Morocco - Water sector review

Report No. 14750-MOR Kingdom of Morocco Water Sector Review June 1995 Midcdle East ancl Nortih Africa Region Maghreb and Iran Department Natural Resources and Environment Division Document of the World Bank  KINGDOM OF MOROCCO WATER SECTOR REVIEW CURRENCY EQUIVALENTS (Approximate '94) Currency Unit = Moroccan Dirham (DH) US$1.00 = DH 9.00 DH 1.00 = US$0.111 WEIGHTS AND MEASURES The metric system is used throughout this report FISCAL YEAR January 1 - December 31  This report was written by Mr. Ian Goldin (Task Manager). It draws on the work of a multi- disciplinary team of Bank staff and consultants including Mr. Sergio Calegari (Water Supply and Sewerage); Ms. Laura Raimondo and Mr. Sherif Arif (Environment); Mr. Jean-Pierre Villaret (Consultant, Irrigation); Mr. James Talbot (Consultant, Environment), Mr. Nicolas Adrian (Consultant, Rural Water Supply); Mr. Dominique Normand (Consultant, Planning), Mr. Alain Thys (Consultant, Institutions); Mr. Michel Jean (Consultant, Tariffs); Mr. Jacques Chabloz (Consultant, Financial Planning); and Mr. Jacques Sigismond (Consultant, Hydropower). Research assistance was provided by Ms. Tracy Hart (Consultant). The Peer Reviewers are Messrs. Guy Le Moigne and John Hayward. The Acting Division Chief is Mr. Trayambkeshwar Sinha and the Department Director Mr. Daniel Ritchie. Thanks also are due to Ms. Mylene Kherallah and Ms. Isabelle Schnadig (Consultants) for assisting in the final preparation of this report, to Mr. Guy Le Moigne, Mr. John Hayward, Mr. Jeremy Berkoff, Mr. Mathewos Woldu, Mr. Jean-Pierre Villaret and Bank colleagues for their comments on drafts of this paper, and to the Moroccan authorities for facilitating the sector work. Written comments on earlier versions were gratefully received from the General Directorate of Hydraulics within the Ministry of Public Works, the Ministry of Agriculture and Agricultural Development, the General Directorate of Local Authorities within the Ministry of Interior, the Ministry of the Environment, the Ministry of Public Health, the National Potable Water Office, and the National Electricity Office in Morocco. Particular thanks are due to Mr. M. Jellali, Director General, General Directorate of Hydraulics, for coordinating the Government review of this document. It should be emphasized, however, that the findings and conclusions of this report remain the sole responsibility of the World Bank and do not necessarily reflect the views of the Government or any other institution.   PRINCIPAL ABBREVIATIONS AND ACRONYMS USED AEPI - Alimentation en Eau Potable et Industrielle (Potable and Industrial Water Supply) AIC - Code des Investissements Agricoles (Agricultural Investment Code) CSEC - Conseil Superieur de l 'Eau et du Climat (National Council for Water and Climate) DAF - Direction des Amenagements Fonciers (Directorate of Land Improvement) DB - Direction du Budget (Directorate of the Budget) DDGI - Direction du Developpement et de la Gestion de l 'Irrigation (Directorate of Irrigation Development and Management) DEPP - Direction des Etablissements Publics et de la Participation (Directorate for Public Enterprises and Participation) DER - Direction de 1'Equipement Rural (Directorate of Rural Equipment) DGCL - Direction Generale des Collectivites Locales (General Directorate of Local Authorities) DGH - Direction Generale de l'Hydraulique (General Directorate of Hydraulics) DPA - Directions Provinciales de l'Agriculture (Provincial Departments of Agriculture) DRH - Direction Regionale de l'Hydraulique (Regional Directorate of Hydraulics) DRPE - Direction de la Recherche et de la Planification de l 'Eau (Directorate of Water Planning and Research) DRSC - Direction des Regies et Services Concedes (Directorate of Public Utilities) EAP - Environmental Action Plan EDI - Economic Development Institute (of the World Bank) EMU - Environmental Management Unit GDP - Gross domestic product GH - Grande Hydraulique (Large-scale irrigation) LCD - Liters per capita per day MAMVA - Ministere de l 'Agriculture et de la Mise en Valeur Agricole (Ministry of Agriculture and Agricultural Development) ME - Ministere de I'Environnement (Ministry of Environment) MEM - Ministere de l'Energie et des Mines (Ministry of Energy and Mining) METAP - Mediterranean Enviromnental Technical Assistance Prograrn MF - Ministere des Finances (Ministry of Finance) Ml - Ministere de l'Interieur (Ministry of Interior) MPM - Ministere des Peches Maritimes et de la Marine Marchande (Ministry of Maritime Fishing and Merchant Marines) MSP - Ministere de la Sante Publique (Ministry of Public Health) MTP - Ministere des Travaux Publics (Ministry of Public Works) NCE - Conseil National de I'Environnement (National Council of the Environment) NEIN - National Environment Information Network ONE - Office National de 1'Electricitl (National Electricity Office) ONEP - Office National de I'Eau Potable (National Potable Water Office) ORMVA - Offices Regionaux de Mise en Valeur Agricole (Regional Agricultural Development Authorities) PMH - Petite et Moyenne Hydraulique (Small- and medium-scale Irrigation) PNI - Plan National d'Irrigation (National Irrigation Plan) RAD - Regie Autonome Intercommunale de Distribution d 'Eau et d 'Electricite de Casablanca (Casablanca Water and Electricity Utility) RAMSA - Regie Autonome Multiservice d 'Agadir (Agadir Multiservice Utility) REC - Regional Environmental Councils WSIL - Water Sector Investment Loan   KINGDOM OF MOROCCO WATER SECTOR REVIEW Table of Contents Executive Summary ........................................ i-vii 1. BACKGROUND ...............................................1 Physical Features ...............................................1 Human Resources ...............................................1 Economy .............................................. 2 Water in the Economy: Sub-Sectoral Objectives ............................ 3 Government .............................................. 4 Management of Water Resources ..................................... 5 2. WATER RESOURCES: SUPPLY AND DEMAND ........................ 6 Availability .............................................. 6 Surface Water .............................................. 6 Groundwater .............................................. 7 Non-Conventional Sources ......................................... 8 Country Water Balance ........................................... 8 Projections of Supply and Demand ........... ........................ 11 Projected Surface Water . ......................................... 11 Projected Groundwater ........................................... 11 Projected Non-Conventional Sources .......... ........................ 12 Future Potable and Industrial Demand .......... ....................... 13 Future Agricultural Demand . ....................................... 15 Future Hydropower Demand ........................................ 15 Projected Supply and Demand Scenarios ............................... 16 3. SUPPLY AND DEMAND MANAGEMENT ........................... 16 Issues ............................................... 16 Supply Management ............................ ................ 17 Planned Major Investments ......................... 19 Public Expenditures ......................... 20 Long Run Marginal Cost ......................... 22 Demand Management ......................... 25 4. INSTITUTIONAL ISSUES ......................... 27 Water Resource Planning and Management . ............................. 27 Water Resource Management Institutions ................................ 30 Potable Water Supply Management ................................... 31 Irrigation Management ..................................... 33 Environmental Management .................................... 36 5. CONCLUSIONS AND RECOMMENDATIONS ......................... 39 Conclusions ........................................... 39 Recommendations ........................................... 42  MATRIX OF ISSUES AND RECOMMENDATIONS ...................... 47 FIGURE 1: WATER CYCLE ..................................... 50 FIGURE 2: GROUNDWATER .................................... 51 FIGURE 3: COUNTRY WATER BALANCE 1990 and 2020 ................. 52 FIGURE 4: REGIONAL WATER BALANCE 1990 and 2020 ................ 53 TABLE 1 WATER BALANCE SUPPLY AND DEMAND IN AN AVERAGE YEAR ... ..... 54 TABLE 2 MOROCCO POTABLE AND INDUSTRIAL WATER DEMAND - 2020 .... ..... 55 TABLE 3 MAJOR DAMS IN MOROCCO ................................... 56 TABLE 4 DAMS TO START OPERATING BETWEEN 1995 AND 2025 .... ........... 57 ANNEX 1 THE VALUE, COST AND FINANCING OF WATER IN MOROCCO .... ...... 59 ANNEX 2 THE ECONOMIC VALUE OF WATER IN AGRICULTURE IN MOROCCO .... 62 ANNEX TABLE 1 WATER USE CALCULATIONS FOR AGRICULTURE ................... 64  KINGDOM OF MOROCCO WATER SECTOR REVIEW Executive Summary Objectives, Summary, and Recommendations Objectives 1. The purpose of this review is to examine the Moroccan water sector with a view to ensuring that its development will provide a foundation for sustainable economic and social development. In so doing, the review suggests a framework for the implementation in Morocco of the new World Bank policy on water, as articulated in its Middle East and North Africa Water Resource Strategy. 2. Morocco is at the forefront of international awareness of water resource issues and shares the concept of an integrated approach to water management which recently has been formally adopted by the Bank. In implementing its broad commitment to a comprehensive approach to water resource management, Morocco could provide a model from which others may learn. The key to the further development of Moroccan water resources is to build on its remarkable achievements to meet the formidable challenges of the future. Challenges for Morocco 3. The purpose of this review is not to focus on the achievements of the past or on current strengths, but rather to identify the existing weaknesses and to ask what changes are needed to meet the challenges of the next century. A key message of the report is that adopting a long-term horizon is essential and that providing a clear vision is vital to ensure timely policy reforms and appropriate use of scarce investment resources. Morocco is widely respected for its achievements in mobilizing its scarce water resources with this reflecting both its world class water resource engineers and planners and the commitment of its Government to water resource development. These achievements, and the foresight of its Government in pursuing an integrated approach to water resource management, mean that it is uniquely placed to meet its current and future challenges, thereby ensuring that it remains at the forefront of nations in water resource management. Failure to adapt to the new challenges, by contrast, will mean that Morocco will lose its pre-eminent position in water resource management and that water increasingly will act as a constraint on Moroccan long run development. 4. The principal challenges include: (i) the decline in per capita supplies and exhaustion of available resources in a number of key basins; (ii) the degradation of water quality, which has reached critical levels in the primary basin; (iii) the provision of only 14 percent of the rural population with potable supplies; (iv) the rapidly rising marginal cost of water and sharp increases in investment costs, which are not matched by cost recovery; (v) the deterioration of existing infrastructure and silting of dams; (vi) the inadequate demand management, as reflected in losses of over sixty percent of irrigation water and twenty-five percent of urban potable water supplies; (vii) the expected thirty percent decline by 2020 in water available per hectare, which, together with higher water prices and lower output prices, requires sharp improvements in farm productivity and water efficiency; (viii) the relative absence of efficiency and equity criteria in allocation of increasingly scarce water; (ix) the insufficient stakeholder participation in water resources management; and, (x) the need for reform of the legal and regulatory system to address the challenges identified above.  - 11 - A. Reorientation from Supply to Demand Management 5. To meet these challenges requires first and foremost the definition of a clear long-term strategy for water resource management and its articulation in a long-term national plan. Such a plan is necessary to inform investment and policy decisions. The effect of shortfalls is already becoming manifest in the agricultural sector, as farmers are faced with reduced and more erratic supplies. In the medium term, a continuation of current practices is expected to have a negative impact mainly on irrigated agriculture and the associated rural communities and agro-industries. In the longer run, beyond 2020, water shortages will become more pervasive and may serve as a brake on overall economic development. Adjustments in water management policy will be necessary. Given the lead time required for dam, irrigation and other major hydraulic investments, the sooner these adjustments are implemented, the lower the costs of adjustment. Per capita renewable water resources are expected to fall from 833 m3 in 1990 to 411 m3 in 2020, so that Morocco will move from being defined as a "water-stressed" to being a "chronically water-stressed" country'. By 2020, given current incentive structures, virtually all renewable water resources will be mobilized to match demand at the national level. However, at current prices, shortages are already evident in a number of river basins. These shortages are reflected in significant groundwater mining. An extrapolation of current trends suggests that in a number of basins water shortages would significantly curtail economic activity by the year 2020. Moroccan water resources are unevenly distributed between basins. Inter-basin transfers are considered by the authorities to provide a means to overcome local shortfalls. 6. Deterioration of the quality of water poses a significant threat, equal to that of quantitative imbalances. Whereas water resource balances assume that available water will be of a satisfactory quality, this is not the case. Pollution already reduces the overall water resource balance and the degradation of water requires urgent consideration in the context of a national water strategy. Water pollution from domestic, industrial and agricultural sources has approached critical levels in the two most important river basins. Potable supplies have had to be suspended on a number of occasions in the Sebou basin, due to excessive pollution loads, and in the Oum er Rbia basin water pollution is fast approaching the critical level. By 2020, waste water discharge from domestic sources is expected to be double current levels, with most of this increment absorbed by the coastal zone and Sebou basin, where the most rapid industrial, urban and agricultural development is expected. 7. Despite Morocco's remarkable success in providing potable water to virtually all its urban inhabitants, the provision of rural potable supplies remains an immediate challenge. Over half the population lives in rural areas and barely 14 percent of these citizens have access to safe and reliable supplies of water. The virtual absence of potable water supplies is considered the primary cause of rural ill-health. Rural families on average devote one and a half hours a day to fetching water and pay up vendors up to a hundred times the urban fee charged by the drinking water utilities. The absence of potable supplies also has retarded a broad spectrum of rural commercial activities. The provision of potable water therefore offers a means to reduce rural poverty. The implementation of this objective is a key challenge. 8. The Government's objectives of expanding irrigated areas, in the context of increasingly scarce water supplies, rising costs and less protected output prices, poses a severe challenge for irrigated agriculture. Faced with higher water charges and, as a result of trade reforms and declining 1/ See footnote 1/ at the bottom of page 1.  - 111 - protectionism, lower output prices for subsidized commodities, such as sugar and oilseeds, farmers may be expected to substitute higher value-added and less water-intensive crops. However, the market opportunities for these high-value irrigated crops may be limited, raising doubts as to the viability of some irrigated areas. 9. Improved demand management is at least as critical a challenge as supply management. This is particularly true in the irrigation sector. Irrigation currently is allocated approximately 85 percent of water, but by the year 2020 is expected to be allocated only 77 percent of available supplies, taking into account return flows (water which seeps from irrigation perimeters back into the water cycle). Assuming that current plans for irrigation expansion are implemented, this allocation implies a reduction of over 3000 m3 in water allocated per hectare. Water efficiency currently is below 50 percent overall, with less than half of the water delivered to the irrigation perimeters actually reaching the crops. While a part of the water "lost" returns to groundwater and surface flows, this nevertheless implies an efficiency loss as for the return flow to be used, it has to be mobilized a second time. The rehabilitation and improvement of irrigation systems may be expected to reduce the losses by at least 20 percent, so that the average system efficiency reaches at least 60 percent, a level typically achieved internationally in well managed systems. Such improvements are vital to ensure the future viability of irrigated agriculture in Morocco. 10. The key to the continued growth of the irrigated sector rests on improved efficiency in water use. Demand management which focuses on improved efficiency of water use through conservation is a priority. The rehabilitation and improvement of existing irrigation infrastructure to increase the efficiency of water use should be encouraged, through measures such as canal lining, field levelling, and the move, where economically justified and technically applicable, from a system which is predominantly flood irrigation to greater use of sprinkler and drip irrigation methods. Economic and institutional reforms also are necessary. Higher water charges are expected to increase both efficiency in water use and in allocation. For higher prices and other economic incentives to be reflected in improved performance, institutional and other changes are required which allow farmers to adjust their demand on an individual basis and to be billed independently on the basis of water actually consumed. Demand management implies greater management by the users themselves. B. Escalating Costs and Cost Recovery 11. The allocative, environmental and financing challenges of water resource management are closely related to the economic challenge of giving greater weight to efficiency and pricing criteria in water management. The opportunity cost of water use is becoming increasingly important, particularly in deficit basins, and the pricing of water at its opportunity cost should be introduced to the extent possible into the decision making process. In deficit basins, the marginal cost of water is rising steeply as secondary and more distant dam sites and groundwater reserves are exploited, non-traditional water sources are explored and increased water treatment, transfers and pumping becomes necessary. By the year 2000, total investment in the mobilization and distribution of water resources is projected to rise by 350 percent, to over 2 percent of GDP. Of this planned increase, the central Government is anticipated to contribute in excess of four billion (1993) DH per year, which is well over double its current contribution. In the context of an overall Government commitment to reducing its fiscal deficit, the projected increase in investments is unlikely, from a public expenditure standpoint, to be sustainable. The projected expenditures hence imply that from a situation where the Government financed virtually all water investments and operations, the burden of costs be shifted more rapidly towards consumers. In this respect, the urban water supply sub-sector has advanced furthest: by 1998, urban water tariffs are  - iv - expected to cover operational and maintenance charges as well as interest payments for capital investments in urban water supply and sewerage. This performance will place Morocco at the forefront of cost recovery for urban water supply and sewerage. In irrigation, by contrast, Morocco has done no better than the world average, as water charges seldom cover O&M expenses. The average urban tariff of 3 DH/m3 is seventeen times greater than the average tariff of 0. 17 DH/m3 in irrigation. After adjusting for differences in the quality and treatment of water, length of conveyances and the differences in distribution, water tariffs in irrigation are estimated to represent less than twenty percent of the urban tariff. As is the case with urban tariffs, irrigation tariffs make no allowance for the mobilization and transfer of water resources. Accordingly, urban tariffs on average cover barely 50 percent of the full marginal cost of water, and irrigation tariffs under ten percent of marginal cost, including construction of dams and transfers. 12. The challenge of funding new investments is compounded by the aging of a significant part of the existing water resource infrastructure. The returns from existing investments could be significantly raised by improved maintenance. The siltation of dams is a major concern, and has already diminished available capacity by almost 8 percent. The siltation rate of existing and planned dams is expected to reduce dam capacity by as much as one percent per annum. Conveyance losses in the primary and secondary irrigation canals and in other irrigation infrastructure similarly are estimated to be as high as twenty-five percent. Measures which enhance watersheds and provide for the maintenance of existing infrastructural investments are expected to result in considerable financial and water savings. 13. The immediate challenge in the deficit basins, notably the Souss and Oum er Rbia, and the looming challenge in the other basins, will be to reallocate water resources from irrigation to higher value added urban and industrial consumers, without causing unnecessary hardship to the poorer rural communities. By the year 2020, competition for scarce water supplies is expected to be intensified to the extent that irrigation supplies must be transferred to urban and industrial consumers. In the Oum er Rbia basin, the planned expansion of irrigated areas will accelerate the decline in the basin's resource balance, and thereby limit the use of the basin's water resources for the nearby Casablanca metropolitan area. The growth in Casablanca's water demand therefore is premised on the construction of an inter-basin transfer from the much more distant Sebou basin. The cost of water brought to Casablanca through this type of transfer will approach the cost of water obtained through desalination, which due to technological progress by early next century may become a competitive option to the transfer. By far the cheapest option, however, is the saving of water in the Doukkala and Tadla irrigation perimeters; a reduction of its projected water requirements by 20 percent would postpone the need for alternative sources until well beyond 2050. In the Souss, the available water supplies have already been stretched beyond the sustainable limit. Growing pressure from urban and industrial development has led to mining of groundwater. A reduction in irrigation demand would provide a sustainable solution and could be achieved by improving agricultural efficiency or reducing irrigation perimeters. The establishment of compensatory arrangements or tradable water rights in these circumstances could facilitate a transfer of water from irrigation. Urban, industrial or higher value agricultural producers could compensate farmers with a lower return to water for reductions in their water use, allowing the farmers to invest in water- saving technologies or in diversifying their activities. Such compensatory arrangements may also be explored at the wider level; for example, Casablanca may wish to contribute to efficiency improvements in the Doukkala irrigation perimeter in order to be guaranteed secure water supplies at costs well below the alternatives of a billion dollar transfer or desalination. The experience of the Metropolitan Water District of Los Angeles and the Imperial and other irrigation districts in California shows that the establishment of these win-win arrangements is a technically feasible and economically mutually beneficial means to achieve more efficient use of scarce water resources.  C. Institutional Reform. Decentralization and Privatization 14. The question of compensatory arrangements and tradeable water rights is indicative of the important legislative and regulatory challenges facing Morocco. Customary practices and successive legislative interventions which deal with specific sub-sectors issues have produced a tangled regulatory web. The regulatory environment is inadequate in that it fails to provide up-to-date, comprehensive and easily applicable mechanisms for addressing a number of critical challenges of water resource management. These include water quality issues, water management responsibilities, financing responsibilities, groundwater mining and water rights. To overcome these and other shortcomings, a Water Code has been drafted and is currently under consideration at the preliminary legislative level. This Code and associated environmental and other legislation are required to establish a firm framework for water management and to facilitate greater decentralization and beneficiary involvement in water resource management, as well as the use of economic incentives, including water markets, in the management of water resources. 