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1.CHAPTER 6: UPGRADING WATER INVESTMENT MANAGEMENT

During the past century, while world population tripled, the use of water increased six fold. The increased use of water has come at high environmental costs: some rivers no longer reach the sea, 50 percent of the world’s wetlands have disappeared in the past century, 20 percent of freshwater fish are endangered or extinct, and many of the most important groundwater aquifers are being mined, with water tables already deep and dropping by meters every year, and some damaged permanently by salinization. The World Commission on Water estimates that water use will increase by about 50 percent in the next 30 years. An estimated 4 billion people—one half of the world’s population—will live under conditions of severe water stress in 2025, with conditions particularly severe in Africa, the Middle East and South Asia. This gloomy arithmetic of water is mirrored in the gloomy arithmetic of costs. While low cost, often community-based solutions can and should be further exploited, the “easy and cheap” options for mobilizing additional major sources of supply for human needs have mostly been exploited. Many countries are now facing sharply increasing unit costs. Tensions over water rights are increasing at the level of the village, city and basin. Shifting patterns of precipitation and runoff associated with climate change compound this gloomy arithmetic. An inability to predict and manage the quantity and quality of water and the impacts of droughts, floods and climatic variability will impose large costs on many economies in the developing world in the coming decades.

—The World Commission on Water
This chapter focuses almost exclusively on water issues for northern Algeria.⁸⁶ It assesses the broad elements and direction of the government’s water sector strategy in transition, identifies key problems and issues that Algeria’s policymakers and planners need to address, examines public expenditure patterns, and reviews the design of the PCSC program and projects to be implemented. Finally, it suggests ways in which the needs of priority investments can be accommodated within the current fiscal space, along with suggestions for improving the efficiency and effectiveness of public intervention.

A. Introduction

1. 
   Algeria faces critical challenges in dealing with one of its most vital natural resources. Though the arithmetic of water might not seem so bleak in the country context, the situation is nevertheless serious and worrisome. The cause for concern is reported in several strategic assessments on the future of water, including the National Economic and Social Council (2000) and the World Bank (2003c). Algeria is a country with relatively adequate renewable water at the national level, but extreme geographic and year-on-year variations. It depends heavily on nonrenewable groundwater and augments its supplies by seawater desalination. As such, the country must optimize geographic and temporal distribution of water. It must maintain environmental quality and manage aquifer drawdown to not exhaust supplies.
   

2. 
   Like other MENA countries, Algeria lacks sufficient water to grow its own food, which makes trade a vital activity. Although agriculture uses 65 percent of the water withdrawn in the country, the available quantity is insufficient to grow all of the country’s food, particularly in light of the relatively low adoption of high-efficiency irrigation technology. Algeria is a net importer of water embedded in food. About 40 percent of total water needs are imported in food, a concept known as “virtual water” (Figures 6.1 and 6.2). Basic data on water supply and demand are in Annex H. Algeria water fact sheet is in Annex M.
   

Figure 6.1 Per Capita Renewable Water Available: Algeria and MENA Region

Source: FAO Aquastat. Data on nonrenewable groundwater come from various published sources. Note: External renewable water resources refer to surface and renewable groundwater that come from other countries, net of that country’s consumption. Virtual water refers to water embedded in food that is imported, net of exports.

Figure 6.2 Share of Water Available or Used by Type of Water: Algeria and MENA Region

Source: MENA Water Development Report, forthcoming.

3. 
   Past investments in the mobilization of additional water supplies—to secure potable and industrial water needs and to expand irrigated areas—have failed to match the growing demand for water. Recent droughts have exposed the vulnerability of the large-scale irrigation (LSI) system and the growing pressure on groundwater resources. The droughts have focused attention on the need for additional storage and new water sources that improve security, increase supply, and provide greater operating flexibility and assurance. At the same time, new demands related to sanitation are emerging. Major investments are needed in wastewater treatment to counter the threat that untreated sewage poses for the long-term sustainability of Algeria’s water resources. In short, Algeria needs new investments in water development.
   

4. 
   A business-as-usual approach—which relies exclusively on more investment in infrastructure, particularly in costly storage, irrigation expansion, and wastewater treatment—is no longer sufficient to address the multiple challenges in the water sector. In 2005, the government launched the PCSC, which includes a substantial investment program in water resources (dams and transfers) and water supply. This is primarily financing a new project portfolio of 5 large dams,⁸⁷ 8 transfer systems,⁸⁸ 6 irrigation expansions, and 350 hill-dam projects. In implementation, Algeria faces critical choices on how to prioritize and phase proposed investments so that impact on growth and poverty alleviation is maximized. In any case, it is clear that an approach focused on increasing water supply, as the one applied in the second half of the twentieth century, is not adequate anymore. The key country challenges have changed: reduced availability of water per capita, global climate change, stronger global trade integration, and an Algerian population with a higher level of education and urbanization demanding better quality in service delivery.
   

5. 
   Three particular elements should be considered in reviewing the public expenditure in the water sector.
   
   • 
     Water is a natural resource that is shared by communities. This implies some familiar issues—the rights of upstream versus downstream users, well-off owners versus larger community rights to ground water, and current generation versus future generations’ intertemporal allocations for ground and surface water. All water rights are usufructuary in nature. In the absence of a robust legal framework and well functioning regulatory institutions, water rights might end up being defined by de facto water rights, often at the expense of traditional rights of communities. The relative power of individuals and groups is strengthened by subsidies for agricultural outputs, energy and other inputs, and tariff barriers.
     
   • 
     Public expenditure in water is often represented by the amount the Algerian government has invested in “trunk” infrastructure such as dams, conveyance systems, and desalination plants, which are all public goods. Aridity and rainfall variability are used to justify massive public expenditures in hydraulic infrastructure, and the government allocates generated water between competing sectors. With significant demographic changes taking place, choices are politically difficult, such as reallocating between poorly performing irrigated agriculture and burgeoning urban demand, or whether investment in dams and desalination plants should continue with the same priority. In the latter case, Algeria has begun major investments in desalination instead of optimal utilization of the available water in its numerous large reservoirs.
     

• 
  Water services provided to farmers, households, and businesses have the nature of private goods; yet for political reasons, full cost recovery has never been contemplated. With resulting limited cash flow, water companies and irrigation utilities are unable to finance treatment of the pollution loads they are liable for. This places another heavy fiscal burden on the budget.