Part I Background and principles
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Problems and principles
attributes of water
The case for public intervention
The water sector and its outreach
The international debate
The chapter begins by noting some of the special characteristics of water physical, social and economic - which make it special, and which make a high degree of government involvement in the sector inevitable. Particular emphasis is placed on the size and scope of the sector, marring the point that water involves many other sectors and its use has widespread repercussions. Since some of the results of water use transcend international boundaries, the chapter includes an account of recent international events, notably the Dublin Conference and UNCED, at which governments accepted the need to review policies in the water sector, recognizing in particular its growing scarcity value.
Special attributes of water
It is commonly accepted that access to water is a basic human right. The Dublin Conference in 1992 asserted that "... it is vital to recognize first the basic right of all human beings to have access to clean water and sanitation at an affordable price." (ICWE, 1992)
Many societies believe that water has special cultural, religious and social values, which marks it off from other economic goods. In many cultures, goals other than economic efficiency influence the choice of water management institutions. Some religions (e.g., Islam) even prohibit water allocation by market forces. However, the focus on water's special status tends to obscure the fact that, in most societies, only a tiny fraction of water consumption is actually for drinking and preserving life. A large portion of urban water is used for convenience and comfort. In the arid western United States, per caput water withdrawal by households frequently exceeds 400 litres per day, about half of which is used to irrigate lawns and gardens. Most of the remainder is for flushing toilets, bathing and washing cars.
The value of water to particular users depends crucially on its location, quality and timing. Its location determines its accessibility and cost. Its quality affects whether it can be used at all, and at what treatment cost. The time when it is available governs its reliability and its relative value for power, irrigation, environmental or potable uses.
In addition, the value of water, especially in agriculture, is inseparable from the type of land to which it is applied, the nature of the soil, its drainage possibilities, etc. Saline water is, for instance, unusable on some soils, but viable on others.
Water has two features that further complicate management efforts: bulkiness and mobility. The value per unit weight tends to be low. Transporting and storing water is costly relative to its economic value at the point of use. In crop irrigation, the water applied may yield additional economic values of less than $US 0.04 per tonne of water. Furthermore it has a long-term value to the sustainability of life and economic activity, over periods that dwarf those considered in conventional cost-benefit analysis: this instrumental value could be thought of as the value to future generations which is hard to quantify and define simply, but includes considerations of quantity, quality, timing and accessibility.
Water is also difficult to identify and measure because it is a fugitive resource - it flows, evaporates, seeps and is transpired. This evasive nature means that exclusive property rights, which are the basis of a market economy, are hard to establish and enforce.
Water projects that attempt to compensate for extreme seasonal variations such as floods and droughts frequently require enormous investments. The economies of scale are such that a single supplying entity is often the most economically efficient organizational arrangement. This is a classic 'natural monopoly.' At the other extreme, most economies of size for pumping groundwater are achieved at relatively small outputs, and multiple suppliers can therefore operate efficiently.
Aquifer management is often complicated by the aggregate impact of the actions of many individuals. Even though each individual may have a negligible impact when taken alone, the sum total can be of major importance. One tube-well has little effect on the total water supply, but thousands of tube-wells can quickly deplete an aquifer. Establishing effective policies to regulate water abstraction by these many small-scale, scattered decision-makers is exceedingly difficult.
The case for public intervention
The above characteristics of water make a large measure of public intervention inevitable. Economies of scale in the collection and distribution of water tend towards natural monopolies, which need to be regulated to serve the public interest. The fact that many investments are huge, and have a long time horizon, often discourages private capital, and requires large amounts of public investment.
Water uses in a river basin or aquifer are interdependent, which is to say that users impose 'externalities' on others that they ignore in their own decisions (e.g., discharging polluting effluent into a river causes harm, inconvenience and costs to other river users). In some respects water is a 'public good' in the sense that it is impractical to exclude users or beneficiaries, and therefore impossible to charge for (e.g., improved navigation, flood control, reduced river pollution, etc.). Where this is the case, private investment will not be forthcoming. In both these respects, water is prone to 'market failure,' which implies that some public involvement is called for.
