Urban Water and Sanitation in the Middle East and North Africa Region: The Way Forward Jamal Saghir Manuel Schiffler Mathewos Woldu January 2000 The World Bank Middle East and North Africa Region Infrastructure Development Group This paper is based on an earlier paper presented at the Eighth Meeting of the World Bank’s MENA Council of Advisors held in Jordan in December 1999. It is now being published to make the findings available to a wider audience. The findings, interpretations and conclusions expressed in this paper are entirely those of the authors. They do not represent the views of the World Bank, its Executive Directors, or the countries they represent. Special thanks go to Jean-Claude Villiard, Director of the Infrastructure Development Group (MNSID) in the Bank’s MENA region, for his valuable support and comments, as well as to staff of the water team in MNSID and to Marie-Laure Lajaunie (MNSRE) for the information and comments they provided. Jamal Saghir is Sector Manager, Manuel Schiffler is an Economist, and Mathewos Woldu is a Senior Economist in the Infrastructure Development Group in the Bank’s MENA Region. URBAN WATER AND SANITATION IN THE MIDDLE EAST AND NORTH AFRICA REGION: THE WAY FORWARD Table of Contents Executive Summary I Introduction 1 II Characteristics of the Region: water scarcity 2 A Water shortages are serious and growing 2 B Water availability is very uneven in space and in time 3 C Some countries overexploit groundwater, and endanger ecosystems 4 D Shortages are compounded by deteriorating quality 5 E The cost of bulk water and of sanitation is rising 5 III Critical issues: managing urban water supply and sanitation 6 A Access to water and sanitation services is inadequate 6 B The technical efficiency of urban water supply is low 7 C Lack of proper attention to sanitation, wastewater treatment, and reuse 8 D Agriculture-urban water transfers are being avoided 9 E Cost recovery is low 10 F Capacities of many public institutions are weak 12 IV The Way Forward 13 A Improve utility performance: involving the private sector 13 B Define appropriate investment requirements: involving water users 16 C Meet investment requirements: increasing tariffs and mobilizing private capital 16 D Focus on poverty alleviation 17 E Improve water allocation 18 F Desalination 19 V World Bank strategy and support to the sector 20 A Strategy 20 B Attracting the private sector: options and key factor for success 21 VI Conclusion 24 URBAN WATER AND SANITATION IN THE MIDDLE EAST AND NORTH AFRICA REGION: THE WAY FORWARD Table of Contents (Continued) Figures: Figure 1: Renewable water resources per capita and per year (1995) 2 Figure 2: Annual water availability per capita and per year 3 Figure 3: Municipal water supply: unaccounted-for water 7 Figure 4: Wastewater reclamation and reuse as a share of water allocated to municipal and agriculture uses and agriculture 9 figure 5: Intersectoral water allocation in MENA (1995) 10 figure 6: The status of water pricing in the municipal sector 11 figure 7: Desalinated water as a share of M & I water supply 19 *** Tables: Table 1: Selected performance indicators of water and sanitation utilities 6 Table 2: Options for private sector participation in infrastructure 14 Table 3: Private participation in water and sanitation worldwide 14 Table 4: Conditions for successful implementation of private sector options 22 *** Box 1: Gaza management contract 15 Executive Summary Water is a scarce and precious resource in the Middle East and North Africa Region. Population growth, rising living standards and urbanization increase the pressure on the resource, leading to increasing costs of urban water supply. Water scarcity and higher costs could further reduce the already low performance of many public urban water and sanitation utilities in the region. Physical losses and commercial losses are high; water is often supplied only for a few hours per day or even per week; little effort has been made to involve water users in low-income settlements to provide them with the most appropriate types of affordable water and sanitation services; tariffs are so low that in some countries even the operation and maintenance costs of the utilities are often not recovered; and wastewater is in most cases not adequately treated, leading to environmental and health hazards. In addition to these problems, governments are reluctant to transfer water from the main water user - agriculture - to urban areas at a relatively low financial cost, because they perceive the social and political costs of such transfers as too high. At the core of many problems of the urban water supply and sanitation sector is the weak performance of public utilities. With the exception of very few cases, indicators for the level of service provision, technical efficiency and financial performance are much lower than in well- managed utilities, while staffing levels are usually higher than necessary. Substantial efforts have been undertaken in the past to improve the performance of public utilities