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Results Briefs February 17, 2021

Reforms in Energy and Water Sectors Help Jordan Achieve Sustainable Development

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Reforms in Jordan’s energy and water sectors help improve service delivery amid exogenous shocks such as the influx of refugees in the country. Between 2015 to 2018, renewable energy resources were scaled up for domestic use. With focus on reuse and energy efficiency, water resources were optimized to improve allocation.

The Challenge

In 2015, an estimated 1.3 million Syrian refugees were residing in Jordan – equivalent to over 20 percent of Jordan’s pre-crisis population – placing tremendous pressures on public services and infrastructure, in particular, electricity and water services. Energy and water service delivery – already under great strain before the crisis – had been severely affected, especially in the northern governorates. The rapid growth of Jordan’s residential population was also putting additional pressure on the electricity and water sectors, adding to long-standing structural challenges relating to supply security, financial sustainability and efficiency.

Securing energy supplies to meet the economy’s rapidly growing demand in an affordable manner remains a major development challenge for Jordan. The country imports about 97 percent of its energy consumption, making Jordan one of the most import-dependent countries in the world and highly vulnerable to supply and price shocks.

Jordan is also one of the most water-stressed countries in the world. It has an estimated 105 cubic meters per capita of annual renewable resources, without considering the refugee population -- far below the threshold of severe water scarcity of 500 cubic meters per capita per year.

Rapid population and income growth, urbanization and the presence of refugees, have accelerated the decline in available per capita renewable water resources and increased the gap between supply and demand. Limited wastewater treatment capacity, inadequate cost recovery, high operation and maintenance costs, large water losses, and the dependency on transboundary waters further exacerbate water scarcity. Renewable surface and groundwater resources cannot meet water demand.

Approach

The program was structured around two pillars:

Improving the financial viability of the electricity and water sectors. The program supported country’s plan to sustain cost recovery in the electricity sector by adopting a robust cost recovery pass-through mechanism. The first pillar ensured a sustainable water service by growing the water sector’s revenues through tariffs and improving billing and collection efficiencies to recover operations and maintenance costs.

Increasing efficiency gains in the energy and water sectors. The program supported policies aimed at diversifying fuel sources by implementing a medium-term fuel supply strategy that increases the shares of natural gas and renewable energy. The program aimed to improve the quality of wastewater treatment, allowing reuse of treated wastewater. The program also provided additional support and incentives to maintain progress and avoid forcing a trade-off between future fiscal and sector resiliency when meeting the demands of an influx of refugees.

Results

  • Recovering costs of electricity tariff.  Three tariff increases adopted in August 2013, January 2014, and February 2015 under the government’s Electricity Tariff Plan resulted in raising NEPCO’s annual revenues by about JOD300 million or $423 million, thus enabling it to reach cost recovery ahead of its target in 2015. To sustain cost recovery, Jordan’s Energy and Minerals Regulatory Commission adopted a tariff adjustment mechanism that passes increases in electricity production costs to consumers. The tariff adjustment mechanism has been applied consistently every month since November 2017. The additional revenue from the tariff adjustment mechanism was estimated to be around JOD 257 million or $362 million in 2018.
  • Debt management. The government’s inter-ministerial committee on Public Debt developed and adopted a Debt Management Plan for NEPCO in 2017 that is aligned with Jordan’s overall public debt management strategy.
  • Providing of clean energy for power generation and scaling up renewable energy resources and energy efficiency for domestic use. Nearly 85% of electricity was generated from natural gas imported from Aqaba’s Liquified Natural Gas terminal through two contracts. NEPCO had also revived the supply of piped natural gas from Egypt since September 2018 and had signed a contract for supply of piped gas from the Leviathan starting 2019. Jordan’s Ministry of Energy and Mineral Resources also issued new regulations for renewable energy procurement. A public data room had been developed in the form of an energy web portal, which allowed users to access a wide range of data on Jordan’s energy sector. NEPCO had also adopted standardized operating protocols in integrating renewable power into the transmission grid in the National Control Center.
  • Scaling up renewable energy in the water sector. In 2016, natural gas in Jordan accounted for 86 percent of power generation, helping reduce fuel costs. The annual energy savings of 50 GWh hours was exceeded with the commissioning and operation of the 80MW Ma’an windfarm. Along with an additional 14 MW of renewable energy projects, total savings were around 84 GWh in 2017. The share of renewable energy rapidly increased. Jordan – through independent power producers (IPPs) – is now a leader in private sector-owned renewable energy investments in the region, with 30 IPP projects totaling 1,374 MW in various stages of development by 2018.
  • Optimizing water resources to improve allocation. A policy aimed at regulating surface water utilization in Jordan was adopted in 2016. The Ministry of Water and Irrigation increased the amount of treated wastewater used for nondomestic uses to 144.2 million cubic meters (MCM) annually by 2018, enabling 131.3 MCM of surface water a year to be directed to municipal use. A national plan for wastewater treatment plants was adopted in 2018 and aims to improve the operation and management of 33 wastewater treatment plants in Jordan, focusing on reuse and improving energy efficiency.

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144.2 million cubic meters

wastewater treated to be reused for non-domestic purposes.


Bank Group Contribution

The program is a two-part series focusing on reforming Jordan’s energy and water sectors. The First Programmatic Energy and Water Sector Reforms Development Policy Loan was concluded in December 2015, with funding $250 million from IBRD. The second program was supported by a $25 million contribution from the Global Concessional Financing Facility (GCFF), which offers low-interest conditions normally reserved for the world’s poorest nations, combined with a $225 million loan, repayable over 35 years with a four-and-a-half-year grace period.

Partners

Partnerships with the United States Agency for International Development (USAID), Japan’s International Cooperation Agency (JICA), Germany’s KFW, France’s Agency for Development (AFD) and the International Monetary Fund (IMF) supported active policy dialogue and coordination in understanding the challenges faced in the energy and water sectors. For instance, the analytical work to develop Jordan’s National Electric Power Company’s (NEPCO) debt management plan was supported by USAID, while the work on tariff adjustments was supported by AFD, in addition to the Bank’s own analytical modeling of NEPCO’s financial projections. Regular interactions with these developmental partners and donor coordination meetings were extremely useful in maintaining reform momentum in both sectors.