15. Of all the challenges of water resource management, institutional issues are the most pervasive. Currently, policy making is largely centralized, but much of the responsibility for water management rests with sectoral ministries and agencies responsible for different end-users. Control over water resources radiates out along these sectoral spokes. A more smoothly coordinated centralized hub is however required around which the spokes may rotate. The Conseil Superieur de l'Eau et du Climat (National Water and Climate Council) is internationally renowned as providing a periodic focus for the review of sector priorities and master plans at the highest level. There is room for enhancing the role of the Conseil in order that it act as a water parliament, and for complementing its activities with a permanent inter-ministerial forum responsible for the definition of sectoral responsibilities and the determination and implementation of integrated water management strategies. The reinforcement of the central decision making process, at the highest level, is expected to ensure that there is neither institutional overlap nor institutional weakness, reflected, for example, in inadequate provision of rural water supply or pollution control, which appear to have slipped through the institutional net. 16. The key is to balance effective centralized management with coordinated decentralized activities. Decentralizing decision making, to strengthen stakeholder participation and promote more efficient and responsive water resource management, is part of the challenge of institutional reform. The mobilization, conservation and allocation of water should be guided by its high value in social and economic development. The users, who are expected to shoulder a greater share of the costs and maintenance responsibilities, require greater participation in strategic decisions on water production, distribution and maintenance. Decentralizing decision making to the basin level offers a means to increase the participation of the beneficiaries. The establishment of users' associations is expected to provide a means to strengthening their participation. Decentralizing consultative and decision-making institutions is expected to both be facilitated by, and provide the basis for the empowerment of, the various stakeholders. Meeting these Challenges 17. The identification of the key issues is well advanced in Morocco, but remains to be articulated in detail. The acceleration and deepening of the process is required to ensure greater stakeholder participation in formulating a national water strategy and in defining a comprehensive legal and institutional framework for water resource management. The definition of a coherent set of short, medium and long-run water sector objectives and the translation of these into a strategy for sustainable  - vi - water resource management is a necessary first stage, which is well advanced. The articulation of these objectives into concrete actions through the formulation of a National Water Strategy provides an integrated vision of water resource management and a framework for investment decisions to beyond the year 2020. 18. The definition of policy objectives and strategic priorities provides the foundation for the establishment of a National Water Plan to be accompanied and supported by a parallel set of sub-sectoral action plans, investment programs and policy measures. Among the key strategic policy issues which need to be addressed for overall water resource management are those concerning: institutional responsibilities, including for water quality, rural water supply and watershed management; the implementation of a water and environment code; the devolution of decision making to ensure greater beneficiary participation; the promotion of water conservation and demand management, especially in irrigation; and, the integration of cost recovery and economic incentives into water resource management. 19. The definition of sub-sector strategies for development of irrigation, water supply and sanitation is well advanced in Morocco. The irrigation investments envisaged by the Government for the 1993-2000 period are embodied in the National Irrigation Plan (PNI). Resources are primarily to be devoted to the expansion of large-scale irrigation, which is expected to receive 80 percent of the US$4.8 billion PNI investment. In addition, approximately one billion US dollars have been earmarked for the rehabilitation of existing large-scale irrigation and the expansion of small and medium-scale irrigation, funding for which has been secured through existing Bank loans and external cofinancing. The PNI aims to implement a royal directive to irrigate one million hectares by the year 2000. The overall goals of reducing climatic risk in agriculture and improving employment, income and output are widely shared. But, it remains to be demonstrated that the proposed expansion of irrigated areas will prove competitive in terms of the economic, social and environmental returns to investments. In addition, the expansion program needs to be examined within the context of the efficient use of public finances and within a program of long run water resource management. Viewed in this perspective, the Bank's experience in Morocco suggests that returns to rehabilitation of existing investments exceed those of expansion and contribute significantly to raising the efficiency of water use. 20. Improved efficiency of water use will be particularly vital in the planned 48,000 hectare extension of the Doukkala perimeter, as that expansion competes with Casablanca for the water of the Oum er Rbia basin. The planned expansion is premised on the construction of a transfer from the northern Sebou basin to Casablanca. This implies that the marginal cost of water in Casablanca would reach around 4 to 5 DH/m3. However, other more economic approaches are perhaps feasible, including reducing water use through improved efficiency and demand management. Given that over eighty percent of water is allocated to irrigation, a small improvement, even of less than five percent, in the overall efficiency of water use would significantly contribute to reducing the opportunity cost of water. In the context of growing scarcity and sharply rising marginal costs, there is much to be gained from careful evaluation of the opportunity costs of investments in the water sector. Given its relative significance in the overall resource balance, this especially applies to the irrigation sector, as at the margin investments in irrigation may have great significance for other users, and notably urban water consumers and other farmers. The failure to consider trade-offs is expected to lead to significant inefficiencies in water use and in investment. The use of marginal and opportunity cost pricing is expected to encourage efficient use of scarce resources and to facilitate greater transparency, improve planning and foster the emergence of market based solutions, such as tradeable water rights.  - vii - 21. In its overall management of the economy, the Government is committed to giving a greater role to market mechanisms and to the promotion of decentralization and beneficiary participation. This is most evident in the urban water supply sub-sector, where autonomy and financial independence is being accorded to ONEP and the Regies. In the irrigation sub-sector, the decentralization of responsibilities to the ORMVA and then from the ORMVA management to water users is proceeding in a slower and more hesitant manner. However, the renewed commitment of the highest authorities in Morocco to decentralization, privatization and stakeholder participation provides the context for the rapid evolution of water resource management to meet the challenges of the 21st Century. 22. From the above it is apparent that water management in Morocco is at a crossroads. With great foresight and courage, the Government in the past has pursued policies which have successfully addressed the 20th Century needs of development. Policies which are widely respected for having served the country well throughout its modern development are now subject to reevaluation in light of the mounting challenges. These include widening shortages, reflecting a growing disequilibrium between supply and demand, at set prices, as well as deteriorating quality, inadequate rural provision and rising economic costs. Growing competition between the different existing and potential water users and the deterioration in the quantity and quality of available supplies requires urgent attention. Sustainable growth is predicated on improved water management to overcome declines in both the quantity and quality of water available for development. New approaches are required to meet these challenges. What proved appropriate in the past requires adaptation for the future, in order to ensure that Morocco will meet its needs for economic and social development in the 21st Century. Morocco has the visionary leadership, skilled personnel and institutional strengths to learn from the past to prepare in the present for the future. In meeting this challenge, it should be assisted as appropriate by the international community, which in the future, as in the past, has much to offer and much to learn from its association with Morocco.   KINGDOM OF MOROCCO WATER SECTOR REVIEW 1. BACKGROUND Physical Features 1.1 Situated on the North West tip of Africa, Morocco is subject to the influence of highly diverse climatic conditions. The North is characterized by Mediterranean influences, the South is part of the arid Sahara, the West is subject to Atlantic influences and in the East the high Atlas has its own microclimates. Average annual precipitation levels vary from 750 mm per year in the Mediterranean region of Loukkos to under 100 mm in the Saharan regions of Ouarzazate and Tafilalet. Total precipitation levels for Morocco average 150 billion ml per year, 30 billion of which replenishes surface and groundwater flow, the remainder being lost to evaporation. The challenges associated with the uneven geographical distribution of Morocco's water resources are compounded by the uneven and erratic nature of rainfall. Most precipitation falls between October and April. Morocco is highly susceptible to long periods (one to six years) of drought. This creates highly variable surface flows and threatens water supplied to households and farmers alike. Per capita renewable water resources are estimated at 800 m3. Morocco is hence, according to international categorizations, defined as "water stressed". By 2020, per capita water resources are expected to fall to 400 m3 so that Morocco is to become a "chronically water-stressed" country'. Human Resources 1.2 Morocco's total population is estimated at 25 million, with an average growth rate in the 1980s of 2.7 percent per year. Due to this high population growth, youth comprise an increasing proportion of the population. Almost 30 percent of the population is estimated to be under ten years of age.2 Long-term projections for population growth forecast a 2020 population of 45 million, of whom 56 percent will live in urban areas. This compares to a 46 percent urban in 1990; the urban population is expected to exceed the rural population in the year 2000.3 1.3 The population is concentrated in the fertile plains and coastal areas of the northwest of the country, most notably in Casablanca and Rabat. The older urban concentrations of Fez, Marrakech, and Meknes are located further inland. Most economic activity has traditionally centered in these northern and primarily coastal urban areas and development elsewhere in Morocco has been slow, further encouraging urban migration. 1.4 Urban migration is exacerbated by the fact that over 70 percent of Morocco's poor are located in rural areas. The livelihood, not only of Morocco's rural poor, but of virtually all rural 1/ These are renewable and mobilizable water resources with an estimated total of 21 billion m3 over the entire country (See graph 1). Taking into account the total renewable water resources, estimated at 30 billion m3, would bring the above figures to 1,200 m3l/capita in 1990 and to 600 m3/capita in 2025. 2/ Royaume du Maroc: 'Annuaire Statistique du Maroc 1992", page 14. 3/ Royaume du Maroc, Direction de la Statistique: "Perspectives a Long Terme de la Population du Maroc, 1960-2062", page 15.  - 2 - inhabitants hinges on the livestock and agricultural sectors, which employ 73 percent of the rural male and 93 percent of the rural female active labor force. Although 75 percent of the rural population live in rainfed areas, many rural inhabitants migrate from rainfed to irrigated areas for seasonal employment. Improvements in the irrigated areas have a central role in the reduction of rural poverty, by increasing the potential for employment in higher-value activities and by lowering the risk of climatic failure. 1.5 Water management also plays a central role in enhancing the health status of Moroccans, most directly through the improvement in supply, transport, and storage of potable water. Microorganisms present in contaminated water until recently were the primary cause of intestinal diseases in urban areas. They remain the primary cause of ill-health in the rural areas. Water supply projects typically serve to combat waterborne maladies, but in the saline and more waterlogged areas of Morocco, the development of irrigation systems has at times created breeding grounds for carriers of malaria and bilharzia.' Economy 1.6 From the time of first settlements, economic development in Morocco has been dependent on the development of water resources. Water resource development has facilitated agricultural and urban growth and has played a vital role in poverty alleviation. Because agriculture provides a livelihood to 40 percent of the economically active population, and contributes around 17 percent of GDP, changes in output due to variations in weather have a multiplier effect on overall economic activity, with serious consequences for incomes. The Government's rural development strategy has focused on improving the modern irrigation sector not only to stabilize agricultural incomes and output, but also to achieve twin goals of agricultural self-sufficiency and expansion of agricultural exports. Since 1992, the goal of self- sufficiency has been substituted for by a policy of food security. In irrigation, this has permitted greater flexibility in the choice of crops. 1.7 Of Morocco's 71 million hectares, 21 million are classified as rangeland and 9 million as cultivable land. Due to cropping patterns that include fallow periods, actual area cultivated in any year averages 7 million hectares. Morocco's irrigated agricultural sector totals about 850,000 hectares, commonly divided into large-scale irrigation (GH) and small and medium-scale irrigation (PMH). The modern GH perimeters cover 465,000 hectares administered by the ORMVA, while 384,000 hectares of PMH are mainly traditional systems operated by local communities for subsistence agriculture and vegetable marketing'. 1.8 A relatively diversified manufacturing sector provides 20 percent of GDP, with food processing, textiles, automobile assembly, and chemical and fertilizer industries accounting for most of this activity. Phosphates and their derivatives form the cornerstone of the mining and refining industry. Mining's share of the value of total exports has declined, from 32 percent in 1981 to only 8 percent in 4/ James J. Talbot: "Water Quality and the Environment", mimeo, page 4. 51 Estimates of the area under irrigation vary considerably, reflecting uncertainties in definition and in measurement. Official Moroccan sources do not include spate and seasonal irrigation, which are estimated to account for around 165,000 ha and 265,000 ha respectively. This report, following the conventions adopted by the Moroccan authorities, defines irrigation to be perennial, in which water is canalized or otherwise mobilized.  1991, reflecting both a widening and a diversification of the export base and declining world market prices for phosphates. 1.9 Energy imports are the most volatile portion of the overall import bill, sensitive to fluctuations in the world price. The Government has attempted to reduce dependence on oil imports by import duties which have served to raise consumer prices to in excess of double world prices. It has also encouraged the use of alternative energy sources and the exploitation of hydroelectric potential. Water in the Economy: Sub-Sectoral Objectives 1.10 Priority has traditionally been attached to securing potable water supplies. Water resource development goals are to supply virtually the entire rural and urban populations with potable water by the year 2020. In 1990, this objective was almost reached for the urban population of which 76 percent was served by house connections, 21 percent by public standpipes and 3 percent by private water points. The target is to serve 98 percent of urban households through house connections, and the remainder by standpipes, by the year 2020. In the rural areas, only 14 percent of households have secure water supplies, of which 2 percent are household connections, 6 percent standpipes and 6 percent modernized wells. For rural households, the target is to provide 80 percent of the population, by the year 2010, in the following manner: 10 percent by household connections, 40 percent by public standpipes and 30 percent by rehabilitated water points. Water resources are to be developed in accordance with the growth in demand for potable water, which is dependent on growth in water use per person per day, total annual population growth, and rural migration to urban areas. The potable water sector is also faced with the goals of maintaining and improving water quality and treating sewage for effluent disposal or possible reuse in industry or agriculture. Industrial demand for water is expected to increase by as much as five percent per year over the next thirty years, rising to around four percent of total demand. As demand for potable water is concentrated in the relatively water-scarce basins, meeting rapidly rising demands for potable and industrial water poses a severe challenge. In many locations, satisfying urban and industrial demand implies either an inter-basin transfer of water, the use of non-conventional sources such as desalination, or the transfer of water from irrigation to higher value urban and industrial users. 1.11 Irrigation is an essential pillar of economic and social development in Morocco. Irrigation accounts for around 85 percent of mobilized water resources and the history of irrigation development is integrally linked with that of water resource development in Morocco. In order to achieve its irrigation objectives, the Government has built modern and relatively efficient infrastructure and supported farmers through a comprehensive administration of irrigation perimeters and a favorable system of legal and economic incentives. 1.12 The Moroccan Government has recently redefined the irrigation objectives as: (i) contributing to food security by efficiently producing strategic food products; (ii) increasing agricultural incomes and employment by improving on-farm productivity and upstream and downstream linkages; (iii) conservation of natural resources; and (iv) encouraging the integration of agriculture into international and local markets. To achieve these objectives, it recognizes that greater attention needs to be paid to the conservation and protection of water resources and to increasing on- and off-farm water efficiency. The investment plan for irrigation investments has been articulated in the National Irrigation Program (PNI). The goals of the program have been defined by His Majesty the King, who in November 1992 reiterated his 1967 objective that irrigated agricultural production expand by 20 percent to exceed one million hectares by the year 2000 and thereafter reach 1.2 million hectares by the year 2010.  - 4 - 1.13 Hydropower is a crucial source of energy. It contributes to the satisfaction of energy demand, especially at peak hours. It saves almost 700,000 tons of oil per average year. In 1994, installed hydropower capacity reached 927 MW, amounting to 27 percent of total installed power. Hydropower production was equal to 855 million KWh representing close to 8 percent of total energy production in 1994. Installed hydropower capacity should exceed 1175 MW at the end of 1997. Another 700 MW of hydropower capacity will be exploited between 1997 and 2010.6 Hydropower capacity is ultimately constrained by the priority accorded to potable and agricultural water use as well as by the lack of dam sites suitable for hydropower production. Government 1.14 The Moroccan Government has taken a leading role in the management of water resources since 1914, when the first water legislation was introduced. Management of water as a resource has been drawn according to the traditional sub-sectors of urban and rural potable water supply, irrigation, and hydropower. 1.15 Four Government ministries play a primary role in the water and sanitation sector. These are the Ministry of Interior (MI), the Ministry of Public Works (MTP), the Ministry of Agriculture and Agricultural Development (MAMVA), and the Ministry of Public Health (MSP). The Office National de l'Eau Potable (ONEP) under MTP, and sixteen municipal water utilities (R6gies), under MI, control all urban and some rural municipal water distribution. 1.16 The Direction Generale de l'Hydraulique (DGH), under MTP, makes bulk water available at the level of drainage basins. ONEP plans, builds and manages the treatment and conveyance of an adequate quality and quantity of water which it receives from the DGH primary water sources, which include dams and primary canals. ONEP is also responsible for treatment and distribution of water to about 200 towns, provides technical assistance to communities in the development, implementation, and management of municipal potable water systems and provides water to two percent of rural communities. The Ministry of Public Health (MSP) insures quality control of the drinking water distributed by the ONEP networks, the regies and the communes, and also controls drinking water points used by the rural population. The ONEP and the regies are responsible for monitoring the quality of water that they produce and/or distribute. In collaboration with the MSP, the ONEP contributes to the control of water in the networks of cities and towns supplied by it. To this end, ONEP spotchecks for potential sources of contamination of potable supplies, collaborating with the DGH in the follow-up to its inspections. The Ministry of the Interior (MI), through the "Direction des Regies et Services Concddes" (DRSC), inspects the sixteen "R6gies Autonomes Inter-Communales" which distribute water in the cities. While the Rdgies still exploit limited groundwater resources for urban supply, ONEP now delivers most potable water supplied. 1.17 The Ministry of Agriculture and Agricultural Development (MAMVA) provides technical support to all rainfed and irrigated agriculture in Morocco. The Ministry supervises new investments, including the expansion, rehabilitation and maintenance of all large and medium-scale irrigation (GH) perimeters. The mobilization of water for the GH irrigation sector is the responsibility of the DGH, which builds and maintains head water works, such as dams, river diversions, and groundwater-lifting 6/ Royaume du Maroc, Office National de l'Electricite: "Possibilites d'Equipement Hydraulique", pages 1-2.  schemes. MAMVA is responsible for the irrigation perimeters themselves. Water resource management in GH irrigation is executed by nine Regional Agricultural Development Authorities (ORMVA), under the supervision of MAMVA. The ORMVA are responsible for the operation of the primary irrigation systems in GH perimeters. In addition they provide a range of other technical and advisory services.The nine ORMVA are: Loukkos, Moulouya, Gharb, Doukkala, Tadla, Haouz, Souss-Massa, Ouarzazate, and Tafilalet. The ORMVA control the planning, design, construction, operation, and maintenance of the GH perimeters and provide extension services to farmers within the ORMVA perimeters. The ORMVA are also responsible for the limited amounts of small-and medium-scale (PMH) irrigation and rainfed crop production which falls within their geographical jurisdictions. Outside the ORMVA boundaries, including in traditional PMH perimeters, farmers are more self-sufficient, with the Government's productive contribution seldom going beyond the provision of limited extension services. 1.18 Hydropower production, transport and distribution is the responsibility of the "Office National de l'Electricite" (ONE), which is administratively under the Ministry of Energy and Mines and financially under the Ministry of Finance. The ONE has the monopoly over electricity transportation. It also has exclusivity over the development and exploitation of the means of electric energy production with power greater than 10 MW. The distribution of electricity is insured by the "municipal regies" in the 10 principal cities of the country and by the ONE in the remaining cities and in the rural areas. Management of Water Resources 1.19 The National Water and Climate Council (CSEC) is mandated to coordinate water resource development policy in Morocco through (i) the review of sector development policies; (ii) the approval of regional master plans related to water resource development; (iii) the arbitration of conflicts in the allocation of water resources; and (iv) the development of policies for the preservation of the quality of water. The CSEC serves as a forum for gathering together governors, deputies, civil servants, elected municipal authorities, and water users. The DGH provides the secretariat for the CSEC, which meets, on average, for two days per year. 1.20 The DGH has almost complete responsibility for water resource management and provides the technical secretariat for the CSEC. The DGH is responsible for the study, planning, mobilization and allocation of all national water resources in Morocco, including storage, inter-basin transfer, and overall water quality. The DGH is also responsible for the maintenance of data and technical services necessary for water resource planning. The DGH designs and supervises the construction of most large hydraulic schemes and undertakes the construction of many of the medium size dams itself. 