 that placed the solid waste sector among the key priorities of the government policy agenda for the period 2008-2012; (ii) intensive consultation and coordination among key stakeholders on reform actions and timing through the DPL Interdepartmental Steering Committee (SC); and (iii) comprehensive and well accepted sector work including analytical works conducted by concerned line ministries. In addition, the reform program was prepared by the SC with continued and comprehensive inputs from all concerned ministries

Ownership i s also ensured by timely and demand-driven analytical support. Even though it i s not envisaged to combine this DPL with a technical assistance lending operation, the GoM has requested the Bank to support with technical assistance and policy advice on solid waste, and the Bank has already mobilised resources to provide such advice.

Principle 2: Agree up front with the Government and other financial partners on a coordinated accountability framework. The DPL operation benefited from close cooperation with GTZ, AFD and KFW, to ensure consistency among ongoing donor-funded technical assistance and operations. Alignment of these major sector partners on the reform program objectives was also sought and achieved through continued consultations and progress updates. Donors’ commitments to fund technical assistance, capacity building activities and studies to support specific reform actions and results are evidence of such alignment.

Principle 3: Customize the accountability framework and modalities of Bank support to country circumstances. The policy matrix and conditionality of the proposed operation are highly tailored to country and sector circumstances. Through this operation the Bank offers recognition and budget support for the excellent measures taken by the country to improve the environmental, social and economic performance o f the municipal solid waste sector. The proposed DPL operation has been designed based on the lessons learned from prior policy development operations in Morocco and benefits from the flexibility afforded by the programmatic approach. In addition, the program includes only two single tranche operations covering the current government mandate period which represents a signal of the Government’s commitment to the reform and a place mark for the achievement o f the planned objectives over the coming years.

Principle 4: Choose only actions critical for achieving results as conditions for disbursement. The number o f prior actions has been limited to eight, which represents the first critical steps in each of the main areas of reform. Out of numerous milestones, only nine were selected to be triggers for the second DPL given their critical importance in unlocking the reform process, delivering key immediate outputs and achieving reform outcomes. There are no conditions for effectiveness.

Principle 5: Conduct transparent progress reviews conducive to predictable and performance- based evaluation. Policy reform of such a young sector needs intensive supervision and progress review. The proposed mechanisms for review are closely related to expected progress in each area o f reform and wil l strike a balance between achievable results and the desired objectives o f the three reform areas. Substantial progress on triggers and benchmarks will also be assessed during supervision missions in order to begin preparation of the second DPL.

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VI. OPERATION IMPLEMENTATION

A. Poverty and Social Impacts

100. The operation's design takes into account the results o f an analysis o f potential socio- economic impacts o f solid waste management reforms. A Poverty and Social Impact Analysis (PSIA) was conducted between March and June 2008 to: (i) establish baseline data regarding the size o f the informal solid waste sector, the characteristics o f the groups and individuals involved, and the economic relevance o f waste collection activities for their livelihoods; (ii) determine the l ikely negative and positive effects o f the reforms; (iii) identify options to mitigate adverse impacts and maximize potential benefits; and (iv) identify the remaining analytical and data requirements for the proposed second DPL. The analysis benefited f rom inputs from decision makers at various levels as wel l as several c iv i l society organizations, and in this sense served as a platform for stakeholder consultation on the objectives and broader dimensions o f the reform program. This section highlights the main conclusions o f the analysis and how they informed the policy matrix.

101. The informal system of waste collection and recycling plays an important role in the livelihoods of marginalized groups. The number o f individuals deriving a substantial part o f their incomes from landfills i s estimated at 5,500, o f which 3,500 are directly involved in informal waste collection and recycling on landfills and 2,000 are herders. These figures are subject to seasonal increases related to the rate o f economic growth, with individuals not normally involved in waste-picking attracted to the landfills by the opportunity o f additional income during systemic or other shocks. The estimated monthly average income o f a waste-picker i s MAD 2,300 per month, and the average additional income from herding i s around MAD 1,000 per month. 20 percent o f active individuals are estimated to be women; 15 percent under 18, and 10 percent over 65. The negative social externalities o f informal waste picking include loss o f income, impacts on children's education and adverse health impacts for a l l waste pickers.

102. Without adequate mitigation measures, the reforms risk having significant negative direct impacts on wastepickers and indirect impacts on other social groups and economic sectors. The closure o f landfills without accompanying mitigation measures would translate into losses o f jobs, income, and homes, with total welfare loss estimated at MAD 88 mi l l ion per year. Experience from the closing o f landfills in Fes, Oujda and El Jadida suggests that 20 to 30 percent o f waste pickers normally operating on landfills seek new economic opportunities in waste collection in cities, thereby compounding the problem there. Between 200 and 300 families living inside the perimeter o f landfills would lose their homes. Moreover, the consequent reduction o f the volume o f recycled material would imply additional welfare losses through extra imports on the part o f industries that rely on informal recycling. A 15 percent reduction in the amount o f recycled materials (a conservative estimate o f those accrued from informal activities) would translate into a 30 percent increase in the cost o f inputs, due to higher prices and taxes.

103. Any sustainable solution must begin with the sensitization of decision makers, especially at the local level. The analysis showed an insufficient level o f awareness among local and national decision makers o f the scope and relevance o f the informal waste sector, and o f the adverse impacts o f existing reforms. Morocco's demonstrably high level o f polit ical attention to the themes o f poverty and social exclusion offers an opportunity to remedy this situation. In addition to a range o f options for the absorption o f informal waste workers into the formal waste management system and the re-conversion o f others into different activities, the analysis suggests a range o f actions aimed at sensitizing decision makers and the private sector to the key issues. T o this effect, the policy matrix includes the introduction o f Environmental and Social Impact Assessment tools aimed at placing recognition o f the role o f the

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informal waste sector and the adverse impacts o f landfi l l closing at the center o f decision-making. The operation also envisages the drafting o f an Orientation Note on enhancing the role o f informal collection and recycling within value-added chains.

104. The private sector and civil society can play a fundamental role in mitigating negative effects of landfill closings and in protecting and strengthening the economic role played by the informal waste sector. The PSIA suggests one mode o f integration o f informal waste workers into the operations o f private solid waste contractors, based on a recent successful experience with the reconversion o f RabaVAkreuch landfill. The matrix thus requires the inclusion in the bidding documents and contracts for solid waste operators o f provisions for the absorption o f informal waste workers. Based on that same experience, the PSIA further outlines the role o f C iv i l Society Organizations in facilitating the interfacing o f informal waste workers with private sector actors, and suggesting a range o f measures related to re-absorption, reconversion and schooling to be implemented in partnership with c iv i l society organizations.

105. The preparation and implementation of a social inclusion program is the first step to improving the social performance of solid waste management: The plan wil l include: (i) providing wastepickers access to health care; (ii) in-depth consultations by the municipalities with wastepickers and discussion o f options for their reinsertion either by private operators or by creating a partnership for; and (iii) involving local NGOs in project-based activities aimed at working closely with wastepickers to ensure appropriate health and hygiene services and conditions, provide support for their reinsertion to other jobs in the sector, and monitor the implementation and follow-up o f the PSIA recommendations.

106. Strategy for the development of municipal action plans. As each group o f informal waste workers, as wel l as the context in which they operate, are unique, each action plan for addressing their situation must be developed through a local-level process that includes the fol lowing seven basic elements or steps:

production o f a set o f basic principles (in a programmatic framework, to guide the process); conducting o f adequate studies on the relevant characteristics and context o f the local informal waste sector (as a key input to decision-making); conducting o f a robust consultation process (including the active involvement o f the informal waste workers themselves); development o f an adapted action plan (as an output to the process and with maximal ownership o f the various key stakeholders); implementation o f the plan (with the involvement o f an experienced NGO or other actor with the necessary credibility among the waste pickers); monitoring and evaluation o f the process and results; and finally feedback of the results into the design process (so as to mainstream best practices and maximize the benefits o f lessons learned in subsequent phases).

A follow up PSIA will inform the preparation of the second DPL. It wil l evaluate progress and achievements o f first round actions, in particular ( i ) the effects o f the inclusion o f social considerations in private sector contracts and partnership agreements; (ii) the extent and impact o f CSOs involvement; (iii) the results o f the official recognition o f wastepickers status on living, professional and health conditions; and (iv) the social impact on poor customers o f the increase in the cost o f solid waste services brought about by the proposed reforms; and (v) the social impact o f the transfer o f municipal solid waste workers to the private sector. It wi l l also extend the analysis to the reform o f the sector in urban areas.

