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Wastewater Policy Investment Optimization for Egypt’s Urban Mediterranean Coastal Zones Policy Note1 June 2009

Abstract

The coastal urban population in the eight Mediterranean governorates of Egypt is bound to reach 11.5 million by 2020 with some 2.4 million remaining without any kind of municipal wastewater treatment in 2005 and some 3.5 million constituting the incremental population to be served. Untreated effluents from various sources along the Mediterranean coastal zone are becoming a serious concern that requires immediate attention.

Wastewater investments have been lagging behind and untreated effluents are having an increasing negative impact on the environment, which is translated in terms of ill-health, missed recreational and tourism opportunities, diminished ecosystem services and other unquantifiable forgone benefits in terms of real estate market improvement, increased fiscal revenues, etc. Bringing investments to optimal levels involve tradeoffs between investing in additional wastewater treatment plants and the associated reduction in environmental degradation. The latter however remain difficult to calculate due to confounding factors especially when watershed pollution, industrial effluents and agriculture runoffs are not considered. Nevertheless, orders of magnitudes of cost of environmental degradation averted associated with improved wastewater treatment are attributed to a number of investment scenarios that increase, maintain or decrease the BOD load over the 2005-20 period.

Tradeoffs are attained at two levels: in terms of human health improvement (reduction of diarrhea especially afflicting children under 5) when investments target a 100 percent connection to the sewer network; and in terms of positive environmental impact when the BOD load is reduced below the 2005 BOD untreated level thanks to a 100 percent treatment capacity coverage with a blend of primary (5-59 percent) and secondary (range of 16-95 percent) treatment respectively. Annualized required capital investments are respectively US$ 24 million to improve human health and at least US$ 51-54 million in 2005 prices to start reaping marginal environmental benefits over the period. However, the Horizon 2020 50 percent reduction in BOD as compared to 2005 is only achieved when primary and secondary wastewater treatment covers 5 and 95 percent of the population respectively with a yearly US$ 54 million price tag.

To secure these investment needs and improve the sector governance following the sector reforms of 2004, new policy measures need to be devised where it is suggested to disentangle sewer network from waste treatment operations: the network extension will be funded by the Government which will also manage it --operations and maintenance costs will however be covered by the beneficiaries; and through better partnership and awareness about common environmental benefits, the Government will provide possibly up to an equal share of the capital and operations and maintenance costs to attract private operators that will recoup their investment shares through more realistic tariffs and better cost recovery. This in turn will help improve the well-being of the population, ensure the sustainability of the sector while preserving

1 This Policy Note was prepared by Fadi Doumani (METAP consultant), Raffaello Cervigni (Senior Natural Resources Economist in SDD MENA) and Claire Kfouri (Water and Sanitation Specialist in SSD MENA) under the METAP/World Bank Promoting Awareness and Enabling a Policy Framework for Environment and Development Integration in the Mediterranean with Focus on Integrated Coastal Management in association with MAP, the Blue Plan, the UNEP/MAP/MEDU, and the European Commission Delegation in Egypt. Funding was also provided by the Finnish Ministry of Foreign Affairs. The Policy Note builds on Erkki Ikaheimo (METAP Consultant) Background Note on the MENA region urban wastewater projection of environmental damages and investments till 2020. We would like to thank Eng. Mohamed el Alfy (Ministry of Housing, Utilities and Urban Development), Eng. Zeinab Mounir (CAPWO) and Eng. El Sayed Saad Abdalla (NOPWSD) as well as our colleagues at MNSSD Sherif Arif, Alex Bakalian, Hocine Chalal, Jaafar Friaa, N. Vijay Jagannathan and Dahlia Lotayef for their guidance, inputs and comments. the commons.

Introduction

The European Commission launched the Horizon 2020 initiative, whose timetable for de- pollution of the Mediterranean Sea by 2020 was endorsed by the Euro-Mediterranean Ministers of Environment and other heads of delegation at the Cairo Ministerial Conference in 2006.

In line with the Horizon 2020 initiative, the EC-funded SMAP III has provided a grant to UNEP/MAP in order to promote awareness and enabling a policy framework for environment and development integration with focus on integrated coastal zone management. Part of this grant is to enable METAP/World Bank to prepare a policy note on major environmental issues of the Mediterranean coast of Egypt. This policy note draws on the Egypt wastewater treatment National Action Plan (NAP) 2 in 2006 and the Egypt’s 2006 Census to address pollution from land-based activities produced under the UNEP Strategic Action Programme to Address Pollution from Land-based Activities (SAP) that was adopted in 1997.

Objective and Limitations

The objective of the policy note is to provide Egyptian decision makers with environmental economic tools to optimize choices with regards to wastewater treatment financing requirements based on the change in the cost of environmental degradation (COED).

This policy note is based on a background study, which was partially funded by a Government of Finland trust fund managed by METAP.3 The study reviewed the available information (NAP) about municipal wastewater treatment capacity on the Mediterranean coastal cities of Egypt based on two case studies that were developed for the study. The study also presented COED reduction scenarios for the coastal urban population of Mediterranean Egypt, with different investment amounts and based on various assumptions.

This policy note attempts to address the environmental economics of de-pollution issues within the 2020 timeframe but remains subject to comments, adjustments, refinement of the methodology and more importantly better data on the Egypt’s wastewater treatment investments (see also Box 1).

The State of Coastal Urban Sanitation along the Mediterranean Sea

Urbanization, population, tourism, industrial and agricultural growth have been responsible for increased pressures on the Mediterranean coastal zone resources. In addition to agricultural runoffs, Egypt’s Mediterranean coastal zone receives large quantities of direct or indirect (through the Nile watershed) untreated wastewater from mainly municipal and industrial sources, which affects ecosystem services.

