Transcript Hello Stockholm! - University of Minnesota

Second International Conference on Sustainable Irrigation
University of Alicante, Spain, June 11-13, 2008
Sustainable Irrigation: The Role of
Economic Instruments and Their Supporting Institutions
by
K. William Easter
Professor of Applied Economics
University of Minnesota
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.
Institutions are key to improved cost recovery
7.
Show this with successful projects
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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
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
Jordan 1999
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II.
Outline of Presentation
A.
Definition of institutions and analytical framework
B.
Problem of designing effective institutions
C.
Why low cost recovery?
D.
What costs to recover?
E.
Cost allocation in multipurpose projects
F.
Alternative charges for cost recovery
G.
Key institutions for effective cost recovery
H.
Conclusions
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III. 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.
b.
c.
d.
Defines who has access to water
Establishes the range of options for water users
Determines who can claim income and who pays
for water use (Livingston)
These may be formal or informal rules
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B. 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. 1).
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.
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Figure 1. Levels of Institutional Analysis (developed from Williamson, 2000)
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IV. 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 (legal system)
resulting in weak third-level institutions.
D.
Changes in national economic policy preceded
changes in Chile’s and China’s water institutions.
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V.
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
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VI. What Costs to Recovery?
A. Direct project costs
•
•
•
•
Costs of capturing and delivering water
Fixed and variable costs of operations
Capital costs
Most projects focus on O&M
B. Environmental costs: Soil erosion, damage to
ecosystem, salinity, etc.
C. Marginal user costs: Present value of future
sacrifices caused by current resources use -important in groundwater use
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VII. Costs Allocation: Multipurpose Projects
A. Two alternatives based on benefits gained:
●
●
Use of facilities (water delivered, Table 2)
Separate costs, remaining benefits (Table 3)
B. Indirect beneficiaries, e.g., consumer gets
reduced food prices
●
●
●
Should consumers be allocated some of the
costs (tax payers)?
What share should farmers pay?
With indirect benefits farmers pay only 70-80%
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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.
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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.
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VIII. Alternative Mechanisms for Collecting Costs
A. Area-based charges
●
●
Varied by hectare (ha.)
Varied by hectare and crop, season or technology
B. Volumetric charges
●
●
Block charges: can vary charges and quantity at
which charge increases (Figure 3)
Two-part charge: fixed charge plus volumetric
charge allows cost recovery and efficient pricing
C. Water markets – sale or lease
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IX. Key Institutional Arrangements for Cost
Recovery
A.
Financial autonomy of projects
1. Needed to assure that funds collected are
used to operate and improve their project
2. Managers have strong incentives to provide
improved service and fee collection
3. Incentives to improve infrastructure: more
water to sell
●
Yangtze Basin Water Resource Project
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IX. 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
encourage staff to achieve high collection
rates
3. Bayi Irrigation District, China: awards and
fines encourage staff to collect and turn in
fees by deadline (Tables 4)
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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. *Had significant water savings.
*
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IX.
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
before receiving water increased cost recovery
4.
Benefits of WUAs in Maharashtra, India: 75% of
farmers surveyed in WUAs willing to pay 25% higher fees
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IX. 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 on conserving water
●
Katepurna, India and in Mexico
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X. 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.
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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.
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URL to access paper and presentation.
http://www.apec.umn.edu/faculty/weaster/
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