diagnostic, financial and institutional tool for investment in

DIAGNOSTIC, FINANCIAL

AND INSTITUTIONAL TOOL

FOR INVESTMENT IN

WATER FOR AGRICULTURE

Maher Salman, Technical Advisor, FAO – Land and Water Division, Rome

Claudia Casarotto, ETH Researcher/FAO Consultant/Pavia Project Team Member

WORLD WATER WEEK 2012: Water and Food Security

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OUTLINE

1. OVERVIEW: DIAGNOSTIC TOOLBOX FOR INVESTMENT IN WATER FOR AGRICULTURE

2. CONTEXT TOOL

3. INSTITUTIONAL AND POLICY TOOL

4. FINANCIAL TOOL

5. THE WEB PLATFORM – A DEMONSTRATION

6. CONCLUSIONS

OVERVIEW:

DIAGNOSTIC TOOLBOX FOR

INVESTMENT IN WATER FOR

AGRICULTURE

The way towards the Diagnostic Toolbox

2008 2010 2011

AgWA Partnership

2009

Sirte Conference on “Water for

Agriculture and Energy in Africa: The

Challenges of Climate Change”

NEPAD – CAADP Compacts Process

TerrAfrica

Sirte Follow-up actions

National policies and strategies in water management for agriculture

Financial Tool Context Tool

National Investment Briefs

Country Support Tool For Scaling-up

Sustainable Land Management in

Sub-Saharan Africa

Financial Tool applied to

Kenya, Egypt, Zambia

Context Tool applied to


National Investment

Profiles

Policy Tool applied to


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Architecture of the Diagnostic Toolbox

Diagnostic Tool - SWAM

Toolbox for Institutional and Policy Diagnosis

National Investment Profiles

Financial Diagnostic Tool

Literature and Experience

TerrAfrica approach, AgWA Partnership, NEPAD initiative, CAADP process, national policies, strategies, and programmes

Context Tool Institutional and

Policy Tool Financial Tool

National Investment Framework

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Three Tools

CONTEXT TOOL INSTITUTIONAL AND

POLICY TOOL FINANCIAL TOOL

• Agriculture • Irrigation • Food security,

poverty and food self-sufficiency

• Water resources and hydropower

• Environment and health

• Climate change

• Map institutions, actors, laws and policies

• Assess the implementation of commitments

• Summary indicators • Propose actions and

recommend policy changes for water management

• Current trends in investments

• Realistic estimates of available means of finance

• Prioritization of investments

• Facilitates formulation of National Investment Framework

CLOSELY INTERCONNECTED!

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The Toolbox in Action W

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Sirte, all Africa, only context and financial prototype tools

Sirte follow-up: Egypt, Kenya, Zambia

Support to policy consultation for the sustainable use of water and energy in the Near East and North Africa

Support to the Horn of Africa (USDS funding)

CONTEXT TOOL

Structure of the Context Tool W

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CONCEPTUAL FRAMEWORK

CONTEXT DIMENSIONS, SUB-DIMENSIONS AND INDICATORS

INVESTMENT NEED AND POTENTIAL DIMENSIONS AND INDICATORS

RADAR GRAPHS INVESTMENT NEED INDEX

AND INVESTMENT POTENTIAL INDEX

Conceptual Framework

Human, Social, and Environment

IMPACT ON

Poverty and Food Security Health and Nutrition

• Basic services • Natural disasters and

Greenhouse gases • People displacement • Biodiversity loss

• Income generating activities

• Agricultural output • Food prices and

volatility • Own-farm income

• Nutritional outcome • Water-related

diseases

The unit of analysis of the Toolbox are irrigation and hydropower projects at country level

The Context Tool analyses the possible impact of these projects

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Hydropower Projects

Irrigation Projects

Based on the Conceptual Framework, the Context Tool dimensions are characterized as: a. Agriculture b. Irrigation c. Food security, poverty and food self-sufficiency d. Water resources and hydropower e. Environment and health f. Climate change

Each of the dimensions has been further disaggregated leading to the identification of indicators

Indicators can be easily quantified based on national statistics and international databases

Context dimensions and indicators

Agriculture

A.1.1. Agricultural share in GDP (%) A.1.2. Economically active population in agriculture over total economically active population (%) A.1.3. Rural population over total population (%)

A.1. Economic and social contribution A.2. Productivity A.3. Farming system A.4. Constraints and

opportunities A.2.1. Cultivated land (ha) A.2.2. Agricultural productivity A.2.3. Crop yield (tonnes/ha)

A.3.1. Typology of agricultural holdings (small-scale, emerging, commercial, etc.)

