Applying economic concepts in strategy formulation

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During Phase 1 - strategy formulation (essentially a diagnostic inventory or assessment of water resources) - the strategy team should undertake several tasks related to economic analysis that will be essential for developing and evaluating options in Phase 2. The concepts behind some of these tasks are described in succeeding sections of this chapter. Relevant areas of interest and the related activities include:

The ability to perform demand projections will be crucial in generating scenarios and evaluating the effects of different choices in Phase 2. Existing projections of water demand might be inadequate; it may be necessary for the water strategy team to make new projections based on population growth, urban development, agricultural policies (e.g., if existing policy calls for crop diversification, what effect will that have on water demand?), water quality considerations and environmental allocations.

Macro-micro economic interactions should not be ignored in the assessment, and coherence with macro-economic, industrial and agricultural policies is important. Sectorial policies affect water use and allocation in non-agricultural sectors in a variety of ways. For example, in the western USA, 70 to 80% of the region's water yield results from snow-melt from the high-elevation forests, many of which are under public jurisdiction. Water yields are significantly affected by timber harvest policies on these lands. Rangeland management policies on lower elevations also alter vegetation conditions and thus affect the rate of evapo-transpiration, in turn affecting streamflow and groundwater recharge. The situation could, however, be more complicated if the uplands are inhabited by ethnic groups, poor rural communities or displaced people without defined land rights, such as in Viet Nam, India, Pakistan and other countries. In such cases, it is important for downstream city water managers to recognize, understand and become involved not only in the decisions of other sectors such as livestock and forestry, but also in distributional issues between uplands and downstream areas.

With the continuing importance of structural adjustment and stabilization programmes, many developing countries are implementing fundamental changes in macro-economic and sectorial polices. Typical adjustment programmes call for a greater reliance on markets, more open trade, fiscal austerity and a phasing out of producer and consumer subsidies (in input and product markets). Budget-reduction measures imply increased competition between and within sectors for funding new water projects. In these situations, the overall economic, social and environmental implications of choices must be carefully assessed.

In most countries, pressure has increased not only to modify investment allocations but also to recognize and accommodate new demands for water. The direct implications for water managers include fewer capital investments in new water projects, the reduction or elimination of irrigation subsidies, increased efforts to recover true costs, and more emphasis on demand management to improve the efficiency of existing supplies.

One of the important options that should be considered in Phase 2 is implementing a water pricing and cost recovery programme and determining the proportion of operation, maintenance and depreciation costs to be covered in each sector.

Characteristics of water

In addition to the general economic characteristics of water introduced in Chapter 1, there are a number of considerations relevant to strategy formulation and sector programmes.

Inadequate information concerning water supply and demand, which can vary widely within and between years, as well as poor information concerning who actually receives water and how much is used, has, in many cases, made it difficult to effectively manage and price water.

Because water activities have many physical interactions within the ecosystem and with other economic activities, they are often characterized by externalities, i.e., the benefits and costs of production and consumption affect individuals or entities other than those involved in a transaction. Related to the issue of externalities is the limited amount of information available to consumers of water and to consumers and producers of water-related services. The complexities of the ecosystem, the variability of the water supply and the intricacies of the hydrological cycle make it difficult for those supplying and distributing water to consider all aspects; consequently, market prices do not necessarily reflect all these interrelations.

Poorly regulated market systems may generate outcomes that do not satisfy environmental concerns or a country's social goals in terms of poverty alleviation, food security, income distribution and public health. In cases where water resources are transnational or involve transnational environmental effects, water allocation decisions are necessarily made by negotiations among governments.

Economic efficiency and the value of water

Economic efficiency is an important development objective in most countries and this implies that economic incentives are needed to encourage efficient allocation of scarce water resources to those uses that provide the greatest socio-economic benefits for society.

Water values vary widely among different uses as well as within uses. For example, Gibbons (1986) estimated the direct economic value of 1 000 m3 of water in Tucson, Arizona, in the summer to be $US 302, while the same volume used for navigation on the lower Mississippi River had a value of $US 3. Within uses, she estimated that 1 000 m3 of water used to irrigate land producing wheat in the Salt River Irrigation project in Arizona had a value of about $US 33; if that water were used to irrigate land for growing carrots, it would have a value of $US 261. Sometimes this is due to the differences in conveyance costs or the costs of transacting a sale or exchange, while in other cases differences exist because water is generally not sold or traded like other goods, especially between sectors. Most trades or sales of water occur within the agricultural sector, usually among farmers in the same village or irrigation system.

