Transcript Optimizing Urban Wastewater Investments Along the Mediterranean

SMAP III Final Workshop
Marseilles
Optimizing Urban Wastewater
Investments Along the
Mediterranean Coast:
The Case of Egypt
June 29, 2009
World Bank/METAP and EC/SMAP III
Decision makers are unaware of the
economic and financial implications of
environmental degradation

Serious environmental problems related to
waste are a drain on the economy
– How much is access to sanitation and good hygiene
worth?

While the investment costs of providing eg: and
sanitation services are relatively well known:
– the benefits resulting from such investments are more
difficult to quantify

There is therefore a need to quantify the
benefits or “costs avoided”
– For the government to take informed policy decisions
Yet Governments Tend to Overspend
on their Scarce Financial Resources

Goverments tend to finance large
infrastructure investments such as waste
water collection and treatment based on
engineering and technical costs only
 Technology is the main driver ( primary
secondary, tertiary treatment) in order to
meet strict and stringent standards
 Environment benefits are assumed to be
generated as a result of such investments
without quantification of these benefits
There is however a proposed methodology
for optimization of the scarce financial
resources

Estimation of the cost of inaction
– To assign a monetary value on the damages
resulting from environmental degradation caused
by lack of waste water collection and treatment
 Estimation of the cost of mitigation
– To estimate the averted cost of inaction i.e
estimating the benefits for a particular reduction of
pollutants
 Provision of options for determining tradeoffs to
balancing WW investments with benefits (COED) by
using the BOD reduction as an entry point
Why estimating the Cost of Inaction?

Environment is a public good
 It is affected by externalities
 As a result, the externalities lead to market
failure as prices do not reflect the true social
costs or benefits of an action
Optimization of
Urban Wastewater Investments
Along the Mediterranean Coast
Comparison of COED and Cost of Protection
% of GDP
7.00
6.00
5.00
4.00
COED, % of GDP
Cost of protection,
% of GDP
3.00
2.00
1.00
0.00
Algeria
Source: METAP Reports 2005
Egypt
Morocco
Tunisia
Waste Water Cleaning is expensive
US$ 650 million per annum
Required vs Planned Annual WW Coastal Urban Investments to Decrease
BOD by 50% over 2005-10 (US$ million in 2005 prices)
200
Required Annual Investments
Planned Annual Investments
(US$ Million)
150
100
50
Algeria
Egypt
Lebanon
Libya
Morocco
Country
Source:
Doumani , 2007 for required investments
NAP 2003, UNEP/MAP for planned investments
Population data: Plan Blue
Syria
Tunisia
West
Bank/Gaza
Advantages of such Methodology

Conformity with the MDG # 7 on
environment sustainability
 Externalities are being internalized
 Undertaking Smart Investments
 Optimization of scarce resources
 Provision of rationale for investment
justifications
 Offering a seat to the Ministry of the
Environment in participating in the
budgeting of large infrastructure projects
However for every methodology
there are some assumptions and
hypotheses

Urban Scope: Neither industrial nor rural effluents considered.
 Med coastal tourism only represents 8% of total Tourism.
 BOD per capita is set at 60 grams/capita/day
 Primary removes 40% and secondary 80% BOD
 Midpoint investment cost/capita are $100 for connection, $40 for
primary treatment and $100 for secondary treatment
 Amortized investments over 2005-20 period not considered (old
wastewater treatment plant).
 Carbon funding/wastewater reuse were not considered due to
time/funding constraints
Application of the methodology : the
Case of the Northern Coast of Egypt

With an urban population reaching 11.5 million in
2020 along the Mediterranean coast 2.4 million of
un-served and 3.5 million of incremental population
will need sanitation (connection and WW treatment)
from 2005-20 to comply with the EC 2020 Horizon
initiative to clean up the Mediterranean

