Egypt Water Report Q1 2011

Report Summary

The government forecasts that Egypt would need water resources totalling around 86bn m3 by 2017 if it is to meet fast-rising demand, but a state-commissioned report estimates that the country is only likely tohave access to little more than 70bn m3.The problem is being compounded by issues similar to those being faced by countries upstream, such asSudan, Ethiopia and Uganda. Increasing water demand there, resulting in a desire to extract more waterfrom the Nile, may mean less water for Egypt and rising regional tensions.

This possibility has become more acute, in light of an agreement in Q210 between five upstream Nile Basin countries to question the water rights allocation from the Nile. A framework agreement signedbetween four Nile Basin countries on May 14 2010 –Tanzania, Uganda, Rwanda and Ethiopia – and thenacceded to by Kenya, has proved highly controversial for both Egypt and Sudan.

Egypt has embarked on a programme to overhaul and expand its creaky water infrastructure, and has restructured the government framework for the industry. International donor agencies are heavilyinvolved in this, providing technical support and major project funding. Parliamentary approval in April2010 of a public-private partnership (PPP) law will lay the foundation for privately financed and operatedwater projects, concentrated in the wastewater and desalination sectors.

Egypt signed an agreement for its first PPP project in wastewater treatment in 2009. An Egyptian/Spanish joint venture (JV) was awarded the contract to build and run the New Cairo Waste Water TreatmentPlant. Two more wastewater PPPs are in the pipeline, with pre-qualifiers already under consideration forone and the bid deadline for the other imminent. If these PPPs are regarded as a successful, others arelikely to follow.
The appointment of Ernst & Young as adviser on the upgrade and expansion of the Alexandria West wastewater project during Q310 confirms the strong emphasis on this sector over others. The 220,000m3/d expansion project, to be structured as a PPP project, is due on stream in 2014.

Another key PPP project, the Abu Rawash wastewater treatment plant, on which BOT methods were due to be deployed to provide an 800,000 m3/d increase in capacity, is being revised and the HousingMinistry will restart the prequalification process in Q1 2011 with reduced sludge management and powerco-generation capacities. The initial 20-year BOT contact included operation and management of a 1.2mnm3/d wastewater treatment facility.
A master plan for water and sanitation up to 2037 has been finalised. This prioritises potential water projects according to socio-economic need. Capital expenditure of over US$2bn will be ploughed intowater supply, and more than US$3.5bn will go into wastewater between 2012 and 2017.

Meanwhile, Egypt is pushing ahead with a series of large undertakings in the water sector. The most controversial of these is the US$70bn Toshka project, which is taking water from the Nile in the south ofthe country to turn nearby desert areas into a heavily irrigated oasis. The wisdom of spending so much ona project dependent on potentially fragile water resources has been questioned.

ith Nile resources under pressure due to the upstream dispute, Egypt’s government has put pressure on the agriculture sector to rationalise water use. For water-intensive crops like rice – which accounts for20% of the 55.5bn m3 per year water allocated under the Nile treaties -- this is proving to be a majorchallenge. Egypt is on course for a sustained increase in water production over the next four years, withmore than 1bn m3 per year likely to be added by 2014. This increase rests on the progress of a slate ofwater supply and wastewater treatment projects coming on stream. The only downside risk is the use ofPPP structures, with which Egypt has only limited experience up to now. If problems emerge in thefinancing of these BOT schemes, then the timetabling of some of these key projects could be upset. Fornow, however, we are confident that the outlined projects will be implemented and that Egypt will be ableto meet a water production target of 7.23bn m3/y by 2014.