Water use may be determined by its first legally recorded use (prior appropriation concept) and it may therefore be difficult to change allocations in response to changing economic and social conditions, unless provisions are made to facilitate water trades. In other cases, water is allocated by government administrative decisions; in still others, no one is given a secure and sustainable allocation of water. Where water rights are uncertain or where existing allocation mechanisms cause a misallocation of water resources, higher socioeconomic benefits could be obtained through the development of new institutional arrangements that allow a re-allocation of water based on its economic value in different uses.

Opportunity cost and pricing

The task of valuing water to determine price is particularly complex, owing to the limited and very localized nature of water markets. The existence of alternative uses for water which are more valuable than the uses of the target consumers reinforces the case for charging at least an economic price. It is impractical to incorporate opportunity cost into a standard pricing formula because of the extreme spatial and temporal variability in its valuation and the difficulty of dis-aggregating multiple alternative uses. It is useful to distinguish between valuation principles - which attempt to rank and prioritize the economic value of usage - and pricing principles - which have to be applied in practice. There are only two effective pricing principles: based on the cost of provision of water, and market pricing in an open competitive market. However, pricing policy is subservient to more general economic and social policy, and governments can decide on the level and focus of subsidies applied in either case. Cost of provision can be determined in terms of short- or long-run marginal costs, or on the basis of average costs, depending on context and policy.

Where there is a concern about providing water to the poor at a low cost, block or graduated prices can be used. A zero or low charge can be set for the volume or block of water that is needed to meet a minimum basic health requirement. For the next volume or block of water' a higher price is charged. Also, different prices can be charged for office and industrial uses, and thus introduce an element of cross-subsidization between users.

When it is not possible to charge users a price based on the economic (or even cost) value per unit of water consumed, then quantity restrictions can be used to improve water allocation and use. Although quantity restrictions are less efficient allocation methods than water prices per volume of water used, they do create an implicit price for water. The implicit price forces consumers to use water more efficiently than if there were no restrictions on quantity, since consumers would like to have more water than they receive at the existing charges.

Although water tariffs are in widespread use in countries at all stages of development, they are usually seen as a means of cost recovery rather than a way of actively managing demand. Water costs do not usually include direct and indirect costs for conserving water resources with compensations for limitations to economic activities in the upper catchments. The principles of economic tariff setting are well established and accepted, and are similar to those in use in the power sector. They can be summarized as setting prices according to Long-Run Marginal Costs. This usually entails adjusting the structure of tariffs to include a fixed and variable element, with the latter rising for successive increments (known as progressivity).

There is evidence of enough elasticity of demand in the household sector to make tariffs an effective instrument for water demand management. To be able to apply economic tariffs, metering is necessary, which is not always feasible or sensible. It should also be noted that a large proportion of price elasticity studies have been undertaken in the arid western and southern USA, where conservation is readily achieved in amenity watering (gardens, etc.). There is good evidence that demand is inelastic in the winter when there is no amenity demand (Gibbons, 1986). Similarly, consideration of typical developing country domestic water use yields little likelihood of using price for demand management, as existing supplies are clearly inadequate per household.

In irrigated agriculture the use of pricing to encourage efficient use of water is desirable in principle, though fraught with practical problems. Many governments subsidize water as an instrument of food policy. The subsidy to irrigation water becomes capitalized in the price farmers pay for their land. It is impractical to meter water supplied to large numbers of small farmers, who in any case receive a variable quality of service. In practice, irrigation charges, where they are recovered at all, tend to be based on the area irrigated, the type of crop and other proxy measures. Although these methods should not be decried if they contribute to cost recovery - essential to provide funds for O&M - they do not encourage efficient use of the water.

This explains the growing interest in 'devolved' solutions, such as measuring and pricing water delivered to an entire village or WUA, and relying on the latter to recover costs from users and ensure the most efficient use of the water. Alternatively, groups of small farmers, or one large farmer who sells to others, can be metered. It is easy to underestimate the costs involved in implementing the devolution process - witness the cost of some of the national programmes in irrigation management transfer.