A.4.1. Constraints A.4.2. opportunities

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Need to Invest Index

The Need to Invest Index measures the country performance in access to electricity, energy mix, food security, dependence on agriculture, prevalence of rainfed agriculture

0%

20%

40%

60%

80%

100%

Prevalence of undernourished in

total pop (%)

Import dependency ratio (%)

Rural population / Total population (%)

Rain-fed land over total cultivated land

(%)

Population without access to electricity

/ Total population (%)

Share of non-renewables in

electricity production

Kenya

Iran

The six indicators that compose the Index can be visualized

The geometric mean of the value of the indicators is the Need to Invest Index

The greater Index, the higher he need for investment in water

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Summary Indexes

Country Investment Need Investment Potential

Kenya 55.40 46.69

Iran 13.54 57.77

The Investment Need and the Investment Potential Indexes are of specific importance for time and country comparisons

A summary Investment Need Index and a summary Investment Potential Index are computed as a geometric mean of the single values

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INSTITUTIONAL AND

POLICY TOOL

Overview

OBJECTIVES:

• Map institutions, actors, law and policies for water management for agriculture and energy

• Assess the institution and actor implementation of the political commitments towards policy objectives and targets

• Derive summary indicators and indexes

• Propose actions for water management, suggest responsibilities, recommend policy and regulatory changes

STRUCTURE: STEP 1 – MAPPING EXERCISE Institutional setup, actors, laws, policies

STEP 2 – DIAGNOSTIC EXERCISE Public budget analysis

STEP 3 – SUMMARY FRAMEWORK Summary representation of relevant information

STEP 4 – ACTION MATRIX Actions, responsibilities, policy&regulatory changes

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Mapping Exercise

Institutional setup mapping

Key institutions and actors

Mandate Geographic level Functions

Ministry of Water and Irrigation

Water resources development, management, protection; formulation, review, implementation of water sector policy.

National – provincial – district

Political leadership; water sector policy-making; manage government budget allocations; governance of subsidiary levels (including arid and semi arid lands Department); water quality control and water research.

Irrigation Board

Develop and improve irrigated agriculture; facilitate participation of all stakeholders; improve existing irrigation and drainage activities.

National – provincial – district

Coordinate construction and rehabilitation, O&M of irrigation infrastructure; run six national irrigation schemes, including administering land; irrigation expansion; formulate expansion; formulate and execute policy on irrigation schemes (with Water Resources Authority); research and training (irrigation efficiency, training WUA); irrigated agriculture extension services and cost recovery; increasing farmers participation; source funds for irrigation development.

WAB = Water Appeals Board; WSRB = Water Service Regulatory Board; WRMA = Water Resources Management Authority

Private actors

Public actors

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Mapping Exercise

Primary legislation mapping

Primary law Objective Specific targets

Water Act of 2002 Overarching, comprehensive, reform of the water sector.

(i) Separation of management of water from provision of water services, creating specific agencies; (ii) separation of policy making from administration; (iii) involvement of non-government entities in both the management of water resources and the provision of water services.

Irrigation Act (Cap 347) of 1966

Provide overall legislative framework for irrigation sector.

Specifies the functions and powers of the National Irrigation Board, its governance structure and financial provisions, its corporate character.

Policy framework mapping

Policy Mandate Specific policy objective

National Water Policy 1999

Redefine government’s role: from direct service provision to regulatory functions. Service provision would be left to municipalities, the private sector and communities.

Regulations to be introduced to give other institutions the legal mandate to provide both water services and mechanisms for regulation.

Vision 2030

Outline consensus on policies, reforms, projects and programmes that the Government is committed to implement by 2030.

Increasing the area under irrigation at a rate of 40000 hectares per year.

