56855 Mozambique Country Water Resources Assistance Strategy: Making Water Work for Sustainable Growth and Poverty Reduction August, 2007 AFTWR Africa Region The World Bank photographs©L.J.Abrams Mozambique Country Water Resources Assistance Strategy CURRENCY EQUIVALENTS Currency Unit = Metical US$ 1.00 = Metical 27 ABBREVIATIONS AND ACRONYMS AAP Africa Action Plan IFAC International Federation of Accountants ACGF Africa Catalytic Growth Fund IRAI IDA Resource Allocation Index AdeM Aguas de Mozambique JICA Japan International Cooperation Agency AfDB African Development Bank JSAN Joint Staff Assessment Note CAS Country Assistance Strategy LCS Least Cost Selection CEM Country Economic Memorandum MAE Ministério da Administracçào Estatal (Ministry of CFAA Country Financial Accountability Assessment State Administration) CRA Conselho de Regulação de Água (National MCC Millennium Challenge Corporation Regulatory Authority) MDG Millennium Development Goal DAU Department of Urban Water MDRI Multilateral Debt Relief Initiative DHS Demographic and Health Survey MOPH Ministerio das Obras Publicaes e Habitacao DMF Delegated Management Framework (Ministry of Public Works and Housing) DNA Direcção National de Águas (National Water NWDP National Water Development Project Directorate) PARPA Poverty Reduction Action Plan EIB European Investment Bank PEFA Public Expenditure and Financial Accountability EU European Union PFM Public Finance Management FIPAG Fundo de Investimento e Património do PRSC Poverty Reduction Support Credit Abastecimento de Água (Water Supply PWB Provincial Water Board Investment Fund) RPF Resettlement Policy Framework GoM Government of Mozambique SIL Sector Investment Loan IAF Inquérito aos Agregados Familiares Sobre SWAp Sector Wide Approach Orçamento Familiar (Household Survey) TA Technical Assistance ICA Investment Climate Assessment WSP Water and Sanitation Program IDA International Development Association WSS Water Supply and Sanitation Vice President: Obiageli K. Ezekwesili Country Director: Michael Baxter Sector Manager: Jaime M. Biderman Project Team Leader: Len Abrams August, 2007 Page ii Mozambique Country Water Resources Assistance Strategy Contents ABBREVIATIONS AND ACRONYMS.............................II 3.3.1 Achieving Water Security .................................22 3.3.2 The Need in Water Resources Infrastructure ...23 ACKNOWLEDGEMENTS .................................................. I 3.4 THE RESPONSE - ADDITIONAL STORAGE EXECUTIVE SUMMARY .................................................IV CAPACITY ...........................................................................24 3.4.1 In the South.......................................................24 1 INTRODUCTION......................................................... 1 3.4.2 Additional Storage on the Pungue....................26 1.1 BACKGROUND TO MOZAMBIQUE COUNTRY WATER 3.4.3 Additional Infrastructure on the Zambezi ........26 RESOURCES STRATEGY ........................................................ 1 3.4.4 Small and Medium Multipurpose Dams ...........27 1.2 DEVELOPMENT CONTEXT ....................................... 1 3.5 THE RESPONSE - SMALL SCALE WATER 1.3 THE WORLD BANK COUNTRY WATER RESOURCES RESOURCES DEVELOPMENT ...............................................29 ASSISTANCE STRATEGY ....................................................... 2 3.6 THE RESPONSE ­ INSTITUTIONS: IS THE WATER 1.3.1 The Country Assistance Strategy ....................... 2 RESOURCES SECTOR UP TO THE CHALLENGE? ...................29 1.3.2 Objectives of this CWRAS.................................. 3 3.6.1 Framework of Water Policies and Strategies...29 2 WATER RELATED CHALLENGES TO 3.6.2 The role and status of the DNA ........................30 MOZAMBIQUE'S ECONOMIC DEVELOPMENT......... 6 3.6.3 Strengthening Water Resources Planning Capacity ........................................................................31 2.1 MOZAMBIQUE'S WATER VULNERABILITY .............. 6 3.6.4 Addressing Transboundary Issues....................31 2.2 IMPACTS OF HYDROLOGICAL VARIABILITY ON 3.6.5 Risk Reduction and Disaster Management.......32 ECONOMIC PERFORMANCE AND POVERTY REDUCTION ....... 8 3.6.6 Strategic Support to National Groundwater 2.3 UNEXPLOITED IRRIGATION POTENTIAL ................... 9 Exploration....................................................................32 2.4 THE NEED IN HYDROPOWER ................................. 10 3.6.7 Water Information and Knowledge ..................33 2.5 URBANIZATION AND WATER SUPPLY.................... 10 3.7 INVESTMENT IMPLEMENTATION CAPACITY ...........33 2.6 INADEQUATE COVERAGE OF WATER SUPPLY AND 3.7.1 Implementation Capacity Requirements...........33 SANITATION OF SMALL TOWNS AND RURAL AREAS .......... 11 3.7.2 Government Financial capacity .......................34 2.7 CONFLICTS BETWEEN GROWING WATER DEMAND AND4 THE ROLE OF THE WORLD BANK .....................35 WATER AVAILABILITY ....................................................... 12 3 ADDRESSING THE CHALLENGES ...................... 13 4.1 WHAT THE BANK HAS DONE IN THE PAST ..............35 4.2 PRIORITY INVESTMENT AREAS FOR THE PERIOD 3.1 KEY STRATEGIC ISSUES IN THE MAIN WATER-USING 2008-2011 ..........................................................................36 SECTORS ............................................................................ 13 4.3 FINANCING THE PROPOSED ASSISTANCE ...............38 3.1.1 Irrigation.......................................................... 13 4.3.1 IDA support ......................................................38 3.1.2 Hydropower ..................................................... 16 4.3.2 Private sector participation..............................39 3.1.3 Water supply and sanitation ............................ 18 4.3.3 Development Partner Involvement ...................39 3.1.4 Environmental Use of Water............................ 19 Annex I. Water Resources Assistance in the 3.2 DEFINING RESPONSES ­ A FRAMEWORK FOR PRIORITY SETTING ............................................................................. 19 Bank's CPS 2008-11 3.2.1 Water for Growth and Poverty Reduction ....... 19 AnnexII. July 2007 WB Report: "Preliminary 3.2.2 National Inter-Regional Perspectives .............. 20 Economic Analysis of Maputo Bulk Water 3.2.3 Inter-Sectoral Perspectives .............................. 21 Source Development 3.2.4 Sequencing and Balancing Investments in Annex III. June 2005 WB Memorandum: "Role Infrastructure and Management ................................... 21 of Water in the Mozambique Economy" 3.3 DEFINING RESPONSES ­ WHAT NEEDS TO BE DONE22 Acknowledgements This strategy was prepared by the World Bank team led by Len Abrams (Sr. Water Resources Specialist, Task Team Leader: AFTU1) and com- prised of Rimma Dankova (Water Resources Economist, Consultant), John Shepherd (Water Resources Management Specialist, Consultant) and Marcus Wishart (World Bank Young Professional Program: AFTU1). The team expresses appreciation to many members of the Mozambique Coun- try Team of the World Bank for advice and support in specific sectoral areas including Wendy Hughes, Joseph Narkevic, Eduardo de Sousa, Daniel de Sousa, Greg Binkert and IJsbrand de Jong. The team was guided by Michael Baxter (Country Director, World Bank) and Jaime Biderman (Sec- tor Manager, AFTU1). Claudia Sadoff and Peter Nicholas contributed significantly as peer reviewers. Valuable comments were also provided by Tracy Hart (ENV) and Ashok Subramanian (AFTNL). The CWRAS would not have been possible without the collaboration and input of the National Water Department of the Ministry of Public Works and Housing. The team also would like to acknowledge the input of FIPAG, ARA-Sul, government agencies, academic and research institutes, devel- opment partners, the private sector, and non-government organizations who participated in consultations during the strategy preparation. The team gratefully acknowledges the financial support of the Bank-Netherlands Water Partnership Program and Norwegian Trust Funds in the preparation of this report. August, 2007 Page iii Mozambique Country Water Resources Assistance Strategy 1 Executive Summary Mozambique's continuous efforts to sustain economic The main objective of this CWRAS is to assist the growth and reduce poverty face a number of con- Government of Mozambique in prioritizing water straints including its economic and political history, resources interventions based on an analysis of Mo- and its geography and climatic conditions. It is widely zambique's changing socio-economic circumstances, accepted that future economic growth of the country and the areas of possible Bank engagement over the will continue to rely on its natural resources base and, next 3-5 years. Specifically, this CWRAS specifically, on sustainable use of land and water re- (i) investigates and describes the role of water in sources. Mozambique has plentiful land and water the Mozambique economy and how the water- resources that provide great potential for the produc- related vulnerability affects the country's eco- tion of a variety of crops, livestock development and nomic performance; industrial growth. However, high climate variability (ii) analyzes water-related challenges to the coun- resulting in frequent recurrent droughts and floods, try's economic development; limited water resources availability in the most devel- (iii) identifies responses to mitigate the negative and oped southern part of the country, high dependency on enhance the positive impacts of water on growth international water resources and very limited water and poverty reduction; and management infrastructure result in the economy be- (iv) develops recommendations on priority interven- ing highly vulnerable to water shocks and water being tions for development partners' and the World a constraint on growth and poverty reduction. Bank's assistance in water resources develop- ment for the period 2008-2011. Recognizing the importance of water resources for the country's economic development and poverty reduc- Mozambique's Water Vulnerability tion, water-related issues have received considerable attention in the national Second Poverty Reduction High dependence on shared water resources. Mo- Support Strategy (PARPAII). PARPA II acknowl- zambique is a downstream riparian state on all nine edges the need to improve management of the coun- of its major rivers, except the Rovuma, on which it try's water resources to minimize the negative impacts is a parallel riparian. Over half of the country's wa- of climate variability, ensure the sustainability of wa- ter resources originate outside the country. The high ter supply services and the availability of water for dependence of Mozambique on shared water re- agricultural production as an important factor in sources is an important factor in the national water achieving the development and poverty reduction vulnerability. In the South, all major rivers (Maputo, goals. Umbeluzi, Inkomati, Limpopo and Save) originate in neighboring countries. Significant water abstrac- The development of Mozambique Country Water Re- tion from these rivers in the upstream countries, sources Assistance Strategy (CWRAS) was comple- along with high flow variability, reduces water mentary to the Bank Country Partnership Strategy availability in these basins and increases water vul- (CPS) process supporting its approach and priorities. It nerability of the Southern region. The management is consistent with the country's development priorities of river basins and reservoirs upstream of its terri- as defined in PARPA II and the sector priorities identi- tory has direct impact on its own risks, particularly fied in the National Water Resources Management related to floods. Strategy. The CWRAS' recommendations build upon the Bank's specific strengths vis-a-vis other develop- Hydrological Variability. Highly variable climate ment donors and, at the same time, are expected to has a significant influence on the amount, timing, guide the engagement of development partners and and frequency of precipitation events and runoff pat- promote donor coordination and cooperation in the terns, and droughts and floods. The rainfall level Mozambique's water resources sector. varies considerably within a year with 60-80% of the annual precipitation falling in the period from De- cember to March. The annual average rainfall ranges August, 2007 Page iv Mozambique Country Water Resources Assistance Strategy from over 1000 mm in Northern Mozambique to about ture for their livelihood which places the majority of 500 mm in the South. The inter-annual variability of the population outside of the monetary economy of rainfall is also much higher in the South than in the the country. About one third of the population is es- Northern and Center regions of Mozambique. Tropi- timated to be chronically food insecure with condi- cal cyclones and the El Nino/La Nina phenomenon tions being particularly fragile in the semi-arid compound the variability resulting in extreme floods Southern and Central regions of Mozambique which and droughts such as the floods of 2000 in the South experience frequent droughts. Livelihood options and 2001 in the Center of the country. However, outside agriculture are limited for the great majority floods and droughts are frequent in Mozambique, oc- of the population. The marketing network is weak curring cyclically with varying intensity. and limited by extremely difficult physical access to many areas. All these factors increase vulnerability High variations in rainfall, combined with limited of the rural economy to the rainfall variability and storage facilities and underdeveloped flood control related water shocks such as droughts and floods. infrastructure, are main factors contributing to the highly variable river flows within a year, with a Water for Growth and Poverty Reduction maximum between February and May and much lower The Government and international aid community flows in the rest of a year. In the South, the river flow need to recognize the high degree of dependence of is also extremely variable from year to year, with al- the country's economy and its social well-being on most no flow observed in some rivers in dry years. water by assigning to water resources development Serious water shortages occur during dry seasons in a and management a greater priority in the national number of basins, especially in the South. development agenda. To support growth that is also pro-poor, a careful balance must be maintained be- Water Shocks and Growth tween growth and poverty reduction criteria in mak- Mozambique's economic performance is highly af- ing investment choices. An appropriate water sector fected by frequent floods and droughts. The correla- investment strategy is a blend of all these types of tion between rainfall and overall GDP is strong, and interventions, operating on the resource and on water sensitivity of the Mozambique economy to water services, intervening in a broad, systemic manner as shocks measured by fluctuations in GDP and growth well as directly targeting the poor. rates of agricultural and non-agricultural sector prod- ucts, demonstrates that major floods and droughts have The CWRAS identifies the following priority areas a significant impact on the country's economic per- of investment which will require financing from a formance, reducing GDP growth on average by at least range of sources including the Government, the de- by 1.1% points annually. Given the low technological velopment partners (including the World Bank) and level, very limited use of irrigation and underdevel- the private sector. opment of water infrastructure, agricultural production in Mozambique is strongly influenced by weather con- A. Water resources development and manage- ditions. The condition of extreme variability will itself ment in the Incomati and Umbeluzi basins. affect the performance and the very structure of Investments in the next least-cost incremental aug- economies. The expectation of variability and the un- mentation of bulk water sources for Maputo which is predictability of rainfall and runoff can constrain required by 2012 to avoid shortages. There are a growth and diversification by encouraging risk averse number of options for this of which the apparent behavior at all levels of the economy and by discour- least-cost option is the completion of the Corumana aging investments in land improvements, advanced dam and construction of a water treatment plant and technologies or agricultural inputs. An unreliable wa- main transmission pipeline for water supply to ter supply is a significant disincentive for investments Maputo. In time the construction of the Moamba in industry and services, which will slow the diversifi- Major reservoir will also be required to serve the cation of economic activities. needs of the Greater Maputo Area - Refer to the World Bank July 2007 study entitled "Preliminary Impacts on the Poor. About 10 million of Mozam- Economic Analysis of Maputo Bulk Water Source bique's population live in absolute poverty. Some Development"; 70% of the population relies upon subsistence agricul- August, 2007 Page v Mozambique Country Water Resources Assistance Strategy (i) Construction of a dam and reservoir, a small Nkuwa and Cahora Bassa North water resources treatment plant and a distribution system for the developments; town of Ressano Garcia; (ii) Analysis of Zambezi basin multi-sector invest- (ii) Support to further strengthening of the Inco- ment opportunities. The study would provide the Maputo and Umbeluzi basins agreements between analytical foundations to both assist the Bank in Mozambique, South Africa and Swaziland for defining a long-term support strategy for in- sharing the water shortages during droughts and vestments within the basin and riparian coun- the joint implementation of flood warning sys- tries, and contribute to the processes being un- tems; dertaken by the riparian states of the Zambezi (iii) Pilot initiatives to test new approaches in the man- Basin. agement of irrigation schemes with farmer-led management of irrigation water delivery systems; D. Support in Water Supply and Sanitation. Sup- and port to institutional development and capacity build- (iv) Support to institutional strengthening of ARA-Sul, ing, including: financing the management contracts including introduction of a new tariff system for for Beira, Quelimane, Nampula and Pemba. water users to ensure the sustainability of opera- tion and maintenance of the water resources infra- E. Policy development in the water sectors. The structure. principal objective of this assistance would be to support GoM in further development of an appropri- B. Small scale water resources development. ate set of policies and instruments to strengthen wa- (i) Construction of small and medium multi-purpose ter resources planning and development in the coun- dams for Nampula, Nacala and Quelimane in the try and to improve co-ordination of the water user Northern Mozambique; agencies within the framework of integrated water (ii) Community-based sustainable management and resources management. development of water resources of small streams, groundwater resources, and local watersheds in the F. Institutional building in the water sector. The poorest areas (for example, in Nampula Province); assistance to be provided to GoM in strengthening (iii) Support to smallholder irrigation. Principles for the water sector institutions would improve effi- selecting provinces or regions to commence such a ciency of the sector institutions (DNA and ARAs) program include and promote stakeholder involvement in water re- a. Preference for areas which have the largest sources management at the national, regional and numbers and concentrations of poor smallholder local levels. farming families, b.The presence of a network of rivers and streams G. Risk Reduction and Disaster Management. that provide sites with access to water and suit- The objectives of this technical assistance to the able soils and topography for smallholder irriga- Government of Mozambique are to: tion; (i) Mainstream disaster risk reduction in strategic c. Proximity to long term opportunities for larger planning and sectoral development policies; irrigation schemes that will include small- (ii) Support the government to develop its instit- holders, so that an "irrigation culture" evolves to utional and human capacity to manage disaster make possible further steps towards the long risk, term irrigation vision; (iii) Provide specific support to strategic activities to (iv) Water infrastructure for small towns. enhance preparedness at national and district level; and C. Water resources development and management (iv) Facilitate the best application of World Bank in the Zambezi basin. This, specifically, includes: Group experience and knowledge to disaster risk (i) Assistance for provision and implementation of management for the short and long term within the environmental requirements of the Mphanda the context of country economic analysis and sectoral growth strategies. August, 2007 Page vi Mozambique Country Water Resources Assistance Strategy 2 Introduction Mozambique is one of very few examples in Sub- 2.1 Background to Mozambique Country Saharan Africa to show a combination of high Water Resources Strategy growth and a significant reduction in both overall This document has been prepared after an extensive and rural poverty. process of consultation and discussion in Mozambique including the holding of a public workshop in Maputo Despite these achievements, Mozambique remains in September 2006 on the initial findings of the study. one of the poorest countries in the world. Per capita It follows the preparation of an initial scoping docu- income is US$340 in 2006 and below the average ment entitled "The Role of Water in the Mozam- for other sub-Saharan Africa (US$745) and low in- bique Economy ­ Identifying Vulnerability and Con- come (US$580) countries. Subsistence agriculture straints to Growth", June 2006. Water is an essential continues to employ the vast majority of the coun- requirement for many growth and poverty reduction try's workforce. The achievements in poverty reduc- related activities which has resulted in the need for tion also mask significant regional variations, a input into the preparation this document from a range slight increase in income inequality since 1997, and of different sectors. persistent, high levels of absolute poverty and mal- nutrition. Key social indicators for Mozambique The World Bank has undertaken 18 Country Water continue to be below the averages for other Sub- Resources Assistance Strategies to date. These have Saharan African and low-income countries. Reflect- variously addressed different issues and aspects of wa- ing this, the UN Human Development Index (an in- ter resources management and development to meet dex of income, education and life expectancy) ranks the specific challenges and development context of the Mozambique 170 out of 173 countries. Thus, the respective countries. As the first CWRAS for Mozam- main development challenge facing the Government bique, this document provides an important foundation of Mozambique (GoM) is sustaining high economic for supporting the Government of Mozambique's growth while reducing the levels of absolute pov- commitment to growth and poverty alleviation. The erty. The Government's strategy for addressing de- CWRAS for Mozambique presents a clear sectoral velopment and poverty over the medium term are set strategy that is aligned with the Government's strategy out in the "National Action Plan for the Reduction of in the water sector. This document has been prepared Absolute Poverty (Plano de Acção para a Redução as a rolling 5-yr strategic process that inputs to the da Pobreza Absoluta: PARPA)". broader Country Partnership Strategy. The public action strategy elaborated in PARPA II 2.2 Development Context identifies a number of development challenges, em- phasizing widespread rural poverty, unequal devel- Mozambique has made significant socio-economic opment and regional disparities, the growing threat progress since the peace agreement in 1992. Increased of HIV/AIDS and the high vulnerability to natural political stability, the introduction of a multiparty de- disasters. Several priority areas are identified for mocracy, deep economic reforms along with strong implementation, including education, health, basic external financial and technical support have all con- infrastructures (energy, water supply and sanitation tributed to the transformation of Mozambique's econ- and water management), agricultural and rural de- omy. Real GDP has averaged 8.1% since 1993 and is velopment, good governance, and sound macroeco- well above the African average. Performance has been nomic and financial management. most vigorous in industry and fisheries, construction and services with agricultural growth playing an im- PARPA II specifically acknowledges the importance portant role. Poverty rates have fallen from 69.4% in of water-related issues to the country's economic 1997 to 54.1% in 2003, with a 16% reduction of pov- development and poverty reduction. Proposed prior- erty in rural areas. This has significantly reduced the ity actions in the water sector include increasing the rural-urban gap, from 9.3% in 1997 to 3.8% in 2003. coverage of water supply to 70% of residents in ur- August, 2007 Page 1 Mozambique Country Water Resources Assistance Strategy ban, as well as rural, areas by 2015, and sanitation ser- The World Bank Country Assistance Strategy (CAS) vices to 80% of the urban and 50% of the rural popula- for financial years 2004-2007 (FY04-07) outlined a tion by 2015. PARPA II also recognizes the impor- program of support to the GoM to assist its efforts in tance of water resources management (WRM), its role achieving poverty reduction and economic growth in minimizing the negative impacts of climate variabil- goals. The Bank has supported efforts aimed at im- ity and in achieving development and poverty reduc- proving the investment climate, expanding service tion goals. Specific reference is made to the impor- delivery and building public-sector capacity and ac- tance of WRM in relation to such priority development countability structures. The focus on poverty allevia- areas as rural development, water supply and sanita- tion focus was maintained through full-service pol- tion, natural disaster management, food security and icy advice and complementary instruments to sup- nutrition, and the environment. The development of port the private sector, along with selected interven- water resources is also acknowledged as an important tions in rural development, education, health, agri- factor in increasing Mozambique's electricity produc- cultural services, infrastructure and governance. tion capacity. Support to the water sector was addressed through support to the National Water Development Project The main objectives of the WRM sector are defined by II (NDWPII). NDWPII supported private-sector the PARPA II as mitigating and managing the threat of urban water supply and development of the National extreme events (floods and droughts); ensuring the Water Resources Management Strategy (NWRMS). sustainability of water supply and sanitation services; ensuring the availability of water for agricultural pro- The World Bank's Country Partnership Strategy duction and rural development; and sustaining the eco- (CPS) for 2008-2011 has been developed to promote logical balance of aquatic systems i . The priority pro- growth and pro-poor service delivery within the con- gram outlined by PARPA II in the area of WRM in- text of PARPA II. Results are expected to build on cludes "construction of excavated reservoirs; rainwater those of PARPA I, through deepening efforts and collection systems; and small, medium, and large dams support to second-stage reforms while addressing in order to satisfy the needs for water for human con- gaps identified through the implementation of sumption, livestock, irrigation, fisheries, industry, PARPA I. PARPA II also adds focus on key cross- tourism, electricity production--among other uses--to cutting objectives that require coordination across mitigate, in a planned manner, the negative effects of key sectors to be addressed effectively. The Bank's droughts and floods, with a view to ensuring sustain- FY08-11 CPS is timed to be in sequence with the able management of the country's water resources" ii . development of the GoM's strategy, to accommo- date the lag between the finalization of PARPA II, 2.3 The World Bank Country Water Re- the coordination effort among the donors to develop sources Assistance Strategy a joint analysis, and the development of donor strategies. 2.3.1 The Country Assistance Strategy Strategies of main water using World Bank Country sectors (irrigation, urban and Partnerships Strategy (CPS) rural water supply, energy) 20811 - 2011 Government of Mozambique / World Bank National Water Resources World Bank Water Management Strategy, Resources Strategy 2003 National Water Policy Country Water Resources Assistance Strategy National economic International assistance development policies & programs by other donors strategies ( MDGs, PARPAII) Consultations withGoM, stakeholders, donors Figure 1.1. Development of Country Water Resources Assistance Strategy. August, 2007 Page 2 Mozambique Country Water Resources Assistance Strategy 2.3.2 Objectives of this CWRAS The World Bank has been involved in the water sector The main methodological principles for developing in Mozambique since 1998. Development of the Coun- the CWRAS are defined by the World Bank's 2003 try Water Resources Assistance Strategy (CWRAS) is Water Resources Sector Strategy (Box 1.1). The complementary to that of the CPS and is intended to CWRAS is structured as follows: Sections I and II be consistent with the country's development priori- describe the impacts of hydrological variability on ties, as defined in PARPA II, and sectoral priorities economic performance and analyzes water­related identified in the NWRMS (Figure 1.1). Note that the challenges to Mozambique's economic develop- CWRAS differs from the National Water Resources ment. Section III defines the framework for outlining Management Strategy in a number of key ways. The priority water development responses to these chal- NWRMS identifies a large number of potential and lenges, starting with an analysis of key strategic is- important development and management needs but sues in the main water using sectors and how they does not apply an economic analysis or prioritization relate to water resource management. Finally, Sec- to these. The NWRMS also does not indicate where tion IV outlines a strategy for the Bank's assistance the Bank specifically should provide assistance. between 2008 and 2011 to support Mozambique in making water resources work for sustainable eco- The aim of the CWRAS is to support the GoM in pri- nomic growth and poverty reduction. oritizing water resources interventions and the Bank's support over the next three to five years. In order to have the most impact on long-term poverty reduction and economic growth, the Bank's continued assistance in the water sector is to be tailored to Mozambique's changing socio-economic circumstances, within the context of the approach and priori- ties outlined in the FY08-11 CPS. The CWRAS is used to identify the Bank's spe- cific strengths vis-a-vis other development partners and, at the same time, promote donor coordination and cooperation in the water re- sources sector in the identified priority areas of interventions. Specifically, the objectives of this CWRAS are to: (i) describe the role of water in the Mozam- bican economy and how water-related vul- nerability impacts economic performance; (ii) analyze water-related challenges to the country's economic development and iden- tify main areas for interventions to mitigate the negative, and enhance the positive, im- pacts of water on growth and poverty reduc- tion; and, (iii) develop recommendations on priority interventions for the Bank's assistance in the water resources sector for the period 2008-2011, underpinned with an analysis of financing and implementation instruments, and donor partnership. Map 1. Map of Mozambique August, 2007 Page 3 Mozambique Country Water Resources Assistance Strategy Map 2. Annual Rainfall Ranges in Mozambique Map 3. Main River Basins of Mozambique August, 2007 Page 4 Mozambique Country Water Resources Assistance Strategy Map 4. Mozambique International River Basins August, 2007 Page 5 Mozambique Country Water Resources Assistance Strategy 3 Water related Challenges to Mozambique's Economic Development Water is instrumental in the performance of a num- GDP and agricultural GDP growth. ber of economic sectors in Mozambique. These in- clude the agricultural, health, industrial and com- 3.1 Mozambique's Water Vulnerability mercial sectors, as well supporting important natural Mozambique is not considered as water scarce. It is, resource-based livelihoods among rural communities however, highly water vulnerable and insecure be- and the poor. Strong economic growth in agriculture cause of increasing uncertainty in the national water is the most important factor driving poverty reduc- resources base. This is due to the high dependency on tion. Therefore, over the next 5-10 years agricultural international river basins (over half of the national wa- growth will remain a priority for the GoM and inter- ter resources are shared with neighboring countries), national assistance. Inadequate water supply and variable climate with high variations in annual and sanitation services have a particularly adverse effect inter-annual rainfall, frequent flood and drought on the health of the poor, and accordingly on their events, the uneven geographic distribution of water ability to contribute to the country's economic de- resources across the country and competing future de- velopment. Growing and competing water demands mands by water-dependent economic sectors in many from the major sectors of the economy, and specifi- river basins. These contributing factors are aggravated cally, agriculture, may also impose a serious con- by an underdeveloped and largely degraded stock of straint on the medium- and long-term growth pros- water infrastructure that increases water vulnerability pects in terms of water availability in some river ba- and poses a serious risk on the national economy. sins. Extreme hydrological and climatic variability present serious risks associated with frequent floods Mozambique's Water Resources. Mozambique has and droughts that constrain the actual output growth. 104 main river basins, of which 50 have catchment Supporting this is growing evidence of a negative areas less than 1,000 km2, 40 have areas between correlation between rainfall variability, real total 1,000 and 10,000km2, 12 between 10,000 and 100,000 Box 2.1. Main International River Basins The Maputo basin, shared with South Africa and Swaziland, is rich in biodiversity supporting a number of key protected areas and at risk from upstream developments. The Umbeluzi basin, shared with South Africa and Swaziland, is the primary water supply for Maputo and supports extensive irrigation in Swaziland smallholder agricultural schemes in Mozambique. The Buzi basin, shared with Zimbabwe, includes the Chicamba Dam on a tributary, the Revuè River, which provides water for agriculture and domestic supply. The Incomati basin, shared with South Africa and Swaziland, is heavily exploited, primarily for irrigated agriculture in South Africa, which has resulted in significant flow reductions in the last 15 years. The Limpopo basin, shared with South Africa, Botswana and Swaziland, supports Mozambique's largest irrigation scheme, Chokwe. Intensive water-use upstream, particularly in Zimbabwe and South Africa, has resulted in water quality problems and reduced flows into Mozambique such that the river is dry for 3-4 months in a normal year, and can actually remain dry for a period of up to 8 months in a year. The Save basin, shared with Zimbabwe, has at least 17 major dams throughout the basin and is now dry almost on a permanent basis due to an intensive program of water resources development in Zimbabwe during the 1980s. The Pungue basin, shared with Zimbabwe, includes the Gorongosa National Park and is an important source of supply for Beira, supporting agriculture, fisheries and aquaculture and experiences saltwater intrusion up to 80km inland due to reduced flows. The Zambezi basin, shared with Angola, Namibia, Botswana, Zimbabwe, Zambia, Malawi and Tanzania, covers 4.5% of the African continent and plays an important role in energy production, agriculture, fisheries, tourism and conservation. The Rovuma basin, shared with Tanzania, is largely undeveloped, providing important wilderness areas and natural services. August, 2007 Page 6 Mozambique Country Water Resources Assistance Strategy km2, with the Zambezi River and Rovuma River having catchment areas more than 100,000 km2. SAVE (V F SAVE) 2000 The most important river basins, from south to north, are the: Maputo, Umbeluzi, Incomati, Lim- popo, Save, Buzi, Pungoe, Zambezi, Licungo, Lurio, Messalo and Rovuma (Map 3). With the exception of the Licungo, Lurio and Messalo, all E (h m ³) other basins are shared with at least one other country. The Zambezi River basin is shared by a total of eight countries. The water resources situation in Mozambique, in absolute terms, compares reasonably well with other countries occupying similar climatic zones. Oct Jan Apr J ul Oct Jan Apr Jul Oct Jan Apr J ul Oct Jan Apr Jul Oct Jan Apr J ul Total mean annual runoff is estimated at 216 km3/year. The total inflow at the border is about LIMPOPO (CHOKWE) 116 km3/year while the runoff generated within the 6500 country averages about 100 km3/year. Therefore, more than 50% of the total mean annual runoff is generated outside of the country. The Zambezi E (hm³) basin represents about 18% of the country's total mean annual runoff and 75% of the total cross- border inflow: the basin receives 88 km3/year of inflow at the border and 18 km3/year of the basin's runoff is generated within the country, giving a total mean annual runoff of 106 km3/year. The availability per capita of surface water resources is about 5550 m3/year (only for the runoff generated Oct Jan Apr J ul Oct Jan Apr J ul Oct Jan Apr J ul Oct Jan Apr J ul Oct Jan Apr J ul within the country) or 12000 m3/year (including Figure 2.1. Monthly flows in Save and Limpopo the cross-border flows). rivers in 1965-70 hydrological period Mozambique is a downstream riparian state on all related to floods. To mitigate these risks, Mozambique nine of its major rivers, except the Rovuma, on is very active in a number of joint processes with ri- which it is a parallel riparian. The high dependence parian countries to ensure that its interests and con- of Mozambique on shared water resources is an cerns are addressed. important factor in the national water vulnerability (Map 4). All of the major rivers in the southern part Hydrological and climatic Variability has a signifi- of Mozambique (Maputo, Umbeluzi, Inkomati, cant influence on the amount, timing, and frequency of Limpopo and Save) originate in neighboring coun- precipitation events, runoff patterns, and the cycle of tries. The naturally high levels of flow variability, floods and droughts. The levels of intra-annual rainfall necessitating high storage capacity, along with sig- vary considerably, with 60-80% of the annual precipi- nificant abstraction from these rivers in the upstream tation falling between December and March. The an- countries reduces water availability and increases nual average rainfall ranges from over 1000mm in water vulnerability in Mozambique's southern re- northern Mozambique to about 500mm in the southern gion. The combined average natural flow in the four region. The southern region of Mozambique also ex- basins iii is about 11 km3/year. This is predicted to periences a much higher degree of inter-annual rainfall decrease to about 5 to 6 km3/year over the next 20 variability than in the northern and central regions years, with increasing variability due to growing (Map 2). demands from riparian neighbors. The management of river basins and reservoirs upstream of its terri- Tropical cyclones and the El Nino/La Nina phenome- tory has direct impact on its own risks, particularly non compound the hydro-climatic variability contrib- August, 2007 Page 7 Mozambique Country Water Resources Assistance Strategy uting to extreme floods and droughts, such as the 3.2 Impacts of Hydrological Variability floods of 2000 in the south and 2001 in the center of on Economic Performance and Pov- the country. However, frequent floods and droughts erty Reduction occur cyclically in Mozambique with varying inten- sity. More localized droughts are observed every Water Shocks and Growth. Mozambique's economic three to four years, although are often not well re- performance is significantly affected by the frequency corded. According to the National Meteorology In- of floods and droughts. There is a negative correlation stitute (INAM), the intervals between extreme rain- between rainfall and overall GDP, and sensitivity of fall events are shortening, while the intensity of the Mozambique economy to water shocks measured these rainfall events is increasing. Over the last 25 by fluctuations in GDP and growth rates of agricul- years Mozambique has experience major floods in tural and non-agricultural sector products demonstrates 1977-1978, 1985, 1988, 2000, 2001 and 2007, and that major floods and droughts have a significant im- major droughts in 1981-1984, 1991-1992, 1994- pact on the country's economic performance (Figure 1995, 2002-2003. It is predicted that these condi- 2.2). tions will be exacerbated by climate change iv . A regression analysis undertaken in a World Bank High variations in rainfall, combined with limited study v over the period 1981-2004, suggests that GDP storage facilities and under-developed flood control growth in Mozambique is cut by 5.6% points, on aver- infrastructure are the main factors contributing to the age, when a major water shock occurs. Assuming the highly variable inter-annual river flows. Discharge rate of the major disaster occurrence is, on average, peaks between February and May with typically one in every five years, then GDP growth in Mozam- much lower flows during the rest of the year. Serious bique is reduced by 1.1% points annually due to the water shortages occur during dry seasons in a num- impacts of water shocks. The total costs of water ber of basins, with minimum monthly flows as little shocks in the period 1980-2003 are estimated at about as 1 to 2% of the annual runoff for many rivers. In US$1.75 billion vi . [See also Endnote xxviii and Appendix B - the southern part of Mozambique, river flow ex- World Bank Memorandum: "The Role of Water in the Mozam- tremes from year to year are often result in the ab- bique Economy".] sence of flow in some rivers during dry years. This means that the amount of usable and available water The condition of extreme variability will itself affect resources depends heavily on the development of the performance and the very structure of economies. storage and diversion infrastructure. Without large The expectation of variability and the unpredictability and small scale water storage infrastructure, only a of rainfall and runoff can constrain opportunities for fraction of total runoff can be utilized to meet the growth and diversification by encouraging risk averse demands. behavior at all levels of the economy in all years. Un- der such conditions economic actors, particularly the 6 0.0 0 5 0.0 0 D rou g ht D rou gh t F lo od s D rou ght F lo od s D rou g ht 4 0.0 0 3 0.0 0 2 0.0 0 1 0.0 0 0 .00 198 2 1 983 198 4 1 98 5 19 8 6 1 98 7 19 8 8 19 89 1 990 19 91 1 99 2 19 93 1 99 4 19 95 199 6 1 997 19 98 1 99 9 20 00 200 1 2 002 200 3 2 004 -10 .0 0 -20 .0 0 -30 .0 0 G D P G ro w th A g ric ultu re G ro w th Ind u stry G ro w th S e rvic es G ro w th Figure 2.2. Mozambique: Real GDP Growth Rates and Rainfall (1988-2002) August, 2007 Page 8 Mozambique Country Water Resources Assistance Strategy poor, focus on minimizing their downside risks, part of home-consumed production is due to safety- rather than maximizing their potential gains. It dis- first considerations because of high expectations of courages investments in land improvements, ad- food security problems accompanying frequent vanced technologies or agricultural inputs. These in droughts and floods. turn constrain agricultural output and productivity gains. An unreliable water supply is a significant 3.3 Unexploited Irrigation Potential disincentive for investments in industry and services, Mozambique is still largely a rural society with over slowing the diversification of economic activities. 