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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. - PowerPoint PPT Presentation
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SMAP III Final WorkshopSMAP III Final WorkshopMarseillesMarseilles
Optimizing Urban Wastewater Optimizing Urban Wastewater Investments Along the Investments Along the Mediterranean Coast: Mediterranean Coast:
The Case of EgyptThe Case of EgyptJune 29, 2009
World Bank/METAP and EC/SMAP III
Decision makers are unaware of the Decision makers are unaware of the economic and financial implications of economic and financial implications of
environmental degradationenvironmental 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 Yet Governments Tend to Overspend on their Scarce Financial Resourceson 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 There is however a proposed methodology for optimization of the scarce financial for optimization of the scarce financial
resourcesresources 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?Why estimating the Cost of Inaction?
Environment is a public goodIt is affected by externalitiesAs a result, the externalities lead to market
failure as prices do not reflect the true social costs or benefits of an action
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
Algeria Egypt Morocco Tunisia
COED, % of GDP
Cost of protection,% of GDP
% of GDP
Optimization of Optimization of Urban Wastewater Investments Urban Wastewater Investments Along the Mediterranean Coast Along the Mediterranean Coast
Comparison of COED and Cost of ProtectionComparison of COED and Cost of Protection
Source: METAP Reports 2005
Waste Water Cleaning is expensive Waste Water Cleaning is expensive US$ 650 million per annumUS$ 650 million per annum
-
50
100
150
200
(US$
Mill
ion)
Algeria Egypt Lebanon Libya Morocco Syria Tunisia WestBank/Gaza
Country
Required vs Planned Annual WW Coastal Urban Investments to Decrease BOD by 50% over 2005-10 (US$ million in 2005 prices)
Required Annual Investments
Planned Annual Investments
Source: Doumani , 2007 for required investmentsNAP 2003, UNEP/MAP for planned investmentsPopulation data: Plan Blue
Advantages of such MethodologyAdvantages of such MethodologyConformity with the MDG # 7 on environment
sustainabilityExternalities are being internalized Undertaking Smart Investments Optimization of scarce resourcesProvision of rationale for investment justificationsOffering a seat to the Ministry of the Environment
in participating in the budgeting of large infrastructure projects
However for everyHowever for every methodology methodology there are some assumptions and there are some assumptions and
hypotheseshypotheses 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 $100 for secondary treatment Amortized investments over 2005-20 period not considered (old
wastewater treatment plant). Carbon funding/wastewater reuse were not considered due to
time/funding constraints
Application of the methodology : the Application of the methodology : the Case of the Northern Coast of EgyptCase of the Northern Coast of Egypt
With an urban population reaching 11.5 million in 2020 along the Mediterranean coast 2.4 million of un-served and 3.5 million of incremental population will need sanitation (connection and WW treatment) from 2005-20 to comply with the EC 2020 Horizon initiative to clean up the Mediterranean
8 coastal governorates (CZ definition) were considered. The largest is the Alexandria Governorate, located on the Mediterranean Sea 210km north of Cairo, and with a population of 3.9 million inhabitants
Egypt: Annual Cost of Environmental Egypt: Annual Cost of Environmental Degradation in the Degradation in the Governorate of Alexandria, Governorate of Alexandria,
82 km of coast82 km of coast ENVIRONMENTAL DAMAGE COST % OF GDP
0,00 %
0,50 %
1,00 %
1,50 %
2,00 %
2,50 %
3,00 %U
rban
isat
ion
Hea
lth
Mar
ine
and
fres
h w
ater
prod
uctio
n
Beac
hes
Wet
land
s
Agr
icul
ture
Tour
ism
% O
F G
DP
The total annual environmental damage costs are estimated at 1300 – 2000 million LE per annum, which is 5.0 to 7.5 % of the total GDP