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Diagnostic Exercise

Analysis of the implementation of the political commitments towards policy objectives and targets

The main reference is to the public budget that reflects allocations and expenditures

The goal of the evaluation of the public expenditure allocations comprises assessment of the:

•Decentralization and participation •Timely utilization of budgetary appropriations

PUBLIC EXPENDITURE ALLOCATION

STRATEGIC PRIORITIES EFFICIENCY MANAGEMENT

•Investment priorities •Political commitments •Priorities accorded to regions

Project Vs Programme

DONOR’S PRIORITIES

Investment priorities WO

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Summary Framework

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PPW

PPB

DPB

The Institutional and Policy Index highlights the public and donor investment priority and commitment to water management for agriculture and hydropower

The Institutional and Policy Index is composed of four indicators: a. irrigation in agricultural public budget (PPA) b. hydropower in energy public spending (PPW) c. irrigation and hydropower in total public budget (PPB) d. irrigation and hydropower in total donor budget (DPB)

• The greater the Index, the higher the commitment of public sector and donors towards water management

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Summary Framework

Investment Need Index

Investment

Potential Index

Institutional and Policy

Index

Assessment of Investment

Environment

The combination of the three indexes will provide a better picture of the investment environment in a given country

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Action Matrix

The Action Matrix uses the previous analysis to define actions, policy reforms, and investment plans

The Action Matrix helps identifying what different actors can do to improve inputs and outputs of the water sector

INSTITUTIONS & ACTORS (responsible for actions)

OBJECTIVE (given the results of the institutional diagnosis)

ACTIONS SPECIFICATION OF ACTION AND RELATED PROCESSES

FURTHER POLICY & REGULATORY CHANGES NEEDED

Ministry of water and irrigation (MWI)

Capitalize on increased investment to the sector

Enhance MWI role of coordination and advocacy for the sector

Personnel strengthening and full implementation of the new MWI Human Resource Management

Include: support to internal “groups of reformers” sanctions against rent seeking, performance-based benefit is to key staff

Adapt government’s Results Based Management initiative to the water sector needs.

Introduce strategic Financing Framework, a mechanism for systematic resources mobilization and sound financial planning

In cooperation with NIB and in line with new Irrigation policy, and beyond Treasury transfers.

Enhance private sector participation but avoid long term financing burdens resting on public sector balance sheets

Irrigation Board

Improve policy framework, stakeholder involvement and resources mobilization for irrigation development

Finalize irrigation policy

Introduce demand management , improvement of actual devolution of functions to local institutions

Coordinate irrigation sector to empower communities and provide incentives for private sector participation

Introduce Participatory Irrigation Management for accountability, effective resource allocation, responsiveness.

Enact regulations that enable farmers/WUAs in irrigation management and PIM

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FINANCIAL TOOL

STRUCTURE

• Inputs

• Calculation algorithms for the derivation of:

− Investment envelope;

− Internal rate of return (IRR);

• Overall view of investments by project typology and time horizon

Overview

OBJECTIVE

To provide reliable and project-based estimates of investment needs in the agricultural water and hydropower realm over time

INTERFACE

Web-based platform for data entry and output calculation

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Inputs

Level Category Agriculture Projects Hydropower Projects

First Tier: essential information

Project characteristics

Beginning year of the project

End year of the project Investment cost

Total investment cost

The currency adopted

The relevance of the water component

Type of project Small-scale irrigation development

Rehabilit. & moderniz. of irrigation

Large-scale irrigation development

Others (specify)

Small-and medium-scale hydropower

Rehabilitation of dams and hydropower plants

Large-scale hydropower development

Second Tier: financial indicator related information


Total hectares of land

Dominant food and cash crop

Installed capacity of the hydropower facility measured in Megawatts

Costs of production and prices

Currency used

Reference year

Yields (ton/ha) for the main crops

Retail prices for the main crops

Average production cost for the main crops, including maintenance

Currency used

Reference year

Average running cost for hydropower plants in the country (currency/MW)

Average price of power (currency/MW)

Third Tier: accuracy enhancing information


Hectares of land under irrigation or rehabilitated by crop

Investment cost

Total yearly investment cost over the time scale of the project

Funding Partners

Total investment cost by partner disaggregated into public, private (including beneficiaries) and donors

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Investment Envelope

The Investment Envelope describes the total investment planned in the short, medium, and long term

The Investment envelope aggregates costs by project typology

When yearly costs are not provided, the disbursement pattern is simulated within the Tool

Only the non-disbursed part of on-going projects’ cost is considered

Only the water related component of the cost is included in the calculation of the Envelope

Project type Time frame

Small-scale irrigation

Rehabilitation and

modernization of irrigation

Large-scale irrigation

Small-and medium-

scale hydropower

Rehabilitation of dams and hydropower

plants

Large-scale hydropower

Others Total

Short- term 602 538 632 421 10 5,184 283 7,670

Medium-term 209 211 248 0 0 2,049 131 2,847

Long-term 32 26 86 0 0 0 36 180

Total 843 775 966 421 10 7,323 450 10 698

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Internal Rate of Return

The internal rate of return is the interest rate corresponding to a 0 (zero) Net Present Value

