Innovative Solution

Groundwater Depletion, Water Conservation, Private-Public Partnerships (PPP), Full Cost Recovery, Tariff, Water User Organization

technical

Institutional, Legal, Policy, and Financial

The West Nile Delta area is about 255,000 feddans (1 feddan= 0.42 ha) which provides jobs to about 250,000 people in the agriculture sector. The area has experienced noticeable agricultural growth over the past few years through exploitation of groundwater resources to produce high each crop for export and local market. Consumption. With the progress of development, there has been excessive depletion of the groundwater reserves.  Groundwater depletion has an effect on the overall water quality and poses a substantial threat to the farming economy in the area. In order to foster continued agricultural growth, employment, and investment in the area, the project proposes to implement a surface water conveyance system extracting water from the Nile River to connect commercial farmers in the area.  In achieving this objective, the GoE intends to introduce important reforms to the sector, particularly to charge farmers for the full cost of service through volumetric pricing.  The GoE also will involve the private sector in the new irrigation system in order to share the various risks and returns from the project. Thus, the solution combines the two objectives of water conservation and financial sustainability using economic tools. The approach initially selected for involving the private sector is to Design, build and operate the irrigation system through a 30 years. concession. The operator will then charge the beneficiaries who are willing to connect to the irrigation system a combination of fixed and variable tariffs. The fixed tariff is charged annually to recover the cost of investment over 20 years. The variable tariff corresponds to the cost of operation and maintence of the system charged according to the exact actual volume of water delivered to the farm.

The project area is located in both sides of the Desert Highway Cairo-Alexandria, 50-kilometer north-west Cairo. The topography consists of undulating land surface with elevation varies between 12.00 to 90.00 m above mean sea level. Climate is arid with rare rainfall not exceeding 30 mm per year.

In response to the farmers’ complaints, who invested worth of US$ 500 millions, the Government of Egypt (GOE) represented by the Ministry of water resources and Irrigation (MWRI) decided to develop this solution. The idea discussed with the World Bank, who offered its technical assistance for project preparation with financial support from the Government of the Netherlands, to engage consultants and transaction advisors. The GOE decided to engage also the end users from the very beginning by formally establishing a Water User Organization (WUO). Thus, a joint team from the MWRI and the World Bank was responsible to develop the solution. Since the approach chosen for implementing the project is public-private-partnership (PPP), the private sector is strategic in its implementation. The WUO should ensure follow-up of the solution at local level.

The MWRI has been preparing for the project supported by technical, financial and legal experts and prepared a conceptual design and financial model. The project has marketed among national and international companies. Five firms have been qualified through a pre-qualification process. Two legal documents have been prepared for bidding. The first is a Design, Build and operate (DBO) agreement between the GOE and the private operator (PO). The second is a connection agreement between the PO and the each beneficiary.   To call for bids by the pre-qualified bidders did not yield positive results. The first due fear of high financial risks from the part of the PO, which has been treated by further agreed mitigation measures. The second was confronted by the political development in Egypt since 25 January2011. The solution, which was widely regarded as a new vision promoting water conservation and financial sustainability, is on hold until the political situation in Egypt stabilizes.

The key question that this solution aims to answer is how to secure financing, insure financial sustainability and promote water conservation in large-scale irrigation projects? Irrigated agriculture is key for food security (17% of cropland in the world is irrigated & produces 40% of world agricultural products). However, irrigation accused by being a wasteful use of water especially in water scarce countries, and this water saving instruments are important. Meanwhile, financing of large-scale irrigation projects became a heavy burden to public investments and thus governments are reluctant to invest in building new irrigation infrastructure through PPP. While lack of finance of irrigation projects represents threat to food security, business as usual in irrigation practices is a threat to water security. The solution, will offer new modality for providing surface water, replacing a depleting and deteriorating groundwater source, and financing large-scale irrigation schemes.