There is no specific framework law dealing with the coastal zone in Egypt. Several laws and decrees however apply to the coastal zones that are managed by a number of institutions with

2 Egypt’s 2006 Land Based Sources Pollution National Action Plan (NAP). 3 Ikaheimo (2007). 2 unclear mandates.4 Moreover, there is no clear delineation of the coastal zone. Therefore, the coastal zone will focus on the urban cities of the eight Mediterranean coastal governorates (see Box 1) in this analysis and will include the five major lakes along the Mediterranean Sea that are absorbing a great deal of notably untreated urban wastewater loads.

In terms of urban wastewater load into the Mediterranean coastal zone, Egypt is one of the top five basin’s largest polluter5 due to both a growing coastal urbanization exacerbated by a relatively high urban population growth rate (1.9% per annum in the 8 governorates) and a booming tourism industry. For instance, urban municipal emissions are equivalent to 180,366 6 tons of BOD5 in 2005 and when urban, rural, industrial and agricultural watershed emissions are considered collectively, total BOD5 could reach as much as 800,000 tons per year along the Mediterranean coastal zone.7 These other land-based pollutions are being addressed through a number of parallel programs funded by development partners in conjunction with the Egyptian authorities.

Based on the 2006 census, the coastal urban population reached 8.2 million in 2005, where 81.3 percent is connected to the sewer network. Also, according to NAP, wastewater primary treatment coverage reaches 59 percent and secondary treatment 16 percent of total population in most cities along Egypt’s Mediterranean coast in 2005. Nevertheless, the environmental pressure is seemingly higher in 12 major cities (5.4 million) with over 10,000 inhabitants as illustrated in the 2006 NAP.

With regards to the COED attributable to wastewater, it is difficult to determine the exact share of wastewater discharge damages but two orders of magnitude are available at the national (2002) and governorate (2006) levels and are illustrated in Table 1 and representing 1.3 percent and 5.2 percent of the national and local GDP respectively. These figures were extrapolated to the 7 other governorates to come up with the coastal zone COED (see Table 2 and Annex I).

Table 1. National and Governorate COED Category Comparison in US$ million, 2005 prices Sector or National Level Alexandria Governorate Environmental Category mean COED mean COED 2005 constant prices 2005 constant prices (US$ million) (% of GDP) (US$ million) (% of GDP) Total Categories 4,746.9 4.8 295.6 6.5 Subtotal water category impact 1,265.0 1.3 236.1 5.2 o/w wastewater effluent potential impact 1,230.1 1.3 83.7 4.7 Source: Annex I; World Bank (2002); METAP (2006); and IMF (2006).

In order to optimize Egypt’s urban sanitation investments along the Mediterranean coast by 2020, a number of scenarios are developed to help decision-makers make informed and efficient policy choices. However, a number of calculation assumptions were considered and are spelled out in Box 1.

4 Although a National Committee for Integrated Coastal Zone Management was established by a Ministerial decree in 1994 and includes sixteen high-level representatives of all concerned Ministries, it does not have however a clear mandate and real authority over the coastal zone. 5 MedPol (2005). 6 3 Based on a 0.06 kg/per capita/day BOD5 emission or about a total of 2 million m per day. Moreover, in EEA and UNEP (2006), the Mex and Abu-Qir Bays have a total BOD5 discharge of 311,000 tons/year from both municipal and industrial effluents in the Mediterranean Sea. Hydroplan Consult did a feasibility study to reduce the multi-source liquid waste of lake Mayrut in Alexandria and uses a 0.041 kg/per capita/day

BOD5 emission assumption. 7 Saliot (2005). 3 Box 1. Calculation Assumptions Scope: the policy note covers the economic aspects of urban municipal wastewater pollution abatement in terms of BOD without dealing with: both the institutional set up, and operations and maintenance of both the wastewater treatment plants and sewage network; and international and local tourism, agricultural, industrial as well as rural effluent loads or unsanitary landfill leachate. Eight Mediterranean governorates are considered and include from west to east: Matruh, Alexandria (Lake Mayrut), Al Buhayrah (Lake Idku), Kafr El-Sheikh (Lake Burullus), Damietta (Lake Manzala), Dakahlia, Port Said and Northern Sinai (Lake Bardawil). In the NAP, the same 8 governorates were initially considered and the focus was later confined to Alexandria, Al Buhayrah and Port Said. At any rate, the governorates of Sharkia, Ismailia and Cairo were not considered although they are responsible through their wastewater discharge for the pollution of the Manzala lake and therefore the Mediterranean coastal zone. Timeframe: the analysis spans the 2005-2020 period to accommodate Horizon 2020 initiative. Population: the urban population is estimated at 8.9 million in 2003 of which 7.3 million live in cities considered in the NAP. However, the population considered by NAP after focusing on 3 governorates does not exceed 5.2 million, whereas the policy note considers the 8.2 million figure of the coastal urban population based on the 2006 Census. The Mansourah treatment plan was added to the NAP list. Treatment plants considered for the analysis include under construction plants in Rosetta and Baltim but not the ones in Port Fouad, El Zoben and the two planned in Alexandria. Wastewater plants are assumed to run at full capacity in 2005 with amortization lifespan exceeding 2020. The population urban growth rate for each governorate is based on the 2008 UNDP HDR for Egypt. Sanitation Coverage used for the Policy Note are different than those considered by Egypt’s NAP: For the policy note calculations in 2005,  Total Urban coverage in terms of connection to the network is 82 percent.  Total Urban coverage in terms of treatment is 75.5 percent of which: 59.3 percent primary and 16.2 percent secondary.  Total Urban population un-served is 24.5 percent. Whereas,  NAP Urban coverage in terms of connection to the network is 100 percent.  NAP Urban coverage (including Mansourah) in terms of level of treatment is 79.4 percent in total of which: 59.6 percent primary and 19.8 percent secondary. Bio-Oxygen Demand (BOD) emissions per capita per day: The figure considered is the Egypt NAP’s of 60 grams per capita per day. However, Hydroplan Consult, which conducted a recent study to reduce the multi-source liquid waste of lake Mayrut in Alexandria, uses a 41 grams per capita per day BOD5 emission. Treatment: Primary treatment would remove 40 percent of BOD and secondary treatment would remove 80 percent. Investment costs (based on MNA regional averages, net of the cost of land and do not include the replacement cost of amortized investments during the 2005-20 and the re-investment cost (cost related to replacement of some wastewater treatment plant components after expiry of duty life):  Connection to the network ranges between US$ 50 and 150 per capita in 2005 prices. It includes both a household connection to the network and setting up new network in new urban areas under development.  Primary treatment ranges between US$ 30 and 50 per capita in 2005 prices.  Secondary treatment ranges between US$ 100 and 150 per capita in 2005 prices, which includes sludge treatment whereby the sludge could be reused in agriculture thereby offsetting some of the cost of treatment. Benefits: the national and local Cost of Environmental Degradation (COED) figures were used to derive the benefits. The 2008 UNDP HDR for Egypt was used to derive and extrapolate the Governorate GDP: absolute 2005 figures were used for the projection of the COED. Wastewater treatment reuse potential and