80% of the total labor force involved in agriculture and This risk averse behavior has a structural impact, very limited employment opportunities in non-farm promoting patterns of development that can trap sectors. About 45% of the country is considered suit- economies in low-level equilibriums. able for agriculture. However, only 4 % of the total arable land is presently cultivated. Almost 95% of the Impacts on the Poor. About 10 million Mozambi- cultivated land in Mozambique is cultivated by the cans live in absolute poverty. Some 70% of the family sector. In 2005 the agricultural sector's share population relies upon subsistence agriculture for in total GDP was 23%, and about 70% of the popula- their livelihood which places the majority of the tion lives in rural areas. The sector grew at a 6% aver- population outside of the monetary economy of the age annual rate from 1992 to 1996, and 6.6% between country. The costs to this segment of the population 1996 and 2004 (IMF, 2005). of recurrent water related shocks and underdevelop- ment remain therefore largely unrecorded and out- Mozambique's poverty is closely linked to its depend- side of the reckoning of costs of these events at na- ence on rain-fed subsistence farming in the context of tional level. highly variable rainfall and frequent droughts. Within the framework of increasing agricultural output and The chronically food insecure are estimated to be reducing poverty, the PARPA and PROAGRI empha- about one third of the total population. An addi- size the need to increase agricultural productivity, im- tional 20 to 25% of the country's total population is prove access to land and secure land tenure, and facili- considered highly vulnerable to transitory food inse- tate rural trade. Irrigation is considered an important curity. Production of cereals, and especially, maize factor in increasing agricultural productivity and food as the main food staple for the majority of rural and security for the poorest part of the population. Irriga- lower income urban population, is central to food tion helps to diversify income and reduce rainfall ­ security in Mozambique. While cereal production related risk. However, despite the prominent attention was growing in the north and the centre of the coun- given in policy documents such as PARPA to food try over the last 10 years, food security conditions security and water availability for agricultural devel- continued being fragile in water-insecure districts opment, the growth of irrigation in Mozambique is located mainly in the semi-arid regions of the South- very slow. ern and Central regions of Mozambique with high probability of droughts. The country has considerable untapped opportunities for irrigation, with only 4% of a potential 2.7 million Livelihood options outside agriculture are limited for hectares developed for irrigation. Irrigation in Mo- the great majority of the population. The marketing zambique can be categorized into three types; the network is weak and limited by extremely difficult large-scale irrigation schemes such as in the Limpopo physical access to many areas. All these factors in- Valley and the private sugar companies; medium-scale crease vulnerability of the rural economy to the rain- irrigation, generally covering less than 50 ha; and fall variability and related water shocks such as small scale and micro irrigation, often based on treadle droughts and floods. Rural households are particu- pumps and other manual methods. The incidence of larly susceptible to droughts due to the self- irrigation is substantial among commercial farms (over provisioning nature of the farming and weak market- 30%), but low among smallholders. Surveys indicate ing infrastructure. Home consumption accounts for that the proportion of farmers using some irrigation 65% of total agricultural production valued at pro- rose from about 3% in 1996, to 11% in 2002, but these ducer prices and represents about 23% of total figures are regarded as unreliable and appear to be too household consumption of commodities vii . A large high. August, 2007 Page 9 Mozambique Country Water Resources Assistance Strategy HCB utilizing un-exported surpluses. An agreement The Government intends to increase the current ef- has been reached between Mozambique and Portugal fective irrigated area in the medium term, which regarding the transfer of majority ownership of HCB would be mainly achieved through rehabilitation of to Mozambique, but the additional developments of a the existing irrigation schemes (which are currently power plant on the north bank of Cahora Bassa and the not in use), using public and private funding. In ad- Mphanda Ncua dam remain uncertain. dition to improving management of existing irriga- tion infrastructure, new irrigation systems for small- Potential hydropower generation in Mozambique is holders, including small dams and groundwater de- substantial. According to EDM, about 13000 MW, velopment, would mitigate vulnerability from un- producing 65000 GWh/y of energy, can be economi- predictable rainfall. cally developed in Mozambique. About 70% of this potential (10000 MW, 45000 GWh/y) is concentrated 3.4 The Need in Hydropower in the Zambezi watershed, most of it on the Zambezi Hydropower generation is one of the most important river. There is an attractive market now for power non-consumptive water users in Mozambique. Mo- from Cahora Bassa and other possible power plants on zambique has one of the lowest electrification rates the Zambezi. These new power schemes can also be in Southern Africa (approximately 5%). However, used to structure the future Mozambique national grid the gross national electricity consumption has in- that would allow power sharing between several pro- creased substantially as several mega projects have duction centers and create conditions for incorporation been implemented. The construction of a new alu- of smaller power production schemes on other center minum smelter, Mozal, has increased the national and northern river basins. energy consumption three fold since 2002. However, the domestic electricity consumption still remains 3.5 Urbanization and Water Supply very low at 78kWh per capita (in South Africa it is While the population of Mozambique is expected to 3,745kWh per capita). grow at the moderate annual rate of 2.2-2.3% between 2005 and 2020 viii , rural-urban migration is expected to Electricity is the most serious infrastructure problem continue. The urban population may possibly grow as for the Mozambican manufacturing sector, with much as 4-5% per annum. Currently, 70 % of the total nearly 64% of firms ranking it as a major or severe population live in rural areas where 55% remain poor. problem. Power outages and oscillation of the volt- In urban areas an unusually high proportion, 51%, is age has led to the loss of equipment. As capacity poor reflecting a steady trend in migration of the rural utilization increases, and firms begin to engage in poor into the cities. continuous production, an erratic power supply will become an ever-increasing constraint. The Invest- At present, more than 70% of the rural population and ment Climate Assessment (World Bank, 2003) re- about 30% of the urban population ix do not have ac- ported that firms suffered 17.5 power outages per cess to an adequate water supply x . Currently, the pro- month, or on 193 days in the year, well above the duction capacity of water supply systems for the 13 nine African countries surveyed whose average was main cities, with a total about 4 million inhabitants, is 77 days. Outside Maputo it is more acute: in the about 250,000 m3/day (or a total production of about Center and the North, average monthly power out- 80 Mm3/year). About 75% of this production is serv- ages were 30 and 29, respectively. Only 220,000 ing the Maputo area, (mainly from the Umbeluzi river, households (some 6% of all households) had access regulated by the Pequenos Libombos dam) xi . Most of to electricity in 2004. the urban water supply relies on provision of surface water. Only four main cities ­ Pemba, Tete, Xai-Xai, 80% of the current energy production in Mozam- and Chokwe ­ rely on groundwater supply. bique comes from the Cahora Bassa hydropower plant (HCB) with an installed capacity of 2075MW, The provision of safe and reliable domestic water sup- most of which is exported. One option for EDM in ply to the urban and rural population is one of the the coming years is to meet growth in domestic de- Government's main development priorities. It is esti- mand from additional power allocation from the mated that urban drinking water demand, with in- August, 2007 Page 10 Mozambique Country Water Resources Assistance Strategy creased per capita availability, reduced losses, pro- In most cases, the water production increase can be jected increase in the urban population and increased obtained from small local intakes or reservoirs. How- coverage in the service, may reach about 250 ever, in case of Maputo and Beira, the increase in wa- m3/year in total by 2015 xii . ter supply is likely to require larger scale infrastructure solutions on the Incomati river (for Maputo water sup- ply), and, in the case of water supply to Beira, on the Pungue river, which would also provide water for the 30 expansion of irrigated agriculture. 25 Population total (million) 20 80 Water demand (million m3 15 70 10 60 50 Industrial 5 40 Commercial 0 30 Domestic 1990 2000 2004 2020 20 10 8 0 Urban Population (million) 7 2005 2010 2015 2020 6 5 Data Source: Communication with FIPAG 4 3 Figure 2.4. Maputo water demand projections 2 1 3.6 Inadequate Coverage of Water Sup- 0 1980 1990 2004 ply and Sanitation of Small Towns and Rural Areas Figure 2.3. Growth of total and urban popula- Mozambique is close to the African average for most tion in Mozambique social indicators except access to water, which, at 37%, falls far short of the average of 58%. This is Mozambican industries are concentrated in the coun- mainly because rural water access is low, at 27%, try's major cities ­ Maputo, Matola, Beira and Nam- compared to the African average of 46.5% xiii . In Mo- pula, and their water supply almost exclusively relies zambique overall spending on water supply for cities on the existing urban water supply systems. No ac- and large towns has historically exceeded that on small curate information is available on water consump- towns and rural areas due to the low investment ab- tion by industries. However as the country pursues sorption capacity of the rural WSS institutions. As a its industrialization policy, it is expected that there result, the rural population (including small towns) will be increased demand for water to meet the pro- which constitutes 73% of the total population, has a duction requirements. For Maputo the current con- water supply coverage of 27%, while the coverage in sumption is estimated in the order of 10,000m3/day the urban areas is 65%. In 2003-2004 Government (Figure 2.4). spending (own revenues and donors' contributions) on expanding water access per head of un-served popula- It is expected that this water consumption will dou- tion, was six times greater for urban areas than for ru- ble with construction of new planned industries such ral. (This needs to be viewed in the light of higher as Mozal 3 and the MISP (Maputo Iron and Steel costs and higher levels of service in urban areas where factory). Currently, Mozal uses 50,000 m3 of water services such as wells and hand pumps are not possi- per month and has requested a guaranteed supply of ble.) PARPAII defines the targets for improvement in 75,000 m3/month in the future to meet the needs of rural water supply and sanitation as "increasing cover- the extended Mozal 3 project. age of rural sanitation services to 40%, serving 6 million people in rural areas by 2009, and achieve 50% in 2015, serving 8.4 million people" xiv . August, 2007 Page 11 Mozambique Country Water Resources Assistance Strategy 3.7 Conflicts between Growing Water of the economy, specifically agriculture, impose a se- Demand and Water Availability rious constraint on the medium-term and long-term growth prospects in terms of water availability in some Mozambique has a US$4.3 billion economy. While river basins, especially in the economically most de- the share of agriculture in GDP was falling steadily, veloped South and the Center. From 2003 to 2015 the it still produces approximately 22% of the GDP, in- domestic and municipal water demand is predicted to dustry (including manufacturing) produces about increase by 45% in Southern Mozambique and by 35% 33%, and services produce about 45% of the GDP in the Central region of the country. With steady (Figure 2.5). growth in the large industrial sector, the water demand for large industries is estimated to increase by 70% in 120 the South and by 60% in the Central Mozambique. 100 The expected growth in hydropower production is 80 Services likely to require an increase in peak capacity. The 60 Industry Government also intends to double the current irri- 40 Agriculture gated area in the medium term, which would be 20 mainly achieved through rehabilitation of the existing 0 irrigation schemes, using public and private funding. 1985 1995 2005 If these plans are realized, along with some projected Figure 2.5. Contribution to GDP by Sector increase in urban water demand, it is expected that by 2015 such southern rivers as Umbeluzi and Limpopo All these sectors are highly dependent on an ade- may have negative water balances against the present quate supply of water. Agriculture (including irriga- level of water yields. This means that the amount of tion, livestock and forestry) uses about 73% of the usable and available water resources depends heavily total water consumption, with industries using about on the development of storage and diversion infra- 2% (Table 2.1). Urban and rural domestic water sup- structure. To satisfy the future water needs to support ply uses most of the remainder (about 25% of the the envisaged economic growth and sectoral develop- total water consumption) and has an important direct ment, substantially more water infrastructure will be impact on public health. needed to augment available supplies and increase wa- ter yields in the potentially water scarce river basins in Most of the sectors which contribute to the Mozam- the Southern and Central regions. Looking into the bican economy are either directly dependent upon future, the economic development pressure will likely secure, sustainable water availability or are indi- make the problem of seasonal water shortages more rectly affected by water shocks (droughts or floods). critical in the other river basins of the country as well. The growing water demand from the major sectors Region Domestic Industrial Wa- Irrigation Livestock Forestry TOTAL Water ter Supply Supply South 128 15 202 345 Center 89 4 206 66 29 394 North 73 230 90 393 TOTAL 290 19 (1.7%) 638 156 29 1132 (25.6%) (56.4%) (13.8%) (2.5%) Data Source: NWDP1, BB5 Phase 1 Report: Black & Veitch International, 2004 Table 2.1. Composition of Total Consumptive Water Use in Mozambique by Sector and by Region (million m3) P P August, 2007 Page 12 Mozambique Country Water Resources Assistance Strategy 4 Addressing the Challenges and north regions of the country have more appropri- 4.1 Key Strategic Issues in the Main ate conditions for rainfed agriculture, where the prob- Water-Using Sectors ability of good harvests during the wet season is 70- Irrigated agriculture and potable water supply are the 95%. The north of the Manica province and the south main consumptive water using sectors in the Mo- of the Tete province are excluded from this Centre- zambique economy (Figure 3.1). Agriculture, which North region, as they have a risk of harvest loss in includes irrigation, forestry and livestock, is by far rainfed crops of usually more than 50%. Irrigation ef- the largest water user, accounting for 73% of the ficiency is reduced to 25-50%, mainly in the surface total water consumption, while domestic and indus- irrigation areas of smallholder farmers. Agricultural trial water supply constitute about 28% (2% and companies, which mainly use sprinkler irrigation, have 26% for industrial and domestic water supply, re- efficiency rates of up to 70%. spectively). Hydropower is the most important non- consumptive user of water, producing more than Most agriculture is subsistence smallholder farming, 80% of the electricity in the country. Strategic with farm sizes in the 1 to 2 ha range, generally grow- choices for the development of these sectors should ing food staples such as maize and cassava, except in underpin the country's development objectives in the the pastoral areas (such as in Tete, Sofala and Gaza) long- and medium term. They also determine the where livestock raising is practiced. There are also a evolution of water demands and requirements in the relatively small number of large scale commercial respective basins and are therefore an important fac- farms, which produce cash crops such as sugar and tor in developing national and regional water re- tobacco. sources strategies. The sections below discuss the key strategic issues in the irrigation, water supply The irrigation potential. In Mozambique increasing and sanitation and hydropower sectors, and the envi- irrigated agriculture has been identified as a critical ronmental use of water. factor in the alleviation of rural poverty and achieve- ment of food security. Irrigation can enable subsis- tence farmers to maintain productivity in times of Domestic Water drought and to diversify into cash crops. It can pro- 3% Supply 14% vide opportunities at the small, medium and large scale 26% Industrial Water for secure, profitable and sustainable business. Supply Irrigation 2% The country's tradition of irrigation dates back to the Livestock pre-independence period. In 1968 irrigated lands to- taled 65 000 ha, out of which 72% were located in the 55% Forestry Maputo and Gaza provinces. In 1973 this area had in- creased to 100 000 ha due to the establishment of sugar companies and Limpopo settlers in the southern provinces of Maputo and Gaza. Irrigation was mainly Figure 3.1. Consumptive Water Use by Sector practiced by the Portuguese settlers who exploited these lands, while Mozambicans did not use irrigated 4.1.1 Irrigation agriculture. After independence in 1975, the irrigated Rain-fed farming in Mozambique is subject to fre- area in the country was increased by about 20 000 ha, quent droughts, and food security is low. The cli- and the total equipped area reached almost 120 000 ha mate of Mozambique imposes the risk of harvest in the early 1980s. Most of the developed areas were loss in rainfed agriculture exceeding 50% in all re- located in Maputo and Gaza provinces, where signifi- gions south of the Save River, and can reach up to cant water development works took place including 75% in the interior of the Gaza province. The centre construction of the Pequenos Libombos Dam on the August, 2007 Page 13 Mozambique Country Water Resources Assistance Strategy Umbeluzi River, the Corumana Dam on the Sabie about 3% in 1996, to 11% in 2002, but these figures River and the Massingir Dam on the Elefantes River. are regarded as unreliable. Many who reported that In the years following independence, the govern- they use irrigation probably have done so rarely, or ment encouraged the exploitation of existing large only for very small garden plots. irrigation schemes by state companies. These com- panies however became a symbol of inefficiency, The two ­ pronged approach to irrigation develop- mismanagement and the initial gains were lost due to ment with a focus on smallholder and commercial the deterioration of the irrigation infrastructure. farming. The emerging priorities for the World Bank assistance in the irrigation sector in Mozambique in The area of irrigable land in Mozambique has been the short- and medium term include support to small- variously quoted as 2.7m to 3m hectares xv . This holder irrigation as well as promotion of irrigation for compares with the total land area under permanent commercial farming. In the classification of water cropping estimated at 4.5m hectares. More than half interventions illustrated in Figure 3.3 later in this of the potential irrigable land is in the Zambezi val- Chapter, development of smallholder irrigation is an ley. Other basins included in the estimate were the example of poverty-targeted water service intervention Limpopo/Incomati, Pungué/Buzi, small rivers in with the objective of alleviating rural poverty and im- Zambézia, and the Lugenda and other rivers in Ni- proving food security in the short- to medium term assa and Cabo Delgado. These estimates, made in (type 4). However, to provide the basis for growth and the 1970s and checked independently at the time, opportunities for the poor in the longer-term, type 3 should now be regarded as optimistic. Allowances interventions - broad policies and investments that af- need to be made for the lack of hydrological data, fect irrigation development and management - need to the decreases in flow to Mozambique in the southern be considered. This includes development of market- transboundary rivers, and lessons learned over the oriented irrigation polices xvi to encourage commercial last 30 years about the vulnerability of large irriga- farming and large scale irrigation and support to better tion areas in flat terrain to high groundwater tables coordination between water and agricultural ministries and salinization. Nevertheless, even taking these in developing an integrated approach to irrigation sec- factors into account, there remains substantial un- tor development. Expansion of commercial irrigation tapped irrigation development potential, especially could be driven by private sector financing. However in the Zambezi valley. the role of the Government would be to put in place the legal, institutional and regulatory framework nec- Currently, 118 120 ha are equipped for irrigation, of essary to encourage commercial farming and improve which 40 063 ha are actually irrigated, consisting water availability for irrigation through development mainly of large schemes over 500 ha (Figure 3.2). of additional multi-purpose water storage infrastruc- ture. Pilot initiatives to test new approaches in the management of irrigation schemes with farmer-led management of irrigation water delivery systems could be another high-priority area for interventions in the irrigation sector. Smallholder irrigation opportunities and benefits. Agriculture in Mozambique is almost entirely domi- nated by smallholders. The agricultural economy is a major source of livelihood, and food represents about Source: FAO AquaStat ­ Mozambique two-thirds of total consumption, especially among the Figure 3.2. Equipped and actually irrigated rural poor. An estimated 70% or about 12.5 million areas people live in rural areas. Average cultivated area per household is only about 1.4 hectares. In 2003, there The use of irrigation is substantial among commer- were an estimated 3.2 million farm families cultivating cial farms (over 30% is reported), but low among some 4.5 million hectares. Medium- and large-scale smallholders. Surveys indicate that the proportion farmers are almost insignificant in terms of land area of farmers using some form of irrigation rose from and numbers of farms. Two-thirds of agricultural pro- August, 2007 Page 14 Mozambique Country Water Resources Assistance Strategy duction is for home consumption and only 5% is assa provinces. Nevertheless, the proportion of small- generated by large-scale agriculture. Most of the holder farms with economic opportunities for irriga- agricultural land area for small (less than 10 hec- tion, excluding those already irrigating, is not likely to tares) and medium farms (10-50 hectares) is culti- be as much as 10%. This is because, even in those vated for basic food crops. By contrast, large farm areas, most plots are too distant from the water source enterprises (more than 50 hectares) produce mostly or are elevated well above it. cash-crops. The greatest pay-off for increasing smallholder irriga- In the highly variable climatic conditions, conver- tion, in terms of food security and poverty impact, is sion of rain-fed smallholder farms to irrigation has likely to be in those provinces where the population of been shown to have a number of benefits. Food se- poor subsistence farming families is highest, where curity is boosted enormously for those farming fami- there are the highest numbers of farms with inexpen- lies, with annual risks of food shortfall declining sive access to water, and where soils and topography from 20% - 40% of years with food shortfall, down lend themselves to irrigation. Also, irrigation services to near zero. Productivity increases substantially, as are just one of several critical inputs to improve agri- farmers can harvest two crops per year from single cultural productivity (along with the availability of plots, and can inter-plant vegetables between rows of inputs such as seed and fertilizer, post-production maize and other crops. Dietary diversity is thus also processing, information, credit, transport and market- achieved. Farmers also include cash crops among ing) and it needs to be complemented and coordinated their production, gaining income important in sup- with a broader strategy on smallholder agricultural porting family health and education. Multiplier ef- development. fects, including benefits to those trading with irriga- tion farming families or processing farm produce, The World Bank Mozambique Agricultural Strategy result in substantial indirect benefits. suggests xvii that irrigating a smallholder farm results in an increase in production of 2 to 4 times the rain-fed However, the opportunities for an increase in small- production. Conversion of 5% of the productive rain- holder irrigation in Mozambique and, consequently, fed land in selected areas to irrigation could therefore its poverty alleviation effect, should not be overes- be assumed to increase agricultural production by timated due to the limited access to water for the about 10% on the average. It also suggests that the majority of agricultural smallholders. In Mozam- multiplier effect of the new irrigation would be be- bique, unlike some of the countries which occupy tween 1 and 2. Thus the economic effect of converting the southern African plateau, useful groundwater 5% of the suitable agricultural land to irrigation would sources are scarce. There is some in the sandy result in the increase of 15% in economic activity in coastal plain where soils are often poor, and in allu- the respective areas, if one assumes a multiplier of 1.5. vial valleys where surface water is often more con- However, the whole of the production from the irri- veniently available. The most common occurrences gated land, plus the additional indirect benefits, would of groundwater are in the "machongos", which are be much more protected against the effects of rainfall wetlands with accumulations of peat, often at the variability than the remaining rain-fed agricultural eastern foot of the escarpments in the southern prov- production. Another important benefit of smallholder inces. These are used by farmers for production of irrigation programs (even if implemented in a limited crops in the dry season through careful control of scale) would be the development of a culture of irri- groundwater levels. gated farming and the skills and knowledge of farmers to manage the irrigated production of the range of Apart from these, most opportunities for smallholder crops suitable for the climate and soils, and to market farmers to access water will be surface water. The them. The non-existence of such a culture of irrigated density of streams which present surface water op- farming is one of the reasons for the lack of success of portunities for small developments, varies with rain- the equipped irrigation areas of the south. fall and topography. The densest stream networks are in the areas of higher rainfall, such as the upper The potential scope of smallholder irrigation devel- Pungué basin in Manica province, the Zambezi opment seems to be small compared to the size of the delta, and much of the Zambézia, Nampula and Ni- smallholder farming population that is exposed to risks August, 2007 Page 15 Mozambique Country Water Resources Assistance Strategy of food shortfall due to droughts (and floods). area would be required in infrastructure (roads, but Probably only about 5% of the smallholder popula- also improvements of Chimoio airport and Beira port), tion would directly benefit, and then only in a few in processing and exporting facilities (cold storage in provinces. The effectiveness of this intervention Chimoio and Beira) and in providing better access to could increase if support to smallholder irrigation is adequate financing. included in a broader context of small scale water resources development programs and projects. This b) Promotion of commercial fruit and horticulture would include community-based sustainable man- production in the Maputo corridor. In line with the agement and development of water resources of above, fruit and horticulture production should be fur- small streams, groundwater resources, and local (mi- ther supported in the Maputo area, where it can benefit cro) watersheds in the poorest areas (for example, in from the proximity with the urban market and with Nampula Province). other market opportunities in nearby South Africa, as demonstrated by the recent market study piloted by The possible activities could include construction of CEPAGRI. Ongoing initiatives (greenbelt of Maputo) small hydraulic structures and local scale hydro- could be upscaled through targeted investments in in- power units, water harvesting, flood protection and frastructure to improve water management and pro- water resources protection against polluting activi- mote collaborative arrangements between commercial ties. This should also be coordinated with regional farms and smallholders. strategies and plans for feeder road rehabilitation and construction, rural water supply and sanitation c) Promotion of commercial sugarcane production in (including small towns), and rural electrification. the floodplains of the Pungué (Beira corridor), Lim- popo and Incomati rivers (Maputo corridor). Bio-fuel Support to commercial farming. A recent World would offer interesting opportunities that are currently Bank exploratory mission on irrigation in Mozam- being analyzed through an ESW. The ADB is also bique has identified priorities for the Bank's support conducting a feasibility study in production of sugar- in the irrigation sector in the next CAS period cane for ethanol. Contract farming arrangements with (FY08-FY11). The assistance would focus on a lim- smallholder producers need to be further promoted. ited number of high potential areas where a number Investments would include transport and processing of conditions for success are being met, particularly facilities. Parallel measures need to be taken to attract in terms of connection to markets. It has been identi- private investors. fied that these focus growth areas will include the Maputo, the Beira-Chimoio, and the Zambezi corri- d) Smallholder rice and horticulture production in dors xviii . Agricultural growth will also need to focus the Zambezi corridor. There is scope for investment in on priority agricultural value chains where Mozam- irrigation combined with market development in the bique has a proven comparative advantage, such as Zambezi valley corridors (Quelimane and Nampula- sugar cane, rice, horticulture and fruits. Improving Nacala). This could take the form of support to the production of each of these will require a targeted dissemination of private irrigation technologies and approach that comprehensively addresses the struc- related support services ­primarily for vegetables (on- tural constraints, while focusing on high potential ions, tomatoes), as well as through investment in areas. The mission has identified the following pri- small-scale community-based irrigation schemes (10- orities: 50 has), provided the investment costs can be reduced and support can be provided on a cost-sharing basis to a) Promotion of commercial fruit and horticulture help adopt more intensive technologies, facilitate ac- production in the Beira-Chimoio corridor. Follow- cess to inputs and improve water management. ing up from work led by CEPAGRI and the Horti- culture Task Force (HTF) and in line with recom- 4.1.2 Hydropower mendations from the CWRAS, one particularly at- The country has four major hydropower stations at the tractive model involves the promotion of PPP in Cahora Bassa, Chicamba, Mavuzi and Corumana commercial horticulture production through devel- dams for the production of electricity (Table 3.1). Ac- opment of storage in the upstream parts of the tual power demand is about 240 MW (2002), with an Pungué river. Associated investment in this growth annual energy consumption of 1300 GWh. 80% of the August, 2007 Page 16 Mozambique Country Water Resources Assistance Strategy Power Turbine Location (MW) Head Discharge Province River 3 (m) (m /sec) Cahora Bassa 2075 120 2000 Tete Zambeze Chicamba 34 50 60 Manica Buzi Mavuzi 48 160 23 Manica Buzi Corumana 16.6 36 25 Maputo Incomati Table 3.1. Existing Hydropower Stations Source: Water Resources of Mozambique, DNA, 1999 current energy production in Mozambique comes highly economically and commercially viable, and from the Cahora Bassa hydropower plant (HCB) some of the investments could be provided by the pri- with an installed capacity of 2075MW. In the com- vate sector. Besides the main hydropower potential ing years EDM expects to cover the demand growth concentrated on the main stream of the Zambezi be- from additional power allocation from the HCB and tween Cahora Bassa and Lupata, the tributaries Luia, with the surplus still to be exported to South Africa, Revubué, and Luenha also present good opportunities Zimbabwe and probably Malawi. for hydropower developments. In addition, EDM is currently undertaking studies on hydropower potential Installed capacity at Cahora Bassa is 2075 MW, with on the Lurio river. an average potential production of about 10000 GWh/y. The HCB is currently owned by the Portu- In addition to Cahora Bassa North, the Mphanda guese (82%) and Mozambican governments (18%) Nkuwa project has been promoted by the GoM partly respectively although agreement has been reached to as a means to gain independent control of both the transfer majority ownership to Mozambique depend- management of the Zambezi and the potential power ing upon successful financing of the transfer being market. Now that Cahora Bassa is being renegotiated, concluded. The conclusion of these arrangements there is the possibility (and an imperative) to rethink will determine the amount and conditions of the Mphanda Nkuwa on its own merits in the context of power allocation among the off-takers, including the development of the Zambezi within Mozambique EDM. and the Zambezi basin as a whole. There would now be greater possibility of approaching the Mphanda Given the increasing power demand in Mozambique Nkuwa development from a more multi-purpose per- and in the region, particularly in South Africa, the spective in addition to its hydropower potential. The water management strategy suggests that the hydro- prospect of construction of the proposed Mphanda power development on the Zambezi River should be Ncua and Cahora Bassa North developments, together an investment priority in water resources develop- with the negotiations for a change in ownership of Ca- ment. Initial feasibility studies undertaken by UTIP hora Bassa, provide an important opportunity to ensure showed that the proposed Mphanda Nkuwa Dam that environmental and social considerations are taken located between Cahora Bassa and Boroma, could be into account by the operational regime of Cahora Project Power Turbines Annual Energy Location Province (MW) Head (m) Discharge Production 3 (m /sec) Cahora Bassa II 1200 120 1320 6800 Tete Mphanda Nkuwa 1780 58 3400 12450 Tete Alto Malema 80 27 60 229 Zambezia Lupata 654 80 3025 4960 Tete Boroma 444 38 60 3240 Tete Luia 234 98 350 975 Tete Revubue 120 80 60 510 Tete Mutelele 50 190 Niassa Lurio I 120 Nampula/Cabo Delgado Lurio II 120 Nampula/Cabo Delgado Lurio III 60 Nampula/Cabo Delgado Mavuzi I, II 60 215 Manica Table 3.2. Potential Hydropower Undertakings Source: Water Resources of Mozambique, DNA, 1999; Communication with WB Staff in Maputo Office August, 2007 Page 17 Mozambique Country Water Resources Assistance Strategy Bassa and the proposed new developments, whilst tal through public-private partnerships because hydro- still achieving major growth objectives. power produces a reliable stream of revenues. In such investments the risks are shared with each sector Potential hydropower generation in Mozambique is adopting risks for which it is most suited. The public quite large. According to EDM, about 13000 MW, sector takes responsibility for exploration, geological, producing 65000 GWh/y of energy, can be economi- environmental and social risks and their mitigation, cally developed in Mozambique. About 70% of this whilst the private sector assumes responsibility for potential (10000 MW, 45000 GWh/y) is concen- financing and operating the electricity generation sta- trated in the Zambezi watershed, and most of it on tion. However, for this potential to materialize, im- the Zambezi river (Table 3.2). provements need to be made in such areas as contract- ing and pricing practices, the electricity market struc- The extent to which the different uses compete for ture and trading rules, and water use priorities water or are complementary varies. Irrigation and power generation can often be complementary, if the 4.1.3 Water supply and sanitation irrigation off-take is downstream of the power sta- According to the status report of WSS MDG achieve- tion outlet. One example is the proposed installation ment in Africa undertaken by the Government of Mo- of a 28MW power station at the existing Massingir zambique and active sector donors xix in April 2006, Dam, currently a single purpose dam for irrigation, Mozambique has the potential to achieve the MDGs which is being rehabilitated. Power transmission is for water supply in its major cities (representing 75% a large component of the cost, however the cost of of the urban population). The coverage level in water power delivered to the grid in Mozambique is attrac- supply for the urban areas is 56% with the target ac- tive compared to current grid costs and charges, so cess rate of 70% (for water supply in urban and rural the scheme seems likely to go ahead. areas). New institutional structures, reform of sector finance, and increasing cost recovery suggest positive A master plan for Mozambique grid development progress in this area. Supported by the World Bank has been prepared and Mozambique is now seeking National Water Development Project II, Mozambique to prepare a power generation master plan. The grid has put in place private sector management of the wa- has two main centers of demand. Maputo, which ter supply systems of Maputo and four regional cities. has the highest demand by a large margin, and Beira. The Government established FIPAG (Fund for Water There are long transmission lines to small centers in Supply Investment and Assets) as the agency respon- the north. Additional sources of generation in the sible for major urban water supply. It also set up a north would reduce the vulnerability of these parts of regulating authority, CRA (Council for the Regulation the grid and would reduce transmission losses. of Water Supply). More recently, the Government has Therefore identification of possible small hydro- sought to improve water supply services in four large power sources in Niassa and Zambezia would be towns by adding them to FIPAG's portfolio (Beira, very useful. Pemba, Nampula and Quelemane). A further such step covering several towns in the central provinces is The Southern African Power Pool (SAPP) is at an also getting under way. early stage of development and has started as a co- operative pool, i.e. a pool under which members By contrast, rural areas and small towns have been would seek to maximize economic and system reli- slower to implement reform strategies, while sanitation ability benefits through trade, while retaining maxi- in both urban and rural areas remains limited to house- mum autonomy for individual members. In the hold initiatives. The coverage level for water supply is longer term the SAPP aims to facilitate the devel- about 27% for the rural areas (with the MDG target opment of a competitive electricity market in the access rate of 70% for 2015). Access to sanitation is SADC region. It is likely to take several years at 33% for urban as well as for rural areas, while the tar- least before this can be agreed and steps taken to get rate of sanitation coverage is 50% (45% for urban, achieve it. 60% for rural). The Government is finalizing a Strat- egy for Rural Water Supply and Sanitation for the pe- The financing of multi-purpose developments which riod from 2006 ­ 2015. The objectives of the strategy include hydropower can be attractive to private capi- are to define realistic intermediate targets for increas- August, 2007 Page 18 Mozambique Country Water Resources Assistance Strategy ing the coverage in rural WSS, estimate investment quirements in downstream riparian states, thus provid- requirements, improve the financial planning mecha- ing another important dimension to the negotiation of nisms, and outline the way forward for decentralized basin agreements and inter-national allocation of water implementation, management and capacity building rights. at the provincial and district levels. 