Transcript Slide 1

May 15, 2008 Conference in Seoul, Korea
Sustainable Water Projects: The Task for
Economic Institutions and Supporting Institutions
by
K. William Easter
Professor of Applied Economics
University of Minnesota
2
A drip irrigation system farm May 16, 2007
3
I. Introduction
1. Key for sustainable water systems – adequate
finances
2. Historical cost recovery has been low (Table 1)
3. Resulting in poor and declining service
4. Poor operation and maintenance (O&M)
5. Growing salinity problems and declining productivity
6. Institutional arrangements are key to cost recovery
7. Show this with successful projects
4
Table 1: Low Costs Recovery or Collection Rates
Country/Region
Collection Rate
Cost Recovery Rate
70%
12% of O&M
3-10%
low
Brazil Jaiba Project 1995
66%
52% of total costs
Columbia 1996
76%
52% of the O&M
58-67%
NA
Italy 1997
NA
60% of total costs
Jordan 1999
NA
50% of O&M
Macedonia 2000
42%
NA
Nepal 1984
20%
NA
Pakistan 2001
30-35%
NA
Philippine 1995
58%
46% of O&M
Sri Lanka 1984
8%
NA
Argentina 1997
Bangladesh 1998
India Maharashtra 1984
5
II. Institutions for Water
A. Definitions:
1. Institutions are the “rules of the game” while the players are
the organizations, firms, or individuals” (North)
2. Institutional arrangements for water
a. Defines who has access to water
b. Establishes the range of options for water users
c. Determines who can claim income and who pays for
water use (Livingston)
d. These may be formal or informal rules
3. Where do institutional arrangements fit into water
management? (Figure 1)
6
Figure 1. Irrigation management system with inputs and outputs
7
III. Outline of Lecture
A.
Framework for analyzing institutions
B.
Problem of designing effective institutions
C.
Why low cost recovery?
D.
What costs to recover from farmers?
E.
Cost allocation among users
F.
Alternative charges for cost recovery
G.
Key institutions for effective cost recovery
H.
How reforms occur: Institutions and public policy
I.
Conclusions
8
IV. Analytical Framework (Williamson, 2000)
Level One – informal institutions such as norms,
customs, mores, and religion. Beliefs regarding
water as “basic right or an economic good” (Fig. 2).
Level Two – rules for making rules, property right
laws, and policies.
Level Three – governance structures. For water, it
ranges from spot market for water, to water contracts
and allocations by water agencies (hierarchical).
Level Four – actual exchange of water.
9
Figure 2. Levels of Institutional Analysis (developed from Williamson, 2000)
10
V.
Designing Institutions – What Effects Change?
A.
Problem of path dependency: old institutions
and organization block change. (first level)
B.
Institution affected by physical environment
especially the level of water scarcity.
C.
Lack of second-level institutions resulting in weak
third-level institutions
11
V.
Designing Institutions – What Effects Change?
(continued)
D. Change in government and economic policy
preceded changes in Chile’s and China’s water
institutions.
E. Design of water institutions is complex and each
policy and governance structure will usually have
some drawbacks as well as strengths.
F. If institutional change doesn’t offer positive net
returns, then it may be better to wait until conditions
are better-suited for change.
12
VI. Why Has Cost Recovery Been Low?
1. No linkage between fees collected and project
O&M
2. Lack of user participation
3. Poor communication and lack of transparency
4. No penalties for management or staff for
providing poor service and water delivery
5. No penalties for defaulting on payments
6. Inappropriate infrastructure design
7. Corruption among irrigation officials
8. Low priority given to fee collection, efficient
water use, and system O&M
13
VII. What Costs to Recovery?
A. Direct project costs
•
•
•
•
Costs of capturing and delivering water
Fixed costs and variable costs in operations
Capital costs
Most projects focus on operation and
maintenance costs
14
VII. What Costs to Recovery? (continued)
B. Environmental costs
•
Soil erosion, damage to ecosystem, salinity, etc.
C. Marginal user costs: The present value of future
sacrifices caused by current resources use
•
•
Important in use of groundwater stocks
Also important if storing surface water for long
period – offset by evaporation rate
15
VIII. Costs Allocation: Multipurpose Projects
Three common alternatives:
1. Use of facilities (UOF) (Table 2)
2. Alternative justifiable (specific) expenditure (AJE)
3. Separate costs, remaining benefits
16
Table 2. Cost Allocation for Three Consumptive
Uses Based on Water Delivery
Three Indian
water projects
Domestic
supply
Industrial
supply
Irrigation
Nagarjursagar
2%
0%
98%
Tungabhadra
1%
4%
95%
Sriram Sagar
2%
3%
95%
Source: World Bank, 2003.
