WATER GLOBAL PRACTICE Wastewater: From Waste to Resource The Case of New Cairo, Egypt Successful PPP to Increase Wastewater PHOTO 1. New Cairo Wastewater Treatment Plant Coverage and Foster Wastewater Reuse Context The Arab Republic of Egypt is a water-scarce country. Most of the country is desert, with the exception of the corridor of urban development along the Nile River and Mediterranean Sea. Population growth in Egypt’s main urban areas prompted the Government of Egypt (GoE) to encourage the growth of new urban centers to alleviate overcrowding and pressure. Out of necessity, these new centers were located further away from the Source: Aqualia. Nile River. The harsh environmental conditions of the this population growth and its pressure on water sup- location, combined with the low level of infrastructure ply; as a result, sanitation and untreated wastewa- present in these areas, have created a potential barrier ter was being discharged directly into the river. The to successful establishment of the new cities. One ave- Egyptian government also faced pressure to reduce nue to address these concerns is the rationalization of its public expenditures on infrastructure projects. To water use in the new cities, such as by recycling waste- increase wastewater coverage and efficiency of water water for use as irrigation for agriculture. use and reduce public cost of the development of The city of New Cairo was one of the newly planned infrastructure, the GoE sought to build a new waste- urban areas. New Cairo was expected to grow from a water treatment facility involving the private sec- population of 550,000 to approximately 4 million by tor. The facility would treat wastewater to be used in 2026. The existing infrastructure could not support agriculture and drainage to the Nile River. These uses 1 CHALLENGE Wastewater Treatment Plant Design Egypt is a water-scarce country with overcrowded urban areas The WWTP can process up to 250,000 cubic meters Increase availability of drinking water in new cities of wastewater per day, serving the satellite cities of Reduce the discharge of untreated effluent to the Nile River New Cairo, Madinaty, and El Mostakbal. The treated Implement cost-effective solutions and reduce pressure on public water is directed to agricultural operations, reducing finances and at the same time ensure that the right technologies the demand for freshwater for agriculture and allow- are used ing that supply to be used by the city. The compost Mobilize private sector financing, encourage transfer of from the wastewater sludge is currently being sold to knowledge and technology and minimize risks for the public the cement industry in the region to be used as fuel sector (replacing coal and therefore reducing greenhouse gas Complete first PPP in Egypt and provide replicable model for future PPP [GHG] emissions). For the consortium, this is an extra OBJECTIVE revenue stream, although small, and it also avoids Increase available freshwater and decrease threats to public considerable sludge transport costs. The quality of the health and environment. sludge is suitable to be used as agricultural fertilizer. Moreover, the plant reduces the volume of polluted water discharged into the river, representing a signif- would allow more freshwater to be used for drinking icant improvement to human health and environmen- and other uses  while also reducing pollution of the tal quality. Close to 3 million people in New Cairo and river and thereby increasing public health and envi- the surrounding area will benefit from the project at ronmental quality. its full capacity. The biological treatment process used in the WWTP is conventional and did not require any A lack of public financing options made a public-­ major innovations. private partnership (PPP) structure an attractive option. Moreover, if done right, a PPP could poten- PPP and Governance Issues tially bring into the country the latest know-how and As the first PPP in Egypt, initially the project faced sig- technology, ensure that the construction was made nificant governance issues, since there was no legal or in a timely manner, increase the efficiency of the regulatory structure to handle PPPs. The solution was operations and lower the risks for the public sector, to use the process of the New Cairo WWTP to design a among other. However, at the time there were no legal model for future PPPs in Egypt and eventually approve or regulatory structures for handling PPP projects. a PPP law in 2010. To ensure that the first project was Government planners faced a lack of PPP-specific a success, outside advisors were enlisted to assess and laws and limited experience in dealing with PPPs. evaluate broad options for PPP structuring. The GoE Additionally, recent failures of private provision of worked with the International Finance Corporation public services in the energy sector in Egypt made the (IFC) and the World Bank Group’s Public Private government hesitant about this approach. To ensure Infrastructure Advisory Facility (PPIAF) to create a that the project was a success, the GoE partnered with conceptual framework and transaction model. outside advisers to develop appropriate governance To facilitate the PPP process, a PPP Central Unit was and tender processes. created to act autonomously within the Ministry of Finance. Following the success of the project, the GoE Solution has created a set of laws and regulations that will gov- The solution was to construct the New Cairo Wastewater ern future PPP projects in the country, drawing on les- Treatment Plant (WWTP) through a PPP. sons learned from the New Cairo WWTP project. 