Ultimately, water is vital to life, and certain water systems are of national strategic importance. Governments have a responsibility to manage water for the national welfare. This does not imply that the water system needs to be 100% in public ownership. It does, however, mean that appropriate laws, regulations, institutions and incentives should be in place to guard the public interest, and that governments stand ready to invest where the market will not.
Governments are, unfortunately, subject to shortcomings of their own, and it cannot be assumed that they are always efficient servants of the public good. 'Policy failures' are the public twin of 'market failures', although the sense might be different in the case where, for instance, government applies subsidies to drinking water for public health objectives. The management of water is often fragmented between different agencies and parties, leading to conflict, confusion and mutually damaging tactics.
Water authorities and service agencies are often overextended and inefficient. They often fail to recover enough funds to cover essential operations, and there is often a growing backlog of unserviced consumers. Publicly owned companies and utilities are usually among the worst water polluters, whatever legislation is formally in place.
In short, a well managed water sector needs a balance of public and private involvement, recognizing the limits of both the market and government, and building on what each seems to do best.
The water sector and its outreach
The water sector embraces direct consumption and use of water, land drainage, flood relief, farm irrigation, fisheries, industrial and other abstraction, hydropower, in-stream use of water for navigation, recreation, amenity, wildlife, etc., environmental protection, and disposal and treatment of sewage and industrial effluent.
It follows that decisions about water concern many interested parties - 'stakeholders' - in the sector. The decision to use more water in agriculture, for instance, could have implications for power generation, for municipal use, for industrial offtake, for instream uses such as fishing, navigation and recreation, and for the environment, including wetlands, deltas and game parks. These decisions could also entail major public health risks, such as the spread of malaria and bilharzia.
Apart from being the largest worldwide consumer of water, agriculture is also a major water polluter. Saline irrigation off-flows or drainage containing agrochemical residues are serious contaminants for downstream water users. Agricultural nitrate is contaminating groundwater in a number of areas. The disposal of liquid animal wastes pollutes surface and groundwater and is the main environmental problem in some intensively farmed regions.
Conversely, natural resources sectors such as agriculture, forestry and nature conservation can hold the key to improving the management of water resources. Certain kinds of farm practices, for instance terracing and agroforestry, can help to preserve and improve the functions of watersheds. Afforestation and sustainable management of standing forests also have a vital part to play in protecting upland water sources. The more careful use of water by irrigators can release supplies for growing cities, or for hydropower or environmental purposes, while more careful use of agrochemicals and better drainage practices would improve the quality of water for downstream users.
Water has an international dimension where countries share a river, lake, coast or aquifer. The issues are similar to those arising where the resource is of purely national concern, except that sovereignty is involved, international law is applicable, aid is often at stake, and countries may be willing to go to war to defend their interests. There is a serious risk of water becoming a casus belli in some of the arid parts of the world.
The international debate
Water, waste management and related environmental issues have been the subject of increasing international concern and debate. The UNDP global consultation on Safe Water and Sanitation for the 1990s, held in New Delhi (1990), appealed for concerted action to enable people to obtain two of the most basic human needs - safe drinking water and environmental sanitation. Its guiding principles included protection of the environment and health, institutional reforms, community management, financial strategies and appropriate technologies. The UNDP symposium A Strategy for Water Sector Capacity Building (1991, Delft, The Netherlands), defined the three basic elements of capacity building as creating an enabling environment with appropriate policy and legal frameworks, institutional development including community participation, and human resources development. The international water agenda was broadened further at two landmark conferences in 1992, sponsored by the UN system: the International Conference on Water and the Environment (ICWE) in Dublin, and the United Nations Conference on Environment and Development (UNCED) in Rio de Janeiro, Brazil. Those two conferences highlighted a number of principles: water must be managed in a holistic way; institutional arrangements need to be adjusted to allow stakeholder participation in all aspects of policy formulation and implementation, including devolution of management to the lowest appropriate level; the central role of women; and the management of water as an economic resource as well as a resource for meeting basic needs.
In 1993, the World Bank (1993a) issued a comprehensive policy paper defining its new objectives for the water sector. FAO recently established an International Action Programme on Water and Sustainable Agricultural Development (IAP-WASAD). Likewise, the UN Specialized Agencies, international non-governmental organizations (NGOs) and bilateral assistance agencies are all coordinating or participating in special programmes related to water resources. The Ministerial Conference on Drinking Water and Environmental Sanitation (at Nordwijk, the Netherlands, in March 1994) called for strategies for drinking water and sanitation to be developed in the context of broader strategies for sustainable water resources management and environmental protection.
