Cost Allocation for Multiuse Water Systems in Egypt

Two considerations motivated this study of the operation, maintenance, and rehabilitation (OM&R) costs of Egypt's Nile River irrigation system. The first is the deteriorating operating condition of the numerous structures that compose the system. The second derives from the major changes in financial policies being instituted by the government of the Arab Republic of Egypt (GOARE), particularly those related to the agricultural sector. New policies will allow farmers to sell more freely on the open market and will permit most farm commodity prices to move toward international free market levels. Because of these new pricing policies, the GOARE must seek new revenue sources to replace the old ones. The overall objective of this study was to determine the net OM&R costs of the main irrigation and water supply system in Egypt, as it is currently supported, and what those costs might be under an enhanced or acceptable budget allocation. The analysis is limited to OM&R costs of the main system, defined as the Nile River structures and the main and secondary canals. It excludes the on-farm portions of the system (mesqas and below). The study considers four policy scenarios. The first reflects recent budget allocations for OM&R in Egypt. The second reflects the cost of the system if it is improved to an “adequate” degree. The third scenario incorporates planned reclamation of not yet developed new land into the first scenario; the fourth scenario incorporates such reclamation into the second scenario. The study findings suggest that the nationwide average annual OM&R costs of the main distribution system allocated to irrigation are about 75 Egyptian pounds (LE) per feddan per year in 1991 prices. It is estimated that the cost would increase to about LE109 per feddan per year with the proposed system improvements (scenario 2). The equivalent costs per 1,000 m³ of water are about LE11 and LE16, respectively. By international standards these costs are reasonable and economically viable. The application of a cost allocation model to the Nile River system is more of a continuing process than a definite conclusion. As insights are gained from use of the model for sensitivity and “what if” studies, it will be possible to evaluate data and system improvement priorities in terms of continually changing policies and social needs.