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B. Environmental Aspects

108. Over the last fifteen years, Morocco achieved significant progress in developing i t s institutional and legal framework in the area o f environment protection. Environmental institutions were first established in Morocco in the early 1990s with a three-person directorate in the MoI, which evolved to become a State Secretariat (Water and Environment) within the Ministry o f Energy, Water and Environment. The State Secretariat oversees a full fledged environmental administration at the central level and recently at the regional level. Morocco has also developed a comprehensive environmental strategy through i t s 2005 National Environment and Sustainable Development Strategy. This strategy pursues essentially one objective: to stabilize the environment degradation by 2005 and further decrease it beyond this date. It has four priorities: water protection, waste reduction and i t s management improvement, water quality improvement and soil protection

109. Morocco has enacted i t s first solid waste management law (Law 28-00) in December 2006. In January 2003, it had enacted three laws related to environmental protection, environment impact assessment and air quality. Also as a result o f the agreement reached on policy actions as part o f the preparation o f the D P L reform program matrix, the Government Council enacted two decrees related to the establishment o f the national and regional EIA committees as wel l as wel l the decree for public consultation and disclosure. T w o other decrees are also expected to be enacted: the decree related to waste classification and the decree related to technical specifications and standards for sanitary landfills. In parallel to the D P L preparation, the Wor ld Bank carried out a safeguard diagnostic review (SDR) for the use o f national country systems (UCS) for EM. Although the D P L i s not subjected to safeguards requirements per the Wor ld Bank Safeguards Policies, it was found useful and appropriate to carry out the required analysis o f the environmental and social implication o f the policy reforms to be supported by the DPL under the format o f the SDR, which i s the tool used for assessing the equivalence and acceptability o f the country systems compared, in the case o f environmental assessment, to a set o f principles defined in the Operational Policy 4.00. The SDR determined that that the Moroccan EIA laws and regulations are generally equivalent to the Objectives and Operational Principles o f OP 4.00 and that the application o f these laws and regulations are also in conformity with this policy .However the SDR found that EIA review, monitoring and fol low up requires substantial strengthening. A training program was already initiated by GTZ and wil l be also implemented in parallel to the DPL. The Wor ld Bank will also provide training and technical support on EIA to the regional EIA committees as a fo l low up to the UCS assessment and as a concrete sign o f i t s commitment to support the institutional and legal strengthening o f the Moroccan environmental institutions and legal systems.

1 10. Potential positive impacts: An assessment o f the potential impacts o f supported policies on the Environment and natural resources was carried out, and concluded that the measures supported by the program are expected to have significant positive environmental impacts. M a i n positive impacts include (i) improvements in public health through proper collection, transport and disposal o f municipal solid waste; (ii) decreased potential contamination o f groundwater (aquifer) and surface contamination from waste leachate; (iii) pollution reduction f rom on si te burning o f waste; (iv) improved waste management with a special focus on waste treatment and disposal in sanitary landfills; (v) protection o f the global environment though methane capture and (vi) empowerment o f municipalities as implementers o f integrated waste management.

11 1. The positive contribution o f the proposed operation i s the mainstreaming o f environment and social dimension into the solid waste management sector as wel l as mainstreaming the global environment into the local environment through the operationalization o f the Clean Development Mechanism in the waste sector. In i t s first and second D P L pillars, environment,is mainstreamed by improving better governance and better communication with the population and local NGO, establishing predictable guidelines and standards for private and public sector participation, and introducing

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fiscal/para-fiscal instruments for securing stable resources for S W M systems. The third DPL pil lar i s exclusively an environment and social related component. I t wi l l establish a standard TORs for EIAs that will be used by al l operators, will require that the environment and social mitigating plans are included into the solid waste management contracts and wil l also ensure that the social programs for waste pickers are being implemented in accordance with the PSIA.

1 12. Potential negative impacts: The above-mentioned environmental and social benefits o f these DPL-supported reforms will overwhelmingly exceed potential negative impacts. The latter are not expected to be substantial, but would be related to the risks o f inappropriate operation o f waste facilities. The G o M i s aware o f such potential negative impacts and i s working on measures and actions to mitigate them. The GoM will establish specific criteria for providing financial incentives to the municipalities. These incentives are based on the principles o f equity, transparency and environment and social protection. In order to benefit f rom the financial incentives, each municipality wil l prepare an EIA in accordance with the standard TORs, will agree to close the illegal dumps upon the operation o f the landfill, and will implement the social measures for waste pickers. Furthermore, the D P L requires in i t s program matrix the financing by the Government o f training for EIA, review and approval, monitoring and fol low up o f environment and social mitigating measures. The potential impacts linked to leachate treatment, noise, odor and visual nuisances are considered manageable through appropriate mitigation measures to be defined in the EIA, and included as part o f the works and operators contracts. On the basis o f these measures, the assessment concluded that G o M demonstrates that potential negative impacts will be addressed in a satisfactory manner. Bank supervision wi l l fo l low up to ensure that these aspects are taken into consideration and relevant institutional capacity i s strengthened and maintained.

C. Implementation, Monitoring, and Evaluation 1 13. fo l lowing implementation and coordination mechanisms:

Implementation and coordination responsibilities: The government has put in place the

0 The Steering Committee for the Municipal Solid Waste Sector D P L will continue to oversee loan coordination at the ministerial level.

The government has established the National Commission for the PNDM, which i s responsible for the coordination, review, and evaluation o f the solid waste sector reform program and the PNDM. The National Commission i s led by the Secretary o f State in charge o f Water and Environment and includes representatives o f the MoF, MoI , SWE, the MAEG, and the FEC. The National Commission will in particular ensure progress reporting and schedule management, action documentation, inter ministerial coordination, and proactive corrective action on non- progress actions. The National Commission wil l also be responsible for communication with the Bank supervision team.

Day-to-day management o f the P N D M will be overseen by a Program Management Unit established within the DGCL.

0

114. Supervision by the Bank: Supervision missions will a l low the Bank to continue providing policy advice and technical assistance to the institutions involved in the implementation o f the sector’s program o f reform. T w o supervision missions a year will take place in order to monitor actions and review progress in the implementation o f the DPL, and when conditions are satisfactory to the Bank and the G o M to start the preparation o f the second D P L o f the supported program.

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D. Fiduciary Aspects

1 15. Financial Management Diagnostics and Risk Rating: In response to the government request, the Bank issued a Country Financial Accountability Assessment (CFAA) update in 2007 following the first CFAA of 2003. Like the first one, the CFAA update assessed the Moroccan public sector fiduciary risks as low. The rating i s due in large part to the steady and continued Government efforts and major reforms to modernize and improve the efficiency o f the public sector including the public financial management o f the past several years. These reforms are still ongoing.

116. The CFAA update recommended improvements in a number o f areas; including (a) reducing the delays to produce the year end government financial statements and accounts and the audited accounts by the Court o f Accounts; (b) further simplification of the a priori internal controls while continuing the strengthening o f the ex-post controls and internal audit already underway; and (c) continuing the progress in the Management Information System (GID) under completion.

1 17. Public Financial Management Reforms progress and Follow-up: Progress in implementing the large reform program known as the Public Administration Reform Program (PAW) has been broadly on track, surpassing plans in certain areas while being slow in other areas. Hence, by end o f 2008, in the area of budget management, the government had (i) introduced budget flexibility norms that facilitated transfers among resources in 30 Ministries that represent above 90 percent o f non-wage expenditures; (ii) completed aggregate and sector Medium-Term Expenditure Frameworks (MTEFs) in 12 ministries, with generalization in 2008; (iii) introduced performance budgeting (with explicit performance indicators) in 22 ministries with generalization in 2008; and (iv) completed a study to reform control of public expenditure, which led to the elimination o f a priori control and the merging of two directorates involved, thereby contributing to cutting paperwork time by about half and making public expenditure processing more efficient.

11 8. I t i s important to note also that the Government i s already engaged in al l o f the above areas and intends to enhance budget transparency and anti-corruption policies, while improving accountability in delivering services, through the introduction o f e-government and further simplification o f procedures. These are currently under discussion between the Bank and the Government.

119. Funds Flow. Morocco has had no safeguards assessment by IMF. However, over the many years of working with the Moroccan government, the Bank has had no major fiduciary issues in relation to the funds flow. The Government budget i s comprehensive, unified and subject to centralized treasury account. Cash flow and debt are professionally managed by the Treasury Department o f the Ministry o f Finance under generally satisfactory conditions. Loan proceeds are deposited in a government designated account at the Central Bank and transferred to the Treasury single account for government budget.

E. Disbursement and Auditing

120. The proposed loan will follow the Bank’s disbursement procedures for Development Policy Loans and will be disbursed in one installment. The proceeds of the loan will be disbursed in a single tranche in the amount of Euro 100 million upon loan effectiveness. Hence, once the loan i s approved by the Board and i s declared effective, loan proceeds will be deposited by IBRD in an account designated by the Borrower and acceptable to the Bank at the Central Bank o f Morocco (Bank A1 Maghrib). The Borrower should ensure that upon deposit o f the Loan proceeds into said account an equivalent amount i s credited in the Borrower’s budget. The loan proceeds will be administered by the Ministry o f Economy and Finance (MoEF).

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12 1. audits of the deposit account at any time.