1.21 Water sector data are usually categorized by river basin or by regional irrigation authority. There exist eight major river basins (Loukkos, Moulouya, Sebou, Bou Regreg, Oum er Rbia, Tensift, Souss, and Massa) and four minor South Atlas basins (Assaka, Draa, Guir, and Ziz). Water resource master plans, which reflect the derived balance of water demand and supply within regions have been released for five of the major basins and are underway for the remaining three. 1.22 The DGH initiated the first regional water management plans for the Sebou in 1963-1968 and Oum er Rbia in 1975. However, 1983 marked the beginning of a systematic basin-by-basin exploration of Morocco's long-term water demand and supply prospects. Integrated water resource management plans are being produced for each basin, with CSEC release dates as follows: Moulouya (1990), Sebou, Bou Regreg, and Oum er Rbia (1992), and Loukkos, Tangerois, and the Mediterranean  - 6 - Coasts (1993). The basin plans for the Souss-Massa, Tensift and the south-Atlas region of the Guir, Ziz, Rheris, and Draa are due to be released in the next two years. 1.23 The CSEC has also released several studies which complement the regional master plans and set the stage for a fully integrated water resource policy. They address wastewater reuse (1988), water pollution (1990), water efficiency in irrigated agriculture (1992), and rural potable water supply (1994). Morocco plans to consolidate the regional master plans into a national water plan, to be completed in the next five years. As part of this comprehensive strategy, the definition of the terms of reference for a master plan, scheduling investment, planning for public and private financing, and defining the relevant institutional framework for water resource development, allocation, and conservation is currently underway. 1.24 Responsibilities for allocation and priority setting and for the management of instream and other environmental uses are for the most part not codified. Water is viewed as a public good and the mobilization of water resources and the adding of value through investments is seen as the responsibility of governments, public agencies and private individuals. The State, representing the common interest, has a virtually exclusive claim over water. This implies that the State is also responsible -- either directly or through concession -- for treatment, distribution, and major public works. The exception is in those areas where rights acquired prior to 1914 still apply. These ancient rights are to be found principally in the areas of traditional small-scale irrigated agriculture and do not exercise a significant influence over the pattern of utilization of water resources. Historical patterns of water use, however, have given rise to claims of customary water rights. These rights are concentrated around traditional water sources and embrace finely tuned considerations regarding seasonal and inter-annual instability in precipitation. These traditional water claims are threatened by competing claims which serve to alter flows and water tables, posing a challenge which needs to be resolved for political as well as juridic reasons. 2. WATER RESOURCES: SUPPLY AND DEMAND Availability 2.1 The Moroccan water cycle is depicted in Figure 1. Of the average annual rainfall in Morocco of approximately 150 billion m3, evaporation accounts for a loss of about 120 billion m3. Roughly 30 billion m3 enters the water cycle annually, with 10 billion n3 infiltrating aquifers and 20 billion m3 contributing to surface flow.' Approximately 2.5 billion m3 of water surfaces in rivers from groundwater flows. Thus, total surface water supply is estimated at 22.5 billion m3 per year and accounts for 75 percent of Morocco's total water resources. Surface Water 2.2 Surface flow provided by rain is concentrated in the months from December to February. Variations in surface flow between dry and rainy seasons can be extreme, with Ouerrha river flows in 7/ United Nations Development Program: 'Analyse des Besoins en Cooperation Technique du Secteur de l'Eau et de l'Assainissement au Royaume du Maroc", page 9.  the Sebou basin ranging from 300 m3/second to 10,000 m3/second. Installations which store flood waters have been built in order to regularize the effects of intermittent floods and droughts. 2.3 The Middle Atlas contains large reserve stocks of groundwater and the High Atlas provides reserve stocks of surface water throughout the year due to the slow melting of snow. The Atlas chain also feeds Morocco's main rivers: the Sebou, which flows to the north, the Moulouya, which flows to the east, and the Oum er Rbia, which flows to the south. Thus, the Sebou and Oum er Rbia rivers receive a base flow even in periods of prolonged drought. In comparison, rivers which drain alluvial basins with little groundwater, such as those found in the Souss, Guir, Ziz, and Draa, are seasonal in nature. Groundwater 2.4 Groundwater systems in Morocco are varied with respect to their geology, their hydrodynamic characteristics, their recharge rates, and their relationship to nearby surface waters. Groundwater may be recharged through natural or artificial means: natural means comprise infiltration of rain waters, infiltration of surface waters and transfers between aquifers, while artificial means include seepage of irrigation waters into the water table as well as infiltration from reservoirs or injections from tubewells. Groundwater losses are due to drainage downstream into rivers, drainage into the ocean, evaporation of aquifers close to the surface, and pumping for use as drinking or irrigation water. 2.5 About 70 percent of renewable groundwater resources are located in the Atlas and Atlantic hydrogeological regions of Morocco. These regions constitute only 20 percent of the national territory. Total renewable groundwater resources in Morocco are estimated at around seven billion m3 per year, but because over 2.5 billion m3 per year is lost to the sea or other receptors, the total renewable groundwater resources available for use is estimated to be between 3 and 4.5 billion m3 per year. The extent to which this groundwater can be profitably exploited is dictated by water quality, depth and volume of aquifer, and difficulty of drilling through to the aquifer, as well as economic factors, such as the cost of fuel and pumping equipment. 2.6 Figure 2 summarizes the situation with respect to the groundwater stocks. It is evident from the figure that groundwater reserves have been drawn down in virtually all the principal aquifers. The situation is particularly acute in the Tensift and Souss basins where, due to uncontrolled groundwater mining, there has been depletion of nonrenewable groundwater resources. It is no coincidence that these are the two basins where groundwater is more important than surface water to agriculture. Excessive drawdown of groundwater reserves has resulted in salt water intrusion, threatening lucrative vegetable production in the coastal region between Kenitra and Safi. Similarly, intensified competition for water between the coastal tourist industry, Agadir's industrial and household water needs, modern orchards, and subsistence farmers has caused drawdowns of up to several meters, thus greatly increasing private pumping costs for farmers in the Souss, where groundwater stocks are declining by one meter per year.8 The prolonged drought in the 1980s has accentuated the decline in groundwater stocks, accelerating the decline in the Fez-Meknes aquifer to two meters per year. As is evident from Figure 2, there has been 8/ Eau et Developpement. No. 16, D6cembre 1993, pages 55-58.  - 8 - a recovery in the Beni Moussa aquifer, due to seepage from irrigation flows in the Tadla perimeter. Such recharge has also been recorded from the Haouz irrigation perimeter into the Tessaout Amont aquifer.9 Non-Conventional Sources 2.7 Non-conventional water resources include use of brackish and saline waters, and wastewater recycling and desalination. Although these practices are rarely used in Morocco, each is being explored for technical and financial feasibility. The city of Tangier has replenished the Charf el Akab underground reservoir through artificial recharge for more than forty years. There is the potential to recharge the Souss and Draa alluvial groundwater through pumping of the Aoulouz and Mansour Addabi storage dams, respectively, into the aquifers.1" Wastewater recharge of the coastal aquifer in the Souss, thus preventing sea water intrusion, is another possibility to be explored. 2.8 Desalination of water has been confined to a small number of isolated communities in the most arid coastal regions. In these localities, the absence of alternative sources for potable water offers sufficient justification for what otherwise is considered to be a prohibitively expensive source of water. Desalinization and demineralization facilities now in use in the southern localities of Boujdour, Tarfaya, and Smara produce barely 150,000 m3 of potable water per year, .01 percent of Morocco's annual potable water consumption." 2.9 Reutilization of wastewater for agriculture remains the most common non-conventional source of water in Morocco. Untreated wastewater has been used on an unsupervised basis in the inland cities of Marrakech, Fez, and Meknes, where irrigable land is available. Although this practice is not condoned by the Moroccan authorities, it is not illegal either. It is, however, recognized that the consumption of raw fruits and vegetables irrigated by untreated wastewater can encourage transmission of waterborne diseases. The pilot projects in wastewater treatment and reuse in irrigation in Ouarzazate, Agadir, Rabat, Bouznika and Marrakech are thus concerned both with developing appropriate designs of treatment ponds and with setting minimum standards for reuse practices. In 1990, wastewater volume for Morocco was estimated at 250 million m3. Country Water Balance 2.10 Current and future supply and demand balances are summarized in Table 1 and depicted in Figures 3 and 4, which are reproduced below. Total water supplied in Morocco for 1990 was estimated at 10.9 billion m3, with around 8.5 billion m3 (75 percent) of that from surface water. As noted above, the 2.3 billion m3 of groundwater extracted for use in 1990 represented as much as two-thirds of the total renewable groundwater supplies available for use. Mining of non-renewable groundwater now occurring in the Haouz and Souss aquifers totals 60 and 120 million m3 per year, respectively. This mining accounts for a small share of the total amount of groundwater available, but, as we note below, is unlikely to prove sustainable for economic reasons. 9/ Normand, Dominique: 'Le Secteur de l'Eau au Maroc: Considerations sur l'Amenagement et la Gestion des Ressources en Eau', mimeo, pages 29-30. lO/ Jellali, Mohammed: "The Problematic of Water Conservation in Morocco", mimeo, page 7. II/ Royaume du Maroc, Direction de la Statistique: 'Annuaire Statistique du Maroc 1992", page 113.  -9- 2.11 Total yearly water supply and demand balances for Morocco are constructed on a basin- by-basin basis, thus emphasizing the need to take into consideration regional deficits and surpluses. Generally, almost 50 percent of Morocco's total water resources, and 93 percent of current regional "surpluses", are concentrated in the Sebou and Oum er Rbia basins. The Casablanca and Rabat-Sale metropolitan areas, which accounted for 25 percent of all residential and industrial water demand in 1990, are supplied with potable water from the water resources of the Bou Regreg, Oum-er-Rbia and the Sebou (Memora watertable) basins. 2.12 Agriculture's share of total country water consumption is estimated to be 85 percent rather than the more widely cited 92 percent share, due to our inclusion of return flows from irrigation. Whereas previous estimates of water usage in agriculture were based on gross consumptive use, our estimates calculate water use in agriculture as gross consumptive less return flow, or net consumptive use. The ratio of return flow to consumptive use can be as high as 50 percent in the ORMVA of Haouz, Souss-Massa, Tadla, Tafilalet, and Ouarzazate, where return flow is largely recycled by underlying aquifers. Return flows in the ORMVA of Doukkala, Gharb, and Moulouya are lost to saline aquifers and return flow in Loukkos is lost to the sea. Inclusion of return flows in the calculation of agricultural water use increases the overall level of irrigation efficiency, at the basin level, especially where the return flow is used in downstream perimeters. However, the significance of return flows does not detract from the fact that losses in irrigation are inefficient in that the quality is reduced and the economic cost of using the water rises when water lost to irrigation requires pumping from groundwater sources or re-enters surface flows downstream. Water quality in downstream flows may suffer due to contamination from soil salinity and agricultural chemicals. Similarly, while urban potable and industrial discharges into the rivers are added back into the water resource balance, the quality of these return flows may in practice restrict their use and/or necessitate treatment. Figure 3: Country Water Balances [I11 Irrigation Drinking Water LI Others Surlace water Groundwater 1990 10.9 11.0 Del and forl Water T Suppl of wat r 2020 7.6 :vW6 20 15 10 5 0 5 10 15 20 bililon cubic meters billion cubic meters  - 10- Figure 4: Regional Water Balances Regional Water Balances 1990 Loukkos..222 r: ut. t:| Moulouya Sebou BouRegreg ODemand I Deficits South of Atlas 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 bilion cubic meter Regional Water Balances 2020 Loukkos Moulouya Sebou BouRegreg ~~~~~~~~~~~~~0Demand Oum-er-Rbia Tensift Souss-Massa e ct South of Atlas 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 biMo Cublc Mdtuu  - 11 - Projections of Supply and Demand 2.13 The evaluation of possible supply and demand prospects is a complex and imperfect, but nevertheless necessary element of water resource management. Our analysis is based on Government data and the projections presented in Table 1 are consistent with the official Moroccan basin planning documents. This chapter aggregates the basin plans into a national framework, providing perspectives on national as well as basin water resources balances. The projections serve to highlight the challenge facing Morocco in water resource development. They reflect the dominance of supply management, in that all available supplies are to be mobilized, regardless of the costs. In later chapters, we provide perspectives on how these balances may be altered and how the costs of water resource development may be reduced through greater attention to demand management. Projected Surface Water 2.14 As shown in Table 1, annual mobilization of surface water is expected to rise by approximately two-thirds from 8,260 Mm3 in 1990 to 13,780 Mm3 in 2020. Half of the difference between current and 2020 surface water supplied, or 2,780 Mm3 out of 5,500 Mm3, can be attributed to the retentive capacities of the Al Wahda dam. The remaining half of the surface water will be supplied via the storage reservoirs of the other 51 dams scheduled to be commissioned over the next thirty years. Diversion of Makhezine dam waters from purely hydroelectrical use to irrigation perimeters will add 230 Mm3 to the Loukkos basin's gain of 380 Mm3 through the addition of six new dams. These balances are reflected in Table 1, while information regarding existing and future dams is summarized in Tables 3 and 4. 2.15 Siltation is a threat to all dams. The loss of capacity of all the reservoirs due to sedimentation is estimated by the Government at 50 Mm3/year in 1994 (1/2 percent of total existing reservoir capacity) and is expected to reach 100 Mm3/year in 2020. As is evident in Table 3, several of Morocco's dams, including Mechraa Hommadi and Sidi Driss, have more than 70 percent of their reservoir volume filled with sediments. Projected Groundwater 2.16 Table 1 shows that harvest of groundwater resources is scheduled to increase 10 percent from 2,730 Mm3 in 1990 to 2,990 Mm3 in 2020. Reduced withdrawals in the Souss-Massa from 590 to 510 Mm3 will not put an end to the exploitation of nonrenewable resource estimated at 40 Mm3 per year, thus contributing to depletion of the Souss aquifer. Similarly, the Tensift region is planning for 680 Mm3/year in groundwater withdrawals, of which 30 Mm3/year is of nonrenewable origin. Thus, by the year 2020, estimates of groundwater available for use count on full exploitation of renewable groundwater resources as well as a significant harvest of nonrenewable resources, assuming no loss as a result of inadequate quality of water. 2.17 Although a 40 Mm3/year harvest of nonrenewable supplies in the Souss aquifer, which is estimated to total 40 billion m3, may seem small even over a 100-year period, the significance lies not in its non-renewability, but rather in the technical and economic difficulty of exploiting the remainder of the aquifer's reserves. As water tables drop, it becomes economically less and less feasible to pump water, although as noted in Annex 1, the economic viability of groundwater pumping varies with application rates, energy costs, cropping patterns, yields, and producer prices.  - 12 - 2.18 Groundwater accounts for less than 20 percent of the total estimated 2020 water resources. This figure masks the importance of groundwater in potable water supply and in the Souss- Massa and the oases. Although potable water is supplied in equal parts by ground and surface waters in the national balances, it is the sole supplier of household water needs of most rural villages as well as some large towns such as Fez, Marrakech, Agadir, and Oujda, which are located far from surface water supplies of either abundant nature or of good quality.'2 Projected Non-Conventional Sources 2.19 The wastewater volume for Morocco in 1990 totalled 250 million m3, forecasts set year 2000 and 2020 levels at 400 million and 600 million m3, respectively."3 It is estimated that 600 million m3 of wastewater could be treated and could irrigate about 55,000 hectares around Morocco's urban areas, with an application of about 10,000 m3/ha per year.'4 This is only four percent of the 1.3 million hectares targeted for agricultural production. Even under the most optimistic of scenarios, wastewater offers a modest amount of water for agriculture. Wastewater reuse nevertheless warrants attention for two additional reasons: it can reduce water pollution through recycling of wastes otherwise discharged without treatment, and it can ease local situations of high water scarcity, as are found in the Souss and Ouarzazate regions. 2.20 Although it is possible that treated wastewater can be used for industrial and even for domestic purposes, this requires much more refined, and therefore in most instances prohibitively expensive, treatment processes. At present, wastewater reuse for potable consumption is not envisaged, as the health risks and costs of adequate treatment are considered prohibitive. Prospects for recycling water for multiple use within industrial plants, especially in the phosphate industry, look promising. However, it should be noted that total industrial water use accounted for only two percent of Morocco's total water use in 1990. This share is expected to rise to four percent in 2020. 2.21 The use of waste water for irrigation is considered as a rerouting to agriculture of water that otherwise would have been counted as a return flow from urban areas to a river. Except in the very limited cases of coastal cities, where wastewater reuse implies a saving of water that otherwise would have been piped into the sea, wastewater reuse does not lead to an increase in the total volume of water resources. For this reason, it does not add to the water balances summarized in Table 1. Desalination, by contrast, does lead to an increase in the net volume of water resources. 2.22 The continuous reduction in desalination costs due to technological progress should encourage a re-examination of desalination as a source of potable water. In fact, on the basis of international experience, the most advanced techniques combined with using cheap energy could lead to a water cost close to 8 to 9 DH/m3 (around $1/m3), which is significantly less than the 13.5 DH/m3 estimated by the Government. Although this cost is still greater than the projected cost of inter-basin 12/ James J. Talbot: 'Water Quality and the Environment", mimeo, page 9. 13/ Khouri, Nadim: "Wastewater Reuse in Morocco", mimeo, page 8. 14/ The assumption that 50 percent of the wastewater can be technically recycled is a generous estimate. Wastewater usage for irrigation implies considerable pumping expenses from the coastal cities, so that the greatest opportunity is to be found nearby inland cities such as Fez.  - 13 - transfer of conventional water resources (3.5 to 4 DH/m3 for the Sebou-Casablanca transfer), the use of desalination for supply of potable water to the coastal cities, particularly the Mohammedia-Safi region, could prove to be a reasonable option. This is especially true if advantages of the incremental construction of relatively small modular plants is considered, so supply keeps pace with demand, as this option is more flexible and has much lower fixed costs than the construction of a large transfer. 2.23 To date, however, non-conventional sources of water - treated wastewater and desalination - have not been considered as sufficiently competitive to warrant inclusion in national water resource planning. As illustrated below, taking into account these new water sources could significantly improve the water balances in deficit basins and influence the choice of future investments. Future Potable and Industrial Demand 2.24 Morocco must continue to meet potable and industrial water (known as "AEPI - alimentation en eau potable et industrielle") demands as a first priority. This prioritization serves to define the potential for other users, as their share in large measure is defined as the balance remaining after AEPI demand has been met. The estimation of AEPI demand thus exercises a pivotal influence over water resource planning. Current official forecasts of future domestic water use build upon projections of population growth, rural-urban migration, real income growth, per capita demand for water, and delivery efficiency within the system. Our projections provide perspectives using the same criteria, but go beyond the official projections in providing sensitivity analysis, based on a range of economic and other assumptions. The results and assumptions are summarized in Table 2. 2.25 Current domestic average urban water consumption is approximately 100 liters per capita per day (lcd). Population growth rates, which encompass birth rates, mortality rates, and rural-urban migration rates, differ between urban and rural areas. The urban population growth rate between 1990 and 2020 is smoothed to 2.7 percent per year, with 2.3 percent and 3.4 percent as lower and upper bounds."5 In practice, the rate of population growth is expected to decline throughout the period, and may differ between regions. 2.26 There are no reliable estimates of the price elasticity of demand for domestic water in Morocco's urban centers and so the forecasts offer a range of calculations which facilitate sensitivity analysis. Our forecasts are presented in Table 2. The base case corresponds to the projections undertaken for the basin plans and implicitly assume a continuation of past price and demand trends. Income elasticity of demand for urban domestic water in Morocco is estimated over the past two decades at .3, with upper and lower bounds of .05 and .5. Demand for water accordingly is expected to rise significantly, but at a considerably more modest pace than increments in income. Morocco's real gross domestic product (GDP) annual growth rate in the base case is expected to be four percent between 1990 and 2020.16 This forecast has been disaggregated into agriculture and non-agriculture, to serve as a proxy for rural and urban per capita GDP growth. Over and above the income effects, urban domestic water demand is expected to be enhanced by Government campaigns to improve sanitary conditions in urban areas. Thus, the installation of toilet and shower piping and sewerage systems is expected to push urban 15/ Direction de la Statistique: 'Perspectives a Long Terme de la Population du Maroc, 1960-2062", page 25. 16/ The World Bank: "Kingdom of Morocco Country Strategy Paper", Annex B1.  - 14 - water consumption in the year 2020 to between 120 and 160 lcd. This represents a 1 to 1.5 percent annual growth rate in per capita urban domestic water consumption and is independent of increased demand for water due to increases in income. 2.27 Because an individual household's demand for water is largely a function of its income, the current and future trends in income distribution within the urban centers greatly influence the estimates of the domestic demand for water. Whereas increases in income in the richest households do not significantly affect water demand on the margin, increases in income in lower- to middle-income families can substantially raise water demand. Income distribution is expected to have a significant impact on both the size and the form of domestic water demand. The forecasts, however, assume a continuation of current distributional policies. 2.28 Current industrial and administrative (public sector) demand for water is estimated at 25 lcd, on the basis of employment in these sectors. Industrial demand for water is projected to grow at an annual rate of between two and six percent with a base case estimate of four percent. Industrial and administrative demand is handled separately, as these sub-sectors have different demand and tariff structures. Industrial water is implicitly subsidized, with all water charged at the second "tranche" of the three-tiered domestic tariff rate. With water charges accounting for only one to two percent of the industrial users' production costs, water does not generally influence the cost structure of most industries. Agroindustry, most notably paper, sugar, and tanning industries, are exceptions to the rule. Public sector (administrative) water users are currently billed using the domestic three-tiered tariff structure. These tariff structures are expected to change, to promote water conservation and cost recovery. 