This diagnostic points toward the following conclusions. Algeria must address three major—scarcity, service delivery and governance—gaps in the water sector (see para. 6.6). From this review of the water sector, one could arguably conclude that Algeria could improve economic returns from its public investment. Sufficient investment is already planned in hydraulic infrastructure for the next 4 years, but a part of those resources could be redirected toward truly public goods—for example, regulatory and institutional reforms for both resource and service needs, wastewater collection and drainage, and incentives for water conservation in irrigation. However, key challenges remain:
Groundwater exploitation is an issue. Perverse incentives that exploit groundwater beyond sustainable levels should gradually be removed from misallocated subsidies in agriculture, energy, and distorted trade policies. New approaches that stimulate affected groups’ participation in the regulation of groundwater use should be adopted.
Time has come to allow water utility companies to operate as independent entities with operational autonomy, predictable budgets, good accounting and reporting, and clear service standards.
The need for improved governance is overwhelming.
Inequity in access to water is also an issue. Rather than the current untargeted subsidies for both irrigation and water supply and sanitation, the focus should be on designing specific, targeted subsidies—for example, for the urban and rural poor, for municipal pollution, and so forth.
Transfer of decisionmaking to the waterbasin agency level could allow local stakeholders a greater voice in water service quality and coverage, an important shift as user fees are gradually adjusted to improve cost recovery.
Algeria has taken important steps toward meeting those challenges. It is changing the way that intends to conduct business. This includes:
Starting to adapt its water laws and regulations into a modern framework. New concepts for water development and management are being introduced. These include: integrated water resource management, water basin agencies, private participation through concessions, water pricing adjustments (the most recent in January 2005), commissioning new studies for potable water and irrigation pricing increases, institutional reorganization of its water Enterprises Publiques Economiques (for example, ANB and AGID) into EPICs, and updating the PNE for the central and eastern regions. Communal water services were set in place in October 2005, and management transfer should be completed in 2007.
Allocating a large share of its capital budget to water infrastructure (more than12 percent since the beginning of PSRE).
Starting to define concrete goals reflecting its water vision, such as meeting 100 percent of potable water needs and reallocating the rest for the needs of agriculture and industry.
Looking for new public-private partnership arrangements in service delivery for urban water supply as in Algiers (with the French operator Suez). By end-2006, the arrangements for Oran, Constantine and Annaba should be completed. Authorities intend to associate eight additional cities to such an arrangement in the future.
Embarking on a major program of surface water mobilization (to reach 67 dams by 2009) and desalinization (12 stations) to fill the scarcity gap.
These steps are leading to concrete improvements in reducing the scarcity and improving the service delivery and governance gaps; however, recent measures are insufficient. Water operators have become more dependent on budgetary support for their survival, while the share of expenditures covered by their own revenues is insufficient. Water projects continue to face severe difficulties in terms of financial sustainability and delays of implementation. End users of rural water have interrupted service. There is limited monitoring and evaluation. Further improvements in the efficiency of public intervention do not depend on a less-than-restrictive fiscal space, but on a desire to do better. But changes will only happen if Algeria also makes major changes in the way it develops and manages its water resources and how it uses public monies and intervention. Basically, the government has two important and interrelated sets or groups of policy choices to make.
Improve its investment strategy, not only in how much new water supply to develop but in which strategic problems to prioritize through a well-defined, long-term sequence of investments. For example, should it first secure fully and reliable potable water and sanitation services for urban and rural consumers? Close the geographic deficits? Modernize the existing system? Or expand irrigation into new areas? In this context, what would be the best sequence in which to develop additional storage, and how should this storage be allocated and reservoirs operated? At present, the slow pace of project preparation contrasts with the sizable resource envelope allocated through the PSRE and PCSC in dictating the sequence and priority of sector investments.
Develop policies that affect incentives to use water more efficiently and productively, while achieving sustainable and effective O&M. These policies include the principles and institutional arrangements on which water distribution between the source and the destination will be based; new water pricing for service providers (for example, ADE and ONID, as well as ANBT, the bulk water provider)113; new electricity pricing in the agriculture sector (this may be the best and most efficient way to begin managing and regulating the use of groundwater); and concession of water rights or entitlements to empower farmer organization and farmers to use their water more efficiently and productively. A budgeting line should also be included to clearly identify O&M costs.