8 coastal governorates (CZ definition) were
considered. The largest is the Alexandria
Governorate, located on the Mediterranean Sea
210km north of Cairo, and with a population of 3.9
million inhabitants
Egypt: Annual Cost of Environmental
Degradation in the Governorate of Alexandria,
82 km of coast
ENVIRONMENTAL DAMAGE COST % OF GDP
3,00 %
% OF GDP
2,50 %
2,00 %
1,50 %
1,00 %
The total annual environmental damage costs are estimated at
1300 – 2000 million LE per annum, which is 5.0 to 7.5 % of the total GDP
Source: METAP report ( 2005)
Tourism
Wetlands
Beaches
Marine and
fresh water
production
Health
Urbanisation
0,00 %
Agriculture
0,50 %
Mediterranean Coast Partial COED Attributable to Wastewater, 2005
Share of
GDP (%)
Share of Coastal
GDP 2005 (US$
million)
Health Effects due to water res.
degradation
0.21%
42
Recreational Use
0.50%
102
Ecosystem Loss
0.30%
119
Mediterranean Sea International
Tourism
0.25%
Lake Tourism
0.56%
61
Total
1.82%
374
Categories of COED
Total Coastal GDP
2005 (US$ million)
50
20,371
• National (4.8% of GDP) and coastal (6.5% of GDP) COEDs
were used to project benefits
• In a No Action Scenario, the urban GDP growth rate
(+1.9%) and International tourism growth (+7%) were used for
the COED Projection to reach $ 568 Mn in 2020.
Five Investment Scenarios

Assuming sewer connection to be at 100% and investments required to
reduce different levels of BOD by 2020
S
cenario
WW
Treatment
BOD in 2020 Primary
compared to
2005
Secondary
Cost in
US$ million
2005-20
A
No
+60
59%
16%
359
B
Yes
+33%
60%
20%
559
C
Yes
0%
60%
40%
697
D
Yes
-33%
24%
76%
771
E
Yes
-50%
5%
95%
843
Scenario A Results
300
BOD Generated
250
200
000' Tons
Generated
and Residual BOD
after no Additional
Treatment
Investment under
Scenario A
Scenario A 100% Connection: BOD Emission and Untreated
(000' Tons)
Residual BOD
150
100
50
2005 BOD Emissions
2005 BOD Untreated
2020 BOD Emissions
2020 BOD Untreated
BOD
Scenario A 100% Connection: Cost/Benefit
(US$ Million)
700
B/C
Ecosystem
Tourism
600
Cost of no
Action
Lakes
Recreation
500
US$ Million
Diarrhea
400
Annual
Investment
In 2020
300
200
Averted
Cost in
2020
100
0
2005 Annual
Investment Cost
2005 Annual COED
2005 Annual COED
averted
2020 Annual
Investment Cost
Investment/COED
2020 Annual COED
no Action
2020 Annual COED
averted
(Order of Magnitude)
Scenario E Results
Scenario E 100% Connection and 100% Treatment (5/95): BOD Emission and Untreated (000'
Tons)
300
BOD Generated
250
200
000' Tons
Generated
and Residual BOD
After Treatment
under Scenario E
Residual BOD
150
100
50
2005 BOD Emissions
2005 BOD Untreated
2020 BOD Emissions
2020 BOD Untreated
BOD
Scenario E 100% Connection and 100% Treatment (5/95): Cost/Benefit (US$ Million)
700
600
B/C
Cost of no
Action
Ecosystem
Tourism
Lakes
Recreation
500
US$ Million
Diarrhea
Averted
Cost in
2020
400
Annual
Investment
In 2020
300
200
100
0
2005 Annual
Investment Cost
2005 Annual COED
2005 Annual COED
averted
2020 Annual
Investment Cost
Investment/COED
2020 Annual COED
no Action
2020 Annual COED
averted
(Order of Magnitude)
Coastal WW Investment Scenarios
Item
Cost per year (US$
million)
Benefit per year
(US$ million)
Economic rate of
return over 15
years (%)
Scenario
A
B
C
D
E
24
37
42
51
54
61
61
61
195
240
>10%
<10%
<10%
>10%
>10%
Two Kinds of Benefits
• Health
Benefits are generated from full coverage
of the wastewater network
• Environmental benefits from tourism, fisheries,
recreation, etc, are generated as a result of level
of treatment of wastewater.
• What is required is to maximize health
and environmental benefits for project for
investment that are economically viable,
i.e., an Economic Rate of return >10% .
Coastal WW Investment Scenarios
WW Annualized Investments and Residual BOD by 2020
60
ERR >10%
(US$ million and BOD 000' tons)
ERR >10%
ERR <10%
180
50
160
140
40
120
30
100
80
20
10
60
Health
Benefits
Environmental
Benefits
A nnualized Netwo rk & WW Investment
A nnualized Netwo rk Investment
Residual B o D
0
Residual BOD
(000' tons)
WW Investments
(US$ million)
200
40
20
-
Scenario A
100%Net.
No new WW Invest.
Scenario B
100%Net.
60%-23%WW
Scenario C
100%Net.
60%-40%WW
Scenario D
100%Net.
24%-76%WW
Scenario E
100%Net.
5%-95%WW
Scenario
Scenario A: No Investment in Treatment (+60% BOD) cov. 59/16 prim/sec
Scenario B: 2005 Treatment level = 2020 Treatment level (+33%) cov. 60/23 prim/sec
Scenario C: 2005 BOD level = 2020 BOD level (+0%) cov. 60/40 prim/sec
Scenario D: 2005 BOD level Greater than 2020 BOD level (-33%) cov. 24/76 prim/sec
Scenario E: 2005 BOD level Greater than 2020 BOD level (-50%) cov. 5/95 prim/sec
All Scenarios have a 100% sewer network coverage
WW Investment Decision