4.2 Defining Responses ­ A Framework The priority focus in urban water supply, where the for Priority Setting critical mass of water production infrastructure is already in place for all major cities, is gradually 4.2.1 Water for Growth and Poverty Reduc- shifting towards improvements in coverage, opera- tion tion and management, and achieving financial sus- The conclusion from the analysis in Chapter II is that tainability. There is significant potential for water the magnitude of the cost to the national economy due conservation and demand management to increase to water vulnerability is extremely high. The Gov- the efficiency of the systems by reducing the current ernment of Mozambique and international aid com- water losses due to leaks and inefficient water use xx . munity need to recognize the high degree of depend- Implementation of these measures may also result in ence of the country's economy and its social well- adjusted water demand curves in the medium- and being on water by assigning to water management and long-term which may save significant public re- development a greater priority in the national devel- sources by postponing the need for investments in opment agenda. The way a country manages its water additional bulk water sources and/or reducing the resources in the face of limited endowments and high scale of future investment requirements. variability can greatly influence its water vulnerability. 4.1.4 Environmental Use of Water To determine interventions in the water sector which The environment uses water to sustain river health should receive priority support, it is necessary to take and ecological functions. In order to preserve an ac- into account the relevance and consistency of selected ceptable balance within a specific watercourse, it is interventions with the country's development objec- necessary to ensure that an adequate ecological re- tives and poverty reduction targets identified in the serve is maintained in the river basin ­ the reserve national development plans and strategies, and, spe- refers to both the quantity and quality of water in the cifically, in the recently approved PARPA II. It is also river. The ecological reserve of water ensures the necessary to focus on systemic and urgent challenges ecological integrity of rivers, estuaries, wetlands and in the country's water resources development and groundwater resources. Water allocated to the envi- management, and the relevance of selected interven- ronment (and to some extent to hydropower) is also tions to the National Water Management Strategy and used for recreational activities. Recreational use of its priorities. water in Mozambique is expected to increase due to the Government's policy on development of tourism Figure 3.3 illustrates a useful framework to analyze the industries. In Mozambique, there are currently 34 expected impacts of the water sector interventions in nature conservation and protection areas, covering terms poverty reduction. Type 1 interventions are more than 10% of the country's total area. Many of broad-based water resources interventions (including these biodiversity rich areas are under threat from major water infrastructure) that provide national and unsustainable use of natural resources, including regional economic benefits to the whole population, water resources. including the poor. Type 2 interventions aim at im- proving water resources management in ways that di- The environmental requirements for water, in quan- rectly benefit the poor. Recent research by the World titative and qualitative terms, need to be developed Bank has shown that the average incomes of the poor- for each river basin in Mozambique. Water alloca- est fifth of society rise proportionally with overall in- tion for the environment is also an important tool in comes xxi , inferring that the poor generally would bene- the negotiation of joint basin agreements in the in- fit from broad-based growth-inducing investments in ternational context of Mozambique's major river water resources management and infrastructure. To basins. This requires that sufficient water is main- support rapid growth that is also pro-poor, a careful tained within the system to meet environmental re- August, 2007 Page 19 Mozambique Country Water Resources Assistance Strategy balance must be maintained between economic 4.2.2 National Inter-Regional Perspectives growth and poverty reduction criteria in making in- One of the issues raised by PARPA II is the need to vestment choices. An appropriate water sector in- address regional disparities in poverty and well-being vestment strategy is a blend of all the types of inter- that vary considerably among the provinces, and be- ventions illustrated in Figure 3.3. tween rural and urban areas. Mozambique has achieved considerable results in poverty reduction The proposed interventions should be realistic with since 1992. In terms of regions, poverty declined more regards to the nature of the challenge they are ad- in the rural areas than in urban zones--by 16% and dressing and the timeframe and resources necessary 10.5%, respectively. Poverty reductions were found in to implement them. The criteria to apply to deter- almost all the provinces of central and northern Mo- mine priority investments should take into account: zambique, except for Cabo Delgado, where poverty The need to weigh broader economic development increased. In the south of the country the scenario is targets against more immediate poverty reduction nearly the inverse. Poverty increased in two provinces objectives (Figure 3.3); there--Maputo province and Maputo city. In Inham- Regional perspectives and plans for economic de- bane, a marginal reduction--from 82.6% to 80.7%-- velopment to address regional disparities in pov- was seen, making this the country's poorest province. erty and well-being that vary considerably among In rural areas, the enormous variability in living condi- the districts, and between rural and urban areas; tions reflects the significant year-to-year fluctuations Inter-sectoral perspectives in terms of economic that are typical of farming on the dry, non-irrigated value of water used in different economic sectors; lands that are the primary source of employment for The connections between resource use and service most Mozambicans. The effects of meteorological management because, on one hand, the culture and changes are exacerbated by both internal and external principles of water use by major water using sec- economic factors such as exchange rates and the prices tors have an important influence on water re- of oil, cotton, cashew nuts, and corn. sources management and the water security situa- tion at the local and national scales. On the other In terms of achieving higher economic returns, it hand, inadequate water resources infrastructure makes sense to focus infrastructure investments and weak water resources management increases around the main urban centers and along the primary the risk of unreliable and unsustainable water ser- development corridors, where production and trade are vices; concentrated (this would include the Beira corridor for The need to coordinate and sequence investments West-East trade, the Maputo corridor in the South, and in water infrastructure and water management. the Zambezi corridor). However, the poverty reduction effect may be higher if priority is given to developing Intervention Broad Poverty- Water targeted Issue Resource develop- Type 1: Broad Type 2: Targeted ment & management region-wide water water resources resource interven- interventions tions Type 3: Broad Type 4: Targeted Service delivery impacts through improved water water service de- services livery reforms Source: World Bank Water Resources Strategy, 2003 Figure 3.3. Water Interventions and Poverty Impacts August, 2007 Page 20 Mozambique Country Water Resources Assistance Strategy infrastructure and public services in regions with the added per unit of water used in industries is signifi- greatest concentration of poor populations. Nam- cantly higher (Figure 3.4). pula, Zambezia, Inhambane and Cabo Delgado are the provinces with the highest concentration of poor However, it is also important to take into account the population xxii . social impact of water use in each sector. For example, while the apparent economic value of water use in ag- 122.1 riculture in Mozambique is low, agriculture plays a 120.0 critical role in providing employment in rural areas 100.0 where there are few alternative sources of livelihood. 80.0 Most of Mozambique's rural population relies on sub- sistence agriculture, with self-employed farmers ac- US$/M3 60.0 47.0 counting in 2002 for 68% of total employment and 40.0 non-agricultural employment for only 20%, and thus 20.0 water allocation for agriculture has a high social prior- 0.2 3.5 1.1 0.0 ity. Heavy Light Irrigated Livestock Forestry Industry Industry Agriculture 4.2.4 Sequencing and Balancing Invest- Data Source: BB5 background report for NWRMS, DNA 2004 ments in Infrastructure and Manage- Figure 3.4. Estimated value added per unit of ment water used by sector Figure 3.5 illustrates different types of investments which can be made to increase the availability of water 4.2.3 Inter-Sectoral Perspectives for productive purposes. In the absence of infrastruc- As discussed in Chapter 2, water plays a constrain- ture, there are limitations on how water can be man- ing role in the Mozambique economy. By choosing aged, regulated, stored and transferred. As infrastruc- priorities for water resources investments and policy ture is developed and the resources reach higher levels changes, the government affects water allocation of utilization, the options for further infrastructure are between different economic sectors, enabling or con- reduced and other methods need to be used to increase straining their relative growth. the availability of water such as reducing unaccounted- for water, improving water use efficiency etc. World- For the economy as a whole, the allocation effi- wide experience demonstrates xxiii that countries typi- ciency of water use is achieved when it is not possi- cally focus first on supply-side solutions in water re- ble to increase further the value added for the econ- sources development at earlier stages of their devel- omy by transferring water from one activity or sector opment, shifting to more management-based ap- to another. Conversely, if water is not being allo- cated and used in an efficient manner, economic welfare can be improved by transferring water to the sectors where it can make a larger contribution to the welfare of society. However, water use efficiency is often compromised in actual decisions on inter- sectoral water allocation by the importance of con- siderations of social equity and fairness, and poverty alleviation as a development priority. It must also be recognized that these decisions are not made in a political vacuum and hence the political economy must also be considered. Currently the water-using sectors in Mozambique perform very differently in terms of the efficiency of water use. Agriculture generates very low value- added per cubic meter of water used, while value- Figure 3.5. Returns on Investments in Infra- structure and Management August, 2007 Page 21 Mozambique Country Water Resources Assistance Strategy proaches as the resources base gets closer to full utilization. Mozambique is at a stage of develop- In the case of Mozambique, hydrological variability ment when infrastructure investments will have gen- and frequent water shocks such as droughts and floods erally higher returns and will be more efficient in are the main water vulnerability factors, and mitigation achieving water development objectives. This is of their effects is at the heart of achieving basic water because the current level of water related infrastruc- security. The implication of this vulnerability is that ture development is so low that the resources are large investments in water infrastructure and specifi- largely unmanageable. cally, additional storage, are needed to buffer against temporal and spatial variability, protect against flood- Therefore, investments in the water resources sector ing and provide access to water during droughts. Irri- should at present be a key strategic thrust in address- gation infrastructure needs to be in place to ensure re- ing water vulnerability in Mozambique. Increased silience of agricultural production to droughts. These water storage, control, and distribution infrastructure interventions should be complemented and sequenced is needed to remove water-related constrains to the with water resources management improvements. country's economic growth and development. At the Available data suggest that countries in Sub-Saharan same time, it is important that Mozambique recog- Africa might need to invest between USD 150 and nizes the importance of sound water management USD700 per capita to reach a level of water storage and should continue to develop and improve water infrastructure equivalent to that in South Africa and management practices in parallel with implementa- thereby achieve a similar level of water security xxv . tion of infrastructure investments. It is assumed that basic water supply and sanitation 4.3 Defining Responses ­ What Needs (WSS) services will be achieved with the attainment of to Be Done the MDG targets on WSS. A recent WSP study xxvi es- timated that to reach those targets, Mozambique would 4.3.1 Achieving Water Security need to spend $110 million ($90 million for improving Water security is a measure of (1) the ability of a water supply services and $20 million for sanitation) country to continue function productively, both so- annually over a 10 year period between 2006 and 2015 cially and economically, given its inherent water - a total of $1.1 billion. The order of magnitude of vulnerability characteristics, and (2) the adequacy of investment needed to reduce Mozambique's vulner- its water management response to confront this vul- ability to water shocks by 2020, based on the results of nerability. A country's water vulnerability can be a regression analysis undertaken in the CEM study xxvii , reduced through development of adequate water in- is $3.9 billion (or $205 per capita). xxviii frastructure and improvements in water use practices and management approaches. These estimates provide an indication of the costs of water infrastructure and management improvements The minimum water infrastructure and institutional necessary to achieve the basic level of water security capacity required to ensure basic national water se- by 2020. In terms of the economic analysis, in order curity can be described through the notion of a for the benefits to the economy to exceed the costs and "minimum platform of water institutions and infra- thus ensure that the investments are viable, the total structure" xxiv . Below this platform, society and the investments on improvements in water supply and economy are not resilient in their response to the sanitation coverage and reduced vulnerability to water impacts of water shocks, and/or there is no reliably shocks should stay under USD 5 billion or USD 265 available water for production and livelihoods, and per capita. However, the actual costs to achieve water water is a significant obstacle to growth. The more security will depend on the design of the program of vulnerable an economy is to water shocks, the higher interventions and the combination of infrastructure the minimum platform of investments needs to be. investments, technologies and supplementary meas- For each country therefore it is important to de- ures chosen to improve water security. The challenge termine what investments are needed to reach the is to identify a diverse cost-effective portfolio of pol- minimum water infrastructure platform for ensur- icy, investment and management interventions in the ing basic water security. water sector as well as across the economy to strengthen the resilience of the economy to the risks of August, 2007 Page 22 Mozambique Country Water Resources Assistance Strategy Box 3.1. Impact of Hydrological Variability on Water Service Delivery During the 1982-83 drought in the Southern and Central Regions of Mozambique, the average flow in the Incomati river was only 165.1 million cubic meters, while in the previous last ten years it was 2, 547 million cubic meters. Flows of 6.5% of the normal discharge in the Incomati river and 16% of the average discharge in the Umbeluzi river, had alarming consequences for water supply of Maputo (with 900,000 inhabitants) and in the agricultural areas of Maputo and Gaza Provinces. The decrease in the annual flow of the Limpopo river reduced irrigation water supply in the river valley, permitting farmers to irrigate only 25% of the total rice area. The Corumana Dam, located on the Sabie river, serves to guarantee a secure inflow to the irrigation schemes and hydropower generation. According to the observed hydrological data, the Sabié River was registering a water shortage during winter 2003. The actual water volume was below 50% of Corumana reservoir full capacity, resulting in water supply restriction in the Sabié Region. In Northern Mozambique droughts affected water supply for domestic and municipal water needs. In September 2004 the Nacala dam that supplies water to Nacala city, had less than 5% of its reservoir net capacity. The situation necessitated emergency actions to provide water for basic human needs in the city. Source: Communication with Mozambique DNA hydrological variability, and to improve water ser- water infrastructure development. The expectation of vices. In addition to infrastructure investments, in- rainfall variability results in under-investment by po- terventions should include water conservation, im- tential investors in land improvements and agricultural proved water demand management and water use inputs, which ultimately leads to low productivity and efficiency (especially in Agriculture), greater assur- slows down economic diversification. ance of international waters, and improvements in river basin and community-level water management. High hydrological inter- seasonal variability, and spe- Economic diversification and a shift away from wa- cifically, variations in the flows in the river systems ter-dependent agricultural production and industries from season to season, also increasingly reduce the as well as from food self-sufficiency would also re- efficiency of the existing infrastructure and diminish duce water-related vulnerability of the economy and returns on the past infrastructure investments (Box may substantially reduce the investment needs. 3.1). Thorough investment planning and staged invest- ment implementation are necessary to find a cost- effective solution to the water security problem. 100 80 4.3.2 The Need in Water Resources Infra- % Developed or 60 structure Served 40 Development of water infrastructure is at the heart of 20 achieving basic water security in Mozambique. 0 Hydropow er Irrigation Potable w ater- Potable w ater- However, the level of investment in water resources Urban Rural development in Mozambique is currently insuffi- cient. Inadequate water infrastructure hampers de- velopment of the main water-dependent economic Figure 3.6. Water Infrastructure in Mozambique sectors. Only 4% of the irrigation potential has been developed, despite available water resources and an Development of artificial water storage is necessary agriculture-based economy. Access to safe drinking for ensuring reliable water supply during periods of water supply is 60% in the urban areas and only 30% reduced natural water availability (droughts) as well as in the rural areas, while water borne diseases are the for retaining excessive water during periods of floods. main cause of child illness and mortality in Mozam- Available water storage is also a useful indicator of the bique. 20% of the hydropower potential has been level of development of water resources available for exploited, and the electrification rate is only 5% - direct economic use. The amount of artificial storage one of the lowest in the Southern Africa. Figure 3.6 per capita can also serve as an indicator of the level of illustrates the current low level of Mozambique's August, 2007 Page 23 Mozambique Country Water Resources Assistance Strategy a country's overall economic wealth and develop- ture measures needed include construction of em- ment, and is normally much higher in developed bankments and dykes to protect against floods, and countries than in poorer ones (Figure 3.7). small scale water sources (small dams and boreholes) to provide access to water during droughts. Infrastruc- At present, despite the high vulnerability of Mozam- ture development needs to be complemented by sus- bique to frequent droughts and floods, flood control tainable water resources management to balance both and drought management infrastructure remains un- consumptive and non-consumptive demands by water- derdeveloped providing inadequate storage capac- using sectors with the available, renewable freshwater ity. Mozambique has 12 major dams with a total resource at the river basin level. capacity of about 3457 m3 per capita, including the Cahora Bassa storage. Excluding the Cahora Bassa 4.4 The Response - Additional Storage Dam which accounts for more than 90% of the coun- Capacity try's storage capacity (and which is operated as a The National Water Management Strategy xxix empha- single-purpose facility to maximize hydropower sizes the vital importance of multipurpose water stor- generation), the storage capacity per capita is only age development in Mozambique to mitigate these 330 m3, placing Mozambique among the Southern effects. The following are the priorities identified African countries with least developed water infra- through the CWRAS process for the development of structure (Figure 3.6). The total useful storage ca- additional storage. pacity represents 21% of the mean annual flow of the country's rivers, including Cahora Bassa. If Ca- 4.4.1 In the South hora Bassa is excluded, the remaining 5800 Mm3 of In the Southern basins, where water demand is high, useful capacity represents only 5% of the mean an- droughts are frequent and most of the water originates nual runoff of the country's rivers, excluding the outside of the country, the construction of large stor- Zambezi. In general, a storage capacity of 10-40% age reservoirs to store water from the wet seasons for of the mean annual runoff would be necessary to the use in dry periods is required. The development of utilize 50% of the mean annual flow, with 80-90% the infrastructure should be undertaken in the context reliability. of integrated water resources management of the inter- national river basins supplying the south which will Multipurpose reservoirs are required to satisfy a include the need to revisit some of the existing agree- wide variety of needs including flood control, water ments in particular to address low flow drought situa- supply and irrigation, power generation, navigation, tions. and environmental requirements. Other infrastruc- 7000 6150 6000 Per capita water storage m3 5000 4729 4000 3255 3000 3000 2486 2000 1287 1000 746 330 46 0 South Africa Thailand with C Bassa Ethiopia Mozambique Australia America China Brazil Mozambique without CB Noth Figure 3.7. Water Storage per Capita August, 2007 Page 24 Mozambique Country Water Resources Assistance Strategy Within this overall strategy there are possible A key priority in the South in the short-term is the permutations, one of which would require the construction of additional storage capacity to resolve commencement of the implementation of Moamba a growing problem of water supply for the city of Major in 2012. Maputo. Currently, the city receives water from the Umbeluzi river, using flows regulated by the Peque- 2. Ultimately the full yields of both the Corumana nos Libombos dam. However, with the projected Dam heightening and the Moamba Major Reser- growth in water demand, Maputo is already showing voir will be required to meet the needs of the indications of shortages. The losses in Maputo in greater Maputo urban and industrial area. Surplus terms of unaccounted for water (both through unre- water yields will be temporarily available for other corded consumption and leakage) presently are in uses during some years directly after completion the region of 55%. In addition to the provision of the Corumana dam and after completion the storage, reducing unaccounted for water is a non- Moamba Major dam. This temporary surplus of infrastructural, resources management approach to yield could possibly be used by other water uses increasing the available water and postponing the provided that the water allocation for such uses need for the next incremental increase in storage. can easily be withdrawn when the water is needed The current European Union / European Investment for the urban supply. Bank investment project in Maputo of approxi- mately $200m is aimed at, amongst other activities, 3. Given that the existing water yield from Corumana increasing in-city storage, increasing treatment ca- is not used efficiently, and that there is an estab- pacity and decreasing unaccounted for water. It is lished future demand from Maputo, any permanent anticipated that this will move the shortage crisis allocation for irrigation of the additional water from 2007 to 2012. By 2012 increased bulk water made available by upgrading the Corrumana dam resources will be needed which will require storage. should not be permitted. Even if this water is used for production of such high value crops as sugar In order to examine the implications of different op- cane and would bring employment and other addi- tions for the development of water storage to meet tional benefits, it will not justify the investments future demands from the Incomati River, a detailed that will be required to find alternative supplies preliminary study was undertaken in June 2007, the from more expensive sources for Maputo water report of which is entitled "Preliminary Economic supply in the future. This water needs to be re- Analysis of Maputo Bulk Water Source Develop- served for future urban and industrial use. ment". The report forms an addendum to this CWRAS and is attached. The objective of the study 4. Any determination of the economics of a scheme was to determine the scheduling of future infrastruc- such as bio-fuel production or other irrigated crop ture developments and to examine the implications production in the South should build-in a time of competing water demands from urban / industrial limitation on the availability of water. Otherwise needs and agriculture. The summarized conclusions the loss of investments when water is redirected are that: for higher value use would not be factored into feasibility considerations and would cause difficult 1. Growing water needs for the Greater Maputo competing water interests. area require urgent investments in completion of the Corumana dam in order to meet the shortage A degree of drought risk would remain, especially in in water supply for Maputo in 2011/12. Con- the years prior to developments being commissioned struction of the Moamba Major dam will be also and filling (which may take some years), which would necessary to meet the projected future demand be exacerbated if the upstream riparians increase their for the urban and industrial development of the irrigation diversions further. Indeed increasing storage Greater Maputo area. The completion of the in Mozambique could perversely result in upstream Corumana Dam is projected to meet the needs of riparians increasing water use on the mistaken assump- the Greater Maputo Area from 2012 to 2028 and tion that Mozambique no longer faces any risk because the Moamba Major dam from 2028 to 2041 of the storage. This would result in upstream countries which was the planning horizon of the analysis. utilizing the benefits that would otherwise have ac- August, 2007 Page 25 Mozambique Country Water Resources Assistance Strategy crued to Mozambique from these investments, and thought in this climatic regime to be likely to result in would reduce further the options available to Mo- declining water yields. zambique. 4.4.2 Additional Storage on the Pungue It is understood that one of the motivations for the One of the highest priorities in water infrastructure construction of the Moamba Major Dam is to secure development in the Center of the country is the con- Mozambique's international water rights on the In- struction of a dam on the Pungue river to improve wa- comati. This is a very legitimate concern given the ter supply to the city of Beira. The dam's reservoir increasing pressure on water resources in the region. would provide water for rapidly increasing industrial At issue is the principle of "Prior Appropriation" in needs as well as for irrigation, hydropower generation, international water law where developments under- flood mitigation, and forestry, and to satisfy environ- taken by a riparian state lay claim to a certain quan- mental flow requirements to prevent the intrusion of tity of water which thereafter constrains other states salt water. The Bue Maria dam was planned for com- from undertake any developments which would re- pletion in 2015 with estimated construction costs of duce the rights already secured by the first state. US$150 million. However, this option needs to be re- However, undertaking investments which at the pre- evaluated in the light of recent studies which imply sent are not the most economical option is a very that the Pavua option could be economically and envi- costly way of securing such rights. There are other ronmentally preferable xxx . The limited availability of solutions which need to be fully explored and ex- large aquifers (with the exception of the Nhartanda hausted before taking the most costly option. Exist- Valley near Tete; the Licuari aquifer near Quelimane; ing treaties and the SADC Protocol on Shared Wa- and the Metuge aquifer near Pemba) requires that, in tercourses should form the basis of securing future the short and medium term, small and medium size water rights without being forced into uneconomical reservoirs be built for drinking water supply to cities investments at present. Although the construction of and towns of the region. Moamba Major Dam is at present not the least cost option, it may well become an option in the future as 4.4.3 Additional Infrastructure on the Zam- other water sources are developed and the demands bezi for water in the south increase - Mozambique needs Given the increasing power demand in Mozambique to guarantee through legal processes that that option and in the region, particularly in South Africa, the wa- remains open. ter management strategy suggests that the hydropower development on the Zambezi River should be an in- Mozambique should therefore consider the need to vestment priority. It is expected that the proposed pursue several further objectives in transboundary Mphanda Nkuwa Dam located between Cahora Bassa negotiations in the South. One would be to deepen and Boroma, will be highly economically and com- the existing agreements by establishing detailed ar- mercially viable, and most of the investments could be rangements for the riparian countries to share the provided by the private sector. Besides the main hy- burden of droughts. Another objective would be to dropower potential concentrated on the main Zambezi establish agreed long term ceilings on consumptive between Cahora Bassa and Lupata, the tributaries water use including irrigation water use in all three Luia, Revubué, Luenha also present good opportuni- countries. A third might be to share the costs of fur- ties for hydropower developments. ther water development in Mozambique to the extent that upstream riparians also benefit. There are three The Mphanda Nkuwa project has been promoted by reasons for seeking these improvements: (1) to attain the GoM partly as a means to gain independent control an equitable sharing of the costs and benefits of the of both the management of the Zambezi and the poten- available water and the risks of drought between the tial power market. Now that issue of ownership of Ca- riparians; (2) to ensure that irrigation whether in hora Bassa is being addressed, there is the possibility Mozambique or in upstream countries does not grow (and an imperative) to rethink Mphanda Nkuwa on its to the extent that it conflicts with Maputo's water own merits in the context of the development of the supply requirements in the long term, and (3) to Zambezi within Mozambique and the Zambezi basin guard against the effects of climate change, which is as a whole. There would now be greater possibility of August, 2007 Page 26 Mozambique Country Water Resources Assistance Strategy approaching the Mphanda Nkuwa development from sulted in detrimental social, economic and environ- a multi-purpose perspective in addition to its hydro- mental effects downstream. Ecological systems of power potential. The prospect of construction of the much of the Marromeu Ramsar-listed wetlands, and proposed Mphanda Nkuwa and Cahora Bassa North other delta and riverine forests and wetlands that de- developments, together with the change in owner- pended on regular annual wetting and drying, have ship of Cahora Bassa, provide an important opportu- changed to permanently inundated or permanently dry- nity to ensure that environmental and social consid- land ecologies. Flood recession agriculture could no erations are taken into account by the operational longer be practiced, and the estuarine prawn fishing regime of Cahora Bassa and the proposed new de- industry has declined. On the positive side, the dam velopments. has undoubtedly attenuated the peaks of a number of major floods since its construction. Feasibility studies were conducted in 2002-3 on hy- dropower development options for the Zambezi Adaptation of the operating rule could result in partial River below the existing Cahora Bassa Dam and achievement of environmental restoration and im- hydropower station. These studies indicated that the proved social and economic outcomes to downstream optimum would be a two stage initial development communities, at the cost of a proportion of hydro- consisting of: power revenues. A detailed analysis of the associated costs and benefits derived from the introduction of 1. A first stage comprising the construction of multi-purpose operational objectives for large scale Mphanda Nkuwa dam with a 1300MW hydro- hydraulic infrastructure within the Zambezi basin power station operating as a run of river system; would provide valuable inputs to maximizing the sus- 2. A second stage comprising the construction of a tainable economic returns on such infrastructure. Po- largely underground 850MW hydropower sta- tential benefits include opportunities for increased tion at the north bank of the Cahora Bassa Dam, productivity through recession agriculture practices, known as Cahora Bassa North. simulated controled floods to stimulate fish and prawn breeding, tourism benefits through reestablishing the The development would also include construction of natural environment in the Marromeu Reserve, reduc- a 1600 km long 400KV transmission system through tions in saline intrusion in the coastal zone and partial Mozambique to the main demand centers in the restoration of coastal currents to former patterns. south of the country. 