Although an audit o f the use o f the funds may not be required, IBRD reserves the right to require

F. Risk and Risk Mitigation

122. There are three key risks associated with the program. Macroeconomic risk associated with the global financial contraction and economic slowdown: Morocco’s macroeconomy i s well positioned to weather the negative impact of the economic downturn, thanks to robust domestic demand, policy reforms, and sound macroeconomic balances. Countercyclical fiscal policy should also help to moderate the downturn. A reasonable central estimate i s that Morocco will sustain growth of 4.5 percent percent in 2009, a moderate slowdown compared with previous years but nonetheless satisfactory in light of the global slowdown. There are risks to the outlook, including a sharper contraction in partner countries, which would see growth lower by 1-1% percent o f GDP, although there are upside risks, notably the prospects o f a strong agriculture season. The fiscal stimulus package announced for 2009 should help to maintain domestic demand, but i s modest enough that the risk of macro-economic instability i s low, as i s the risk o f fiscal pressures compromising the implementation of the national government’s solid waste program. Commitments to the reform and implementation capacity risks: (i) Weakening o f political consensus and commitment for solid waste reforms which may delay or impact the effective implementation of the program i s mitigated by a strong and continuous cross-sector dialogue and consultation through the established National Commission for the Program, and (ii) Weak capacity to implement complex sector reforms at the municipal level may affect the program’s results on the ground. This risk i s mitigated by (i) wide awareness and communication programs on the reform agenda; (ii) strengthening o f technical and financial capacity o f municipalities as a priority of the PNDM; and (iii) coordinating with other active donors in solid waste sector to reinforce potential synergies between the different programs (namely GTZ which provides technical support in S W M to municipalities and AFD which props up the municipal finance and local fiscal agenda). Social acceptance risks: Lack of social acceptance o f reforms by the public including the waste pickers and service users. This i s being mitigated respectively through the implementation of a social inclusion program targeting wastepickers and through increasing accountability of the service providers for improved quality.

123. Two additional minor risks were also identified and related mitigations measures defined: (i) Implementation of reforms reveals divergences between the Government and the municipalities concerning resource mobilization and cost recovery. This will be mitigated by: (a) the introduction o f targeted subsidies and technical support to the municipalities under the PNDM as incentives to adhere to the reform program; (b) the introduction o f a performance-based “Convention de Partenariat” between the Municipalities and the Government (including provisions and indicators to measure financial and technical performances); (c) the municipal budget has to be approved on a yearly basis by the MoEF and the M o I who have been the champion in the elaboration o f the PNDM; and (d) the implementation o f a benchmarking system that i s expected to enhance the inter-municipal competition to adhere to the PNDM; and (ii ) Slippage of meeting the triggers for DPL 2 beyond aperiod of 24 months. In this case, an ICR will be completed for DPL 1 and provided the overall progress i s still positive and the reform program i s on track albeit with some delay, DPL 2 will be processed as a second stand-alone single tranche operation.

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ANNEX 1: LETTER OF SECTOR DEVELOPMENT POLICY Fax & i s par : E37771697 MDRPfl.CREG 12/82/89 11:57 P g : 2

ROYAUME DU MAROC PREMIER MINISTRE

MONSIEUR ROBERT 6. ZOELLICK PRESIDENT DE LA BANQUE MONDIALE

1818 H Street N.W Washington

-U.S.A-

Objet I Lettre de Politlque de Developpernent relative au Programme National de Gestion Ues DLchets MBnagers et Assimiles au Maroc.

Monsleur le Prdsldent,

A I’instar de la majorit6 des pays en vole de dbveloppement, le Maroc connalt un deficit important en matlbre de gestion et de qualitb des services de dechets, en particuller la gestion des dechets menagers et assirnil&. L’ampleur et les coirts grandissants des impacts de la gestlon des dbchets menagers sur I’environnement. la sante et la qualite de la vle des populations et sur le developpement socio-economique du pays appelle a la recherche active de solutions pertinentes pour une gestlon rationnelle, integree et durable de ce secteur.

En effet, au courant des demibres annks, des efforts importants ont et6 deploy4s pour la mise a nlveau de ce secteur. Cependent, si pres de la moitie de la population urbalne bdneficie d’un service de collecte des dbchets menagers et de nettoiement par des operateurs professionnels, les efforts en termes de mlse en dbcharges contrdl6e6, de rehabilitation d‘anciennes dbcharges et de valorisation des dechets restent insuffsants.

A I’effet d’ameliorer la quallte et la gestlon de ce secteur B forl Impact environnementai et economique, le Maroc a preparb une stratbgie natlonale des dechets menagers et assimiles qui constitue, par excellence, I’une des composantes essentielles de la stratbgie environnementale et de ddveloppement durable du pays.

Situation actuelle du secteur des dbchets rnbnagen et assirnilds

Le Maroc produtt actuellement autour de 5 millions de tonnes par an de dbchets mCnagers en milieu urbain et produlra ju6qu”a 8,2 millions de tonnes d’ici 2020.

Avant le dbmarrage en 2008 du Programme National des DBchets Menagers et Assimiles (PNDM). pres de 70% seulement des dechets produits en milieu urbaln Btaient collectes et moins de 10 % des d6chets collect& Btaient mis en decharge contrblde, alors qu’une grande part des dechets &sit rejetbe dans des dbcharges spontanees.

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Fax & i s par : 037771697 HDAPH.CAEG 12/02/03 11:57 Pg: 3

Les InsuMsances de gestion depuis longtemps enreglstrkes au nlveau de ce secteur, et qul constituent les principaux defis B relever sont dues essentiellement a des contraintes d'ordre institutionnel, juridique, managdrlal et financier. I1 s'agit notamment de :

un cadre jurldique et institutlonnel insuffisant qui limlte I'eficacite de la gouvernance du secteur : le faible rapport coirt-efflcacite des services et I'lncertitude de la viabilit6 nnanciere a long terme du secteur ; et le besoin urgent des systemes intbgres et modernises de gestion des dCchets mbnagers pour attdnuer les consequences dconomiques, environnementales et sociales des systbmes existants.

Pour pallier ces insuffisances, le Gouvernement a entrepris lor8 des dernihres annees une serie d'actions sur ia voie du developpement et de la r6forme du secteur. y compris ;

- La publication en decembre 2006 de la loi 28.00 relative 6 la gestion des dbchets. Cette loi traduit une voionti politique Claire pour la mise P niveau de la gestion des dechets en gBn6ral et des dechets menagen en partlculier par :

la confirmation de la responsabilfie premiere des communes dens la gestion des dechets rnbnagers ; I'lntroduction d'outlls de planification B l'dchelie nationale, regionale et locale pour une gestion int6gree de8 dbchets : I'obligation des communes de s'bquiper en moyens et infrastructures pour la mise en decharge, le traitement; la valorisation et le recyclage des dechets ; I'introductlon d'un nouvel Instrument pour le recouvrement des coats des services dbchets y compris la possibilite de mettre en place une redevance pour le8 GDMA.

- L'biaboration, en 2007, d'un Programme National pour la Gestion des Dechets Menagers et Assirnilbs, PNDM. II s'agit d'un programme visant la mlse B niveau de la gestion des dbchets menagen B I'horlzon 2021. Le coot total du programme est estirn6 A 37 milliards de DH (SOH environ 4 milliards de dollars US) sur one pirlode de 15 annees et couvrant I'ensemble des maillons de la chaTne depuis la collecte Jusqu'au traitement. Plus sp6cifiquement. le programme vise I'appui aux communes urbaines pour :

la professlonnalisatlon des services ddchets menagers : I'amblioration de I'accbs au service collecte en portant le pourcentage des quantitds de dechets collectes en milieu urbain A 90% d'ici la fin du programme en 2021: le rattrapage du retard en rnatlere de traitement des dechets en portant la quantite des dbchets mbnagers mis en ddcharges contrblbes d 100% d'ici 2021 et le taux de recyclage B 20% ; et la fenneturelr6habilttation de 300 dbcharges sauvages exlstantes en parallele avec la construction de nouvelles ddcharges contrB16es.

AUSSI, la dbclsration du Gouvernement d'octobre 2007 place le probi6matique de I'assalnissement solids (gestion des dechets minagers), et en partlculier le traitement des ddchets mdnagers, panni les priorit& de I'action gouvernementale

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aussl blen au ntveau de I'appui aux collectivit6s locales qu'au niveau de la protection de I'environnement et du detveloppernent durable. Cette volont6 politique a et& traduite par la creation, au niveau de la Loi de Finances 2007, d'un compte d'affectatlon sp6ciale lntitule (( Fonds Natlonal pour la Protection et la mise en valeur de I'Environnement n don1 le programme d'ernploi inclut un paragraphe intitule (( Appui au Programme National de Gestion des DBchets Menagers N. Une enveloppe de 300 millions de Dirhams a et6 allouee a ce titre pour I'annee 2008 dont 100 millions DH correspondent A I'apport du budget gbnbral et 200 millions DH mobilises dans le cadre du programme d'ernploi de la TVA.

