Developing Agricultural Water (Agri-Water) Infrastructure Public-Private Partnerships (PPPs) in Mexico
By Francisco Mayorga [Leader, Consejo Consultivo del Agua (CCA) A.C. Agri-Water Committee], on behalf of the MSP members
In Mexico, irrigation infrastructure has suffered from very steep disinvestment in terms of new projects as well as in conservation and maintenance efforts. Reasons include severe cutbacks in government budgets, lack of inter-institutional coordination, a perverse agri-water tariff regime, and the absence of an enabling environment for private participation. The result is a very negative impact on water productivity and overall agricultural output. Bearing in mind that agriculture uses up to 76% of total water consumption, mobilizing investments in the sector is a policy priority and represents an important opportunity for a keen private sector.
The CCA and Comisión Nacional del Agua (Conagua) launched the first phase of the PPPs for an Agri-Water Infrastructure Initiative that enables multi-stakeholder dialogue to address the challenges and opportunities for PPPs in the sector. The initiative focused on the development of business cases, financial feasibility studies, and quick environmental assessments of five potential PPP projects. The dialogue harnessed the participation of water authorities at the federal and local level, government-led agricultural financing institutions, private banks, specialized consultants, the World Bank, the International Finance Corporation, and the irrigation water users. This mixed composition of stakeholders enabled us to assess the five potential projects from a very comprehensive and realistic perspective.
Progress to Date
The first stage of the initiative produced comprehensive business cases and feasibility studies of five potential irrigation PPP projects, as well as some examples of the actual institutional designs and financial models required for each of the projects. The multi-stakeholder dialogue process also supported the development of criteria to help identify and assess the potential of prospective irrigation PPP projects. This in turn can help the government and other stakeholders begin to integrate potential PPP project portfolios.
The initiative also helped develop policy recommendations to create a more enabling environment for PPP formation in the irrigation sector. More importantly, it facilitated a productive and open dialogue with the irrigation water users (with the participation of the National Association of Irrigation Water Users). The results of the first stage of the initiative paved the way for the implementation of the second stage, which is oriented at supporting the actual implementation and transaction of two of the projects identified in the first stage: the Valley of Guadalupe Project (in the State of Baja California) and the El Carrizo Project (in the State of Jalisco).
- Irrigation projects with the greatest PPP potential are mostly the ones that will produce high–value agricultural products and in situations where value chains are clearly established. There may be other situations where produce has low market value (e.g. sugar cane), but a strong local demand drives up the market.
- Cost recovery uncertainty and risks must be mitigated through special financial guarantees or reserve funds. The current legal framework provides some resources to ensure the repayment of tariffs, but social mores regarding the value/price of agri-water may affect the implementation of the rule of law.
- PPP projects have a greater chance of being implemented successfully in the presence of strong, well-established, and financially fit water user organizations.
- The private sector profiles that wish to be involved in the PPP projects have to be oriented on the construction and operation of the PPP project, involved in the provision of other value-added services, specialized in the agri-water sector, and probably have a stake along the value chain.
- Potential PPP projects should be evaluated using comprehensive methodologies and should entice inter-institution coordination amongst the water, rural development, and environmental authorities in order to ensure that projects are successful and avoid any externalities.
- It is necessary to develop the institutional capacities of different government institutions dealing with the agri-water infrastructure sector to create a more enabling environment for irrigation PPPs. Finally, socialization of these types of schemes among the irrigation water users is a key element in the creation of such enabling environment.