The message highlighted by all these efforts is that water availability is increasingly limited -to the extent that there is no room for sub-optimal management if sustainable economic development is to be achieved. Of principal concern is the failure to recognize and accept that there is a finite supply of water and value it accordingly. The consensus is that the growing water scarcity and misuse of freshwater pose serious threats to sustainable development.
This framework is addressed to all those who become involved with reform in water resources management. Some of its contents are addressed to a broad readership, and so will be familiar to water specialists, but is believed that the latter could benefit from the wider introduction placing the water sector in its holistic context.
Problems and principles
Growing water problems: the concept of
Water use and management
Agriculture - a key to the problem
Checklist of critical issues
Reasons for policy review
Water as a limited resource
Principles for water planning and allocation
Equity and distributional effects
Political and public acceptability
Policy reform in agriculture
Strategic choices and trade-offs
This chapter begins by illustrating the scale of problems in the water sector worldwide, drawing on recent work on vulnerability. The problems of agriculture are specifically dealt with, since this sector is crucial to any solution due to the magnitude of its water demands. A general checklist is introduced to help identify some of the common critical issues facing governments in this sector. Some country case material is summarized to indicate the circumstances which prompted various countries to undertake policy reviews.
The chapter continues by expounding the concept of water as a limited resource - one which is increasingly argued to have the characteristics of an economic good, together with some of the reasons why it is not treated as such. The economically efficient use of water is one of the basic principles recommended for policy review, together with the criteria of efficacy, distributional impact, environmental impact, fiscal implications, acceptability, sustainability and feasibility. Some implications of these criteria for policy reform are discussed, both generally, and for the agricultural sector. The thrust of policy reforms is in line with existing trends in agricultural policy. Some strategic choices and trade-offs are then described, such as inter-sectorial priorities, food self-sufficiency, and international diplomatic issues. Finally, the choices of centralized or de-centralized; of public or private management styles; and of supply-oriented or demand management policies are examined.
Growing water problems: the concept of vulnerability
Competition among agriculture, industry and cities for limited water supplies is already constraining development efforts in many countries. As populations expand and economies grow, the competition for limited supplies will intensify and so will conflicts among water users. Whilst the scale of emerging mismatch in demand and supply is unprecedented, societies and cultures have historically often been vulnerable to water with respect to quantity, quality and timing of availability, and in some instances to capture by enemies. Thus competition for and conflicts over water are not new.
While climate is the principal factor in water quantity and its inter-temporal distribution, population and economic development are the main influences on quality and demand.
Although water quality and its inter-temporal distribution are difficult factors to measure for the purposes of international comparisons, the supply and demand for water can be calibrated both between countries and over time, and conclusions drawn about the vulnerability of the region concerned. Care should, however, be taken in the interpretation of data when making comparisons between countries in different climatic zones and different agricultural practices - for instance, a temperate country relying on rainfed agriculture compared to one using irrigation. The main factors affecting the supply and demand for water are depicted in Figure 1.
When annual internal renewable water resources are less than 1000 m3 per caput, water availability is considered a severe constraint on socio-economic development and environmental protection. Table 1 lists the countries where per caput internal renewable water availability is expected to fall below 1 000 m3 per caput by the end of this century. Most countries facing chronic water scarcity problems are in North Africa, the Near East and sub-Saharan Africa. Countries with less than 2000 m3 per caput face a serious marginal water scarcity situation, with major problems occurring in drought years, and water availability is expected to fall below this threshold in more than 40 countries by the end of the century (FAO, 1993a).
FIGURE 1 Interrelationships among forces determining a region's vulnerability to water resources. (Water quality effects are excluded. From Kulshreshtha, 1993)
TABLE 1 Water-scarce countries in 2000
|COUNTRY1||WATER AVAILABILITY m3/person||POPULATION
|Internal renewable water resources||Including river flows from other countries|
|United Arab Emirates||152||152||2.0|
Notes: 1. A number of countries with smaller
populations, including Barbados, Cape Verde, Djibouti, Malta,
Qatar and Singapore, are also included in the water-scarce
Source: FAO calculations based on World Bank and other data.
