January 2015 PERU: HYDRO-ECONOMIC ANALYSIS AND PRIORITIZATION OF WATER RESOURCE INITIATIVES Copyright and Non-Disclosure Notice The contents and layout of this report are subject to copyright owned by AMEC (©AMEC Environment & Infrastructure UK Limited 2014). save to the extent that copyright has been legally assigned by us to another party or is used by AMEC under licence. To the extent that we own the copyright in this report, it may not be copied or used without our prior written agreement for any purpose other than the purpose indicated in this report. The methodology (if any) contained in this report is provided to you in confidence and must not be disclosed or copied to third parties without the prior written agreement of AMEC. Disclosure of that information may constitute an actionable breach of confidence or may otherwise prejudice our commercial interests. 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Document Revisions No. Details Date 1 Draft Final 01/12/2014 2 Final 27/01/2015 Final Report copy to: 2030 Water Resources Alastair Morrison Group Head, Latin America Programs 2030 Water Resources Group / IFC 2121 Pennsylvania Ave., NW Hydro-Economical Analysis Washington, DC 20433 and Prioritisation of Water Main Contributors Resources Initiatives in Peru Michael Norton, AMEC Jim McCord, AMEC Final Report Gonzalo Delacámara, IMDEA Institute Ilona Kirhensteine, AMEC Chris Hughes, AMEC AMEC Environment & Infrastructure Chris Fawcett, AMEC UK Limited in cooperation with IMDEA Institute Jordi Pastor Justo, INCLAM and INCLAM Jaime Suclla, INCLAM Jorge Helmbrecht, INCLAM Maria Isabel García, AMEC January 2015 Guillermo Pedro, AMEC Maria Esperanza Gonzales, AMEC Issued by ……………………………………… Chris Fawett Approved by ………………………………………………………… Michael Norton AMEC Environment & Infrastructure UK Limited In accordance with an environmentally responsible approach, this document is printed on recycled paper produced from 100% 155 Aztec West, Park Avenue, Almondsbury, post-consumer waste, or on ECF (elemental chlorine free) paper Bristol BS32 4UB, United Kingdom Tel +44 (0) 1454 822 000 Fax +44 (0) 1454 822 010 Executive Summary This is an Executive Summary of the report entitled “Hydro-Economical Analysis and Prioritisation of Water Resource Initiatives in Peru” submitted to the 2030 Water Resources Group (2030 WRG) by AMEC Environment and Infrastructure (AMEC). The report describes the activities and results of AMEC’s study to advance the goals of the 2030 WRG Peru Partnership; a study which was led by AMEC with key support from INCLAM SA and IMDEA Water Institute. This summary describes the processes and outcomes of a review of water resource development interventions, the application of a hydro-economic (HE) tool, and a review of political, social and environmental impacts (PESIA), to identify a list of prioritised investments in each of six coastal basins, and the three catchments close to the capital Lima. The map on the following page shows the locations of the 6 basins and three additional catchments which are the focus of the study. Purpose and Objectives The purpose of this work is to provide an important value-add of the 2030 WRG Peru partnership with the Global Green Growth Initiative (GGGI) is to raise awareness, mobilize, and mobilise ‘new actors’ from the private sector to engage in water activities and the partnership. The Work Plan of the partnership is summarised as: Institutional setup; creation of Steering Committee and a public-private multi-stakeholder platform (MSP) Mapping of current initiatives and actors Analysis of financial instruments to promote private sector investment in the water sector Identification of gaps in current initiatives and roadmap for future work Promotion of investments to potential MSP partners Support integrated water resources management plans in key basins (that do not have one) Capacity building The terms of reference (TOR) for this report require a targeted piece of analysis that will aggregate various sets of existing data, and package and deliver the information in a compelling format with key messages targeted to Peruvian private sector companies (water users, rather than water utilities), to the public sector and for civil society. The targeted analysis will provide key information for each sector to take an active role in projects that improve water resources management in Peru and help close any potential gap between projected water demand and sustainable supply for Peru. The TOR require that the following main tasks be carried out and reported upon: Review the breadth and comprehensiveness of proposed investments in the coastal catchments of Peru in the National Water Resources Plan (2014), the 6 Coastal Water Resources Management Plans commissioned by the IDB and the World Bank, and the ongoing Water Resources Management Plans for the Chillón, Rímac and Lurín Catchments; P a g e | i Apply a suitable hydro-economic tool for cost-benefit analysis to the coastal catchments and the Rimac Basin, identifying priority investments; Review the political, social and environmental impacts of these interventions. P a g e | ii Data sources The data used in the study was obtained through a review and synthesis of the existing water sector plans sourced from the entities shown in the inset table. From these data a database was compiled of the 2,303 planned water resource development interventions identified in those plans. Information source Entity A detailed review of the each of the projects National Water Resources Plan ANA, National Water interventions in the database was made. For the (PNRH) Authority Basin Water Resources Management ANA, Basin Water majority of interventions, many of the data needed Plans (PGRHC) Resources Councils for the subsequent analysis were missing or (CRHC) Database of projects for investment ProInversión agency of the incomplete for a variety of reasons. at sectorial level Peruvian Government Ministry of Economy and Database of projects in the Sistema Nacional de Inversión Pública (SNIP) Finance (MEF) Filling these data gaps for all 2,303 potential investments was outside the scope of this project, however the information available did provide a good starting point for prioritisation, and gaps were filled later for projects which remained after a pre-screening process. The inset chart summarises the distribution of the interventions. Note: sanitation is municipal water and sewerage Diagnosis The analysis revealed that 71% of the records relate to very specific small projects (largely drawn from the SNIP database). The remaining entries represent either interventions with a different degree of aggregation or just project idea notes with some data. The diversity is also reflected in the capital costs of different investment opportunities. These range from few thousand new Peruvian soles (PEN) to more than PEN 1 billion (350 million US$). Reasonable information is available on financial parameters albeit at a detailed project level and includes data on capital costs, and operational and maintenance. To enable a cost-effectiveness analysis, a measure on the technical effectiveness such as volumes of water was required and, critically, less than 1% of records contain that information. Thus, a major effort was required to obtain technical effectiveness parameters, for instance using outputs from the hydrological models used in some of the basin plans (PGRHC) or from pre-feasibility and feasibility documents available from the SNIP database. The list of investment opportunities did not contain information on other environmental and/or social outcomes. P a g e | iii Best practice; green and indigenous practice A diagnosis of the database of interventions was carried out to determine if there were any key best practice gaps. We concluded that there is a paucity of measures proposed for water reuse and demand management in the Municipal, Industrial and Mining sectors, to address supply-demand shortfalls. We also consider that managed aquifer recharge (MAR) could have been more evident as a means of storing excess run-off or treated wastewater. That said, there are many examples of global Best Practice in water management already in existence in Peru and given the significant challenges presented, considerable opportunity exists to embed many of these practices and local measures in the investment proposals. We believe that there are projects which would merit inclusion in the update to the 2030 WRG Catalogue of Case Studies and these are listed in the following table. Water Security Project Summary Best Practice Features Why? Sector Impact Irrigation of parks Lima is the second largest desert city in the world, with 9 million people Wastewater Reduced consumption of living in an area that receives