4.4.4 Small and Medium Multipurpose Dams The operating rules for the Cahora Bassa dam and Construction of smaller reservoirs could provide water power station, when completed in 1975, contained supplies for human needs and livestock, and small- no provision for environmental flow releases or scale irrigation, and would be an important factor in flood control. The lack of wet season high flows re- Box 3.3. Socio-Economic Impacts of Massingir Dam The construction of Massingir Dam on a tributary of the Limpopo River in Mozambique has had significant impacts on the local economy. Migration to Massingir has been largely related to the construction of the dam or the benefits provided by the reservoir. The dam has permitted the development of small scale irrigation activities downstream from the reservoir. The scenic and wildlife attractions of the area have resulted in the extension of the Limpopo National Park / Gaza-Kruger- Gonarhezou Transfrontier Conservation Area to the edge of the reservoir, and the emergence of two other private wildlife concessions aimed to provide eco-tourism facilities close by. A small lodge owned by one of the local communities has emerged to capture tourism of local cultural and environmental assets. The creation of the dam resulted in the construction of an all-weather surfaced road that links Massingir with the provincial capital and Maputo. This has also promoted its regular use for traders in maize, fish and charcoal. The fishing which was initially a small scale activity has risen to become a profitable source of income with local associations formed to reap the benefits in a more organised fashion. When the dam rehabilitation with the added production of hydro-power is completed, the multipurpose use of the dam would bring even greater potential for the economic development of the area. Source: G. Thompson. The Local Vulnerability Study. World Bank unpublished report, 2004 August, 2007 Page 27 Mozambique Country Water Resources Assistance Strategy improving livelihoods of rural populations. Experi- plies to irrigation but also to rural and small town ences with small and medium size dams demonstrate WSS systems, small scale hydropower, fisheries, that they contribute significantly to rural poverty transportation, etc. This would ensure higher returns to reduction through increasing agricultural productiv- the storage infrastructure investments as well as allow ity and improving household food security, diversi- for effective cost-sharing of the investment costs fying local economies and improving local incomes among the beneficiaries. (Box 3.3). The impact of the storage cost sharing on irrigation Before Independence, 40 small reservoirs for various investment returns was assessed using a modified purposes (urban water supply, irrigation, cattle, simulation model developed in the recent World Bank small industries) were built in the Incomati and Um- water resources study for the Zambezi basin xxxii . Simu- beluzi basins. About 40% of these dams are still in lations were run based on the assumptions that (i) an operation although most of them need rehabilitation. average cost of a dam construction/rehabilitation is In 1975 it was reported that there were 600 dams in US$570,000 xxxiii ; (ii) the average irrigation develop- Mozambique, but currently due to the civil war, ne- ment costs for smallholder schemes are US$4,750/ha glect and lack of maintenance only 50 are thought to and for larger commercial private schemes - be functional. US$7,400/ha; and (iii) the dam construction costs are fully allocated to the irrigation development. The One of the priorities for the Government is the reha- simulation results have shown that only smallholder bilitation and construction of small/medium size schemes with the area of 125 ha or larger are eco- dams to support the country's rural development nomically viable (EIRR of 10% or more). No objectives and, specifically, development of small- large/medium private irrigation farms are viable de- holder irrigation and larger commercial schemes as spite the fact that they benefit from higher irrigation means to increase agricultural production in the rain- value added than the smallholders (Figure 3.8). How- fed areas and improve food security. Costs of irriga- ever, when costs of storage development are shared tion development in Mozambique are very high, equally between irrigation and other users, smallholder making smallholder irrigation unprofitable xxxi and schemes of 75 ha or larger and medium/large private commercial value crop-oriented schemes are very farms of 150 ha or larger appear to be viable (Figure sensitive to the level of irrigation development costs. 3.9). If the irrigation users have to cover 70% of the Smallholder irrigation projects are currently fi- storage costs, economically viable size of the small- nanced by foreign aid programs, however these sub- holder schemes should be at least 100 ha. sidies are likely to decrease. Therefore future devel- opment of smallholder as well as larger private irri- International experience xxxiv suggests that to fully util- gation schemes will depend on improved returns to ize potential benefits of small/medium dams, it is nec- investment in irrigation. In this regard, it is becom- essary to use a programmatic approach to their devel- ing critically important to ensure multi-purpose opment planning and to closely link small dam pro- planning and design of the smaller storage infra- jects to national or regional/local socio-economic de- structure, which would provide reliable water sup- velopment programs and plans. Mozambique: Economic Returns to Storage and Irrigation (Storage cost $570,000) Mozambique: Economic Returns to Storage and Irrigation (Storage cost $285,000) 20% 25.0% 15% 20.0% E R R (% ER R (% 15.0% 10% 10.0% 5% 5.0% 0% 0.0% 0 50 100 150 200 250 0 50 100 150 200 250 Area Irrigated (ha) Area Irrigated (ha) Smallholder Med/Lg (Priv) Other Private Smallholder Med/Lg (Priv) Other Private Figure 3.8 Economic returns for single-purpose Figure 3.9 Economic returns for multi-purpose irrigation storage irrigation storage August, 2007 Page 28 Mozambique Country Water Resources Assistance Strategy 4.5 The Response - Small Scale Water 4.6 The Response ­ Institutions: Is the Resources Development Water Resources Sector Up to the Community-based sustainable management and de- Challenge? velopment of water resources of small streams, groundwater resources, and local watersheds in the 4.6.1 Framework of Water Policies and poorest areas as well as construction of small hy- Strategies draulic structures and local scale hydropower units, The National Water Policy (NWP) was approved by water harvesting and development of small- holder the Government in August 1995. The approval of the irrigation, flood protection and water quality protec- Water Policy followed the Water Law of 1991 and tion all contribute to the sustainability of local live- appeared at a historical moment, after the Peace lihoods. Agreement in 1993 and the first multi-party general elections in October 1993. Special attention needs to be given to WSS for small rural towns. Since the mid 1990s, most of the em- In 1995, the priority of the Government, after many phasis for the development of infrastructure has un- years of civil war and with an impoverished popula- derstandably been on the regional urban centers, in- tion, was to restore basic services, particularly water cluding water supply and the road network linking supply in urban, peri-urban and rural areas. There was them. At the other end of the scale, there has also also a need to introduce new actors into the water sec- been progress in rural water supply and sanitation, tor, particularly private operators, and develop new generally serving small rural communities in the 250 approaches for the provision of water services. to 500 population range, but not at the scale of the small towns. Most of the small town infrastructure Since 1995, a number of achievements have been and the road network that did exist were destroyed made in the water and sanitation sector. The NWP or decayed during the years of conflict. A function- committed the government to decentralization, with ing network of small urban centers is important for increased autonomy and financially self-sustaining the development of agriculture (as market centers provision of water supply and sanitation services. In and pre- and post-production services), for social the urban water supply sub-sector, a new legal frame- services such as health and education, for financial work for delegated management and regulation was services, and for effective decentralized governance. created. In the rural areas, a demand responsive ap- Infrastructure, including water supply, sanitation, proach was introduced for the development of new electrification, telecommunications, and feeder roads water systems aimed at ensuring greater sustainability. are important requirements for these services to This experience, initiated on a pilot basis, proved to be work well. The draft Rural WSS Strategy identifies successful and is now expanding to all regions of the Nampula, Zambezia, Sofala and Gaza as priority country. Public Private Partnerships (PPP) were pro- provinces for the program implementation. gressively promoted while stakeholder and public par- ticipation was endorsed as an important factor for sus- In the Centre and Northern regions, water resources tainable water management. development priorities include provision of water supply for existing and potential irrigated areas in In spite of the successes that have been achieved since the Buzi, Pungwe, Zambezi and Lurio river basins. 1995, the Government has recognized that the priority While rainfall in these regions is higher and more given to the provision of basic water services resulted stable than in the South of the country, localized hy- in insufficient resources and attention being dedicated drological droughts are very common in some areas. to water resources management issues. Water man- Construction of small and medium dams would agement requires a high priority in the national devel- guarantee reliable water supply for the existing irri- opment agenda, given the dependence of the country's gation schemes as well as new irrigation perimeters. social well-being and its economy on water within the context of limited national water endowments and high hydrological variability. August, 2007 Page 29 Mozambique Country Water Resources Assistance Strategy Over the last several years, the DNA has undertaken DNA. The ARAs are also responsible for collecting a number of studies to analyze water resources man- hydrological information. They control the irrigation agement problems and to create a "portfolio" of po- systems and collect water fees. The only ARA cur- tential water infrastructure projects. The IDA- rently fully operational is ARA-Sul (South). ARA-Sul financed NWDP I and NWDP II contributed to a is responsible for the southern part of the country up to process of revision of the National Water Policy and the Save River. In areas not yet covered by an ARA, the development a National Water Management the Provincial Directorates of Public Works and Hous- Strategy (NWMS). The Strategy identifies objectives ing are the authority responsible for water resources for the water management sector and provides broad management in the province. The National Water guidelines for achieving those objectives through Council (CNA) was created in 1991 as a consultative water development activities and projects. The body to the Council of Ministers. In general, however, Strategy comprises a comprehensive portfolio of the CNA has not been very effective and coordination water resources management projects and plans in between agencies involved in water resources man- such areas as water resources development; water agement has been a constant source of concern. resources assessment; monitoring; river basin man- agement; flood risk analysis and disaster manage- The major constraints as regards institutional capacity ment; international rivers; establishment and further have been a lack of strong leadership in the sector and strengthening of regional water administration enti- the early stage of establishment of ARAs (other than ties (ARAs); administration of water law, water pol- ARA-Sul). Strengthening of the DNA's capacity is icy, regulations and utilization; institutional required to help it take a proper role in providing sec- strengthening and capacity building. tor leadership, including preparing and planning sector development, building sector capacity, and more effec- The NWMS needs further prioritization of water tively asserting its role in donor coordination and in- resources interventions in the context of PARPAII ternational cooperation over transboundary river ba- and national growth strategies, providing detailed sins. and economically justified guidance on potential investments in water resources in the short- and me- Strong leadership in the sector assumes not only dium term. strengthening the capacity of the DNA but also elevat- ing its institutional authority. The establishment of 4.6.2 The role and status of the DNA water agencies that are more at arms-length from the In the early 1990s, the water sector was highly cen- government (ARAs, FIPAG) has been effective in cre- tralized with all planning, implementation and op- ating capacity and removing the constraints against erational responsibilities and functions at the central decentralization in water management. However, in level represented by the National Directorate for the creation of the ARAs and FIPAG, no provision Water (DNA). Since then, the sector has imple- was made to ensure that the DNA retained significant mented comprehensive decentralization reforms by powers in the sector as a policy making and strategic devolving most urban water supply functions planning institution and that it has authority to ensure through the establishment of FIPAG and the urban that government policies and strategies on water re- water supply regulator, CRA, and progressively set- sources are followed and their implementation is ting up ARAs as regional river basin management monitored. Other water institutions (eg the ARAs and authorities. FIPAG) have pay scales and benefits which are inde- pendent of the government public service constraints - This process continues with DNA currently assum- this results in the DNA, which should be the lead ing responsibilities at the national level for policy, agency in the sector, being regarded as having a lower planning, sector oversight, and some remaining status than the other institutions and being less prestig- small water supply and sanitation services pending ious from a career perspective. The DNA conse- further decentralization. At the regional level the quently finds it difficult to recruit staff and suffers five Regional Water Administrations (ARAs) are from a capacity problem which is detrimental to the responsible for water resources development and sector as a whole. management. They have administrative, organiza- tional and financial autonomy but report to the August, 2007 Page 30 Mozambique Country Water Resources Assistance Strategy The DNA has prepared a proposal to remedy these The investment needs for water infrastructure are deficiencies which is currently under discussion in beyond the resources of private investors, and the government. Specifically, it proposes to trans- There are significant social and environmental form the DNA into a National Water Authority externalities associated with water development (ANA) - a parastatal institution with a greater degree and use. of business independence and flexibility within the same Ministry of Public Works and Housing. To A strong water resources planning function based on bring helpful and progressive change to the water credible technical and economic analysis needs be es- sector, it is necessary to "rebuild" the DNA as a tablished within the government to ensure that its poli- strong and capacitated institution in terms of its cies and strategies are implemented in a timely and identity, stature, role and its technical and manage- efficient manner. Sound water investment planning rial leadership. based on national strategic growth objectives would overcome the tendency to allocate funding to projects In terms of the regional water authorities, ARA- on the basis of political criteria and short-term expedi- Centro is already functioning but needs continuing ency, rather than on the basis of economic, social, en- support, and ARA-Zambezi is newly established. vironmental, financial and institutional feasibility. It SIDA is supporting ARA-Centro with a comprehen- would ensure a more comprehensive study of options sive on-going program of assistance. The EU's sup- for meeting the identified demands and would result in port of ARA-Zambezi is scheduled to end in De- more cost-effective investment decisions supported by cember 2007, and other sources of support will be the analysis of financing opportunities including pub- required. ARA-Centro-Norte and ARA-Norte have lic-private partnerships. Planning of water resources not yet been established but donor support for their development should be undertaken in a river basin establishment is being arranged from the AfDB. management context, aiming at increasing the effi- Capacity building particularly for the three most ciency of water use by the main economic sectors and, northern ARAs over the next two years would be an at the same time, ensuring environmental sustainability important prerequisite of successful water resources of the basin system. management in the northern basins. To carry out the water resources development planning functions, DNA needs to strengthen its capacity in the area of water resources economics, investment plan- ning and analysis, and water resources planning. The present organizational structure of DNA includes such Departments relevant to the function of strategic water resources planning as the Planning Department and Water Resources Department. The organizational structure of the DNA and the departmental functions, responsibilities and modes of inter-departmental coop- eration, including data and information exchange, may need to be reviewed in order to establish at DNA an effective strategic economic planning service. The role and responsibilities of ARAs in the water re- Source: FAO AquaStat - Mozambique sources development planning would need to be de- Table 3.1. Responsibility Areas of ARAs fined as well. 4.6.4 Addressing Transboundary Issues 4.6.3 Strengthening Water Resources Planning Capacity Inadequate agreements, lack of sufficient monitoring and over abstraction in upstream countries has resulted Government involvement is necessary in the devel- in the disappearance of low and medium seasonal opment and management of water resources for the flows and increased flood risk on important trans- following reasons:- boundary rivers which flow into Mozambique. This Due to the public nature of the resource, may lead to very serious consequences for Mozam- August, 2007 Page 31 Mozambique Country Water Resources Assistance Strategy bique's future economic growth and social develop- 4.6.5 Risk Reduction and Disaster Manage- ment if no agreements covering basin-wide devel- ment opment and providing transboundary flows in times Mozambique is at risk to several forms of natural dis- of drought are reached in the near future with the aster such as floods, droughts, cyclones and seismic riparian countries. events. Some of these phenomena are cyclical while others are occasional. PARPA II 2006-2009 includes Mozambique has been proactive in establishing dia- the management of disaster risks as a cross cutting logue with upstream neighbors and achieved certain issue thereby recognising the need for a long term plan success in negotiating initial agreements. However, to reduce the vulnerability of communities and infra- "deeper" agreements that would put caps on the structure exposed to extreme natural phenomena. level of consumptive water use in each country and provide an equitable balance of water use between A national disaster management law is in draft form, riparian states in each basin, are becoming increas- and has been awaiting ratification by parliament for a ingly necessary. An important prerequisite is that number of years. As a result the roles and responsibili- the countries all comply with the spirit and letter of ties of the different government departments in disas- the SADC Protocol and, for issues on the Zambezi, ter management are not clearly defined. A National the ZAMCOM agreement on cooperation and data Master Plan for Disaster Risk Reduction including exchange, and that the highest possible scientific and disaster management was approved by the Cabinet in engineering expertise is applied to these issues. March 2006. On the basis of the master plan there is an ongoing process of the formulation of operational Being a downstream country in 9 international river plans. To improve disaster preparedness and man- basins, Mozambique has limited leverage in regard agement at national and local levels, it is necessary to to water resources per se, and at present can only mainstream disaster risk reduction in strategic plan- call upon the SADC Protocol, other agreements, and ning and sectoral development policies, including the its neighbors' sense of fairness, in seeking equity water resources sector, and to develop the country's and true sharing of the benefits of the shared waters. institutional and human capacity to manage disaster However, Mozambique and its neighbors obviously risk. have much more interdependency than the waters of the river basins they share. For example, Mozam- 4.6.6 Strategic Support to National Ground- bique provides valuable transport routes for imports water Exploration and exports. It exports gas to South Africa, and both There is little information about groundwater potential imports and exports large quantities of electric in Mozambique, except where there have been special power, in which Cahora Bassa plays an important investigations to fulfill needs of certain towns, where role. With Mphanda Nkuwa and Cahora Bassa surface water sources were not economically available. North power generation facilities now planned, Groundwater is currently used for some water sup- power interdependencies will continue to increase. plies, including such towns as Pemba, Tete, Xai Xai Trade and tourism in both directions are increasing. and Chokwe, and "machongos", wetlands often found So the economic and social interdependencies are at the foot of the eastern escarpments used for dry sea- strong and increasing, to the benefit of all, and in son farming through careful control of groundwater some of these areas of interdependency, Mozam- levels. It is also known that there are some groundwa- bique is in strong position relative to its neighbors. ter resources in the sandy coastal plain, although soils there are generally poor. Given the fact that the geol- An emerging strategic option for Mozambique is to ogy of sizable parts of Mozambique is very similar to place the transboundary water issues into the broader that of neighboring countries where groundwater has context of political and economic relations with ri- been found in substantial quantities and plays an im- parian countries and integrate water problems into portant role in the national water supplies xxxv , thorough the existing process of international economic nego- investigation of the groundwater potential in Mozam- tiations and agreements between the nations. This bique is an important strategic priority in water re- requires acknowledgement of water as an important sources development. This has already commenced strategic resource for the nation at the highest level with the in the Maputo Metropolitan Area in the form of the Mozambique Government. August, 2007 Page 32 Mozambique Country Water Resources Assistance Strategy of the 2007-2010 ARA-SUL Groundwater Re- sharing mechanisms. There is no lead institution to sources Pilot Program. guide and co-ordinate the development of an inte- grated system, and implementation has been mostly The hostilities that ended in 1993 prevented driven by donor-funded initiatives in response to spe- groundwater exploration in Mozambique in the past. cific demands. Another deficiency of the existing ap- However now, with national priorities changing to proaches to water information system is that they fo- positively promote water resources development for cus more on data collection (often based on outdated small rural communities, it is clearly of strategic im- information technologies) and less on data processing portance to initiate a national groundwater explora- to provide information and complex knowledge prod- tion program. Such a program should identify and ucts, as well as on information dissemination to the map groundwater occurrence, yields and quality public. To address these issues the development of a throughout Mozambique, beginning with the prov- water information strategy was proposed as part of the inces and corridors that are (1) likely to be prospec- draft NWRMS. Subject to government approval of the tive for such groundwater resources, and (2) of high NWRMS, the information management strategy would national priority for water resources and community need to be further reviewed and prioritized for staged development for domestic water supply and small implementation. scale irrigation. In addition, the Government's rele- vant strategies and policies should require that iden- 4.7 Investment Implementation Capacity tification of opportunities for small and medium scale water resources development should always 4.7.1 Implementation Capacity Requirements include evaluation of groundwater as well as surface The actual scope for investment interventions is de- water options. fined by the economic needs for water resources de- velopment, the availability of financial resources, and, 4.6.7 Water Information and Knowledge importantly, by the capacity of the Government to im- Data and information services are core public func- plement the investments and ensure their long-term tions which are necessary for effective water re- sustainability. sources management and regulation in the face of rising demand across sectors, changing social and While donor support to the water sector in Mozam- economic conditions, and scarcity of public invest- bique has increased dramatically over the last years, ment resources. The current inadequate water re- the capacity of Mozambique's water resources man- sources data and information services make invest- agement and development institutions to implement ment decisions on water resources imprecise and donor supported projects and programs remains very subject to a wide range of subjective influences. limited. The factors affecting the implementation ca- Hydrologic networks and collection of reliable data pacity include :- on water availability, use and demand, as well as 1. GOM's financial capacity to support a portfolio of environmental data, were seriously neglected in Mo- water resources development and management zambique over a long period of time. This has the projects. This includes the capacity of GOM to direct consequence that the analytical basis for mak- produce its counterpart funding commitments in a ing important water resources decisions such as wa- timely way, and the efficiency and effectiveness of ter allocation and investment prioritization, remain the systems of budgeting, accounting, payment, weak and may lead to poorly justified, non-optimal and auditing; and delayed actions. 2. Capacity of the implementing institutions to meet the requirements of the projects in terms of a The development of water resources and environ- strong presence in the localities of the project mental information systems is not new to Mozam- which are often in remote locations; bique, and several systems have been implemented 3. Capacities to assemble and support project imple- at research institutions as well as government de- mentation teams with the range of expertise partments. However, the absence of an overall strat- needed (project management, procurement, engi- egy for development of water resources information neering supervision etc); and systems resulted in the establishment of fragmented sub-systems, normally lacking coordination and data August, 2007 Page 33 Mozambique Country Water Resources Assistance Strategy 4. Technical and financial capacity to support sus- "public services and the infrastructure necessary to tainable operation and maintenance of the infra- achieve comprehensive and well-balanced economic structure upon project completion. growth should receive more attention and more fund- ing in the coming years. Heavy investment in social Implementation of water infrastructure projects im- welfare in the past has contributed to relatively small poses high demands on staff and requires the right appropriations for infrastructure...". mix of skills and expertise in the implementing units. The Mozambique water sector has learned As indicated in the PARPA II, in the period from lessons from experiences with NWDP I and II, and 2006-2010 the water sector including water resources is applying them in the design of projects supported management and water supply services will receive on by different donors. The main recommendation is to average 5.6% of the annual budget allocation, up from ensure that project selection takes into account the 2.5% in the period of 2001-2005 (excluding donor full work load faced by implementing units includ- funds). The allocation of this budget within the water ing the load from each unit's non-Bank project sector over the period 2006-2010 is as shown in Figure commitments, and avoids an excessively wide vari- 3.10. ety of projects which cannot be packaged together for procurement and supervision. Multi-sectoral pro- Traditionally, the Government assumes responsibilities jects combining energy and/or agricultural compo- for financing water resources development and man- nents may be a special challenge, as each component agement. Clearly, while the government budget for will require supervision from the concerned Ministry the water sector has increased, these planned expendi- to an extent that is commensurate with the commit- tures are still too small to meet the challenges imposed ment of the others. on the national economy by water-related vulnerabil- ity. The most promising sources for financing the 4.7.2 Government Financial capacity shortfall in the requirements for improving water in- Water programs have been traditionally regarded in frastructure and water management would be ex- Mozambique as having a lower profile and impor- panded external government borrowing for water de- tance to the national development compared with velopment projects, donor assistance to complement many other economic sectors. As a result, the sector government efforts in improving water resources man- remains chronically under funded and DNA has a agement, and, if actively solicited, private investments. very low institutional status in the government. In The National Water Resources Management Strategy addition, the almost non-existent recovery of O&M sets up principles for encouraging private sector par- costs xxxvi in the water resources sector poses a con- ticipation in investing in water management projects. cern regarding investment sustainability. It emphasizes the importance of adequate water use charges to recover costs of improvements in water The PARPA II clearly acknowledges the importance management services and operation and maintenance of water infrastructure development as an essential of existing infrastructure. factor for the rapid expansion of economic activities and for the reduction of poverty. It states xxxvii that Figure 3.10. Budget allocation within the water sector in 2007-2010 August, 2007 Page 34 Mozambique Country Water Resources Assistance Strategy 5 The Role of the World Bank to prepare for private sector management of water 5.1 What the Bank has done in the supply in five cities, past to reorient and reform the rural water supply and sanitation sector, and The history of the Bank's partnership with Mozam- to improve the management of Mozambique's wa- bique dates back to 1984 when a first assistance pro- ter resources. gram with a focus on post-war reconstruction was The efficacy of the project in achieving these objec- approved to help the country with rehabilitation, tives was rated as substantial to high. structural adjustment and economic sector develop- ment. After that the Bank's assistance followed a The NWDPI also provided support to strengthening of comprehensive country support strategy in the early ARA-Sul, while ARA-Central based in Beira and with 1990s, and the recent assistance strategy of 2000- the responsibility to oversee the Pungué, Buzi and 2005 to support implementation of the Govern- Savé basins was established with support from SIDA. ment's five-year program on poverty reduction More recently, ARA-Zambesi was also established, (PARPA) in the areas of enhancing economic oppor- with support from the European Commission. The tunities, governance and empowerment, and human Africa Development Bank has undertaken to support capital. The new Country Partnership Strategy (CPS) the establishment of ARA-Norte. for 2008-2011 was finalized in April 2007. Its pur- pose is to support the Government of Mozambique One of the objectives of the Bank's water resources in implementing its second Poverty Reduction Sup- management support to Mozambique was also to pro- port Strategy (PARPA II) and promote growth and vide assistance with transboundary water resources pro-poor service delivery, strengthening governance management issues. The Office of International Rivers and accountability, rural development and infrastruc- was established in the DNA and was active throughout ture. this period in seeking to protect Mozambique's inter- ests in the eight transboundary rivers where it is the In April 1998 Mozambique was the sixth country in downstream riparian. The role of the Bank in trans- the world to be declared eligible for debt relief under boundary water resources was not to support the gain- the World Bank and IMF Heavily Indebted Poor ing of relative advantage by any one country. Instead, Country (HIPC) Initiative, ensuring some US$1.4 the Bank responded to requests to strengthen the ca- billion in debt relief. pacities of the weakest, so that a more level playing field is created, outcomes are more likely to be fair, As of April 2006, the World Bank had approved 54 and development can result in win-win solutions. projects for Mozambique totaling approximately US$ 3 billion. The Mozambique portfolio currently The National Water Development Project II was has 19 active projects in all major sectors with a launched in 1999. Through this second World Bank commitment value of about US$ 950 million. supported project in the water sector, Mozambique has put in place private sector management of the water The first substantial growth and development in wa- supply systems of Maputo and four regional cities. ter resources management capacity came with the The Government established FIPAG (Fund for Water National Water Development Project I (1998 to Supply Investment and Assets) as the agency respon- 2003) supported by the World Bank with co- sible for major urban water supply. It also set up a financing from four bilateral aid agencies. Its main regulating authority, CRA (Council for the Regulation objectives were: of Water Supply). More recently, the Government has to reorient and strengthen the country's water sought to improve water supply services in four large sector institutions, towns in the south by adding them to FIPAG's portfo- August, 2007 Page 35 Mozambique Country Water Resources Assistance Strategy lio. A further such step covering several towns in o gather hydrological information to enable the the central provinces is also getting under way. The planning of further development. project also supported preparation of the National A stronger DNA, better equipped to exercise sec- Water Resources Management Strategy, which pro- tor leadership and to seek to protect Mozam- vided a comprehensive analysis of the water man- bique's interests in transboundary water resources. agement issues in the country and outlined the sector investment needs in the short, medium, and long The other related on-going and completed projects term. financed by the Bank in Mozambique include: Flood Emergency Recovery Project (2000) The Bank's involvement in water resources man- Post Flood Water Resources Management (2001) agement, development and service provision, has Market Smallholder Development in the Zambezi therefore been a partnership with Mozambique that Valley (2006) has supported and led to a number of important Water Services and Institutional Support (2007) achievements: The formulation and implementation of institu- tional arrangements for water resources man- Note that the activities identified are priority agement and the provision of urban water ser- areas where investments are required and not vices. The institutional structure is now widely necessarily activities in which the World Bank regarded as exemplary. itself would be directly engaged. Figures given The introduction of a community driven model are broad estimates of the costs of the suggested for the provision rural water and sanitation ser- areas of investment. vices, adopted now throughout the country. This has resulted in much greater sustainability and service value; 5.2 Priority investment areas for the pe- Major upgrades in the quality and financial sus- riod 2008-2011 tainability of urban water supply services, in all The objective of this CWRAS is to assist in the analy- of the cities now managed under FIPAG. This sis of Mozambique's water resource investment and has set a strong foundation for future growth and management options, and to determine where the improvement in water supply. The strength of World Bank would be best able to assist the Govern- FIPAG and the private sector management ar- ment in the achievement of its growth and poverty re- rangements for Maputo has attracted substantial duction objectives in the water sector and in those sec- further support from the donor community. This tors which depend upon water. The CWRAS will as- appears likely to lead to increases in water sup- sist the Government in choosing water sector activities ply coverage for Maputo and Matola that should for the Bank's engagement in the next 3-5 years. The meet the relevant Millennium Development CWRAS is consistent with the Bank's CPS and com- Goals. plement the on-going international support in the water Making Corumana dam safe and operational, so sector provided by other donors. that the next step may now be taken to develop the water resources of the Incomati River basin The Bank has a strong interest in continuing to support to secure adequate supplies to meet Maputo's the Mozambique water sector due to the multi-sectoral growing demand for water, and increasing de- scope of the assistance required, the ability of the mands for water for irrigation. Bank to forge cross-sectoral cooperation, the unique Development of the National Water Manage- experience that the Bank has in institutional capacity ment Strategy; building, and its substantial expertise in the areas of Strengthening the system of decentralized water water resources management, transboundary issues, resources management bodies, whose role is to: community-driven approaches, and policy and institu- o develop and manage water resources, tional reforms. o operate reservoirs, o ensure that users' water allocations are secure, As described in Chapter 3, this Strategy identifies such and broad areas for priority water resources investments as August, 2007 Page 36 Mozambique Country Water Resources Assistance Strategy (i) development of additional