Public-Private-Partnership in irrigation - A magic formula?

In the following I like to illustrate in brief the last decades' evolution in irrigation development leading towards participatory irrigation management (PIM) and this new-born PPP.

Irrigation development at a threshold

Irrigated agriculture plays a vital role in the global food supply as well as in the economics of the world. However, after almost a century of growth through heavy investments by both, colonialists and independent governments, irrigation is facing a variety of issues, the most critical being:

• Low water efficiency: irrigation uses 70-80% of the world's fresh water, most of it being lost through evaporation;
• Declining public funds: The massive investments needed for the development of the irrigation sector have been almost entirely based on public funding (which could be understood as a collective choice for food security or export cropping). However, public opinion does not necessarily understand that public funds should be needed for operation of irrigation schemes, since benefits are well individual.
• Catastrophic asset management: No one can deny it: irrigation infrastructure is deteriorating all over the world; some of it is in such a poor condition that it not even allows for a normal operation for agricultural production purposes. This lack of maintenance is mainly due to lack of adequate funding, which itself is a consequence of insufficient water charges or faulty fee collection and poor management all along

First generation of reforms in irrigation development

Some fifteen or twenty years ago the irrigation community was well aware that in spite of these critical constraints, huge efforts had to be made to face the irrigated agriculture's challenge of supplying 2/3 of the extra food needed by fast population growth.
While the first constraint can be, and is being addressed by improving irrigation practices (from surface to localised irrigation, and/or switching - if markets permitting - to high value added crops, the other two have not a simple solution hither to. Nevertheless, major effects were thought to come from participatory irrigation management.
Over the past two decades, a remarkable transformation has been taking place in the way large irrigation systems are managed, and in the assumptions about the appropriate role of farmers in this management process. The past conviction, that centralised, and indeed often despotic power, is needed to build and operate large-scale infrastructure has been superseded by a radically different post-modern discourse: The water users - so long the "beneficiaries" of the irrigation world - need to take over management control from the state in order to rescue the irrigation infrastructure from certain decay, and to protect the sustainability of the water resource.

What is participatory irrigation management ?

The term participatory irrigation management refers to the participation of users - the farmers - in the management of the irrigation system. The FAO Handbook on PIM defines participatory irrigation management as the involvement of irrigation users in all aspects of irrigation management, and at all levels. All aspects include planning, design, construction, operation and maintenance, financing, decision rules and the monitoring and evaluation of the irrigation system. All levels include the primary, secondary and tertiary levels of water mobilisation and distribution. A more comprehensive variant of PIM is irrigation management transfer (IMT). IMT is the full or partial transfer of responsibility and authority for the governance, management and financing of irrigation systems from the government to water user associations (WUA). PIM usually refers to the level, mode, or intensity of user participation that would increase farmer responsibility and authority in the management process.
The basic concept of subsidiarity, that water management should be handled locally where this is possible is consistent with a wealth of social science findings about the advantages of local decision making and community empowerment. From a rural development perspective, PIM builds up productive capital (better maintained irrigation infrastructure) and social capital (new institutions such as WUAs, skills, leadership and community action).

Advantages of PIM

Experience with farmer-managed systems indicates that the active participation of farmers in irrigation management helps ensure the sustainability of irrigation systems and has resulted in:

• more predictable water delivery;
• tailored design and construction;
• reduced incidence of conflicts over water;
• improved maintenance; and
• ability to financially support O&M of the system.

The following positive impacts from the perspective of the WUAs could be identified as:

• sense of ownership and secure water rights;
• increased transparency of the water allocation process;
• greater accessibility to government and system personnel;
• right to fix and collect water fees;
• improved maintenance;
• participation in decisions concerning irrigation service;
• reduced conflicts among users; and
• increased agricultural productivity.

If we ask ourselves for whom do we construct irrigation systems; who are the actual users; and who are the direct beneficiaries, then the issue of PIM becomes central. PIM is thus more than an approach to irrigation management.