The project is introducing many “firsts” in the irrigation sector, opening the way for new thinking in the way irrigation projects are being planned, designed, managed and financed, with particular emphasis on involving private investors and the farming community in many aspects of project preparation and implementation activities.  Farmers have been closely involved in project planning and design in order to provide the private operator (PO) with a full understanding of farmers’ interests and willingness to pay.  The PO is also taking part in a “first” in irrigation of the country by assuming a significant role in the design, construction, financing and operation of the new water system. The PPP contract for the project is based on an innovative risk allocation framework and transaction structure whereby many of the potential risks associated with a privately financed and managed irrigation system are equitably shared between PO, farmers and Government, and effectively mitigated.

Progress and success over time could be monitored through the following: 1- Continuous pressure by farmers to get the project tendered again for bidding. 2- All pre-qualified bidders submit their competitive bids. 3- Acceptance of the concept by increasing number of farmers and their willingness to pay the agreed tariffs. 4- Regular payment of water charges (both fixed and variable tariffs) with minimum number of defaults. 5- The Regulatory Office receiving few number of complaints. 6- The WUO actively involved to advise and help the small farmer get organized and getting competitive with medium and large scale farmers

Commercial farmers cultivating high cash crops and making good revenues would be most interested in the solution. Private operator will be interested to offer reliable services to make water available when and where it is needed over the project area. Meanwhile, farmers in this case who make good revenues will be able to regularly pay the charges to the operator. The government should be interested in this solution because it brings new sources of finance other than the public treasury. The solution also helps improving the water governance and thus politicians and the civil society should be interested.  This solution would work best when the following conditions exist: 1. Political will is there and governments are committed to reform by creating the necessary legal and regulatory framework for encourage private investment in public infrastructure. 2. Private sector is willing to share the risk of partnership with the government and accepts the long- term commitments for operating irrigation projects. 3. Farmers are after high productivity / high revenues farming which requires very reliable irrigation services. 4. Markets are available with high demand for the agricultural products. 5. The public opinion and media understand and appreciate the cost and benefits of open economy and encourage the role of a well regulated public-private partnership. This solution was inspired by the success stories of PPP in telecom, city gas and finally water supply and sanitation. The later two are closer in nature to the case of irrigatio

1. Transparency in Preparation

2.   Multi disciplinary Preparation Team

3.   Involvement of Beneficiaries and stakeholders in the Project Preparation

4.   Political Commitment

5.   Awareness and Public Support to the PPP approach

6.   Transformation and capacity building of public servants to handle PPP-based Projects

The concept of PPP should be first politically accepted, particularly for irrigation, a sector used not to be charged for water. Public opinion should be supportive and appreciate the costs and benefits involved. Media can play an educational role. Government should be committed and provide the enabling environment. Private sector has a pivotal role and should accept risk taking. Regulatory office should be in place to monitor progress, control performance and arbitrate differences. Finally, farmer organizations could be very helpful in project implementation. – Private sector is accepted in Egypt as partner in development. – GOE issued a PPP law and by-lows. – MWRI established a Project Management Unit and Water User Organization. – Several pre- bid conferences were organized to openly discuss all issues involved. – Project specific legal agreements have been prepared as basis for bidding process. – Potential risks have discussed and appropriate mitigation measures have added.

People can go for more information, help or advice on this solution to: Ministry of Water Resources and Irrigation Horizontal Expansion and Projects Sector (HEPS) 19th Floor Corniche El-Nile, Imbaba, Giza, Egypt, Postal Code: 12666 Telephone: +(202) 3 544 9526 Facsimile: +(202) 3 544 9452 E-mail: heps@mwri.gov.eg Contact Person at MWRI: Eng. Mohamed Bedewy, Head of the Horizontal Expansion & Projects Sector (HEPS), Ministry of Water Resources and Irrigation Or Ministry of Water Resources and Irrigation, West Delta Water Conservation and irrigation rehabilitation Project, Project Management Unit, 14th Floor, Corniche El-Nile, Imbaba, Giza, Egypt, Postal Code :12666. Telephone: +(202) 3 545 9717  Facsimile: +(202) 3 544 9519 E-mail: manwar@mwri.gov.eg Contact Person: Dr. Mohamed Anwar, Director of the project

Websites:

1. The project website

 http://www.mwri.gov.eg/En/westdeltaproject2.html

 2. Public -Private Partnership (PPP) Portal website, Arab Water Council

 http://pppi.arabwatercouncil.org/pppi/