The greater devolution of control over pricing and other key irrigation decisions would lead, in the short run at least, to greater variation in water prices between different projects and regions. But this may be a price worth paying if it leads to greater recognition of the value and opportunity cost of water, and improved cost recovery (Sampath, 1992), although political opposition to regional pricing would be expected to be strong in irrigation and vociferous in urban water supply.

The availability of groundwater is a complication in pricing surface irrigation water. If the latter is fixed too high, there will be an incentive for increased pumping from aquifers. Once this exceeds the aquifer's natural recharge rate, 'mining' occurs, which can have external costs on society. Heavy pumping from one well may lower the aquifer for all other users of wells in the area. Apart from the short-term costs, the process may be irreversible if the groundwater becomes contaminated.

For such reasons, the coordinated management of surface water and ground water is vital, especially in areas such as South Asia, where groundwater supplies a large part of the irrigated area. An additional complication in managing groundwater is that the aquifer is a common property resource. In the absence of penalties, individual users have an incentive to overexploit the resource, since the costs fall on all users. By the same token, no one user has any incentive, except for the cost of lifting the water, to abstain from use, since someone else would benefit from this abstinence.

There are various types of water markets. Their common feature is that water can be bought and sold, thus enabling it to find its highest value use. Groundwater markets are long-established and widespread in certain parts of the Asian sub-continent, e.g., Gujurat in India, and Bangladesh. Farmers sell water surplus to their requirements to those in deficit. Surface water markets exist in some western states of the USA and in south-eastern Australia, either to transfer water from low-value irrigated farming to urban consumers, or to redistribute water within agriculture. Sometimes the transfers are semi-permanent arrangements, e.g., the efforts of the Los Angeles Metropolitan Water Authority to acquire long-term water rights from its agricultural neighbours.

Water auctions, although unusual, have respectable historical precedent and have recently been tried, with limited impact in Australia. Water banking has also been tried: as a response to the recent drought, the State of California bought up water rights from farmers to hold in reserve for urban and industrial use, and most of the stock was drawn down for these purposes.

Other economic incentives

Governments might want to use economic incentives to encourage the adoption of water-saving and re-use technology, and the use of water-saving crops. This can be done by direct subsidies, tax credits for the purchase of certain technology or credit subsidies to purchase water-saving technologies. The amount of subsidies or tax credits should not exceed the economic value of the water saved.

Economic incentives may also be needed to achieve the desired level of pumping and conservation of groundwater. Where there is overexploitation of groundwater resources, fuel taxes may offer a way of achieving the desired level of extraction. The alternatives for managing groundwater are either some form of control by the community of users, or measures imposed by the state. Apart from informal agreements, which are only feasible in small homogeneous communities, the choice of measures is between:

In view of the problems with monitoring and enforcement, quantity-based approaches may be superior to pumping charges, and can yield economically efficient solutions (FAO, 1993a).

The application of pollution charges proportional to the volume and quality of effluent is rare, but has been shown to be effective in reducing water intake as well as discharge. In three industries in Sao Paulo, Brazil, the introduction of an effluent charge led within two years to a 40 to 60 % reduction in water consumption (quoted in Bhatia, Cestti and Winpenny, 1994).

Certain societies have successfully used prescriptive norms, based on 'best practice' or reasonable usage in each case, reinforced by penal charges for users exceeding these norms. In Tianjin, China, norms are set for industrial consumers based on regular detailed water audits, and users who exceed their quotas pay a penal water charge of up to 50% above the normal level (Bhatia, Cestti and Winpenny, 1994). A similar approach has been used in Israeli agriculture.

Despite the value of economic instruments in improving the efficiency with which water is used, there will always be a role for non-market devices, often working in tandem with economic measures. Education and publicity campaigns can help to convert the public to the need for water conservation, though the message will be powerfully underlined by the use of tariffs. In water pollution, some contaminants are so dangerous that they should be banned - pollution charges are not enough. The only feasible response to short-term water supply emergencies may be to ration supplies and ban wasteful uses.

