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private players tap into water sector
by frederik richter
the nile is a resource of such obvious strategic importance to egypt
that work in the water sector has traditionally been the exclusive
domain of big public contractors and companies affiliated with the
egyptian army. in recent years, however, the private sector has
played an increasing role, with private firms now active to varying
degrees in irrigation, water distribution, water treatment and wastewater
management. industry experts estimate that the proportion of private
sector activity in the sector has risen to over 50 percent, up from
virtually zero only five years ago.
in one recent instance of privatization, the ministry of housing
and the south sinai governorate agreed to outsource the operations
and maintenance of south sinai's entire water system, which comprises
plants, pumping stations and networks in nine different districts,
including st. katherine, sharm al sheikh, dahab, nuweiba and taba.
under this arrangement the private contractor supplies labor and
equipment for those parts of the system not under an existing service
contract.
similar shifts are under way elsewhere in egypt, particularly in
wastewater treatment. us-based abb susa expanded two pivotal treatment
facilities in alexandria late last summer, and in 2004 chemonics
egypt, the local subsidiary of us-based consulting firm chemonics
international, upgraded operations at six treatment facilities throughout
the country. yet because the sector is so young and the scale of
the projects so enormous, only a handful of private companies are
able to conduct business in compliance with official environmental
standards - a problem familiar to the public sector contractors
whose shoes they are filling.
whatever shortcomings plague the egyptian water sector, they are
not a result of donor neglect. a list of donors in the sector reads
like a who's who of the country's major financial contributors.
just about everybody, from the world bank, japan and the us to france,
czech republic and the netherlands, is active in some capacity.
a quick tally of investments announced by donors in the sector during
2005 for coming years stands at £e 2.1 billion, a figure exclusive
of ongoing projects.
yet the government is still very much involved in developing infrastructure
and managing water services. under the national water resources
plan (nwrp), published in january 2005 and outlining the vision
for the sector until 2017, the egyptian government will invest more
than £e 140 billion during that period.
however, the government is not acting as just a coordinator and
distributor of funds, but continues to take on a significant share
of the work via public sector contractors or local authorities.
by and large, government authorities still control the sector, even
as projects are done increasingly by private firms.
the basic problem is easy to understand. thanks to the nile, egypt
enjoys a constant flow of water, consuming a quota of 55.5 billion
cubic meters per year. water consumption will increase drastically
over the coming years due to sharp population and industrial growth.
as a result, the annual allotment of water available to each egyptian
will shrink to 580 cubic meters per person per annum in 2025. to
put this number in context, un figures state that an individual
requires 1,000 cubic meters per annum.
solving the shortfall will be tricky. all signs point to better
resource management as the only realistic solution. ahmad gaber,
founding partner and president of chemonics egypt, estimates that
losses in the egyptian water network, primarily due to leaking pipes
and technical failures, reach 40 percent, and that another 20 percent
is siphoned out of the system without being billed. "water
management, sanitation and solid waste management are the most underdeveloped
sectors in egypt," he says.
the main foreign donors are encouraging institutional reform within
the egyptian government. "responsibilities are fragmented between
authorities. there is little coordination and transparency,"
says stefan sennewald, coordinator of the water sector program of
german development cooperation agency gtz. five different ministries
are involved in the sector - water resources, housing, agriculture,
health, and trade and industry - as well as numerous government
agencies. the water program of the eu, a new player in the sector,
is focusing on public fund management and regulatory reform. the
world bank, meanwhile, is carrying out a public expenditure review
of how the government manages its budget in the water sector.
increasing the involvement of private sector businesses is a stated
goal of donor agencies. "because of the huge investment required,
from now on we need to encourage local and international companies
to come and invest in the sector," says mohammed el-alfy, vice
president of the holding company for water & wastewater (hcww).
the holding company is a pillar of water sector reform. since its
formation in summer 2004, 14 former governorate authorities have
been transformed into holding company affiliates, a process that
has introduced international accounting standards and financial
targets. the biggest challenge is making these companies financially
sustainable, says alfy.
one reason why the supply segment of the water sector has seen little
investment, notes gaber, is the government-set water tariff. as
a result of this tariff, cost coverage amounts to a mere third.
hcww's affiliates had accumulated a total deficit of £e 7.6
billion and debts of £e 7.3 billion when the holding company
was created.
the government is fully cognizant of the need for investment, insists
el-alfy. hcww is currently studying the possibilities for public-private
partnership. the nwrp estimates that the private sector needs to
contribute £e 6.8 billion worth of investment by 2017, most
of it to fund the application of modern irrigation techniques on
reclaimed agricultural land.
higher-ups agree: the agenda of a february 15 ministerial housing
committee meeting presided over by president hosni mubarak was topped
by discussion of the progress of rural water supply and sanitation.
after the meeting, newly appointed housing minister ahmed el maghraby
said that bringing in the massive investments required to egypt's
water strategy would call for considerable private sector involvement.