4 carbon funding that could be tapped for better sludge management were not considered in the benefit calculations. Economic Rate of Return and Net Present Value: A market rate of 10 percent was retained for the calculations. Source: Annex I. Wastewater Investment Cost and Challenging Tariffs

New wastewater secondary treatment plants being built or planned as of 2005 onward for Greater Cairo and Alexandria were compiled from Cairo and Alexandria Potable Water Organization (CAPWO) in early 2009 to derive the average investment cost per installed capacity. Figure 1 illustrates the results for investment cost vs. capacity for 18 new or upgraded assets. The secondary treatment process was not differentiated in the analysis and shows clear economies of scale with a significant cost per m3 treated savings the larger the installed capacity. The weighted average plant investment cost stands at US$ 0.02 per installed m3 and US¢ 0.02 per treated m3 over 20 years.8

Figure 1: Cairo and Alexandria Wastewater Treatment Investment Cost vs. Capacity, 2005 Onward WW Secondary Treatment Investment Cost, 2008 prices (US$/m3) 0.06

0.05 Cost/m 3 over a 20-year lifespan Log. (Cos t/m 3) 0.04 3

m y = -0.004Ln(x) + 0.0404 /

$ R2 = 0.1408 S 0.03 U

- 1 10 100 1,000 Capacity (1,000 m3/day) Note: No distinction was made for secondary treatment processes. Investments per m3 treated are annualized and discounted at 10% as of start of operation year (after 2005) over 20 years. Source: List of 18 new planned, underway plants or plant improvements obtained from CAPWO.

Combined together, current operations and maintenance average tariffs for water and wastewater in Egypt do not exceed US$ 0.08 per m3 in 2005. Before the introducing the Holding Company for Water and Wastewater (see Box 2), the return on sales of Alexandria Water General Authority for instance was less than 60 percent of the United States’ water utilities. Furthermore, the average tariff charged in the United States was higher than those charged in Egypt by 95 percent while the tariff charged across the developing countries exceeded the Egyptian tariff by 66 percent, which significantly hampered the adequate management of the wastewater plants. 9 When compared to Africa, United Kingdom and United States tariffs (US$ 0.71, 1.45 and 0.8 per m3 respectively)10 Egyptian tariffs, which remain a fraction of these international tariff benchmarks, will urgently need to be revised upward to ensure the sustainability of these future investments.

8 Wastewater treated was not discounted. 9 Hassanein and Khalifa (2006). 10 Hassanein and Khalifa (2008). 5 Benefits Associated with Wastewater Pollution Abatement by 2020

To help determine optimal investment levels to reduce wastewater emissions over the 2005-2020 period, future investments are gauged against future benefits. The latter are derived in terms of a change in the absolute COED figures due to wastewater pollution, which is equivalent to US$ 374 million in 2005 along the urban Mediterranean coast (see Table 2). A no action COED is projected over the 2005-20 period to reach US$ 568 with assumptions listed in note of Table A5.

Table 2. Mediterranean Coast Partial COED Attributable to Wastewater, 2005 prices Categories of COED Share of Share of Coastal GDP Total Coastal GDP GDP (%) 2005 (US$ million) 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 Source: Annex I; World Bank (2002); UNDP (2003); METAP (2006); and IMF (2006).

Coastal Urban Sanitation Cost Scenarios by 2020

Increasing the pace of adequate sanitation coverage remains challenging: the urban population of 8.2 million along the Mediterranean coast in 2005 is bound to reach 11.5 million by 2020 (see Figure 1). This would leave about 5.9 million people including the actual un-served and unconnected in need of new sanitation coverage by 2020, provided treatment investments that were amortized during the period and require new investments are not considered.