Experience from the first generation of reforms in irrigation development

Early reforms in the irrigation sector were modest with a primary focus on rehabilitation. The formation of small water user associations was often supplemental at the community or tertiary water distribution levels. Many of these WUAs were often created to satisfy donor requirements.
Moreover, most of the WUAs created did not have an appropriate legal framework or sufficient power to take actions. Public irrigation agencies did not see the WUAs as a threat as long as WUAs cleaned canals, collected fees and were subordinate to their irrigation services. However, the user groups have often been dealt with as a supplemental, rather than dominant, part of irrigation development programmes. Farmers were asked to "participate" in government designed projects through assignment of responsibilities (canal cleaning, fee collection, etc.) rather than through empowerment and autonomy.
The results were often that large numbers of WUA's were created undemocratically, rapidly, and through external manipulation. This old paradigm did not dislodge the equilibrium of perverse, entrenched interests in the irrigation sector and hence had been unable to overcome the key threats facing irrigation agriculture such as financial and physical non-sustainability of the irrigation system. Such weak attempts in the lack of a political willingness had often led to the collapse of the WUAs soon after the donor funded project was over.

Second generation of reforms in irrigation development with real WUA strengthening

The subsequent reform paradigm of the second generation is a departure from the old one. Reforms in the early 1990s unleashed a new strategy and approach: reforms were driven politically; water user associations became a part of a larger process of institutional reform through well-defined legal frameworks and substantive roles in operation and maintenance of the irrigation system, a federated WUA hierarchy, choice to raise resources, hire their own staff in some cases and a new accountability between the users and the public agencies.
Sustainable WUAs require an enabling environment, clear political will with clarity of objectives, accountable partnerships, and incentives. Merely creating a legal framework or linking them with rehabilitation projects alone, will not lead to successful WUAs. Nevertheless, empowerment of water users, long term capacity building, ensuring financial resources, and appropriate incentives with timely monitoring and remedial actions can go a long way in strengthening the WUAs. The sustainability of a WUA clearly depends upon internal factors: farm size, location, social stratification and heterogeneity; and external factors such as the institutional environment, legal framework, staffing, financial and technical assistance, agricultural policies, markets, hydraulics and demography.

Lessons learnt from the reform programmes

Some of the important lessons learnt from the introduction of PIM reforms include:

• Flexible approach: any reform option needs to be flexible with options to go either for total or partial reforms. It could even span a part or whole of the project at times which could be opportune and convenient. Different models could be adopted within the irrigation sector. A different model for large reservoir based irrigation schemes, small rain-fed tanks, diversion weirs or tube-well schemes.
• Learning by doing: This is perhaps the most reliable way of doing things rather than importing large scale alien concepts into a project. Once farmers get into the process of decision making a large number of unexpected things which have not been visualised happen. Lessons from the pilot project could be used to scale up the project. The selection of the pilot project must be carefully done and as far as possible be taken up in a complete project.
• Legal framework: A well defined legal framework is essential to respectively define the roles of the different actors, the functions and responsibilities of each. The legal framework needs to be broad and general. Details of functioning can be detailed in the rules and by-laws which can be easily changed at the WUAs administrative level. Being too prescriptive, a law can make necessary amendment a very difficult and cumbersome process.
• Enabling environment: An enabling environment which nurtures and encourages people's initiative is a must. This includes the political climate, the political will, the administrative support and finally the incentive structure that would help WUAs to be empowered over a period of time. Transfer of management functions entails a change of attitudes among farmers, irrigation agencies and governments. This process requires a change in attitudes of the government officials as well as of the people in the WUAs who have to admit their new responsibilities.
• Financial resources: A WUA without adequate financial resources is like a vehicle without gasoline! A good resource base is a must, and a broad one is recommended. Financial revenues could include - among others - water charges, special repair fees, rental of buildings and machinery, membership fees and conflict resolution fees.
• Linking reforms with rehabilitation: The creation of a WUA requires that it be immediately put into action by involving them in the rehabilitation programme. WUAs could be asked to undertake the works relating to differed maintenance which includes cleaning of canals, removal of weeds, oiling and painting of gates. WUAs can in turn either get the work done directly through local contractors or get it done by members of the WUA itself. By this process, WUAs are involved in the actual functioning of the rehabilitation programme, contract management, quality control procedures and financial procedures. Irrigation agencies tend to underestimate and often neglect the innovative skills farmers can demonstrate when they are given an opportunity.
• Responsive support system: WUAs require frequent advice on day to day issues; this could include technical, administrative, financial and legal issues. An irrigation advisory system could bridge the gap between the agency and the WUA. Similarly agricultural support services for the WUA would be required to complement (or better to replace) the public agricultural extension system to give advice on crops, pesticides, corporate management methods, market intelligence and development of an agribusiness plan.
• Federated WUA structure: WUAs need to be federated at the scheme level. Very often WUAs are constituted at the tertiary level making them dependent on the irrigation agency. Federations at the secondary and primary level enable WUAs to be sensitive to a whole range of issues.