2.29 Potable water consumption for domestic needs in rural areas is estimated at 10 to 14 lcd. Total water demand in rural areas, outside of irrigated agriculture, is estimated at 27.5 lcd if we include water used for washing, livestock watering, and small-scale vegetable gardening. The potable component of total rural demand for water is forecast to grow annually and should reach 30 to 40 lcd in 2020. With livestock and other water demand held constant at 20 lcd, total rural demand for water for 2020 is forecast at 40 lcd. 2.30 Rural demand for potable water is particularly sensitive to the installation of individual house connections to replace public standpipes. Whereas demand for public standpipe water is largely income inelastic, demand for water delivered to the individual household may be quite income elastic. Rural inhabitants, according to ONEP, pay in certain cases between 50 and 200 DH/m3 to water vendors"'. They are anticipated to greatly increase water consumption when offered home delivery via private connection at the first "tranche" tariff rate of most metropolitan cities, which ranges from 0.438 to 1.345 DH/m3. Similarly, inhabitants of urban fringe areas who currently pay as much as 25 to 50 DH/m3 to water vendors are expected to greatly increase their consumption and to benefit from improved provision of water services to these areas. 2.31 Table 2 shows that taking into account the above calculations yields an AEPI consumption in Morocco in the year 2020 of around 3800 Mm3, with lower and upper bounds at 1949 and 6276 Mm3. 17/ United Nations Development Program: "Analyse des Besoins en Coop6ration Technique du Secteur de l'Eau et de l'Assainissement au Royaume du Maroc", page 93. See also, Alexander McPhail, "The 'Five Percent Rule' for Improved Water Service: Can Households Afford More?", World Development 1993, 21, 6, 963-974.  - 15 - The extent of the range highlights the need for further study and careful planning. The base estimate is most sensitive to changes in per capita urban domestic water consumption due to improved toilet facilities as well as changes in population growth rates. However, pricing policies which encourage water conservation are expected to rein in at somewhere between the lower and base case estimates. With 1990 AEPI consumption at 1,210 Mm3, or 11 percent of total water use in Morocco, 2020 AEPI consumption is expected to grow at an annual rate of 3.8 percent, to demand 21 percent of Morocco's estimated water supply in the year 2020. The base case presented in Table 2 accords with the projections of the DGH. ONEP's projections are closer to our lower bound, mainly as a result of the fact that their projections make no allowance for rising incomes. Future Agricultural Demand 2.32 The Government has defined the potential for irrigation expansion as the difference between AEPI demands and mobilizable water supply. Given available resources, satisfying Morocco's AEPI demands is considered as the principal constraint on expansion of Morocco's irrigated agricultural sector. Estimates of water available for irrigation purposes are derived by subtracting AEPI consumption and "debits sanitaires" from estimates of total water available for consumptive use. "Debits sanitaires' mainly consists of the minimum amount of water necessary to keep surface water flowing to the sea, in order to flush the riverbeds of solid waste and other debris. It is estimated at 310 Mm3, thus leaving 13,610 Mm3, or 81 percent of total water supply, for irrigated agriculture in 2020. 2.33 The 1990 combined GH and (improved) PMH acreage, at subtotals of 450,000 and 200,000, respectively, totalled 650,000 hectares. With 9,190 Mm3 of water devoted to this sector, the average water application was about 14,000 m3l/ha. In practice, the average overall water application in the flood-irrigated perimeters differs considerably between irrigation perimeters and from crop to crop, ranging from under 3,000 m3/ha (vegetables) to 20,000 m3/ha (rice). GH and PMH is expected to expand to 830,000 and 470,000 hectares, respectively, by the year 2020. While the area under irrigation is expected to double to 1.3 million hectares, the volume of water devoted to irrigation is projected to rise by 48 percent, so that the water available per hectare on average will drop to 10,000 m3 per hectare. This envisaged reduction, we show below, is not likely to be feasible with current technology and has important consequences for future investments and for water management. Future Hydropower Demand 2.34 Demand for water in producing hydropower is estimated by allowing the share of total energy consumption allocated to hydropower to remain constant. Although water used for hydroelectric generation is assumed to find end use in the AEPI or agricultural sector, production levels reconcile competing demands for energy in the winter months and for water for agricultural production and household use in the summer months. Thus, hydroelectric production peaks in December and January, with production levels dipping in July and August. To the extent that water harnessed for hydroelectric generation returns to surface flows and recharges aquifers it is not included in supply and demand balances. Hydropower figures in the supply and demand balance only to the extent that water is exclusively used for hydroelectricity generation. This is the case in the winter generation of hydropower at the El Maghazine dam, as water is used exclusively for hydropower generation and is lost to the sea. This exclusive generation is expected to be phased out so that in the future all hydropower will be based on multiple usage. This logic corresponds to that used in the basin masterplans and is reflected in the fact that by 2020 hydroelectricity is solely to be generated on the basis of combined water usage, so as Table 1 shows, the net demand of the sub-sector is anticipated to be zero.  - 16 - Proiected Supply and Demand Scenarios 2.35 Having reviewed the prospects for growth in demand for water in the various subsectors (AEPI, Agriculture and Hydropower) we return to our overall estimate of 2020 water demand and supply presented in Table 1. It will be recalled that this reflects the regional and sectoral patterns assumed in the Master Plans. These plans are premised on supply management so that all water resources are mobilized, irrespective of the cost. Available supplies are allocated first to AEPI, and after the potable demand has been satisfied, the balance given to the irrigation sector. The official projections do not therefore reflect a market based equilibrium of supply and demand, but, on the contrary, the allocation of all available resources according to rationing system which prioritizes potable demand. 2.36 Satisfying anticipated demands in water deficit basins is premised on the mining of groundwater or on inter-basin transfer. Overdrafts of nonrenewable groundwater resources are projected in the Tensift and Souss basins, and water supply in the Oum er Rbia basin is expected to fall short of demand by 390 Mm3/year. The anticipated shortage of water for AEPI use in the Bou Regreg basin is scheduled to be met by a transfer of 470 Mm3/year from the Sebou basin, with an additional 300 Mm3/year transferred to meet projected irrigation demand in the coastal zone around Casablanca. Based on anticipated expansion of the Doukkala irrigation perimeter and on the provision of increased supplies to Casablanca, the Oum er Rbia will register a change in water balance, from a surplus of 360 Mm3 in 1990 to a deficit of 390 Mm3 in 2020. 2.37 Projections have not been made beyond 2020, but the fact that a deficit is projected for that year and that available supplies will be exhausted in all the basins highlights the need for long-term planning, for a reassessment of the assumptions underlying the projections and, more generally, provides a compelling argument for integrated water resource management. 3. SUPPLY AND DEMAND MANAGEMENT Issues 3.1 It is apparent from the summary water balances that current plans imply that the country will be in deficit in the year 2020. The plans envisage the transfer of all available resources from surplus to deficit basins. In addition an acceleration of the mining of nonrenewable groundwater is anticipated. 3.2 The projections raise a series of concerns. First, and foremost, they highlight the fact Morocco is moving from a situation of overall water surplus to deficit. Second, projections have not been made beyond the year 2020, however the projected exhaustion of all available supplies suggests that in the longer term water resource management will depend more heavily on non-conventional resources and demand management. Third, the projections are based on assumptions regarding planned investments in supply without reference to cost and, water demand, except in urban areas, is projected without reference to economic considerations. A reappraisal of the assumptions suggests a very different outcome is possible, based on greater attention to demand management and economic efficiency criteria. 3.3 The 2020 water supply and demand balance supplied by basin master plans implies continuance of a particular water resource management strategy already in place. This is based, to a large extent, on traditional methods of supply management, by which available resources are allocated to a hierarchy of end-users. In the interests of greater economic efficiency and to meet equity and other  - 17 - objectives, supply management should increasingly be combined with demand management. Working with the 1990 and 2020 water supply and demand balances as endpoints, a series of water resource management strategies can be evaluated in order to map out a "best path" which reconciles medium- and long-term sectoral water demands with macroeconomic policy for public investment in infrastructure and for managed water pricing. 3.4 Supply management to meet 2020 forecasted water demands has many shortcomings. First, it does not capture the dynamics of constriction in the arena of water resources. Marginal costs of supplying additional water supplies are escalating and diverge from current returns to water use. Secondly, proving that there are supplies sufficient to meet forecasted demand does not encourage demand management. Masking the scarcity of water delays the inevitable, which is a revision of tariffs across sectors to reflect the true economic value of water. To the extent that the projections may overestimate future demand, they may also provide a justification for the acceleration of dam construction and other investments. Given the uncertainties associated with projections, the principal objective should be to ensure that consideration is given to the true economic cost of water and its likely evolution. 3.5 The introduction of pricing considerations may not only encourage water conservation, but also to foster improvements in technology to extract new and non-conventional resources. Desalinization, demineralization, artificial recharge of aquifers and hill dams, wastewater reuse within irrigation, and industrial reuse of water within the processing cycle are all possibilities not accounted for in the basin planning exercises. Price discrimination in supplies, with regard to quality, is also not considered. However, the deterioration in water quality implies that future water supply and demand balances separate water supply as to water quality, with lower water tariffs applied to non-potable water to be used in industry and agriculture. 3.6 The forecast 2020 water supply balances do not reflect the quality of the water although inferior quality constrains both the mobilization of water and its end use. In practice, quality problems have been addressed through water treatment, although, in some sections of the Sebou river at certain periods of the year, the quality has deteriorated to the extent that it is no longer acceptable for treatment for potable supplies. Water quality already is therefore effectively removing water from the supply balance. The situation is expected to deteriorate further over the coming years before new environmental regulations and sewerage treatment schemes reverse the trends. While the Sebou is currently the worst affected river basin, the situation in the Oum er Rbia basin is also alarming. Meanwhile, groundwater contamination by nitrates in the Tadla region is indicative of the fact that the problem has not been confined to surface water. Clearly therefore, the supply and demand balances presented in Table 1 and in the official Master Plans offer an optimistic interpretation of both current and future resource availability. Water quality considerations cannot be divorced from quantitative assessments, and losses to pollution highlight the need for the integration of environmental issues into water resource management. Supply Management 3.7 Morocco's pre-independence water development strategies were to meet demands for electricity and for export-oriented irrigated agriculture. To this end, large dams were first built in Morocco in the 1930s. Justifications for constructing dams and other water infrastructure in Morocco mirror that of most countries: delivery of urban potable water and water for agricultural use, creation of hydropower, prevention of salt intrusion, and flood control. However, Morocco's variability in climate from one season to another as well as from one region to another has accentuated the need to  - 18 - regularize water flow in order to mitigate these climatic irregularities. Morocco's water policy has given first priority to urban domestic water supply and second priority to irrigation, with hydroelectric production subordinated to the first two priorities. 3.8 For the past thirty years, the Moroccan Government, in order to meet its objectives of increasing agricultural incomes and pursuing self-sufficiency and export growth, has emphasized the need to develop Morocco's water resources quickly and efficiently. The initiation of the "Programme National de l'Irrigation" (PNI) in 1967, with the primary objective of bringing a total of one million hectares under irrigation before the year 2000, was reinforced by a 1986 declaration of "one dam per year". Both goals are part of the Moroccan Government's longer-term strategy of "not one drop lost to the sea". 3.9 Morocco's water development strategy has involved maximizing national water balances through the construction of large- and medium-scale dams to serve regional water demands as well as the transfer of water between basins. The Rocade Canal currently transfers 160 Mm3 per year from the Hassan lr storage dam in the Oum Er Rbia basin to the Tensift and Bou Regreg basins in order to satisfy waters demands of the Haouz ORMVA and the cities of Marrakech and Casablanca. A similar transfer from the Oum er Rbia basin to the coastal city of Safi is provided by the 44.5 km Canal de Safi, which extends from the Canal Bas Service of the Doukkala ORMVA. 3.10 Morocco's first dam was the Sidi Said Maachou, built on the Oum Er Rbia River to produce electricity and serve Casablanca's potable water needs. By 1965, 15 dams provided more than two billion m3 of water in storage, of which 1200 Mm3, or 60 percent, was reserved for agricultural use.'8 Currently, as indicated in Table 3, more than forty dams provide more than ten billion m3 of water in reserve."9 Morocco largest three dams (EL Massira, Bin El Ouidane, and Idriss lel) carry more than 55 percent of total volume flow through all dams; its ten largest dams carry 90 percent of total volume flow. 3.11 As Morocco's initial inventory of water infrastructure ages its rehabilitation becomes a necessity. Rehabilitating irrigation infrastructure involves replacing pumping equipment, including pumps, electric motors and transformers, valves, fittings, and control systems, every 10 to 15 years. Prefabricated concrete canals, pipes and concrete lining of large canals are to be rebuilt every 30 to 40 years. Similarly, rehabilitation of infrastructure in the potable water sector includes replacing delivery canals and main pipelines every 40 to 50 years and all electro-mechanical equipment every 13 to 15 years.?' Most electrical lines, cables, pillars, and concrete foundations needed in the transport of hydroelectricity are to be renovated or replaced every 20 years. Improving water quality, sewerage treatment, and delivery efficiency also requires purchase of computers, operational equipment, water quality control laboratory equipment, and vehicles for each regional control center. 18/ Association Nationale des Arneliorations Foncieres, de l'Irrigation, et du Drainage: "Irrigation au Maroc", mimeo, page 11. 19/ Royaume du Maroc, Direction Generale de l'Hydraulique: 'Conseil d'Evaluation et d'Orientation 1992: Secteur Hydraulique", page 38. 20/ Office National de l'Eau Potable: 'Prix Unitaires pour l'Evaluation Preliminaire des Projets d'Alimentation en Eau Potable: Note de Synthese", mimeo, page 25.  - 19 - Planned Major Investments 3.12 Morocco's near-term water strategy includes smoothing water balances across basins, slowing depletion of nonrenewable groundwater resources, and improving overall efficiency of water infrastructure by strengthening water networks within basins. Accordingly, Morocco is building new dams, increasing intra- and inter-basin transfers, and establishing "real-time" integration of existing infrastructure. The largest of the 12 dams scheduled for completion before the year 2000 is the Al Wahda dam on the Ouerga River in the Sebou basin. The Al Wahda, with a storage capacity of more than 3.8 billion m3, will replace El Massira as Morocco's largest dam. It will be the second largest dam in North Africa, after the Aswan High Dam in Egypt. Construction of the dam will provide water for 100,000 to 110,000 hectares in the Gharb plain and hydroelectric output of 240 megawatts (MW) per year. It will also reserve one billion m3 of storage capacity for flood protection. The Al Wahda dam is also designed to transfer 470 million m3 of water for domestic and industrial consumption to the Casablanca metropolitan area at the beginning of the next century as well as 300 million m3 for the irrigation of the area located between Rabat and Casablanca. 3.13 Fifty-one dams are scheduled for completion in the next 30 years, as shown in Table 4. Thirteen of these are designated to be built in the Sebou basin, with almost 50 percent of all total water volume to be mobilized. The dams scheduled for construction are smaller than dams previously built, as the better dam sites have already been exploited. Construction of this "second tier' of dams lends itself to strengthening of regional systems of water infrastructure, where one large dam is complemented by smaller dams which can prevent salt intrusion, catch soil erosion upstream from the main dam, or aid in aquifer recharge. One such example of these systems is the Moulouya basin, where the Mohamed V dam and the Triffa aquifer are managed together so as to meet demands for water in the towns of Oujda, Nador, and Berkane as well as in the agricultural perimeters of Basse Moulouya. Silting of the dam and depletion of the aquifer will necessitate the construction of three small dams on branches upstream of the Mohamed V. Underground waters of the Moulouya River not captured by the dam which emerge downstream in Basse Moulouya will be pumped upstream into the GH feeders to ensure integrated management of the basin's water resources. Examples of possibilities for real-time coordination of basin systems are as follows: Hassan ler dam-Sidi Driss compensation dam-Rocade Canal in the Oum Er Rbia basin; A-t Youb dam-Matmata hydroelectric station-Idriss lr storage dam in the Sebou basin; and Al Khattabi dam - alluvial aquifer of Neckor - diversion of the Rhiss floodwaters in the Neckor basin. 3.14 Future scenarios explore the possibility for the heightening of several dams now in existence. Possible candidates for heightening of the dam face include the Sidi Mohammed Ben Abdullah dam in the Bou Regreg basin, in order to meet future demand for domestic and industrial water in the Casablanca-Rabat metropolitan corridor, as well as the Ali Thalat dam on the Laou River in the Loukkos basin, to increase hydroelectric capacity. The El Kansera dam on the Beth River in the Sebou basin, and the Lalla Takerkoust dam, in the Tensift basin, were heightened in 1969 and 1980, respectively. The Oued Mellah and Zamerine dams have been heightened as well, in order to counter basin volume lost to siltation. 3.15 Planned investments for the Souss basin include provisions for checking the depletion of nonrenewable groundwater reserves. The Aoulouz dam, located at the gateway to the Souss plain and completed in 1991, has a dual purpose of flood protection and aquifer recharge. Management for this purpose consists of retaining floodwaters, then releasing these waters at a slow, steady flow so that the water may soak into the main alluvial bed which runs the length of the plain. Because this riverbed does not extend to the Sebt Guerdane-Oulad Ta7ma zone, where citrus farming heavily taxes the aquifer, the  - 20 - Awziwa dam, scheduled for completion in 1997 upstream from the Aoulouz, will pipe 45 million m3/year to that zone to substitute for groundwater mining now in effect. Introduction of microirrigation equipment to 10,000 hectares in this zone should decrease water demand by 55 million m3/year. Even with this system in place, the Souss aquifer is expected to fall to a level that will cause at least 2,400 hectares now under cultivation to be abandoned in the next 10 to 15 years, with important consequences for employment and possible implications for relocation. 3.16 Resettlement is a major human resource issue which needs to be addressed within the context of water resource supply management. The Al Wahda dam on the Ouergha river is due to relocate 13,000 people and inundate more than 12,000 hectares of land. One hundred kilometers of roads, and numerous schools, health centers, post offices, and telecommunication and electricity lines will also be inundated. Resettlement issues associated with the Al Wahda dam are already resolved. The Asfalou dam upstream, with 8000 hectares of small- and medium-sized irrigation perimeters, is designed to provide compensation for those displaced. Due to the smaller volume of most other proposed dams, resettlement issues apart from those of the Al Wahda project are expected to be minimal. Public Expenditures 3.17 Investment in dams and transfers has stabilized within the last 15 years at seven percent of total Government investment. Regional master plans in place for the period 1992 to 2025 have maximized water use across the relevant subsectors of agriculture, potable water, and hydropower by suggesting a sequence of construction of new infrastructure that meets water demands. Reviewing projected costs of water works scheduled for completion in the next 30 years, 50 percent of those costs fall in the decennial 1996 to 2005. The Al Wahda dam currently under construction will be amortized over the period 1992 to 1997. For the Sebou-Casablanca transfer, no final decision has been taken, although current plans suggest that this will be amortized over the period 2001 to 2007. These two investments would be the most expensive so far, with estimated total costs of 9042 and 6150 million (1993) DH, respectively.2" 3.18 During this ten-year period of 1996 to 2005, annual costs of dams and transfers scheduled for completion average 2800 million DH, with a peak of 3756 million DH in the year 2003. This compares with expenditures on water infrastructure of 2102 and 1323 million DH in the years 1992 and 1993. The average annual total of 2800 million (1993) DH needed for construction of new water infrastructure will pose a growing strain on an already stretched Government budget. External credit and "direct payments" are thus expected to play a significant role in overcoming shortfalls, and on the basis of recent experience these may well be expected to exceed the direct budgetary allocation for water resource mobilization'. Water is delivered free of charge to the ORMVA, ONEP and other bulk users, which places the financial burden for operating and maintaining large storage dams within the central budget rather than within the agricultural or urban beneficiaries. 21/ Chabloz, J.: "Etude d'Evaluation du Secteur de l'Eau", mimeo, pages 3-4. 22/ In the absence of data it has not been possible to provide an accurate estimate of the contribution of non-budgetary direct payments and credit available for water resource mobilization. Readers are referred to the forthcoming Morocco Public Expenditure Review which provides a comprehensive review of the public expenditure issues.  - 21 - 3.19 The costs of investments in irrigation infrastructure typically are not considered as part of water infrastructure. These public expenditures need nevertheless to be included in a consideration of the water sector, for they reflect costs incurred in the mobilization and distribution of water. The planned 250,000 ha expansion of irrigation between 1994 and 2000 is costed at 25 (1993) billion DH. The total expenditures to be incurred under the PNI are estimated at over 40 billion (1993) DH, including the capital costs of the irrigation facilities, the rehabilitation of part of existing perimeters, and the incremental recurrent costs of support services, O&M and debt service. Of this expenditure, 42 percent, is to be financed directly by the central Government, 36 percent through external borrowing and 14 percent through water charges. The implication is that public spending on irrigation investment, which in the period 1988-94 averaged around 0.9 billion DH, or around 0.4 percent of GDP, over the period 1995-2000 will approximately double to around 2 billion (1993) DH per annum, or around 0.7 percent of the projected 1995 GDP. 3.20 Transfers from central Governrment to ONEP and other public sector institutions for investments in municipal, industrial and rural water supplies are anticipated to amount to a further one billion DH per annum, of which approximately two-thirds is to be allocated to improving rural water supplies. Furthermore, sharp increases in real expenditures on sewerage treatment are anticipated, with these quadrupling from 1995 to around one billion DH per year for six years. This implies that the capital costs of all water resource development and distribution infrastructure over the period 1995-2000 will exceed seven billion DH per year, of which approximately three billion DH per year will be accounted for by dams and transfers, two billion DH per year by irrigation infrastructure, one billion per year by investments in potable water distribution and a further one billion per year by capital expenditures on sewerage treatment. This compares to average total investments over the period 1990-94 of around two billion DH per year, accounted for by around 700 million DH for dams and transfers, 900 million DH for irrigation, 200 million DH for potable water distribution and 150 million DH on sanitation and sewerage13. 