Economic analysis of alternative courses of action and investments

Economic analysis of alternative courses of action is important for economically efficient decisions (Easter, Dixon and Hufschmidt, 1991). It is critical that decision-makers have the facts concerning their possible courses of action. They should know the costs and benefits of other strategies or investments before the decision is made. This does not mean that the decision should be made only on the basis of economics (Hufschmidt et al., 1983). Other social and environmental objectives should be considered when appropriate. While in many cases not all costs and benefits can be measured effectively, decision-makers should have an idea of what it will cost society if they decide to build a hydropower project or allocate water to irrigation instead of industry.

The economic value of water

Estimating the value of water is not easy because its value varies with quality, use, location and time. During dry periods of the year or during drought years, water values will be much higher than in other periods. Moreover, certain seasons or times of the year may also be important (high water values) because of critical water demands for crop growth, heating, cooling, industrial production or shipping.

There are four principal methods of valuing water:

1. Costs of providing the water service to the point of consumption (Winpenny, 1994).
2. Establishing the marginal benefits in terms of its contribution to output (Gibbons, 1986).
3. Calculation of some aggregate opportunity cost, usually by linear programming (World Bank, 1992).
4. Market prices, where water transactions occur.

The value of water to domestic consumers can be estimated based on willingness-to-pay surveys of potential water users, that are then aggregated to measure the demand (Altaf, Jamal and Whittington, 1992; Whittington et al., 1992). The problem is to construct a survey that elicits actual consumer willingness to pay.

In irrigation, the residual return to the crops grown (gross returns, minus all costs other than water costs, but including enough profit to keep farmers in business) provides an estimate of the maximum farmers can pay for the water (Method 2, above). This is an upper bound for the value of water used in producing the crops in question and can be used as an estimate of the value of water when it is the limiting resource. In some cases it may be possible to develop a more sophisticated analysis of the marginal productivity of water to determine a marginal pricing strategy.

Cost estimation

The other important side of analysis - and the key part of cost-effectiveness analysis, considered below - is the estimation of costs. For any decision regarding water use and allocation, costs must be estimated. For water strategies or investments, decision-makers need to have information concerning the costs (including environmental costs and other externalities) of alternatives.


Cost recovery

Another important aspect of the economics of water resource strategies involves the financing of water investments and operations. With the rising costs of water investments and the increased competition for public funds, greater attention will have to be paid to just how investments are to be financed and sustained, with adequate funding for O&M. Aside from finding funds to improve the system, innovative ways must be found to break the old cycle of poor service, low willingness to pay user fees, and inadequate funds for O&M. Current strategies to break this cycle involve turning over the O&M (and in some cases, ownership) of water projects to financially autonomous entities, either public or private and to WUAs. For example, through increased user participation and ownership of water facilities, the Philippines increased cost recovery to an average of 75% of O&M. WUAs are generally in a better position to monitor compliance and to use social pressure to collect water fees from their members.

Before cost-recovery levels can be established for multipurpose projects, joint costs must be allocated to the different purposes (e.g., flood control, irrigation or hydropower). How joint costs are allocated will have a major effect on how much must be recovered from each aspect of a project. For example, there is always substantial political pressure on the Government of the USA to allocate most joint costs to 'non-reimbursable costs' (which are paid by the Federal Government), so that water charges to users are kept low. Joint costs are often allocated by rather arbitrary procedures.

During the next decade the size of water resource investments will probably be beyond the capacity of many developing countries, and additional sources of capital will be necessary (World Bank, 1993a). The mix between private and public capital will need to change; the share of investment from the private sector will need to increase sharply. The availability of private capital will depend on the general level of local capital market development. Viable WUAs should be able to obtain some investment funds from their members (in addition to achieving higher levels of cost recovery than government agencies). Thus, a mix of user charges, beneficiary taxes, central government transfers (grants and loans) and municipal and utility bonds will be required to meet future investment demands.


Economic assessment of projects and programmes

Projects and programmes can be formulated in various ways, and the relative economic benefits and merits need to be assessed and ranked. Aside from conventional infrastructure development, a number of non-conventional projects are likely to be considered, such as canal-lining and leakage reduction measures, urban projects to reduce un-accounted-for-water (UFW), subsidies for the use of water-efficient consumer devices, mounting public information and advice campaigns, etc. Projects carried out in related sectors may also have a close bearing on water supply, e.g., watershed management, afforestation, hill-farming schemes, anti-erosion measures, flood-control devices, etc. As mentioned earlier, it is becoming increasingly important for the costs in related sectors to be reflected in water tariffs.