2 From Waste to Resource Financial and Contractual Agreements international experience. The bid was submitted under the auspices of a special purpose vehicle (SPV) The IFC, the PPP Central Unit, and the Ministries of composed of the two firms, called Orasqualia, which Finance, Investment, and Housing decided to struc- passed the technical stage and presented the lowest ture the project as a 20-year concession for design- financial bid and was awarded the US$482 million build–finance-operate–transfer (DBFOT) contract. contract in June of 2009. A tender process was designed to evaluate technical capacity and economic efficiency as measured by low- In addition to winning the tender process, Orasqualia est net present value. The tender process attracted brought two unique skillsets to the table. The con- five bids from consortia composed of local, regional, sortium provided the technical know-how associated and international firms. The winning bid was made with Aqualia, an international firm operating various by a consortium of Orascom Construction Industries, water infrastructure projects around the world, and an Egyptian firm, and Aqualia, a Spanish firm with Orascom’s knowledge of the Egyptian market, labor, and political conditions. Total private investment: US$140 million Project details. Build–design–finance–operate–transfer Project finance without recourse US$100 million (BDFOT) 20 years: construction two years and opera- Equity US$40 million tion 18 years. FIGURE 1. Project Stakeholders Ministry of finance: PPP UNIT: Contract regulator Ministry of housing: NUCA- New cairo: O taker Arab Republic of Egypt IFC (World bank): Lead advisor Performance monitoring committee Gide loyrette nouel: Legal advisor Partnership committee PPP agreement Parsons brinckerho : Tech. advisor Independent financial expert Independent technical expert Direct agreement NSGB OCI 50% CIB ARAB African Aqualia new europe 50% Ahli United Facility agreement Baker & McKenzie Insurance agreement Legal advisors Zul car/legal advisor (AIG) Enviro-Civec = Independent tech. advisor O&M agreement EPC agreement OCI 50% Orasqualia for operation Orasqualia for construction Aqualia infrastructuras 50% Cairo consult = OCI 50% Engineering subcontractor Aqualia 50% Source: Aqualia. From Waste to Resource 3 • Contracting authority: New Urban Communities expenditure over its operating period; debt ser- Authority (NUCA) vice costs; return on equity; and insurance • SPV: Orasqualia (Aqualia, 50 percent, and Orascom ––Fixed operating charge covering the operat- Industries, 50 percent) ing costs unrelated to the volume of treated • Payment guarantee: Sovereign guarantee by the wastewater government ––Variable operating charge that covers the operat- • Payment method: Sewage treatment charge (STC): ing costs of treating effluent per cubic meter fixed payment and variable payment ––Pass-through charge to reimburse the cost of elec- ––Capacity charge that is a fixed payment covering tricity up to the maximum consumption proposed the total investment in the plant and its capital in the accepted bid Benefits For the city and the environment For the utility and government • Up to 3 million people will benefit from the improved • Risk transfer (financing, construction, and operations and maintenance infrastructure and improved service quality [O&M] risk taken by the private partner. Foreign Exchange (ForEx) risk • Increased availability of drinking water due to substitution of was also assumed by the private sector. treated water for irrigation and urban green areas in place of • As the first PPP in Egypt, project serves as a model for future PPP freshwater arrangements and promotes foreign investment • Reduction of pollutants discharged into the Nile river • Public budget pressure reduction • Improved public health • Institutional strengthening (PPPs) For the private partner – Project led to new laws and regulations within the GoE to support • Some risk elements were taken by the GoE, including risks future PPPs relating to inflation, interest rates, credit worthiness, and – Experience for the dedicated PPP Central Unit within the Ministry of the supply of utilities Finance • Reference case in the region (project has received several • Improved efficiency by bringing in the private sector international awards) • Knowledge transfer • Knowledge transfer and higher visibility (for local For the agricultural sector private partner) • Alternative source of irrigation water allows for potential increase in production in the surrounding area • Treated sludge (biosolids) can be used as fertilizer Key Factors for Success • Strong stakeholder participation • Emphasis on creating sound governance • Establishment of governance committees to provide arrangements oversight and guidance ––Use of outside advisers to gain best practices • Dialogue and transparency in procurement ––Establishment of dedicated PPP Central Unit • Detailed risk analysis and allocation in GoE 4 From Waste to Resource Since the technology being used was not particularly PHOTO 2. New Cairo Wastewater Treatment Plant novel, many of the key factors of success in this project are attributable to sound governance strategies in the early stages through completion. Strong stakeholder participation and coordination on the part of the GoE and the Ministry of Finance ensured that the project was stewarded from inception to completion. The establishment of the PPP Central Unit enabled