water storage in the program include (a) preference for areas which have Incomati, Zambezi, and Pungue basins; (ii) devel- the largest numbers and concentrations of poor small- opment of small and medium dams to support the holder farming families, thus giving the greatest im- country's rural economy; (iii) support to small scale mediate impact on food-security and poverty (b) the water resources development; and (iv) assistance to presence of a network of rivers and streams that pro- the Government with institutional capacity building vide sites with access to water and suitable soils and in the water resources sector. topography for smallholder irrigation; (c) proximity to long term opportunities for larger irrigation schemes The prioritized areas of investment as identified that will include smallholders, so that an "irrigation through the CWRAS for the period 2008-2011are as culture" evolves to make possible further steps to- indicated below. wards the long term irrigation vision. A. Water resources development and manage- (iv) Water infrastructure for small towns. Very few ment in the Incomati and Umbeluzi basins. The small towns have functioning piped water supplies, proposed interventions would include: organized sanitation, or electrification. Well function- (i) Completion of Corumana Dam as the least cost ing small rural towns are important prerequisites for augmentation of water supply to Maputo which small farmers who use irrigation, because such farms would include construction of a water treatment have greater needs for supplies, markets, milling etc. plant and transmission pipeline to Maputo - esti- Through the development of small scale water sources, mate: Stage 1-$81m; water can be supplied economically for small town water supplies, and small hydropower plants for elec- (ii) Construction of Ressano Garcia weir to monitor trification of towns which the power grid has not yet transboundary water flows, including a small treat- reached. Such developments can have a third purpose ment plant and a distribution system for the town - of providing water for smallholder irrigation. total cost estimate: $4 million; The Bank has a history of experience in supporting (iii) Support to institutional strengthening of ARA- countries in Eastern and Southern Africa in small town Sul, including introduction of a new tariff system for water supply programs. Relevant projects completed water users to ensure the sustainability of operation recently include the Malawi National Water Develop- and maintenance of the water resources infrastruc- ment Project (which included the establishment of an ture. institutional model very similar to that proposed by Mozambique) and the Zambia Copperbelt Town Water B. Small scale water resources development. This Supply Project. Both of these projects were rated as component would include: satisfactory. The Bank is well equipped to support this (i) Construction of small and medium multi-purpose aspect of water services. dams for Nampula, Nacala and Quelimane in the Northern Mozambique - total cost estimate: $60 C. Transboundary water agreements. Support to million; further strengthening of the Incomati, Maputo and Umbeluzi basin agreements between Mozambique, (ii) Community-based sustainable management and South Africa and Swaziland. This would be to secure development of water resources of small streams, future water use rights, particularly with regards to the groundwater resources, and local watersheds in the possible future construction of Moamba Major, for poorest areas (for example, in Nampula Province). sharing the water shortages during droughts and the The possible activities could include construction of joint implementation of flood warning systems; small hydraulic structures and local scale hydro- power units, water harvesting and development of D. Sustainable water resources management for small- holder irrigation, flood protection and water economic growth and poverty reduction in the resources protection against polluting activities; Zambezi basin. This, specifically, includes: (i) Support to the possible development of the (iii) Support to smallholder irrigation. Principles for Mphanda Nkuwa and Cahora Bassa North water re- selecting provinces or regions to commence such a August, 2007 Page 37 Mozambique Country Water Resources Assistance Strategy sources projects. This would primarily be to pro- G. Institutional building in the water sector. Water vide investor confidence and to ensure that multiple sector institutions require strengthening to improve benefits, including environmental assets are maxi- efficiency of the sector institutions; enhance the mized. See Section 4.4.3 "Additional Infrastructure DNA's capacity as a leading national water resources on the Zambezi". planning and management organization; further sup- port the establishment of ARAs as technically and fi- (ii) Analysis of Zambezi basin multi-sector invest- nancially sustainable river basin agencies and ensure ment opportunities. This is an existing study which closer coordination and synergies among the ARAs, will provide the analytical foundations to both assist and between the ARAs and DNA; the completion of the Bank in defining a long-term support strategy for Basin Master Studies; and promotion of stakeholder investments within the basin as a whole and riparian involvement in water resources management at the countries, and contribute to the processes being un- national, regional and local levels. dertaken by the riparian states of the Zambezi Basin. Improved management and cooperative development H. Risk Reduction and Disaster Management. The of the Zambezi River basin has the potential to sig- World Bank, together with other partners, especially in nificantly increase agricultural yields, hydro-power the UN system, is engaged already in a substantial outputs and economic opportunities. Collaboration technical assistance program to the Government of has the potential to increase the efficiency of water Mozambique in Disaster Risk Reduction of which the use, strengthen environmental sustainability, im- objectives are to (i) mainstream disaster risk reduction prove the regulation of the demands made on natural in strategic planning and sectoral development poli- resources, and enable greater mitigation of the im- cies; (ii) support the government to develop its institu- pacts of droughts and floods. Seen in this light, co- tional and human capacity to manage disaster risk, (iii) operative river basin development and management provide specific support to strategic activities to en- provides a potential platform for regional economic hance preparedness at national and district level; and growth, cooperation and stability within the wider (iv) facilitate the best application of World Bank SADC. Group experience and knowledge to disaster risk man- agement for the short and long term within the context E. Support in Water Supply and Sanitation. Sup- of country economic analysis and sectoral growth port to institutional development and capacity build- strategies. ing, including: financing the management contracts for Beira, Quelimane, Nampula and Pemba; stud- 5.3 Financing the Proposed Assistance ies/assessments: beneficiary assessments; assess- ment of financial, viability of new services; tariff 5.3.1 IDA support studies; human resources development / training The Bank's notional allocation for Mozambique for programs in water utilities operations. the period FY2008-11 is similar to the allocation of the previous CAS period of $650 million over four years. F. Policy development in the water and irrigation But as the actual IDA allocation is performance-based, sectors. The principal objective of this assistance the amount of financing will be significantly influ- would be to support GoM in further development of enced by Government performance. Assuming pro- an appropriate set of policies and instruments to gress under the performance framework relative to strengthen water resources planning and develop- other IDA beneficiaries, the annual financing available ment in the country and to improve co-ordination of to Mozambique is expected to remain at approximately the water user agencies within the framework of in- $155 million over the FY2008-11 period. Many of the tegrated water resources management. This would priority areas noted above represent water related is- also include support to better coordination between sues within a variety of different sectors such as agri- the water and agricultural ministries in developing culture, water supply, energy etc and would form part an integrated approach to irrigation sector develop- of sectoral projects and proposals either currently ac- ment, aiming at increased resilience of farmers to tive or which will be part of investment preparations in droughts, food security and alleviation of rural pov- different sectors during the FY2008 - 2011 period. erty. August, 2007 Page 38 Mozambique Country Water Resources Assistance Strategy At present, the IDA budget of about $20 million is Community participation in construction and rehabili- tentatively allocated for a water resources operation tation of small dams and reservoirs, and local flood for FY09. Financing of the priority areas noted protection facilities, could be facilitated through labor- above, in particular addressing the need for the next for-food and other labor-based community programs. strategic augmentation of Maputo's bulk water needs, support to securing international water rights, 5.3.3 Development Partner Involvement institution building in the sector, and support to the The proposed priority assistance program would be implementation of the the etc. will require the in- implemented in close partnership with international volvement and cooperation of a number of partners donors active in the Mozambique water sector. De- which may lend itself to a programmatic, sector- spite recent encouraging economic growth rates, Mo- wide approach for water resources in the country. zambique remains dependent upon foreign assistance The details would be determined through an intense for much of its annual budget. Half of Mozambique's project identification process to confirm the needs of budget expenditures are financed through development the Government. assistance, and, since 1992, Mozambique has received increasing support from a number of foreign bilateral 5.3.2 Private sector participation and multilateral donors such as World Bank, AfDB, Financing of large hydraulic structures is likely to IMF, EU, SIDA, SDC, DANIDA, the Netherlands, remain in the government domain. However, private Millennium Challenge Corporation (MCC, USA) etc. sector participation in such investments is possible About 90% of the sector investment budget is financed for multi-purpose projects with revenue creating by donors. At present, the most active donors in the components, such as hydropower production, com- sector are SIDA (a five year technical assistance pro- mercial irrigation and urban water supply functions, gram in the Pungue basin will be launched this year), combined with non-revenue functions such as flood The Netherlands, African Development Bank, EU and control. Swiss Development Cooperation, and the Millennium Challenge Corporation (MCC, USA). --oo0oo-- August, 2007 Page 39 Mozambique Country Water Resources Assistance Strategy i PARPA II (IMF Translation dated from June 25, 2006): Chapters 1, 8 ii PARPA II (IMF Translation), Chapter 1, p. 34 iii Excluding the Save river where water demand in Mozambique is very low. iv Predictions based on existing models suggest that changes in the global climate could alter spatial and temporal distribution of water along with the intensity of rainfall events. A 10% reduction in rainfall for Sub-Saharan Africa may result in 20% reduction in the density of perennial drainages. Such changes need to be integrated in long-term infrastructure and economic planning in support of sustainable water re- sources management. v M. Benito-Spinetto, P. Moll. CEM Background Paper "Macroeconomic Developments, Economic Growth and Consequences for Poverty". World Bank, Africa Region, PREM 1. December 2004 vi "The Role of Water in the Mozambique Economy". World Bank Memorandum, 2005 vii Arndt C., H.Tarp, S. Robinson. Marketing Margins and Agricultural Technology in Mozambique. IFPRI, Washington DC, July 1999 viii Mozambique CEM: World Bank, 2004 ix Including all cities and small towns x Finney and Kleemeier. Mozambique Public Expenditure Review. Background paper on the Water Sector. May 2003 xi NWDP1: BB4 ­ Water Resources Development. Phase 1 report, August 2004 xii NWDP1: BB4 ­ Water Resources Development. Phase 1 report, August 2004 xiii Mozambique CEM: World Bank, 2004, p. 26 xiv PARPA II (IMF Translation dated from June 25, 2006), p.112 xv Mozambique Agricultural Sector Expenditure Review ­ Background paper, World Bank, 2002; and Mozambique: Agriculture Sector Memorandum, World Bank, 1997 Report 16529-MZ xvi Sometimes, the policies to promote large and medium scale commercial farming could be considered as "anti-poor". However, the experience with irrigation projects in Northern Brazil demonstrated that an ap- parently anti-poor change in policy (auctioning off 50% of new areas to commercial farmers) resulted in a growth-stimulating and poverty-reducing cycle. Poor farmers benefited from such opportunities as becom- ing sub-contractors to commercial farmers and also from funding employment in the grown up input supply and processing industries in the now-dynamic agricultural sector (World Bank, 2003). xvii World Bank "Mozambique Agricultural Development Strategy - Stimulating Smallholder Agricultural Growth" February, 2006 xviii Contribution to CAS discussions. World Bank, Mozambique Rural Development Team: December 2006 xix "Is Africa on Target to Meet the Millennium Development Goals on Water Supply and Sanitation?" A Status Overview of the 16 African Countries (draft): WSP, May 2006 August, 2007 Page 40 Mozambique Country Water Resources Assistance Strategy xx For example, at present, unaccounted for water in Maputo water supply is about 60%, out which at least 30% are attributed to physical water losses in the delivery and distribution systems. xxi Dollar D and A. Kraay. 2001. "Growth is Good for the Poor". "World Bank Policy Research Working Paper 2587. Washington DC xxii World Bank, Mozambique: Growth Performance and Reform Agenda, Africa Region Report No 20601-MZ, June 2000 xxiii World Bank. China Water Resources Assistance Strategy, 2002 xxiv D.Grey, C. Sadoff " Water for Growth and Development": A Theme Document of the 4th World Water Forum. 2006 xxv D.Grey. "The World Bank and Water Resources: Management and Development". Presentation at World Bank Water Week 2004. xxvi Is Africa on target to meet the MDGs on water supply and sanitation? A status overview of 16 coun- tries. Draft for discussion: WSP, May 2006 xxvii M. Benito-Spinetto, P. Moll. CEM Background Paper "Macroeconomic Developments, Economic Growth and Consequences for Poverty". World Bank, Africa Region, PREM 1. December 2004 xxviii The regression analysis suggests that in Mozambique GDP growth is cut by 5.6% in average when a major water shock occurs. Assuming the rate of the major disaster occurrence as one in five years, on aver- age GDP growth in Mozambique is reduced by 1.1% annually due to the impacts of water shocks (Figure 2.2). This regression model was used to assess the impact of a mitigation scenario on the annual growth rate. Assuming that the necessary water security level translates into full mitigation of water shocks of the small and medium scale and 50% mitigation of water disaster events, investments to reach this level of wa- ter security would reduce the annual loss of GDP growth due to water shocks to 0.3%. Thus, the benefit of the mitigation measures is the annual losses of GDP growth of 0.8% avoided, with a Net Present Value of the mitigation benefit of about USD 2 billion. For the mitigation investments to be viable, the benefit-cost ratio should be of 1 or greater. Therefore, given that the present value of USD 2 billion translates into the annual investment equivalent of USD 270 million over the period of 2007- 2020, the viable total costs of achieving the defined level of security in Mozambique against vulnerability to water shocks by 2020 need to be under USD 3.9 billion (or should not exceed USD 205 per capita). xxix DNA (Ministry for Public Works and Housing of Mozambique). National Water Resources Develop- ment Strategy. Draft from July 2006 xxx " Development of the Pungwe River Basin: Joint Integrated Water Resources Management Strategy": SWECO, August 2003 xxxi According to the AfDB Small Scale Irrigation Rehabilitation Project the costs are ranging from US$3000/ha to US$10000 August, 2007 Page 41 Mozambique Country Water Resources Assistance Strategy xxxii Zambezi River Basin: Sustainable Water Resources Development for Irrigated Agriculture. Draft Re- port. World Bank, AFTS1, December 2005 xxxiii NEPAD-FAO BIPP, Small Dams Rehabilitation and Construction Project, TCP/MOZ.2905 (I), No- vember 2004. The programme for rehabilitation/construction of 50 small dams was developed under NEPAD-CAADP with the total costs ofUS$28.5 million. xxxiv The Impact of Small Dams on Poverty Reduction: A Review of the International Experience: World Bank, 2005, 158 p. xxxv For example, parts of Tete and Niassa provinces consist of the same deeply weathered basement rocks of the southern African plateau that are the source of domestic water supplies for small rural communities throughout Malawi and in parts of Zambia, Zimbabwe, and Tanzania. Alluvium deposits underlying the courses of ephemeral streams can provide a more reliable and safer water supply for domestic and small scale irrigation purposes than stream flows, which in many cases are not available in the dry season. xxxvi The current rate of cost recovery at ARA Sul is about 20%. xxxvii PARPA II: IMF Translation, June 25, 2006. p.46 August, 2007 Page 42 ANNEX I. Water Resources Assistance in the Bank's CPS 2008-11 (April 24, 2007) Pillar III - Sustainable and Braod-Based Growth Long-term development goals CPS goals Instruments Key Issues CPS outcomes CPS Milestones: Government Goals Intermediate Indicators (outputs) PARPA II Ensure fast and Unsustainable access Outcome 17: Improved sustainable Corumana spillway gates constructed New Financing sustainable to water resources for management of water resources Finance options with other donors Water Resources Investment economic growth water service sectors: Maputo water supply requirements (to packaged and activities identified for Project (PARPA #G.2) Maputo water supply 2020) met investments in development of the needs additional Management plan and infrastructure Incomati - Umbeluzi basins AAA water sources starting operating rules developed for the CWRAS implemented DNA Capacity Building from 2010-2012 lower Zambezi Basin DNA restructuring successfully through the AWRMI Increased collaboration with Zambezi implemented Cahora Bassa TA High hydroclimatic Basin riparian countries on water Cahora Bassa & Nphanda Nkuwa WB Global Facility for variability, limited resources management dams assessments completed Disaster Reduction & long-term planning Recovery Multi-donor TF: capacity Outcome 18: Enhanced capacity to Current portfolio respond to disasters Investment framework for hazard Regional ESW: Zambezi Early warning and emergency prevention, mitigation and Multi-Sector Investment preparedness systems established preparedness established Opportunity Analysis Ex-ante disaster recovery financing mechanism established Mozambique Country Water Resources Assistance Strategy: Making Water Work for Sustainable Growth and Poverty Reduction Annex II: Preliminary Economic Analysis of Maputo Bulk Water Source Development July, 2007 Preliminary Economic Analysis of Maputo Bulk Water Source Development Preliminary Economic Analysis of Maputo Bulk Water Source Development July 2007 Africa Water Resources: AFTWR Africa Region, World Bank photographs©L.J.Abrams July, 2007 2 Page Preliminary Economic Analysis of Maputo Bulk Water Source Development Contents I INTRODUCTION ..............................................................................................................................................1 II BACKGROUND .................................................................................................................................................2 III OPTIONS FOR ADDITIONAL BULK WATER SUPPLY TO MAPUTO..............................................3 STAGE I INCREMENT OF SUPPLY ................................................................................................................................3 SUBSEQUENT EXPANSION OF SUPPLY ........................................................................................................................4 INVESTMENT STAGING AND SCHEDULING ..................................................................................................................4 IMPLICATIONS FOR IRRIGATION EXPANSION IN THE INCOMATI-SABIE BASIN .............................................................5 WATER YIELDS AND TRANSBOUNDARY FLOWS.........................................................................................................7 IV PRELIMINARY ECONOMIC ANALYSIS ................................................................................................7 ECONOMIC COST-BENEFIT ANALYSIS ........................................................................................................................7 INVESTMENT AND OPERATION & MAINTENANCE COSTS ...........................................................................................8 EXPECTED BENEFITS ..................................................................................................................................................9 RESULTS OF PRELIMINARY ECONOMIC ANALYSIS ...................................................................................................10 V CONCLUSIONS ...............................................................................................................................................11 REFERENCES ..........................................................................................................................................................12 ANNEX 1 - COST ESTIMATES OF MAPUTO BULK WATER SUPPLY OPTIONS .....................................13 ANNEX 2 - ANNUAL OPERATIONS & MAINTENANCE COSTS...................................................................15 ANNEX 3 - PROJECT BENEFITS BY OPTION ..................................................................................................17 ANNEX 4 - COST BENEFIT ANALYSIS ..............................................................................................................18 I Introduction The purpose of this paper 1 is to present a preliminary economic and hydrological identification and as- sessment of possible alternative options of bulk water sources for Maputo. The study includes an assess- ment of water allocation priorities and the scheduling of investments such as the completion of Corumana dam and the construction of the Moamba Major dam. Support for ensuring the security of the Greater Maputo area's water sources has been identified as a priority intervention for the World Bank assistance in the water sector in Mozambique in the recently completed Country Water Resources Assistance Strat- egy (CWRAS). This preliminary analysis will contribute to the formal identification process of FY09 World Bank Lending operation - MZ Water Resources Development Project. The generous support pro- vided by the National Directorate for Water, Ministry of Public Works and Housing of the Republic of Mozambique and from ARA Sul in preparing this report is gratefully acknowledged. The report findings are based on a desk study of available relevant Government materials and feasibility studies, a field visit to the sites of Corumana and Moamba Major dams and on discussions with represen- tatives of the DNA, ARA- Sul, FIPAG, CRA, the Ministry of Agriculture, the Ministry of Energy, the management of Xinavane sugarcane production company, and other relevant agencies and specialists in Mozambique. 1 Written by World Bank consultants John Shepherd (Water Resources Engineer) and Rimma Dankova (Water Re- sources Economist), commissioned and edited by Len Abrams, Senior Water Resources Specialist, Africa Water Resources: AFTWR, World Bank. July, 2007 Page 1 Preliminary Economic Analysis of Maputo Bulk Water Source Development II Background The water resources situation in Mozambique is progressively recognized as insecure because of the un- even geographic distribution of water resources across the country and increasing uncertainty in the na- tional water resources base due to the dependence on international river basins, high variations in annual and inter-annual rainfall, frequent droughts and floods, and competing demand by water-dependent eco- nomic sectors in some river basins. The emerging conflicts between growing water demand from the major sectors of the economy and lim- ited water availability in some river basins impose a serious constraint on the medium-term and long-term growth prospects specifically in the economically most developed Southern part of the country. From 2007 to 2028 the domestic and industrial water demand is predicted to more than double in Southern Mo- zambique. With a steady growth in the large industrial sector, the water demand for large industries was estimated to increase by 70% in the South. For the Greater Maputo area the current consumption is esti- mated in the order of 70 million m3/year and is projected to double by 2020. It is expected that this water consumption will increase mainly through rapidly growing domestic and commercial demand, and also in response to industrial demands such as Mozal 3 and, possibly, the MISP (Maputo Iron and Steel factory). To address the emerging shortage of bulk water supply to Maputo, the Government of Mozambique, through its urban water supply asset holding agency, FIPAG, is currently upgrading the water treatment and transmission facilities so that more water from the Pequenos Libombos Reservoir on the Umbeluzi river can be delivered to the city. At the same time, it is implementing measures to reduce physical losses and increase the efficiency of the water delivery system. Nevertheless, as illustrated by Figure 1, by the end of 2011 the yield of the Pequenos Libombos reservoir will be fully utilized to supply Maputo's do- mestic, commercial and industrial water users. Maputo Water Demand and Supply 350.00 300.00 250.00 Mm3/year 200.00 150.00 100.00 50.00 0.00 28 30 32 34 36 38 40 20 22 24 26 08 10 12 14 16 18 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 Projected Demand Production Capacity W/O Project Figure 1. Maputo Water Demand and Supply without Additional Bulk Water Source With the demand from domestic, commercial and industrial consumers increasing rapidly, a new source of water will therefore be needed by end 2011, if Greater Maputo is to continue to grow and prosper. If an additional source of water is not available by then, shortfalls in supply will occur from then on in years or combinations of years when reservoir inflows are at or below average. Such shortfalls would disrupt economic growth and expose communities to increased risks of waterborne disease. This clearly shows the urgency to develop an alternative water source for supply to the Greater Maputo Area. Water re- July, 2007 Page 2 Preliminary Economic Analysis of Maputo Bulk Water Source Development quirements at this scale cannot be met from small local intakes or reservoirs and, therefore, substantial scale infrastructure solutions are required in the Incomati river basin. III Options for Additional Bulk Water Supply to Maputo Stage I Increment of Supply A number of studies undertaken by the Government to identify and assess possibilities to increase bulk water supply to Maputo resulted in identification and assessment of the following two main water re- sources development options, both located in the Incomati basin: (a) to complete Corumana Dam on the Sabie river, a tributary of the Incomati River, by installing the spillway gates for which it was designed (plus some other minor works), and build a pipeline to Maputo from the Incomati River at the Sabie River confluence, and a water treatment works; or (b) to build the proposed Moamba Major Dam on the Incomati River, a pipeline from near Moamba to Maputo, and a water treatment works. The largest of these two options in terms of both yield and cost is the proposed Moamba Major Reservoir. This option is the one which appears most frequently in national strategic development documents. It is estimated that the Corumana option, with a first stage pipeline and treatment plant, has an estimated cost of about USD 81 million (all estimates are in 2006 values), and could be delivering water by the end of calendar year 2012. The installation of the spillway gates and other works at the dam would cost about USD 27 million, and the rest is for the pipeline and treatment works. The Moamba Major option with a first stage pipeline and treatment plant and a small hydropower station would cost an estimated USD 291 million, or $24 million less if the proposed small power station was delayed. However, the comparison of the Maputo water demand projections 2 and the yield available from the Pe- quenos Libombos reservoir demonstrates that this yield will be fully utilized to supply domestic, com- mercial and industrial water users in the next 3-4 years and a new source of water for Maputo will there- fore be needed by the end of 2011 (see Figure 1). For that reason, the Moamba Major Dam is not a viable option to meet the Maputo water demand of 2012. Even if the financial resources for the Moamba Major become available immediately, the soonest it could deliver water to Maputo is by the end of 2016 (includ- ing design, construction and a two year period for the dam to partially fill). Exposing greater Maputo to a period of under-supply of 5 years or more during the Moamba Major construction would be unacceptable. Therefore, the economics and cost structures suggest that to meet the upcoming shortage of water for Maputo by 2012, the completion of Corumana Dam is the necessary and immediate investment to be implemented as the first stage of increment supply to Maputo. The Corumana Dam raising option would present only a small risk of shortfall, if it cannot be completed as expected until some time in 2012. This project should be commenced and completed as soon as possible. 2 Maputo water demand projections provided by FIPAG are based on the longer-term needs of the Greater Maputo area, including the habitational expansion areas towards the currently rural areas of the Matola Municipality (all bairros from Matola-Gare at the West, Kongolote at East and up to Mucatine at the northern tip), and the neighbor- ing districts of Moamba and Marracuene (including the villages of Moamba and Marracuene). For these areas, the coverage is expected to gradually move from the lack of conventional water supply system towards nearly full cov- erage at 95% of all urban and peri-urban areas above mentioned. In parallel, the type of connection is expected to gradually evolve from the service via standpipes towards a large share of the population (75%) with either a house connection or a yard tap. July, 2007 Page 3 Preliminary Economic Analysis of Maputo Bulk Water Source Development Subsequent Expansion of Supply FIPAG has provided updated figures for projected demand to 2027. For the purpose of the analysis, these figures were projected further at the same linear rate of increase, to 2041. These rates of growth appeared to be realistic and acceptable for planning purposes. To examine options for meeting the demand beyond the first stage of expansion, it is necessary to take into account that the present yield of Corumana Dam, that is, without spillway gates, is fully committed to irrigation users. A large proportion of this yield is taken up by existing sugar plantations, together with committed plans for their expansion. It is therefore assumed that only the additional yield of the raising of the full supply level by means of spillway gates, will be available for urban supply. The additional yield of the raising of the Corumana full supply level by installing the spillway gates will be sufficient to satisfy urban demand up to 2028. Thereafter, to meet further urban demands, construc- tion of Moamba Major Dam will be necessary as subsequent expansion of the supply to Maputo, with the additional yield satisfying the demand up to 2041. Investment Staging and Scheduling In order to postpone unnecessary investment, it is proposed both by this study and some of the preceding reports, that the pipeline bringing water to Maputo be staged. The major cost of the Corumana option is in fact the pipeline and treatment works. Unlike dams, works of this type are easily staged. Rather than build a very large pipeline and treatment works able to deliver the whole available yield, substantial sav- ings are achieved by ensuring that the first stage of the pipeline and treatment works is less than or equal to one half of the yield available. In this case, the size of the first stage has been selected so as to deliver about 44 million m3/year, about one third of the yield of the dam raising. This would be a 50% increase above the full yield available from the Pequenos Libombos Dam, and would ensure safe and adequate supplies up to end 2018. An analysis undertaken suggests two possible options for scheduling the construction of the Moamba Ma- jor Dam: (i) build the second stage pipeline and treatment works expansion to deliver the whole yield from Corumana, followed by Moamba Major Dam and a pipeline from there to Maputo and treatment works expansion (the Moamba Major investments to start in 2021), or (ii) build Moamba Major dam plus pipeline and treatment works expansion, followed by the second stage pipeline from Corumana, and treatment works expansion (the Moamba Major investments to start therefore in 2012). Each new stage must be commenced in time for it to be brought into action as demand begins to exceed the safe level of supply from the preceding stage. Using this principle, the schedules of implementation of the options would be as shown in Figure 2 below. Upon completion of the Moamba Major Dam wall and spillway, a 2 to 3 year period would need to be allowed for it to fill part way before it can be relied upon to provide supplies to Maputo. Such an allowance is not required for the Corumana Dam raising, as this dam is already in operation with a yield greater then current irrigation allocations require. July, 2007 Page 4 Preliminary Economic Analysis of Maputo Bulk Water Source Development Year 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 Option 1 Stage 1 Stage 2 Stage 3 Option 2 Stage 1 Stage 2 Stage 3 Legend: Design Construction Part filling Figure 2. Schedules of Options for Development of the Incomati basin in Mozambique OPTION 1 Stage 1: Corumana completion , pipeline, treatment works Stage 2: Additional pipeline, treatment works extension Stage 3: Moamba Major Dam , pipeline, treatment extension OPTION 2 Stage 1: Corumana completion , pipeline, treatment works Stage 2: Moamba Major Dam , pipeline, treatment extension Stage 3: Additional pipeline Implications for Irrigation Expansion in the Incomati-Sabie basin The present yield of Corumana Dam, that is, without spillway gates, is fully committed to irrigation users. A large proportion of this yield is taken up by existing sugar plantations, together with committed plans for their expansion. The current sugarcane area irrigated from Corumana is about 13,000 ha and includes large sugar cane schemes in Xinavane (about 7000 ha) and Maragra /Malangue (about 6000 ha). Accord- ing to ARA-Sul, the existing water yield from Corumana (without the gates installation) can additionally support about 15,000 ha. Approval has been given for the expansion of sugarcane plantations at Xinavane by 6,000 ha, expected to be completed by 2009. Subsequent options could include the first stage of the COFAMOZA project3 of 10000 ha and/or Malangue (about 5000 ha)4. However, water diversions are not metered at present, so it is not known how much water is withdrawn by present irrigators. A prelimi- nary analysis suggests that the Corumana Dam without spillway gates can support the proposed 28,000 ha of irrigated sugarcane only if rather optimistic water use efficiencies are assumed. Before any decisions are made on further irrigation expansion, withdrawals of water for irrigation should be properly metered and estimates made of present water use and likely efficiencies and water requirements of future devel- opments. The irrigation expansion plans that are currently under discussion also include the additional 23,500 ha of sugarcane to be developed after 2009 and assume that additional water will be available due to the Coru- 3 Under the COFAMOSA Sugar Cane Project, the Government of Mozambique intends to develop an area of 29,000 ha of irrigated land under sugar cane for sugar and ethanol production. The project area is located in Moamba and Magude Districts of the Province of Maputo Mozambique, and has been selected, mainly, due to the accessible wa- ter from Corumana Dam on Sabie River, availability of good irrigable soils and the close proximity to potential local and regional markets for sugar and bio-ethanol. 