Yes, if taken serious, PIM is really a magic formula ! But that was not our initial question. Let's come to PPP now.

Evolution of PIM

It is now widely understood that irrigation systems will not be able to perform as needed without basic institutional reform, and this generally means devolution of some or all responsibility - and authority - for irrigation management to water users associations. But it is also increasingly recognised that devolution must be accompanied by a more comprehensive and responsive support system for WUAs that includes both the public and private sectors in a new partnership. Under this newer version of participatory irrigation management (PIM), farmers are seen more as clients than beneficiaries and WUAs define what services are provided and who will provide them.
In the future, PIM may take even more different forms. With more and more farmers moving out of agriculture and seeking non agricultural activities, the nature of participation will shift to more indirect modes of involvement in irrigation service. There could be an expanding role for the private sector, facilitating the introduction of new technologies to save and conserve water, but requiring professional management to be accountable to farmers. This is where PPP might come into the game.

What is PPP ?

The irrigation sector's "sustainability vicious circle" as illustrated above calls for professionalisation of the service delivery functions.
Lack of professionalism can hide everywhere in the project design:

• where the operation constraints are not taken into consideration;
• in the project implementation, where not enough care is given to the choice of work supervision;
• in the auditing of the maintenance, a task often neglected or by-passed altogether for lack of staff or lack of commitment;
•  in the regulation of prices, where water fees are not keeping pace with the service quality but also kept at a socially acceptable level;
• in the system operation, where round the clock attendance is rarely assumed;
• in the maintenance itself, where the shortcomings of project design make it difficult to manage the proper stock of needed parts;
• in the customer relation management, something not often known but more and more asked for by users on behalf of both efficiency and equity.

The solution can be brought by a professional third party between farmers - preferably organised in WUAs - and government agencies. This professional third party could be a financially autonomous government agency, a professionalised water user association, a private company or any combination of the above.
The government - as asset owner and entity responsible ultimately for the delivery of the public service to the population - contracts out to a private party the service provision and operation of assets through the delegation of management. Note, PPP in water is not privatisation only (sale of assets); there are different levels of PPP, such as service contracts, management contracts, lease contracts and (Build-Operate-Transfer)-concessions.
In all cases going for PPP needs a high level of political commitment, since authority and influence is to be transferred. Pre-requisites of public-private-partnership in irrigation are summarised in the following table:

Service contracts are task-specific, usually short-term, sometimes renewable types of outsourcing for system maintenance, meter reading or even fee collecting. The public client is simply purchasing a professional service outside rather than to carry it out with its limited administrative means.