En parall&le, au niveau des collectivites locales, une action cornrnunale soutenue a et6 menCe pour I'arnClioration et la professionnalisation des services de collecte des dbchets : la plupaft des grandes et moyennes villes, notamment les vllles de Rabat, Casablanca. Tanger, ont entame des vrals chantlers pour la professionnalisation des services de collecte. En 2008, grace aux efforts deja accomplis, envlron 2/3 des services de collecte sont assures par des operateurs prives lies avec les communes par des contrats de gestion deleguee. A I'lchelle nationale, les d6penses annuelles de gestion d6legu6e pour Ies sewices de collede et de nettoiernent au niveau des communes urbaines, s'blevent en 2008 a environ 1.2 milliard de DH.

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Strategie du Gouvernement dans la geotion du secteur des ddchets menagers

Le Maroc, par I'engagement pris dans le cadre d'actes et d'accords multilateraux et bilateraux (Rio 1992 et Johannesburg 2002) a rnontrk depuis de nombreuses annees sa volontb d'integrer dans sa politique natlonale les fondements du developpement durable, notarnment concemant le secteur des dechets.

La politique du Maroc dans le secteur des d4chets tire ses bases de la lo1 sur la gestlon des dCchets solides (Loi 28.00). L'une des finalills majeures de cette lo1 approuvee tin 2006 est de jeter les bases d'une politique (( dechets )) qui s'articule autour d'un double objectif: moderniser ies processus de gestlon en vigueur dans le secteur et r6duire autant que possible les impacts negatifs des dechets sur la sante publlque, I'envlronnement et les ressources naturelles, et le developpement Bconomique et social. Cette politique s'inscrit aussi dans le contexte g6nbral de renovation des procedes de gouvernance et de gestlon des services publics, y compris la d6centrabation et la deconcentration. Elle prend en compte I'evolution des modes de consommation et d'organisatlon sociale tout en prenant appui sur les perspectives economiques et financieres prornetteuses, que les rbcentes lnltiaties de gestion deI6guee initides dans ce secteur ont confirmbes.

Pour concrbtiser cette polttlque, le Gouvernement a mis en place un programme de reforme qui vise essentiellement :

I'am6lloration de la gouvernance du secteur au moyen de rnesures juridiques. rbglernentaires et institutionnelles supplementaires conques pour fournir un cadre bien dellmite pour le secteur el eliminer tout chevauchement etlou manque dans la structure decisionnelle, rbglementaire et op4ratlonnelle : I'amelioration de la soutenabilite financibre du secteur en introduisant des mbcanismes financiers et des rnesures incitatives au prom de la mise a niveau et ia modernisation des services de gestion des dechets menagers et assimiles : el

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. I'int6gration des dimensions soclale et environnementale dans la planlflcation. I'execution et la mise en Quvre des programmes de services et d'investissernents dans le secteur des dIchets mbnageffi.

Afln d'atteindre Ces objectii, la rIforme du secteur des dbchets mbnagen et assirnilbs cornprend des actions d'ordre instltutlonnel et Juridique ainsi que d'autres actions tendant a ameliorer la performance Bconomlque, financibre, environnementale et sociale du secteur ainsl que I'amblioration des capacites, de I'efficience et de la performance des operateurs intervenant dans la mise B niveau des services dbchets mbnagers.

1. Amelioration de la Gowernance du oocteur des d6ch.h mbnagers

En vue d'assurer la coherence et la vislbilite de I'action gouvernementale dans ce secteur, prornouvoir la mise en aeuvre de la polltlque nationale en matiere de gestion des dechets menagers, appuyer la professionnalisation et la rbgulation du secteur, et dbvelopper le cadre lnstltutionnel approprib, le Gouvernernent entreprendra les actions suivantes :

- La creation d'une Commission Nationak du PNDM (CN-PNDM). Cette CN aura pour mission la coordination, la suivi et I'evalustlon du programme du Gouvernernent pour la reforme du secteur des dechets mbnagers et du Programme National des DIchets Menagen (PNDM). La CN-PNDM sera prbsidh par le Secrbtalre d'Etat charge de I'Environnement et comprendra des representants des autoritbs gouvernernentales chargees de I'lnt6rleur (DGCL), de I'Economie et des Finances. des Affalres Econorniques et GenBrales ainsi que le representant du Fonds d'Equipement Communal (FEC). La CN-PNDM cr&e par une circulaire du Secrktaire d'Etat charg4 de I'Eau et de I'Environnement. et dont las membres se reuniront au rnoins deux fois par an.

L'adoptlon par la CN-PNDM des crltires d'bligibilitb 8 I'appui financier de I'Etat des projets des collectlvltks locales relatis B la creation de decharges contr61ees, I'amblioration des decharges actuelles et la modernisation des services de coliede et de nettoiement. Ces criteres sont dbflnis dans le cadre de la promotion des prlncipes de transparence, la p&r&quation, la performance et I'integration des dimensions environnementale et sociale. L'application de c&s critbres d'eliglbilil6 penettra un transfert &quRable, transparent et efficient de I'appui financier de I'Etat au secteur des dechets menagers et assirnil&.

Le renforcernent du cadre reglernrntaire de la GDM pour une application effective de la Lo1 28.00 y cornpris la preparation des decrets relatifs a

I'tlaboration d'outils de planlfication locale, prbfectorale et provinclale pour la gestion des dechets menagers ; des normes pour le traitement et le stockage des dechets ; des lignes directrices pour la mise en oeuvre des redevances des decheto ; et ies modalites d'evaluation et de supervision des services de dbchets aux niveaux national, r4gional et communal.

L'amelioratlon de la concurrence, la transparence et la responsabilisatlon pour une meilleure participation du secteur priv6 dans le cadre de la professionnalisatlon des services des dbchets mbnagers en adoptant des procedures normalisdes d'appels d'offres et de passation de conventions de gestion dkllgube. Le Gouvernement

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procbde actuellement B une Btude sur la partlclpatlon du secteur prlvb dans la gestion des d6chets menagers qui doit proposer des am6lloratlons posslbles dans le domaine de la preparation des cahiers de charges et des contrats, et de I'ex6cutlon des appels d'offres et de la gestion des contrats. Le Gouvernement validera les ameliorations proposees dans le cadre de celte etude et veillera a I'utilisation des documents revises B partlr de 2010.

L'adoption par le Parlement d'une nouvellc charte communale qui confere au Ministre de I'lnterieur, la possibilitb de prendre les dlsposltlons necessaires B la r@ulation et au bon fonctionnement du service des dechets rnenagers entre autres, et ce par :

I'6laboratlon de standards pour I'organisation du service et des predations qu'll offrc : I'elaboration d'indicateun pour le suivi. I'bvaluation et le contr6le des prestations ; la dCflnitlon des rnodalites d'appui aux collectiites locales et B leurs groupements pour I'amelioration des services :

0 I'appul technique aux collectlvit8s locales pour le contr6le du fonctlonnement des services : et . la mise B la disposition des collectivites locales de toutes les donnees et les Informations necessaires au suivi de la gestlon des services.

Aussi, en vue de soutenir et favoriser I'intercommunalit8, la nouvelle charte communale pr6voit des dispositions relatlves au fonctionnement des groupements de communes et partlcullbrement des groupements d'agglom6rations prbvus pour la premiere fois et qui constiueraient un cadre appropri6 pour le developpement du secteur.

Le Gouvernement est conscient que la sensibillsation du public sur la probl6matlque des dbchets et la communication sur le programme de la reforme du secteur constituent des facteurs clCs pour la reussite de I'action gouvernementale et communale dans ce domaine. Dans ce cadre, la Joumee de Communication qui a eu lieu le 9 juillet 2008 a marque le lancement de la stratbgie de communication du Gouvernement qui accompagne le PNDM. Cette strat8gie sera mise en muvre a travers un programme de communication et de sensibilisation finance dans le cadre du programme d'emploi du PNDM pour I'annCe 2009 et qui d6marrera la memc annee.

Par allleure le Gouvemement a lance une rkflexion sur un systbme de contrdle et de surveillance et auto surveillance des infrastructures et services de dechets menagen et qui fera I'obJet dbs 2009 d'un manuel de contrdle et de supervision.

2. L'amelioratlon de la soutenabllitb des servlces de dbchrts rnhagcrs

La soutenabilite financlbre du secteur des d6chets rnenagers et assimiles comprendra une sbrle d'actions visant essentlellement le renforcement des capacites des communes a r6pondre aux exigences flnancibres lieas a la modernisation de leur systeme de gestion des dCchets menagera et I'am6iioration du rapport co0t-efficacM des services dCchets menagem;

- La mise en place d'un mecanlsme d'lncitation pour promouvoir la gesllon integree des dCchets rnenagers au niveau communal. L ' a d s B I'appui financier de I'Etat sera dCtermln6 selon les critbres d'eligibilit6 susmentlonnbs adopt6s par la CN-PNDM.