4 Information on the plans for irrigation expansion by 2009 and beyond is provided by ARA-Sul. July, 2007 Page 5 Preliminary Economic Analysis of Maputo Bulk Water Source Development mana gates completion. This includes 20,000 ha of COFAMOZA project Stages 2 and 3 developments, and 3500 ha in Timanguene. However, the analysis of additional bulk water supply to Maputo indicates that the additional yield of the raising of the full supply level of Corumana, will be needed for urban sup- ply. Therefore, the important further findings are that (i) all of the yield made available by both Corumana Dam raising and later by Moamba Major Dam will be eventually needed for urban development, and (ii) the yield of these projects should not be committed to any other permanent consumptive wa- ter use. As demonstrated by Figure 3, the proposed options of surface water resources development in the Inco- mati increase system yield in fairly large steps, while demand increases quite smoothly. Yield available for water uses surplus to Maputo water requirements 350 300 250 Additional yield for Mm3/year 200 Option 2 Option 1 Yield 150 Demand 100 50 0 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 Year from 2007 Figure 3. Maputo projected water demand curve and temporary yield surpluses Option 1 - Yield surplus to Maputo requirements 140.00 120.00 100.00 80.00 Mm3/year Series1 60.00 40.00 20.00 0.00 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 -20.00 Year from 2007 Figure 4. Yield surplus under Option 1 July, 2007 Page 6 Preliminary Economic Analysis of Maputo Bulk Water Source Development After each step in resource development is taken, there is a temporary surplus of yield, which could pos- sibly be used to achieve other benefits, provided that the water allocation for such uses can easily be withdrawn. The curve of projected demand and the temporary yield surpluses under the two options are shown in Figure 3. The configuration of the yield surplus under Option 1 is shown on Figure 4. Possible benefits of these temporary yield surpluses include protecting and enhancing downstream environmental values, reducing risks of flood losses, increasing hydropower generation, and supplying temporary small to medium scale irrigation applications (recognising that most irrigation applications are permanent). Water Yields and Transboundary Flows The evaluation of the water yields of the project options in this study is based on the yield analysis in [Reference 1, Chapter 11, Table 1-16]. These yields assume (a) continuation into the future of present levels of development in the basin upstream, (b) no allowance for instream flow requirements; (c) the yields shown are historic firm yields, which are defined as the maximum annual water volume that can be abstracted without the dam failing once over the whole hydrological record. The most common practice is to use slightly less conservative (that is higher) yields than assumption (c) for urban water supply. On the other hand, assumptions (a) and (b) are considered optimistic. In the short term, the effects of these assumptions may largely cancel each other out. The situation in the medium and long term is, however, less certain. The two main areas of uncertainty are climate change, the effects of which in this region are not known, and the level of irrigation develop- ment upstream. The upstream riparian nations, Swaziland and South Africa, particularly the latter, appear to be unable to control abstractions adequately within their borders in line with the tri-state agreements as they stand. If the upstream riparians permit even further abstractions within their borders, this would re- duce the yields available to Mozambique in later years. There is therefore a need for the riparians to gain much more control over development and abstractions within their borders, and to work together towards a deeper and more comprehensive agreement, one that will provide them and Mozambique with much greater security of supply than can now be achieved. The authors agree with senior Mozambican offi- cials that this is of the utmost importance to the future development of southern Mozambique. IV Preliminary Economic Analysis Economic Cost-Benefit Analysis A preliminary economic cost-benefit analysis (CBA) was carried out to examine the viability of the pro- posed options for augmentation of Maputo bulk water supply. The economic CBA is a traditional ap- proach to establishing whether it is justified to invest scarce public resources in the proposed project rather than to use them elsewhere in the economy. The analysis assumes that the project is developed in the public sector and compares the project's costs and benefits in economic terms, with transfer payments excluded from the valuation of the inputs and outputs. Project costs comprise the lifetime costs of investing and operating the dams and the other com- ponents. Costs are expressed in present value terms, discounted at an appropriate rate, over a period of the lifetime of the asset assumed at 50 years. Replacement costs and residual values are taken into account where relevant. The economic internal rate of return (EIRR), the economic net present value (NPV) and the Benefit/Cost ratio were calculated to evaluate the economic merit of the proposed investments. The latter two dis- counted at the opportunity costs of capital (OCC). The project is considered economically viable if the EIRR exceeds the OCC, taken in this analysis at 12%. July, 2007 Page 7 Preliminary Economic Analysis of Maputo Bulk Water Source Development This cost-benefit analysis is based on a comparison between a baseline scenario and two project scenar- ios. The costs and benefits of the project scenarios are evaluated in incremental terms relatively to the baseline option assumed in this case as a status quo situation. The two project options considered in this CBA include the same components but have different investment implementation scheduling (as illus- trated by Figure 2): Option 1: Immediate commencement of the Corumana dam raising in 2008 with investments in the second stage pipeline and treatment works expansion commencing in 2015 to provide the capacity to deliver the whole yield from Corumana Dam raising, followed by construction of Moamba Major Dam and a pipeline to Maputo and treatment works expansion (the Moamba Major investments to start in 2021) Option 2: Immediate commencement of the Corumana dam completion in 2008 with the Moamba Major dam investments, including the pipeline and treatment works expansion, to start in 2012 fol- lowed by the second stage pipeline from Corumana and treatment works expansion in 2027. Investment and Operation & Maintenance Costs The investment costs are expressed in constant 2006 prices and are net of import duties. The Moamba Major costs are estimated for Full Supply Level (FSL) 112 m. Capital costs of the project include the costs of the dam project, the water treatment works and its extensions, and the pipelines to bring the water to Maputo from the Incomati River at the offtake points for the two dam projects. The costs of the dams, treatment plants and pipelines are taken from [2], [3], and [4]. Some essential requirements such as plant and buildings were incorporated in the Corumana estimate additional to those identified in [3]. Scaling was required of the estimates of the pipelines and treatment plant, and some reconciliation of the some- what different estimates for these given in [2] and [4]. The estimated investment and operations and man- agement costs are presented in Annex 1. The costs breakdown per year for Options 1 and 2 is presented in Annex 4. The analysis also takes into account the associated investments within Maputo/Matola required to bring the water made available by the Corumana dam raising and the Moamba Major dam schemes to the con- sumers5. These expenditures are assumed to be financed outside of the proposed project, however they are necessary to utilize the project water supply benefits and therefore are included in the project total economic costs (Annex 4). Operations and maintenance costs will initially consist mainly of costs of operation of the dams, pipelines and treatment plant, which were built into their capital costs, based on information in [2] and [3]. The "in-city" O&M costs will mainly comprise pumping costs, and replacement of meters (15 year cycle), some connections, and electrical and mechanical equipment in distribution centers (20 year cycle). These costs will start to become significant after 2027. From 2042, they are estimated as USD 1.2 million per year. 5 The costs to provide for water delivery within the city boundaries will include water distribution centers, mains, connections and meters. According to FIPAG's estimates, the cost per domestic and commercial connection of this is USD 659 equivalent. This is assumed to increase to USD 800 equivalent over 2012 to 2027 to account for in- creases in the average lengths of approach mains, and distances to distribution centers, as supplies are extended to cover the whole city. FIPAG also was able to provide projections of total water demand and the numbers of new connections planned over the period to 2028. The authors then projected the demand figures, on a linear basis, to 2041, the date of completion of the last works. Losses were assumed to decrease from 50% to 30% over the period to 2027. On the basis of these connection numbers, total in-city capital costs were calculated and found to be rea- sonably consistent with experience in other countries. July, 2007 Page 8 Preliminary Economic Analysis of Maputo Bulk Water Source Development Expected Benefits The proposed investments in the completion of the Corumana dam and construction of the Moamba Ma- jor dam would result in such main benefits as expanded water supply for Greater Maputo, improved flood control, additional generation of hydropower, and increased fisheries. For the purpose of this preliminary analysis, benefit estimates in the feasibility studies on Moamba Major Dam (Norconsult 2003) and the raising of full supply level of Corumana Dam (Lahmeyer International 2002) were used as a starting point in calculating the value of the identified economic benefits. The estimated benefits are as follows: Flood control: Flood control benefits of Moamba Major dam estimated at 2.51 USD million. Flood control benefits from the Corumana gates are estimated at 25% of Moamba Major flood control benefits. The total flood control benefits are a sum of those from the Corumana upgrade and Moamba Major dam. Energy: Mean annual production of energy from Moamba Major would be 38.2 Gwh. The eco- nomic price is estimated at USD 0.025 per kwh. The mean annual energy production from Moamba Major is estimated at USD 0.942 million per year (Data source: Moamba Major feasibil- ity study report: Norconsult 2003). Corumana energy production benefit is estimated at USD 0.188 million per year (Raising of Full Supply Level of Corumana Dam feasibility study). En- ergy production per m3 for Corumana is firm incremental energy production per annum divided by incremental firm yield, or 0.22 Kwh/m3 (Corumana Feasibility Study). Energy production per m3 for Moamba Major Dam was is 0.16 Kwh per m3 (based on estimates of firm yield of 107 Mm3 / year, and firm energy production is 17 GwH / year: Moamba Major Dam feasibility study). Fisheries: It is estimated that the economic price per 1 kg of fish is $0.95. Normal annual catch from existing Corumana reservoir is 356 ton (estimates by Ara Sul). The surface area of the exist- ing Corumana reservoir is 71 km2 at the present full supply level. The surface area of the pro- posed Moamba Major reservoir will be 54.48 km2. The potential catch from Moamba Major is estimated at 273.17 tons per year. Corumana completion will increase the surface area of the res- ervoir to 91 km2, which will lead to incremental benefits in fisheries of USD 0.0953 million. For Moamba Major the benefit is estimated at USD 0.26 million. Maputo water supply: Municipal water supply benefits are estimated based on the consumers' willingness to pay (WTP) of USD0.76/m3 of water supplied. It is estimated that domestic WS constitutes 77% of total Maputo water demand (Based on the analysis of data provided by FI- PAG). Water supply benefits for industries constitute about 14% of the total demand and com- mercial consumption about 9%. WTP for industries and services is conservatively assumed to be the same as for domestic consumers. The estimated economic benefits of Options 1 and 2 are presented in Annex 3. The water supply benefits constitute more than 90% of the total value of the project benefits (see Table 1). As discussed in Section 3 above, the proposed investments will also result in some temporary yield sur- pluses, and possible benefits of using this water include protecting and enhancing downstream environ- mental values, reducing risks of flood losses, increasing hydropower generation, and supplying temporary small to medium scale irrigation applications. While these benefits are acknowledged, they have not been quantified in this preliminary analysis and are assumed to be relatively insignificant compared with the value of the main benefits. July, 2007 Page 9 Preliminary Economic Analysis of Maputo Bulk Water Source Development Table 1: Composition of the project total economic benefits (%) Flood Control Energy Fisheries Maputo Water Total Production Supply Option 1 4.0 1.3 0.5 94.2 100 Option 2 6.8 2.4 0.8 90.0 100 Results of Preliminary Economic Analysis A preliminary economic analysis was carried out for the identified project options. Details of the analysis are presented in Annex 4. The results of the analysis are summarized in Table 2 below. Table 2. Results of Preliminary Economic Analysis EIRR (%) NPV (at 12%) Benefit/ $Million Cost Ratio Option 1 15.9 63.7 1.38 Option 2 12.4 10.7 1.05 The analysis shows that both project options are economically feasible, with Option 2 showing lower re- sults. For Option 1 the EIRR is estimated at 15.9%, the NPV is calculated at $ 64 million and Bene- fit/Cost (B/C) ratio - at 1.4, at 12% discount rate. Option 2 has the estimated EIRR of 12.4%, the NPV - $11 million and B/C ratio of 1.05. Both options are therefore viable options in economic terms, with Option 1 to be economically preferable with the significantly higher EIRR and B/C ratio. Results of a sensitivity analysis demonstrate however that Option 2 is sufficiently sensitive to variations in such key assumption as project total costs. The re- sults of the sensitivity analysis with alternative scenarios on the variations in the project costs and benefits and the associated values of the key project economic indicators are shown in Table 3. Table 3. Results of Sensitivity Analysis Value Indicator Units Option 1 Option 2 Project Cost Overrun of 5% NPV $ million 55.3 -0.6 ERR % 15.2 12 B/C - 1.3 1 Project Cost Overrun 10% NPV $ million 47 -11.9 ERR % 14.6 11.6 B/C - 1.25 0.95 Project Cost Overrun 20%, benefits Increased 10% NPV $ million 47 -10.9 ERR % 14.7 11.6 B/C - 1.26 0.96 Project Cost Overrun 35% NPV $ million 5 -68 ERR % 12.2 9.8 B/C - 1.02 0.8 July, 2007 Page 10 Preliminary Economic Analysis of Maputo Bulk Water Source Development The results of the sensitivity analysis demonstrate that Option 2 becomes economically unfeasible with the increase in project costs of only 5%. The World Bank's experience6 demonstrates that average cost overruns for construction of multipurpose dams often come to 30% - 40%. Assuming the cost overruns of 20%, Option 2 will remain unviable even with the increase in project benefits by 10%. Option 1 at the same time is able to withstand a cost increase up to 35% demonstrating its economic ro- bustness (Table 3). For Option 1 to become economically unfeasible, the project costs would need to be increased by 40% (in this case the EIRR would fall just below 12% and NPV would be negative). How- ever, the increase in the value of project benefits by only 5% would bring Option 1 back to the economic viability even with the cost overrun of 40%. The project economic justification would benefit from further identification and evaluation of the benefits associated with the use of surplus water yields. This may include benefits from additional hydropower generation, further reducing risks of flood losses, and small to medium scale irrigation applications rely- ing upon the temporary availability of water. It is also recommended to undertake financial analysis to investigate the conditions that are needed to en- sure the financial viability and sustainability of the project from the perspective of ARA Sul as an opera- tor of the assets. This objective would be achieved through assessing user charges at which the agency can achieve full or partial cost-recovery of the capital and O&M costs associated with the construction and operation of the proposed infrastructure. V Conclusions 1. Growing water needs for the Greater Maputo area require urgent investments in completion of the Corumana dam in order to meet the shortage in water supply for Maputo in 2011/12. Construction of the Moamba Major dam will be also necessary to meet the projected future demand for the urban and industrial development of the Greater Maputo area after 2028. 2. Two possible options for scheduling the construction works for Moamba Major Dam have been iden- tified: Option 1 assumes the immediate commencement of the Corumana dam completion with in- vestments in the second stage pipeline and treatment works expansion commencing in 2015 to provide the capacity to deliver the whole yield from Corumana Dam raising, followed by construction of Moamba Major Dam and a pipeline to Maputo and treatment works expan- sion (the Moamba Major investments to start in 2021); Option 2 also assumes the immediate commencement of the Corumana dam completion with the Moamba Major dam investments to start in 2012 with the pipeline and treatment works expansion, followed by the second stage pipeline from Corumana and treatment works ex- pansion in 2027. 3. A preliminary economic analysis was carried out to assess economic viability of the proposed two investment options for additional Maputo bulk water supply. The results of the analysis demonstrate that both options appear to be economically viable, with Option 1 having a strong economic prefer- ence over Option 2. The economic feasibility of Option 2 appeared to be marginal, with a strong sen- sitivity of its economic efficiency indicators to slight increases in the project costs. Therefore, the in- 6 The World bank experience with Large Dams: A preliminary Review of Impacts ­ Vol.1 Washington DC: World Bank Operations Evaluation Department. 1996 July, 2007 Page 11 Preliminary Economic Analysis of Maputo Bulk Water Source Development vestment alternative that postpones investments in the Moamba Major dam until 2021 (Option 1) is recommended to the Government for implementation as economically preferable. 4. Ultimately the full yields of both the Corumana Dam heightening and the Moamba Major Reservoir will be required to meet the needs of the greater Maputo urban and industrial area. Surplus water yields will be temporarily available for other uses during some years directly after completion the Corumana dam and after completion the Moamba Major dam. This temporary surplus of yield could possibly be used by other water uses provided that the water allocation for such uses can easily be withdrawn when the water is needed for the urban supply. 5. Given that the existing water yield from Corumana is not used efficiently, and that there is an estab- lished future demand from Maputo, any permanent allocation for irrigation of the additional water made available by upgrading the Corrumana dam should not be permitted. Even if this water is used for production of such high value crops as sugar cane and would bring employment and other addi- tional benefits, it will not justify the investments that will be required to find alternative supplies from more expensive sources for Maputo water supply in the future. This water needs to be reserved for fu- ture urban and industrial use. 6. Any determination of the economics of a scheme such as bio-fuel production or other irrigated crop production in the South should build-in a time limitation on the availability of water. Otherwise the loss of investments when water is redirected for higher value use would not be factored into feasibil- ity considerations and would cause difficult competing water interests. 7. The increasing physical water scarcity in the South of Mozambique stresses the need for the govern- ment to take a longer term, multi sector strategic view on water use planning. A consideration needs to be given to policy decisions, which would allocate water in the South towards the higher value us- ers, diversify economic activities in the region away from water dependent agriculture, and promote commercial scale agriculture (such as sugarcane production) into the other regions of the country with higher levels of water availability and lower water costs (for example, in the Pungue and Zambezi river basins). Since the immediate construction of Moamba Major dam appears neither necessary nor economically sound, investments in water resources infrastructure in the Pungue basin (the Bua Maria dam or its alternatives) could be considered as a higher priority for the public investment planning providing for long- term agricultural development in this region. References 1. Government of Mozambique, First National Water Development Project, "National Water Re- sources Development Plan for the Inkomati Basin" (NDF 197-5) January 2003. 2. Government of Mozambique, National Directorate of Water, National Water Development Pro- ject - 1 "Feasibility Study Moamba Major Dam" Norconsult, November 2003. 3. Government of Mozambique, National Directorate of Water, First National Water Development Project, "Raising the Full Supply Level of Corumana Dam ­ Feasibility Study Report", Lahmeyer International et al, January 2002. 4. Government of Mozambique, Administração Regional de Águas do Sul (ARA-Sul) "Estudo para o Abastecimento de Água à Fábrica de Ferro e Aço ­ Maputo", Technica Engenheros Consultores LDA, Março 2001. July, 2007 Page 12 Preliminary Economic Analysis of Maputo Bulk Water Source Development ANNEX 1 - Cost Estimates of Maputo Bulk Water Supply Options Basic data: Main source "WR Development Plan for Inkomati River Basin Nov 2003" Raises FSL of Corumana from 111 masl to 117 masl Increases capacity from 875 Mm3 to 1363 Mm3 Increases firm yield from 383 Mm3/year to 500 Mm3/year Raising Curumana + 1st stage pipeline/treatment) 2006 cost $million Curumana dam completion Corumana Construction works 23.21 Office and housing 2.58 Office equipment 0.17 Resettlement 0.62 Vehicles and plant 0.45 Total Works at Corumana Dam 27.02 Pipeline/treatment Intake and pumping station at Sabie 0.84 Pipeline Sabie to Moamba 7.85 Treatment plant 11.21 Booster station, Moamba 0.45 Pipeline Moamba to Maputo 18.22 Storage before and after treatment 3.92 Pipes connecting service centers 1.68 Power supply, 33kv line plus appurtenances 0.56 Total, all except works at Corumana Dam 44.73 Engineering supervision @10% 4.47 Total Works stage 1 76.22 Design @4% for Coru.,@8% PL & TW 4.55 TOTAL 80.77 2nd stage Corumana pipeline / treatment Extend intake and PS 0.6 2nd pipeline Sabie-Moamba 12.1 Extend treatment plant 17.2 Extend booster station 0.7 2nd pipeline Moamba-Maputo 28.0 Storage before and after treatment 6.0 Total excluding design and supervision 64.6 Eng supervision supervision @10% 6.5 Total Works 71.1 Design @8% 5.2 TOTAL 76.3 TOTAL Corumana + stages 1 & 2 pipeline & treatment 157.0 July, 2007 13 Page Preliminary Economic Analysis of Maputo Bulk Water Source Development Moamba Major Dam and Pipeline Dam, including resettlement 203.7 Pipeline & Treatment Works 52.6 Power Station 22.4 Design & EIA 22.3 TOTAL 301.0 Notes: Pipeline and Treatment Works: Stage 1 capacity as for Moamba Major i.e. 130000m3/day or 47.5 Mm3/year. 1.000 meter diame- ter pipe, 1.5m3/sec Stage 2 capacity: the Moamba Major FS gave options of stages 2 and 3, each smaller than stage 1. However this means upgrading at ever shortening intervals. Stage 2 pipeline is therefore proposed bigger than the one for stage 1, at 1.2m diameter, allowing capacity to use all of the 117 Mm3/y yield made available by the Corumana gates. July, 2007 14 Page Preliminary Economic Analysis of Maputo Bulk Water Source Development ANNEX 2 - Annual Operations & Maintenance Costs Corumana Works at Dam 0.20% of Civil Works Costs (These allowances are from Corumana Feasibility Study, p24) 1.20% of Equipment Costs As at 2002 As at 2006 $'000/year $/year $/year Civil Works costs 12960 CW Contingencies 1850 Total 14810 Civil Works O&M 29620 33206 Mech & Elec costs 3370 M&E Contingencies 338 Total 3708 M & E O&M 44496 49883 Total O&M, av per annum 74116 83100 Year 2013 to 2061 Pipelines and Treatment Works (From Moamba Major Feasibility Study Table 8.3.1) $/year Option 1 & 2, Stage 1 400000 448430 Year 2013 to 2061 Option 1: Year 2011 to Option 1 Stage 2. (Option 2 Stage 3 is the same) 500000 560538 2061 900000 1001000 July, 2007 Page 15 Preliminary Economic Analysis of Maputo Bulk Water Source Development Moamba Major Dam, excluding pipelines The Moamba Major feasibility study contains inadequate infor- mation. We therefore use here the same O&M allowances as for Corumana Dam Raising as above $,000/year Civil Works costs 86830 CW Contingencies 43415 2006 values Total 130245 $/year Civil Works O&M 260490 292029 Mech & Elec costs 18185 M&E Contingencies 9092 Total 27277 M & E O&M 327324 366955 Pipeline for Moamba Major 560538 Total O&M, av per annum 587814 1220000 658984 July, 2007 Page 16 Preliminary Economic Analysis of Maputo Bulk Water Source Development ANNEX 3 - Project Benefits by Option Incremental Yield Surplus Yield Surplus Flood Flood Energy Energy Fisheries Fisheries Maputo Water Maputo Water Project Project Calendar Project bulk water supply to Maputo WS to Maputo WS Control Control Production Production Supply Supply Benefits Benefits Year Year for Maputo Option 1 Option 2 Option 1 Option 2 Option 1 Option 2 Option 1 Option 2 Option 1 Option 2 Option 1 Option 2 (Mm3/y) (Mm3/y) (Mm3/y) $ Million $ Million $ Million $ Million $ Million $ Million $ Million $ Million il $ Million $ Million 2007 0 2008 1 0.00 0.00 0.00 0.00 0.00 2009 2 0.00 0.00 0.00 0.00 0.00 2010 3 0.00 0.00 0.00 0.00 0.00 2011 4 0.00 0.00 0.00 0.00 0.00 2012 5 2.59 114.41 114.41 1.97 1.97 1.97 1.97 2013 6 7.75 109.25 109.25 0.63 0.63 0.188 0.188 0.0953 0.0953 5.89 5.89 6.80 6.80 2014 7 12.91 104.09 104.09 0.63 0.63 0.188 0.188 0.0953 0.0953 9.81 9.81 10.72 10.72 2015 8 18.07 98.93 98.93 0.63 0.63 0.188 0.188 0.0953 0.0953 13.73 13.73 14.64 14.64 2016 9 23.22 93.78 93.78 0.63 0.63 0.188 0.188 0.0953 0.0953 17.65 17.65 18.56 18.56 2017 10 28.38 88.62 88.62 0.63 0.63 0.188 0.188 0.0953 0.0953 21.57 21.57 22.48 22.48 2018 11 36.19 80.81 80.81 0.63 3.14 0.188 1.13 0.0953 0.3548 27.50 27.50 28.41 32.13 2019 12 43.99 73.01 253.02 0.63 3.14 0.188 1.13 0.0953 0.3548 33.43 33.43 34.34 38.06 2020 13 51.79 65.21 237.41 0.63 3.14 0.188 1.13 0.0953 0.3548 39.36 39.36 40.27 43.99 2021 14 59.60 57.40 221.81 0.63 3.14 0.188 1.13 0.0953 0.3548 45.29 45.29 46.20 49.92 2022 15 67.40 49.60 206.20 0.63 3.14 0.188 1.13 0.0953 0.3548 51.22 51.22 52.13 55.85 2023 16 75.64 41.36 189.71 0.63 3.14 0.188 1.13 0.0953 0.3548 57.49 57.49 58.40 62.11 2024 17 83.89 33.11 173.22 0.63 3.14 0.188 1.13 0.0953 0.3548 63.76 63.76 64.67 68.38 2025 18 92.14 24.86 156.73 0.63 3.14 0.188 1.13 0.0953 0.3548 70.02 70.02 70.93 74.65 2026 19 100.38 16.62 140.24 0.63 3.14 0.188 1.13 0.0953 0.3548 76.29 76.29 77.20 80.91 2027 20 108.63 8.37 123.75 3.14 3.14 1.13 1.13 0.3548 0.3548 82.56 82.56 87.18 87.18 2028 21 116.87 0.13 107.25 3.14 3.14 1.13 1.13 0.3548 0.3548 88.82 88.82 93.45 93.45 2029 22 125.32 98.88 98.88 3.14 3.14 1.13 1.13 0.3548 0.3548 95.24 95.24 99.87 99.87 2030 23 133.56 90.64 90.64 3.14 3.14 1.13 1.13 0.3548 0.3548 101.51 101.51 106.13 106.13 2031 24 141.81 82.39 82.39 3.14 3.14 1.13 1.13 0.3548 0.3548 107.78 107.78 112.40 112.40 2032 25 150.06 74.14 74.14 3.14 3.14 1.13 1.13 0.3548 0.3548 114.04 114.04 118.67 118.67 2033 26 158.30 65.90 65.90 3.14 3.14 1.13 1.13 0.3548 0.3548 120.31 120.31 124.93 124.93 2034 27 166.55 57.65 57.65 3.14 3.14 1.13 1.13 0.3548 0.3548 126.58 126.58 131.20 131.20 2035 28 174.79 49.41 49.41 3.14 3.14 1.13 1.13 0.3548 0.3548 132.84 132.84 137.47 137.47 2036 29 183.04 41.16 41.16 3.14 3.14 1.13 1.13 0.3548 0.3548 139.11 139.11 143.73 143.73 2037 30 191.28 32.92 32.92 3.14 3.14 1.13 1.13 0.3548 0.3548 145.38 145.38 150.00 150.00 2038 31 199.53 24.67 24.67 3.14 3.14 1.13 1.13 0.3548 0.3548 151.64 151.64 156.27 156.27 2039 32 207.77 16.43 16.43 3.14 3.14 1.13 1.13 0.3548 0.3548 157.91 157.91 162.53 162.53 2040 33 216.02 8.18 8.18 3.14 3.14 1.13 1.13 0.3548 0.3548 164.18 164.18 168.80 168.80 2041 34 224.27 0.00 0.00 3.14 3.14 1.13 1.13 0.3548 0.3548 170.44 170.44 175.07 175.07 2042 35 224.27 0.00 0.00 3.14 3.14 1.13 1.13 0.3548 0.3548 170.44 170.44 175.07 175.07 2043 36 224.27 0.00 0.00 3.14 3.14 1.13 1.13 0.3548 0.3548 170.44 170.44 175.07 175.07 2044 37 224.27 0.00 0.00 3.14 3.14 1.13 1.13 0.3548 0.3548 170.44 170.44 175.07 175.07 2045 38 224.27 0.00 0.00 3.14 3.14 1.13 1.13 0.3548 0.3548 170.44 170.44 175.07 175.07 2046 39 224.27 0.00 0.00 3.14 3.14 1.13 1.13 0.3548 0.3548 170.44 170.44 175.07 175.07 2047 40 224.27 0.00 0.00 3.14 3.14 1.13 1.13 0.3548 0.3548 170.44 170.44 175.07 175.07 2048 41 224.27 0.00 0.00 3.14 3.14 1.13 1.13 0.3548 0.3548 170.44 170.44 175.07 175.07 2049 42 224.27 0.00 0.00 3.14 3.14 1.13 1.13 0.3548 0.3548 170.44 170.44 175.07 175.07 2050 43 224.27 0.00 0.00 3.14 3.14 1.13 1.13 0.3548 0.3548 170.44 170.44 175.07 175.07 2051 44 224.27 0.00 0.00 3.14 3.14 1.13 1.13 0.3548 0.3548 170.44 170.44 175.07 175.07 2052 45 224.27 0.00 0.00 3.14 3.14 1.13 1.13 0.3548 0.3548 170.44 170.44 175.07 175.07 2053 46 224.27 0.00 0.00 3.14 3.14 1.13 1.13 0.3548 0.3548 170.44 170.44 175.07 175.07 2054 47 224.27 0.00 0.00 3.14 3.14 1.13 1.13 0.3548 0.3548 170.44 170.44 175.07 175.07 2055 48 224.27 0.00 0.00 3.14 3.14 1.13 1.13 0.3548 0.3548 170.44 170.44 175.07 175.07 2056 49 224.27 0.00 0.00 3.14 3.14 1.13 1.13 0.3548 0.3548 170.44 170.44 175.07 175.07 2057 50 224.27 0.00 0.00 3.14 3.14 1.13 1.13 0.3548 0.3548 170.44 170.44 175.07 175.07 July, 2007 17 Page Preliminary Economic Analysis of Maputo Bulk Water Source Development ANNEX 4 - Cost Benefit Analysis COSTS (USD million) Total Project Net Project Total costs OPTION 1: Moamba Major Construction Starts in 2022 OPTION 2: Moamba Major Construction Starts in 2013 Benefits Benefits CalendaProjec Corumana Dam Moamba Major Dam Corumana Dam Moamba Major Dam Option 1 Option 2 Option 1 Option 2 option 1 option 2 Year Year Investment O&M Investment O&M Investment O&M Investment O&M 2007 0 2008 1 4 4 0 0 -4.0 -4 4 4 2009 2 0.55 0.55 0 0 -0.6 -0.6 0.6 0.6 2010 3 19 19 0 0 -19.0 -19.0 19.0 19.0 2011 4 34 34 0 0 -34.0 -34.0 34.0 34.0 2012 5 23.22 23.22 11 1.97 1.97 -28.5 -39.5 30.5 41.5 2013 6 0.532 0.532 11.29 6.80 6.80 -1.0 -12.3 7.8 19.1 2014 7 0.532 0.532 26 10.72 10.72 2.9 -23.1 7.8 33.8 2015 8 4.17 0.532 0.532 86 14.64 14.64 2.6 -79.2 12.0 93.8 2016 9 1 0.532 0.532 124 18.56 18.56 9.7 -113.3 8.8 131.8 2017 10 15 0.532 0.532 42.68 22.48 22.48 -0.4 -28.0 22.8 50.5 2018 11 35 0.532 0.532 1.220 28.41 32.13 -18.3 19.2 46.7 13.0 2019 12 21.1 0.532 0.532 1.220 34.34 38.06 1.5 25.1 32.8 13.0 2020 13 1.092 0.532 1.220 40.27 43.99 28.0 31.0 12.3 13.0 2021 14 1.092 11 0.532 1.220 46.20 49.92 22.9 37.0 23.3 13.0 2022 15 1.092 11.29 0.532 1.220 52.13 55.85 28.6 42.9 23.6 13.0 2023 16 1.092 26 0.532 1.220 58.40 62.11 20.1 49.2 38.3 13.0 2024 17 1.092 86 0.532 1.220 64.67 68.38 -33.6 55.4 98.3 13.0 2025 18 1.092 124 0.532 1.220 70.93 74.65 -65.4 61.7 136.3 13.0 2026 19 1.092 42.68 0.532 1.220 77.20 80.91 22.2 68.0 55.0 13.0 2027 20 1.092 1.220 4.17 0.532 1.220 87.18 87.18 73.7 70.1 13.5 17.1 2028 21 1.092 1.220 1 0.532 1.220 93.45 93.45 82.3 81.9 11.1 11.6 2029 22 1.092 1.220 15 0.532 1.220 99.87 99.87 88.8 74.3 11.1 25.6 2030 23 1.092 1.220 35 0.532 1.220 106.13 106.13 95.0 60.6 11.1 45.6 2031 24 1.092 1.220 21.1 0.532 1.220 112.40 112.40 101.3 80.7 11.1 31.7 2032 25 1.092 1.220 1.092 1.220 118.67 118.67 107.6 107.6 11.1 11.1 2033 26 1.092 1.220 1.092 1.220 124.93 124.93 113.8 113.8 11.1 11.1 2034 27 1.092 1.220 1.092 1.220 131.20 131.20 120.1 120.1 11.1 11.1 2035 28 1.092 1.220 1.092 1.220 137.47 137.47 126.4 126.4 11.1 11.1 2036 29 1.092 1.220 1.092 1.220 143.73 143.73 132.6 132.6 11.1 11.1 2037 30 1.092 1.220 1.092 1.220 150.00 150.00 138.9 138.9 11.1 11.1 2038 31 1.092 1.220 1.092 1.220 156.27 156.27 145.2 145.2 11.1 11.1 2039 32 1.092 1.220 1.092 1.220 162.53 162.53 151.4 151.4 11.1 11.1 2040 33 1.092 1.220 1.092 1.220 168.80 168.80 157.7 157.7 11.1 11.1 2041 34 1.092 1.220 1.092 1.220 175.07 175.07 164.0 164.0 11.1 11.1 2042 35 1.092 1.220 1.092 1.220 175.07 175.07 164.0 164.0 11.1 11.1 2043 36 1.092 1.220 1.092 1.220 175.07 175.07 171.6 171.6 3.5 3.5 2044 37 1.092 1.220 1.092 1.220 175.07 175.07 171.6 171.6 3.5 3.5 2045 38 1.092 1.220 1.092 1.220 175.07 175.07 171.6 171.6 3.5 3.5 2046 39 1.092 1.220 1.092 1.220 175.07 175.07 171.6 171.6 3.5 3.5 2047 40 1.092 1.220 1.092 1.220 175.07 175.07 171.6 171.6 3.5 3.5 2048 41 1.092 1.220 1.092 1.220 175.07 175.07 171.6 171.6 3.5 3.5 2049 42 1.092 1.220 1.092 1.220 175.07 175.07 171.6 171.6 3.5 3.5 2050 43 1.092 1.220 1.092 1.220 175.07 175.07 171.6 171.6 3.5 3.5 2051 44 1.092 1.220 1.092 1.220 175.07 175.07 171.6 171.6 3.5 3.5 2052 45 1.092 1.220 1.092 1.220 175.07 175.07 171.6 171.6 3.5 3.5 2053 46 1.092 1.220 1.092 1.220 175.07 175.07 171.6 171.6 3.5 3.5 2054 47 1.092 1.220 1.092 1.220 175.07 175.07 171.6 171.6 3.5 3.5 2055 48 1.092 1.220 1.092 1.220 175.07 175.07 171.6 171.6 3.5 3.5 2056 49 1.092 1.220 1.092 1.220 175.07 175.07 171.6 171.6 3.5 3.5 2057 50 1.092 1.220 1.092 1.220 175.07 175.07 171.6 171.6 3.5 3.5 NPV 63.7 10.7 231.2 237.6 167 227 EIRR 15.9% 12.42% B/C ratio 1.38 1.047 July, 2007 18 Page MEMORANDUM - The Role of Water in the Mozambique Economy Mozambique Country Water Resources Assistance Strategy: Making Water Work for Sustainable Growth and Poverty Reduction Annex III: WB Memorandum: "Role of Water in the Mozambique Economy" June, 2005 (Note: This document was prepared as a first phase of the preparation of the Mozambique Coun- try Water Resources Assistance Strategy. Some of the information in this document will have been superseded by more recent research and analysis. Furthermore, some information in this Memorandum is duplicated in the full Country Water Resources Assistance Strategy.) World Bank June 2005 Page 1 MEMORANDUM - The Role of Water in the Mozambique Economy The Role of Water in the Mozambique Economy ­ Identifying Vulnerability and Constraints to Growth ­ MEMORANDUM June, 2005 WORLD BANK World Bank June 2005 Page 2 MEMORANDUM - The Role of Water in the Mozambique Economy The Role of Water in the Mozambique Economy ­ Identifying Vulnerability and Constraints to Growth ­ MEMORANDUM June, 2005 Contents 1 EXECUTIVE SUMMARY ................................................................................................... 5 2 INTRODUCTION ................................................................................................................. 6 2.1 OBJECTIVES ..................................................................................................................... 7 2.2 SCOPE OF STUDY .............................................................................................................. 7 2.3 CONSTRAINTS OF STUDY ................................................................................................. 7 3 BACKGROUND AND CONTEXT ..................................................................................... 8 3.1 WATER RESOURCE OVERVIEW......................................................................................... 8 3.1.1 General description ................................................................................................. 8 3.1.2 Water Resources Variability.................................................................................... 8 3.1.3 International rivers................................................................................................ 10 3.2 SOCIO-ECONOMIC DEVELOPMENT CONTEXT ................................................................ 10 3.3 ROLE OF WATER IN KEY SECTORS .................................................................................. 11 3.3.1 Agriculture............................................................................................................. 11 3.3.2 Hydropower........................................................................................................... 13 3.3.3 Urban and Rural Water Supply ............................................................................. 14 3.3.4 Industry.................................................................................................................. 14 3.3.5 Mining ................................................................................................................... 15 3.3.6 Environmental Use of Water ................................................................................. 15 3.4 GOVERNMENT WATER INFRASTRUCTURE DEVELOPMENT STRATEGY ......................... 15 3.5 WATER SECTOR IN THE NATIONAL BUDGET ................................................................. 16 4 WATER RELATED IMPACTS ........................................................................................ 18 4.1 INTRODUCTION .............................................................................................................. 18 4.2 DETERMINING WATER YIELDS AT DIFFERENT SCALES .................................................. 18 4.3 UNDER-DEVELOPMENT OF WATER INFRASTRUCTURE ................................................... 19 4.4 COSTS OF WATER SHOCKS ............................................................................................. 20 4.4.1 Flood costs............................................................................................................. 21 4.4.2 Drought costs......................................................................................................... 21 4.5 ECONOMY WIDE IMPACTS OF WATER SHOCKS ............................................................... 22 4.5.1 Economy wide effects of floods.............................................................................. 22 4.5.2 Economy wide effects of droughts ......................................................................... 22 4.5.3 Immediate impact and post-shock economic recovery .......................................... 23 4.5.4 Long-Term Costs of Water Shocks ........................................................................ 24 4.6 HIDDEN COSTS TO THE RURAL POOR ............................................................................. 25 4.7 WATER DEVELOPMENT, MANAGEMENT AND PROTECTION ........................................... 26 5 CONCLUSIONS.................................................................................................................. 29 APPENDIX 1 ­ PROVISIONAL ANALYSIS OF PROPOSED INVESTMENTS............... 30 World Bank June 2005 Page 3 MEMORANDUM - The Role of Water in the Mozambique Economy Abbreviations AIDS Acquired Immune-Deficiency Syndrome ARA Regional Water Administration DNA National Directorate of Water EdM Electricidade de Mocambique ­ State power utility EIA Environmental Impact Assessment FEWS Famine Early Warning System GDP Gross Domestic Product ha hectare HDI Human Development Index HCB Hidroelectrica de Cahora Bassa - the dam operating company HICEP Hidraulica de Chokwé, a Public Company HIV Human Immuno-deficiency Virus IAF Inquerito ass Agregades Famlilares (Household Surveys) INAM The National Meteorology Institute INGC National Institute for Disaster Management IWRM Integrated Water Resources Management km kilometre kWh Kilowatt hour m metre MDG Millennium Development Goals MDSAR Massingir Dam and Smallholder Rehabilitation Project mm millimetre NGO Non-governmental Organisation PARPA Action Plan for the Reduction of Absolute Poverty PROAGRI National Agricultural Programme PRSP Poverty Reduction Strategy Paper WFP World Food Programme WRM Water Resources Management World Bank June 2005 Page 4 MEMORANDUM - The Role of Water in the Mozambique Economy The Role of Water in the Mozambique Economy ­ Identifying Vulnerability and Constraints to Growth ­ MEMORANDUM 1 1 Executive Summary This study is the first stage of a two stage process. It is limited in scope and has been undertaken to gain a clearer perspective of the conditions which face Mozambique with regards to the devel- opment of its water resources and the impact of water resources on the country's economy. The second stage will be to prepare a Country Water Resources Assistance Strategy which will build on this report. It was thus the purpose of this study to identify issues which need to be addressed, rather than to make specific recommendations. Mozambique's economy is both highly vulnerable and increasingly constrained due to a number of water related factors. These factors include the natural, highly variable climatic realities of the region, the high level of dependence upon international water resources and the historic underde- velopment of water infrastructure (including limited water storage). Mozambique's poverty is closely linked to its dependence on rain-fed subsistence farming in the context of highly variable rainfall and frequent droughts. Growing water demands from the major sectors of the economy, especially agriculture, will not be able to be met by the existing water storage infrastructure which imposes a serious constraint on medium-term and long-term growth prospects. The following list summarizes the main factors which this study raises. Each item is explained in greater detail in the report which follows. 1. Mozambique has abundant water resources in overall, absolute terms; 2. The geographic distribution of water resources across the country is uneven with the south being substantially drier than the north; 3. At a sub-catchment, local level there exists a high degree of water related uncertainty due to the inaccessibility of water in the main streams of larger rivers (the `scale' factor); 4. Watersheds are degrading due to increasing population pressure and poor land-use practices, 5. There is a high dependence on waters in international river basins (over half of the national water resources are shared with neighboring countries); 6. The current stock of water infrastructure is degraded and underdeveloped ­ the current stor- age in the country is 5% of the annual runoff (excluding the Cahora Bassa Dam which is a single purpose hydropower dam built in a very remote part of the country from which only 10% of the power generated is consumed in Mozambique) ­ minimum suggested is 40% to provide 50% of annual runoff at 80-90% assurance. Excluding Cahora Bassa, the storage per person is estimated at 330 m3 (South Africa = 746 m3; North America = 6,150 m3) 7. The future needs of water-dependent economic sectors in some river basins cannot be met with the current infrastructure which places a constraint on future economic growth; 8. The climate is highly variable with frequent droughts and floods; 1 Prepared by Len Abrams, Senior Water Resources Specialist, Africa Region, AFTU1, based on two back- ground papers prepared as part of the study:- "The Role of Water in the Mozambique Economy ­ Identifying Vulnerability and Constraints to Growth", Rimma Dankova, February 12, 2005; "Local Vulnerability Study" S. Gaye Thompson, September 2004 World Bank June 2005 Page 5 MEMORANDUM - The Role of Water in the Mozambique Economy 9. The cost of each major water shock (drought or flood) can be very high [2000 floods: US$ 550 million, 1994 drought loss in agricultural production alone: US$ 86 million], total cost of water shocks in the period 1980-2003 was about US$1.75 billion. Assuming a 5% annual GDP growth, the total economic costs due to floods and droughts will be approximately US$3 billion between now and 2030 if no mitigation steps are taken (this does not include the cost of constrained growth). 