Water works: Irrigation schemes are increasing the amount of land available for cultivation

In a bid to anchor and expand the success of agro-exports along Peru’s coastal land, national and regional authorities have initiated work on a range of vast irrigation projects. However, while commercial farmers are eager to tap into the country’s thriving agro-exports business, auctions of irrigated land have elicited varying levels of interest in the recent past.

Chavimochic

One of the most promising projects is the third phase of the Chavimochic scheme, in the north-western region of La Libertad. The first two stages were built between 1986 and 1995, executing, among others works: the main intake of Chavimochic, inter-basin tunnel, the main channel of Chao-Viru-Moche, the first and second line of Viru siphon, the drinking water treatment plant of Trujillo, and Viru hydropower plant. The implementation of the first two stages have added 46,000 ha, combining new and improved irrigated land to the region, which rapidly found interested buyers. The third phase will create 63,000 ha of newly irrigated land while enhancing irrigation in 48,000 ha in the nearby Chicama Valley, adding another 111,000 ha to the project’s total. ProInversión, the Peruvian state agency engaged in promoting concessions on major public works, is in charge of the entire process, including the prequalification stage, which generated interested from at least 17 bidders. In November 2013, the government announced eight qualified bidders, with the tender set to be awarded the following month.

“The successful commercialisation of the first two stages provides reassurance about the upcoming bidding round to investors around the world,” Luis Pita Chávez, manager of hydroelectric and irrigation projects at ProInversión, told OBG. The 25-year concession on offer, valued at $600m, includes the construction of the Palo Redondo Dam to regulate the water of the Santa River and a channel extension to the Moche, Chicama and Urricape valleys. It will also encompass the installation and servicing of a water distribution network to local residents, and the operation and maintenance of the works completed for stages I and II. Set to create 150,000 jobs, the project will have a significant socioeconomic impact, and has raised the interest of regional development banks. The Andean Development Corporation has announced its intention to provide financing of up to $300m. Once it is completed, the project is set to add approximately $1.2bn per year to agricultural export capacity.

Majes-Siguas II

Another major project in the pipeline is Majes-Siguas II, initiated by the regional government of Arequipa. The scheme aims for an irrigated surface of 46,500 ha and a hydroelectric unit generating over 500 MW. The first phase, which entailed the construction of preparatory infrastructure, such as the Condorama dam, tunnels and canals, was finalised in 2010 and co-financed by federal and regional authorities. The initial master plan for the second phase stipulated an upgrade of the existing irrigation infrastructure and an expansion of the capture area, through construction of the Angostura dam, and derivation and irrigation networks towards the Majes and Siguas plains.

However, shortly after awarding the concession to a consortium of Spanish and Peruvian engineering firms, Cobra Instalaciones, Seguros and Cosapi, in September 2010, the project stalled over a dispute between the two regional governments. The matter arose from a debate on the contribution of water from the Apurimac River, which flows through Cusco territory. According to the findings of the Arequipa Regional Government (ARG), the volumes from the Apurimac were overstated and, in fact, almost entirely sourced from the Colca River, which crosses the Arequipa region. Consequently, it called for a third-party investigation, which was launched under the supervision of the UN Office for Project Services in 2011. Slow progress on the studies, attributed by some to resistance from the Cusco authority, restricting access to vital research areas, has pushed the ARG, in consultation with ProInversión, to look into an alternative option by relocating the Angostura dam to a point along the Colca River.

“The new plan allows for an equally sized irrigated surface and, provided the feasibility and cost analysis are favourable to the concessionaire, this project should start taking shape soon,” Pita told OBG.

Olmos Tinajones

Another high-potential project with some complications is Olmos Tinajones, located in the Lambayeque region, 900 km north of Lima and overseen by the Lambayeque Regional Government (LRG). In 2010 Brazilian engineering firm Odebrecht was granted a 25-year concession for the installation and commercialisation of irrigated surfaces on 38,000 ha of lands owned by the LRG, and organised its first bidding round in March 2012. While expectations of private sector interest were high, the turnout was low due to unfavourable auction conditions. The promised availability of water – 10,000 cu metres per ha – was 50% guaranteed, leaving plot owners dependent on groundwater and rainfall. By comparison, the first two phases of the Chavimochic irrigation project were sold under a 90% guarantee, while Majes-Siguas’s terms guarantee 87%. Large plot sizes were another issue. Sold at a minimum of 1000 ha, many small and medium-sized commercial farms were excluded. In all, 29,000 ha were sold, with most going to Grupo Gloria, Peru’s largest landholder. The other 9000 ha was left to Odebrecht.

Pita believes that a revision of the infrastructure investment plan would help to attract additional interest. “An expansion of infrastructure is needed to raise the water guarantees to a level that investors are comfortable with,” he told OBG. While the immediate future of the Olmos Tinajones project remains uncertain, it has not lost its potential. As Pita told OBG, “A well-guided expansion of infrastructure could increase the irrigated surface up to 150,000 ha, as well as raising capacity for a hydroelectric unit from its current level of 50 MW to around 500 MW, giving the project an additional competitive edge.”

Water Shortage

While these projects are set to attract investments in commercial export-oriented farming, the Ica region is working to launch water projects that would help secure the activities of current plot owners. While the Ica Valley enjoys a high density of commercial farming, this has also resulted in overuse of the available water and a drop in groundwater levels. Pita says 30% of the valley’s arable land is at risk of being lost if no measures are taken to expand supply within the next five years.

Cognisant of the issue, the Ica Regional Government (IRG) is investigating the potential of sourcing additional volumes of water from its highlands, but is experiencing resistance from farmers, who fear their livelihood may be at stake as their access to natural water resources is restricted. ProInversión is currently in talks with the local authorities to develop a solution agreeable to residents and commercial farm owners. In March 2013 President Ollanta Humala said he was eager to help the IRG find suitable solutions to the looming water shortage. “We are going to study and implement a range of projects aimed at both water reinjection and expansion of irrigation infrastructure,” President Humala told local media.

A number of other projects are also in the works. The federal government is finalising talks with the Ecuadorian government to start work on 19,500 ha of irrigated land near Tumbes, bordering Ecuador’s south-west. The project has received a green light from both sides of the border and feasibility studies could be complete by early 2014.

Positive Impact

Taking into account possible cancellations and delays on the announced projects, Pita forecasts that more than 150,000 ha of irrigated land will be in production over the next 10 years. That is a significant addition to Peru’s current total of 100,000 ha. Cesar Ostos, deputy manager at BASF in Peru, told OBG, “The main engine of the Peruvian economy will continue to be the mining sector; however, agriculture is becoming more important, especially after the expansion of irrigated farmland is completed.”

In addition to large-scale projects attracting substantial private financing, some sector participants feel that efforts should also be directed at smaller, more specialised irrigation enterprises. Adolfo Valle, general manager of global produce supplier UNIVEG, told OBG that modest investments in small irrigation projects could triple irrigation capacity over the next two years. “Private investors are looking at large projects with potential for significant and quick returns,” said Valle. “While this has led to great strides in the construction of vital infrastructure, smaller targeted projects are easily overlooked.”

Government efforts, in line with the requirements of farmers’ associations, could bring considerable further success by targeting smaller areas. With initiatives like the Mi Riego (my irrigation) fund in the pipeline, the example is taking shape in the Andes. Small and medium-scale farmers in other parts of the country will be looking out for similar opportunities to grow their access to irrigated land in the future.