3.21 The scale of the envisaged investment program raises important public expenditure and fiscal stability issues. While investments in the urban water supply and sewerage sector are envisaged to require only minimal support from central Government, the irrigation and rural water supply investments are expected to be premised on an accelerated stream of central Government expenditures. Investments in the mobilization of water, meanwhile are anticipated to remain entirely dependent on central Government, even if a growing part of these investments may appear off-budget through direct lending. Thus, on the basis of current plans, public expenditures in the water sector are likely to increase three and a half times, to average around seven billion DH per year by the end of this decade. Assuming an even distribution of the average real capital expenditures, and real GDP growth of around five percent per year, this implies a rise from under one percent of GDP in the period 1990-94 to over two percent of GDP in 1995-96, falling back to around 1.5 percent of GDP by the end of decade. Economic analysis of these investments is urgently required, both from a public expenditure and from a cost and benefit perspective. 3.22 Public expenditures in Morocco are strictly circumscribed by the commitment of the Government not to extend its budget deficit. Indeed, the Government intends to gradually reduce its deficit and to record a surplus by the end of this century. Rapid growth is projected to facilitate a 23/ These figures on public expenditures are drawn from data prepared for the Bank's forthcoming Morocco Public Expenditure Review and from the DGH.  - 22 - moderate rise in spending. Nevertheless, without a major reallocation of government expenditure, away from the military or social ministries, which seems unlikely, expenditures on the water sector may at best be expected to rise at the pace of revenue raising. Under these circumstances alternative sources of revenue for as much as four billion DH of water sector investments per year will need to be found. Greater financial autonomy, extending where appropriate to privatization, for parts of the water sector provides a possible means to achieve the ambitious investment targets without compromising the financial integrity of the Government. In promoting these goals, improvements in cost recovery are key. It is vital that the successes of ONEP in urban water supply are repeated in the sanitation, rural water and irrigation sectors. In addition, whereas the Government currently covers all the costs of dams and transfers, at least partial cost recovery for this infrastructure may be considered essential if the mobilization of water resources is not to become an undue weight on public expenditures. 3.23 The central Government has not recovered any of the capital or recurrent costs associated with dam construction or major transfers. Cost recovery is thus limited to the distribution rather than the mobilization of water resources; water is supplied free of charge at the head of the irrigation perimeters or at the point at which it enters the primary distribution point for potable water supply. As discussed in the next chapter, urban, industrial and irrigation water charges are designed to contribute to the costs of supporting the networks of these user groups, but do not cover the costs of mobilization. It is to a consideration of these mobilization costs that we now turn. Long Run Marginal Cost 3.24 In surplus basins, the long run marginal cost may be deduced from an assessment of the costs of new dams and distribution systems, after accounting for externality or third party effects. When these costs exceed the opportunity cost of water in agriculture (after accounting for externality/third party effects) then in principle it would be preferable to reallocate water from agriculture to municipal and industrial users. In deficit basins, the long run marginal cost may be deduced from the cost of transfers from other basins or, with these costs including a valuation of the externalities and third party effects, including to agriculture in the originating basin. If these exceed the opportunity cost in agriculture in the receiving basin, or the costs of desalination, and distribution, then reduction in water use in agriculture and/or desalination is preferable to the transfer. 3.25 In order to provide a preliminary assessment of the long run marginal cost, we have estimated construction costs for the 51 dams scheduled for completion between now and the year 2025, by assuming a constant inflation rate of seven percent per year from the base year of 1993. Total mobilized volume throughout the lifespan of each dam is then calculated by multiplying yearly volume flow by an estimated lifespan of 50 years. Dividing construction costs by total mobilized flow yields a ratio of construction costs in DH to m3 water flow which can be used to compare, in relative magnitudes, the relative cost per m3 of water mobilized by the different dams. The results are presented in Table 4. 3.26 As is evident from Table 4, the cost ratios range from .22 DH/m3 for the Taimest dam in the Tensift basin, scheduled to be completed in 2012, to 6.57 DH/m3 for the Amsa dam in the Tetouan basin, scheduled to be completed in 2004. These cost indicators provide orders of magnitude of the long run marginal cost of water. Currently, water is supplied free of charge to all users. The potential for cost recovery and the economic value of the water can be evaluated in light of the potential end-use of the water and the opportunity cost. For example, the three dams located in the mediterranean region of Tetouan, which cost more than seven DH/m3 in construction costs alone, will provide domestic and industrial water exclusively. With no other geologically feasible sites in the area, construction of these  - 23 - dams mobilizes water at a cost which is lower than the costs of a transfer from outside the basin or from desalination. An examination of the economic returns to agriculture in the Loukkos irrigation perimeter in this basin, as discussed in Annex 2 and summarized in Annex Table 1, highlights the fact that the return to water use seldom exceeds 0.42 DH/m3. This suggests that the opportunity cost of new supplies greatly exceed the economic cost of reallocation of water from agriculture. Failure to include this reallocation of water from the agricultural sector suggests that the long run marginal cost of water in the Tetouan may be much higher than would be the case if the opportunity cost of alternative uses is included in the analysis. Analysis of the opportunity cost, as noted above, must include consideration of the externalities. In irrigation, the externalities include employment creation and poverty alleviation which are accorded a high social priority. However, these benefits need to be evaluated in the light of the costs of current subsidies to the irrigation system. 3.27 An example of the potential trade-offs in water sources is provided by the proposed Sebou-Casablanca water transfer, which is anticipated to cost between three and four DH/m3 at the point of distribution to ONEP. Further study is required to evaluate whether the economic benefits of the transfer will match the costs. In particular, it is necessary to evaluate the cost of alternative water sources, which may either postpone or reduce the dimensions of the planned investment. The trade-off between irrigation demand for water and Casablanca's demand is especially acute; water savings in the Tadla and Doukkala irrigation perimeters and their reallocation to industrial and domestic users in Casablanca could provide a cost effective alternative, at least in the medium term. Lower demand from the irrigation perimeters, to the extent it increased the water available in the Oum er Rbia would provide additional resources for Casablanca. The current return to water in these irrigation perimeters at best is estimated at around two DH/m3 and averages less than one DH/m3. This suggests that considerable scope exists for a reallocation of water from irrigation to urban and municipal users where the current value, based on willingness to pay, is more than triple that in irrigation. Reallocation of water should not, however, in the short and medium term imply a sacrifice of irrigation production, but on the contrary, should be derived from water savings. The cost of these savings depends on the investments required. 3.28 It should be emphasized that water savings in irrigation need not be associated with a reduction in the water applied to crops, for, as shown below, barely forty percent of the water allocated to irrigation reaches the crops. In this respect, an array of alternative water saving investments may be considered including leak reduction, canal lining, improving the efficiency of irrigation equipment, siltation reduction, as well as field levelling and other investments in demand management. By shifting the demand curve down, these offer a means to equilibrate supply and demand in the Oum er Rbia basin at a price well below that which is implied by a transfer of water to metropolitan Casablanca from the Sebou basin. The introduction of opportunity costs in the analysis of water investments, and especially those in irrigation, is thus necessary. Such analysis should include the exploration of other options, such as desalination, to the scheduled construction of the transfer. With the costs of desalination falling to close to the estimated full costs of the transfer it may well prove a more effective and flexible option, especially as the transfer is also expected to be highly sensitive to energy prices to meet pumping needs, with its anticipated 35m3/s 190 m lift. Whether desalination becomes a cheaper alternative to the transfer or not, it is already clear that the cheapest alternative source of water for the Casablanca urban-industrial complex is water savings in agriculture. 3.29 The potential for cost reductions through demand management is illustrated in the accompanying schematic incremental water demand and supply curves in chart 1. These are indicative of the situation which Casablanca is facing. The supply curve depicts the marginal cost of incremental supplies, based on projected dam costs and North-South transfer costs (rising to a cost equivalent to  - 24 - desalination). Currently, demand and supply intersect at a cost of below one DH/m3. The demand curve D' depicts forecast future demand. It is immediately apparent that in 2020 the equilibrium price will be over nine times above current levels. Demand management which leads to savings of around twenty percent in irrigation would, however, move the demand curve back to DO at a new equilibrium price of around 1.5 DH/m3, or lower. This highlights the case to made for demand management, especially in deficit basins where the marginal cost of water is rising rapidly. Beyond 2020, it should be recalled, all basins are projected to have exhausted available supplies or be in deficit. CHART 1: Incremental Supply and Demand 0.5- |il _ _ __ 45 4 3.5 *2.5 2 1.5 I 0.5 100 300 500 700 900 1100 1300 1500 1700 1900 2100 Volum (nmiliRon m2) 3.30 The wide margin between returns to urban and industrial users on the one hand, and irrigation users on the other is likely to mean that the reallocation of water from irrigation at first sight appears the most economically attractive option in all the river basins. However, a full analysis of the options requires that the externalities and third party effects be fully accounted for. These include the employment and income generating effects of the irrigation perimeters and the potential social dislocation which may be associated with a reduction in irrigated water supplies. Powerful arguments may be made for imputing high externalities to irrigation. These, however, are entirely consistent with measures which seek to increase returns to water in irrigation, by increasing efficiency and focusing on demand management.  - 25 - Demand Management 3.31 Off-farm and on-farm efficiency rates of 65 to 75 percent and 55 to 70 percent, respectively, implying a total system efficiency of 36 to 53 percent, constitute Morocco's biggest challenge to conserving water.' Off-farm efficiency of existing perimeters could be increased through the rehabilitation of older main canals and improving surface irrigation practices, and, where applicable, switching to sprinkler or drip irrigation. Rehabilitation of water meters also contribute to water savings. On-farm efficiency can be increased by lining field canals, land levelling, installing gated pipes, and rehabilitating water meters installed at farm gate, and, where appropriate, installing sprinkler or drip irrigation systems. 3.32 Farmers will be motivated to conserve water to the extent that conservation is associated with savings in water costs and increased yields. Both benefits may be achieved through improved water application techniques. Higher water charges are also expected to lead to more efficient use of water and place a greater burden of responsibility on farmers. In all but two of the nine ORMVA water rationing remains the domain of the ORMVA management, but in Loukkos and Souss higher water prices have shifted the burden to the farmers themselves. Increased yields are a function of operational efficiency, and this depends on the reliability of the water resource and the irrigation scheduling. A 40 percent reduction in water available for irrigation in the Beni Moussa perimeter in 1983-84 reportedly resulted in yield decreases ranging from 46 percent for olives to 75 percent for cotton and citrus.3 However, other examples, and notably those from Israel, where a halving of irrigation supplies has been associated with sharp increases in many crop yields, suggests that the effect of water reductions depends critically on the extent to which these are associated with technological and institutional improvements. Indeed, recent experience in the Doukkala suggests that lower water applications, when associated with improvements in application, did not have a significant effect on output. Further study is therefore required, with this taking into account, in addition to the agronomic and climatic factors, the role of management practices. 3.33 Improving water efficiency requires a set of associated actions. These include: improving off-farm efficiency; ensuring timely delivery of water; raising on-farm efficiency through higher water charges or, less satisfactorily, rationing by the ORMVA; and, canal lining and, where applicable, conversion of surface irrigation to sprinkler and drip technologies. 3.34 The most radical and politically sensitive option for curtailing water use in irrigation is to reduce the irrigated area. The freezing of new projects may prove more acceptable, but in areas which already have approached their limits, this may not provide the answer. For these basins, such as the Souss, the first option is to increase the efficiency of existing perimeters. In the longer term, however, if that does not suffice, a reduction in the irrigated area may be necessary. Such a process is expected to be facilitated by the establishment of water markets. The establishment of clearly defined water rights 24/ Off-farm efficiency is rate of water delivered to farm gate to water measured at the entrance of the perimeter. On-farm efficiency is rate of water absorbed by the crop to water delivered to the farm gate. 25/ Normand, Dominique: "Le Secteur de l'Eau au Maroc: Considerations sur l'Amenagement et la Gestion des Ressources en Eau", mimeo, page 27.  - 26 - is however a precursor to trading water allocations. In areas where water poses a binding constraint on farmers, the establishment of such rights should be considered a priority. 3.35 Trade and other economy-wide policies, despite considerable progress, continue to severely distort relative prices. These distortions have had a fundamental influence over the pattern of demand for water. In the broadest sense, protection for key irrigated agricultural crops and subsidies on inputs (and not least water), has served to promote irrigated agriculture. Changes in economic policies in general, and in trade policies in particular, may hence be expected to have a major effect on the demand for water. Trade reform will be associated with reductions in the effective rate of protection for sugar, oilseeds, cereals and other crops. In a number of ORMVA, these crops account for the bulk of water use. Equally significantly, these crops figure prominently in calculations regarding future water demand in new perimeters. To the extent that economic reforms embrace the agricultural sector, and especially if the reform process is to be associated with h.gher real water charges, many farmers are unlikely to find production of these crops profitable in the future on irrigated land. The substitution of higher value crops, which are also more efficient in water use may be anticipated. 3.36 General equilibrium analysis of the Moroccan economy suggests that the reduction in trade and other economywide distortions would have a significant impact on water demand, but that the beneficial effects of trade reform could offset the possible negative effects on producer incomes arising from higher water charges. This suggests that sequencing is an important consideration and that pricing reforms in the water sector should be accompanied by the broader context of trade and other economywide reforms.2 3.37 Partial equilibrium analysis of the impact of trade and water pricing reforms is presented in Annex Two. The analysis is based on schematic farm budgets and should be viewed as indicative. Increased water charges in the context of trade reform leads to negative returns to sugar cane in all basins and all but vegetable crops in the Souss. The substitution of more profitable crops for those which display negative returns not only improves the farm budgets but also leads to significant water savings. The analysis suggests that higher water charges, even if not associated with trade reform, is likely to encourage production of crops with high returns to water use, such as wheat (which consumes around 4000 m3/ha) and winter vegetables (3000 m3lha), rather than crops such as sugar cane (12,000 ml/ha) and alfalfa (16,000 m3/ha). As an indicative example, conversion of 50 percent of ORMVA acreage now in sugar cane and alfalfa to their proxy's sugar beet and berseem could alone reduce total ORMVA water demand by 12 percent, yielding a water saving greater than the forecast 2020 deficit.2' 3.38 Environmental regulations which restrict either the quality or quantity of water output can substantially reduce demand for water independent of changes in tariff rates. In irrigation, higher standards on nitrate and on other fertilizers, as well as controls on salinity, have been associated with 26/ Ian Goldin and David Roland-Holst: 'Economic Policies for Sustainable Resource Use", mimeo, pages 22-23. 27/ Water delivery to farm gate per hectare of sugar cane and alfalfa averages 12000 and 16000 m3, respectively, per crop. Water delivery for their 'cousin' crops, sugar beets and berseem, averages 5400 and 6000 m3, respectively. In practice, switching crops would be predicated on careful consideration of soil, climatic and other crop preferences, as well as crop rotation needs, crop value, labor, capital and other factors.  - 27 - reduced water applications. Similarly, industrial users have reduced water demand through the introduction of measures designed to reduce pollution. For example, in order to comply with new environmental regulations and reduce pollution, sugar refineries in the Sebou basin have already reduced water demand by eighty percent by instituting water recycling within the refining process. Water efficiency in industrial sectors is expected to increase over time as more stringent regulations are ratified and enforced and this will serve a dual purpose of reducing industrial demand for water and improving water quality. 3.39 The combination of stricter environmental regulations and higher water charges over time is expected to increase efficiency in urban and industrial demand and this is reflected in the base demand calculations. Efficiency gains also can be achieved through more effective billing procedures, decreased leakage in the infrastructure, and better monitoring of fraud control measures. Efficiency of delivery, measured as percentage of water entering the municipal system that is actually billed to customer, is estimated to be seventy percent. This is projected to rise to eighty percent by the year 2020 reflecting both a reduction in water losses and an improvement in cost recovery. In urban areas, as well as in agriculture, it is clear from the above that great scope exists for demand management. Increasingly, this is expected to become a more prominent feature of water resource management in Morocco. 4. INSTITUTIONAL ISSUES Water Resource Planning and Management 4.1 The key issue facing Morocco is the translation of the Government's commitment to comprehensive water management into a policy framework and accompanying set of actions. Despite the progress made, responsibility for water resource management remains fragmented in four principal respects. First, the quality and environmental aspects of water resource management remain institutionally divorced from the quantitative aspects. Second, while the technical basis for national planning is virtually completed, the integration of the basin plans, and their development into a dynamic and interactive national plan still requires implementation. Third, such a process requires further elaboration of the financial, juridic and institutional dimensions to national water resource planning. Fourth, water resource development has to date largely been dependent on the central Government, both for direction and financial support. A long term vision requires that the management options are examined on the basis of sources of financing and that pricing and other economic instruments provide an efficient and socially appropriate allocation of water resources. This in turn requires greater participation of stakeholders and the evolution of decentralized institutional systems which increase the contribution of water users as well as socially deprived communities. 4.2 The evolution of a National Policy Framework has as its starting point the identification of the national goals and objectives in water resource management. In Morocco, these have been broadly identified as the mobilization of water resources for social and economic development. This places responsibility on the Government to satisfy the needs of all Moroccan citizens -- urban and rural - for safe supplies of potable water. The associated priority, which aims to achieve the objective of economic development and to satisfy the social goals of employment and income generation, is to maximize the irrigated area.  - 28 - 4.3 In Morocco, as in other countries, economic considerations have recently come to be recognized as intrinsic to water resource management. Increasing competition for water highlights its value as an economic good, the allocation of which has important implications for economic growth and economic welfare. As water's economic role becomes more widely appreciated, economic decisions are expected to play an increasingly significant role in decision making. The demand for economic data and analysis is expected to accelerate to meet the needs for informed decision-making, so that technical options can be reflected in economic terms at the local, basin and national level of water management. The guiding economic principles associated with water management include the following: the selection of economically efficient options; the allocation of water between competing demands according to the principle of opportunity cost; the use of pricing and other economic incentives to increase conservation and efficiency in use; the application of the polluter-pays principle and other economic incentives and disincentive structures to enhance environmental management; and, increasing attention to cost recovery and analysis of full economic costs and benefits. Growing attention to economic factors is expected to prove central to the shifting of attention from a predominantly supply to a supply and demand managed system. This is necessary to define sustainable investments and operations in the context of increasing capital and budgetary constraints, widening economic and environmental impacts, rising opportunity costs, and a growing demand for stakeholder participation and management. 4.4 The Government recognizes that a long-term national plan for water resource management is necessary to rationalize the allocation of increasingly scarce supplies between competitive demands. With a planning horizon of at least 25 years, the National Plan is expected to premise allocative decisions on the prioritization of the demand for potable water. Potable water supplies are an absolute necessity and cannot be subject to the irregularities occasioned by droughts and seasonal shortfalls or by operational and maintenance requirements. Aside from this priority, continual minimum flows are necessary to dilute sewerage discharge. The other demands on water use, notably for irrigation and hydropower are secondary to these priorities. 