10. The costs of water shocks to the poor are largely hidden and unaccounted for. The rural poor, who are largely dependent upon rain-fed subsistence agriculture, are particularly vulnerable to water shocks. 11. Based on events from 1981 ­ 2004, Mozambique GDP growth is cut by 5.6% on average when a major water shock occurs. Historically a major disaster occurs once every five years, resulting is an average annual reduction in GDP growth in Mozambique of 1.1% due to the impacts of water shocks. This figure does not include the loss of potential growth as a result of constraints due to inadequate water infrastructure development, even if there were no floods or droughts. 12. In 1999, 2000 and 2001 annual expenditures on water resources was US$ 0.32 million, US$ 0.29 million and US$ 0.35 million respectively ­ this is on average 0.006% of GDP. 13. There is a limit to the extent to which Mozambique's problems can be addressed through improving the management of water resources alone without investing in infrastructure. At this stage of Mozambique's development, significant returns on investments may be achieved from infrastructure development. Proper management of water remains important, however, investments without proper management will be ineffective. 14. Investments need to include both large and small scale interventions to support industrial, urban and commercial irrigation development, as well as addressing small-holder agricultural needs. It must be noted that these matters are not "water problems" ­ they are grave issues facing the economy of Mozambique as a whole. They impact on the whole of the country and on the poor in particular. They are of a magnitude and of an all-encompassing nature that will impinge on and negatively affect the best efforts made in all other sectors. Investment in water resources infrastructure is the only way in which Mozambique can stop the continuous drain on the econ- omy and the extensive human costs cost caused by recurrent floods and droughts, and the only way to provide reliable sources of water which any economy needs to grow in strength and diver- sity. 2 Introduction The dynamics of growth and poverty reduction in any country are a complex interaction of a very large number of different factors and Mozambique is no exception. This brief Memorandum is the product of a study undertaken by the World Bank to investigate the role of water in the econ- omy of Mozambique as part of the Bank's ongoing support to the water sector in the country. The study was undertaken in the context of the Government of Mozambique's ongoing process of strengthening the country's water resources management, development and protection. The study contributes to the development of the second National Action Plan for the Reduction of Absolute Poverty (PARPA2), the World Bank's ongoing macro-economic analysis including the prepara- tion of a Country Economic Memorandum and, in particular, the study draws on the work done under the IDA financed National Water Development Project I (NWDPI). World Bank June 2005 Page 6 MEMORANDUM - The Role of Water in the Mozambique Economy The specific contribution of this study, beyond the work noted above, is to review the role of water resources in the economy as a whole and the long term economic impacts of under invest- ment in water infrastructure. This adds to the work done in various studies on the financial costs of historical drought and flood events. The study comprised the preparation of two background papers, one addressing local vulnerabil- ity of rural communities to water and the other reviewing the economy wide impacts of water shocks (droughts and floods) and the constraints to growth as a consequence of under investment in water infrastructure. The process also included a Seminar held in Maputo on February 24, 2005 to discuss the background papers. This study is Phase I of a process which will include, as Phase II, the preparation of a Country Water Resources Assistance Strategy for Mo- zambique which will refine the analysis prepared in this report. 2.1 Objectives The objective of the study is:- 1. To better understand the impacts of water resources on the economy of Mozambique; 2. To provide initial guidance to the Government of Mozambique on addressing the issues raised by the analysis, to be followed in greater detail by the preparation of a Country Water Resources Assistance Strategy. These objectives will be achieved by undertaking : 1. A review of the impacts of both water shocks (droughts and floods) and constraints on growth and poverty reduction caused by under-investment in water resources infrastruc- ture; 2. An assessment of the impacts at the macro / economy wide level. Impacts at the micro level, particularly related to impact on the rural poor, were also studied. 2.2 Scope of study The issues which the study addresses are as follows:- a) the natural characteristics of Mozambique's water resources, including uneven geo- graphic distribution of water resources, localized seasonal water shortages, highly vari- able climate, and high dependency on shared international river basins; b) the linkages between the main economic sectors to water resources and water-related constraints for the development of these sectors; c) the assessment of impacts of climate variability on the country's macroeconomic per- formance and poverty reduction; d) the impacts on the rural poor of climate variability and access to water, and the coping strategies employed to mitigate the threats at household level; e) the role of water infrastructure in mitigating the impacts of water vulnerability. 2.3 Constraints of study It was not the intention of this analysis to identify specific investment opportunities for the devel- opment of water resources infrastructure in Mozambique. This was primarily due to the limited resources available for the study. The study was also constrained by limitations in available in- formation. The quantitative analysis is partial and the methodology used adopts a mixture of quantitative and qualitative methods largely determined by availability of macro-economic, agri- cultural, meteorological and hydrological data. World Bank June 2005 Page 7 MEMORANDUM - The Role of Water in the Mozambique Economy 3 Background and context 3.1 Water resource overview 3.1.1 General description The water resources situation in Mozambique compares well with the rest of the world in abso- lute terms. The availability per capita of surface water resources is about 5550 m3/year (for runoff generated within the country) or 12000 m3/year (including cross-border flows). The majority of the rivers have a torrential regime, with high flows during 3-4 months and low flows for the remainder of the year which means that without storage these resources cannot be used. The country has 104 main river basins, out which 50 have a catchment area less than 1,000 km2, 40 are with an area between 1,000 and 10,000km2, 12 between 10,000 and 100,000 km2, and 2 basins (Zambezi and Rovuma) have catchment areas in excess of 100,000 km2. The most im- portant river basins, from South to North, are: Maputo, Umbeluzi, Incomati, Limpopo, Save, Buzi, Pungoe, Zambezi, Licungo, Lurio, Messalo and Rovuma (Figure 1). With the exception of the Licungo, Lurio and Messalo, all major basins are shared with other countries. The Zambezi basin is shared by a total of 8 countries. Mozambique has abundant surface water resources in terms of total mean annual runoff estimated at 216 km3/year. The total inflow at the border is about 116 km3/year while the runoff generated within the country is about 100 km3/year, in average. Therefore, more than 50% of the total mean annual flow is generated out- side of the country. The Zambezi basin represents about 50% of the country's total mean annual runoff and 75% of the total cross-border inflow: the basin receives 88 km3/year of inflow at the border and 18 km3/year of the basin's runoff is generated within the country, giving a total mean annual runoff of 106 km3/year. Groundwater resources in Mozambique are relatively modest. 3.1.2 Water Resources Variability Mozambique has a highly variable climate which has a significant influence on the amount, tim- ing, and frequency of precipitation events. Rainfall varies considerably within annual cycles with 60-80% of the annual precipitation falling in the period from December to March. The annual average rainfall ranges from over 2000 mm in Northern Mozambique to about 500 mm in the South. The variability of rainfall from year to year is also much higher in the South than in the Northern and Center regions of Mozambique with almost no flow observed in some rivers in dry years in the South. On average Mozambique has ample water resources - if an overall water balance of each basin is evaluated, nearly all basins would show a significant surplus of annual total runoff compared to any foreseeable water demand. However, within these aggregates, serious water shortages occur during dry seasons in a number of basins, especially in the South. The minimum monthly flow is 1-2% of the annual runoff for many rivers. Without larger and small scale water storage infra- structure, these resources cannot be used to meet the demands. Tropical cyclones and the El Nino/La Nina phenomenon compound the variability resulting in extreme floods and droughts such as the floods of 2000 in the South and 2001 in the Center of the country. However, floods and droughts are frequent in Mozambique, occurring cyclically with varying intensity. More localized droughts are observed every 3-4 years and are often not well recorded. According to the National Meteorology Institute, INAM, the intervals between extreme rainfall events are shortening, while the intensity of rainfall in these events is increasing. The years of major floods in Mozambique over the last 25 years are 1977-1978, 1985, 1988, 2000- World Bank June 2005 Page 8 MEMORANDUM - The Role of Water in the Mozambique Economy 2001, and of major droughts ­ 1981-1984, 1991-1992, 1994-1995, 2002-2003. It is predicted that these conditions will be exacerbated by climate change. Figure 1. Main River Basins of Mozambique Source: Water Resources of Mozambique, DNA, 1999 World Bank June 2005 Page 9 MEMORANDUM - The Role of Water in the Mozambique Economy 3.1.3 International rivers Mozambique is a downstream riparian state on all nine of its major rivers, with about 54% of the total annual runoff generated outside of the country. The high dependence of Mozambique on shared water resources is an important factor in the national water vulnerability. In the South, all major rivers (Maputo, Umbeluzi, Inkomati, Limpopo and Save) originate in neighboring coun- tries. Significant water abstraction from these rivers in the upstream countries, along with high flow variability, reduces water availability in these basins and increases water vulnerability of the Southern region. The combined average natural flow in the four basins 2 is about 11 km3/year ­ this is predicted to reduce to about 5 to 6 km3/year over the next 20 years, and be more variable in future, due to growing demand on the resources from riparian neighbors. Mozambique is very active in a number of joint processes with riparian countries to ensure that its interests and concerns are addressed. The management of river basins and reservoirs upstream of its territory has direct impact on its own risks, particularly related to floods. 3.2 Socio-Economic Development Context Mozambique has made significant socio-economic progress since the peace agreement in 1992. The transformation of Mozambique's economy in recent years due to increased political stability, introduction of a multiparty democracy, deep economic reforms and strong external financial and technical support has been impressive. Real output annual growth has averaged about 9% be- tween 1995-2001. In real GDP per capita terms, GDP has grown by 7.5% over the five years since 1996. Despite these achievements, Mozambique remains one of the poorest and most indebted countries in the world, suffering from acute internal and external imbalances, and it continues to be heavily dependent on foreign assistance for the delivery of basic social services. Per capita income in Mozambique, at US$210 in 2003, was below the average for sub-Saharan Africa (US$500) and the low income group (US$410). Subsistence agriculture continues to employ the vast majority of the country's workforce. The incidence of poverty in the rural areas is 71.3% compared to 62% in the urban areas 3 . The Human Development Index, an index of income, education and life expec- tancy, ranked Mozambique 170 out of 173 countries. Thus, the Government of Mozambique is facing the challenge of sustaining very rapid economic growth while reducing the levels of absolute poverty. The overall national development objec- tives and the Government's strategy for addressing the development and poverty issues over the medium term are set out in the "National Action Plan for the Reduction of Absolute Poverty (PARPA)". The overall objective of the PARPA is to reduce poverty by about 30% over thirteen years, from 70% in 1997 to below 60% in 2005 and 50% by 2010. The PARPA stresses that economic growth over the next 5-10 years must be rapid and pro-poor, and the strategy is based on an average annual growth rate of 8% for the period 2001-2010. The main sources of growth include production from identified large-scale, capital intensive projects ("megaprojects"), productivity and value-added gains in agriculture and small manufacturing, combined with encouraging labor-intensive, private sector-led manufacturing and service activi- ties. The PARPA recommends focusing on agriculture and removing impediments to private sector development, while redirecting public spending toward sectors with the highest potential for reducing poverty, such as education, health, and basic infrastructure (roads and water supply). 2 Excluding the Save river where water demand in Mozambique is very low. 3 Millennium Development Goals- Republic of Mozambique, August 2002 World Bank June 2005 Page 10 MEMORANDUM - The Role of Water in the Mozambique Economy Strong economic growth in agriculture is the most important factor driving poverty reduction. The PARPA's strategy assumes average growth of 8 % p.a. in agriculture, based on expansion in cash crops and increased production of food crops. Attainment of these ambitious growth objectives requires a clear identification of risks and con- straints that need to be carefully monitored. These risks undoubtedly include high climatic and associated hydrological variability. The IMF and IDA's Joint Staff Assessment of the PARPA 4 indicates specifically that the risk of periodic natural shocks may constrain the actual growth in output. There is growing evidence of a negative correlation between rainfall variability and real total GDP and agricultural GDP growth. Growing competing water demands from the major sec- tors of the economy, and specifically, agriculture, may also impose a serious constraint on the medium- and long-term growth prospects in terms of water availability in some river basins. 3.3 Role of water in key sectors Most of the sectors which contribute to and make up the Mozambican economy are either directly dependent upon secure, sustainable water availability or are indirectly effected by water shocks (droughts or floods). Mozambique has a US$4.3 billion economy. Agriculture produces approximately 22% of the GDP, industry (including manufacturing) produces about 33%, and services produce about 45%. All these sectors are dependent on an adequate supply of water. Agriculture (including irrigation, livestock and forestry) uses about 73% of the total water consumption, with industries using about 2% (Table 4.1). This indicates that about 75% of the water use in the country has a direct impact on economic production. Urban and rural domestic water supply uses most of the remain- der (about 25% of the total water consumption) and has a direct impact on the service industries and public health. Further analysis is needed of water demand and future trends, particularly related to the `mega- projects' and their water needs. This will be undertaken in the Country Water Resources Assis- tance Strategy which will be formulated based on this Memorandum. Table 1. Composition of Total Consumptive Water Use in Mozambique by Sector and by Region (million m3) ­ 2003 Region Domestic Wa- Industrial Wa- Irrigation Livestock Forestry TOTAL ter Supply ter Supply South 128 15 202 345 Center 89 4 206 66 29 394 North 73 19 230 90 393 TOTAL 290 (25.6%) 19 (1.7%) 638 (56.4%) 156 (13.8%) 29 (2.5%) 1132 Data Source: NWDP1, BB5 Phase 1 Report: Black&Veitch International, August 2004 3.3.1 Agriculture Mozambique's poverty is closely linked to its dependence on rain-fed subsistence farming in the context of highly variable rainfall and frequent droughts. Within the framework of increasing agricultural output and reducing poverty, the PARPA and PROAGRI as the PARPA's implemen- tation basis, emphasize the need to increase agricultural productivity, improve access to land and secure land tenure, and facilitate rural trade. About 45% of the country is considered suitable for agriculture, however, only 4 % of the total arable land is presently cultivated. In 2001 the agricul- 4 Joint Staff Assessment of the Poverty Reduction Strategy Paper. IMF and IDA. August 2001, p.4 World Bank June 2005 Page 11 MEMORANDUM - The Role of Water in the Mozambique Economy tural sector's share in total GDP was 22% 5 . Between 1987 and 1999 value added in the agricul- ture, livestock, and fisheries sectors grew at an average annual rate of more than 6 percent, accel- erating to nearly 9 percent after 1996. Broadly, there are two levels of agricultural activity, subsistence farming and commercial farming with a mixture of subsistence and cash cropping between the two levels. Irrigation The total cultivable area in Mozambique is estimated at 36 million ha (45% of the total area), and the irrigation potential is 2.7 million ha. Over 50% of this potential is located in the Zambezi basin, which represents 7% of the cultivable land. The existing irrigation schemes cover 120,000 ha, of which only an estimated 41,000 ha is currently operational. Close to 50% falls in the cate- gory of small-scale "family" irrigation; the remaining 50% is under private management. The main irrigation crops are rice, sugar cane, maize and citrus. Irrigation in Mozambique can be categorized into three types; · the large-scale irrigation schemes of the Limpopo Valley and the private sugar compa- nies; · small-scale irrigation, generally covering less than 100 ha; and · micro-irrigation, usually based on treadle pumps and other manual methods. The present situation and planned developments for each of these categories can be summarized as follows: · Large-scale public irrigation schemes: The largest are the Chokwe Scheme (22,000 ha), run by HICEP (Chokwe Public Irrigation Enterprise), and the Xai-Xai Scheme (9,323 ha net, of which some 2000-3,000 ha formerly had pumped irrigation), in the Limpopo Val- ley. A major rehabilitation programme for Chokwe has been under way for some years and is scheduled to continue until 2006/07. Xai-Xai is to be rehabilitated under the ADB- funded Massingir Dam and Smallholder Agricultural Rehabilitation (MDSAR) Project. At present only some 4-5,000 ha of Chokwe is in operation and there is no public irriga- tion in operation at Xai-Xai. · Small-scale irrigation: The five year ADB-funded Small-scale Irrigation Project (SSIP) started in 2002 and is expected to develop some 2,500 ha on about 650 schemes in Maputo, Sofala and Zambezia provinces. Total estimated cost is US$20 million. An Ac- tion Plan for SSI scheme rehabilitation in five other provinces and Zambezia also began in 2002. · Unlike the two categories above, micro-irrigation is a purely farmer-run activity. Based typically on treadle pumps and other low-cost technologies, it is used particularly for dry season vegetable production. Irrigation in Mozambique has an efficiency of only about 45%. Under these conditions, the water demand for irrigation is currently estimated at around 600 million m3/year (Table 2). The Gov- ernment intends to double the current irrigated area in the medium term, which would be mainly achieved through rehabilitation of the existing irrigation schemes, using public and private fund- ing. Assuming that irrigation water use efficiency will increase by 30% over the next 10 years, the projected irrigation water demand in the medium term is estimated to be close to 1000 million m3/year (Table 2). 5 National Institute of Statistics of Mozambique (INE) World Bank June 2005 Page 12 MEMORANDUM - The Role of Water in the Mozambique Economy Table 2. Present (2003) and Projected (2015) Irrigated Area and Irrigation Water 6 River Basin Irrigated Area (ha) Water Demand (Mm3/year) Present 2003 Projected 2015 Present 2003 Projected 2015 Umbeluzi 850 4000 13 60 Inkomati 10340 23900 155 251 Limpopo 4000 20000 60 210 Total South 15190 47900 228 521 Buzi 0 6100 0 90 Pungoe 7420 10620 111 160 Zambeze 7880 10500 95 126 Total Center 15370 27220 206 376 Ligonha 4500 7470 67 78 Messalo 0 0 0 0 Total North 11860 17990 178 189 Lichinga 7360 10520 110 110 TOTAL 42420 93110 636 918 Livestock Livestock is of less importance than in neighboring countries and cattle numbers, in particular, fell drastically during the civil war. In the early 1970s the cattle population was about 1.4 million head, double the 0.72 million head recorded in the 1999/00 Census. The much larger goat popu- lation (5.05 million) is more evenly distributed. From the viewpoint of water resources, at pre- sent the demand for water for livestock production is not significant, although some modest in- crease in the demand can be foreseen in the medium term. Forestry There are about 62 million hectares of natural forest in Mozambique, corresponding to 78% of the national territory. This includes forests of varying composition, density and volume. Some 5 million ha of Mozambique's land area is classified as dense forest and 15 million ha as open for- est (i.e. miombo woodland). There are also some 0.4 million ha of coastal mangroves. Forest production is based almost entirely on the natural forest, the area of plantation forestry being negligible. In addition to widespread exploitation for domestic wood fuel, commercial timber production is of considerable economic importance. 3.3.2 Hydropower Hydropower generation is one of the most important non-consumptive water users in Mozam- bique. Mozambique has one of the lowest electrification rates in Southern Africa (approximately 5%). However, the gross national electricity consumption has increased substantially as several mega projects have been implemented. The construction of a new aluminum smelter, Mozal, has increased the national energy consumption three fold since 2002. However, the domestic electric- ity consumption still remains very low at 78kWh per capita (in South Africa it is 3,745kWh per capita). Only 200,000 households are connected to the electricity network (Electricidade de Mo- cambique (EdM ­ the State power utility), Annual Statistical Report, 2002). The country has four major hydropower stations at the Cahora Bassa, Chicamba, Mavuzi and Corumana dams for the production of electricity (Table 3). Actual power demand is about 240 MW (2002), with an annual energy consumption of 1300 GWh. 80% of the current energy pro- duction in Mozambique comes from the Cahora Bassa hydropower plant (HCB) with an installed capacity of 2075MW, most of which is exported. In the coming years EdM expects to cover the 6 The estimates are based on the following sources: NWDP1: WRMS, Building Block 4 (2004); NWDP1: WRMS, Preparation materials for Building Block 5, 2004; Interviews with staff of Agricultural Hydrau- lics Department of MADER (July and October 2004); National Irrigation Development Plan (1993); Joint Incomati Basin Study (2002) World Bank June 2005 Page 13 MEMORANDUM - The Role of Water in the Mozambique Economy demand growth from additional power allocation from the HCB and with the surplus still to be exported to South Africa, Zimbabwe and Malawi. Table 3. Existing Hydropower Stations Hydropower Sta- Power Turbine Location tions (MW) Head (m) Discharge (m3/sec) Province River Basin Cahora Bassa 2075 120 2000 Tete Zambeze Chicamba Real 34 50 60 Manica Buzi Mavuzi 48 160 23 Manica Buzi Corumana 16.6 36 25 Maputo Incomati Source: Water Resources of Mozambique, DNA, 1999 Potential hydropower generation in Mozambique is quite large. According to EDM, about 13000 MW, producing 65000 GWh/y of energy, can be economically developed in Mozambique. About 70% of this potential (10000 MW, 45000 GWh/y) is concentrated in the Zambezi watershed, and most of it on the Zambezi river. 3.3.3 Urban and Rural Water Supply Figures for the levels of water supply services to rural and urban populations differ depending on how they are measured - the PARPA indicates that approximately 40% of the rural population and 44% of the urban population have access to an adequate water supply. These include only official schemes and do not count informal vending, illegal connections, etc. According to the household surveys (IAFs), access to clean water in rural areas was raised from 12 percent in 1996/7 to 27 percent in 2002/3, and in urban areas from 56 percent in 1996/7 to 64 percent in 2002/3. These sets of numbers are not necessarily in contradiction; they measure different pa- rameters. Currently, production capacity of water supply systems for the 13 main cities, with a total about 4 million inhabitants, is about 250,000 m3/day (or a total production of about 80 Mm3/year). About 75% of this production is serving the Maputo area, with a consumption of about 50Mm3/year (mainly from the Umbeluzi river, regulated by the Pequenos Libombos dam) 7 . Most of the urban water supply relies on provision of surface water. Only five main cities ­ Pemba, Tete, Xai-Xai, Quelimane and Chokwe ­ rely on groundwater supply. The provision of safe and reliable domestic water supply to the urban and rural population is one of the Government's main development priorities. It is estimated that urban drinking water de- mand, with increased per capita availability, reduced losses, projected increase in the urban popu- lation and increased coverage in the service, may reach about 250 hm3/year in total by 20158 . In most cases, the water production increase can be obtained from small local intakes or reservoirs. However, in case of Maputo and Beira, the increase in water supply is likely to require larger scale infrastructure solutions. This may include, in case of improving water supply to Maputo, the construction of Moamba Major dam on the Incomati river, and, in case of water supply to Beira, the construction of the Bue Maria dam on the Pungue river, which would also provide water to the planned irrigation expansion in the downstream. 3.3.4 Industry Mozambique has three "mega-projects" ­ the Mozal aluminum smelter, the Cahora Bassa hydroe- lectric plant and Sasol gas ­ and several more are planed for implementation in the period to 2010. The mega-projects are intended to boost economic activity, raise manufacturing outputs, improve the trade balance, as well as increase government revenue. The completed mega- projects are major contributors to exports providing currently about 50% of overall exports, and it 7 NWDP1: BB4 ­ Water Resources Development. Phase 1 report, August 2004 8 NWDP1: BB4 ­ Water Resources Development. Phase 1 report, August 2004 World Bank June 2005 Page 14 MEMORANDUM - The Role of Water in the Mozambique Economy is estimated to increase to 80% by 2010. The manufacturing sector remains a small part of the economy. Food and beverages constitute over 38% of the manufacturing production, with the aluminum production of Mozal accounting for the remaining 23%. Such manufacturing sub- sectors as textiles, garments, and footwear have not grown significantly in the face of increasing international competition. Mozambican industries are concentrated in the country's major cities ­ Maputo, Matola, Beira and Nampula, and their water supply almost exclusively relies on the existing urban water supply systems. No accurate information is available on water consumption by industries, however as the country pursues its industrialization policy, it is expected that there will be increased demand for water to meet the production requirements. For Maputo the current consumption is estimated in the order of 10,000m3/day. It is expected that this water consumption will double in the short term with construction of new planned industries such as Mozal 3 and the MISP (Maputo Iron and Steel factory). Currently, Mozal uses 50,000 m3 of water per month and has requested a guarantee supply of up to 75,000 m3/month in the future to meet the needs of the extended Mozal 3 project. Provision of high value water for industry should be a high priority which requires further analysis. 3.3.5 Mining The PARPA notes that the mining sector has a considerable development potential, specifically, in raising incomes amongst poor segments of the population. However, the sector has received a limited development in the post-war period. The major coalmine at Moatize stopped production during the war but may be reopened shortly with assistance from foreign investments. Mining accounted for only 0.2% of GDP in 1999. Natural gas resources are currently being developed in the south of the country. The construction phase of a gas pipeline between the Pande and Temane gas field in the southern Inhambane province and Secunda in South African began in May 2002. The pipeline will supply gas to the large South African market. There is no information avail- able regarding the demand for water from the mining and minerals sector. It is expected that the demand will grow with the revitalizing of the sector, particularly in exploration of marble at Mon- tepuez and gold in Manica and Niassa provinces, and reopening of the Moatize coalmines in the Tete province. Water is an important input in both manufacturing and industrial processes. In addition to ensuring adequate supply of water for manufacturing and industrial processes, it is essential that industrial and manufacturing effluent does not pollute the country's water resources. 3.3.6 Environmental Use of Water The environment uses water to sustain river health and ecological functions. In order to preserve an acceptable balance within a specific watercourse, it is necessary to ensure that an adequate ecological reserve is maintained in the river basin ­ the reserve refers to both the quantity and quality of water in the river. The ecological reserve of water ensures the ecological integrity of rivers, estuaries, wetlands and groundwater resources. Water allocated to the environment (and to some extent to hydropower) is also used for recreational activities. Recreational use of water in Mozambique is expected to increase due to the Government's policy on development of tourism industries. In Mozambique, there are currently 34 nature conservation and protection areas, cov- ering more than 10% of the country's total area. These biodiversity rich areas are under threat from unsustainable use of natural resources, including water resources. The environmental re- quirements for water, in quantitative and qualitative terms, need to be developed for each river basin in Mozambique and the environmental reserve needs to be protected. 3.4 Government Water Infrastructure Development Strategy The Department of Water Affairs (DNA) of the Ministry of Public Works and Housing is in the process of developing a National Water Resources Management Strategy (as a component of the World Bank June 2005 Page 15 MEMORANDUM - The Role of Water in the Mozambique Economy IDA financed National Water Development Project I). A recent draft report 9 defines priorities for the development of water infrastructure and management which are designed to meet the devel- opment needs of the various sectors. It must be noted that these plans are tentative and have not been adopted by the Government at the time of writing. The plans have also not been assessed in detail by the World Bank ­ they are used for indicative purposes only. Key ele- ments of the proposed WRM Strategy include the construction of dams and reservoirs in all re- gions to provide secure sources to urban centers and rural needs including irrigation; the devel- opment of hydropower and flood control. The costs of the proposed public investments in water management and infrastructure are summarized in Table 4: Table 4. Proposed Public Investments in Water management Infrastructure (2005-20025) Type of Investments/Activities Location Comple- Est. Costs tion (US$ m) Flood Protection Dykes construction and rehabilitation Xai-Xai, Chokwe, Save By 2015 200 and Buzi basins Early Warning System By 2015 50 Studies on operational rules of existing reservoirs By 2015 20 Total 270 Irrigation Rehabilitation South region By 2015 100 Small Irrigation developments Center, North By 2015 20 Hydropower development Zambezi By 2015 50 Basin Master Plans Incomati, Maputo, Zam- By 2015 9 bezi, Pungwe, Buzi Inventory of existing hydraulic structures 2008 4 Dams and Transfer works Moamba Major dam and pipeline Incomati River 265 Bue Maria Dam Pungwe river By 2015 150 Third large dam (possibly Mapai) Limpopo (possibly) 2015-2025 150 Medium size dams for irrigation Center, North By 2015 30 2015-2025 15 Total 610 TOTAL By 2025 1063 By 2015 899 Data Source: NWDP1, BB4 Phase 2 report. COBA/Consultec, 2004 3.5 Water Sector in the National Budget The PARPA clearly acknowledges the importance of water infrastructure development as an es- sential factor for the rapid expansion of economic activities, and thus for the reduction of poverty. The Water Programme of the PARPA identifies such priority areas in water resources manage- ment as sustainable use of water and construction of new small and medium size dams; building infrastructure for irrigation and development of water management schemes with additional water storage facilities to mitigate the negative impacts of droughts and floods. However, the water resources management sector remains chronically underfinanced and continues receiving low priority in the government spending program. Total water sector public expenditure was some US$15.1 million in 1999, almost doubling to US$28.1 million in 2000 and then falling back to US$24.3 million in 2001 (Table 5) 10 . On aver- age, this was equivalent to some 0.6% of GDP and was mostly provided by donors. The level of Government funding remained fairly constant, at between US$4.2 million and US$4.7 million. 9 Building Block 4 ­ Water Resources Development. NWDP1, Phase 1 and Phase 2 Reports. COBA/Consultec, 2004. These proposals have not been reviewed by the World Bank. 10 Background Paper on the Water Sector by Finney and Kleemeier. Mozambqiue Public Expenditure Re- view, World Bank, 2003 World Bank June 2005 Page 16 MEMORANDUM - The Role of Water in the Mozambique Economy In 2001 water sector expenditures represented 2.5% of the government investment budget (ex- cluding donor funds). Total sector spending rose considerably because donor financing increased significantly in response to flooding. Even at its height, though, spending never reached the an- nual levels of between $85 and $108 million planned in the revised PARPA budget for 2002-04. Government expenditures in other PARPA priority sectors were much higher in the same year: the spending for roads amounted to 19.7%, for education 12.8%, and for health 10.6%. The water supply and sanitation sub-sector accounted for almost all expenditures in the water sector in 2001. In 1999, 2000 and 2001 annual expenditures on the water resources sub-sector accounted for only 2.1%, 1% and 1.45% respectively of the total spending in the water sector (including do- nor financing). Table 5. Government and Donor Expenditure in the Water Sector, 1999-2001 Type of Expenditure (U.S. $ millions) 1999 2000 2001 Government Recurrent $1.90 $1.77 $1.91 Government Capital 2.80 2.43 2.73 Government Total 4.70 4.20 4.65 Donors 10.40 23.88 19.68 Total 15.10 28.08 24.33 Govt. as % of Total Sector 31% 15% 19% Water Supply and Sanitation as % of Total Sector 90% 97% 83% Water Resources Sector: Government Recurrent 0.282 0.269 0.321 Government Capital 0.038 0.023 0.029 Government Total 0.319 0.292 0.350 Notes: Government expenditures under the national investment budget only. Donor expenditures as reported to the Ministry of Planning and Finance (may therefore be incomplete). "Recurrent" refers to costs and materials for project staff. Exchange Rates Meticais=USD 1 as follows: MT12,691 (1999), MT15,689 (2000), MT20,707 (2001) Source: Adopted from Finney, Kleemeier. Background Paper for Mozambique PER, World Bank, 2003 In late 2001 the DNA proposed a revised PARPA budget for the period of 2002-2004 (Table 6). The revised budget gave substantially less priority to rural and urban water supply, and almost doubled the amount allocated to water resources. However, it must be noted that the PARPA figures are what the water sector would like to have by way of allocation ­ not what they actually received. The proposed budget significantly exceeds the level of funding provided for in the General State Budget for 2002-2006 which allocated only about USD20 million for the entire water sector (including donor funding). Table 6. Revised PARPA Water Program Budget, 2002-04 Sub-sector US$ millions Percent 2002 2003 2004 Total Rural water supply 13.7 14.9 16.5 45.1 16.0 Urban water supply 36.0 36.3 35.0 107.3 38.2 Sanitation 2.5 2.6 2.7 7.8 2.8 Water resources 30.4 32.1 52.6 115.0 40.9 Institutional development 2.4 2.2 1.4 6.0 2.1 Total 85.0 88.1 108.1 281.2 100.0 Source: Finney, Kleemeier. Background Paper for Mozambique PER, World Bank, 2003 World Bank June 2005 Page 17 MEMORANDUM - The Role of Water in the Mozambique Economy 4 Water related impacts 4.1 Introduction The background information provided above is substantial although insufficient for a detailed quantitative analysis. Notwithstanding this, there are a number of points which are self evident to most observers with even a basic knowledge of Mozambique. The objective of this study is to clarify the linkages between water, the economy and poverty. This section examines the conse- quences of the climatic and hydro-geographical circumstances of Mozambique in relation to the demands of a developing economy and the requirements to reduce poverty. The issues addressed are:- i. the determination of water yields at different scales, ii. the current under-development of water infrastructure, iii. the impact of water shocks, iv. the hidden costs to the rural poor, v. a provisional economic analysis of investments planned by the Government and water re- sources development, and vi. management and protection options. 