Five wastewater collection and treatment investment scenarios were developed to achieve various levels of coverage for Egypt’s urban Mediterranean coastal zones between 2005 and 2020 in 2005 constant prices (see Figures 2 and 3 as well as Annex I).

Investment scenarios A to E do not include the replacement cost of amortized investments during the 2005-20 period and assume that the capacity to abate the current BOD5 emission level will remain unchanged over the period. The scenario assumptions are:  Scenario A also considered as the without treatment intervention: The untreated BOD level increases by 60 percent over the period. Treatment capacity remains the same with no new installed capacity over the period. All unconnected and incremental population will be connected to the sewer network over the period. Cost: US$ 24 million per year (undiscounted) and US$ 359 million over the period.  Scenario B: The untreated BOD level increases by 33 percent over the period. Treatment capacity covers 83 percent of the population with 60 percent and 23 percent of the population with primary and secondary treatment respectively. All unconnected and incremental population will be connected to the sewer network over the period. Cost: US$ 37 million per year and US$ 550 million over the period.  Scenario C: The untreated BOD level remains the same over the period. Treatment capacity covers 100 percent of the population with 60 percent and 40 percent of the population with primary and secondary treatment respectively. All unconnected and incremental population will be connected to the sewer network over the period. Cost: US$ 43.6 million per year and US$ 697.0 million over the period.

6  Scenario D: The untreated BOD level decreases by 33 percent over the period. Treatment capacity covers 100 percent of the population with 24 percent and 76 percent of the population with primary and secondary treatment respectively. All unconnected and incremental population will be connected to the sewer network over the period. Cost: US$ 51 million per year and US$ 771 million over the period.  Scenario E: The untreated BOD level decreases by 50 percent over the period. Treatment capacity covers 100 percent of the population with 5 percent and 95 percent of the population with primary and secondary treatment respectively. All unconnected and incremental population will be connected to the sewer network over the period. Cost: US$ 54 million per year and US$ 843 million over the period.

Optimizing Coastal Urban Sanitation Investments by 2020

Reaching a point where investment costs generate excess benefits in terms of COED averted will help optimize investments. Over the 2005-2020 period, this marginal figure remains difficult to calculate due to the COED confounding factors especially when watershed pollution, industrial effluents and agriculture runoffs are not considered. Nevertheless, orders of magnitudes of cost of environmental degradation averted associated with improved wastewater treatment are attributed to the investment scenarios that increase, maintain or decrease BOD loads over the 2005-20 period.

The scenario outcomes by 2020 are illustrated in Table 3 and Figure 2:  Scenario A (100% connection and +60% BOD as compared to 2005) can only reap health benefits but with a high economic rate of return (significantly more than 10 percent over the period).  Scenarios B (100% connection and +33% BOD) and C (100% connection and ±0 BOD) reap the same health benefits as in Scenario A without however any positive impact on the environment when compared to 2005 (economic rate of return less than 10 percent equivalent to the cost of funds despite the health benefits).  Scenarios D (100% connection and -33% BOD) and E (100% connection and -50% BOD) reap both health and marginal environmental benefits that start accruing to society (economic rate of return greater than 10 percent in both cases but difficult to pinpoint due to the uncertainty with regards to the reduction in the COED magnitude, which is in the order of 30 to 50 percent of the 2005 COED but where the associated water-related disease costs could be averted by more than 95 percent).

Figure 2. Annual Investment, BOD Reduction and ERR over the 2005-20 period WW Annualized Investments and Residual BOD by 2020 ERR >1 (US$ million and BOD 000' tons) ERR >1 60 200 ERR <1 180 50 160

s 140 R t

) 40 n ( e n 0 e s o 120 0 i i l m d 0 l t i u ' s

a t m e

30 100 o

v n $ B n s S I O

80 ) U D ( W

Health A n n u a l i z e d N e t w o r k & W W I n v e s t m e n t Environmental 40 10 Benefits A n n u a l i z e d N e t w o r k I n v e s t m e n t Benefits R e s i d u a l B o D 20 0 - S c e n a r i o A S c e n a r i o B S c e n a r i o C S c e n a r i o D S c e n a r i o E 1 0 0 % N e t . 1 0 0 % N e t . 1 0 0 % N e t . 1 0 0 % N e t . 1 0 0 % N e t . N o n e w W W I n v e s t . 6 0 % - 2 3 % W W 6 0 % - 4 07 % W W 2 4 % - 7 6 % W W 5 % - 9 5 % W W Scenario Source: Authors.

Table 3. Annual Cost/Benefit and 2005-2020 ERR in US$ million, 2005 prices Item Scenario A B C D E Cost (US$ million) 24 37 42 51 54 Benefit (US$ million) 61 61 61 195 240 Confidence interval (US$ million) (52-70) (52-70) (52-70) (166-224) (204-276) Economic rate of return (%) >10% <10% <10% >10% >10% Note: Benefits do not accrue on the same year of the investment. Source: Authors.

In terms of investment decisions, Scenario A, D or E should be retained because they reap social benefits and have economic rates of return higher than the cost of funds.

Policy Implications

By 2005, urban wastewater investments along the Egyptian Mediterranean cost were lagging behind. This has increasingly being translated into forgone private and public benefits. Gauged in terms of environmental externalities, these environmental pressures are negatively affecting the financial and economic profitability (economic rate of return) of both public and private projects therefore hampering private sector investments and sustainable economic growth.

