Disi Amman Water

Summary of Proposed Investment

This Summary of Proposed Investment is prepared and distributed to the public in advance of the IFC Board of Directors’ consideration of the proposed transaction. Its purpose is to enhance the transparency of IFC’s activities, and this document should not be construed as presuming the outcome of the Board decision. Board dates are estimates only.

Project number	26620
Company name	DISI Water PSC
Country	Jordan
Sector	Utilities
Environmental category	A
Department	Infrastructure
Status	Pending Approval

Date SPI disclosed	February 29, 2008
Projected board date	May 1, 2008

View Environmental & Social Review Summary (ESRS), click here

Overview

Sponsor/Cost/Location

Development Impact

Contacts

Attachments

Project description

The project is to finance a bulk water extraction and conveyance system to supply the Greater Amman area with 100 million cubic meters per year of potable drinking water. It involves the extraction of water from the Disi Aquifer using a well field comprising 55 wells and conveyance of the water through a 325 km pipeline to two reservoirs (one existing and one to be constructed as part of this project) in Amman. With a cost estimated at approximately $875 million, the project is being executed through 25-year contract on a build-operate-transfer (BOT) basis between DIWACO and the Water Authority of Jordan (WAJ), a Government of Jordan (GOJ) agency within the Ministry of Water (MWI). It’s important to note that the WAJ is responsible for distributing water to ultimate users and for setting tariffs.

WAJ and MWI originally conceived the project to convey additional water to the Greater Amman Area from the Disi Aquifer to reliably meet urgent high quality water demand shortfalls while relieving the upland groundwater aquifers from over-abstraction. Currently, water is rationed on a rotational basis that enables the majority of Amman households to receive running water only one day per week. The Disi water will form the major portion of the extra water that is needed to partially replace the low quality groundwater currently consumed by domestic users in Amman, as well as to meet future demand from the influx of migrants from surrounding countries. Because the Disi Aquifer has a finite life span, the project is part of the GOJ’s larger regional framework of water management and development of new resources, which eventually will include the desalination of seawater from the Red Sea in the South. Thus, the Disi conveyance system is designed to serve the long term water delivery needs for Jordan.

Project sponsor and major shareholders of project company

Gama Enerji A.S., 90% by Gama Holding A.S. (Gama) and 10% owned by 38 stakeholders, will be the sole owner of DIWACO, the project company incorporated as a private shareholding company in Jordan for the purposes of carrying out the project. On December 10, 2007 GE Energy Financial Services (GEEFS), a unit of General Electric, announced that it would acquire 50 percent of the equity of GAMA Enerji AŞ from GAMA Holding AS. Financial details of the transaction – that is subject to competition authority approvals in Turkey and Ireland, amongst other conditions – were not disclosed.

Gama was initially established in Turkey in 1959 as a construction contracting company. It has since expanded to become an international player with knowledge and experience in various infrastructure sectors including power generation, petroleum, petrochemical and gas plants, housing complexes, water and sewage treatment plants, bridges and roads. Gama has a wide geographical presence outside of Turkey, with projects throughout the Middle East, Russia, CIS Countries, South East Asia, North Africa and Europe. It is a private company, collectively owned by 38 shareholders, with the largest four shareholders controlling 52.9% of the company. Gama has 5 major operating subsidiaries, as described in the chart below:

Gama Enerji A.S. and Gama Industry will be the key subsidiaries involved in the project. Gama Enerji A.S., an investment company established in 2002, concentrates in the development, operation and maintenance of projects mainly in two segments: Energy and Water Utility. Its projects are located across the Middle East and Europe, and mostly made up of secure and reliable BOT and BO contracts. Gama Industry, the intended EPC contractor, was established in 1970 and specializes in turn-key construction of a wide range of infrastructure works.

In 2006, Gama Holding had consolidated revenues of $866 million. Total assets and shareholders equity as of December 31, 2006 stood at $1,089 million and $346 million respectively, with a net financial debt-to-equity ratio of 59%.