17
IX.
Cost Allocation: Indirect Beneficiaries
A.
Sana’s Basin Water Management Project,
Yemen
●
Objective to reduce groundwater use with
subsidies for new technology
●
Has been effective in reducing water use by
allocating some of cost to public
●
A way to incorporate marginal user cost of
groundwater
18
IX. Cost Allocation: Indirect Beneficiaries
(continued)
B. Irrigation in India was to help reduce food
prices and food shortages
●
Should consumers be allocated some of the
costs (tax payers)? (Table 3)
●
What share should farmers pay?
●
If indirect benefits included, maybe only 75-80%?
19
Table 3. Cost Allocation Among Three Projects Based
on Direct Benefits
Three Indian Water Projects
Sriram Sagar
(percent)
Nagarjursagar
(percent)
Tungabhadra
(percent)
Irrigation
88.1
94.3
91.3
Hydropower
3.0
4.0
4.2
Domestic
3.0
1.6
2.1
Industry
4.3
0.1
2.3
Fisheries
1.6
0.1
0.1
Purpose or use
Source: World Bank, 2003.
20
X.
Alternative Mechanisms for Collecting Costs
A.
Area-based charges
● Varied by hectare (ha.)
● Varied by hectare and crop
● Varied by hectare and season
● Varied by hectare and technology
21
X. Alternative Mechanisms for Collecting Costs
-- continued
B. Volumetric charges
●
●
Block charges: can vary charges and quantity at which
charge will increase (Figure 3)
Two-part charge is a fixed charge plus volumetric charge:
resolves conflict between full cost recovery and efficient
pricing
C. Water markets – sale or lease
● Improves water allocation
● May increase farmers’ ability to pay fees
22
23
XI. Key Institutional Arrangements for Cost
Recovery
A.
Financial autonomy of projects
1. Needed to assure that funds collected are
used to operate and improve the project
2. Managers have strong incentives to provide
improved service and collect fees
3. Incentives to improve infrastructure: more
water to sell
●
Yangtze Basin Water Resource Project
24
XI. Key Institutional Arrangements for Cost
Recovery – continued
B.
Improve incentives (to pay and to collect)
1. Haryana, India: defaulters can lose their land
2. Awati, China: awards and penalties to
encourage staff to achieve high collection
rates
3. Bayi Irrigation District, China: awards and
fines to encourage staff to collect and turn in
fees by deadline (Tables 4 & 5)
25
Table 4. Factors Influencing Fee Collection Rate
Incentives to pay
Financial
Autonomy
Incentives
to collect
Penalty
for
non
payment
Awati, China
Yes
Yes
N.A.
N.A.
Yes
N.A.
Yes
98
Bayi ID,
China
Yes
Yes
Yes
Yes
Yes
Yes
N.A.
100
Nanyao ID
China
Yes
Yes
N.A.
N.A.
Yes
N.A.
N.A.
95
Shangdong
China
N.A.
N.A.
Yes
Yes
N.A.
Yes
N.A.
100
Yangtze
Basin, China
Yes
N.A.
N.A.
Yes
Yes
N.A.
Yes
N.A.
Gujarat, India
Yes
Yes
Yes
Yes
Yes
N.A.
N.A.
100
Partly
N.A.
Yes
N.A.
Yes
N.A.
N.A.
85–95
Mexico
Yes
N.A.
Yes
Yes
Yes
N.A.
Yes
90
Alto Rio
Lerma,
Mexico
Yes
Yes
N.A.
Yes
Yes
Yes
N.A
100
Senegal
N.A.
N.A.
N.A.
Yes
Yes
Yes
Yes
Covers 100
O&M
Cases
Haryana,
India
Improved
irrigation
service
User
Participation
System
transparency
Education
Collection
rate
(percent)
N.A = Not available; 1 mu = 0.067 hectare.
26
Table 5. Factors Influencing Water Use Efficiency
Switch to
volumetric
metering
Awati, China
Shangdong,
China
Cases
Education
Pricing
structure
Water-saving
technology
availability
Assurance
of water
delivery
Public
awareness
Technical
assistance
Annual
saving
Yes
Increasing
block
N.A.
N.A.
Yes
N.A.
50m3 /mu
Yes
Volumetric
N.A.
Yes
N.A.