Until recently, wastewater sector policy choices have been ineffective. Lacking a firm political commitment, wastewater investment needs were usually much larger than the various Government-tiers (i.e., loans or budget) can realistically afford and prevent any optimization of investments. Moreover, short of civic awareness and moral suasion, depressed wastewater tariffs and poor cost recovery have contributed to unsustainable operations and maintenance of wastewater treatment plants. These distorted policies have also raised serious governance and accountability concerns of public operators over the years. The Government of Egypt has embarked upon a sector reform in 2004 (Box 2) that included notably the establishment of the Holding Company and Subsidiaries (Presidential Decree 135/2004). The government transferred all municipalities to the holding, which introduced its own regulations and by-laws to operate on a commercial basis and try to achieve a phased cost-recovery not only of operations and maintenance but also depreciation and new capital investments in the future.

Box 2. Water and Wastewater Sector Reform in Egypt Sector Reform Building Blocks:  Holding Company for Water and Wastewater (HCWW) treat, transport, distribute and sell drinking water in addition to collecting, treating and safely releasing wastewater.  National Organization for Potable Water and Sanitary Drainage (NOPWSD) is responsible for the investments of all water and wastewater sector to all the governorates except Cairo and Alexandria.  Cairo and Alexandria Potable Water Organization (CAPWO) is responsible for the investments of water and wastewater sector in Greater Cairo and Alexandria governorates.  Egyptian Water Regulatory Agency (EWRA) is responsible for supervising, reviewing and monitoring all water and wastewater sector activities. Source: HCWW website .

8 Yet, looking into new policy measures could further improve the efficiency of the sector such as the disentanglement between the network and treatment financing/management in the case of wastewater whereby:

 The main priority is to focus on connecting all urban dwellers to the collection network (highest economic rate of return because of health benefits), which could generate both public (public health/welfare) and private benefits (better well-being especially for children under 5). This could be financed by both the various Government-tiers for the network and the beneficiaries for the dwelling connection to the network and operations and maintenance cost: beneficiaries could reveal a high willingness to pay acceptability. Network management will be entrusted to the Government lower-tier.  The second priority is to: (i) determine phased and select level of treatment based on trade-offs that generate environmental benefits;  The third priority consists of financing/management partnerships. Leveraging of public funding will help attract private operators to partly finance (private or international financing institution loans) and manage wastewater treatment plants on the basis of monitorable output-based targets. The contractor will be paid on the basis of volume (m3) treated to the standard level that is required: built-in incentives will force the operator to become more efficient. Other financing could be recouped through more realistic albeit flexible (income differentiation) tariffs and higher cost recovery levels: also, environmental benefit awareness campaigns could help increase the beneficiary willingness to pay acceptability. As a matter of example, 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 operations and maintenance for every m3 of sewage treated.

This new financing/management scheme also requires improving the utilities governance and accountability stance, which in turn will definitely help improve the well-being of the population, ensure the sector sustainability and preserve the commons by generating additional environmental benefits in the long run hence fulfilling the objective of Horizon 2020 initiative.

9 References

Arab Republic of Egypt Central Agency for Public Mobilisation (CAPMAS). 2008. Egypt 2006 Census results. Cairo < accessed CAPMAS website: .

Egypt LBS National Action Plan. 2005. Implementation of the Strategic Action Programme to Address Pollution from Land-Based Activities, National Action Plan Egypt. Mediterranean Action Plan MED POL. UNEP/MAP, Athens.

European Environment Agency and UNEP. 2006. Priority Issues in the Mediterranean Environment. EEA Report number 4/2006. Brussels.

Fewtrell, Lorna and John M. Colford Jr. 2004. Water, Sanitation and Hygiene: Interventions and Diarrhoea. Health, Nutrition and Population Discussion Paper. The World Bank, Washington, D.C. Hassanein, Amr A.G. and R. A. Khalifa. 2006. Financial and operational performance assessment: water/wastewater Egyptian utilities. Building Services Engineering Research and Technology, Vol. 27, No. 4, 285-295. Ikaheimo, Erkki. 2007. Egypt Policy Background Study on Wastewater Treatment Investments on the Mediterranean Coast. METAP co-financed by the Ministry of Foreign Affairs of Finland. Washington, D.C.

International Monetary Fund. 2006. Article VI Consultation: Egypt Country Report. Washington, D.C.

International Monetary Fund. 2007. International Finance Statistics. Washington, D.C.

METAP. 2006. Strengthening of the Capacity in Selected METAP Countries to Assess the Cost of Environmental Degradation in Coastal Areas. Co-financed by Ministry of Foreign Affairs of Finland. Cost of Environmental Degradation in Coastal Areas of Egypt. Final Report. Cairo.

Plan Bleu. 2006. A Sustainable Future for the Mediterranean: Environment and Development Outlook. Edited by Guillaume Benoit and Aline Comeau. Sophia Antipolis.

Saliot, Alain (ed.). 2005. The Mediterranean Sea: the Handbook of Environmental Chemistry. Springer. Berlin.

UNDP. 2008. Human Development Report, Egypt. Cairo.

WHO/United Nations Children’s Fund. 2003. The Global Water Supply and Sanitation Assessment 2002. Geneva. World Bank. 2002. Arab Republic of Egypt Cost Assessment of Environmental Degradation Sector Note. Report # Report No. 25175 –EGT. Rural Development, Water and Environment Department Middle East and North Africa Region. Washington, D.C.

World Bank and Government of Japan. 2006. Impact Assessment Report of Alexandria Growth Pole Project: Market Analysis, Land Use Planning, and Structuring the Development Process for a Mixed Use Land Development, Lake Marriout Basin. EHAF and Chemonics. Cairo.

10 Annex I

This policy note relies on a number of assumptions that are illustrated below and in the notes of each table.