In many countries, while scarcity is less of a problem at a national level, serious water shortages are causing difficulties in specific regions and catchment areas. Notable examples include northern China, western and southern India, and parts of Italy, Mexico, the United Kingdom and USA.
Despite water shortages, misuse of water is widespread. Small communities and large cities, farmers and industries, developing countries and industrialized economies are all mismanaging water resources. Surface water quality is deteriorating in key basins due to pollution by urban and industrial wastes. Shallow groundwater is polluted from surface sources and coastal aquifers may be irreversibly damaged by the intrusion of salt water. Overexploited sedimentary aquifers are subject to compression and consequently to subsidence. Cities are unable to provide adequate drinking-water and sanitation facilities. Waterlogging and salinization are diminishing the productivity of irrigated lands. Decreasing water flows are reducing hydro-electric power generation, pollution assimilation, and fish and wildlife habitats.
Water use and management
Water is essential to life and economic activity and its use and management cover almost all spheres of human endeavour.
Domestic water supplies
Provision of drinking water and sanitation continues to be a major humanitarian concern, as, despite the considerable achievement of the International Drinking Water and Sanitation Decade and subsequent efforts, one thousand million people remain without access to safe drinking water and more (1.7 thousand million) do not have adequate sanitation. The public health impacts of inadequate water supply and sanitation also have serious economic consequences for developing countries, which argues the case for the needs of the poor in the face of rigorous application of economic principles. The increasing financial burden on users to pay for water together with sanitation and health has turned water into a central political issue: more than 3 thousand million people worldwide have daily incomes of less than $US 2, which places a severe limitation on their capacity to pay the full economic costs of services.
Aquatic resources versus agriculture and urban development
Inland fisheries have suffered considerable environmental degradation as a result of agricultural intensification and water diversions for irrigation, urban use and flood control. Inland fisheries and extensive aquaculture are non-consumptive uses of water with high value, especially to the rural poor. Water policy reviews and strategies should consider the sustainable exploitation of living aquatic resources and strengthen institutional cooperation between water development institutions and fishery administrations, to identify common interests.
Upland water management
Mountain areas produce 80% of global water resources, whilst they have less than 10% of the global population. Degradation of upland catchments and diminution of their water resources has been attributed by some to the lack of compensation paid by downstream users to upstream inhabitants as guardians of the resource. Policy innovations to address this have been implemented in Colombia, where royalties are paid from hydropower revenues to the upper watersheds. It is important to identify appropriate institutional arrangements to ensure that funds are used for efficient catchment management and this requires a good understanding of customary rights and customary law.
Agriculture - a key to the problem
At first glance, many of these water problems do not appear to be directly related to the agricultural sector. Yet by far the largest demand for the world's water comes from agriculture and more than two-thirds (up to 90% by some estimates) of the water withdrawn from the earth's rivers, lakes and aquifers is used for irrigation (World Bank, 1993a). With the growth of competition, conflicts, shortages, waste, overuse and degradation of water resources, policy-makers look increasingly to agriculture as the system's safety valve. Governments' structures and programmes are increasingly being adapted to reflect policy in population and in environment, with water the central issue in reconciling these two concerns.
Agriculture is not only the world's largest water user in terms of volume, it is also a relatively low-value, low-efficiency and highly subsidized water user. These facts are forcing governments and donors to re-think the economic, social and environmental implications of large publicly funded and operated irrigation projects. In the past, domestic spending for irrigation dominated agricultural budgets in countries throughout the world. For instance, since 1940, 80% of Mexico's public expenditures in agriculture have been for irrigation projects. In China, Pakistan and Indonesia, irrigation has absorbed over half of agricultural investment. In India, about 30% of all public investment has gone into irrigation.
A significant portion of international development assistance has also been used to establish irrigation systems. Irrigation received nearly 30% of World Bank agricultural lending during the 1980s. Spending commitments for irrigation by all aid agencies exceeded $US 2 thousand million annually in the past decade.