Management contracts are an extension of service contracts. They transfer responsibility for management of a public business to a private operator over a period of 3-5 years. The simplest involve paying the non-public operator a fixed fee for performing managerial tasks. Other examples introduce greater incentives for efficiency by defining performance targets and basing the fee in part on their fulfilment, thus posing the problem of measuring targets. In many management contracts, the staff, other than a few top executives is employed by the public entity rather than by the contractor.

Lease contracts are a class of arrangements under which the operator has responsibility for operation and maintaining the business. However, no investment is asked for. Its profit depend on the water sales and its costs, hence a direct incentive to improve operation efficiency. Because the contract authority has the responsibility for financing investments in infrastructure assets, it must raise funds and coordinate its investment programme with the operator.

A concession gives the private operator the full responsibility, not only for the operation, maintenance and management (OMM), but also for financing and managing the investment, over a long time period of 20-30 (sometimes more) years. The contract includes regulations for the water tariff to be applied. However, final asset ownership rests with the government and full use rights to all assets, including those created by the concessionaire, revert to the government, when the contract is not renewed. Although often associated with concessions, BOT-contracts (build-operate-transfer) are somehow different to concessions in the sense that they are almost risk-free during the B-phase, since the operator gets paid a contractual amount for construction.

Privatisation is just another word for the sale of assets to a private operator. However, while the difference of a privatisation and a concession may at first sight appear important, the main rights and obligations of the contracting authority and the operator can be very similar under the two arrangements.
Ultimately, rather than debating on the appropriate name of an institutional PPP arrangement - for which hybrids seem to be common anyway - it is probably more constructive to examine the substance of each specific contract between public and private sectors in the light of two crucial issues, that are: commercial risk allocation and investment responsibilities. The following graph might depict these characteristics.

Some examples of PPP

While public-private-partnership does have some history in the water and sanitation sector (water supply companies as contractors of big cities), experience in irrigation is still limited. Several case studies were presented during the seminar, very few being real public-private-partnership cases.
These public-private-partnership involve collaborations from governments, the private sector and civil society that may, ideally become mutually beneficial over a sustained period of time by combining the strengths of each partner and optimising allocation of resources.
The Australian case: Murray Irrigation Limited was formed in 1995, when the government privatised the Murray Irrigation Area and Districts, transferring ownership to irrigators. In the privatisation process land and water were separated, with each irrigator landowner issued share and water entitlements in the company. Shares are held in proportion to the water entitlements held by each member.
The company is owned by the irrigators. It supplies, and provides irrigation water and drainage services to 2.400 properties, managed by 1.200 family farm enterprises. Several other businesses form part of the company, such as a hydro-power plant and a construction company.
It is responsible for managing more than 10 per cent of the Murray Darling Basin's consumptive water use distributed to an area of 748.000 hectares served by around 3.000 km of gravity-fed earthen channels. Water comes from the Murray River at Mulwala and is of good quality.

