Challenge

The annual demand for irrigation in Yuanmou is 92.279 million cubic meters (m3). However, only 66.382 million m3 of water is available each year. Only 55% of the 28,667 hectares of arable land in the county is irrigated.? The people of Yuanmou have long been clamoring for solutions to this water crisis, but the local government has limited budget and capacity to undertake water conservancy efforts on top of its planned infrastructure projects.

Context

Yuanmou County is located north of the Central Yunnan Plateau and governs three towns and seven townships. Its largest sector is agriculture, and around 90% of the population are farmers. The county is rich in rice, vegetables, mango, longan, coffee, tamarind fruit, and other tropical and subtropical crops.

There are three reservoirs in the region, which can serve as water sources for irrigation. In addition, the annual per capita income of local farmers is over ￥8,000 ($1,153) and the average output value per hectare exceeds ￥150,000 ($21,623). These factors make?Yuanmou?economically ideal?for the implementation of a water conservancy reform project under a PPP.

Solution

The PRC Government encourages the private sector to participate in the investment, construction, and operation of water conservancy projects via the PPP model as this could alleviate the financial and technical burden of the government in delivering better and timely public services.

Through competitive procurement, the local government of Yuanmou selected Dayu Irrigation Group Co., LTD. as the project partner of its Water Bureau in constructing a water network system for farmland irrigation. Dayu will operate this system for 20 years.

The project built an integrated water network system with the following components:

• Water intake: Two multi-level intake facilities in two reservoirs.
• Water transmission: A 32.33-kilometer (km) main pipe for water transfer from the intake facilities and 46 water transmission trunk pipes perpendicular to the main pipe with a total length of 156.58 km.
• Water distribution: 801 sub-main pipes for water distribution perpendicular to water transmission trunk pipes with a total length of 266.2 km, 901 branch pipes for water distribution perpendicular to the sub-main pipes with a total length of 345.33 km, and 4,933 DN50 smart water meters.
• Farmland engineering: A pipe network under the branch pipes for water distribution, consisting of 4,753 auxiliary pipes with a total length of 241.73 km, tubes of 65.56 million meters, drip irrigation pipes of 3.33 million meters, and 1.2 million drippers.
• Smart water-saving information system:?A monitoring system for water transmission and distribution, a monitoring system for meteorological and moisture information, automatic water-saving irrigation, and a control center for the information system.

The project integrated smart water meters, electric valve, power supply system, wireless sensor, and wireless communication equipment to transmit information, such as crop water consumption, fertilizer amount, pesticide amount, soil moisture, weather change, safe operation of pipes and others, to the control center. A special application was developed which farmers can download and install on their mobile phones. The farmers can use the app to pay water fees and apply water from the control center. After collecting the water application information from the farmers, the control center works out water supply schedule and inform them via text messaging. Then, the farmers can use their mobile phones to operate local control valves for irrigation, fertilizer, and pesticide application. They can now get water on demand and save labor costs as well.

Aside from building infrastructure, the project also introduced data- and market-based mechanisms to make the integrated water network system sustainable.

• Initial water rights allocation:?Based on thorough investigation and analysis, the government indicates the average water consumption standard per hectare and sets up a water rights transaction system in which water rights can be traded.
• Water pricing:?The government sets the water price, which may be adjusted based on calculation and supervision after the public hearing of the Price Bureau.
• Water-saving incentive and targeted subsidy mechanism:?The government sets up a water-saving reward fund to provide an incentive to farmers and subsidize rice planting. Meanwhile, a progressive surcharge plan must be applied for excess water usage.
• Mass participation:?The water usage cooperative, ?organized? by the local government and jointly established by the reservoir management office, 16 communities and village committees, for large-scale irrigation area of Yuanmou County has absorbed 13,300 water users in the project area as cooperative members and raised ￥27.2596 million ($3.9296 million) by way of share subscription invested in the Special Purpose Vehicle (SPV), the subsidiary company established jointly by Dayu and the local government of Yuanmou, with a guaranteed return at a minimum rate of 4.95%. The farmers’ investment facilitates the implementation of the project and shares the profit of the SPV.
• Project management and maintenance.?The project implemented a three-level management and maintenance. The project’s related water sources are managed and maintained by the reservoir management office. The water transfer pipes and smart water metering facilities from water intake facilities to the field end meters are managed and maintained by the SPV. Meanwhile, the drip irrigation pipes after field end meters are self-built and managed by the beneficiary users. The project asset rights are clarified according to the principle of “one owns what he invests”.

Results

The project promoted the shift to a modern agriculture system that is effective in saving and maximizing the efficient use of water, fertilizer, time, and labor; and in increasing the income of farmers.

With the systematic drip technology, water utilization in the farmlands was made efficient. The average water consumption per hectare was reduced to 2,700–3,600 m3 from 9,000–12,000 m3. Aside from reducing the farmer’s workload, the use of drip irrigation pipes to apply chemical fertilizers and pesticides improved their utilization by 30%. This increased the agriculture production by 26.6% and farmers’ income by 17.4%.

The project also reduced the average water cost per hectare to ￥5,250 ($757) from ￥18,870 ($2,720). This encouraged the farmers to switch from traditional grain crops to high-value cash crops like economic forest fruits, such as mango, longan, grape and orange. This increased the income per hectare by more than￥75,000 yuan ($10,812).

The Special Purpose Vehicle, which relies on the water charge paid by the farmers, is expected to recover its investments in 5 to 7 years. Its return on investment is above 7%.?

Effective monitoring and remediation of water quality, environment, and soil promoted responsible and green farm production. The use of chemical fertilizers and pesticides was minimized. These measures reduced non-point source pollution and made local agriculture more resilient to climate change.

Lessons

The engagement of private company is conducive to the transformation of government role from “athlete” to “referee.”?Full market competition enables professionals to practice their expertise.

The business model of the project is complex and requires a strong comprehensive ability for project construction and operation.

The PPP project, covering a large area, demanding high investment,?and using smart technologies, not only effectively reduces the pressure of government funds for one-time investment, but also ensures the construction completion in time and good operation performance.

Note: ADB recognizes “China” as the People’s Republic of China.

Resources

China Public Private Partnerships Center(link is external)?website.