Once established, irrigation projects become some of the most heavily subsidized economic activities in the world, both directly and indirectly (taking account of low energy costs for pumping). In the mid-1980s, it was estimated that average subsidies to irrigation in six Asian countries covered 90% of the total operating and maintenance (O&M) costs (Repetto, 1986). Case-studies indicate that irrigation fees are, on average, less than 8% of the value of benefits derived from irrigation.
Despite these huge investments and subsidies, irrigation performance indicators are falling short of expectations for yield increases, area irrigated and technical efficiency in water use. As much as 60% of the water diverted or pumped for irrigation is wasted (FAO, 1990). Although some losses are inevitable, in too many cases this excess water seeps back into the ground, causing waterlogging and salinity. As much as one-quarter of all irrigated land in developing countries suffers from varying degrees of salinization. Moreover, stagnant water and poor irrigation drainage escalate the incidence of water-related diseases, resulting in human suffering and increased health costs.
At the same time, irrigated agriculture is expected to produce much more in the future while using less water than it uses today. At present, 2.4 thousand million people depend on irrigated agriculture for jobs, food and income (some 55% of all wheat and rice output is irrigated). Over the next 30 years, an estimated 80% of the additional food supplies required to feed the world will depend on irrigation (IIMI, 1992) and therefore food security and job creation remain firmly on the international agenda, especially in Africa, and this may still imply considerable efforts in water resources development in specific contexts.
However, although agriculture has received the major allocation, due to public investment and supporting policy and legislation, it is often unable to compete in an economic sense for limited supplies of water. Cities and industries can afford to pay more for water and earn a higher economic rate of return from a unit of water than does agriculture. For the first time in many countries, agriculture is being obliged to give up water for higher-value uses in cities and industries. Irrigators in some areas are now asked to pay for the water they receive, including the full cost of water delivery.
This water dilemma - to produce more in a sustainable way with less water - points to the need for demand management mechanisms to re-allocate existing supplies, encourage more efficient use and promote more equitable access. Irrigated cropping policy has been based on self-sufficiency in staple grains, with particular emphasis on satisfying urban demand at minimum prices. Increasingly, cropping policy is becoming less restrictive and more incentive driven, with cost recovery having a natural corollary of market and price liberalization and greater freedom of choice of cropping system by farmers. Policy-makers need to establish a structure of incentives, regulations, permits, restrictions and penalties that will help guide, influence and coordinate how people use water while encouraging innovations in water-saving technologies.
In the past, supply-side approaches dominated water resource management practices. Water itself was physically managed through technical and engineering means that captured, stored, delivered and treated water. However, the era of meeting growing demand by developing new supplies is ending. In our present-day water economy, resource management is shifting away from the goal of capturing more water towards that of designing demand-and user-focused approaches that influence behaviour.
FAO has identified the following as some of the leading issues (FAO, 1993a):
BOX 1: CHECKLIST: CRITICAL ISSUES IN THE WATER SECTOR
Are existing farmers being seriously constrained by the quantity, quality or reliability of water?
What proportion of the population is not served, or inadequately served, with safe drinking water?
What proportion of the population lacks safe sanitation and wastewater disposal facilities?
What are the average levels of water consumption per caput for different segments of the population? How do these compare with other countries in similar climatic circumstances and similar levels of development?
What is the frequency and incidence of water shortages, breakdowns in treatment facilities, suspension of normal services, or rationing episodes? Is such evidence of systemic crisis more common in certain areas (e.g., poorer neighbourhoods, dry regions) than others? In rural areas, what proportion of wells and pumps is in working order?
What proportion of the population regularly obtains its water from private vendors? Is there any evidence as to what they pay?
Is the quality of water provided for domestic purposes adequate? What evidence is there of the incidence of water-related illness? Do households take their own precautions to ensure the safety of their drinking water?
Do farmers and industrial firms receiving public supplies insure themselves by the development of their own stand-by or supplementary sources?
Checklist of critical issues
In most cases, a water policy review will be undertaken in response to a single overriding - and obvious - issue, some of which are illustrated in the next section. However, even in these cases it will be important not to neglect other aspects of the water situation that may be related to the prime issue, or may be growing in importance. In deciding what emphasis to give the water policy review, authorities may find it helpful to use a general checklist such as that in Box 1, although there may well be other issues to consider in any given context.