The national COED based on 1999 figures was the first attempt at valuing environmental damage that was further refined with the second COED generation based on 2002 figures in terms of methodology, scope and results with a main focus on coastal zone degradation. The national water resource-related degradation figure reaches 1.3 percent of total GDP whereas at the Alexandria Governorate level, the figure shows an increase in relative terms to reach 5.2 percent of local GDP. This is due to the location of the Alexandria Governorate that lies at the intersection of the Nile delta and the coastal zone where urban, industrial and agricultural pressures converge. The elevated environmental pressure is translated by a relative increase of most environmental degradation variables including a novel inclusion of lake tourism and recreational (2.8 percent) as well as wetland (0.3 percent) losses (see Table A1).

Table A1. National and Governorate COED Category Comparison in US$ million, 2005 prices Sector or National Level Alexandria Governorate Environmental Category mean COED mean COED 2005 constant prices 2005 constant prices (US$ million) (% of GDP) (US$ million) (% of GDP) Health effects due to water resource degradation 795.5 0.8 37.3 0.8 Recreational Use 66.1 0.1 24.2 0.5 Ecosystem Loss 81.8 0.1 22.1 0.5 Erosion Protection NC NC 0.7 0.0 Red Sea International Tourism 236.5 0.3 NA NA Mediterranean Sea International Tourism 50.1 0.1 NC NC Lake Maryut Local Tourism (South of Alexandria) NA NA 130.8 2.8 Loss of fish catch Mediterranean Sea 21.0 0.5 34.9 0.0 Loss of fish catch Red Sea NA NA Subtotal water category impact 1,265.0 1.3 236.1 5.2 o/w wastewater effluent potential impact 1,230.1 1.3 83.7 4.7 Other Categories 3,481.9 3.5 59.5 1.3 Total Categories 4,746.9 4.8 295.6 6.5 Memorandum item: GDP (1999 and 2004 respectively --base 2005) 98,771.0 4,540.4 Population (1999 and 2002 respectively --million) 66.0 3.7

Note: Totals may not add up due to rounding. NA means Not applicable. NC means Not Calculated. Mediterranean Sea International Tourism was set at 1.8 million averted days due to the sea pollution without however any explanation: a reduction of Cairo tourist was set between 10-15 percent of total tourists planning to visit Cairo due to the seasonal husk burning in the Delta that produces a haze. Underlined categories are those with a potential impact stemming from wastewater effluents into the sea. Sea fishing is not considered because the figure is based on over fishing or due to industrial pollution or agricultural runoff that could lead to extensive eutrophication. Source: World Bank (2002); METAP (2006); and IMF (2006).

11 Table A2. Annual Investment Mid-point Cost Needed for Wastewater Treatment to Meet Different Wastewater Treatment Targets in Egypt’s Mediterranean Coastal Urban Areas, 2005 prices

Scenario Item A B C D E 1. Coastal urban population, 2005 (million) 1 8.2 8.2 8.2 8.2 8.2 Coastal urban population un-served, 2005 (million) 1.5 1.5 1.5 1.5 1.5 Coastal urban population unconnected, 2005 (million) 0.3 0.3 0.3 0.3 0.3 Incremental coastal urban population by 2020 (million) 1 3.5 3.5 3.5 3.5 3.5 2. Cost of Treatment (US$ million) 0 191 276 412 484 Unit cost of primary treatment, US$/pop. equivalent 2 40 40 40 40 40 Unit cost of secondary treatment, US$/pop. equivalent 2 125 125 125 125 125 Target level of primary treatment (%) 0 60 60 24 5 Target level of secondary treatment (%) 0 23 40 76 95 3. Cost of Network (US$ million) 359 359 359 359 359 Unit cost of connecting to network, US$/pop. equivalent 2 100 100 100 100 100 Population not connected to the sewer network (%) 3 19 19 19 19 19 Target level of connection to the sewer network 100 100 100 100 100 4. Total Cost of Sanitation Investments (2. + 3.) 359 550 635 771 843 Number of years 15 15 15 15 15 Average annual treatment investment costs 0 13 18 27 30 Average annual network investment costs 24 24 24 24 24 5. Average Annual Investment Costs (4. / 15) 24 37 42 51 54

Note: Scenario unit costs are mid points with Low case: assuming that 35% in cities with up to 50,000 population, 50% in 50,000-100,000 and 55% in over 100,000; and High case: assuming all the treatment plants are for 50,000 population units. Lows and Highs are meant to gauge the cost sensitivity per capita: average range between US$ 50- 150 for sewer connection, US$ 30-50 for primary treatment and US$ 100-150 for secondary treatment. Source: 1 NAP (2006) and UNDP (2008); 2 Expert estimates; and 3 CAPMAS (2008).