4.5 The National Water Plan is expected to reflect the outcome of an evaluation of the social, economic, environmental and other costs and benefits of investment options. This implies, as a starting point, that capital expenditures be evaluated in the light of sources and terms of payment. It is necessary, however, to go further. Investment plans imply a choice between competing demands and have important social, economic and environmental implications. As a consequence they should be premised on a political process of stakeholder participation through which options are identified and choices prioritized. 4.6 The ranking of investment priorities and the definition of a short, medium and long-term program of investments is to be a key element in the development of a national policy framework for water management. However, whereas previously in Morocco the formulation of an investment program principally drew on technical data, integrated resource management requires that it provide a synthesis of a participative evaluation of future needs. 4.7 The past experience offers considerable scope for optimism, as Morocco has succeeded not only in building up an excellent corps of engineers and water scientists, but also in monitoring, adopting and adapting state-of-the-art technologies. Information technologies are already widely used and in the coming decades are expected to play a pivotal role in facilitating integrated water resource management. The upgrading of the existing hydrometeorologic and hydrologic systems, and the extension of the technological base to facilitate improved real-time management of water resources, is expected to play a key role in enhancing water resource management.  - 29 - 4.8 The adoption of risk management strategies has become essential and requires the integration of supplies and demands in a system of real-time management. Such a system is expected to be a key component of the national framework for water resource management. The Directorate for Water Research and Planning (DRPE) of the DGH makes use of a simulation model to prioritize development and management of water resources in the Souss, Oum Er Rbia, and Moulouya basins. Integrated development of the Souss, with its history of groundwater mining for agricultural use, risk of saltwater intrusion, and possibilities for aquifer recharge in the coastal zone through wastewater dispersal from Agadir, should prove a case study adaptable to other dam-aquifer combinations, such as the Moulay Youssef dam and Tessaout Amont aquifer and the Bin El Ouidane dam and Beni Moussa aquifer, both in the Oum Er Rbia basin, as well as the large underground aquifer in the Haouz. 4.9 The pushing out of the irrigation frontier to the limit of the resource envelope is expected to heighten the risk of seasonal or inter-annual shortfalls. Recent experience suggests that whereas droughts were previously considered an exceptional circumstance, they now need to be incorporated into normal planning processes2l. Water resource management policies consequently need to consider the implications of long periods of drought. The variance, which some suggest is increasing, in supply, coupled with the growing use of marginal resources heightens the risk of failure and increases the need for risk management. 4.10 Stakeholder participation already is manifest in Moroccan water resource planning, as exemplified in the depth and breadth of participation in the CSEC. The further empowerment of the CSEC and its transformation into a water parliament which democratically involves the major beneficiaries in a regular and in-depth analysis of the principal water resource management issues would serve to enhance its role further. At the local level, increased emphasis on participation is evident in the decentralization of the management of water supply and sanitation to local authorities, and in the growing role of user associations in irrigation management. Despite this progress, decision making remains centralized. Considerable scope exists for decentralization and greater beneficiary involvement. The process of formulation of water resource policy, as well as the evaluation of investments and institutional arrangements should include the affected communities. This is expected not only to enhance the value of the service and ensure that it meets its local objectives, but also to improve the maintenance of investments as well as their efficient use and cost recovery. 4.11 Decentralization facilitates user participation and efficient management and reduces the responsibilities placed on already stretched central Government resources. While integrated water resource management requires an increasing role for the central Government, this should follow the principle that nothing should be done at a higher level of Government that can be done satisfactorily at a lower level. Water resource management to the extent possible should be devolved to the basin level. At that level, the existing water committees should be encouraged to evolve into permanent participative management agencies, with the precise form of these structures determined according to local and national perspectives. The establishment of financially and managerially independent local authorities and the moves towards increasing the independence of the ORMVA indicate that in the area of water management, decentralization is already under way. This process is expected to be taken further, ensuring that appropriate local and regional structures are established and given a greater role in decision making. 28/ A succession of exceptionally dry years has been recorded for reasons which some have suggested relate to global warming or changes in the structure of the El Nino cycle.  - 30 - 4.12 The process of commercialization and privatization is closely associated with granting greater managerial and financial autonomy at the local or agency level. Where responsibilities are transferred to local authorities and stakeholders, technical functions can be undertaken by the private sector and by financially autonomous public corporations or community associations, such as user associations. The establishment of a framework for privatization is preceding apace in Morocco. This process is expected to include the transformation of selected public agencies into financially autonomous entities. The Government is also committed to the encouragement of management contracts for service delivery. These steps are expected to improve incentives for cost recovery, service provision and stakeholder participation. They require as a precursor the establishment of a regulatory framework to set and enforce environmental and other standards and to prevent, through performance accountability and other safeguards, monopoly pricing and a deterioration in services. To date, as discussed below, only parts of the potable water distribution system are ready for some form of privatization, but over time improved financial and managerial autonomy may be anticipated to widen the scope and depth of the private sector in water resource management. And, it should be noted that even where entire agencies or institutions are not easily privatized, specific services and functions, may be. Indeed, this is already the case. For example, the DGH sub-contracts the environmental analysis of certain water samples to private laboratories. Water Resource Management Institutions 4.13 The reinforcement of the institutional structure for water management requires a parallel process of increasing the effectiveness of central managerial functions while at the same time reinforcing the responsibilities and contribution of decentralized agencies. The broadening and deepening of the coordinating role of central Government thus requires a simultaneous divesture of non-central Government responsibilities to the basin or local level. Water management committees currently exist at the basin level. These are managed by the regional offices of the DGH and have as a primary function the coordination of water management in the basin. The membership of the committee varies according to the agenda. For example, each year discussions between the DGH, MAMVA and the ORMVA decide the allocation for large-scale irrigation. Initial decisions are made at the beginning of the irrigation season in September and revised following the spring rainfall in March. Existing basin committees could provide an incipient structure for fully fledged basin organizations and which could represent the principal stakeholders. Over time, these basin committees may be expected to evolve a widening role, to manage all aspects of the common water resources. Such basin committees would bring together the ORMVA and irrigation users association, the Regies and local communities requiring potable water, and industrial and other users, as well as the authorities responsible for the hydraulic structures, environmental standards and inter-basin issues. The establishment of fully fledged river basin authorities may be anticipated as a logical next step with these basin authorities progressively becoming more empowered and exerting greater financial autonomy in the communal management of all aspects of the basins water resources. 4.14 The central Government is expected to maintain its special responsibility, in its dual role as the custodian of the nation's water resources, to implement policies which reconcile the growing demands on the scarce resource. The articulation of the broad commitment to integrated water resource management into practice requires that decision making at the highest levels be undertaken in an interministerial committee or cabinet council devoted to water issues. The Conseil Superieur de l'Eau et du Climat, which is under the tutelage of the King, symbolizes the vision of national water management and the recognition of the need for a coordinated approach to water management. However, the CSEC does not have an executive role and meets on average for about two days per year. Its  - 31 - coordinating role requires reinforcement. This could be achieved through the establishment of a permanent interministerial cabinet-level committee devoted to water issues. Such a committee could be charged with the execution of decisions adopted by the CSEC. The CSEC in turn could be transformed into an effective water parliament, articulating local and sectoral interests through the review and monitoring of water resource management at the national level. 4.15 The development of an appropriate institutional framework is key to the implementation of integrated water resource management. The strength of the existing system is reflected in the remarkable achievements in water mobilization and urban water supply and irrigation. The weakness is evident in the areas of demand management, environmental management and in rural water supply, as well as in the weakness of cost recovery, especially in irrigation. Whereas the strengths reflect areas which are the responsibilities of the Direction Generale de l'Hydraulique, ONEP and MAMVA respectively, the weaknesses cannot be attributed to any one Ministry or agency. On the contrary, they reflect lacunae in the institutional structure and the absence of a comprehensive integrated institutional framework for water management. 4.16 Within the administration itself, the DGH is responsible for the management of water resources and also acts as secretariat for the CSEC. One option is that the coordinating role of the DGH be reinforced, in order that it may provide effective technical support for comprehensive management. In this role, it could provide the technical secretariat for an interministerial committee, coordinating the execution of a water cabinet's decisions. The DGH may also be expected to play a pivotal role in coordinating the preparation of the national water strategy and national plan and in facilitating the preparation of key legislative instruments for water resource management, such as the Water Code. 4.17 The consolidation of water management could go some way to reinforcing integrated water resource management. Greater rationalization of central water management, however, should be associated with greater decentralization and functional autonomy. In water management, the integration of central Government water management should provide impetus to the integration of management at the basin level. Similarly, greater coherence in the management of water distribution, particularly in overcoming difficulties in the organization of rural water supply and the irrigation perimeters may be anticipated. These institutional issues are outlined below. 4.18 The institutional objectives for the distributors of water to the agricultural and potable users are to closer match their services with those demanded by the beneficiaries and to achieve greater financial autonomy and security. Beyond these broad goals, the characteristics of the different agencies are different and each should be expected to tailor its evolution to meet the specific needs of its constituents. Potable Water Supply Management 4.19 Cost recovery for Regie potable water services is provided by billing residential customers on a volumetric basis with an additional fixed fee to cover meter rental and connection maintenance. The three "tranche", or tiers, of volumetric billing are 0 to 24 m3, 24 to 60 m3, and more than 60 m3. Tariffs for each "tranche" vary among Regies, with the Casablanca Regie registering the highest average tariff rate of 4.3 DH/m3 in 1993, based on underlying tariffs of 1.8 DH/m3, for 0-24m3 per trimester, 5.2 DH/m3 for 24-60m3 and 7.25 DH/m3 for over 60m3 per trimester. Urban water supply fees are calculated to cover a rising share of operational and maintenance costs of pipes, plants, and equipment within urban boundaries. By the year 2000, urban water tariffs are expected to provide for full cost recovery of the  - 32 - urban water distribution systems as well as the operation and maintenance costs of the sewerage systems. As noted above, these, and other water tariffs do not contribute to the dam construction or resource mobilization and planning at the national level. 4.20 Both ONEP and the Regies have shown negative net income due to inadequate tariffs and sizeable arrears for water sold to Government agencies and rural communes. On the other hand, collection from domestic and industrial customers by the Regies and municipalities is generally adequate due to the threat of a loss in service or court action. 4.21 By the year 2000, urban water tariffs are expected to provide for full cost recovery of the urban water distribution systems, including debt repayment, as well as the operation and maintenance costs of the sewerage systems. Once this target has been reached, it is anticipated that the next step would be for urban tariffs to cover the costs associated with the mobilization of urban water supplies (dams and transfers) as well as the costs of investment in sewerage systems. 4.22 The improvement in provision of services and increased managerial and financial efficiency within the urban water supply sector within the next decade could be expected to be associated with a process of privatization. Drawing on comparative experiences in other countries, much of the urban water supply distribution sector may already be in the position to enter a phase of privatization based on competitive tendering of fixed term lease contracts or concessions. 4.23 The strength of institutional development in urban water distribution does not extend to rural water supply. The Government is in the process of defining the institutional responsibilities for the implementation and supervision of its necessarily ambitious rural water supply program. Past practices have not been associated with major successes in the provision of rural water supply. In part, this may be ascribed to institutional weaknesses and financial shortcomings. Until 1979, the Ministry of Agriculture and Agricultural Development (MAMVA) implemented and managed rural water supply, at no cost to the users. However, due to the high dispersion of rural water points, maintenance has been poor and the majority of rural water supply installations are not operable. Since 1979, MI, as the local communities' controlling authority, has taken over the role that MAMVA played in the planning, implementing, and operating of basic water supply infrastructure in the rural communes. However, in practice, MI activities are confined to its "Direction Generale des Collectivites Locales" (DGCL) which provides limited technical and financial assistance to the rural communes in the provision of rural potable water to their constituents. Stronger technical and managerial expertise is offered by ONEP, but it currently limits its service to two percent of the rural population. 4.24 The question of institutional responsibility for improving rural water supply has not been resolved. ONEP expects to play a more active role, but is unlikely to extend itself beyond supplying communities which are in close proximity to its transfer pipelines. On this basis it anticipates expanding its role to cover approximately 10 percent of rural households by financing the addition of sixty new rural centers a year through the year 2010, with its financing shortfalls for these investments covered by the collection of a surtax on urban potable water. 4.25 In collaboration with the DGCL and ONEP, several non-governmental organizations, such as UNICEF, the U.S. Peace Corps, Catholic Relief Services, and the World Bank, have financed projects in the rural water supply sector, but the question of coordination and Government participation remains an obstacle to more rapid progress. To date, the role of the DGH has been confined to reconnaissance  - 33 - drilling and the determination of available supplies and neither it nor any other agency has been delegated responsibility for the implementation of the plan. 4.26 While the public sector is expected to play a key role in the further development of rural water supply, many of the success stories in the sustainable provision of rural water have had a significant private sector component. Through user associations and other arrangements, private users have contributed to the upkeep of wells and the hydraulic systems. Experience suggests that this beneficiary contribution is essential if the system is to be sustainable. Accordingly it is not surprising that the successful schemes have typically been run by managing agents and users' associations which have exhibited the greatest degrees of success in capital cost recovery. Their success has confirmed world- wide experience which shows that operation and maintenance can be efficiently secured only by the local communities or users. The effective involvement of the communities themselves is considered essential to ensure the success of the bold program to provide rural water supply in Morocco. Irrigation Management 4.27 As noted above, water resource management in agriculture is primarily executed by nine Regional Agricultural Development Authorities (ORMVA). These semi-autonomous public enterprises' have a separate legal identity and some financial autonomy. The ORMVA control the planning, design, construction, operation, and maintenance of the GH perimeters and provide extension services to farmers within the ORMVA perimeters. The ORMVA are also responsible for the limited amounts of small-and medium-scale (PMH) irrigation and rainfed crop production which falls within their geographical jurisdictions. The ORMVA receive technical support from MAMVA in relation with crop production, forestry, livestock, land surveying and titling, and plant protection specialists are assigned to ORMVA bureaux. The ORMVA are responsible for the operation of the primary irrigation systems in GH perimeters. In addition they provide a range of other technical and advisory services. Outside the jurisdiction of the ORMVA, in PMH perimeters, farmers are more self-sufficient, with the Government's productive contribution seldom going beyond the provision of limited extension services. 4.28 The future of irrigation and water management in Morocco is integrally linked to that of the institutional and financial development of the ORMVA. The role of the ORMVA is defined by the Agricultural Investment Code (AIC) which delineates public and private activities and also establishes the principles of water tariffs and cost recovery. This 1969 Investment Code calls for full recovery of O&M costs and up to 40 percent of initial investment costs, including dams and conveyors. The law however exempts all farmers with less than 5 ha of land from the investment charges and farmers with between 5 and 20 ha are partially exempted; irrigation land holdings average 3.9 ha, and 77 percent of farmers are hence exempted from investment charges. Of those who do pay the nominal interest rate is set at four percent. In terms of the law, water charges are divided into three parts: a volume charge to cover all direct operating costs and depreciation, exclusive of pumping costs, plus 10 percent of investment costs; a separate pumping charge, also volume based, to encompass energy costs; and a land betterment levy, to recover 30 percent of initial investment costs. Volume and pumping charges are centrally calculated by MAMVA and periodically updated to cover inflation. Together these volume and pumping charges 29/ Use of the standard translation of the French term 'enterprises publiques k caractere administratif, or EPA, as semi-autonomous non-revenue-generating public enterprise, would be misleading in this context, as the ORMVA do generate significant revenues.  - 34 - account for around 12-14 percent of production costs for farmers using surface irrigation, and 19-24 percent for sprinkler irrigation. 4.29 A revision of the law, to reduce exemptions, increase interest charges and ensure improved enforcement is necessary if it is to achieve the stated objectives of recovering full O&M and 40 percent of investment costs. Preliminary figures suggest that water charges currently cover about 85 percent of the direct operating costs, excluding depreciation. Only the Doukkala and Tadla, which charge significantly more than the direct O&M costs, are in a position to finance a portion of asset depreciation - the rehabilitation of the irrigation system - from the proceeds of water charges. Given that cost recovery is still geared towards covering the full O&M and depreciation costs of the irrigation perimeters, the objective of contributing towards investment costs of the irrigation perimeters, let alone the dams and conveyances, is yet to be reached. In part this reflects the weakness of current collection of water charges, but, under the current law, even with full collection of existing water charges, seven of the nine ORMVA would still require Government finance to cover depreciation. The total amount collected for water and pumping charges in 1992 was equivalent to around 418 DH million. In that year, the Government contributed around 250 DH million towards recurrent irrigation costs and 1087 DH million to capital investment in irrigation. 4.30 User charges contribute negligibly to cost recovery in irrigation investment (in recent years recovery rates have averaged around 100 DH/ha of the estimated 5,000 DH/ha per year discounted investment costs) and to date have made no contribution to cost recovery in dams or conveyors (despite the provisions in the Agricultural Investment Code which include cost recovery for the mobilization of water). By the year 2000 the ORMVA are expected by the Government to cover their entire O&M and in addition contribute to depreciation and debt repayment. A greater contribution to investment costs may also be anticipated by the Government. 4.31 As indicated above, the capital costs of the planned 250,000 ha expansion of irrigation between 1994 and 2000 are estimated at 25 billion (1993) DH and the total costs associated with the project, including the incremental recurrent costs of support services, O&M and interest payments is projected to reach 40 billion (1993) DH. It is anticipated that 42 percent of this expenditure is to be financed directly by the central Government, 36 percent through external borrowing, 14 percent through water charges, 4 percent through the Agricultural Development Fund (FDA), and 4 percent through grants. Given that water charges are anticipated to cover all O&M expenditures it is unlikely, unless the contribution of water charges to the PNI is raised, that they will make a significant contribution to investments. 4.32 The PNI envisages a continued and, given the scale of the incremental investments, growing financial dependence on central Government. Full cost recovery in the irrigation sector, it may be concluded, remains an illusive objective. This goal, we note below, needs to be approached more rapidly and with greater determination if the ambitions of irrigation sector development are to be achieved. Given the Government's budget constraints, irrigation development is increasingly expected to depend on farmers' willingness to pay for investments financed by direct lending to the ORMVA. The evolution of the ORMVA, we note below, into financially autonomous, beneficiary-led, institutions is expected to hold the key to sustainable investments in irrigation development. 4.33 A primary objective of the ORMVA should be to increase their contribution to investments by shouldering responsibility for a rising share of debt repayment. To this end, the benefits of external lending for irrigation development, via the traditional central Government channels (which  - 35 - include monetary sterilization which helps prevents debt-induced inflationary pressures), should be compared to the benefits of direct lending to the ORMVA. Direct lending, which is targeted to encourage best practices in financial management, cost recovery and farmers' participation, could accelerate the evolution of the ORMVA. It would reinforce cost recovery and improve efficiency in operations, marking a sharp break with current practices in which the central Government effectively makes up the difference between costs and revenues. Under the current system, the least efficient ORMVA are rewarded with the greatest transfers. An overhaul of incentive structures is necessary so that increased cost recovery and managerial efficiency is rewarded with improved access to financial and other resources and increased returns to the investments. For such a process to be rendered more effective, it could be accompanied by a greater transfer of control from the central Government, which currently appoints key personnel, to the beneficiaries. The strengthening of the role of irrigation users is expected to ensure that policies adopted by the ORMVA advance the interests of the members. 