Tradeoffs between health and environmental
benefits are reached at a investment rate of
return equal to the discount rate (10%).
 If Scenarios A, it will only reap health benefits

If Scenarios D (24-76) and E (5-95) both health
and benefits will start being generated at an
ERR>10%.
Policy Implication
-
-
Connect all dwellers to the collection network,
which has the highest ERR due to health
benefits; and where financing is assumed by
various Government-tiers but management is
entrusted to the lower tier with a high dweller
WTP acceptability to balance O&M.
determine phased and select level of treatment
(climate change should be factored in) based on
trade-offs that generate environmental benefits.
What Can we Conclude so far?

The cost of inaction is translated into averted
benefits, which are gauged in terms of
environmental externalities . The latter are
negatively affecting the financial and economic
profitability (rate of return) of both public and
private projects therefore hampering private
sector investments and economic growth.
 Investment needs are usually much larger than
the Government (i.e. loans or budget) can
realistically cover...therefore, there is a need to
look into policy measures that would include:
rethinking the investment program, the time
framework (stretching the investments over
longer timeframe), the standards, the targets,
sources of finance, etc.
What can we conclude so far?
(ctd)

In view of resource constraints, low WW tariffs and
low WW cost recovery, decision-makers have to
optimize choices based on the:
– The disentanglement between financing network
and treatment in the case of waste water, and
between financing collection and disposal in the case
of solid waste , i.e. priority ONE the is collection
network (highest rate of return because of health
benefits) which is seen as private benefits (up to a
point) and therefore has (relatively) high willingness
to pay
– The selectivity of the pollution abatement
technology and the level of treatment
– The affordability of the investments by the utilities
– The social benefits to accrue as a result of these
investments
Policy Recommendations for Optimizing
Waste Water Investments

To improve project profitability a different financing
engineering scheme should be designed and
implemented whereby:
– Government budgetary transfer could bear the costs
of the externalities and/or provide incentives to the
utilities for averting past and present
environmental externalities , as well as financing
part of the infrastructure such as treatment plants
for WW.
– Incentives which are operational, is to tap carbon
funding to defray some of the initial treatment or
landfill initial investment costs, and/or leverage
GEF funds for financing the incremental costs of
public goods
– Governments and /or national banking sector could
provide long term financing to the utilities using “
attractive funds” secured through international
financing institutions
Policy Recommendations for
Optimizing Waste Water Investments
– Donor contributions should go to finance software
costs as well as the difference between total costs
and the cost fraction paid by central government
and beneficiaries.
– Beneficiaries should assume part of/ or match the
cost of infrastructure which is related to their
private benefits
– Private sector operators should be contracted on the
basis of performance including meeting
environmental benchmarking . Private operators
could be contracted to operate a plant on the basis
of targets and be paid on the basis of m3 treated to
the level that is required.
– A flexible approach to cost recovery should be
implemented by the utilities/operators to ensure the
sustainability of these services
Examples of Policy Implication
-
As a matter of example regarding the public
sector incentive, an interesting program exists
in Brazil whereby the Federal Government
encourages the construction of wastewater
treatment plants by local private utilities by
promising to pay up to 50 percent of the cost of
capital and O&M for every m3 of sewage
treated.
Thank You for Your Valuable Time