IRR

The costs and benefits that accrue from the operation of the project are taken into account in the IRR

The IRR is calculated for each project and analysis for the various types of projects is conducted

The IRR is derived from the sum of the cash flows calculated for the implementation and operation period of the project

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The Web Platform

Password protected

DATA

Login Login

Login

OUTPUT

OUTPUT

CONTROL

Simple user interface and instruction manual

Multiple users can access the summary data and output

Access to other users is password controlled

OU

TPUT

The user can visualize, export, and save data and output

FAO grants access FAO performs accuracy check on the data FAO can modify data

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THE WEB PLATFORM

A DEMONSTRATION

Kanakantapa

Construction of an earth dam.

Construction of a surface irrigation scheme.

Furrow scheme to irrigate about 1890 hectares.

Dam also used for livestock watering.

Provision of extension and micro financing services to farmers in the schemes.

Maize will be grown as main crop, sugarcane for commercial purposes on some plots.

2002 2016

20.8

1.8

1

18

60

40 Livestock watering

1890

60%

4

109

2010

2010

ZKW

1,860,000

400,000

2010

USD

289.2

22.5

Zambia

1,860,000 ZKW 400,000 ZKW

1.997

2.496

0.499

1.331

0.333

1.664

3.328

0.832

Selected Views on Investment

143.120.4%

48.66.9%

206.129.4%

2.30.3%

262.437.4%

38.25.4%

Small-scale irrigation development Rehabilitation and modernization of irr. scheme

Large Scale Irrigation development Small-and medium-scale hydropower

Rehabilitation of dams and hydropower plants Large scale hydropower development

Other (Agri)

Share of cost by type: Ongoing Projects (mln US$)

6997.0%726

7.3%760

7.6%

4194.2%

100.1%

697069.7%

4124.1%




Other (Agri)

Share of cost by type: Pipeline Projects (mln US$)

8437.9%775

7.2%966

9.0%421

3.9%

100.1%

723267.6%

4504.2%




Other

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Share of cost by funding: Ongoing Projects (mln US$)

Share of cost by funding: Pipeline Projects (mln US$)

1,14330%

1534%

2,49966%

Public (US$ million) Private (US$ million) Donors (US$ million)

1,26031%

44611%

2,37258%

Public (US$ million) Private (US$ million) Donors (US$ million)2,40330%

5998%

4,87162%

Public (US$ million) Private (US$ million) Donors (US$ million)

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Cropping pattern (percentage of total hectares)

Maize Rice Sorghum Sugar Cane Vegetables Potato Banana CottonOn-Going 31.4 21.6 2.3 3.2 37.6 3.1 10.2 6.8

Pipeline 22.9 63.1 0.4 129.0 27.4 1.8 10.4 72.0

0%

5%

10%

15%

20%

25%

30%

35%

40%

Maize Rice Sorghum Sugar Cane Vegetables Potato Banana Cotton

27%

18.6%

2% 3%

32%

3%

9%

6%7%

19.3%

0.1%

39%

8%

1%3%

22%

Perc

enta

ge o

f To

tal N

umbe

r of

Hec

tare

s D

evel

oped

On-Going Pipeline

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CONCLUSION

CONCLUSION

• systematic study of the policy and institutional frameworks

• Definition of investment needs in water for agriculture and energy

• Definition of project and overall rates of return and analysis of cost distribution

Direct support to policy consultations and ready to use by decision makers

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A comprehensive Toolbox for the: • analysis of the water use patterns at country level

CONCLUSION

Alignment with national and regional initiatives: no duplication, but integration!

Easy to use and update thanks to the web platform interface

Immediate outputting of easily understandable results and possibility to update inputs at any time

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ACKNOWLEDGEMENTS

UNIVERSTIY OF PAVIA Dept. of Economics and Management

PROF. MARIA SASSI

MR. ALBERTO CARDACI

MR. NICOLA MARTINELLI

FAO Land and Water Division, Rome

MS. ALBA MARTINEZ SALAS

MR. FRANCESCO RAMPA

Governments

REPUBLIC OF EGYPT

REPUBLIC OF KENYA

REPUBLIC OF ZAMBIA

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THANK YOU FOR YOUR ATTENTION!!

diagnostic, financial and institutional tool for investment in

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