4.34 The definition of investment programs and the identification of the responsibilities of the ORMVA should reflect the choice of the farmers and their willingness to pay. To the extent that part of the services currently undertaken by the ORMVA authorities could be provided in an improved or more cost effective manner by the private sector, this should be explored. Greater autonomy also implies a reassessment of new investments, to ensure that current water users are prepared to pay the additional financial and institutional burdens associated with the rapid expansion of the ORMVA. The economic returns to rehabilitation of existing perimeters in all the ORMVA is estimated to be in excess of the economic returns to investment in new irrigation (in Bank projects, 22 percent for rehabilitation compared to around 12 percent projected for the extension of irrigation envisaged in the PNI). These rates of return do not, however, include analysis of the opportunity cost of water. Analysis of irrigation projects in Morocco, in common with the practice in most other countries, assumes that water is supplied at zero charge to the irrigation perimeters. This critical assumption in situations of water shortage, where water could otherwise be distributed to higher value urban or industrial users, serves to exaggerate the economic returns to new investments in irrigation. 4.35 Both for the central Government, which is allocating a growing share of its scarce financial resources, and for farmers, who increasingly should be given responsibility for decision making and for repayment, rehabilitation is expected to yield a higher economic return than extension of irrigated areas. This is particularly the case when the opportunity cost of water is taken into account; in basins where the marginal cost of water is rising, the increased water demand associated with irrigation expansion places an additional burden on all water users, so that existing farmers, and urban and industrial competitors for water, could be penalized by the increase in water demand associated with the new perimeters. Rehabilitation and improvement of existing perimeters, by contrast, is designed to increase the efficiency of water use and, by reducing overall demand, tends to reduce the marginal cost of water to all users. 4.36 Improvements in the financial performance of the ORMVA, we have noted above, cannot be divorced from decisions regarding operational practices and new investments. The long run sustainability of the ORMVA requires that they be placed on a firm financial footing and that they increasingly respond to the demands of their beneficiaries. These users in turn are anticipated to display a greater willingness to pay for water and other services. Increasingly, the ORMVA are expected by the Government to play a key role in the management of water demand. Their catalytic role in improving water efficiency holds the key to reducing the cost of future water supplies. Failure to achieve demand management is expected in the long run to push the price of water in at least seven of the nine ORMVA beyond the reach of a significant share of the farmers. In order to assist farmers in meeting this  - 36 - challenge, the structure of Government support needs to be revised to ensure greater transparency and to ensure that efficiency is rewarded. This implies greater attention to cost recovery and the opportunity cost of water and a process of enfranchisement of water users, who in the long run should be expected to pay for and, through their delegated authorities, manage their water use. An option, at the level of the irrigation perimeters, could be for users' associations to delegate authority to a form of irrigation perimeter management board. At the basin level, this board could coordinate with the principal other users and with those responsible for the mobilization of water, through the agency of a river basin authority or other basin institution. Such an authority, as noted above, could be responsible for all aspects of overall water management in the basin, including environmental management. Environmental Management 4.37 Responsibility for water quality and environmental issues is fragmented between the DGH, the Ministry of Public Works (MTP), the Ministry of Environment (ME), the Ministry of Interior (MI) and the Ministry of Health (MSP). The MI is the Government's official voice on environmental issues at the national level and the MSP is responsible for the health of the population. In addition to these centralized responsibilities, the Ministry of Agriculture (MAMVA) and the Ministry of Industry are responsible for the control of pollution within the agricultural and industrial sectors respectively. 4.38 Pollution and quality control of water used for human consumption is also a responsibility of ONEP. In this respect, ONEP is responsible for: technical assistance in monitoring drinking water quality when another public organization requests it; controlling, in coordination with the competent authorities, the pollution of water sources that could be used for drinking water; and the review, in coordination with the MSP, of all technical documents related to potable water supply and distribution, in order to verify the absence of all types of equipment and installation defects that may have a negative impact on the quality of distributed water. 4.39 The Under Secretariat for the Environment (SSE), initially under the MI, was up-graded in February 1995 into the Ministry of Environment (ME), thereby reflecting the commitment of the Moroccan authorities to a greater protection of the environment. The Government expects the ME to play a key role in the definition, monitoring and control of environmental standards and to work with selected sector ministries and local authorities to clean up serious environmental pollution sites. The ME is in the process of consolidating its technical expertise and drafting appropriate operational procedures. 4.40 The ME has established a joint work program with MTP and MAMVA which will strengthen those ministries' common environmental functions and encourage tandem response to cross- sectoral environmental issues. For example, the ME will work with the Environmental Management Unit established within MAMVA to provide environmental screening of agricultural projects and monitor the environmental impact of investments. Furthermore, the ME has an environmental impact unit which develops, in collaboration with other concerned departments, evaluation procedures to examine the environmental impacts of future development projects. An environmental strategy and a plan of action are also currently being developed by the ME. 4.41 The National Council of the Environment (NCE) was created in 1980 to promote the protection and the improvement of the environment and to contribute to defining government policies on environmental issues. It is chaired by the ME and includes representatives from all major sectoral ministries. Since being established the council has evolved and in January 1995 its composition was enlarged to include representatives of the confederation of economic affairs, as well as scientific  - 37 - associations and non-governmental organizations. Regional environmental councils have also been created. A draft environmental law, embracing major principles on environmental protection, was submitted to the NCE in May 1993, where it is under review prior to its submission to the parliament. 4.42 The Ministry of Public Health (MSP) spotchecks water throughout the country, testing for contamination and designating water as potable, swimmable, or fishable. Coastal pollution caused by inadequate sewage disposal has forced limited areas of the central surf zone to be declared unswimmable and unfishable, a ruling not expected to change until the mid-1990s. The MSP also tests rural springs and wells through sanitary inspections, residual chlorine tests, and bacteriological analyses. Disinfection of non-equipped rural water points is carried out periodically by the MSP. Furthermore, the MSP is involved in informing and educating the population, especially in rural areas, to promote hygienic behavior and appropriate environment systems including for drinking water supply and sewage treatment. 4.43 Despite, and in part because of, the plethora of institutions with a responsibility for environmental management, the quality of water in Morocco is deteriorating. Domestic waste water, which includes combined sewer/storm water flows and on-site septic systems, accounts for the majority of pollutant loading to the rivers, groundwaters, and the sea. The major urban centers are along the seaboard, and most sewage is discharged to the sea without treatment; the industrial centers are inland and most industrial pollution is discharged to surface freshwater bodies'. Given current population and water use projections, the amount of wastewater discharged will double between now and the year 2020. Most importantly, most of this increase is expected in the coastal zone and in the Sebou basin, which are the most rapidly developing urban and industrial areas of Morocco. Discharge to limited inland water receptors poses the most urgent challenge because the levels of pollution in these water reaches critical levels much more rapidly than is the case for the sea. 4.44 Water pollution from agricultural sources contains fertilizers, pesticides, soil sediment, and soil minerals, such as salts and boron. Most polluted water from agriculture reenters surface waters in such quantities so as to travel downstream relatively undiluted. Return flows from agriculture and agroindustry which are drawn back into agriculture often stifle plant growth and damage soils, resulting in a decline in agricultural productivity. High salt and sediment loads can clog pumps and canals in irrigated perimeters. Agroindustrial discharges corrode irrigation equipment and cause fungal and algal blooms in the pipes and canals. High levels of nitrates and other minerals leach into groundwater sources, thus posing a threat to drinking water. 4.45 Off-shore and inland fishing continue to be affected by environmental factors. Maritime fishing, concentrated in the Agadir, Casablanca, and Tan-Tan coastal areas, suffers from continued dumping of untreated sewage, industrial waste and pesticide runoff, which results in high levels of heavy metals and pesticides in fish and shellfish in limited zones. Coastal tourist activities, in the form of bathing and recreational fishing, are also made hazardous locally by polluted waters. A comprehensive survey of coastal and nearshore pollution is to be released by the Ministry of Maritime Fishing and Merchant Marines (MPM) in 1994. Water pollution also threatens fishing in inland streams and rivers, poisoning fish. In the Sebou, reduced levels of fish harvested represent a loss of protein source for 30/ James J. Talbot: "Water Quality and the Environment", mimeo, page 5 and Figure 1, shows that in 1988 99,000 tons of oxidizable material was discharged to marine coastal waters and 68,000 tons to surface water.  - 38 - riverain communities. This damage to freshwater fishing may, however, be tempered by stocking of dam reservoirs with fish. Few fish ladders are operable in Morocco, but future dams are to be equipped with fish ladders, which aid fish in bypassing dam sites while travelling upstream to spawn. 4.46 In Morocco, malaria and bilharzia constitute the two primary diseases associated with standing water. Draining marshlands for agricultural production and controlling floodwaters through storage reservoirs limit stagnant pools conducive to breeding and this in Morocco has been seen to reduce the risk of schistosomiasis transmission. Although dam reservoirs are a hospitable habitat for bilharzia snails, these reservoirs can be monitored and chemically treated, whereas scattered pools in floodplains cannot. The Tadla irrigation perimeter has been determined to be a particularly high risk area and a program has been initiated, supported by the Bank, to reduce stagnation by intercepting current surface water losses through rehabilitating existing irrigation and drainage schemes. Despite the efforts of the MSP which is responsible for monitoring and fighting water-related diseases over the entire country, the contamination of water resources remains the root cause of more than 50 percent of all illnesses in rural areas. In addition, throughout Morocco, critical levels of pollution which pose a health hazard have been reported at specific points, such as immediately downstream from sewerage and industrial outfalls. In the Sebou basin, especially downstream from Fez, pollution loads have reached critical levels. Cholera and other diseases have been evident, prompting the authorities to prohibit bathing and direct consumption of river water during certain months of the year. The degradation of the quality of water poses a major impediment to human resource development in Morocco. While progress has been made in some areas, such as with respect to schistosomiasis transmission, the growing pollution load has posed new threats. 4.47 The development of sewerage services has not kept pace with water supply. Sewerage in urban areas has traditionally fallen within the jurisdiction of the technical division of the municipalities. Because these divisions are also responsible for roads, drainage, garbage collection, and building maintenance and operate with limited Government funding and poor tax bases, sewerage has often received a low priority. In 1985, as a pilot project, sewerage responsibility in the Greater Casablanca area was transferred from the municipal authorities to the water and electricity distribution R6gie, RAD. Subsequently, Agadir and Fez have designated their water distribution Regies with responsibility for sewerage. 4.48 The Government's strategy for large cities is to establish an autonomous sewerage service, preferably located within the Regie. For small and medium-size towns where no Regies exist, the creation of autonomous municipal sewerage services is being considered. The possibility of adding autonomous sewerage services to ONEP in the towns where ONEP is providing water service is also being considered. Standardization in the design and construction of sewerage facilities is to be directed by the Directorate of Water and Sanitation of the MI. Sewerage staffing and services would be financed through user charges included in water supply tariffs, following the current practice in Casablanca, Agadir and Fez. In time, the sewerage departments located within the Regies are to be financially autonomous and technically independent from the water supply and electricity departments of the Regies. Accordingly, customers will be charged for sewerage services, through a surtax over water tariffs, with a goal of full cost recovery. 4.49 In rural areas, construction and maintenance of sewer systems has traditionally been entrusted to the regional technical services of the DER of the MAMVA. However, rural sewerage is now the responsibility of local communes. The Directorate of Water and Sanitation (DEA) within the MI is responsible for providing technical assistance to the local communes in the establishment of rural sewage  - 39 - disposal. Following the principle that the water supplier should be responsible for its disposal, ONEP is preparing master plans for sewerage of most secondary towns. 4.50 The development of a comprehensive institutional framework, within the context of a coherent regulatory structure, is necessary to ensure that the environmental aspects of water resource management are viewed in an integral manner. Thus, the pollution of surface and groundwater reduces the overall water balance and is of immediate concern in national water resource management. Particularly severe and permanent pollution is of course a subject of special concern, but it should be noted that even regular treated sewerage outfalls into rivers impact on the water balance by requiring the constant provision of diluting waters, with important consequences for upstream and downstream controlling authorities and competing consumers. Growing awareness of the polluting effects of agricultural fertilizers, pesticides and processing requires that more attention in the future should be focused on this area. 4.51 Environmental management, as is evident from the above discussion, would benefit from closer integration with water resource management to ensure that the qualitative dimension of water resources is considered together with the quantitative dimension. Past weaknesses in the institutional, regulatory and economic framework for qualitative management of water are reflected in a serious deterioration in the quality of water resources in Morocco. It is widely accepted that achieving improvements in this area is a priority. 5. CONCLUSIONS AND RECOMMENDATIONS Conclusions A. Reorientation from Supply to Demand Management 5.1 Increased rationing and growing inefficiency in water use will constrain Moroccan development in the 21st Century unless a new approach to water resource management is adopted. The management of this increasingly valuable resource is a national priority. The challenge for the present generation is to ensure that policies are put in place that place water usage, and hence overall Moroccan development, on a sustainable track. 5.2 The management of Moroccan water is at a crossroads. Policies and practices which have served the country well throughout its modern development have been subject to reevaluation in the light of the twin challenges of widening shortages and deteriorating quality. Integrated water resource management offers a means to address the water resource challenge. This strategy includes the integration of the qualitative and environmental dimensions with the quantitative aspects of water management. In the Sebou basin, water quality has deteriorated to the point where it is at times unacceptable as a source for potable water supply. The setting, monitoring and control of standards for urban, industrial and agricultural pollution is a priority. While this necessarily implies the development of new institutional arrangements and regulations, it also emphasizes the need to explore the integration of economic and participative considerations into water management. 5.3 The clearest conclusion is that of the deteriorating supply and demand balances. Per capita renewable water resources are expected to be half the current level by 2020, when all renewable water resources are projected to be mobilized to match demand at the national level. However, at current  - 40 - prices, shortages are already evident at the basin level. These shortages are reflected in significant groundwater mining. An extrapolation of current trends suggests that in a number of basins water shortages would significantly curtail economic activity by the year 2020. The effect of shortfalls is already becoming manifest in the agricultural sector, as farmers are faced with reduced and more erratic supplies. In the medium term, a continuation of current practices is expected to have a negative impact mainly on irrigated agriculture and the associated rural communities and agro-industries. In the longer run, beyond 2020, water shortages will become more pervasive and, in the absence of appropriate management, could serve as a brake on overall economic development. Adjustments in water management policy will be necessary. Given the project cycle for damn, irrigation and other major hydraulic investments, the sooner these are implemented the lower the costs of adjustment. Moroccan water resources are unevenly distributed between basins. Inter-basin transfers are considered by the authorities to provide a means to overcome local shortfalls, however to date water planning has remained confined to the basin level. A long run national plan therefore is urgently needed to inform planning, investment and policy decisions. 5.4 Deterioration of the quality of water poses as significant a threat as quantitative imbalances. Whereas water resource balances assume that available water will be of a satisfactory quality, this is not the case. Pollution already reduces the overall water resource balance and the degradation of water requires urgent consideration in the context of a national water strategy. Water pollution from domestic, industrial and agricultural sources has approached critical levels in the two most important river basins. Potable supplies have had to be suspended on a number of occasions in the Sebou basin, due to excessive pollution loads, and in the Oum er Rbia basin quality problems are fast approaching the critical level. By 2020, waste water discharge from domestic sources is expected to be double current levels, with most of this increment absorbed by the coastal zone and Sebou basin, where the most rapid industrial, urban and agricultural development is expected. 5.5 Despite Morocco's success in providing potable water to virtually all its urban inhabitants, barely 14 percent of rural citizens have access to safe and reliable supplies of water. The virtual absence of potable supplies is considered the primary cause of rural ill-health. Rural families on average devote one and a half hours a day to fetching water and pay up to ten times the urban fee for drinking water sold by water vendors. The absence of potable supplies also has retarded a broad spectrum of rural commercial activities. 5.6 The Government's objectives of expanding irrigated areas, in the context of increasingly scarce water supplies, rising costs and less protected output prices, poses a severe challenge for irrigated agriculture. Faced with higher water charges and, as a result of trade reforms and declining protectionism, lower output prices for subsidized commodities, such as sugar, cereals and oilseeds, farmers may be expected to substitute higher value and less water-intensive crops. However, the market opportunities for these high-value irrigated crops may be limited, raising doubts as to the viability of some irrigated areas. 5.7 Improved demand management is at least as critical as supply management. This is particularly true in the irrigation sector. Irrigation currently accounts for approximately 85 percent of water, but by the year 2020 is expected to be receive only 77 percent of available supplies, taking into account return flows. Assuming that current plans for irrigation expansion are implemented, this allocation implies a reduction of over 3000 m3 in water applied per hectare. Water efficiency currently is below 50 percent, so that less than half of the water delivered to the irrigation perimeters actually reaches the crops. The key to the continued growth of the irrigated sector rests on improved efficiency  - 41 - in water use. Demand management is a priority, with a reinforced focus on rehabilitation of existing systems, canal lining and other measures to promote greater water conservation. Economic and institutional reforms, which emphasize water users' participation, cost recovery and efficiency are also expected to play an integral role in enhancing demand management. B. Escalating Costs and Cost Recovery 5.8 The allocative, environmental and financing challenges of water resource management are closely related to the economic challenge of giving greater weight to efficiency and pricing criteria in water management. The opportunity cost of water use is becoming increasingly high and, particularly in deficit basins, should be introduced into the decision making process. In deficit basins, the marginal cost of water is rising steeply as secondary and more distant dam sites and groundwater reserves are exploited, non-traditional water sources are explored and increased water treatment, transfers and pumping becomes necessary. The extent to which projected investments are feasible, both from a public finance and from an economic efficiency criteria, requires careful and urgent examination. Total expenditure on the mobilization and distribution of water resources is projected to rise by 350 percent, to over 2 percent of GDP, by the end of this decade. This is unlikely, from a public expenditure standpoint, to be sustainable. From a situation where the Government contributed to virtually all water investments and operations, the burden of costs is gradually being shifted towards consumers. This has advanced furthest in urban potable supplies. By 1998, it is expected that urban tariffs will cover operational and maintenance charges for urban water supply and sewerage, as well as the financial charges associated with the treatment, pumping and distribution of water. The additional tariff charges for investment in potable water will nevertheless still not allow to cover the full marginal costs, including construction of dams. In irrigation, water charges at best cover O&M expenses. As is the case with urban tariffs, irrigation tariffs make no allowance for the mobilization and transfer of water resources. 5.9 The returns from existing investments could be significantly raised by improved maintenance. The siltation of dams is a major concern, and has already diminished available capacity by almost 8 percent. The siltation rate of existing and planned dams is expected to reduce dam capacity by as much as one percent per annum. Conveyance losses in the primary and secondary irrigation canals and in other irrigation infrastructure similarly are estimated to be as high as twenty-five percent. Measures which enhance watersheds and provide for the maintenance of existing infrastructural investments are expected to result in considerable financial and water savings. 