The Cost of Inaction in the Middle East and North Africa MNA ...

1. The Cost of Inaction in the Middle East and North Africa (MNA) Countries by Sherif Arif Senior Environmental Consultant Presented at the Conference on Horizon 2020 and Private Sector Involvement Athens 22-23 October 2007

2. Why estimating the Cost of Inaction? Environment is a public good It is affected by externalities As a result, the externalities lead to market failure as prices do not reflect the true social costs or benefits of an action

3. Decision makers are unaware of the economic and financial implications of environmental degradation Serious environmental problems related to air, water and waste are a drain on the economy How much is clean water, access to sanitation and good hygiene worth? While the investment costs of providing eg: clean water and sanitation services are relatively well known: the benefits resulting from such investments are more difficult to quantify There is therefore a need to quantify the benefits or �costs avoided� For the government to take informed policy decisions

4. This may also hinder investments by the private sector Private capital can flow only if: private investments meet the basic criteria of sector creditworthiness, there is a secure legal framework, sound regulatory regime and; an efficient banking sector Translating these criteria for the environment means: internalizing the costs of past environmental damage adopting a realistic and enforceable environment protection law and workable EIA system, developing a realistic and predictable environmental standards and guidelines and; establishing responsible banking sector to provide environmental friendly loans and minimize liability exposure.

5. Estimating the cost of inaction would enable a comparison between the �benefits� and the �costs� of investing in environmental management To assign a monetary value on the damages resulting from environmental degradation for one specific year Each assessment would cover the following categories Air Pollution (indoor and outdoor) Water Degradation (lack of water supply, sanitation, hygiene, water pollution) Waste Management Land and Forest Degradation Coastal Zone Degradation

6. Two inter-related approach Cost of Inaction was made at two levels: MACRO LEVEL THROUGH COST OF ENVIRONMENTAL DEGRADATION (COED) STUDIES SECTOR LEVEL THROUGH: THE ASSESSMENT OF IMPACTS OF ENVIRONMENTAL MEASURES IN THE ENERGY , WATER AND COASTAL ZONE SECTORS . Optimization of the Investments on the basis of the averted cost of inaction Waste Water Sector in 4 countries: Egypt, Tunisia, Morocco and Algeria Waste water Sector along the Mediterranean Coast of Egypt Case studies on Industrial Pollution and Solid Waste Management

7. The Cost of Environmental Degradationin the MNA countries Environmental Category: Percentage of GDP

8. Investment Decisions Resulting from Damage costs from Air Pollution Egypt borrowed US$ 170 million from WB, EIB, EU, Afd, JBIC for Egypt-Pollution Abatement Project II

9. Policy and Investment Decisions Resulting from Damage costs from Water Pollution Morocco Water is one of the pillar of the WB Country Assistance Strategy A $150 million Development Policy Loan in the water sector was approved by the World Bank $60 million project in water resource conservation in Oum Rbiaa Basin is under design Lebanon Water and waste water projects under design Egypt EPAP II Extended cost of inaction to governorates of Qena and Damietta

10. Policy and Investment Decisions Resulting from Damage costs from Inadequate Waste Management Morocco: A Municipal Waste Management project is under design by the Government of Morocco and the World Bank Egypt: Requested a loan from the World Bank and JBIC for municipal, medical and agricultural wastes Jordan: A municipal waste management project is under design by the Greater Amman Municipality and the World Bank Tunisia: Is implementing a Solid Waste Management Project co-financed by the World Bank Syria: A Municipal Waste Management project is under design by the Damascus City and the World Bank

11. Estimated Annual Cost of Water Quality Degradation in Tunisia as % of GDP (2004)

12. WATER QUALITY IN ALGERIA Evolution of damage of socio economic and environmental costs with different intervention scenarios till 2015 ( in US$ million)

13. EGYPT: DAMAGE COSTS RELATED TO WATER QUALITY

15. In addition to Investments, Cost of Inaction has led to Policy Changes Cost of environmental degradation was recognized in the �Cairo Declaration of the Euro Mediterranean Conference on the Environment of November 20, 2006, as inaction is no longer acceptable Cost of environmental degradation is used by other donors and national agencies in Algeria, Morocco and Egypt, and the Gulf Countries COED has been included in the World Bank Country Assistance Strategies of Algeria, Morocco, Lebanon, Jordan, and Egypt and helped identify lending operations in these countries The Government of Algeria decided to provide in 2001 an additional US$ 450 million for environment-related investments Lebanon is using COED as one of its sustainable indicators Syria has required in its 10th Development Plan, that COED be included in all environment policies and programs Morocco has used the COED to justify their National Waste Water Program ( Plan National D�Assainissement)