Water prices are struck annually and are partly fixed and partly variable, based on the amount of water used. The water price includes a levy to support company operations during drought and to set aside reserves for asset replacement and refurbishment - the company's infrastructure has a replacement value of $360 million.
The irrigation season runs from August to May. The shareholders (farmers) have "general security" entitlements, which provide them with a share of the water available for consumptive use in the Murray Valley. Most of this is held in two main storages. Allocations for general security irrigators are largely determined by winter and spring rainfall.
Water allocations represent a percentage share of the available water. Each month during the irrigation season, it is reviewed how much water is actually in the storages. Any flows into the storages during the past month and likely inflows in coming months are considered. This determines the allocation. Announcements are made on the 1st and the 15th of each month. The company informs its shareholders of changes to the allocation through fax or email.
Murray Irrigation shareholders are actively involved in water trade. The exchange was first established in 1998 and has developed to offer 24hour access, seven days a week during the irrigation season. It offers almost instant transactions, with water transferred onto farms within Murray Irrigation the same day.
Murray Irrigation Limited is licensed to operate by the government. It has a water management works licence which allows diverting water from the river system and delivering it to the farmers. They dispose also of an environment protection licence which allows discharging water from the network of drainage channels. The company is also subject to water sharing arrangements implemented by the state government, and the river basin commission.
Despite relations to the public sector through some necessary licenses (every legal business all over the world is subject to government regulations and licenses!), this case seems to me much more like a "PP", the public partner being pretty absent.
The French case: The Companie d'Aménagement des Coteaux de Gascogne (CACG) was created in 1960 as a semi-public entity (like BRL in the Rhône-Languedoc region) and supplies water to the farmers with direct contracts specifying price and quality of service. The link with the state is a 75 years concession contract. CACG has a kind of mixed enterprise statute with private management and public governance.
CACG uses the water resources of the region's major rivers to convey it to WUA-managed irrigation schemes on 51.000 hectares within the Neste-system (main regional river basin).
During the first decade CACG had been operating irrigation with comfortable financial support from the government. In 1972 the water price paid by the farmers was hardly covering 10 % of the irrigation costs, and that in spite of heavy investment subsidies.
The government imposed to cut all operation subsidies within ten years and to reduce CACG's risks. A major policy change was decided in reducing operational costs with drastic staff reduction and doubling water price.
CACG has combined quota with tier pricing. The tier pricing added to the quota system induces a sound reaction of the farmer because the price beyond the quota is deterring irrigation of the ordinary crops. It is ten cents per cubic meter. The lump sum for the allocated quota, fifty euros per ha, is enough for balancing the sustainability cost of the service. This policy which is accepted by the farmers shows good results particularly in times of river flow failures.
More important even, CACG switched to a demand-driven investment policy: all investment in small and medium scale irrigation schemes were to be cared for by the WUAs, the concession model being reserved for larger investment in dams and reservoirs.
But the question was how to succeed with this WUA model, how to combine an acceptable water price with sound practice in maintenance ? As CACG generally carries out the design function, it is able to standardise the equipments and to guarantee that the technical choices will allow the assets to be easily maintained.
Although the WUAs are free to choose any maintenance operator, they generally opt for CACG through maintenance contracts that include:

• preventive maintenance;
• 24h repair service during the irrigation season;
• stock of spare parts available;
• binominal fees for WUAs: a fixed part for preventive maintenance and a variable one for actual repairs;
• accountability towards the WUAs.

The model seems to work pretty well; during a one day field visit we had the opportunity to visit distribution systems operated by CACG, pump stations operated by WUAs, and to talk to farmers.
The case is a full public-private-partnership, since all parties have substantial roles to play as can be seen in the following table summarising the actors of different functions in irrigation.

The government keeps its role of controlling how the operator ensures resource / demand balance and respects the minimum flows at fixed points along the rivers used for the conveyance system, and enforcing the law in case of users' illegal actions.

The Moroccan case: In Morocco major irrigation schemes are managed by public irrigation agencies (Offices Régionaux de Mise en Valeur Agricle, ORMVA). For more than ten years the government has been driving a reform with the support of the World Bank to restore their financial sustainability; success has so far been at low levels.
Another way was then explored: to attract the private sector to finance, implement and manage new irrigation investments. The pilot case is the Guerdane project as a concession type of public-private-partnership.
Its 600 farmers grow irrigated high-value crops (citrus) with well-organised market arrangements, but their actual water resource is a rapidly declining aquifer.
The technical solution adopted is a 70 km long concrete pipe transferring 45 million m3 of the Chakoukane dam to a gravity pressured network of 10.000 ha at Guerdane.
The government launched a call for tenders in order to identify a private operator who was asked to finance an investment estimated at 80 million $ (including 50 % of government subsidies), to design and construct the project on the basis of farmers' subscription on beforehand, and to provide operation service for 30 years. The winning bid was the one proposing the lowest water price for the farmers.
Before the current call for tenders, other solutions had been attempted for 5 years on approximately the same technical basis: A first project supported by the French development agency was more in line with management transfer to WUAs, who had to take investment credits from the local agricultural bank. The project failed due to insufficient farmers subscription, in turn due to heavy financial engagement required from farmers and their bank. A second project was in fact a first call for BOT operators, but only the Suez group submitted a bid.
In the mean time, a multinational consortium including Moroccan partners has won the bid and is in the phase of farmer subscription.
It cannot be overlooked, such a BOT bears several crucial risks for the operator:

• The financial risk: Due to the heavy investment, two thirds of the water price will be devoted to cover capital costs. It must not be ignored that this risk generates a supplemental cost for the farmers, since private costs for capital are higher than those of public funds.
• The water supply risk consists first in the insufficient filling of the reservoirs. The second comes from government's allocation between the reservoir's water uses (different irrigation schemes, recharge of aquifer,...). However, the government is committed to respect the order of priority between different uses.
• The water demand risk consists in the permanent competition between the project's surface water (price) and groundwater (private pumping costs) if the water law is not properly enforced.

However, despite these inherent risks, a private sector operator has been identified and has started its activities.
The Guerdane project is the first real opportunity to implement an irrigation concession contract in an emerging economy. This reference might be of importance for future projects, since several other governments are in a similar context of irrigation investment demand and public budget constraints.
The rate of return for the private investor will probably be not as attractive as in the telecom sector, but the French example proves that a concession contract in irrigation can be financially sustainable when clients' loyalty results from faultless services.

Primary experience with PPP

The seminar provided an excellent opportunity for participants to exchange views and experiences on a seemingly sensitive topic of public-private partnerships in the irrigation sector.  It provided an array of presentations by experts and participants, group discussion and a one day field visit to the irrigation area of CACG. 
At the end of the seminar there was quite an euphoric mood. During that short period of trance it was seriously discussed whether to modify INPIM's mission from PIM towards PPP. But is PPP the magic formula and is it really a new concept with respect to PIM?
No, PPP is far from being a magic formula. Can PPP replace PIM? No, when applying participatory irrigation management seriously, PPP can only contribute to and complement it in a few circumstances. Note that PPP is just part of PIM, a specific layout for specific conditions of large irrigation schemes with high-value cropping allowing for paying full cost-covering water tariffs, which in turn attract private operators.
The private sector's appetite for investment can only be met while catering for the inherent risks through a thorough legal and regulatory framework. The enabling environment is as important as the PPP contract itself.
However, while PPPs can present a number of advantages, it must be remembered that these schemes are often complex to design, implement and manage. Several key factors have been noted as influential in project design and management.  These include ensuring open market access and competition; protecting the public's interest; ensuring full compatibility between PPP arrangements and state aid rules; and selecting the most suitable PPP arrangement.
PPP can bring significant benefits on service quality for customers. But it requires the government to address the issue of tariff. Note that financial viability equals full cost recovery. PPPs are viable only if tariffs are high enough to support cost recovery, since there is a need to support an acceptable rate of return required by the private sector. However, very often there is political resistance to tariff increases ("God gave us the water for free"), but one has to add that he forgot to give us the canales and pipes.
Highest potential for private investment is in irrigation schemes for export crops that can support substantial water tariffs (see citrus growers in Guerdane, Morocco).
It seems that there is no single model of participatory management or private sector participation which could be appropriate to all cases. There are examples of well-run and poorly-run public and private organisations (above all in the water supply and sanitation sector). 
However, the picture of PPP in irrigation development should be better defined: instead of being reduced to either a concession type of arrangement for new projects, or the empowerment of WUAs through irrigation management transfer of existing systems on the other hand, PPP within PIM is in fact much more about raising the level of professionalism in the systems considered. The important point is not so much to find a private partner but rather a professional third party between farmers and government (that could also be a professionalised WUA with technical assistance).
One should keep in mind that PPP cannot substitute for serious sector reform in PIM (tariffs, accountability, WUA empowerment, etc.). The concept of public private partnership should be viewed as yet another option to improve the irrigation sector.