5.10 The immediate challenge in the Souss and Oum er Rbia river basins, and the looming challenge in the other basins, will be to reallocate water resources from irrigation to higher value urban and industrial consumers, without unnecessary hardship to the deprived rural communities. By the year 2020, competition for scarce water supplies is expected to have intensified to the extent that irrigation supplies increasingly will be sacrificed to urban and industrial consumers. In the Oum er Rbia basin, the planned expansion of irrigated areas will accelerate the decline in the basin's resource balance, and this could advance the early construction of an inter-basin transfer to meet the needs of Casablanca. The costs of such a transfer are expected to approach the costs of desalination, which by early next century may become a competitive option to the transfer. By far the cheapest option, however, is the saving of water in the Doukkala irrigation perimeter; a reduction of its projected water requirements by 20 percent would postpone the need for alternative sources until around 2050. In the Souss, the available water supplies have already been stretched beyond the sustainable limit. Growing pressure from urban and industrial development has led to mining of groundwater, but this is not sustainable. A reduction in irrigation water demand would provide a sustainable solution and could be achieved by improving agricultural efficiency  - 42 - or reducing irrigation perimeters. The creation of tradable water rights in these circumstances may facilitate a reduction in irrigation demand, with urban, industrial or higher value agricultural producers compensating farmers with a lower return to water for reductions in their water use. Such a transaction may also be explored at the wider level; for example, Casablanca may wish to contribute to efficiency improvements in the Doukkala irrigation perimeter in order to be guaranteed secure water supplies at costs well below the alternatives of a billion dollar transfer or desalination. These type of exchanges of water based on implicit or even explicit rights currently take place at a number of locations in Morocco and have their precedent in systems which have evolved historically to meet local needs. C. Institutional Reform. Decentralization and Privatization 5.11 The question of water rights is indicative of the important legislative and regulatory challenges facing Morocco. Customary practices and successive legislative interventions which deal with specific sub-sectors issues have produced a complex regulatory web which is not able to provide a comprehensive set of standards for addressing the critical challenges of water resource management, including water quality issues, water management responsibilities, financing responsibilities, and groundwater mining. 5.12 Of the challenges of water resource management, the institutional issues are the most pervasive. Policy making is largely centralized, with responsibility for water management resting with the sectoral ministries and agencies responsible for the different end-users. The Conseil Superieur de l'Eau et du Climat (National Water and Climate Council) provides a periodic focus for the review of sector priorities and master plans, but no permanent inter-ministerial forum exists to guide water management and define sectoral responsibilities. As a result while considerable overlap exists, certain other issues, such as rural water supply or pollution control, appear to have slipped through the institutional net. One option could be to widen and deepen the role of the CSEC, into a water parliament which ensures that the stakeholders are involved at the highest levels of decision making. 5.13 Decentralizing decision making, to strengthen stakeholder participation and promote more efficient and responsive water resource management, is part of the challenge of institutional reform. The mobilization, conservation and allocation of water should be guided by its value in social and economic development. The users, are expected by the Government to shoulder a greater share of the costs and maintenance responsibilities, require greater participation in strategic decisions on water production, distribution and maintenance. Decentralizing decision making to the basin level offers a means to increase the participation of the beneficiaries. The establishment of user associations is expected by the Government to provide a means to strengthening their participation. Decentralizing consultative and decision-making institutions could be both facilitated by, and provide the basis for the empowerment of, the various stakeholders. The empowerment of river basin committees and their evolution into river basin agencies could provide a means to involve the principal water users and stakeholders (including Government) in all aspects of integrated river basin management. Recommendations A. Government Action Program 5.14 Sustainable growth is predicated on improved water management to overcome constraints posed by the quantity and quality of water available for development. The failure of past practices to adequately deal with the challenges highlights the need for a new approach. The adoption of a program of integrated water resource management holds the key to placing water resources, and hence Moroccan development, on a sustainable path. Meeting the challenges requires the integration of the qualitative, quantitative, economic and institutional dimensions to water resource management.  - 43 - 5.15 The process of strategy definition is well advanced in Morocco. An acceleration and deepening of the process is required to ensure greater beneficiary participation in formulating a national water strategy and in defining a comprehensive legal and institutional framework for water resource management. The definition of a coherent set of short, medium and long-run sectoral objectives and the translation of these into a strategy for sustainable water resource management is a necessary first step. These are to be articulated into concrete actions in a National Water Plan which provides an integrated vision of water resource management to at least the year 2020. 5.16 The National Water Plan should be accompanied and supported by a parallel set of sub- sectoral action plans, investment programs and policy measures. Among the key policy issues which need to be clarified are those concerning: institutional responsibilities for overall water resource management, including water quality, rural water supply and watershed management; the implementation of a water and environment code; the devolution of decision making to ensure greater beneficiary participation; the promotion of water conservation and demand management, especially in irrigation; and, the financing of planned investments and the integration of cost recovery and economic incentives into water resource management. 5.17 The definition of sub-sector strategies for development of the irrigation, water supply and sanitation sub-sectors is well advanced in Morocco. In irrigation, the overall goals of reducing climatic risk in agriculture and improving employment, income and output are widely shared. However, it remains to be demonstrated that the proposed expansion of irrigated areas will prove competitive in terms of the economic, social and environmental returns to investments. In addition, the expansion program needs to be examined within the context of long run water resource management. Viewed in this perspective, previous experience suggests that the returns to rehabilitation of existing investments exceed those of expansion, especially in so far as they raise the efficiency of water use and in terms of the returns to scarce public finances. 5.18 In its overall management of the economy, the Government is committed to giving a greater role to market mechanisms and to the promotion of decentralization and beneficiary participation. This is most evident in the urban water supply sub-sector, where autonomy and financial independence is being accorded to ONEP and the Regies. In the irrigation sub-sector, the decentralization of responsibilities to the ORMVA and then from the ORMVA management to water users is proceeding in a slower and more hesitant manner. However, the renewed commitment of the highest authorities in Morocco to decentralization and privatization provides the context for an acceleration of the process of liberalization of water resource management in general. 5.19 The translation of the growing awareness of the issues into operational policies holds the key to successful water resource management. Important steps to be taken in the implementation of a national water resource management strategy include: the updating, deepening and synthesis of the basin plans into a national water plan; the adoption of a comprehensive legal and regulatory framework for water resource management, including definition of institutional and environmental management responsibilities; the establishment of a framework for management of agencies and physical structures, facilitated by greater beneficiary participation in decisions and financial responsibilities; formulation of action plans for addressing specific weaknesses, notably in rural water supply and pollution management in select river basins; and, in order to meet the strategic demands, the formulation of investment programs, including the identification of costs, sources of financing and benefits. 5.20 The implementation of a national water resource management strategy cannot be achieved overnight, especially as this requires an iterative process of consultation with all interested constituencies. In addition, this process needs to be informed and facilitated by a parallel process of research and study, the aim of which is to provide the data and information on which decisions must be made. Research  - 44 - initiated by the Government, with the assistance of the Bank, will aim to provide a solid foundation for decision making on a wide range of issues. In the sphere of planning, it will include the verification and updating of all the basin plans and the establishment of a consistent data set and system for long-range planning. This will be complemented by evaluation of cost estimates and recovery methods and the preparation of options and analysis of the implications, for the beneficiaries, for the Government and for taxpayers. A considerable research effort also is to be devoted to an analysis of the economic value of water and the costs and benefits associated with irrigation development in the future, under alternative pricing mechanisms. This will go beyond the examination of the costs of changing water prices, to consider changes in the relative price of other inputs, such as capital and fertilizers, and outputs, such as sugar and cereals. Further study will simultaneously be undertaken of the institutional dimensions of integrated water resource management, including the decentralization of responsibilities and the development of facilitating regulatory and legal frameworks. 5.21 The existing regulatory framework has evolved over time and is mainly embodied in administrative practices and procedures, and only occasionally in law. The coherent management of water resources needs to be supported by legislation. The need to support water resource management through a comprehensive regulatory framework has been recognized and is reflected in the preparation of a draft Water Law. This is expected to render coherent existing legislation and procedures, providing the regulative framework for comprehensive water resource management. Such a review is expected to include the revision of the Agricultural Investment Code in order to reduce exemptions, ensure improved cost recovery and to provide a more flexible framework for the evolution and decentralization of irrigation management. 5.22 In parallel to a deepening research effort, the implementation of a national water resource management strategy is expected to involve the initiation of a series of supporting investments and policy measures. The envisaged investment schedule has been discussed in Chapter Three above. These planned investments need to be appraised in the light of the overall strategy for water management. In addition, to the traditional appraisal of costs and benefit, investments should be subject to two important criteria. First, whether the investment could be achieved through private participation and second, to the extent that public funds are to be mobilized, whether the investment identified represents the most appropriate use of these scarce resources. Given that public funds are being mobilized, an important criteria for their use is the extent to which the public will benefit, especially from a welfare perspective, and the extent to which externalities may be involved which lead to market failure, as may be the case with investments in the area of the environment. 5.23 The policy dimension is both the most difficult and the most important element in the implementation of a national water resource strategy. Among the key strategic policy issues which need to be clarified in the coming years are the following: the institutional responsibility for overall water resource management, including resolution of allocative conflicts; the institutional responsibility for water quality monitoring, control and enforcement; the implementation of water and environment code; the devolution of powers to river basin managers and provision of greater stakeholder participation; the development of a policy framework for conservation in irrigation and introduction of demand management; and, the development of a national water tariff policy. These policies have been subject to discussion above. Their implementation requires the construction of a coherent and comprehensive approach to water management within the Government. Sub-sectoral divisions remain the principal stumbling block to the development of comprehensive policy actions in the water sector in Morocco. The overcoming of these traditional divisions, in favor of a unified approach to national water management remains the key policy challenge.  - 45 - B. Role of the Donor Community 5.24 The donor community has an important role to play in assisting Morocco to meet the challenge of implementing a national water resource management strategy. This is not, however, a one- way transfer of skills and resources; the international community has much to gain from close involvement with Morocco, both in terms of the lessons learnt from Morocco's experience of water resource management, and in terms of the technological and training opportunities offered by Moroccan experts. 5.25 The provision by the international community of technical and financial assistance should be demand-driven and premised on a clear understanding of the role of the external agencies in providing assistance. In the area of water resources, this implies a clearer vision of the overall water management strategy and the contribution of the foreign community to it. Closer coordination between the Moroccan authorities and the international community is necessary to ensure that external resources are used in an efficient and constructive manner. Equally, closer coordination between donors is necessary if they are to reinforce an integrated water resource program and ensure that their assistance is provided in a timely and effective manner. The challenge for donors is to develop a coherent response and to internalize in their support for the Government the key features of a comprehensive Water Resources Management strategy. Donor coordination is expected to play a vital role in ensuring the articulation of a mutually reinforcing set of investments, policy measures and technical assistance. 5.26 The World Bank is an important part of the donor community. The Bank's recently adopted integrated approach to water resource management marks a break with past policies. The new strategy reflects a major shift in the Bank's vision, and is consistent with the Dublin Statement from the 1992 International Conference on Water and the Environment and Agenda 21 of the 1992 United Nations Conference on Environment and Development. The new strategy is articulated in the Bank Policy Paper3' and given a regional focus for the Middle East and North Africa in the region's Strategy for Managing Water32. 5.27 The Bank has been closely involved in the Moroccan water sector for over twenty-five years. Through its sector work, lending and technical assistance the Bank has taken a lead in providing donor support for the Moroccan water sector. In the urban sub-sector, five loans have been directed at water supply, one for the preparation of sewage master plans and another for sewage development. This lending has been directed to the strengthening of the sub-sector institutions and to increasing water supplies in the urban areas. In the irrigation sub-sector, nine loans have been made, of which five focused on expanding the area under large scale irrigation, two supported small scale irrigation development, and two support the rehabilitation of large scale irrigation. Through these projects, substantial progress has been made, including in managerial performance and water efficiency and in improving financial performance. Much however remains to be done at the sub-sectoral level, not least with respect to cost recovery, rural water supplies, sewerage and irrigation demand management. These concerns are receiving attention. The Fifth Water Supply Project breaks new ground in including a pilot component for rural water supply and will achieve full cost recovery in urban water supply. Meanwhile, the Second Large Scale Irrigation Improvement project is to devote considerable resources to encouraging water conservation including through the implementation of higher water tariffs. 31/ The World Bank: 'Water Resources Management: A Policy Paper", April 30, 1993. 32/ The World Bank: 'A Strategy for Managing Water in the Middle East and North Africa", September 20th, 1993.  - 46 - 5.28 A large share of Bank lending to Morocco will continue to be devoted to the water sector. Projects in the pipeline for implementation over the next few years will serve to enhance performance at the sub-sectoral level. Significantly, the impact of all the planned projects goes well beyond the sub- sectoral level, thereby providing a solid foundation for the implementation of a Bank strategy for Water Resource Management in Morocco. 5.29 The Moroccan authorities in early 1993 signalled their desire for the Bank to assist them in the formulation and implementation of a comprehensive water resource management policy. This review is the first response and offers basis for reflection and priority setting. In addition to assisting in the formulation of a common approach within the Bank, this sector work also aims to reinforce dialogue with the Moroccans and with other donors. 5.30 All the key issues outlined in this review, including the economic and technical feasibility of water savings in irrigation, are to be examined in greater depth with the assistance of Japanese grant funds. The preparation of the terms of reference for the studies has proceeded in parallel to the sector work and terms of reference have been reviewed and agreed by an inter ministerial committee, comprising nine ministries/agencies, and chaired by the DGH. This inter-ministerial and inter-agency committee is anticipated to provide the basis for future coordination of the research and for the discussion of other water sector issues. The study is to be sequenced to ensure that priority research is undertaken first, and results shared through an interactive process of consultation with the inter-ministerial review committee. In parallel to the in-depth analysis conducted by local and foreign consultants with Japanese funds, UNDP funding has been secured for the undertaking of a rapid country water assessment, which will further serve to define the issues for research and the policy agenda.  - 47 - MATRIX OF ISSUES AND RECOMMENDATIONS Issue Current Situation Recommendations I .Water Decline in per capita supplies and exhaustion of available Clear long-term strategy for an integrated approach to water resource Resources water resources in a number of key basins. Per capita management. Availability renewable water resources are expected to decline by 50% so - A national water plan is needed to define the short, medium and long- that Morocco will suffer from water deficit and will become term planning, investment and policy decisions. a 'chronically water-stressed" country by 2020. - Greater emphasis on demand management and efficiency of water use, especially in irrigation, watershed management to enhance mobilization and reduce siltation of scarce reservoir sites. - Improved maintenance and rehabilitation of existing infrastructure. 2. Water Quality Degradation of water quality reaching critical levels in the - Include water quality and environmental regulations issues in the two most important basins. national water strategy and implement a water and environment code. Quality and environmental aspects of water sector - Define the institutional, legal and regulatory responsibilities to set, management divorced from the quantitative aspects. monitor, and control standards for urban, industrial and agricultural Institutional responsibility for water quality and pollution. environmental issues is fragmented. - Improve and expand sewerage treatment, giving priority to protection of surface and ground water. - Apply polluter-pays principle, higher prices for quality water and other economic incentives to enhance environmental management. 3. Potable Water Only 14 percent of the rural population is supplied with - Define institutional responsibilities for the implementation and Supply potable water. The absence of potable water exacerbates rural supervision of rural water supply program. poverty as a result of increasing ill-health, high prices paid - Encourage user associations and define financial and economic incentive for rural drinking water, and a slow-down in rural system to encourage local and private sector development of rural water. commercial activities. Institutional weaknesses and financial shortcomings in rural water supply.  - 48 - 4. Costs and The marginal cost of water and investment costs are rising - Give a greater role to market mechanisms in pricing. Pricing of water at Costs Recovery rapidly as more distant dam sites and groundwater reserves its opportunity cost should be introduced and greater weight given to are exploited, non-traditional water sources are explored and efficiency and pricing criteria. increased water treatment, transfers and pumping becomes - Burden of water cost should be shifted more rapidly from the necessary. These measures are not matched by cost recovery government to the consumers. and are not sustainable from a public expenditure standpoint. - Institutional, legal and regulatory changes needed to introduce water Urban tariffs on average cover barely 50% of the full charges that cover O&M, distribution, mobilization and investments marginal cost of water, and irrigation tariffs under 10% of costs, as well as pollution charges, including for sewerage treatment. marginal cost, including construction of dams and transfers. - The opportunity costs of new investments in the water sector need to be considered and the trade-off between rehabilitation of existing investments and expansion carefully evaluated. - Improved maintenance of existing infrastructure should lead to considerable financial and water savings. 5. Water Supply Existing infrastructure is deteriorating and siltation rates are - Supply management should be combined with demand management to and Demand reducing dam capacity. bring greater economic efficiency and to meet equity objectives. Management Demand management is inadequate and reflected by losses of - More efficient use of water is a priority, mainly through: over 60% of irrigation water and 25% of urban potable water a. Improved maintenance of existing infrastructure and enhancing supplies. watersheds to conserve water. b. Higher water prices and stricter environmental regulations should increase both efficiency in water use and improve quality. c. Water conservation by rehabilitating existing irrigation infrastructure through canal lining, field levelling, reducing siltation, replacing of equipment, etc., and moving to more water efficient irrigation systems such as drip and sprinkler systems. d. More demand management by the users themselves through user associations. e. Tradeable water rights could facilitate the transfer of water from irrigation to higher value added users and promote water saving technologies and water conservation.  - 49 - 6. Institutional Institutional arrangements involve a web of regulatory - Reform of the institutional, regulatory and legal framework for an and Regulatory interventions and institutional overlap which fail to provide integrated water sector strategy is required. This should lead to: Environment up-to-date, comprehensive and easily applicable mechanisms a. Institutional responsibilities that are well defined, including for water for addressing a number of critical challenges of water quality, rural water supply, watershed management, financing resource management. responsibilities, groundwater mining and water rights. Policy making is largely centralized, but much of the b. Greater decentralization and beneficiary involvement in water resource responsibility for water management is fragmented and rests management by devolving decision making to the basin level to local with sectoral ministries and agencies responsible for different authorities and stakeholders. end-users. c. The establishment of user associations that would shoulder a greater Users are inadequately represented in decision making and a share of the costs and maintenance responsibilities requiring greater system of arbitrage for allocative decisions is required. participation in strategic decisions on water production, distribution and maintenance. d. Enhance the role of the CSEC as a water parliament and complement its activities with a permanent inter-ministerial forum responsible for the definition of sectoral responsibilities and the determination and implementation of integrated water management strategies. - The key is to balance effective centralized management with coordinated decentralized activities.  - 50 - FIGURE 1 WATER CYCLE (billion cubic meters) Rainfaltl 150 Effective Rainfall 30 r r River base flow outflow fray aquir: and springs Potential SuLrfan Water Potential cr:waep I 1 2Z =7 l ~~~~~~~~~~~~~~~7.5 noc lst to evaporation a:d to the sea I !