It is unproductive to attempt to offer guidance to national governments on how to assign relative weights to different issues. The absolute importance that different governments will place on the respective issues will vary and authorities will need to exercise their own judgments. In general, adverse 'scores' in any of the categories below could be the trigger for a review. Poor signals in most of the categories would indicate a serious state of affairs, underlining a need for urgent action.
A review of the issues in any sector is a sophisticated and, to a certain extent, an intuitive exercise, relying on national expertise, which is often available and equal to the task, but for a variety of reasons may be ignored. Although there is a danger that checklists narrow perspectives and can suggest a 'planning-by-numbers' approach, Box 1 is intended to be illustrative rather than prescriptive, and, for the second of the ten critical issues, provides examples of the sort of detail issues and questions that might be relevant, and similar detail considerations apply to the other critical issues.
BOX 2: WATER POLICY REVIEWS: RECENT CASES
BELIZE. The priority water issues in Belize were declining water quality and fragmentation of water resources management. A water sector review was initiated in a national meeting and furthered by the establishment of an inter-ministerial Pro-Tempore Water Commission to prepare draft national water resources policy and give recommendations for institutional and legal arrangements.
CHILE. There was a growing realization that the balance between supply and demand for water was becoming critical, and that water pollution was becoming very serious. The immediate trigger for the review was the Administration's concern about the disproportionate amounts of water tied up in private hands because of existing legislation, frustrating the Government's aim of managing the resource more rationally. Another leading issue was the impotence of legislation to address the disparity between the dry north and the water-rich south.
FRANCE. The background to the 1992 Water Act was a growing imbalance between available resources and a number of competing demands, aggravated by a series of dry years. There were also concerns about the deterioration in the quality of surface and underground water, and the challenge of meeting the quality standards laid down in EC directives.
INDONESIA. Rapid economic growth has caused increasing competition for water among industrial, urban and agricultural consumers. The growing scarcity of water in certain regions and the degradation of water quality were threatening to hamper future economic development, and the Government wished to take a long-term view of its water resources. Different institutions dealt with surface water, underground water and quality. There was little relationship between land use and the availability of water. Little control was exercised over serious non-point pollution from urban, industrial and agricultural users. The time of the review coincided with the Government decentralization programme and formulation of the long-term, 25-year Development Plan.
LITHUANIA. This former Soviet bloc country was in transition. National water and land resources legislations were being reformed, which prompted a review of national water policy. The policy was related to water quality control, changing agricultural practices and land-use policy, with implications for de-centralization of water administrations and privatization of water works.
MEXICO. The underlying reason for the creation of a National Water Commission in 1989 was the emergence of serious imbalances between the supply and demand for water on a regional scale. There was a particular conflict between urban and agricultural consumption.
TURKEY. With the goal of sustainable and environmentally sound water resources development, the reasons for the national water sector policy review were concern about growing regional imbalance between water demand and availability, and the burden of providing water to cities and irrigation, with changing water uses and excessive investment programmes in the water sector. The main resulting documents and actions were the 1983 Law of Environment, the 1984 Law allowing the private sector to build and operate schemes, expanded in 1994 to cover the water supply subsector, and amendment of the legislation to facilitate transfer of O&M equipment to private users.
UNITED KINGDOM. One of the crucial events launching the United Kingdom on its course of full privatization for England and Wales was a dispute over the financial obligations of the statutory water authorities, specifically the terms on which Thames Water should repay a government loan. Soon afterwards the Government issued a White Paper on Privatization. Another background influence was the anticipated high cost of meeting EC water quality standards and of renovating the nation's aging sewerage system.
YEMEN. The main symptoms of the problems that gave rise to the review were rapid depletion of groundwater and a consequent decrease in food production, and growing conflicts among various types of water user. Underlying these symptoms were problems of the lack of regulation of exploitation of a common property resource, the undermining of efficient customary and tribal systems of control, fragmentation of government responsibilities and institutions, which resulted in two parallel and incompatible draft water bills.
Reasons for policy review
Any of the problems in Box I might be sufficient to trigger a major review of water policy. Box 2 illustrates factors that were important in starting the process in recent cases and Chapter 11 discusses some of the modalities chosen by the countries to carry out their reviews, and their main policy outcomes.
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