What is Egypt's strategy for long-term water security?

 

Egypt’s rapidly expanding population and increasingly intensive agricultural activity have made the sustainability of its water resources an issue of national security. In the past year the government has launched a strategy aimed at solving its water challenge, and its implementation is generating some of the nation’s biggest private investment opportunities.

External Pressures

Egypt relies on the Nile for 90% of its water supply and is therefore vulnerable to any changes in upstream conditions. In recent years, the Blue Nile tributary in northern Ethiopia, from which around 85% of the Nile’s water flows, has emerged as an area of particular concern. The Ministry of Irrigation and Water Resources declared a nationwide state of emergency in 2019, estimating that Egypt’s share of Nile water would fall by 5bn cu metres over the year, largely due to lower rainfall in the Ethiopian highlands. Construction of the Grand Ethiopian Renaissance Dam (GERD), which it commenced in 2011, represents another challenge for the government. In January 2020 talks to resolve a disagreement regarding the rate at which the dam basin is to be filled ended in deadlock. Egypt maintains that Ethiopia’s plans to fill the basin in six years threatens its water supply, and has proposed an alternative timetable of between 12 and 21 years. The seriousness of the dispute has raised fears of conflict in the region, and prompted the US to intervene in an arbitrary capacity.

Domestic Issues

The geopolitical issue of the GERD has added to a list of domestic challenges regarding the sustainability of the nation’s water supply. Population growth has presented a social and economic challenge to government planners for decades. The nation’s population has increased by more than 40% since the early 1990s and is expected to exceed 110m by 2025. The current growth rate is around 2.6m individuals every year, an upward trajectory that prompted President Abdel Fattah El Sisi to identify population expansion as a considerable threat to national stability. Egypt’s share of water from the Nile, at around 55bn cu metres per year, has not changed since 1954, and thus increasing demand for water is approaching a supply limit.

As well as population growth, a number of other factors undermine the sustainability of Egypt’s water infrastructure. According to regional environmental advocacy group EcoMena, key concerns include high levels of water pollution as a result of industrial and municipal waste, as well as numerous recorded incidents of wastewater leakage; and an inefficient irrigation system, supplied almost entirely from the Aswan High Dam, comprising 29,000 km of canals and sub-canals that lose as much as 3bn cu metres of Nile water per year through evaporation.

New Strategy

The government has recently taken steps to answer these challenges. In April 2019 Mohamed Abdel Ati, the minister of water resources and irrigation, presented Egypt’s 2017-37 national plan to tackle the issue of water scarcity. The $50m strategy is based on several pillars, including improving water quality, rationalising water usage and providing a productive environment in which state agencies can coordinate their efforts. The initiative includes encouraging farmers to deploy modern irrigation systems, working with research centres to produce crops that use less water, cooperating with African states in water usage research, and – of particular interest to private sector investors – establishing new wastewater and desalination plants.

Infrastructure

At the start of 2020 Egypt operated 58 desalination plants, with a combined capacity of 440,000 cu metres per day (cmd). A further 39 desalination plants are in the pipeline and are being developed under the guidance of the Ministry of Housing, Utilities and Urban Communities (MHUUC). The new plants will have a combined capacity of 1.4m cmd, and projects are already under way at various points of Egypt’s coastline, including Port Said, Dakahlia, Kafr El Sheikh and Matrouh. Prior to the global outbreak of Covid-19, 16 of the plants, which the MHUUC identified as urgent, were slated for completion in 2020. When complete, the plants will add 671,000 cmd to the nation’s desalination capacity. When the planned building programme is finished, Egypt’s desalination capacity will stand at 1.8m cmd.

The construction of wastewater plants presents another big infrastructure challenge for the water sector. By the start of 2020 the government had already completed 26 of 52 planned sewage-treatment plants in Upper Egypt, with the remainder of the facilities due for completion by the close of the year. The new plants will have a combined capacity of 418m cmd and serve 8m people in the region.

The cost of this infrastructure expansion has been estimated by the MHUUC to stand at around LE8.1bn ($499.2m), but this is only a fraction of the longer-term spending requirement. The question of how Egypt will pay for its pipeline of water projects has therefore become a matter of interest to both investors and government planners alike.

Paying the Bill

The costly infrastructure demands of Egypt’s water strategy puts the sector on a par with the transport and energy sectors as one of the nation’s spending priorities. In late 2018 a World Bank analysis of Egypt’s water infrastructure found that the sector required $45bn of extra investment over current baseline projections. The government is meeting this requirement through a combination of direct spending, private sector investment and loans from development finance institutions.

Private companies have long participated in the water sector as engineering, procurement and construction contractors, with funding often secured through bank facilities. In some cases they have acted with the government using a public-private-partnership model, the first of which was the New Cairo Wastewater Treatment Plant, undertaken by a consortium composed of Orascom Construction and Aqualia. In other cases, private sector players have established joint ventures to either build infrastructure or secure operations and maintenance contracts for utilities. Private sector interest in the sector remains high. In late 2019 Italian water treatment and desalination firm Fisia Italimpianti revealed that it was assessing the possibility of establishing sewage-treatment plants in Alexandria and Gabal El Asfar. In February 2020 Saudi Arabia-based ACWA Power signed an agreement with the Holding Company for Water and Waste Water to conduct a feasibility study for a number of solar-powered desalination plants in Egypt.

Development finance also continues to play a significant role in the sector. The Arab Fund for Economic and Social Development is funding the second phase of Egypt’s largest sewage water-treatment plant, being built in the Sinai Peninsula. The plant will treat sewage and agricultural wastewater and produce 5m cmd of water to be used for the cultivation of 101,000 ha. In November 2019 the European Bank for Reconstruction and Development granted a $20m loan to Egyptian construction group Hassan Allam Holding to help it expand its activities in the water and wastewater treatment segment, including desalination.

Government-to-government aid is another important element of the funding mix. In 2018 the US Agency for International Development pledged $65m in grants for infrastructure and water reforms, while more recently the governments of the Netherlands and Italy provided grants of €120m and LE70.5m ($4.3m), respectively, for water projects.

New Efficiencies

Despite Covid-19-related economic turbulence, the government continues to attract investment in the water sector, albeit at a slower pace: the Ministry of Finance planned to issue tenders for four new desalination plants in the second quarter of 2020, but in January delayed the process until the fourth quarter as international firms reportedly needed more time to properly assess the proposals. In the meantime, government efforts to increase efficiency in the water sector remain unaffected by external factors. At the local level, this means encouraging the use of water-saving devices such as inserts that aerate the flow from taps and wastewater diverters that direct shower water to gardens.

The MHUUC is also working to establish district metered areas that will monitor water usage and waste production as a first step towards a nation-wide, fully metered water system. Further up the water life cycle, the government is working with private sector interests to utilise wastewater in irrigation systems for specialised cash crops. Egypt Kuwait Holding, for example, has partnered with the government to establish wastewater-irrigated hardwood plots in locations across the country, including New Beni Suef, Sadat City, New Minya and Samalout. The government is in the process of constructing a compressed wood factory, initially planned to come on-line before the end of 2020, with a capacity of 300,000 cu metres per year that will receive and process the hardwood harvest.

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