PPIAF Assistance in Djibouti

PPIAF Assistance in Djibouti Technical Assistance for Djibouti s Energy, Water, and Sanitation Sectors October 2012 PPIAF has completed one activity in Djibouti that assessed the institutional options to manage urban electricity, water supply, and sanitation and wastewater services. The activity was focused on how to restructure these services to make them more competitive in order to reduce service delivery costs, improve sustainability, and enable the sectors to approach financial self-sufficiency with the subsequent positive fiscal impact on the government budget. The activity was sought in the context of the Presidency of Ismail Omar Guelleh, elected in 1999, who named privatization, economic reform, and increased foreign investment in the country s infrastructure as key government priorities. The PPIAF activity was requested by the Government of Djibouti in 2004 following the finalization of its Poverty Reduction Strategy Paper. The Poverty Reduction Strategy Paper revealed that without planned institutional reforms, future investments would not achieve their intended objectives. At the time of the request, three separate organizations were responsible for the management of electricity, water, and sanitation: Electricité de Djibouti, Office Nationale des Eaux de Djibouti, and Ministère de l'habitat, de l'urbanisme, de l'environnement et de l'aménagement du Territoire. All three organizations had significant operational issues. Electricité de Djibouti was vulnerable to fluctuations in oil prices, charged high tariffs while only reaching 50% of urban residents, and was suffering from a capital shortfall due to the continued failure of state-owned enterprises and private businesses to pay their bills. The Office Nationale des Eaux de Djibouti suffered from a lack of water resources, particularly in Djibouti city, inadequate tariffs to recover costs, and a water supply system that only reached 43% of urban residents. The Ministère de l'habitat, de l'urbanisme, de l'environnement et de l'aménagement du Territoire was also not performing, and only 20% of residents of Djibouti city had access to sanitation services. All three organizations were also beset by political interference that had stalled earlier privatization efforts (in contrast to the successful entry of the private sector into the ports, airports, and telecommunications sectors). The PPIAF study analyzed administrative, economic, financial, fiscal, historical, legal, political, and technical aspects of the institutional arrangements for the provision of the three services to determine recommendations for their optimal restructuring. The study recommended regrouping the three organizations into one enterprise as the optimal institutional structure. This structure was also chosen due to its attractiveness to the private sector. Following dialogue with domestic and international private sector counterparts, the PPIAF study recommended that the government introduce the private sector to the three organizations, initially through management contracts that could then be eventually adapted to affermage contracts. The PPIAF recommendations have been partially adopted by the government of Djibouti. On June 1, 2006 a law was passed that merged the responsibility for water and sanitation, Loi n 145/AN/06/5ème C Portant Création de l'office National de l'eau et de l'assainissement de Djibouti. The Office National de l'eau et de l'assainissement de Djibouti, attached to the Ministry of Agriculture, has been in operation since 2007 and is responsible for the production and distribution of water and for the rendering of sanitation services. A follow-up World Bank activity, financed by an International Development Association (IDA) credit worth $13 million, is currently ongoing and aims to contribute to structural reform and improved performance of the electricity sector. Djibouti is currently in the process of trying to attract the international private sector to invest in Djibouti s energy sector specifically geothermal, wind, and solar as Electricité de Djibouti struggles to cope with a widening gap between production and consumption needs. 1