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Les Lois des Finances 2008 et 2009 ont prevu les dotations nbcessalres pour la realisation de cet Instrument et des allocations budgetaires approerlees seront prbvues dans le cadre des prochains projets de iois des flnances.

La facilitation de la mise en place par les communes de nouveaux Instruments de recouvrement des co0ts. Pendant le premier semestre de 2009, le Gouvernernent lancera une Ctude sur les rnesures nbcessalres pour assurer la soutenabilite financiere A long terms du secteur des dechets menagers. Sur la base des conclusions de ce rapport, le Gouvernement arretera des recomrnandations destlnbes aux collectivites locales portant sur les modalit66 de la mise en application de i'Article 23 de la Loi 28.00 relatif aux redevances de dbchets mbnagers et assirniles.

Le renforcement des capacitbs technlques et manageriales des collectivites locales. Une amelioration de la capacite de gestion des communes, notamment en ce qui concerne la passation des gestions diliguees et le sulvl de la perlormance des contractants privks, offre la possibilitb d'une rbduction importante des coats unitaires et donc de renforcement de la soutenabilitb financihre du secteur. Avec le concours de ses partenaires (I'AFD, la QTZ, la JICA), le Gouvernement a programme et initie la mise en ceuvre d'un nornbre d'activites de formation au profit de I'administration locale.

- Conscient des difficult& rencontrbes par 1st collectivitbs Locales pour le d&veloppernent et la mise en oeuvre de projets de reduction de gaz B effets de serre dans le cadre du protocole de Kyoto, et d'acceder au marche internatlonal de carbone, le Gouvernernent a mandate le Fonds d'Equipernent Communal en tant qu'entite nationale de coordination pour I'appui aux collectlvit6s locales dans ce domalne assez cornplexe et la preparation d'un projet MDP programrnatique en partenariat avec I'UnRB de Financement Carbone de la Banque dans le cadre de la nouvelle Facilite Carbone de Partenanat. Cette approche programmatlque permettra de rbaliser des economies d'echelie de gestion, sans lesquelles I'acchs des communes au march6 de carbone serait difficilement realisable et de rnobiliser, au profit des collectivites locales, des sources de revenus additionnels.

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3. Amelioration de la prise en charge des dlmenslons snvironnementale et soclale

Conscient de I'importance des considerations environnernentales et sociales assocides au secteur des dechets mdnagers et le8 impacts nbgatifs sur I'envlronnement et sur le dbveloppernent socioSconomique qu'engendre les pratiques actuelles d'blimlnation des dbchets, le Gouvernement a entarne la mise en oeuvre d'une sbris de mesures preventives et curatives pour I'att6nuation de ces impacts. II s'agit, notamrnent de:

- La mise A niveau et I'opbrationnalisation du systbme rnarocain pour les etudes d'irnpacts sur I'environnernent (EIE) pour repondre non seulement aux exigences du secteur des d6chets menagers mais a I'ensernble de projets sournis a une dtude d'impact. Dans ce cadre, le Qouvernsment a adopt6 et publib les deux decrets relatifs :

Attributions et fonctionnement du Comite National et des Comites Regionaux des etudes d'impact sur I'envlronnement (EIE), et Modalit& d'organisation et de deroulement de I'enqubte publlque relatlve aux projets soumis h I'EIE.

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- Au mOinS trois comit6s reglonaux d'EIE seront operationnels avant la fin de I'annbe 2009. Le travail de ces comites sera facllltC par I'Blaboratlon d'un manuel de procedures pour I'6valuatlon et I'approbation des EIE ainri que I'ex4cutlon d'un Programme SPbcifique de formation au profi des membres des comites reglonaux d'EIE.

L'amelioration de la performance environnementale du secteur A travers la mise en muvre, en pnorite, de la comporante (( Mise en dbcharge contr8lbe )) du plan d'action de la premiere phase (2008-12) du PNDM ainsi que la cornposante x fenneture et rbhabilitation des decharges spontanees D . Toutes les mesures instiiutionnelles. financihres et operationnelles seront appuyks dans le cadre des conventlons de partenarlat avec les collectlvtt6s locales en vue de satisfaire I'objectif quantifiC du PNDM d'ici 2012, solt au moinr 30% de5 dCchets collect& mis en dbcharges contrBlbes et au moins 8 des dkharges sauvagcs fermbes.

L'AmBlioration de la performance sociale du secteur 8 travers la prise en charge par le Gouvernement d'une sene de mesures d'accompagnernent pour I'integration des aspects sociaux dans le cadre de la mise en oBuvre du PNDM. A cet effet, la CN- PNDM a adopte les prlncipes d'intigration des aspects sociaux y compris l'inclusion de la dimension sociale dans les Instruments de planlficatlon et de prise de declelon, la responsabilisation des communes ou de groupements de communes, la responsablllsation des operateurs, I'approche partlcipatlve, la sensibilisatlon et la formation sur les aspects sociaux du PNDM. De plus, le programme de communication et de sensibillsation inclus dans le PNDM comprend une composante relative A la dlmension socialc. La finalisation de cette composante bbnCflclera des resultats de deux operations socisles pilotes en cours dans la Wilaya de RabaVSalB et la commune urbalne d'ACHoceima. Pour la r6allsation de cette composante, le Gouvemement veillera h la partlcipation de I'ensemble des acteurs y comprir ICs operateurs prlvbs. la societe civile et Ies associations orofersionnelles du secteur. Le Gouvernement veillera d 1'6largissement

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du programme d'intbgration sociale des rCcupbrateurs d tous les projets aGUy6S par le PNDM.

4. Modalites de sulvl et de mise en ceuvre du programme de roforme

Outre la Commission Natlonale du PNDM citbe ci-dcssus, une unit6 de gestlon du programme sera crQCe au niveau de la Dlrcctlon GBn6rale des Collectivlt&s Locales (DGCL) / Direction de I'Eau et de I'Assainissement (DEA) et aura pour tache I'identification et la programmation des projets, le suivi de leur execution et leur post- evaluation, leur classement en tenant compte des critbres d'eligibilite.

Par allleurs, le cornit6 de pllotage mis en place BU niveau du Ministhre des Affaires Econornlques et GCnBrales, fera le point periodique sur I'btat d'avancement de mise en ceuvre du programme et preparera des rapports d'btape 8 cet effet.

Compte tenu de I'irnportance de ce programme pour la mise b niveau du secteur des dechets mbnagers dans una perspective de developpement durable, le Gouvernement compte sur I'appul de votre institution pour un pret programmatique de Politique de Developpement, pour la premlbre phase 2008-2012.

En vous remerciant pour I'interet que la Banque porte au d6veloppement de ce secteur, )e vous prle de c B I'expression de ma consid4ratlon dietingube. 0

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TRANSLATED VERSION

ANNEX 1: LETTER OF SECTOR DEVELOPMENT POLICY

KINGDOM OF MOROCCO

PRIME MINISTER

THE PRESIDENT OF THE WORLD BANK

1818 H Street N.W, Washington DC

U S A .

Subject: Letter of Development Policy related to the National Municipal Solid Waste Management Program in Morocco

Mr. President:

L ike many developing countries, Morocco lags behind in the management and quality o f solid waste services, in particular municipal solid waste management. The scope and rising cost o f the impacts o f solid waste management on the environment, public health, quality o f life, and on the country's socioeconomic development call for an active effort to find appropriate solutions toward a rational, integrated, and sustainable solid waste management.

Significant work has been done in recent years to upgrade this sector. However, although solid waste collection and cleaning services to close to ha l f o f the urban population are being provided through private operators, work in the area o f sanitary landfills, rehabilitation o f open dump sites, and recycling remains inadequate.

With the aim o f improving the quality and management o f this important sector, Morocco has prepared a national municipal Solid Waste Management strategy, which constitutes a key component o f the country's environmental and sustainable development strategy.

Current Situation in the Municipal Solid Waste Sector

Morocco currently produces approximately 5 mi l l ion tons per year o f municipal solid waste in urban areas and will produce up to 6.2 mil l ion tons annually by 2020.

Prior t o the 2008 launching o f the National Municipal Solid Waste Management Program [Programme National des De'chets Me'nagers et Assimile's -PNDM], only about 70 percent o f waste produced in urban areas was collected, and less than 10 percent of the waste collected was disposed o f in controlled/sanitary landfills. A large percentage o f that solid waste ended up in illegal dumpsites.