In addition, the government of Algeria must consider the following measures:
Slow down the process of building dams until a review of existing investments is completed in the near term, a follow-up well-planned pipeline is designed and the maitrise d’ouvrage is strengthened. Water storage in dams is an important part of an integrated strategy, but it needs occur in a carefully sequenced fashion. Experience in the region and elsewhere (Iran, Morocco, Yemen) indicates that the institutional and political dynamics of dam construction can create the wrong incentives, leading to situations that are extremely inefficient in hydrological and economic terms. In addition, strengthening the maîtrise d’ouvrage is essential to contain costs and improve the quality of infrastructure. This is an area where training and technical expertise can prove helpful.
Instead, introduce an integrated water resource management plan based on strategy and providing for investment planning and budgeting in the entire sector. This requires:
A consolidation of all PNE updates, currently limited to the center-east regions.
Preparation of subsector strategies to be consolidated into a national water development and management strategy adopted by all stakeholders.
Substantial capacity building, with associated human and financial resources to MRE-DPAE to oversee water planning and coordination of programs and projects. The establishment of an integrated water planning system and project evaluation is currently being prepared with assistance from the German Agency for Technical Cooperation (GTZ).114 According to authorities, the new system will allow to integrate the three planning cycles (long, medium and short term), which is essential to rationalize investment choices.
Preparation of an asset management plan for all the country’s major infrastructure, including supply expansion, system expansion, environment and management.
Preparation of a consolidated water investment plan by a joint water/agriculture working group, providing a medium-term expenditure framework in water and identifying future budget obligations. This would include counterpart funding and the O&M implications of the expenditure plan.
Modification of the balance among current water programs, shifting more resources toward management, productivity, and governance-related programs. This could deviate resources in the supply mobilization or system-expansion infrastructure programs toward management and institutional programs that are consistent with the objectives of the new water law. Slowing down the large infrastructure program will not necessarily compromise the overall plan. Project delays will occur one way or another because of the limited absorptive capacity and sheer size of the current program.
Develop an incentive-based regulatory approach to water sector reform in contrast to the actual rationing mode. This involves designing technical regulations, controls and tools supporting the 2005 Water Law. These would allow an enhanced management of water resources, and an improved efficiency of water services delivery.
Plan for decades of future “drought.” Make sure that the hydrological data on which investments are planned are based upon a sufficiently long time series. Virtually all predictions are that future rainfall will decline. Whether or not they turn out to be right, water storage planning should take them into account.
Prioritize urban water carefully and ensure that cities too have incentives to conserve water during dry years. The idea of using agricultural water as a residual is good. However, this choice needs to be flexible. Dams store different amounts of water every year. If all water is used in a dry year, it cannot then be used for agriculture the following year.115 In a better system, a “normal” year would give the city 100 units of water. If a dry year then occurs, that amount would be proportionately reduced; and the city would have to compensate farmers if it could not otherwise reduce its consumption.
The government also has to solve several irrigation issues. Irrigation development is arguably a major long-term priority for the agricultural sector. Despite the attractiveness of low-cost farmer-managed irrigation development, as evidenced by the substantial increase in small and medium hydraulic (PMH) projects using groundwater, the government investment plan contains six new, capital-intensive PCSC projects. A more effective use of resources should also concentrate on rehabilitating and maintaining existing schemes. The government should:
Slow down investing in newlarge-scale irrigation infrastructure until an irrigation strategy is adopted by all stakeholders in the near term. If new schemes must be considered, reduce their size so that management and maintenance can be managed on the ground by water user groups. Partially as a result of overestimating water that would be stored in dams, several countries in the region have built more irrigation than they reliably have water to serve. Water rationing has to take place, with consequent inefficiencies as well as important social and economic costs. Uncertainty about water availability will force farmers either to tap groundwater resources or, more commonly, to plant lower-value crops that can tolerate variable water supplies.
Consider various forms of irrigation management transfers. This is in line with the process of economic liberalization and the Investment Code, including but not limited to Build on Time (BOT) concessions, and affermage.
When rehabilitating or constructing new irrigation schemes, go straight to pressurized systems suitable for high-efficiency irrigation. Tunisia has and Morocco and Egypt are in the process of providing incentives to convert their public irrigation systems to high-efficiency irrigation, such as drip.116
Make ONID subsidies explicit and provide them only on a contractual and performance-based system. This would include clear responsibilities for service delivery and financial support, to be stated clearly in a contract. This implies, first, equilibrium subsidies (subventions d’équilibre) for reduction of water quotas theoretically allocated to meet the needs of large-scale irrigation; and second, tariff compensation subsidies (subventions de compensation tariffaire) for the differential between the cost of water production and tariffs charged to users. This is an output and performance-based system.