Results of PPIAF s Activities in Djibouti Plans/strategies prepared Options de Reformes Institutionnelles pour l Electricité, l Eau et l Assainissement, 2004 Plans/strategies adopted or implemented Strategy to optimize restructuring of management of electricity, water, and sanitation was adopted partially Policies adopted, legislation passed/amended, or regulations issued/revised Institutions created or strengthened On June 1, 2006 a law was passed that merged together responsibility for water and sanitation: Loi n 145/AN/06/5ème C Portant Création de l'office National de l'eau et de l'assainissement de Djibouti In 2007, following the passing of the law, the Office National de l'eau et de l'assainissement de Djibouti began operations responsible for the production and distribution of water and sanitation Technical Assistance for Djibouti s Solid Waste Sector Djibouti is essentially a city-state with about two-thirds of town dwellers living in the capital, Djibouti Ville. Urban poverty in Djibouti is very high, with about 70% of the population of Djibouti Ville living below the official poverty line. Urban poverty manifests itself in the form of a very high incidence of informal and sub-standard housing and very low rates of access to basic urban services, including water supply, sanitation, electricity, solid waste collection, access roads, and drainage. Quartier 7 is one of Djibouti Ville s poorest neighborhoods. With a population estimated at 23,000 inhabitants, Quartier 7 is the city s largest district. The proportion of residents living below the extreme poverty line is 23%, with one full third of the work force unemployed. On account of the narrow, poorly conditioned roads, the pick-up trucks cannot enter Quartier 7 for garbage collection. Generally household refuse is disposed of in the public spaces and streets, creating dangerous environmental and health hazards. Private sector participation in public service provision is limited in Djibouti, despite the existence of dynamic small-scale entrepreneurs. In light of this, Djibouti Ville s Solid Waste Department requested assistance from PPIAF in 2009 to design a solid waste collection system for Quartier 7 using independent small-scale providers. If successful, it is anticipated that the pilot could be expanded to other districts in Djibouti Ville. The report provided a diagnostic on solid waste management services in Quartier 7. It found that facilities for basic solid waste services were underdeveloped or non-existent, and that the incompleteness of the road network severely limited opportunities for garbage collection. Other barriers to the implementation of an effective waste management system were both technical (insufficiency and failure of collection services) and financial (problems of cost recovery) or social (acceptability of certain types of services). To overcome these obstacles, the report recommended the implementation of a new solid waste management system to meet the urban and demographic characteristics of Quartier 7. Consensus was 2

achieved on the appropriateness of a pilot project to adopt a combined pre-collection performed by the private sector within Quartier 7, connected to the existing collection system through secondary collection points. L Office de la Voirie de Djibouti, the entity responsible for solid waste management in Djibouti Ville, also agreed to entrust certain activities of collection and pre-collection to private providers such as micro-enterprises. However, the report found that the legal framework required amendments to allow such subcontracting. A bill to allow l Office de la Voirie de Djibouti to subcontract activities to private companies had been prepared but not yet adopted, and l Office de la Voirie de Djibouti had no experience of outsourcing and therefore would require assistance in the selection and contracting of external providers. In addition to the legal issue, one other problem identified was l Office de la Voirie de Djibouti s ability to pay private providers without relying on state grants from the Ministry of Finance. Thus, the pilot project developed as part of the activity could not be launched as the envisaged subcontracting required the modification of legislation regarding solid waste collection. In 2011 PPIAF provided follow-up support to assist with the amendment of legislation and the launch of the pilot project. The primary analysis presented recommendations on the required physical infrastructure to accommodate the facilities required for the pilot solid waste project. Under the proposed pilot, waste collection within Quartier 7 would no longer be made by l Office de la Voirie de Djibouti, but would be the responsibility of one or more micro-enterprises that would be contracted to provide primary waste collection within Quartier 7. L Office de la Voirie de Djibouti would focus on the management of a new transfer station and transportation of waste to the landfill. During the course of this analysis, the European Union, Agence Française de Développement, and Japan International Cooperation Agency committed 13 million for the solid waste sector in Djibouti to support the improvement of the primary landfill; a new city-wide collection system, transfer station and recycling scheme; and budget support to l Office de la Voirie de Djibouti. This donor support lessened the immediate need for the Quartier 7 public-private partnership scheme, and plans to further develop the pilot project were put in hold. As a result, a second report was produced to analyze gaps in donor assistance in the sector. From this analysis, the need to strengthen the management and strategy of l Office de la Voirie de Djibouti in order to improve its financial performance was identified as a priority. This could feed into future PPIAF support to l Office de la Voirie de Djibouti through PPIAF s Sub-National Technical Assistance program. Results of PPIAF s Activities in Djibouti s Solid Waste Sector Analyses/assessments prepared Designing a solid waste management system for Quartier 7, Djibouti Ville, 2011 Design of a pilot project for solid waste collection in Quartier 7, Djibouti Ville, 2011 Recommendations on physical infrastructure design for pilot project in Quartier 7, Djibouti Ville, 2012 Analysis of donor programs in the solid waste sector in Djibouti, 2012 Capacity and awareness building Consensus achieved Consensus achieved on sub-contracting pre-collection services to micro private providers, 2011 3