17. Waste Water Cleaning is expensive US$ 650 million per annum

18. Municipal waste collection and disposal is also expensive: US$ 146 million per annum

19. Egypt: Annual Cost of Environmental Degradation in the Governorate of Alexandria, 82 km of coast.

20. Wastewater Policy Investment Optimization for Egypt�s Mediterranean Coastal Zones 

22. What can we conclude so far? The cost of inaction is translated into averted benefits, which are gauged in terms of environmental externalities . The latter are negatively affecting the financial and economic profitability (rate of return) of both public and private projects therefore hampering private sector investments and economic growth. Investment needs are usually much larger than the Government (i.e. loans or budget) can realistically cover...therefore, there is a need to look into policy measures that would include: rethinking the investment program, the time framework (stretching the investments over longer timeframe), the standards, the targets, sources of finance, etc. In view of resource constraints, low WW tariffs and low WW cost recovery, decision-makers have to optimize choices based on the: � The disentanglement between financing network and treatment in the case of waste water, and between financing collection and disposal in the case of solid waste , i.e. priority ONE the is collection network (highest rate of return because of health benefits) which is seen as private benefits (up to a point) and therefore has (relatively) high willingness to pay � The selectivity of the pollution abatement technology and the level of treatment The affordability of the investments by the utilities � The social benefits to accrue as a result of these investments

23. A different financial engineering model is required To improve project profitability a different financing engineering scheme should be designed and implemented whereby: Government budgetary transfer could bear the costs of the externalities and/or provide incentives to the utilities for averting past and present environmental externalities , as well as financing part of the infrastructure such as treatment plants for WW or landfill disposals for solid waste considered to cover the public good components. Incentives which are operational, is to tap carbon funding to defray some of the initial treatment or landfill initial investment costs, and/or leverage GEF funds for financing the incremental costs of public goods Governments and /or national banking sector could provide long term financing to the utilities using � attractive funds� secured through international financing institutions Donor contributions should go to finance software costs as well as the difference between total costs and the cost fraction paid by central government and beneficiaries. Beneficiaries should assume part of/ or match the cost of infrastructure which is related to their private benefits Private sector operators should be contracted on the basis of performance including meeting environmental benchmarking . Private operators could be contracted to operate a plant on the basis of targets and be paid on the basis of m3 treated to the level that is required. A flexible approach to cost recovery should be implemented by the utilities/operators to ensure the sustainability of these services NGOs would play a leading role in awareness and communications

24. Egypt: Pollution Abatement Program IIAn Example of Partnership among International Financing Institutions , Donors and the private and banking sectors Objectives : To scale-up financial/technical and institutional arrangements that lead to pollution abatement in selected hot spots areas in Alexandria and Greater Cairo. Innovative Approach: Blending loans with grants and carbon emission revenues to reduce pollution based on output indicators Estimated Project Costs : IBRD Loan: US$ 20.0 million EIB Loan/EC subsidy : US$ 54.2 million JBIC loan: US$ 40.0 million AfD: US$ 47.8 million FEMIP: US$ 4.0 million Finland: US$ 1.1 million Government Contribution: US$ 3.0 million Total US$ 170.1 million Carbon Emissions Revenues: US$ 10 million ( est) GEF grant for the Lake Maryut: US$ 5.8 million

25. A proposed model based on incentives Government passed on the loan amounts at the same lending conditions to the Apex Bank Apex Bank: on lend to credit worthy companies for 80% of pollution abatement investments for up to 6 years, with 2 years grace at LIBOR +2-3% Provide 20% grant of pollution abatement investments Polluting companies Invest on clean and/or end of pipe technologies Meet national environmental compliance requirements

26. That led to win-win-win solutions Industrial Pollution is expected to decrease in Cairo and Alexandria, hence environment quality will improve for the Egyptian citizens Apex Bank net profit at maturity is US$60 million and is providing environmental lending Companies introduce clean pollution abatement technologies with a cost of fund of 1.09% instead of market rate of 6-7%