Jordan - Wadi Al Arab Water Sector PPP
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Facility for Euro-Mediterranean Investment and Partnership • Facility for Euro-Mediterranean Investment and Partnership FEMIP Executive summary of the Final Report Jordan - Wadi Al Arab Water Sector PPP Wadi Al Arab Water Supply PPP Project, Jordan December 2013 ACKNOWLEDGEMENTS The Report authors wish to thank the Jordanian Ministry of Water and Irrigation (MWI) and the Water Authority of Jordan (WAJ) for their valuable support in the preparation of the Report. We acknowledge the assistance given by H E Eng Telfah, Secretary General, MWI as well as Eng. Nabil Zou’bi and Eng. Mohammed Bany Mustafa in our discussions on the Report contents. Where appropriate, other data sources in this Report are acknowledged. 1 Wadi Al Arab Water Supply PPP Project, Jordan December 2013 FACILITY FOR EURO-MEDITERRANEAN INVESTMENT AND PARTNERSHIP (FEMIP) Operational since October 2002, the Facility for Euro-Mediterranean Investment and Partnership (FEMIP) brings together the whole range of services provided by the European Investment Bank in the Mediterranean partner countries. The study is fi nanced under the FEMIP Trust Fund. This Fund, which was established in 2004 and has been fi nanced (to date) by 15 EU Member States and the European Commission, is intended to support the development of the private sector via the fi nancing of studies and technical assistance measures and the provision of private equity. This Report has been prepared by external consultants. The opinions expressed are those of the consultants and do not necessarily refl ect the view of the European Investment Bank. The Report is not designed to be professional advice in respect of any particular matter and should not be relied upon in the making of any legal, commercial or fi nancial decision. 2 Wadi Al Arab Water Supply PPP Project, Jordan December 2013 GLOSSARY Arab Spring: the series of protests ICAO: International Civil MWI: Ministry of Water and Irrigation and demonstrations across the Middle Aviation Organisation East and North Africa beginning NGOs: Non-Governmental Organisations in December 2010 and continuing ICC: International Chamber of Commerce NGWA: Northern Governorates Water throughout 2011, which is widely ICSID: International Centre for Authority (now Yarmouk Water Company) known as the “Arab Spring” or Settlement of Investment Disputes “Arab Revolution” NPV: Net Present Value IFC: International Finance Corporation ASEZ: Aqaba Special Economic Zone NRW: Non Revenue Water IFI: International Financial Institution ASEZA: Aqaba Special Economic NWMP: National Water Master Plan Zone Authority IMF: International Monetary Fund OPIC: Overseas Private Investment BOO: Build Own Operate IPP: Independent Power Project Corporation BOOT: Build Own Operate Transfer IRR: Investment Rate of Return PA: Projects Administration BOT: Build Operate Transfer JBIC: Jordan Bank for International Phase 1 Report: The report entitled Co-operation “FEMIP Study on PPP Legal & Financial BTO: Build Transfer Operate Frameworks in the Mediterranean JIB: Jordan Investment Board CBJ: Central Bank of Jordan Partner Countries”, volumes 1 to 3. JISM: Jordan Institute for Standards CSC: Common Services Councils PMU: Performance Management Unit and Metrology DBFO: Design Build Finance Operate PPP: Public Private Partnership JOD: Jordanian Dinar Draft PPP Law: Draft PPP Law dated Privatization Law: Privatization Law no. JRSP: Jordan Red Sea Project March 2013 25 of the year 2000 JVA: Jordan Valley Authority DSCR: Debt Service Cover Ratio Privatization Regulation: Privatization Regulation no. 80 of the year 2008 KAC: King Abdullah Canal ECA: Export Credit Agencies Project SPV: An SPV set up for the KEXIM: Export-Import Bank of Korea EC: European Commission purposes of the Project KfW: KfW Bankengruppe EDC: Economic Development QAIA: Queen Alia International Airport Committee LLCR: Loan Life Cover Ratio RFP: Request for Proposals EIA: Environmental Impact Assessment LPCD: litres per day per capita Risk Matrix: The risk matrix set out at EIB: European Investment Bank MCM: Million Cubic Metres Appendix B of this Report EPC: Executive Privatization MEMR: Ministry of Energy and ROU: Regional Operating Units Commission Mineral Resources SPV: Special Purpose Vehicle EOI: Expression of Interest MMA: Ministry of Municipal Affairs TUR: Turkey EU: European Union MoA: Ministry of Agriculture UK: United Kingdom EUR: Euro MoE: Ministry of Environment USD: United States Dollar GAM: Greater Amman Municipality MoF: Ministry of Finance WAJ: Water Authority of Jordan GDP: Gross Domestic Product MoH: Ministry of Health WHO: World Health Organisation GOJ: Government of Jordan MoP: Ministry of Planning WSAU: The Water Sector Audit Unit HICP: Harmonised Index of MoT: Ministry of Transport Consumer Prices WTP: Water Treatment Plant MoU: Memorandum of Understanding IATA: International Air Transport WWTP(s): Wastewater Treatment Plant(s) Association MPWH: Ministry of Public Works YWC: Yarmouk Water Company and Housing 3 Wadi Al Arab Water Supply PPP Project, Jordan December 2013 Executive Summary EXECUTIVE SUMMARY PURPOSE