coordi- nation within the government. The transparency of the procurement process enabled strong stakeholder par- ticipation, and the use of external advising from PPIAF and the IFC contributed to success. In the prebidding phase, bidders met with NUCA to discuss the tender Source: Aqualia. documents and ways to improve the process in the future. Several suggestions have been incorporated into the tender design for future projects. Strong due PROFILE diligence also engendered trust throughout the pro- NAME cess. The establishment of two governance committees New Cairo Wastewater Treatment Plant for the PPP allowed for oversight over the project and LOCATION dispassionate advice for unforeseen events through the New Cairo, Egypt duration of the contract. Another key factor for success SIZE was the creation of the SPV combining an international 250,000 m3/day average daily flow and a local firm. The international firm brought years MAIN INNOVATION of experience and know-how. The inclusion of a strong Treated wastewater reused for irrigation local partner in the successful bid allowed the project Sludge is sold to cement industry—extra revenue stream— to navigate the complex and unstable circumstances and could potentially be used as a fertilizer in agriculture surrounding the Egyptian revolution in 2011. Despite First successful PPP in Egypt the unrest, the project experienced minimal delays. Project led to changes in law and regulations that draw lessons from the project to facilitate future PPPs Other factors for success: (a) the final contract was clear; Bidding process was designed with advice from external and (b) all risks were carefully analyzed; and (c) the owner international advisers for each risk was clearly identified. Provisions in the Business strategy of private partners included creation final contract addressed numerous issues that allowed of an SPV that enabled both firms to complement their investors to feel more comfortable with the inherent competitive advantages and access local financing risks associated with the project. Key risks included TECHNOLOGY inflation, interest rates, credit worthiness, demand risk, Line of water with four lines of treatment in pretreatment and supply of utilities such as water and electricity. and primary decantation, six lines in activated sludge treatment, 10 lines in tertiary treatment (micro-screening), The Ministry of Finance agreed to underwrite NUCA and chlorine disinfection. to ensure that there would be no missed payments. Line of sludge with: six lines of thickening (three for primary A series of clauses allowed for the private operator sludge and three for secondary sludge), four lines of examination of the sewerage charges to to  request re-­ anaerobic digestion, and eight lines of dewatering. adjust for unforeseen changes in costs and revenue. From Waste to Resource 5 Finally, provisions in the contract transparently laid out future PPP ventures in Egypt by providing new legal the protocol and compensation in case of unforeseen and regulatory mechanisms and critical experience major events. for government entities to enable future stewardship of PPPs. Lessons Learned With strong and consistent support from the GoE, References issues of water scarcity and environmental quality Direct contact with the International Operations Director of Aqualia. were successfully addressed for New Cairo WWTP IFC (International Finance Corporation), and Orasqualia. 2014. “PPPs in through a PPP project. The inclusion of a local part- the Water and Sanitation Sector: New Cairo Wastewater Project.” IFC, ner in the winning bid consortium provided additional Geneva. stability that allowed the project to continue to suc- Salvador, J., F. Trillas, J. E. Ricart, and M. R. Planas. “PPP for Cities Case ceed despite the force majeure of civil unrest in the Studies: New Cairo Wastewater Treatment Plant (Egypt).” IESE Business School, University of Navarra, Pamplona, Spain. late stages of completion. Major private financing and expertise were mobilized to fund the construction and World Bank. 2010. “Egypt: New Cairo Wastewater.” Public-Private Partnerships Briefs, World Bank, Washington, DC. O&M phases of the project, which enabled the rela- tively cash-strapped government to achieve its public ———. 2011. “PPIAF Supports Groundbreaking Public-Private Partnerships in the Wastewater Sector in Egypt.” Report 72065, Impact Stories, World policy objectives of increasing water supply, decreas- Bank, Washington, DC. ing pollution, and improving service provision with- ———. 2017. “Lessons Learned: Public Private Partnerships (PPPs) in the out putting unneeded stress on public funds. Finally, Delivery of Wastewater and Sludge Treatment Services.” Water and the success of the project served to blaze a trail for Sanitation Program, World Bank, Washington, DC. ­ ank. Some rights ­ © 2018 International Bank for Reconstruction and Development / The World B reserved. The find- ings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, represent. The World Bank does not guarantee the accuracy its Board of Executive Directors, or the governments they ­ work. This work is subject to a CC BY ­ of the data included in this ­ (https://creativecommons.org/licenses​ 3.0 IGO license ­ by/3.0/igo). The World Bank does not necessarily own each component of the ­ /­ content. It is your responsibility to ­ wner. If you have determine whether permission is needed for reuse and to obtain permission from the copyright o pubrights@worldbank.org. questions, email ­  SKU W17109 6