Table A3. Mediterranean Coast Partial COED Attributable to Wastewater, 2005 prices Categories of COED Share of Share of Coastal GDP Total Coastal GDP GDP (%) 2005 (US$ million) 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 20,371.2

Note: Total 2005 Coastal GDP uses Egypt’s actual GDP growth rate and projects the following coastal Mediterranean Governorates GDP based on 2003/2004 UNDP (2005) figures (from west to east): Matruh, Alexandria (Lake Mayrut), Al Buhayrah (Lake Idku), Kafr El-Sheikh (Lake Burullus), Damietta (Lake Manzala), Dakahlia, Port Said and Northern Sinai (Lake Bardawil). Coastal GDP is assumed to be equal to national GDP although the northern Governorates have a higher growth rate than the national average. To make things easier, benefits are assumed to accrue after investments are made. Health effects reduction is based on Fertwell et al. where a 26 percent in risk reduction is attributable to improved sanitation alone, which is applied on the 0.8 percent associated with water degradation as calculated in both 2002 and 2006 COED. Recreational use and ecosystem loss are derived from COED 2005. As for tourism, it is derived from the 2002 COED that calculated the losses for the whole Mediterranean coast. Incidentally, the Mediterranean coast boasts only 10 percent of Egypt hotel room count and authorities are planning to increase this share to 14 percent by 2014. However, this variable is not taken into account in the COED calculations because no real hotel room night figure increase was associated with the increased share. Tourism Lakes were assigned a 1/3 weight reduction for Lakes Mayrut and Manzala because industrial and agricultural pollution represents a large share of the discharge and 1/4 weight reduction for Lakes Ikdu, Burullus and Bardawil because their pollution is relatively lower when compared to the two other lakes. Source: World Bank (2002); UNDP (2008); METAP (2006); and IMF (2006).

12 Table A4. Mediterranean Governorate GDP and Partial COED, 2005 prices Governorate Population GDP COED GDP/Cap Total GDP Total GDP Exchange rate Lakes Diarrhea Recreation Lakes Ecosys. Diarrhea Recreation Lakes Tourism Ecosystem Urban Total Urban Annual growth 2005 (LE US$ million US$ million US$ million US$ million US$ million US$ million West to East 2005 (000') 2005 (000') rate (%) 2005/6 (LE) 2005 (LE) million) US$ 1 = LE 5.78 Text (%) (%) (%) (%) 2005 prices 2005 prices 2005 prices 2005 prices 2005 prices Matruh 323.4 217.9 3.7 6,328.6 2,046,548,997 2,046.5 354.1 0.002 0.005 0.003 0.7 1.8 1.06 Alexandria 4,123.9 3,998.9 1.3 5,840.4 24,085,044,508 24,085.0 4,167.0 Maryut 0.002 0.005 0.009 0.003 8.7 20.8 38.9 12.50 Al Buhayrah 4,747.3 891.5 1.8 8,395.5 39,855,814,427 39,855.8 6,895.5 Ikdu 0.002 0.005 0.007 0.003 14.3 34.5 48.3 20.69 Kafr El-Sheikh 2,620.2 593.8 2.2 6,269.9 16,428,442,139 16,428.4 2,842.3 Burullus 0.002 0.005 0.007 0.003 5.9 14.2 19.9 8.53 Damietta 1,097.3 401.8 3.0 6,933.0 7,607,851,287 7,607.9 1,316.2 Manzala 0.002 0.005 0.009 0.003 2.7 6.6 12.3 3.95 Dakahlia 4,990.0 1,371.2 2.6 6,769.1 33,777,788,693 33,777.8 5,843.9 0.002 0.005 0.003 12.2 29.2 17.53 Port Said 570.6 559.8 1.6 6,822.7 3,893,053,088 3,893.1 673.5 0.002 0.005 0.003 1.4 3.4 2.02 Northern Sinai 343.7 201.1 3.5 5,667.8 1,947,915,172 1,947.9 337.0 Bardawil 0.002 0.005 0.007 0.003 0.7 1.7 2.4 1.01 Med. Coast 18,816.4 8,235.9 6,889.9 129,642,458,310 129,642.5 22,429.5 46.7 112.1 121.7 50.1 67.29 Source: Table A3; World Bank (2002); UNDP (2008); METAP (2006); and IMF (2006).

Table A5. Coastal COED Possible Increase with no Action in US$ million, 2005 prices COED No intervention 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Diarrhea +1.89% (+-% pop.) 47 48 48 49 50 51 52 53 54 55 56 57 58 60 61 62 Recreation (+1.89%) 112 114 116 119 121 123 125 128 130 133 135 138 140 143 146 149 Lakes (+1.89%) 122 124 126 129 131 134 136 139 141 144 147 150 152 155 158 161 Tourism ( +7% world) 50 54 57 61 66 70 75 80 86 92 99 105 113 121 129 138 Ecosystem (+1.89%) 67 69 70 71 73 74 75 77 78 80 81 83 84 86 87 89 COED 398 408 418 429 441 452 464 477 490 504 518 533 548 564 581 599 Note: In a no action COED projection and since a large share of the COED is based on local and international tourism as well as recreation, these categories are usually function of consumer’s preferences and income. Nevertheless, these factors will not be considered in the projection because they are unavailable over time. Therefore health effects, recreational use, ecosystem loss and lake tourism increase at the rate of the urban population growth: 1.89% per annum. Mediterranean sea tourism increases at the global tourism growth: 7 percent. Source: Tables A3 and A4; World Bank (2002); METAP (2006); and IMF (2006).