Source: METAP report ( 2005)
Mediterranean Coast Partial COED Attributable to Wastewater, 2005
Categories of COEDShare of GDP (%)
Share of Coastal GDP 2005 (US$
million)
Total 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%50
Lake Tourism 0.56% 61
Total 1.82% 374 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 Five Investment Scenarios Assuming sewer connection to be at 100% and investments required to
reduce different levels of BOD by 2020
Scenario WWTreatment
BOD in 2020 compared to 2005
Primary 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 Scenario A Results Scenario A 100% Connection: BOD Emission and Untreated
(000' Tons)
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50
100
150
200
250
300
2005 BOD Emissions 2005 BOD Untreated 2020 BOD Emissions 2020 BOD Untreated
BOD00
0' T
ons
Scenario A 100% Connection: Cost/Benefit (US$ Million)
0
100
200
300
400
500
600
700
2005 AnnualInvestment Cost
2005 Annual COED 2005 Annual COEDaverted
2020 AnnualInvestment Cost
2020 Annual COEDno Action
2020 Annual COEDaverted
(Order of Magnitude)Investment/COED
US$
Mill
ion
EcosystemTourismLakesRecreationDiarrhea
B/C
Generated and Residual BOD after no Additional Treatment Investment under Scenario A
AnnualInvestment
In 2020
Cost of no Action
Averted Cost in 2020
BOD Generated
Residual BOD
Scenario E Results Scenario E Results Scenario E 100% Connection and 100% Treatment (5/95): BOD Emission and Untreated (000'
Tons)
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50
100
150
200
250
300
2005 BOD Emissions 2005 BOD Untreated 2020 BOD Emissions 2020 BOD Untreated
BOD
000'
Ton
s
Scenario E 100% Connection and 100% Treatment (5/95): Cost/Benefit (US$ Million)
0
100
200
300
400
500
600
700
2005 AnnualInvestment Cost
2005 Annual COED 2005 Annual COEDaverted
2020 AnnualInvestment Cost
2020 Annual COEDno Action
2020 Annual COEDaverted
(Order of Magnitude)Investment/COED
US$
Mill
ion
EcosystemTourismLakesRecreationDiarrhea
Generated and Residual BOD After Treatment under Scenario E
B/C
AnnualInvestment
In 2020
Cost of no Action
Averted Cost in 2020
BOD Generated
Residual BOD
Coastal WW Investment ScenariosCoastal WW Investment Scenarios
Item Scenario
A B C D E
Cost per year (US$ million)
24 37 42 51 54
Benefit per year (US$ million)
61 61 61 195 240
Economic rate of return over 15 years (%)
>10% <10% <10% >10% >10%
Two Kinds of BenefitsTwo 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 ScenariosCoastal WW Investment Scenarios
Scenario A: No Investment in Treatment (+60% BOD) cov. 59/16 prim/secScenario B: 2005 Treatment level = 2020 Treatment level (+33%) cov. 60/23 prim/secScenario C: 2005 BOD level = 2020 BOD level (+0%) cov. 60/40 prim/secScenario D: 2005 BOD level Greater than 2020 BOD level (-33%) cov. 24/76 prim/secScenario E: 2005 BOD level Greater than 2020 BOD level (-50%) cov. 5/95 prim/secAll Scenarios have a 100% sewer network coverage
WW Annualized Investments and Residual BOD by 2020 (US$ million and BOD 000' tons)
0
10
20
30
40
50
60
Scenario A100% Net.
No new WW Invest.
Scenario B100% Net.
60%-23% WW
Scenario C100% Net.
60%-40% WW
Scenario D100% Net.
24%-76% WW
Scenario E100% Net.
5%-95% WWScenario
WW
Inve
stm
ents
(US$
mill
ion)
-
20
40
60
80
100
120
140
160
180
200
Residual B
OD
(000' tons)
Annualized Network & WW InvestmentAnnualized Network InvestmentResidual BoD
ERR >10%
ERR <10%
ERR >10%
Health Benefits
Environmental Benefits
WW Investment Decision 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 ImplicationPolicy 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?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?What can we conclude so far?(ctd)(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 Policy Recommendations for Optimizing Waste Water Investments 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 Policy Recommendations for Optimizing Waste Water Investments 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 ImplicationExamples 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 TimeThank You for Your Valuable Time