A Tecnam P92 Eaglet pilot reported engine failure on initial climb and a safe return to the airport. Reporter lost directional control during landing resulting in a runway excursion.

Narrative

Today I had to do an emergency landing after takeoff because my engine failed. I work for a small flight school and I was going up to check if the planes transponder was working. However; this plane had been in maintenance for months and had been sitting outside. When we went to go fly it; I had done a proper pre-flight to ensure everything was good and did a fuel sump. I had noticed there was water in the first sump and continued sumping until there wasn't any water left. However; what I did not know was the fuel we were using is capable of absorbing water. So we start the engine and get it going and it was working just fine on the ground. Did the run-up; no problem. At 600-800ft AGL; full power; I noticed my rpm dropped significantly. I kept flying straight for a few seconds until I accepted that my engine was having serious issues and I knew I had to land immediately. I turned left; pitched down; and that was when my engine died. Luckily the airport I fly at has two runways and I was able to land on the other runway but I had to turn left a lot to get me on the runway. This caused me to sway over to the right when we got on the ground pushing me off the runway onto the grass nearby. I managed not to hit any runway lights or signs; and no injuries or aircraft damage. After we got it back into the hangar we removed the fuel and it was clear that there was way too much water. I had perceived the risk of the flight before going in but I failed in my judgement with the fuel. I should've known better to remove the fuel and bring in a new batch. A human factor that contributed to this was the fact that I don't want to let down my boss; or the aircraft owner. Not that they were forcing me to fly or anything but perhaps I didn't feel confident enough to advise the removal of the fuel completely and I was ignorant in knowing that this particular fuel can absorb water.