Cost-benefit analysis (CBA) and cost-effectiveness analysis (CEA) were mentioned in Chapter 4. Measurement problems in CBA can be severe, particularly for environmental and health effects, and may force decision-makers to use other evaluation techniques (Dixon and Hufschmidt, 1986).

CEA, which ascertains the least-cost method of achieving predetermined objectives or targets, does not provide any indication of economic rate of return or any information concerning benefits, but identifies the lowest-cost method of meeting the objective or target. It is less time consuming and cheaper to estimate the least-cost solution than to conduct a full cost-benefit analysis. Furthermore, this type of analysis provides a good cost-based decision rule if the decision has already been made that something should be done, such as provision of sewerage.

These two techniques for economic assessment are summarized below, with particular reference to water resources strategy, and the discussion is rounded out by presentation of key points on financial management of programmes and projects, which is fundamental to achieving many of the reforms in water resources management.

Cost-benefit analysis

CBA has been widely used in the water sector since the 1930s to select projects and check their viability in a systematic way. In essence, the costs of a project (capital costs and equipment, land, O&M, periodic replacement, etc.) are entered in each year in which they are incurred. Likewise for benefits, whether they are sales, cost savings, or non-marketed attributes (e.g., flood control) which are valued indirectly. Financial values of both costs and benefits are adjusted to reflect their underlying scarcity value, and the difference between the future streams of costs and benefits is discounted to obtain a present value.

In the context of water management strategy formulation, CBA practice needs to be modified and extended in several ways:

Cost-effectiveness analysis

CEA is applicable where benefits cannot be adequately measured. CEA is also useful in comparing alternative, or cumulative, ways of attaining a given level of benefits. CEA can yield the discounted economic costs of achieving a unit of conservation.

FIGURE 5 Supply curves for conserved water in Beijing (quantity conserved vs discounted cost of conserved water) (from Hufschmidt et al., 1987)

Figure 5 illustrates the results of an exercise into cost-effective ways of meeting Beijing's future water requirements without major investments in new supply sources. It was discovered that one-third of industrial water consumption could be saved by the adoption of three measures: more recycling of industrial cooling water; recycling of power plant cooling water; and wastewater recycling. On a discounted basis, these measures were ranked in that order. They were all substantially cheaper than the obvious next project to develop supply.

In the domestic sector, it was found that four techniques could save 15 % of consumption, and each of them was cheaper than the alternative of augmenting supply. These were improving conservation in public facilities; programmes for the reduction of leakage; recycling air-conditioning cooling water; and installing water-efficient flush toilets. If the (discounted) costs and amount of water saved by these measures are arrayed as in the lower graph in Figure 5, they form a 'supply curve' of conserved water.

Financial management

The need for improved financial management in practically every water regime results from several converging factors: poor financial management and inadequate cost recovery has left most utilities decapitalized and underfunded; the cost of new supply schemes is growing in real terms; more stringent environmental standards are driving major investments in water quality improvement; and many old systems, e.g., sewers, are in urgent need of replacement.

These factors point to the importance of:

• cost control within organizations;
• improved pricing and charging systems;
• better collections from users and more stringent penalties;
• developing models for commercializing existing utilities; and
• looking at options for privatizing services.

This in turn requires attention to the following topics, inter alia:

• tariffs - incentives, fairness, simplicity and efficiency of collection. Proportion of income to come from charges;
• powers to raise capital from various sources and by various means;
• rules for investment of funds - issues such as balance between risk and yield;
• accounting principles, standards and practices;
• budgetary control principles and practices, e.g., cost-centre and profit-centre accounting; and
• value for money and other audits - principles and practices.


