P U B LI C -P RI VAT E INFR ASTR UCTUR E AD VISORY FACILITY 72066 September 2010 IMPACT STORIES PPIAF Supports Private Sector Participation in Egypt’s West Delta Irrigation Project In 2006 PPIAF helped the Egyptian government develop a conceptual framework and transaction model for implementing a surface water irrigation system in the West Delta region. As a result of this activity, the government adopted a public- private partnership model for the project, which was designed as a hybrid scheme based on the design-build-operate model and focused on minimizing tariffs and mitigating risks. The project represents a sustainable framework for private investment in large- and medium-scale irrigation that has set new precedents for the irrigation sector in Egypt and has already generated interest for possible use in new projects in Ethiopia, India, Turkey, and Zambia. It will also bring higher quality water to the 250,000 agricultural workers and the 500,000 people who inhabit the West Delta region. The irrigation sector plays a vital role in food production and in the development of rural economies, but irrigation infrastructure is costly and has been founded mostly on massive public funding programs, many of which have been neglected and abandoned because of the �scal burden of operation and maintenance on national governments. Private investment in the irrigation sector has historically been limited, though more recently the role of the private sector in the �nancing and operation of large-scale irrigation projects is expanding. Since the early 1990s, the West Delta region on the fringes of Egypt’s Nile Delta has developed a flourishing agricultural economy, but rapid development has led to excessive exploitation of groundwater reserves. The Egyptian government’s concern about the collapse of this thriving economy prompted it to request technical assistance from the Public-Private Infrastructure Advisory Facility (PPIAF). PPIAF’s support led to the conception of the West Delta Irrigation Project, which will install a surface water irrigation system and has adopted a bold set of reforms allowing for the recovery of costs and the involvement of the private sector. PPIAF SUPPORT In 2004 PPIAF funded a $75,000 study that explored options for private sector participation in Egypt’s irrigation sector. As a follow-up to this study, PPIAF provided an additional $75,000 grant in 2006 to help the Egyptian government develop a conceptual framework and transaction model for implement- ing a surface water irrigation system in the West Delta region, which became known as the West Delta Irrigation Project. A demand-driven approach, involving consultations with farmers to ensure their needs and willingness to use and pay for services, was needed due to the complexity of the project and the signi�cant risks associated with it. These consultations led to the creation of a representative advisory group of farmers and guided the development of the technical design, �nancing alternatives, and com- mensurate tariffs. Based on PPIAF’s work, the Egyptian government adopted a public-private partnership model for the project, which was designed as a hybrid scheme based on the design-build-operate model and focused on minimizing tariffs and mitigating risks. The transaction involves competitively choosing a private op- erator to design and construct the system and to assume full operational responsibility for 30 years. The private operator will assume the associated demand and commercial risks, while the public sec- tor will assume ownership of the assets and most of the �nancing-related responsibilities and risks. www.ppiaf.org OUTCOMES IMPACTS The regulatory and institutional frameworks and transac- The West Delta Irrigation Project is currently in the bidding tion model developed were accepted by the Egyptian gov- stage to select a private operator, with a number of interna- ernment in late 2006. A piped irrigation system was chosen tional and local �rms participating in the process. The Egyp- based on the needs of farmers and the advantages it of- tian government will support the initial �nancing of the fered for the private operator. Demand risk was reduced project through a $175 million loan facility, of which $145 by building a “subscription period� into the project design, million will come from the World Bank and $30 million will providing the operator with proof of farmers’ commitment come from the Agence Française de Développement. The and additional capital to �nance initial construction. Stake- government will assume the currency risk associated with holders also settled on a two-part tariff which maximizes this loan facility, and once it is exhausted the private opera- utilization ef�ciency and ensures positive cash flow. tor will be required to obtain its own �nancing. The PPIAF-funded framework and transaction model set In addition to the loan facility, PPIAF’s assistance paved the new precedents for the irrigation sector in Egypt. The West way for a $6 million grant from the government of the Neth- Delta Irrigation Project used a streamlined, largely output- erlands to promote the project and the bidding process, based procurement and disbursement procedure. Local implement the regulatory framework, and support capacity farmers and the government were engaged in the process, building in the Egyptian Ministry of Water Resources. with the �nal report taking into account their recommenda- tions. The project introduced a new approach by transfer- The West Delta region’s thriving agricultural economy is ring more of the risk from the government to the operator, threatened by excessive groundwater pumping that has reducing the risks of both public and private partners. It depleted groundwater resources and become costlier as represents a sustainable framework for private investment water quality erodes. As a model for sustainable irrigation, in large- and medium-scale irrigation that has already gen- the West Delta Irrigation Project, made possible with PPIAF erated interest for possible use in new irrigation projects in support, has the potential to reverse this trend. The project Ethiopia, India, Turkey, and Zambia. will replace groundwater pumping with surface water ir- rigation, bringing higher quality water to the 250,000 agri- cultural workers and the 500,000 people who inhabit this DONOR COORDINATION flourishing agricultural area. PPIAF, the World Bank, and the Agence Française de Dével- oppement supported the Egyptian government’s work on the West Delta Irrigation Project. RELATED PPIAF ACTIVITIES IN EGYPT • 2004: Public-Private Partnership Models in Irrigation, $75,000 • 2006: Development of Regulatory and Institutional Arrangements for the West Delta Irrigation Project, Since 1999 PPIAF, a $75,000 multidonor technical • 2006: Options in Public-Private Partnerships in assistance facility, has helped Operating and Maintaining Irrigation and Drainage developing countries use public- Infrastructure, $75,000 private partnerships to improve their • 2007: Public-Private Partnership Conceptual infrastructure. A key focus has been Framework for a Water Treatment Plant in the New upstream technical assistance to support Cairo Area, $75,000 the development of an enabling • 2008: Public-Private Partnership Unit Capacity environment for such partnerships. Building, $450,000 This series highlights how PPIAF’s support has made an impact on the ground.