Cost Recovery for Irrigated Agriculture Egyptian Experience

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Cost Recovery for Irrigated AgricultureEgyptian
Experience
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Definition of Cost Recovery

• It is the process of directly or indirectly
  capturing and directing to public agencies some
  portion of revenue resulting from government
  actions to provide irrigation services.Cost of
  services are in principle to be recovered from
  those who benefit from the provision of those
  services.

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Objectives of Cost Recovery

• Financial objective to recover from beneficiaries
  the cost of providing water related services.
• Encourage efficient use of water resources.
• Provide the water service at a reasonable cost.

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Purposes of Cost Recovery

• 1- It results in improved irrigation performance
  through
• More efficient operation and maintenance of
  irrigation facilities.
• More efficient use of water by farmers.

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Purposes of Cost Recovery (continued)

• 2- It promotes other objectives of the government
  by
• leading to better investment decisions.
• Easing the governments financial burden.
• Resulting in a more equitable distribution of
  income.

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Cost Recovery policy should

• Have few or no negative impact in terms of
  distorting incentives and inequity of impact.
• Be transparent in calculation and application.
• Be administratively simple.
• Be politically and socially acceptable.

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Cost Recovery policy should (continued)

• Ensure efficient water and lead to water
  conservation.
• Ensure adequate return to fully cover operation
  and maintenance and to cover capital cost to the
  extent possible.
• Be within the capacity of the farmers to pay.
• Reduce the burden on the general taxpayer.

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Cost recovery policy should (continued)

• Be simple to administer.
• Be consistent with the socio economic
  development policy of the country.
• Be agreeable to all stakeholders.

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Cost Recovery program includes

• Allocation of costs for service provided and
  collection procedures.
• Economic and financial status of the
  beneficiaries.
• The extent to which benefits can be quantified
  -and captured.
• The cost of imposing the charges.
• The impact of the charges on aggregate
  production.

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Cost Recovery Mechanisms

• Fees according to the volume of water delivered.
• Fees according to the area served.
• Crop based pricing.

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Volumetric pricing

• Leads to more efficient use of water .
• No practical way to measure and monitor the
  diversion of water from the distribution system
  to the user.
• Both infrastructural and administration costs can
  be very high.

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Area based pricing

• Involves pricing water according to locations of
  areas served, with minimal control of the amount
  of water supplied.

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Crop based pricing

• It sets prices for each crop on the basis of the
  crop water requirements.
• It has effect in including shifts in cropping
  patterns towards more water efficient crops.
• It is not easy to administer .

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Application of Cost Recovery in Egypt

• Irrigation Improvement cost recovery .
• Subsurface Drainage cost recovery.
• Cost Recovery in the new lands.
• Cost Recovery for operation and maintenance.
• Cost Recovery on new projects.

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Irrigation Improvement Project

• It comprises improving control structures , using
  modern methods in land leveling, on farm
  development , rehabilitation of main and branch
  canals and most of mesqas, promoting equity of
  water distribution, and forming water users
  associations.

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Mesqa improving costs consist of

• Investment costs for the mesqa pumps, the
  repayment over a period not exceeding 5 years.
• Investment costs for civil works including mesqa
  remodeling, PVC pipes, lining ,..etc.
• Costs are paid to government over a period not
  more than 20 year without interest.
• Farmers pay O M costs directly to WUAs

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Payment for mesqa investment

• It is expressed as a proportion of incremental
  income attributed to irrigation improvements
  varies between 12 - 25 .

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Subsurface Drainage Cost Recovery

• An increase in crop yield by more than 20 due to
  installation of the drainage system has
  encouraged farmers to participate in the program
  and pay for it.
• Cost Recovery has been made over more than five
  million feddan during the last 30 years.

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Cost Recovery in the new lands

• The policy with respect to capital cost recovery
  is to recover no charges above the delivery point
  and a proportion of the investment costs below
  the delivery point.

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Cost Recovery in the new lands

• Settlers on new lands are given a period of ten
  years before they are subject to any taxes. The
  average yearly land taxes range from less than 10
  L.E. / feddan to no more than 35 L.E. /feddan.

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Cost Recovery for operation and maintenance

• Operation and maintenance costs are the
  responsibility of farmers below the delivery
  point. Failure to fulfill this obligation results
  in the work being undertaken by MWRI and charged
  to the farmers on average general.

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Cost Recovery for operation and maintenance

• Farmers pay L.E. 18 per feddan per year for
  mesqa maintenance in the old land, either to the
  government or as a contribution of labor cost
  recovery for O M above the mesqa.

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Cost Recovery on new projects

• From the main gate onwards , private parties take
  over the development and OM including
  investments in the water system infrastructure.
• In areas with relatively small landowners, water
  boards are set up at branch and district level.

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Main features of the revised law 12/1884 on cost
recovery

• The MWRI regulates the method of participation by
  the farmers and water users and makes available
  the necessary private and government funding for
  irrigation and drainage related construction,
  replacement, rehabitation, operation and
  maintenance works.

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• The Minster of Water Resources and Irrigation
  should determine by decision the cost and charges
  for water supply and distribution to the new
  lands.
• The Minster of Water Resources and Irrigation
  shall by decision determine the charge to be
  paid for irrigating and draining water by the
  States pumps and machines unless the land tax is
  estimated on the basis of the free charge use
  irrigation and drainage facilities.

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• A person licensed to use or exploit the water of
  the Nile, Canals, groundwater, wells, reservoirs
  or flowing springs for purposes other than
  agricultural purposes shall pay for maintaining ,
  operation and managing the utility in accordance
  with such rules and rates as may be determined by
  the Minister of Water Resources and Irrigation.

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Conclusion

• Implementation of Cost Recovery is crucial for
  Irrigation Improvement project successful
  implementation.
• Farmers should gradually participate in the
  operation and maintenance of their branch canal
  through the development of branch canal water
  users associations and water boards.

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Conclusion

• The capital costs for mesqa improvements under
  IIP are to be recovered over not more than 20
  years , while the costs of pumping units and land
  leveling are to be repaid over three years.
• Water service fees like volumetric charging would
  not be economically , socially , or politically
  feasible.
• The basis for irrigation service charges should
  be crop-based and reflect crop water consumption.