as investment begins to make its impact felt on the ground, the
focus will be on plugging the leaks. many of the existing municipal
water networks in egypt are now a century old and in a sorry state
of disrepair. el-alfy estimates that urban areas alone need an annual
investment of £e 4-5 billion to upgrade and maintain water
networks. the corresponding figure in rural areas could be much
higher. agriculture accounts for a whopping 95 percent of egypt's
water consumption. el-alfy puts the annual maintenance costs for
the networks run by hcww's affiliates at £e 600-800 million.
private sector involvement in water treatment and supply holds great
potential, affirms sami gabr, chairman of egyptian fluids treatment
company. he says progress in this field has been slow in the delta,
nile valley and big population areas because of the ready availability
of cheap, government-subsidized water. but there has been "clear
progress" in remote areas where there are concentrations of
private clients able to pay a premium for water service, such as
the hotel industry in sinai. "it's definitely on the go there,"
he says.
irrigation infrastructure also needs to be overhauled or even rebuilt,
as most of the nile barrages date from the first half of the 20th
century. one proposal is for private companies to build and operate
wastewater treatment plants in the delta and pumping stations along
the nile. japanese pumping station supplier hitachi said last august
that it would provide new operation and maintenance services in
egypt valued at $15 million over the next four years. it will, for
instance, operate the mubarak pumping station at lake nasser through
one of its subsidiaries.
another promising subsector is industrial wastewater treatment.
currently, industries seldom comply with environmental regulations,
including laws governing the ways in which they dispose of wastewater.
although the major offenders are well known to authorities, law
48/1992 for the protection of egypt's waterways does not provide
an adequate legal basis to follow up on violations, as it leaves
no room for flexible interaction between authorities and businesses.
it does not, for example, provide phases of mitigation or any other
mechanisms by which to achieve compliance once a violation occurs.
in any case, environmental regulations are rarely implemented, so
few businesses take any interest in wastewater treatment. "ignoring
environmental regulation is much cheaper than expenditures and investment
to meet them," sennewald says, explaining authorities tend
to react only when the environmental damage is severe, and then
with wrist-slap fines.
however, if effective regulations are eventually enacted, the wastewater
treatment sector could be good business. "today only 45 percent
of egypt is covered by wastewater facilities," says gabr. "this
is supposed to reach 100 percent by 2017, so there is plenty of
work to do there."
the egyptian government, through the nwrp, is moving to reform the
sector by opening it to private involvement. the move has drawn
renewed interest from outside donors, which calculate that they
can make an impact under new conditions. "we need the will
for reform and change, which is clearly there," says andreas
holtkotte, head of the egypt office of kfw, the bank financing germany's
development cooperation. "for the first time, there is a clear
strategy that includes commercialization, private sector involvement,
community participation and decentralization."
there is certainly no shortage of opportunity for investors. "it's
a green field," asserts gaber of chemonics, adding that he
expects major investments in the sector over the next 20 years.
"we need a lot of projects," he says, "either to
cover the areas uncovered [by water supply and sanitation] or to
improve coverage that is inefficient."
while gaber does see a few egyptian consultants and civil contractors
meeting international standards, he says most companies still lack
the requisite know-how. capable electrical and mechanical contractors
are also limited in number, he says. local manufacturing is in its
early stages, and manufacturing equipment is as a rule imported.
but for top companies, the future looks bright, even beyond the
banks of the nile.
countries across the region, faced with problems similar to those
in egypt, are seeing the need to revamp their water infrastructure.
for example, the algerian government plans to invest $10 billion
in the country's water sector by 2009. if egyptian companies are
granted the chance to participate with international partners in
revamping egypt's water infrastructure, as donors and politicians
have in mind, they will obtain experience that qualifies them for
a major share of the same sort of business internationally.
this process, in fact, is already well under way. according to gaber,
egyptian consultants and contractors are already successfully competing
for water projects all over africa and the middle east. chemonics
egypt, for instance, is carrying out sanitation works in tripoli,
libya. "we have an advantage in non-typical solutions,"
says gaber. "we have experience with systems that work under
local conditions in african countries."
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water works
the aswan high dam has been the centerpiece of egypt's water
system since it began operation in 1968. the high dam, however,
is only one part of the complex water distribution system
that keeps egypt provided with water - 95 percent of which
is used for agriculture. an extensive canal system diverts
water from the nile below the high dam and transports it to
farms, the runoff of which returns to the nile or is flushed
into the mediterranean.
egypt's irrigation systems are often quite dated. the oldest
barrages - river obstructions designed to regulate nile flow
- were constructed beginning in 1861. nevertheless, eight
such control structures, along with 13 principal gravity canals,
direct about 80 percent of the water eventually used on farmland.
altogether, the country is crisscrossed with over 35,000 kilometers
of large canals and 16,000 kilometers of drainage systems.
though originally constructed to moderate swings in the mercurial
nile flood, this system today continues to do the lion's share
of agricultural water transport.
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