through financial support for infrastructure investment, technical assistance, and covenants stipulating higher tariffs. However, in the absence of a change in the institutional framework and the incentive system, these efforts have been met with little success. In light of the growing realization that weak performance is a major contributing factor to the poor level of water and sanitation services in the region, the Middle East and North Africa (MENA) urban water and sanitation strategy is to focus on: (a) utility reforms and improve sector finances; (b) increase private sector participation; (c) rebalance investment programs (water/sanitation); (d) meeting the needs of the poorest segment of the urban population; and (e) redefine the role of government and setting up sound regulatory framework. The strategy has recently shifted to more emphasis on private sector participation. In the region, the Bank has supported performance management contracts in West Bank and Gaza and in Jordan, and it plans to support management contracts and/or leases in Algeria, Yemen and in other countries. Morocco has embarked on an ambitious program to grant several concessions for urban water supply and sanitation. Guarantees for water supply schemes and wastewater treatment plants are also sought in Lebanon, Jordan and Tunisia. In order to successfully attract the private sector and to improve the level and the efficiency of services, the role of the public sector in water supply and sanitation has to be redefined, moving to more limited and different, but not less difficult tasks. It is essential for governments to demonstrate a strong political commitment, create an adequate legal and institutional framework, promote a high degree of technical skill among the civil servants regulating the operator, and to ensure a fair and transparent bidding process. An appropriate regulatory framework can and should also provide strong incentives for the private sector to focus on the alleviation of poverty. This could be done by requesting private operators to cover poor neighborhoods, to identify the most appropriate levels of service in those areas in close collaboration with local communities, and to design tariffs in a way that does not discriminate against the poor. I Introduction The Middle East and North Africa region1—home to 4 percent of the world’s population—possesses only 1.4 percent of global water resources. Three quarters of the land mass is arid, making the region the driest in the world. It is defined largely by drought and desert, and suffers from the scarcity of fresh water, uneven availability, a growing gap between supply and demand, deteriorating water quality, and dominance of agricultural water use. Jordan, Yemen, and the West Bank and Gaza are among the countries least well endowed with water resources in the region. The urban water and sanitation sector in the region has faced formidable challenges over the last three decades. High overall population growth and even higher urban population growth have not only increased pressure on water resources, but they also created a tremendous additional demand for urban water and sanitation infrastructure. In some cases – such as in Jordan and in Yemen after the Gulf War – this situation was exacerbated by massive influxes of refugees. While the additional demand for urban water infrastructure investment was largely met despite difficult challenges – often with substantial assistance by international donors – the operation and maintenance of urban water systems by public utilities in many cases remained unsatisfactory. Efforts by utilities to increase their performance were usually thwarted, often because of the constraints to which public utilities are subjected, such as restrictions on tariff setting, salary levels, and staffing. In many countries these institutional deficiencies contribute to the lack of water availability for urban water users, with general water scarcity at a national level and inefficient water allocation among sectors being additional causes. This paper first outlines the framework conditions for urban water supply and sanitation in the region: How serious are water shortages? And what are the consequences of these shortages? Second, the paper discusses how decision-makers in the urban water sector have responded to the challenge of water scarcity: How efficiently is water used? Where has progress been achieved? And what are the shortcomings? Third, the paper highlights challenges for the future: How can a water crisis best be averted? What are the financial and investment requirements? What role can the private sector play? How can private participation best be attracted? Finally, the World Bank’s program of support in the urban water and sanitation sector is briefly described in the context of these challenges. While the paper focuses on the urban water and sanitation sector, it also highlights the main issues related to water resources at the national level. It does not address issues of transboundary water resources.