Technical Assistance for Djibouti s Ports Sector Djibouti occupies a unique maritime strategic position at the junction of the Red Sea and the Gulf of Aden, which are connected by the strait of Bab-El-Mandeb. Djibouti has developed a market economy based almost entirely on trade and commercial services. Port and transit services, combined with road and rail services, generate an estimated 100,000 jobs. Djibouti s sustainable economic growth depends heavily upon its ability to promote the competitiveness of its transport system. Beginning in 2000, the Government of Djibouti undertook significant structural reforms related to port activities and fees, and the regulation of private operators such as shipping agents, freight forwarders, stevedores, and maritime experts. The Government transferred the management of the port of Djibouti to a private operator, Dubai Port International (known today as Dubai Ports World), through a twenty-year concession contract to improve the port competitiveness. Port traffic (dry cargo and oil products) has increased from 1.7 million tons in 1997 to 12.1 million tons in 2009, of which 70% represents Ethiopian transit traffic. The Doraleh container terminal inaugurated in early 2009, located a few kilometers from the old port of Djibouti, and managed by Dubai Ports World is today the backbone of Djibouti s development strategy, and will help the country establish initiatives aimed at further promoting greater regional and continental integration. However, the existing legal framework that regulated the services of private port operators was outdated and impeded the quality of service, efficiency, and competitiveness of Djibouti. In particular, the fee structure for private port operators of all types needed to be updated to take into account the new and increased traffic, and the different handling techniques associated with Doraleh. To improve this situation, the Government of Djibouti requested PPIAF assistance in early 2011 to design a modern and efficient regulation system for private port operators, addressing issues related to the quality of service and pricing, in order to ensure the long-term competitiveness of the ports. Approximately 80% of Djibouti s port activities are handled by three specialized dealers (DCT for containers, DIDHDTL for petroleum products, and SDTV for grain and fertilizer). The remaining 20% of traffic is the subject of intense competition between more than a dozen handlers. The PPIAF-funded study focused on these smaller port operators and the legal and regulatory framework that governs them. The report noted that in order to ensure efficient and effective port services, a legitimate and competent regulator for operators is a priority. The current absence of an organized regulator does not promote regular dialogue and convergence of efforts, and impedes the efficiency and competitiveness of the ports of Djibouti. In addition, the legal framework is outdated for instance, a 1981 decree on port operations defines port handling tariffs that are still in effect today. Thus, the report lays out a number of recommendations and an action plan to help update and standardize existing laws and regulations to meet the needs of the rapidly evolving ports sector in Djibouti. The recommendations included: Clarify the institutional framework and define the scope of powers of each port sector government institution Improve the working conditions for port operators, especially handlers, freight forwarders and maritime agents Provide a framework for effective regulation of the various port activities, including updating port handling tariffs in an acceptable manner for all parties (public authorities, Governments of Djibouti and Ethiopia, handlers, freight forwarders, shipping agents, etc.) Following from these recommendations, an action plan was put together to help implement the report s major recommendations, which included: 4

Establish a regulator for port activities to clarify roles and improve the competitiveness of Djibouti s ports Establish a port community to provide a framework for regular consultation between all stakeholders Update and harmonize the legal framework with the regulatory objectives of the sector Update rates for handlers, freight forwarders, shipping agents etc. to reflect the realities of the past 10 years of development in the ports sector The recommendations were accepted by the Government of Djibouti in 2012, and the government plans to implement the recommendations by the end of 2013. In this regard, PPIAF is considering providing further technical assistance to the Government of Djibouti to assist in the implementation of these recommendations and ensure the strengthening of the competitiveness of the ports of Djibouti. Results of PPIAF s Activities in Djibouti s Ports Sector Plans/strategies prepared Study on the regulation of private operators in the ports of Djibouti, June 2012 Plans/strategies adopted or implemented The Government of Djibouti accepted the recommendations of the report and will seek to implement them by the end of 2013 Looking Ahead: PPIAF and the Public-Private Partnership Agenda in Djibouti PPIAF has enjoyed significant success supporting the public-private partnership agenda in middle-income countries in the Middle East and North Africa. A renewed focus on low-income countries and fragile states has reinforced PPIAF s interest in supporting the public-private partnership agenda in countries such as Djibouti. PPIAF expects to play a leading role in shaping this agenda in Djibouti through technical assistance to support enabling environments for private sector participation in infrastructure. 5