13 Table A6. Population and BOD Projection in 000’ and Tons, 2005-20 +-% 2005 Urban Wastewater Treatment Scenarios 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Emission Population (000') 8,236 8,422 8,608 8,798 8,994 9,194 9,400 9,611 9,827 10,049 10,277 10,511 10,751 10,998 11,251 11,511 Population NAP Long List + Mansourah 7,543 7,672 7,803 7,937 8,074 8,213 8,355 8,500 8,648 8,798 8,952 9,108 9,268 9,431 9,597 9,767 Population NAP served Primary (60%) 4,495 4,495 4,495 4,495 4,495 4,495 4,495 4,495 4,495 4,495 4,495 4,495 4,495 4,495 4,495 4,495 Population NAP served Secondary (20%) 1,492 1,492 1,492 1,492 1,492 1,492 1,492 1,492 1,492 1,492 1,492 1,492 1,492 1,492 1,492 1,492 Population NAP connected and unserved (17%) 1,306 1,306 1,306 1,306 1,306 1,306 1,306 1,306 1,306 1,306 1,306 1,306 1,306 1,306 1,306 1,306 1. Incremental Population NAP unconnected and unserved 251 380 511 645 782 921 1,063 1,208 1,355 1,506 1,659 1,816 1,976 2,138 2,305 2,474 Population non-NAP 693 750 804 861 920 981 1,044 1,110 1,179 1,251 1,325 1,402 1,483 1,567 1,654 1,744 Population non-NAP served Primary (60%) 413 447 479 513 548 584 622 662 703 745 790 836 884 934 986 1,040 Population non-NAP served Secondary (0%) ------Population non-NAP connected and unserved (20%) 137 137 137 137 137 137 137 137 137 137 137 137 137 137 137 137 Population-NAP unconnected and unserved (18.7%) 130 130 130 130 130 130 130 130 130 130 130 130 130 130 130 130 2. Incremental Population non NAP unconnected and unserved 13 36 58 81 105 129 155 182 210 239 269 300 332 366 401 438 3. Total Incremental Population uncon and unser 181 186 186 191 195 200 206 211 216 222 228 234 240 247 253 260 4. Total Cum. Incremental Population uncon and unser. 181 367 553 743 939 1,139 1,345 1,556 1,772 1,994 2,222 2,456 2,696 2,943 3,196 3,456

Total Emission Load (BOD tons) 180,366 184,437 188,507 192,681 196,961 201,350 205,852 210,471 215,210 220,073 225,063 230,186 235,445 240,846 246,391 252,087

Baseline Scenario A (75% coverage) No Intervention (BOD tons) Residual BOD from 1st treatment (59% of population) 65,565 66,018 66,451 66,902 67,370 67,857 68,363 68,890 69,437 70,006 70,598 71,214 71,855 72,521 73,215 73,936 Residual BOD from 2nd treatment (16% of population) 5,228 5,228 5,228 5,228 5,228 5,228 5,228 5,228 5,228 5,228 5,228 5,228 5,228 5,228 5,228 5,228 Residual BOD from no treatment 40,208 43,536 46,896 50,331 53,843 57,434 61,107 64,862 68,704 72,633 76,653 80,767 84,976 89,283 93,693 98,206 Total Untreated 111,001 114,782 118,575 122,461 126,441 130,519 134,698 138,980 143,369 147,868 152,480 157,209 162,059 167,033 172,135 177,370 60

Scenario B (83% coverage) residual BOD Tons Residual BOD from 1st treatment (60% of population) 64,932 66,397 67,863 69,365 70,906 72,486 74,107 75,770 77,476 79,226 81,023 82,867 84,760 86,704 88,701 90,751 Residual BOD from 2nd treatment (23% of population) 8,297 8,484 8,671 8,863 9,060 9,262 9,469 9,682 9,900 10,123 10,353 10,589 10,830 11,079 11,334 11,596 Residual BOD from no treatment 32,466 33,199 33,931 34,683 35,453 36,243 37,053 37,885 38,738 39,613 40,511 41,434 42,380 43,352 44,350 45,376 Total Untreated 105,695 108,080 110,465 112,911 115,419 117,991 120,629 123,336 126,113 128,963 131,887 134,889 137,971 141,136 144,385 147,723 33

Scenario C (100% coverage) residual BOD Tons Residual BOD from 1st treatment (60%) 64,391 65,844 67,297 68,787 70,315 71,882 73,489 75,138 76,830 78,566 80,348 82,176 84,054 85,982 87,962 89,995 Residual BOD from 2nd treatment (40%) 14,610 14,939 15,345 15,684 16,033 16,390 16,756 17,132 17,518 17,914 18,320 18,737 19,165 19,605 20,056 20,520 Residual BOD from no treatment ------Total Untreated 79,000 80,783 82,642 84,471 86,348 88,272 90,246 92,270 94,348 96,480 98,668 100,914 103,219 105,587 108,018 110,515 (0)

Scenario D (100% coverage) residual BOD Tons Residual BOD from 1st treatment (24%) 25,973 26,559 27,145 27,746 28,362 28,994 29,643 30,308 30,990 31,690 32,409 33,147 33,904 34,682 35,480 36,301 Residual BOD from 2nd treatment (76%) 27,416 28,034 28,653 29,288 29,938 30,605 31,290 31,992 32,712 33,451 34,210 34,988 35,788 36,609 37,451 38,317 Residual BOD from no treatment ------Total Untreated 53,388 54,593 55,798 57,034 58,300 59,600 60,932 62,299 63,702 65,141 66,619 68,135 69,692 71,290 72,932 74,618 (33)

Scenario E (100% coverage) residual BOD Tons Residual BOD from 1st treatment (5%) 5,411 5,533 5,655 5,780 5,909 6,041 6,176 6,314 6,456 6,602 6,752 6,906 7,063 7,225 7,392 7,563 Residual BOD from 2nd treatment (95%) 34,270 35,043 35,816 36,609 37,423 38,257 39,112 39,989 40,890 41,814 42,762 43,735 44,735 45,761 46,814 47,897 Residual BOD from no treatment ------Total Untreated 39,681 40,576 41,472 42,390 43,331 44,297 45,287 46,304 47,346 48,416 49,514 50,641 51,798 52,986 54,206 55,459 (50) Source: Table A2.; NAP (2006); UNDP (2008); and CAPMAS (2008).