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and maintain water supplies in large urban centers. The decision was based on the recommendations contained in a 1993 study by MOW on Financing of Operation and Maintenance of Urban Water Supply in Tanzania. Their semi-autonomy is based on: (i) Treasury authorization to establish "special accounts" for each UWSD as provided for in the Exchequer and Audit Ordinance Act of 1961, which allows for the establishment of a special fund in each town from which moneys may be expended for the purposes for which the fund is established; (ii) establishment of UWSDs; and (iii) establishment of Urban Water and Sewerage Boards (UWSBs) responsible for deciding on key management issues, including tariff levels (also contained in the Act). In order to ensure adequate participation of stakeholders in the management of the water supplies, the UWSBs are composed of representatives of consumers, local and national government, and the private sector. Key MOW staff are appointed to the Board to ensure coordination on technical matters and oversight over government subsidies in the transition period to full autonomy of the UWSDs. The UWSBs periodically evaluate the level of tariffs and revise them as necessary so that all O&M costs, and eventually also amortization, can be financed from the revenues generated (para. 4.1 1).

1.26 UWSDs have been established in three "pilot" towns (Arusha, Moshi and Tanga) since July 1, 1994, and UWSBs have been appointed in all three towns and have become operational. The water supply tariffs were increased, and even though this management system has only been in operation for over a year, the water supply in these towns has substantially improved. Another reform measure that has been initiated is the merger between water supply and sewerage services under UWSDs to facilitate joint billing of water and sewerage and better joint operation and maintenance of the systems. MOW has prepared a draft Cabinet Paper recommending the transfer of sewerage management from the municipal councils to UWSDs. A review of the relevant legislation and municipal by-laws has been carried out, agreements reached with the municipal councils about the changes, and a Cabinet decision is expected soon. Agreement was reached with the Government during negotiations that it will present draft legislation to Parliament by the time of the Mid-Term Review (para. 3.26), amending the Water Works Ordinance to grant management and financial autonomy to the UWSDs.

# C. **SECTOR** POLICY **FRAMEWORK**

1.27 The Government's urban sector policy reform is designed to create an institutional environment more conducive to the sustainable development and delivery of urban infrastructure services. PMO has facilitated urban sector reform since 1991. Through the Urban Sector Engineering Project (Credit 2291-TA), PMO has developed the _Government Policy Frameworkfor Urban Management, Service Delivery and Infrastructure Investment_ and an implementation strategy for that framework. The Government submitted to IDA a satisfactory _Letter of Sector Policy_ (LSP) before Board presentation, including a timed action plan for the implementation of the key actions to be taken _(Annex A)._