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Waste management deficiencies, which have been a persistent problem for this sector and constitute the key challenges to be addressed, are largely attributable to institutional, legal, managerial, and financial constraints, these include:

0 A legal and institutional framework that limits the effectiveness o f governance o f the sector;

Lack of cost effectiveness in the provision o f services and uncertainty surrounding the long-term financial sustainability o f the sector; and

An urgent need for integrated and modernized solid waste management systems in order to mitigate economic, environmental, and social effects

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To address these shortcomings, the Government has undertaken a series o f actions in recent years aimed at developing and reforming the sector. These actions include:

- The publication in December 2006 o f Law 28-00 on solid waste management. This law reflects the clear desire to improve solid waste management in general and municipal solid waste management in particular, by:

Confirming the primary responsibility of municipalities for municipal solid waste management;

Introducing integrated waste management planning tools at the national, regional, and local levels;

Obliging municipalities for the provision of resources and infrastructure for waste disposal, treatment, and recycling; and

Introducing a new cost recovery instrument for solid waste services, including the possibility of establishing solid waste management fees.

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- The preparation in 2007 of the National Municipal Solid Waste Program [PNDM]. This program i s aimed at upgrading municipal solid waste management by 202 1. The total cost o f the program i s estimated at DH 37 billion (approximately US$4 billion) over a 15-year period and covers the whole chain from collection through disposal and treatment. More specifically, the program i s aimed at supporting municipalities through:

0 Professionalizing solid waste services; 0 Improving access to collection services by increasing the percentage o f municipal solid

waste collected in urban areas to 90 percent by the end of the program in 202 1 ;

Upgrading the treatment o f solid waste by disposing of al l collected municipal solid waste in sanitary landfills by 202 1 and increasing the recycling rate to 20 percent; and

Closinghehabilitating 300 existing open dumpsites in parallel with the construction o f new sanitary landfills.

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- In addition, the October 2007 government declaration places the problem of solid waste management, and in particular the treatment o f solid waste, among the top priorities o f the governmental agenda in terms of support to local authorities and sustainable development. The political will was reflected in the establishment in the 2007 budget law of an earmarked account entitled "National Fund for Environmental Protection and Development." I t s implementation program includes a section entitled "Support for the National Municipal Solid Waste Program." An envelope of DH 300 million has been allocated for this purpose in 2008, with DH 100 million being contributed through the state budget and DH 200 million mobilized through VAT revenue (programme d'emploi de la TVA).

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- At the same time, at the local government level, actions were undertaken by municipalities aimed at improving and professionalizing municipal solid waste collection services. Most large and mid-sized towns, in particular Rabat, Casablanca, and Tangiers, have contracted private operators to professionalize collection services. As a result, by 2008 approximately two-thirds o f collection services were provided by private operators. Countrywide, annual expenditure for collection and cleaning services provided through private sector amounted to approximately DH 1.2 bi l l ion in 2008.

Government Strategy in the Solid Waste Management Sector

Morocco, through i ts multilateral and bilateral instruments commitments (Rio in 1992 and Johannesburg in 2002) has, for many years, demonstrated i t s desire to incorporate the core elements o f sustainable development, particular those related to the solid waste sector, into i t s national policy.

Morocco's waste sector policy i s based on the Solid Waste management law (Law 28-00). One o f the major objectives o f this law, enacted in 2006, i s to lay the foundation for a waste policy that revolves around two goals: modernizing the sector's management processes and reducing, to the fullest extent possible, the negative impact o f solid waste management on public health, the environment and natural resources, and economic and social development. This policy i s also part o f a broad overhaul o f the governance and management o f public services, including decentralization and deconcentration. It takes into account changes in consumption and social patterns, while drawing on promising economic and financial models that have been validated particularly through involvement o f private sector in this sector.

T o implement this policy, the Government has established a reform program that essentially seeks to:

0 Enhance the governance o f the sector through additional legal, regulatory, and institutional measures, designed to create a clear framework for the sector, eliminating overlap and/or deficiencies in the decision-making, regulatory, and operational structure;

Enhance the financial sustainability o f the sector by introducing financial mechanisms and incentives aimed at upgrading and modernizing solid waste management services; and

Mainstream social and environmental considerations into the planning, execution, and implementation o f services and investments in the solid waste sector.

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T o achieve these objectives, reform o f the solid waste sector covers legal and institutional initiatives, as wel l as other initiatives targeting the enhanced economic, financial, environmental, and social performance o f the sector as wel l as strengthened capacities, greater efficiency, and improved performance o f the operators involved in upgrading solid waste management services.

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With the aim o f providing greater visibility and consistency to government action in this sector, promoting implementation o f the national solid waste management policy, assisting with the professionalization and regulation o f the sector, and developing an appropriate institutional framework, the Government will undertake the fol lowing actions:

Enhanced Governance in the Municipal Solid Waste Sector

- Create a PNDM National Commission (CN-PNDM). This National Commission will be responsible for coordinating, monitoring, and evaluating the Government's program to reform the solid waste sector and the National Municipal Solid Waste Program (PNDM). The CN-PNDM wil l be chaired by the Secretary o f State for the Environment and will include government representatives f rom the Ministries o f Interior, Economy and Finance, and Economic and General Affairs, as wel l as the Fonds d'Equipement Communal FEC. The CN-PNDM has been established by a circular o f the Secretary o f State for Water and Environment. It wi l l meet at least twice a year.

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- Adoption by the CN-PNDM o f eligibil i ty criteria for Government financial support to local authorities for projects to establish controlled landfills, improve existing dumpsites, and modernize collection and cleaning services. These criteria have been established to promote transparency, equity, performance, and mainstreaming environmental and social considerations. The application o f these criteria will facilitate the equitable, transparent, and efficient transfer o f financial assistance in support o f upgrading municipal solid waste systems.

- Strengthen the regulatory framework o f the sector through effective enforcement o f L a w 28-00, including the preparation and adoption o f decrees related to:

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Preparation o f prefectural, and provincial planning tools for solid waste management;

Standards for waste treatment and landfilling;

Guidelines to put in place solid waste fees; and

Procedures for the monitoring and supervision o f solid waste services at the national, regional, and municipal levels.

- Enhance competition, transparency, and accountability for effective private sector participation in solid waste services through the adoption o f standard bidding and contracting procedures. The Government i s currently conducting a study on private sector involvement in solid waste management, which should lead to recommendations for improved bidding and contracting documents as wel l as monitoring and supervision o f private sector services. The Government will review the study's recommendations and will ensure effective use o f revised bidding and contracting documents by 20 10.

- Adoption by Parliament o f the new Charte Communale that vests the Minister o f the Interior with authority to adopt necessary measures for the regulation and smooth functioning o f waste management services, inter alia, by:

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Drafting standards for the provision and organization o f services;

Preparing indicators for monitoring, evaluating, and overseeing services;

Identifying procedures for assisting local governments and groups o f municipalities with the aim o f improving services;

0 Providing technical assistance to local governments to improve supervision and management o f private sector contracts; and

Making available to local governments al l data and information necessary for monitoring and supervision purposes.

Also, with the aim o f promoting inter-municipal cooperation, this amended Charte Communale enables municipalities to form, for the first time, legal and administrative municipal groupings, in particular in urban areas, which would offer a better framework for the development o f the sector.

The Government recognizes that public awareness o f solid waste issues and the communication regarding the sector's reform program are critical to success o f Government and municipal actions in this area. Consequently, the Journe'e de Communication, held on July 9, 2008, marked the launching o f the Government's communication strategy associated with the P N D M . This strategy will be implemented through a communication and public awareness program funded as part o f the 2009 P N D M action plan.

In addition, the Government initiated the design o f supervision and monitoring systems for solid waste investment and services, including the elaboration by 2009 o f a monitoring and supervision manual.

0

-

-

51

2.

Financial sustainability o f the municipal solid waste management sector will entail a series o f activities aimed essentially at strengthening the municipal financial capacities to modernize their solid waste management system and at improving its cost effectiveness, including:

Greater Sustainability o f Municipal Solid Waste Services

Establishing a mechanism for providing incentives in order to encourage the integrated management o f solid waste at the municipal level. Access to Government financial support will be contingent on the aforementioned eligibility criteria adopted by the CN-PNDM. The 2008 and 2009 budget laws have made provisions for these allocations, and similar appropriations will be made in subsequent budget laws.

Facilitating the implementation by municipalities of new cost recovery mechanisms. During the first six-month period of 2009, the Government will initiate a study on measures necessary to ensure the long-term financial sustainability o f the solid waste sector. Drawing on the conclusions o f this report, the Government will make recommendations to local governments on the application o f Article 23 o f Law 28-00 on solid waste fees.

Building the technical and managerial capacities o f local governments. Enhanced management capacity by municipalities, particularly in the area of procurement, contracting, and monitoring the performance of private contractors paves the way for a significant reduction in unit costs and thus in bolstering the financial sustainability of the sector. With assistance from its partners (AFD, GTZ, and JICA), the Government has programmed and started implementation of a number o f training activities geared toward local governments.

Cognizant of the difficulties encountered by local governments in developing and implementing greenhouse gas reduction projects in the context of the Kyoto Protocol, and in gaining access to the international carbon market, the Government has appointed the Fonds de 1’Equipment Communal as the national coordination entity to assist local governments with work in this fairly complex area and with the preparation of a programmatic MDP in collaboration with the World Bank‘s Carbon Finance Unit, in the context of the new Carbon Partnership Facility. This programmatic approach will facilitate achievement of economies of scale in waste management, without which access by municipalities to the carbon market will be difficult, as well as the mobilization o f additional sources o f revenue for local governments.