4.2 Determining water yields at different scales As has been stated previously in this report, Mozambique has substantial Box 1. Water Yields water resources, however these The yield from a water resources system is the volume of resources vary across the country (wet water that can be abstracted at a certain rate over a north ­ dry south), vary significantly specified period of time. In case of the typically large from season to season and vary from fluctuations in stream flow in many Mozambique's rivers, year to year with occasional extreme the highest yield that can be abstracted at a constant events of floods and droughts. If an rate from an unregulated river is equal to the lowest flow in the river. By regulating stream flow by means of overall water balance of each basin is dams, water can be stored during periods of high flow for evaluated, nearly all basins would show release during periods of low flow. This increases the a significant surplus of annual total run- rate at which water can be abstracted on a constant off compared to any foreseeable water basis and, consequently, the yield. The total yield locally available included the yield from both local surface water demand. However, within these and groundwater resources, as well as contributions to aggregates and in the absence of the yield by usable return flows from the non- adequate storage, serious water consumptive component of upstream water use in the shortages occur during dry seasons in a area under consideration. Total water available for con- number of basins, particularly in the sumptive use includes the total local yield plus water transferred from elsewhere. Usable water is also clearly South. Water shortages in Mozambique dependent upon other competing demands and the are localized and highly seasonal. The needs for environmental sustainability. minimum monthly flow is 1-2% of the annual runoff for many rivers. Because The water yield estimates quoted in this report are based on present levels of infrastructure development, annual of this variability and very limited runoff patterns of 2003 and 98% of water supply assur- infrastructure, only a fraction of total ance. runoff can be utilized. High variability means that the amount of usable and available water resources depends heavily on the development of storage and diversion infrastruc- ture. For example, a study undertaken under the NWDP1 11 suggests that, at present level of water infrastructure development, safe yields in the most water-vulnerable South constitute about 17% 11 NWDP1, Water Resources Management Strategy, Building Block 5, Phase 1- Inventory and Resources Assessment. Black&Veatch International, August 2004 World Bank June 2005 Page 18 MEMORANDUM - The Role of Water in the Mozambique Economy of the total runoff in the Limpopo, 35% - in the Maputo and Incomati, and 49% - in the Umbe- luzi. Looking to the future, economic development pressure is likely to make the problem of seasonal water shortages even more critical. As demonstrated in Table 7, the projected water demand in the economically most developed South and the Center of the country would lead to negative water balances in such river basins as the Umbeluzi, Limpopo and Buzi, given the present level of water infrastructure development in these basins. To satisfy the future water needs to support the envisaged economic growth and sectoral development, safe water yields in the potentially water scarce river basins will need to be increased which can only be achieved be providing storage. It must be noted that the figures in Table 7 are at basin scale. At sub-basin level the situation is substantially different. For example, although the situation in the Zambezi River Basin would appear at basin level to have more than adequate water resources (supply substantially exceeds demand) this only applies to the main stream of the river. The Zambezi River Basin occupies a very large area of the country, much of which for all practical purposes does not have access to the main stream of the river. Therefore, in all basins (but particularly in the dryer central and southern regions of the country) the bulk river basin scale water yield figures present an overly optimistic picture. The smaller the catchment, the greater the vulnerability to localized rainfall variability. This is particularly important when considering safe yields of water to small scale agriculture and the rural poor. Table 7. Water Demands and Water Balances in the South and Center Regions in 2015, million m3 Water Demand 2015 (Mm3) River Basin/Region Mean Annual Water yields Irrigation Livestock Water Supply Large Forestry Environmental Total Water Water Balance Runoff 2003 (Domes&MunicipIndustries Flow Demand South Maputo 3800.0 1331.0 60.0 0.1 6.0 930.0 996.1 334.9 Umbeluzi 296.0 144.5 60.0 0.1 162.2 44.4 266.7 -122.2 Incomati 2677.0 908.3 251.0 1.2 4.6 17.3 401.6 675.6 232.7 Limpopo 5773.0 1003.6 210.0 4.5 59.7 866.0 1140.2 -136.6 Save n/a 0.0 0.0 0.0 Total South 12546.0 3387.3 581.0 5.9 232.6 17.3 2241.9 3078.6 308.7 Center Buzi 6420.0 1031.6 91.5 12.0 20.4 993.9 1117.8 -86.2 Pungue 3375.0 1000.3 159.3 12.0 30.2 3.0 680.1 884.6 115.7 Zambesea 106000.0 28912.3 126.0 41.0 89.2 5.0 47.0 15900.0 16208.2 12704.0 Total Center 115795.0 30944.1 376.8 65.0 139.8 8.0 47.0 17574.0 18210.6 12733.6 4.3 Under-development of water infrastructure As noted above, amongst the very limited options to increase the safe yield of water resources is the development of infrastructure to store and / or transfer water. At present, despite the high vulnerability of Mozambique to frequent droughts and floods, the storage capacity in the country remains underdeveloped (as does other flood control and drought management water infrastruc- ture). Mozambique has 12 major dams with a total capacity of about 3457 m3 per capita, includ- ing the Cahora Bassa storage. Excluding the Cahora Bassa Lake, which accounts for more than 90% of the country's storage capacity, the storage capacity per capita in Mozambique is only 330 m3, placing Mozambique among the Southern African countries with least developed water infra- structure. The total useful storage capacity represents 21% of the mean annual flow of the coun- World Bank June 2005 Page 19 MEMORANDUM - The Role of Water in the Mozambique Economy try's rivers (including Cahora Bassa). If the Cahora Bassa is excluded, the remaining 5800 Mm3 of useful capacity represents only 5% of the mean annual runoff of the country's rivers, excluding the Zambezi. In general, storage capacity of 10-40% of the mean annual runoff is necessary to utilize 50% of the mean annual flow, with 80-90% reliability. The Cahora Bassa dam was constructed for a single purpose ­ the generation of hydropower at a remote location on the Zambezi, and its operational rules do not allow its storage capacity to be used for effectively mitigating water shocks. To convert this dam into a multi-purpose reservoir to be used for seasonal water supply, etc. would be costly because of the remoteness of the site. The use of the dam for the mitigation of floods in the Zambezi valley needs serious investigation and would be in conflict with its current primary purpose of hydropower generation. Future wa- ter storage infrastructure should be developed as multipurpose facilities in the basin-wide context. Despite the driving force for power, the need for flood control, salinity repulsion, development of irrigation, and environmental requirements favors multipurpose reservoir development. 4.4 Costs of water shocks The consequences of the climatic realities which exist in Mozambique, as described in Section 3.1.2 - Water Resources Variability, are frequent and recurrent water shocks in the form of floods and droughts. Each such event has considerable direct and indirect costs to the country. These have been determined in a variety of studies ­ one of the primary objectives of this study, how- ever, is to examine the economic impacts and consequences of these shocks. Table 8. Major " Water Shock" Events in Mozambique since 1980 Year Type of Event Details 2002- Drought 43 districts affected in South and Central provinces 2003 2001 Floods Zambezi river; 115 deaths; 500,000 people affected 2000 Floods Limpopo, Maputo, Umbeluzi, Incomati Buzi and Save river basins, caused by record rainfall and 3 cyclones; 700 deaths, 2 million people affected 1999 Floods Floods in Sofala and Inhambane provinces; highest rainfall level in 37 years; EN1 major country highway shut for 2 weeks; 100 deaths; 70,000 people affected 1997 Floods Floods on Buzi, Pungue and Zambezi rivers; no road traffic to Zim- babwe for 2 weeks, 78 deaths; 300,000 people affected 1996 Floods Floods on all southern rivers of the country; 200,000 people affected 1994- Drought 1.5 million people affected in South and Central parts of Mozambique. 1995 Cholera epidemic. 1991- Drought Whole country affected. 1.32 million people severely affected. Major 1992 crop failure. 1987 Drought 8000 people affected in Inhambane province. 1985 Floods Floods in Southern provinces; 9 rivers floods; worst flooding in 50 years followed by 4 years of drought; 0.5 million people affected 1983- Drought Most of country affected. Cholera epidemic and many deaths from 1984 drought and war. 1981- Drought 2.46 million people affected in South and Central parts of Mozambique. 1983 1981 Floods Floods on Limpopo river; 0.5 million people affected 1980 Drought Southern and Central parts of Mozambique affected Sources: INAM; Atlas for Disaster Preparedness and Response in the Limpopo Basin, INGC, UEM-Department of Geography and FEWS NET MIND, 2003 World Bank June 2005 Page 20 MEMORANDUM - The Role of Water in the Mozambique Economy 4.4.1 Flood costs The costs of floods can be categorized as follows:- · Direct costs of physical damage to capital assets and inventories, valued at same- standard replacement costs (i.e. the costs for restoring assets to the standard that existed before). · Indirect costs of output losses and foregone earnings referred to as `flow effects'. · Relief costs including (i) the provision of life-supporting services (e.g. food aid, health care, safe water and sanitation) to populations whose access to these services has been lost as a result of the disaster and (ii) assistance to these populations to enable them to re- sume sustainable livelihoods. · Reconstruction costs of rebuilding damaged infrastructure to standards optimally de- signed to reduce vulnerability and risk of loss due to future potential disasters (i.e. the costs for rebuilding to a standard that optimally responds to local conditions, including the risk of natural disaster). The costs of the 2000 floods were estimated as USD550 million including the direct, indirect, and disaster relief costs. 4.4.2 Drought costs Hydrological drought refers to the deficit in the runoff of rivers. The impacts of significant defi- cits in the total annual runoff may include reduction in hydropower production and negative af- fects on irrigation relying on reservoirs and surface water. Hydrological droughts also affect urban water supply. This was particularly felt in the city of Maputo, in the beginning of the 1980s, before the construction of the Pequenos Libombos Dam, and very acutely in Beira and Chimoio in 1991-92. Examples of impacts of hydrological droughts are given in Table 8. Drought risks are a major concern for agriculture in the southern provinces of Inhambane, Gaza, and Maputo, with the exception of the coastal districts. Drought also frequently affects the central province of Tete. Some districts are faced with both drought and flood risks (Matutuine, Chibuti, Moatize, Cahora Bassa). Impacts include agriculture, livestock and rural water supply. Since independence in 1975 Mozambique has experienced many severe droughts. During the cropping years 1982/1983, 1986/1987 and 1991/1992, maize yields fell on average by 40% and by 85% in the center of the country (Tete and Manica provinces). Such dramatic events caused large-scale food deficits, hunger and disease. It also increased food imports and worsened the national debt burden. The devastating drought of 1991-1992 halved cereal production, more than doubled cereal import requirements and raised food aid import to 4 million tons for the Southern African region12 . It is estimated that the loss in agricultural production due to the drought 1992 was 4 percent of GDP 13 or about US$86 million in 2004 prices. These cost estimates seem to be conservative. Although drought effects in Mozambique mainly concentrate in the agricultural sector, drought impacts also include forest fires, losses related to damaged water supply for domestic and indus- trial use and associated indirect losses, including social and environmental impacts. It is difficult to estimate the cost of drought shocks in Mozambique with any precision because physical im- pacts beyond food security effects are normally not well recorded. 12 Arndt C., M. Bacou, and A. Cruz. Climate Forecasts in Mozambique: An Economic Perspective. In: Coping with Climate Variability: The Use of Seasonal Climate Forecasts in Southern Africa. Ed. K. L. O'Brien, C. H. Vogel, Ashgate Publishing, England, 2002 13 M. Bacou. Economy-wide Effects of Climate Variability and Climate Prediction in Mozambique. Msc. Thesis, Purdue University, 2001 World Bank June 2005 Page 21 MEMORANDUM - The Role of Water in the Mozambique Economy 4.5 Economy wide impacts of water shocks 4.5.1 Economy wide effects of floods The economy wide effects of floods are very wide and pervasive ­ in addition to the direct costs as described in the section above, the economic effects include factors such as lost production, intermediate product costs and purchasing power reductions, and disincentives to investments at all levels. Water shocks also have potentially important implications for the budgetary and trade balances and often cause adaptation changes in monetary and fiscal policies to respond to shock-induced inflation, increased budget expenditures on relief and reconstruction, pressures to increase subsi- dies and diminished revenues due to lower than projected economic growth. The floods of 2000- 2001 provide an example of an adverse impact of shocks on the budgetary balance of the country. Due to a prudent fiscal approach accompanied by substantial external assistance, the budget defi- cit after grants was relatively low until 2000 (it rose from 1.5 percent of GDP in 1999 to 6 percent in 2000 and 6.6 percent in 2001). Combined with a careful monetary policy, especially in the period 1996 to 1998, and a program of structural reforms based mainly on privatization, tax and customs reform and trade liberalization, this resulted in low inflation, high private investment and high growth rates. The sharp increase in budget deficit in 1999-2002 was due in significant part to banks restructur- ing and the increase in the civil service wage bill of 46 percent in real terms between 1999 and 2002 14 . However the budget deficit before grants excluding the banks restructuring and wages increase factor, rose from 10.9% in 1999 to 17.6% in 2001. Therefore, a significant portion of the total increase in the budget deficit in 2001 can be attributed to the flood impacts and, specifically, to the increased public expenditures on post-flood reconstruction. Even with high levels of exter- nal grants and foreign net borrowing, domestic borrowing was impacted significantly in the pe- riod 1999 to 2002. Table 9. Domestic Borrowing for the period 1999 - 2002 Year Domestic borrow- ing as % GDP 1999 -0.3 2000 0.8 2001 1.8 2002 2.1 Note that the incentives to finance disaster prevention can be perverse in that non-fungible hu- manitarian assistance is often available for floods/droughts (as was the case after the floods of 2000 and 2001) which may promote a fiscal strategy to under-invest fungible development funds in disaster prevention. However, the budgetary impacts in the aftermath of extreme events such as the 2000 ­ 2001 floods remain considerable even with the relatively large non-fungible hu- manitarian assistance received. 4.5.2 Economy wide effects of droughts A simple assessment of sensitivity of the Mozambique economy to water shocks measured by fluctuations in GDP and growth rates of agricultural and non-agricultural sector products, demon- strates that major floods and droughts have a significant impact on the country's economic per- formance. The analysis highlights that almost all major volatilities in this still largely agricultural 14 Mozambique Public Expenditure Review. World Bank, 2003: p. 19 World Bank June 2005 Page 22 MEMORANDUM - The Role of Water in the Mozambique Economy economy in the period 1984-2002 were linked to flood and drought extreme events. With the exception of the 1987 drought 15 , all major droughts and floods during that period resulted in downturns in the agricultural and total GDP annual growth rates. For example, the shocks of the floods of 2000 led to the abrupt fall of the GDP growth rate to 1.5% in 2000 (during the period of 1994-2003 the annual average growth rate was 7.5%). Also, in 2000, agricultural output experienced negative growth of 10.8%. The decline in the agricultural growth rates in 1990-1992 seems to correlate with drought conditions in the same period. In 1990 the agricultural output declined by 3% and fell to a negative growth of 4 % in 1991. The trend continued during the severe drought of 1992 that contributed to negative growth rates of 18.2% of agricultural GDP and 8.6 % of total GDP in 1992. The drought of 1994-1995 resulted in a negative growth rate of agricultural output of 6.4% in 1994 and the slowing down of total GDP growth from 7.5% in 1994 to 4.3% in 1995. 4.5.3 Immediate impact and post-shock economic recovery Studies based on multi-country comparisons and historical observations16 demonstrate that eco- nomic sensitivity to climatic shocks is highly dependent on a country's stage of economic devel- opment. Semi-subsistence economies with large agricultural sectors like Mozambique are par- ticularly vulnerable to drought shocks, reacting immediately with a decline in GDP, agricultural exports, employment opportunities, domestic purchasing power, rural poverty level and negative impacts on the budgetary balance. At present, for a largely rural economy such as Mozambique, wide macro-economic effects of water shocks, and, specifically, droughts, are mainly felt through their direct impact on the agricultural sector. Figure 2: Changing drought vulnerability as economies develop Source: Benson & Clay, 2001 The remainder of the economy tends to be less impacted than the agricultural sector because of the weak inter-sectoral linkages. The growth rates in industrial production and services have not been very sensitive to the climate variability extremes. With development of the manufacturing sector and stronger overall economic integration, the impacts of water shocks would be dispersed more extensively throughout the economy. Greater development of manufacturing or simple 15 As noted in the World Bank 2001 Mozambique Economic Memorandum, the economic comparisons during the 1980s should be taken with caution because national accounts during that period included weak estimates of smallholder agriculture and services. A vast amount of economic activity was unrecorded in official sources, and the accuracy of statistical information was poor and uneven. 16 Benson C. and E. Clay. 1998 World Bank June 2005 Page 23 MEMORANDUM - The Role of Water in the Mozambique Economy products from domestic raw materials (e.g. textiles, food), further economic diversification and growth of urban population more dependent on purchased food, would be likely to increase the vulnerability of the Mozambique economy to water shocks. However, in the long-term, the rela- tive vulnerability is expected to decline in an "inverted U" relationship whilst the economy is moving from an "intermediate" to a "complex", stage of development which is much less de- pendent on the agricultural sector 17 . Because of the simplified sectoral needs and weak links of other sectors to agriculture, after- shock economic recovery may also occur relatively quickly, assuming the timely availability of necessary agricultural inputs. After the 1991-1992 drought, agricultural and total GDP growth had been restored to the remarkable rates of 21% and 8% respectively already in 1993. However, despite this strong resilience of the Mozambique economy to meteorological shocks, droughts and floods impose a significant and systematic economic threat, affecting the country's long-term growth. The limitations of this analysis need to be borne in mind - the human vulnerability of the subsis- tence-based economies is downplayed. Whilst in simplified economies the quantified economy- wide impacts of water shocks may be less, more people are likely to be directly and catastrophi- cally impacted as the family level poverty coping strategies, which are finely balanced in the best of times, are undermined and overwhelmed resulting in greater numbers of people falling into absolute poverty. These consequences are hidden in this analysis. 4.5.4 Long-Term Costs of Water Shocks Floods and droughts are frequent in Mozambique, appearing with a higher or lower intensity al- most each three-four years. A drought shock with severe impacts has occurred seven times over the last 24 years (about once in 3-4 years). Floods have occurred six times over the same period, about once each 4 years. The costs of the flood damage and major drought events estimated above occurred from the exceptionally severe 2000 floods and 1991/1992 droughts. However, it is reasonable to assume that 1-in-3-or-4 year droughts are typically 50 percent as severe as the 1992 drought, and 1-in-4 year floods would be 40 percent as severe as the floods of 2000. That means that, on average, Mozambique experiences floods that cost about US$240 million 18 each 4 years and droughts that cost it about US$45 million every 3-4 years. This translates to a direct long-term fiscal liability of over US$70 million annually. The total costs of water shocks in the period 1980-2003 were about US$1.75 billion. A regression analysis undertaken in the recent World Bank study 19 over the period 1981-2004, suggests that in Mozambique GDP growth is cut by 5.6% in average when a major water shock occurs. Assuming the rate of the major disaster occurrence as one in five years, on average GDP growth in Mozambique is reduced by 1.1% annually due to the impacts of water shocks. This estimate translates to a US$711 million loss in total GDP over the last 24 years. The future costs to the national economy, if no measures are taken, will be much higher: assuming a 5% annual GDP growth, by 2030 the total economic costs due to floods and droughts will reach the amount of about US$3 billion. A provisional indicative economic analysis was conducted on the investment proposals which have been suggested to the Government through the National Water Development Program I 17 Benson C. and E. Clay. The Impact of Drought on Sub-Saharan African Economies. Technical paper 401, World Bank, 2001 18 All costs quoted in this section are in constant 2004 prices. 19 M. Benito-Spinetto, P. Moll. CEM Background Paper "Macroeconomic Developments, Economic Growth and Consequences for Poverty". World Bank, Africa Region, PREM 1. December 2004 World Bank June 2005 Page 24 MEMORANDUM - The Role of Water in the Mozambique Economy strategy development process. (See Appendix 1) Whilst these proposals have not been adopted formally by the government at the time of preparation of this study, they provide an indication of the type and cost of investments required to meet the country's need over the next few decades. The analysis of these proposals was undertaken to provide an initial assessment of whether the proposed investments in the water resources sector are likely to be economically viable. The analysis was based on simplified assumptions about the expected value of benefits and their distribution in time. The proposed package of investments has multiple objectives to improve flood protection, reduce the impact of droughts through expanded irrigation and increase hydro- power production. The calculations assume that the year-on-year cost to the economy of water shocks (1.1% of GDP) will be reduced by 75% as a result of the investments. It is clear that no amount of investment can completely protect a country from extreme events. The figure of 75% mitigation is high but the initial analysis does not include the additional economic benefits of improved water supply for urban and industrial consumption, improved rural supply, increased agricultural output and hydropower production. The initial, indicative analysis shows that the possible package of water sector investments is economically viable, taking into account only the value of the mitigation benefit and based on the assumptions made of mitigation benefits. This result is only of initial indicative value - a detailed analysis of the investment components and all the economic, social and environmental costs and benefits will be undertaken as a key element of the next stage of the preparation of a Country Water Resources Assistance Strategy. The questions which needs to be answered are :- · What investments are required to reduce to impact of water shocks on the Mozam- bican economy by 75%? · How should the next dollar be spent in water resource development for the highest strategic return? 4.6 Hidden costs to the rural poor Some 70% of the population of Mozambique rely upon subsistence agriculture for their liveli- hood which places the majority of the population outside of the monetary economy of the coun- try. The costs to this segment of the population of recurrent water related shocks and underde- velopment remain therefore largely unrecorded and outside of the reckoning of costs of these events at national level. Mozambique's poverty is closely linked to its dependence on rain-fed subsistence farming in the context of highly variable rainfall and frequent droughts. Rainfall conditions strongly influence food security across the country, as subsistence agriculture is the most dominant form of liveli- hood, providing more than 80% of basic food needs to more than 70% of the population. Liveli- hood options outside agriculture are limited for the great majority of the population. The market- ing network is weak and limited by extremely difficult physical access to many areas. All these factors increase vulnerability of the rural economy to the rainfall variability and related water shocks such as droughts and floods. Rural households are particularly susceptible to droughts due to the self-provisioning nature of the farming and weak marketing infrastructure. An IFPRI study 20 shows that home consumption accounts for 65% of total agricultural production valued at producer prices (i.e. excluding marketing margins and consumption taxes) and represents about 23% of total household consumption of commodities. A large part of home-consumed production is due to safety-first considerations because of high expectations of food security problems ac- 20 Arndt C., H.Tarp, S. Robinson. Marketing Margins and Agricultural Technology in Mozambique. IFPRI, Washington DC, July 1999 World Bank June 2005 Page 25 MEMORANDUM - The Role of Water in the Mozambique Economy companying regular droughts and floods. However, the poor marketing system is a primary rea- son for high shares of home-consumed production of crops - maize, vegetables, cashew, etc. Traditional coping mechanisms of local communities to overcome the hardship of droughts and floods include game hunting, the sale of firewood and charcoal, sale of livestock, sale of local home-made beverages, casual agricultural wage employment on local farms, temporary labor migration to neighboring districts and regions. However, many of these alternatives have reached their limits as survival strategies. According to periodic FAO/WFP Crop and Food Supply as- sessments, the capacity of better-off farmers to absorb local casual labor has been reduced in many places by the exhausting cumulative effect of consecutive droughts and floods. Prices of maize and grains in deficit districts continue rising, compared with previous years and barter con- ditions have deteriorated. Malnutrition rates are high, and elevated mortality due to malaria, diar- rhea and HIV/AIDS is increasing according to the official statistics. The investigation into rural vulnerability to water factors undertaken as part of this study 21 indi- cates on an anecdotal basis that access to secure water sources to support livelihoods is consid- ered of primary importance by rural households, to the extent that households and entire commu- nities have migrated and resettled to gain access to such sources (eg. dams etc). Reducing the vulnerability of the rural poor to water shocks through flood management and increasing water accessibility for productive use (eg through small dams, water harvesting etc.) will provide the greatest benefit to the largest number of people, even if the benefits are not discernable from a macro-economic perspective. 4.7 Water development, management and protection As has been shown in this document, the two elements of water shocks and under-development of water resource infrastructure have a considerable impact throughout Mozambique's economy. The question is whether there is anything that can be done to reduce the impact and de-link the economy from climatic variability and ensure that there is sufficient water available to support economic growth and poverty reduction. Whilst it is not possible to provide complete protection against extreme events, it is certainly possible to reduce their impacts as is practiced throughout the developed world. The preliminary indicative economic analysis undertaken in Section 4.5.4 indicates that it would be economically feasible to reduce the vulnerability of the economy to water shocks and substantially reduce the water related constraints to growth through the devel- opment and management of water resources. However, the development of water related infra- structure adequate to provide for a growing economy and to protect against water shocks is costly. Attention should also be given to non-structural management options such as engaging with upstream riparian countries to encourage improved management of international waters to reduce the risk to Mozambique of extreme events. Such physical and non-physical developments require a high level of technical expertise and will involve lengthy planning, construction and commissioning periods. However the `doing nothing' alternative would clearly be more costly. Mozambique has certain innate water resource related conditions including those determined by its climate and geophysical realities and those determined by its political legacy ­ the large num- ber of international rivers. These factors determine the water availability. Similarly there are a number of social and economic factors which determine the demand for water. These are illus- trated in Figure 3. 21 "Local Vulnerability Study" S. Gaye Thompson, September 2004 World Bank June 2005 Page 26 MEMORANDUM - The Role of Water in the Mozambique Economy Figure 3 Addressing water vulnerability and constraint Natural Water & Climatic Conditions Social & Economic Development o Economic growth o Rainfall & runoff o Sectoral water needs o Climate variability o Population growth o Droughts & Floods o Income & consumption growth o International river basins o Technology advancement o Urbanization Water resources development, management & protection o Policy and legislation o Infrastructure o Management tools o Environmental protection Water Availability Water Demand Water Vulnerability National, Regional, Local Scales Water availability and demand are not fixed, predetermined quantities ­ through the proper appli- cation of water resources development, management and protection activities it is possible to ensure that sufficient water is available to meet the demands and to protect the people and the economy from water shocks (droughts and floods). These three elements can be broadly de- scribed as follows (note that the elements overlap to some extent) ­ Development entails a variety of activities which enable water to be controlled such as the construction of storage and flood control dams, diversion works, protection works such as dykes and levies, inter-basin water transfers, canals etc. Management includes control of abstraction, licensing, administration of water rights, measuring and monitoring water flows, modeling and planning, ensuring efficiency of water use, water demand management etc Protection ensures that the environment ­ the source of the resource ­ is protected to maintain aquatic fauna and flora, determining and ensuring in-stream flow requirements, water quality monitoring and water quality protection enforcement, protection of water- sheds to reduce erosion and silt loads, etc Mozambique is at a stage of economic development when infrastructure investments will gener- ally have higher returns and will be more efficient in achieving water management objectives than focusing primarily on management improvements. World-wide experience demonstrates 22 that countries typically focus first on supply-side solutions in water resources management at 22 World Bank. China Water Resources Assistance Strategy, 2002 World Bank June 2005 Page 27 MEMORANDUM - The Role of Water in the Mozambique Economy earlier stages of their development, and then shift gradually to more demand and management- based approaches as the resources base gets closer to its full utilization. Figure 4 illustrates this statement. Figure 4. Rates of Return by Investment in Water Infrastructure Source: World Bank. China Water Resources Assistance Strategy, 2002 The level of development of water infrastructure and, specifically, of storage capacity, is a useful indicator of the level of development of water resources available for direct economic use. As referred to in Section 4.3 - Under-development of water infrastructure, the storage capacity per capita in Mozambique is only 330 m3 (excluding the Cahora Bassa Lake that accounts for more than 90% of the country's storage capacity), placing Mozambique among the Southern African countries with least developed water infrastructure. It is informative to compare this figure with the available water storage per capita in other countries as indicated in Figure 5 below. If the Cahora Bassa is excluded, the remaining 5800 Mm3 of useful capacity represents only 5% of the mean annual runoff of the country's rivers, excluding the Zambezi. Figure 5: Per capita build water storage - Africa's gap 7000 6150 6000 Per capita water storage m3 5000 4729 4000 3255 3000 3000 2486 2000 1287 1000 746 330 46 0 South Africa Thailand China with C Bassa America Ethiopia Mozambique Australia Brazil Mozambique without CB Noth World Bank June 2005 Page 28 MEMORANDUM - The Role of Water in the Mozambique Economy The indication is, therefore, that the Mozambican Government should currently be emphasizing the development of water resources. Once a basic stock of water infrastructure has been devel- oped, the emphasis will undoubtedly shift to management. In order to ensure viability and long term sustainability, such development should take into account all necessary considerations of the environmental and social impacts of water resources development. 5 Conclusions The implications of this study are summarized in the Executive Summary in Section 1. Although the scope of the study has been limited it is clear that there are compelling arguments for further refinement. A clear identification is required of a strategy to address the vulnerability of the Mo- zambique economy to water shocks and the constraints to growth and poverty reduction imposed by an inadequate stock of water infrastructure. It is planned to follow this study with the prepara- tion of a Country Water Resources Assistance Strategy (CWRAS) in close collaboration with the Government, the World Bank Country Team and other development partners. The CWRAS would include:- 1. Further analysis of future water demands by sector, including the water needs of `mega- projects'. 2. An analysis of the water infrastructure investment needs to reduce poverty and support growth, building on this study; 3. The identification of priority investment requirements and opportunities; 4. An analysis of financing options (public and private); and 5. A consensus building process on the way ahead involving a wide range of stakeholders including non-water sectors, in-country role-players (both government and non- government), the World Bank Country Team etc. It is reemphasized that:- These matters are not "water problems" ­ they are grave issues facing the economy of Mozambique as a whole. They impact on the whole of the coun- try and on the poor in particular. They are of a magnitude and of an all- encompassing nature that will impinge on and negatively effect the best ef- forts made in all other sectors. Investment in water resources infrastructure is the only way in which Mozambique can stop the continuous drain on the economy and the extensive human costs caused by recurrent floods and droughts, and the only way to provide reliable sources of water which any economy needs to grow in strength and diversity. --oo0oo-- World Bank June 2005 Page 29 MEMORANDUM - The Role of Water in the Mozambique Economy Appendix 1 ­ Provisional Analysis of Proposed Investments A provisional economic analysis was carried out to provide an initial assessment of whether the proposed investments in the water resources sector are likely to be economically viable. [See Section 3.4 - Government Water Infrastructure Development Strategy]. Note that it should not be inferred from the use of the draft investment strategy data (see Table 4) in this analysis that the proposals or data in the draft strategy are endorsed (or not endorsed) by the World Bank ­ the information is used for illustrative and comparative purposes only. The cost-benefit analysis was based on a comparison between a "do-nothing" and a "do something" option: · the "do nothing" scenario assumed that no investments in the water sector were undertaken to mitigate the impacts of water shocks. The option had no costs and long-term GDP growth was assumed at 5% pa; · the "do something" or "invest-in-water-resources" scenario had investment costs of US$1.063 billion as proposed by the consultant study (Table 4). This scenario assumed that the proposed investments would result in an increased GDP growth rate due to the avoided water shock-related losses in the country's economic growth (see Section 4.5.4). Specifically, it was assumed that this would lead to a 75% mitiga- tion of the 1.1% annualized loss in the growth rate due to water shock events. This mitigation effect was included in the analysis as the only economic benefit of the proposed investments and did not take ac- count of the benefits of meeting growing water demands for development, that is, removing the con- straints to the economy due to current under-development of water infrastructure. The scenario also in- cluded assumptions on the investment implementation schedule that are summarized in Table 9 below: Table 9. Assumed Investment Schedule Investment component Starting year of Implementation Costs (US$ implementation duration (years) million) Flood Protection 1 10 270 Irrigation Rehabilitation & Small Irrigation 1 10 120 Hydropower development * 1 3 50 Dams and Transfer works:- Moamba Major dam and pipeline 1 5 265 Bue Maria Dam 1 5 150 Third large dam (possibly Mapai) 11 5 150 Medium size dams for irrigation 11 10 45 Others (basin planning, inventories, etc.) 1 1 13 TOTAL 1063 Notes: * In addition to substantial Private Sector investments The analysis shows that the proposed government package of water sector investments is economically viable taking into account only the value of the mitigation benefit (and not the removal of constraints to development resulting from under-investment) and assuming a discount rate of 8%: the calculated Eco- nomic Internal Rate of Return (EIRR) was 10.1%, NPV ­ US$0.209 billion, and Benefit/Cost ratio (B/C) - 1.29. The annual investment required to implement the strategy is 80-90 US$ million, annual cost of not investing (`do-nothing' alternative) is approximately 120 US$ million due to water shocks alone, excluding growth foregone through under-investment in water infrastructure. A sensitivity analysis was carried out to assess sensitivity of the CBA results to variations in the discount rate and expected value of the project benefits. The analysis demonstrated that the project is sensitive to the changes in the discount rate: with a discount rate of 10% the project becomes marginal with NPV of 0.005 and EIRR of 10.1. However, the project is also sensitive to the increase in the value of expected benefits: an increase in the benefits by 10% increases the EIRR by 0.8%-1.1%. Therefore, with a discount rate of 10% and the value of benefits increased by only 10%, the investments remain economically viable with EIRR of 10.9%, NPV of US$0.072 billion, and B/C ratio of 1.11. Given the fact that the value of benefits included in the analysis is sufficiently underesti- mated, the proposed investments are likely to be economically viable with a discount rate of 12 percent as well. World Bank June 2005 Page 30