Total project cost and amount and nature of IFC's investment

The estimated project cost is $875 million, which is proposed to be financed with a

- $200 million contribution from the MWI
- $175 million of equity
- $250 million IFC A/B Loan
- $250 million OPIC Loan

- Sources:

Sponsor Equity Contribution: $175.0 million
MWI/WAJ Contribution: $200.0 million
IFC A Loan: $200.0 million
IFC B Loan: $50.0 million
OPIC Loan: $250.0 million
Total: $875.0 million

- Uses:

EPC cost: $700.0 million
Contingencies: $28.0 million
IDC: $ 86.7 million
Other costs: $60.3 million
Total: $875.0 million

Location of project and description of site

The project involves the extraction of water from the Disi Aquifer located near Al Mudawwarah and the conveyance of the water to the Greater Amman Area, a distance of approximately 325 kilometers. The project facilities will include:

- a wellfield system at the Disi Acquifer,
- the 325 km long conveyance pipeline between the Disi Acquifer and Amman;and
- the operation, support and maintenance facilities along the route from the Disi Acquifer to Amman.

In addition, the poject includes the development of additional turn-outs from the conveyance pipeline to demand centers along the route.

Anticipated development impact of the project

- Icrease in Clean Water Supply:

Water scarcity is the single most important natural constraint to Jordan’s economic growth and development. Water scarcity has been an issue for more than 20 years in Jordan, but has become a critical one over the past 5 years, as an influx of hundreds of thousands of refugees from neighboring countries, essentially Iraq led to a dramatic increase in population. The project will result in approximately a 100% increase in the volume of water currently supplied to Amman. As a result, the project will have unusually high development impact as it will lead to direct improvement of sanitary conditions, health and wellbeing of the local populations, as well as better standard of service in other sectors (e.g. hospitals, hotels, etc). The project is expected to have a particularly high development impact on the lower-income strata of Amman who suffer disproportionately because they have less economic means to pay for alternative and expensive non-piped water supplies. It will also benefit consumers in several other towns and cities that will receive water from the pipeline when their local supplies are insufficient to meet demand.

- Private Sector Development:

Infrastructure development in Jordan, particularly in water and wastewater, has remained primarily in the public domain. Over time, the existing infrastructure has not kept pace with the increasing demand for these services, and the need for additional investments is huge. Therefore, there is a growing recognition by the GoJ that significant private investment must be attracted to this sector. This project will be IFC’s first in Jordan’s water sector and marks the continuation of a very limited entry of the private sector in Jordan, and, following the Queen Alia Airport project, is expected to act as a pilot for future private infrastructure investments for the sector in the future.

IFC's expected development contribution

IFC’s role includes:

- helping to achieve provision of much needed water to the city of Amman at a competitive price through the provision and mobilization (in collaboration of other international financial institutions) of long-term financing that is not otherwise available in MENA. IFC is one of very few lenders that have the ability and willingness to provide such long-term funding (18-20 years) in Jordan.
- facilitate south-south investments by helping GAMA, a major player in SECA, to expand into new markets in the MENA region;
- enhance the project’s environmental and social practices by ensuring compliance with World Bank E&S standards; and
- political comfort to the sponsor.

By supporting the project, IFC will facilitate a landmark involvement of the private sector in providing expertise and financial resources for the development of a key water resource and transportation infrastructure in Jordan, a role which has traditionally carried out by the public sector. Without IFC’s involvement, the project would not be able to raise the long tenors required to attract private participation. In addition, the GoJ requested IFC to provide high-level advice on how to structure the project and consider programs that would have the ultimate objective of reducing the effective tariff paid by the GoJ.

Environmental and social issues - Category A

In support of its offering a partial risk guarantee to the Government of Jordan in 2004, the World Bank categorized the project as a category A, and the MWI conducted a full-scale environmental and social assessment (ESA) consistent with its applicable policies. Although the project will contribute to improving the environment, primarily through enabling reduction in the over-abstraction of aquifers presently used to supply urban water needs, there are potential impacts that need to be addressed, including:

- sustainability of the non-renewable Disi Aquifer (a transboundary resource that does not fall within the scope of the UN Convention for Non-navigational Uses of International Waterways);
- limited land acquisition;
- temporary disruption (dust, noise and traffic) of businesses and properties during construction; and
- impacts on sensitive habitats and archaeological or cultural antiquities that might be discovered during construction.

The MWI in 2004 identified site-specific mitigation measures contained in a project Environmental and Social Management Plan (ESMP) for both the construction and operation phases of the project. The ESMP also articulated specific environmental and social management system requirements so as to ensure implementation of the Plan.

DIWACO has committed and presented plans to conduct its activities in accordance with measures contained within the original ESMP prepared by MWI, and will, upon implementation of specific additional measures described below, comply with the IFC Performance Standards on Social and Environmental Sustainability.

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