3. Greater Focus on Environmental and Social Considerations

Mindful o f the importance o f environmental and social considerations related to the solid waste sector and the negative effects of current waste disposal practices on the environment and socioeconomic development, the Government has undertaken a raft of preventive and corrective measures to mitigate these effects, some of which are listed below.

Upgrading and operationalization of the Moroccan system to conduct Environmental Impact Assessments (EIAs), in order to meet not only the exigencies o f the solid waste management sector but al l projects requiring an environmental impact assessment. In this regard, the Government has adopted and published two decrees related to:

The responsibilities and functioning o f the Environmental Impact Assessment National Committee and Regional Committees; and

Modalities for organizing and carrying out the public consultation related to projects requiring an EIA.

- At least three regional EIA committees will be operational by end-2009. The work o f these committees will be facilitated by the preparation o f a manual o f procedures for the review and approval o f EIAs as well as the implementation of a specific training program targeting members of regional EIA committees.

52

Enhancing the environmental performance o f the sector through the implementation, on a priority basis, o f the sanitary landfill component of the first phase o f the PNDM action plan (2008-2012) as well as the closing and rehabilitation o f illegal and open dumpsites. Al l institutional, financial, and operational measures will be supported through partnership agreements with local governments, with a view to meeting the PNDM's quantified objective by 2012, namely having at least 30 percent o f collected waste disposed o f in controlled landfills and the closing o f at least eight illegal dumpsites.

Improving the social performance o f the sector through the adoption by the Government o f a series o f related measures for the inclusion o f social components in PNDM implementation. To this end, the CN-PNDM has adopted the principles of inclusion of social aspects, which extends to planning and decision-making mechanisms, accountability o f municipalities or groups o f municipalities, accountability of operators, a participatory approach, and public awareness and training related to the social aspects of the PNDM.

In addition, the communication and public awareness program, included in the PNDM, contains a social component. The outcomes of two pilot social projects under way in the RabaUSale Wilaya and the Al-Hoceima urban municipality will be helpful for finalizing this component. In carrying out this component, the Government will ensure the participation o f al l actors, including private operators, civil society, and professional associations in the sector. The Government will ensure that the social integration program for wastepickers i s extended to al l projects supported by the PNDM.

Procedures for Monitoring and Implementing the Reform Program

In addition to the CN-PNDM mentioned above, a management unit for the program will be created within the Direction Ge'ne'rale des Collectivith Locales (DGCL)lDirection de 1'Eau et de 1 'Assainissement (DEA). This unit will be assigned the task o f project identification and programming, as well as monitoring o f their execution, ex-post evaluation, and classification based on eligibility criteria.

Moreover, the steering committee established in the Ministry o f Economic and General Affairs will provide periodic updates on implementation progress and, to this end, will prepare progress reports.

Taking into account the importance o f this program for upgrading the municipal solid waste sector in the context of sustainable development, the Government i s counting on the support o f the World Bank through a Programmatic Development Policy Loan for the f i rst phase, covering the 2008-2012 period.

Mr. President, I would like to thank you for the World Bank's interest in the development o f this sector.

Very truly yours,

Signed: Ministre DCleguC aupres du Premier Ministre ChargC des Affaires Economiques et GCnCrales Mr. Nizar BARAKA

53

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ANNEX 3: COST-BENEFIT ANALYSIS OF THE NATIONAL SOLID WASTE MANAGEMENT REFORM

The benefits o f the improved MSWM practices promoted by the national municipal solid waste management reform consist of positive environmental externalities and improved efficiency within the S W M sector itself. These benefits are described in more detail below.

Positive environmental benefits are the main economic justification for Morocco’s decision to invest significant resources in its national SWM programme:

Improved waste collection. On the basis o f a Willingness to Pay study (Belhaj, 1995)’ it was estimated that the environmental cost o f sub-standard waste collection was MAD 1,497 million in 2000, or 0.4 percent o f GDP. This estimate only reflects households’ valuation of improved collection; one should also note the value to the tourist industry o f cleaner cities, beaches and other public spaces. The programme will reduce this environmental cost through the professionalization o f solid waste services. This will involve:

the upgrading o f municipal direct labour in solid waste operations; a shift from direct labour to contracting-out and; improved procedures and skills in the contracting-out process itself .

(i) (ii) (iii)

Preservation of amenity value of residential land. Land near sub-standard dumpsites loses its value for residential purposes, for obvious reasons. Once urban dumpsites are converted into proper, sealable landfills, it i s estimated that the price of neighbouring land would rise by MAD 200-1,000 per m2, giving a benefit rising to a peak of MAD 943 million per year, or 0.2 percent o f GDP.

Less contamination of water by leachates. Seepage (leaching) of harmful substances from inadequate dumpsites into aquifers leads to serious water contamination. One liter o f leachate from the dumpsite i s estimated to contaminate 50 liters o f clean groundwater. The S W M programme will eliminate this environmental damage by ensuring that waste i s stored in properly-sealed landfills. This benefit can be valued as a reduction in the cost o f water treatment, and i s estimated at 0.1 percent of GDP (World Bank, 2003).

Other environmental benefits. The uncontrolled spreading of waste on land reduces i t s value for agricultural purposes. By concentrating waste disposal in properly-designed landfills, land will be saved for productive use. This benefit has been estimated at MAD 32 million per annum (Belghazi, 2008). The disposal o f waste in sealable landfills would also reduce the health cost of the water and air pollution from uncontrolled dumping, which has been estimated at MAD 75 million (ibid.). Finally, use o f sealable landfills would permit the capture and flaring o f the methane gas produced during the anaerobic decomposition of solid waste, thus helping to reduce Morocco’s greenhouse gas emissions. I t i s estimated that Morocco would raise MAD 50-90 million per annum through the sale of these carbon credits under the Clean Development Mechanism (ibid.). The FEC i s charged with realising these sales.

Efficiency gains within the sector will also result from the national MSWM programme’s technical assistance activities and financial incentives for improved practices.

Eflciency cost-savings will result from capacity-building for municipal authorities in contracting out. Currently there are weaknesses in tender procedures and documents, leading to poor competition, excessive prices and poor quality o f service.

58

Inter-municipal collaboration promoted by the programme wil l be a source o f significant economies o f scale. There can be major economies o f scale in solid waste transport and disposal, leading to unit cost reductions o f 20-50 percent. The use o f transfer stations allows small vehicles to be used in neighbourhoods with narrow streets and access ways, while larger vehicles travel longer distances to the landfill. Sanitary landfills are also characterized by enormous economies o f scale. Fixed costs include the perimeter fencing, access road, weigh-bridge, receiving gate house, worker changinghanitation facilities, office, perimeter drainage, buffer landscape zone, monitoring wells. When landfills are smaller than 400-500 tondday, equipment i s under-utilized. Since landfills with a larger footprint can be higher, with a 3 : 1 slope, every 10 percent increase in footprint allows for a 15 percent increase in volume, allowing for economies o f scale in land use.

Value-added @om recycling will increase once informal waste-picking i s formalized, improving sorting practices and creating new options for the marketing o f recycled materials. However, international experience i s that formal recycling i s rarely a source o f significant revenues, and may not take place at a l l in the absence o f regulatory or tax instruments to encourage the use o f recycled materials.

A cost-benejt analysis was performed to compare the external and internal benefits above with the cost estimates in the national M S W M programme documentation.

The key issue in using the benefit valuations above i s the estimated annual rate o f increase o f the potential environmental benefits f rom better M S W M , which would rise over time as Morocco’s population grows and a more urbanised, affluent society produces more household waste. The calculation used a conservative assumption about the rate o f growth o f potential benefits (3.5 percent p.a., below Morocco’s 2001-2007 real growth rate o f 5 percent p.a.). The analysis also made conservative assumptions about incremental recycling value-added (peaking at MAD 1 1 mi l l ion pea.) and efficiency gains f rom improved procurement practices (20 percent o f without- project operating costs).

On the basis o f these restrictive parameters, an internal rate o f return of 18.6 percent p.a. was estimated for the programme over 30 years. The net present value at a discount rate o f 10 percent p.a. i s MAD 10.3 billion, approximately 1.7 percent o f annual GDP. If the rate o f growth o f potential benefits were assumed as 5 percent instead o f 3.5 percent per annum, the programme’s internal rate of return would be estimated as 24.9 percent, and the net present value at MAD 2 1.4 bil l ion.

Indeed, S W M investments generally offer high internal rates o f return. The table below shows the ex-ante estimated economic internal rates o f return (EIRR) o f recent Wor ld Bank solid waste management investment projects in Argentina, Brazi l and Jordan. I t should be noted, however, that these cost-benefit calculations have emphasized gains from greenhouse gas emission reductions and/or electricity sales, whereas the economic case for the Moroccan S W M programme rests primarily on the local environmental benefits.