AND SCOPE OF THE REPORT Following review of the above options and discussion with MWI and WAJ, it was determined by the Jordanian This Report is part of a regional EIB Facility for Euro- authorities that a new bulk water supply project to transport Mediterranean Investment and Partnership (FEMIP) Trust water from the Wadi Al Arab area to the city of Irbid in Fund study on Legal and Financial Frameworks in the Northern Jordan (see Figure 1) was the preferred project, due Mediterranean Partner Countries1, which was published to the relative urgency of the water scarcity issue affecting in 2011. During the presentation of this regional study in the country. Casablanca in May 2011, Jordan was selected as a pilot country for the second phase of the study, which aims The Wadi Al Arab Water Supply PPP project (the “Project”) to make recommendations for developing a viable Public consists of a water conveyance system to supply water Private Partnership (PPP) project in the country. through a 35km pipeline, providing 25 million cubic metres (MCM) per year of potable water to Irbid, located in The defi nition of PPP for the purposes of this Report is a Northern Jordan. With the Project, the 1.3 million inhabitants partnership between the public and private sectors pursuant in the Irbid Governorate will receive additional potable to a long term contractual agreement and covering the water. MWI/WAJ provided existing study reports, data design, construction, fi nancing and ongoing operation on water demand and water resource availability which and maintenance of an infrastructure asset. These projects has been used to derive the physical characteristics and are project fi nanced, i.e. lenders take project risk and are construction/operating costs of the project. The fi nancial mostly concerned with cashfl ows generated by the project evaluation of the project has been undertaken using recent for the payment of the loan applied to construction of projects as comparators in order to derive a likely fi nancing the asset and with the assets of the project, rather than solution and indicative tariff. relying primarily on the general creditworthiness of the private sector sponsors. Provided they are well-prepared Figure 1: Location of Irbid and structured, with the right risk allocation, PPPs can contribute to enhance signifi cantly a project’s discipline (contributing to infrastructure assets being built on time and within budget, as well as operated effi ciently). The study is focused on providing recommendations for structuring a PPP transaction, from a technical, legal and fi nancial perspective, based on a proposed project put forward by the Jordanian government authorities. The project is intended to be the fi rst of a programme of similar PPPs to be implemented to help initiate further private sector investment in the national infrastructure of Jordan and increase capacity for wider private sector involvement in Jordanian infrastructure. At the beginning of the assignment, several potential projects were put forward by the Government of Jordan (GOJ) authorities – the Ministry for Water and Irrigation (MWI) and the Water Authority of Jordan (WAJ) – collectively, MWI/ WAJ – for consideration in the form of concept papers. These concepts, listed below, were reviewed for both suitability and feasibility to be procured through a PPP approach: • A PPP project for Performance-based Non-Revenue Water (NRW) Reduction • Establishing a Water Treatment/Desalination PPP in Wadi Al Arab • A PPP for Energy Effi ciency in the Water Sector • A Biosolids Waste to Energy PPP • A Water Management PPP for Wadi Al Arab and associated geographical area • A new bulk water supply pipeline to transport water from the Wadi Al Arab area to the city of Irbid in Northern Jordan: the Wadi Al Arab Water Supply PPP project. 1 This study can be downloaded at the EIB website (www.eib.org/attachments/country/femip_study_on_ppp_en.pdf). 4 Executive Summary Wadi Al Arab Water Supply PPP Project, Jordan December 2013 POPULATION GROWTH PLACES EXTREME Current water resources are insuffi cient to meet the STRESS ON LIMITED NATURAL WATER required demand. Irrigation is a large percentage of RESOURCES IN JORDAN overall water demand and therefore the government is taking steps to try to reduce this problem as a Jordan is classifi ed by the World Bank as an upper fi rst priority and to reallocate higher quality water to middle income country, with estimated total GDP of USD domestic and municipal purposes. 31.4 billion and GDP per capita of USD 4,340 in 2013. Despite limited natural resources (although there are MWI/WAJ forecasts that demand for potable water across relatively unexploited oil shale deposits), Jordan has a Jordan will rise from 313 MCM per year in 2010 to 534 relatively diversifi ed economy, with notable strengths MCM per year in 2035. To put this into perspective, the in pharmaceuticals, fertilisers, potash, phosphate, defi cit between supply and demand was around 60 MCM tourism and travel. However, it is heavily reliant on per year in 2010 and is predicted to worsen to a defi cit of foreign transfers both from Jordanians working abroad around 300 MCM by 2035.