Commercial farmer as a private irrigation operator: Smallholder farmers in the command area would be given the option of becoming outgrowers to the large commercial farmer. Engaging farmers as outgrowers involves:
- Providing them with seeds and other inputs required to grow a certain crop
- Training them in growing the crop
- Specifying quality standards the harvested crops must meet
Purchasing the harvested crops from them at an agreed-upon price.
The private operator is responsible for operating and maintaining the entire system, and farmers pay a tariff that covers operating and maintenance costs. Farmers are not responsible for operating or maintaining the irrigation system.
Operation, Management and Maintenance (OMM) contract - The private-sector is engaged to undertake operation, management and maintenance of infrastructure services for defined recipients. The private-sector provides a service for which it receives a fee (either from the government or from users). Where rehabilitation or construction works are required, they can also be part of the contract. Assets are publicly financed, and this is an appropriate form of contract where there is limited scope to raise private capital.
Infrastructure concession - The private-sector is engaged to raise commercial finance for infrastructure development and then construct, operate, manage and maintain the infrastructure. Investment and financing costs must be recovered through fees (either from the government or from users). End user risk is significant in irrigation projects where often the users are not fully defined at the beginning of the project (it depends on how many farmers take up the water from the system). It might be possible to share end user risk between the public and private parties, for instance with a guarantee on minimum revenue. The investment may be undertaken in whole or in part by the private sector where for instance there is grant funding available to bear some of the investment cost.
Farm service agreement - The private-sector can also partner with smallholder farmers and communities for the provision of farm-level services. Services might be on-farm, such as planting, harvesting and water application; or off-farm, such as storing, processing and marketing (e.g. outgrower services). Such farm services, by improving the agricultural performance of water users, are likely to improve the viability of irrigation infrastructure. The level of investment private finance required depends on the services provided. Farm services can be integral or separate from infrastructure OMM.
Hub farm agreement - The private-sector can be engaged to undertake commercial agricultural production through a land concession or lease. This might be on unoccupied land owned by the government or third-parties, or community land held under collective title (or especially consolidated) and leased in return for a fee of share in commercial operations. The hub farm has purely commercial aims, and will require a certain scale in order to offer commercial opportunities (especially for food crops). Private capital is required for on-farm investments, while irrigation fees can reflect any or all infrastructure related costs (e.g. OMM, investment and finance).
There are a number of legal and commercial issues that will affect how these projects move forward and are structured. While some of the legal issues are not confined to irrigation PPPs they can take on a new dimension and complexity when applied to irrigation:
Land ownership – all irrigation projects are dependent on land ownership – both in relation to the land that is needed for the project, and also in relation to the customers for the project, the farmers, and their legal interest in the land. Some countries limit land ownership to locals or may prohibit ownership in private hands. For instance, in Ethiopia, rural land is owned by the government and only individuals who were willing to farm personally are entitled to possess land.
There may also be difficulties with establishing land title, particularly in countries where there are significant customary land rights – such as Ghana and many other sub-Saharan African countries. There may also be restrictions on land use, irrigation or types of irrigation may be restricted – and the rules may vary within a country from state to state or county to county.
Water extraction – there may be limitations on levels of water extraction, both at national and international level. If extraction from a river or other water source is subject to international waterways, then there may be restrictions on the amount of water that can be extracted. For instance, countries in the Nile Basin are limited by treaty under the Nile Basin Initiative to the amount that may be extracted and for what purpose. In federal countries, water rights may be licensed and, for instance in the case of the USA, traded between states.
It may also be difficult to determine who has the power to grant permits to extract the water. This may involve the ministry of water or the ministry of the environment, or sometimes both. Water user associations may also play a role. In cases of scarcity or where there are systematic droughts, there may be a priority imposed by law or regulation on which users get water in times of shortage. This may be particularly relevant where there are competing users – for instance hydroelectric power projects or downstream users.
There are also the usual legal considerations that need to be checked when developing PPPs in any sector, such as legal restrictions on the type of PPP arrangement that can be entered into, relevant procurement rules for entering into PPPs, existence of restrictions on foreign investment, taxation and potential for tax holidays and the ability to assign rights such as security and step in rights to lenders.
Peru: Chavimochic Irrigation Project - Contrato de Concesión Proyecto Irregación Chavimochic (Spanish). The Chavimochic Irrigation Project - 25-year, co-financed, concession involves improving irrigation in 78,310ha in the northeastern La Libertad region through the capture and distribution of the Santa river's water. The water resources will also be used to feed run-of-river power plants with installed capacity of 68.1MW and potable water treatment facilities able to produce around 4m3/s. The concession is a Build-Own-Operate-Transfer where the Government of Peru auctions the land to be irrigated, the proceeds of such sale finance the construction of the irrigation infrastructure, and the private partner develops the necessary works to operate adequate irrigation services. The private partner then manages and charges for irrigation services. The term of the concession is 25 years. (English summary).
Megech Irrigation Project Ethiopia - 2012 - management contract for 8 years (operations plus oversight of design and build contract - design and build phase 3 years, then operations 5 years). Summary of background and PPIAF invovement
- Examples of Public-Private Partnerships in Irrigation for Developing Countries supported by the Public-Private Infrastructure Advisory Facility (PPIAF)
- Public-Private Partnerships (PPPs) - Improving Performance of Irrigation Services Provision World Bank Institute (WBI) eLearning course
- Exploring Public–Private Partnership in the Irrigation and Drainage Sector in India - A Scoping Study Asian Development Bank (ADB) 2013