59

Table 3.1: Examples of Economic Viability of Solid Waste Projects

Olavarria Landfill Gas Recovery Project Argentina: Salta Landfill

1 Project Name

18% (-35% without Argentina 100% emission reductions) PAD, pg. 38

PAD, pg. 37-

I Ex-ante overall I country I f r A o n e n t economic IRR

Nova Gerar Landfill Rio de Janeiro Recife Urban Upgrading Project Amman Solid Waste Management Project

I Source I

Brazil 50%

Brazil 30%

Jordan 100%

Gas Capture Project I Argentina I 100% I 20% I 38 + Annex 3 I 46% (28% without

emission reductions); financial IRR: 45% (negative without emission reductions)

37% 37% (12% without emission reductions).

PAD, pg. 28 +

Belghazi (2008) Evaluation e'conomique du PNDM. Mimeo. Belhaj M (1995) The willingness to pay for better water quality in Morocco. Gothenburg University World Bank (2003) Kingdom of Morocco: cost assessment of environmental degradation. Report no. 25992.

60

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ANNEX 4

-0.3 4.2 23.0 -20.0

Morocco at a glance 9/24/08

I5L

POVERM and SOCIAL Morocco

20 07 Population, mic!-Far (milims) GNI percapita(Alasmethcd, US$) GNI (Atlas method, US$ bilIonsJ Averam annualarowth.200147 Population (%) Labor force Phl Most recert estimate latest vear avallable. 2001-m Povertv PA of powletion beb w national po vert y In el urban population Ph oftotd po&afbnJ Life expectancy at t i l th (years) Infant mrtaltv (per 1, OOO Ive births) Child malnutrition Ph ofcHldren wder5 l Access to an improved water source (% ~fpowlat i~nj Literacy(% ofpopulation age 159 Grass mimaw enrolment (% dschod-age mula t ion)

Mde Female

KEYECONOMIC RATIOSandLONG-lEF&I TRENDS 1987

GDP (US$ bilions) 18.7 Grass captal format idGW 21.1 Expalsofgoodsand serviceslGW 23.6 Grass domestic savinss/GDP 17.7 Gross n a t i m l savinaslGDP 22.6

Current account WancdGDP 0.9 Interest DawnentslGDP 3.6 Tdd debffGDP 112.2 Tdd debt servicelexwrts 29.5 Present valued debVGDP Present valued debvexpods

190747 199701 (averageannualwwthl GDP 2.6 4.5 GDP per w ' t a 0.8 3.2 ExpalsofFloodsand services 6.6 6.4

30.9 2,250 69.4

1.1 2.4

56 71 34 10 83 52

106 112 100

1997

33.4 20.7 28.5 16.9 20.0

-0.3 3.1

70.4 27.1

2006

8.0 6.7

10.5

M. East B North

Africa

313 2,794

876

1.8 3.6

57 70 34

89 73

105 108 103

2008

65.4 31.6 33.0 26.2 34.5

2.8 0.8

28.3 12.2 27.0 63.2

20 07

2.3 1.1 5.5

Laver- mldde income

3,437 1,887 6.485

1.1 1.5

42 69 41 25 ea 89

111 112 109

20 07

73.3 31.8 33.1 25.9 33.5

2.0

2007-11

4.7 3.0 5.7

>evelopment diamond'

Life expectancy

T GN I Gross

capita enrolment per i- primary

L

Access to improved water surce

Morocco Lower-mddleincome group

-

Economic mtios.

Trade

T Domestic capitd savings formaton

Indebtedness

STRUCTURE d the ECONOMY

(%of GCPJ Agriculture 15.8 15.8 Industry 33.7 33.8 27.8 29.0

Man ufact uri na 18.7 18.1 16.5 19.4 services 50.5 50.4 56.5 58.5

Househdd find consumption expenditure 66.8 65.3 55.5 58.0 U 2 0 3 W C 6 M 07 General govY fhd consumption expenditure 15.7 17.8 18.3 16.1 lmmts of g o d s and services 27.0 32.2 38.4 39.0

(average annual gmwfh) Agriculture lndustrv 3.1 3.9 4.6

Manufacturina 3.3 3.4 3.9 Se rvi ces 3.4 4.9 4.1

Househdd find consumption expenditure 2.6 3.4 3.9 General gov'tfhd consumptionexpenditure 3.8 3.1 3.8 Gross capital formation 1.9 8.0 14.0 lmwrts of wcds and services 6.2 6.5 6.7

Note 2007data areprdirnnalyestmates This tablewas ~nxluced from the Eevdownent Economcs LE8 database 'Thed iamdsshowfwr kevindcatorsinthecwntrvfin bdd) compared mth ts~come-qroupavera~e lfdata are mssinq, the damondwll

be ncomdete

62

Morocco

PRlCES and GOVERV,WATFlNANCE

Dmest icwces I% chanoe) Consumer pices 2754715 1.01557 3.3195021 1.8846 lmdiut GDP defktor 3.92191 1.959 1.9151158 1.99999

Goremmnt finance (%of GDP, includes current grants) Current revenue 16.03556 26.3964 25.143926 24.1323 Current budget balance 4,61003 0.85945 1.9641178 1.229955

1987 1997 2006 2007

Overall surdusldeficit -5.86778 .. -2.306217 -1.85514

TRADE

(US$ mllions) Total exports (fob)

Agriculture Phcchorus rock f i n ufa ctures

Total inpwts (c i ) Food Fuel and enerw Capital .goods

EXDM wee index (2000=100J Importprice index (2003100) Term of trade (2000= 100)

1987 1997 2006 2007

1.191E+lO 1.36E+10 2.4455+09 3.06Et09 540368287 6.24E+08 7.213E+09 7,26E+09 2.353E+10 2,57E+ 10 1.718E+09 1.91E+09 5.104E+09 5.35E+W 5.136E+09 5.87E+09

69.4073 98.3774 144.64182 151.9469 89.58554 110.571 136.01691 140.1461 n.476 88.9719 106.wi05 108.4203

EALANCEof PAYKNTS

(US$ mllions) Ex~oi ts ofgoods and servces 4.43Et09 9.5Et09 2.174E+10 238E+10 Imports of m d s andsetvices 5,25E+09 l . l E t 1 0 2.578€+10 2,81E+IO Resouice balance 8.3E+08 -1.IE+09 4.04E+09 4,3E+09

1987 1997 2006 2007

Netinwme Net current transfers

Current acwunt balance 1.64E+08 8.7E+07 1.856E+09 1.44Et09

Financhgitems (net) Chanaes h net reserves

15731123 6.4Et08 880907531 3.12E+09 -1.8€+08 .5.55+~?% -2.74E+09 4.6E+09

Merrw: Reserves includhg gold (US$ milionsl 4.22E+08 4.2E+09 1.861E+10 2.55E+10 Conversion fate DEC. lccaYUS$J 8.35922 9.527 8.796 8.192

D(7ERVAL DEET andRESOURCE FLOWS

(US$ milions) Total debt outstanding and disbursed 21E+10 2,4E+10 1.849E+IO ..

1987 1997 2006 2007

lERD 255E+G9 3.3E+09 2.267E+09 2.5BEtG9 IDA 41334000 3.1€+07 18396000 17041000

Tota I debt servce lERD IDA

1.78E+09 3.1E+09 3.4055t09 .. 3.45E+08 5.4E+08 417797000 3.99E+M 1084000 158&000 1498000 1491000

Composition of net resouice flous Official wants 76530000 2.8E+08 420830000 .. Official creditors 4.68€+08 4.8ECoB 462049000 .. Prka te credito IS 2 9 4 ~ + 0 ~ 9.2~+07 a .25~+08 ,. Foreign d i e d hvestmnt (netinfiows) 59574901 3568765 2699E+09 .. porffoio w u i v (net infiows) 0 3.8E+07 3.09E+08 ..

Worlj Bank wwram Commiments Dsbu rsemen is Prhcpal repaynents M t fiows lnterest m vmnts Net tran s'ers

8.02Et08 3.4E+08 340000000 2E+08 4.04E+08 1.4€+08 175988000 4.18E+08 1.64E+O% 3,1E+O% 331296000 2,96E+08 24E+08 -1.7E+C% -1.55€+08 1.23Et08

58333000 4 E + B -2.43E+08 18459420 1.82E+08 2.4E+08 87999000 1.04Et08

Inflation (Oh) 4 , I

Exportand import levels ( U S mill.)

m,ow T

01 02 C3 W 05 ffi 07

Cutrentaccountbalance toGDP (Oh)

/ 5 T

Composition o f 2006 debt (US$ mill.) I I

I E: 5.107

A - I B K I E - Bibteral B - IDA D - Otherrmltlabrd F - Prime c - IW G - Shalt-ten

Note: This tabk? wspoducedfmmthe DevelopmntEconmbs LLX database. 39 715

63