N.A.
5 Bm3
Yangtze Basin,
China
Yes
Volumetric
N.A.
Yes
Yes
N.A.
1.18 M m3
in WUA
Katepurna,
India
Yes
Volumetric
Yes
Yes
Yes
Yes
7.71 M m3
Already
used
Volumetric
Yes
N.A.
Yes
N.A.
N.A.
N.A.
N.A.
Yes
Yes
N.A.
Yes
101 Mm3
Tunisia
Mula area,
Spain
27
XI.
Key Institutional Arrangements for Cost Recovery
-- continued
C. Increase user participation and transparency
1.
Laur Projects, Philippines: rehabilitation and system turn over
to water user associations (WUA)
●
●
●
Farmer involved in design of rehabilitation and
decisions on expenditures
Cut costs 60%
Collection jumped from 45 to 74%
2.
Indonesia and Senegal: WUAs improved project design and
cost recovery
3.
WUAs in Mexico combined with water rights and payment
required before receiving water increased cost recovery
4.
Survey of benefits of WUAs in Maharashtra, India
●
75% of farmers in WUAs willing to pay 25% higher fees
28
XI. Key Institutional Arrangements for Costs
Recovery – continued
D. Improved service and communication
1. System transparency
●
Shangdong, China: IC machines
2. Assurance of water delivery
●
Katepurna, India: service contracts
3. Public education
●
Katepurna, India and in Mexico
29
XII. Reasons Reform Occurs: Institutions and Public
Policies
A.
Changes in economic policy and local organizations
•
B.
China and Chile (Table 6)
Poor infrastructure and water scarcity
• Mula, Spain and Katepurna, India
C.
Legal/Institutional arrangement
• Mexico and Chile
30
Table 6. Country Conditions and Irrigation Practices
Good practice
Country conditions
and policies
Physical
conditions
Economic/
political
conditions
and policies
Legal/
institutional
arrangements
Pricing
structure and/or
technology that
encourages
water savings
Management transfer
Assurance and
transparency
in water
delivery
Public education/
technical
assistance
Water market
Financial
autonomy
User participation
Water
scarcity
and
drought
common
Awati, China;
Katepurna,
India; Tunisia
Shangdong,
China
Tunisia
n.a.
Gujarat, India
Mexico
Gujarat, India
Infrastructure in
poor
condition
Mula, Spain
Katepurna,
India;
Mula, Spain
Katepurna, India
Mula, Spain
n.a.
Mexico
Katepurna, India
Economic
liberalization
Yangtze, China
Yangtze,
China
n.a.
Elqui, Limari
and Maipo
rivers in Chile
Awati, Bayi,
Nanyao, Yangtze,
China; Mexico
Indonesia; Mexico
Decentralization
Shangdong,
China
Shangdong,
China
Yangtze, China,
Alto Rio Lerma,
Mexico
Murray and
Darling rivers
in Australia
Awati, China;
Gujarat, Indai;
Mexico; Sri
Lanka
Bayi, Nanyao,
Yangtze, China;
Mexico;
Sri Lanka;
Indonesia
Serious
financial
constraints
n.a.
n.a.
n.a.
n.a.
Bayi, Nanyao,
Awati, China;
Mexico
Bayi, Nanyao, Awati,
China; Mexico
Definition
of water
rights
n.a.
Haryana, India
n.a.
Siurana-Riu
decanyes,
Spain; Cariri,
Brazil
Mexico
Haryana, India
Effective
local
system for
enforcing
water use
rules
n.a.
Bayi, Nanyao,
China;
Haryana, India
n.a.
Siurana-Riu
decanyes,
Spain
n.a.
Alto Rio Lerma ID,
Mexico
Rights to
establish
WUAs
Awati, China
Bayi, Nanyao,
China;
Bayi, Nanyao,
Awati, China
Northern
Colorado, USA
Mexico
n.a.
31
XI.
Conclusions
●
There is no one means to improve cost
recovery
●
Successful strategies vary with different
conditions in different countries
●
Transparency, financial autonomy, user
participation, good service, and better
incentives are keys to increasing cost
recovery and sustaining water services.
32
33
For irrigation the farm uses drip tape, which is a great way of reducing
evaporation by getting the water to the soil surface one drip at a time. The
result is a penetrating soak that uses much less water than overhead
irrigation and gives a deeper watering. Usually this irrigation method is used
with mulch for maximum benefit.
34
URL to access paper and presentation.
http://www.apec.umn.edu/faculty/weaster/
35