Environmental and health considerations

Public health and water resources
Health and environmental issues in assessment of water resources
Water resources assessment: environmental institutions

This chapter discusses major health, water quality and environmental issues that should be considered in developing a water resources management strategy. The first part briefly outlines some of the health considerations and issues in formulating a strategy. The following two sections review substantive matters pertinent to the water resources assessment during Phase 1 of the strategy formulation process. Although the legal and institutional frameworks for water resources were discussed in Chapter 5, these aspects are such an important part of environmental protection that further consideration is given here. Throughout, discussion is limited to major environmental quality Issues



There is a great variation in individual country's abilities to maintain environmental standards: the wide-ranging powers of the Environmental Protection Agency in the USA have come to dominate water development in recent years (Frederick, 1994), whereas, in contrast, many developing country environmental agencies do not have sufficient power to prevent urban wastewater utilities from discharging raw wastewater back into watercourses. Real world constraints to the development and implementation of environmental legislation need to be thought through, and particular attention is required to ensure complementary legal and institutional development within stand-alone environmental agencies and the respective water services.


Public health and water resources

Public health is intimately linked with adequate water supply and quality and with adequate sanitation. Of eight major diseases or disease groups found in developing countries, four' are linked to water supply and sanitation or to vectors that breed in water (World Bank, 1994). Many water projects alter the environment so as to either increase the number of vectors or increase the amount of contact with disease-causing organisms (Tiffen, 1991, 1989).

Attaining a certain standard of public health is often a government objective, and improved public health may be the outcome of government programmes that are not directly linked with water, such as general education programmes, particularly for women (World Bank, 1994). Of course, many government health programmes concern water directly, such as programmes that are aimed at improving personal hygiene. Public health policy should be addressed by the water resources strategy formulation team, which could include public health professionals.

The assessment should include estimation of the levels of incidence of water-related diseases, their dynamics and some identification of the existing capacity to overcome them (Tiffen, 1991). It is extremely difficult to make reasonable projections of the economic benefits of improved public health, and the strategy formulation exercise should keep this in perspective.

Water-related diseases in developing countries fall into two major categories: those arising from the ingestion of food or water contaminated by excrete, and vector-borne diseases. Malaria is by far the most important water-related, vector-borne disease, in terms both of numbers of sufferers and of directly attributable deaths. Control programmes for vector-borne diseases in many countries emphasize preventive or curative measures, to the neglect of environmental management and community-based preventive measures (Thomas et al., 1993).


Health and environmental issues in assessment of water resources

Changes in water quality and hydrology due to management and other human impacts may have physical, biological and social consequences - consequences which need to be understood for environmentally sound and sustainable water resources management. The following paragraphs discuss some of the main environmental and health impacts of surface and groundwater use, over-use and quality degradation which should be considered in water strategy options.

Surface water

Stream flow variability

Natural variation in stream flows is a major factor governing the kind of ecosystem that will develop and survive in a given watercourse (Jain et al., 1993). Variation in stream flow affects the amount and concentration of organic and inorganic matter and the rate and location of its deposition. Variation in stream flow also affects oxygenation through surface aeration.

Projects that control, store or divert water modify stream flows in different ways. Flood control projects reduce peak flows, and diversions of water for consumptive use reduce total flow. Low flows diminish a stream's ability to dilute and break down pollutants, and leave downstream reaches more vulnerable. Reduced sediment loads and adsorbed nutrients may affect the productivity in downstream areas such as deltas. Water releases are needed to keep flows at levels above ecological minima and to ensure replenishment of groundwater.

Increased runoff

Land use activities can alter the surface and topography of a basin and profoundly affect important components of the hydrological cycle. Urban development reduces the pervious surface of the land and decreases local groundwater recharge. Impervious and hydraulically smooth urban surfaces may result in higher peak flows and greater flood damage. Land use zoning can be introduced to minimize damage from higher peak flows.

Agriculture and forestry also alter soil cover and affect the rate of runoff and percolation in a catchment. Higher flows may increase soil erosion and the amount of sediments transported downstream. Upland erosion is accelerated by processes that reduce vegetative cover in the catchment, such as agriculture, deforestation, overgrazing and forest fires. Areas experiencing frequent flooding, severe erosion or excessive sediment deposition should be delineated in the water resources assessment.

Surface quality

All natural water bodies have the capacity to assimilate some level of waste without apparent damage (Jain et al., 1993). This capacity is due to physical and biochemical processes that break down waste into harmless substances, but negative impacts become significant once the threshold is exceeded. Pollutants enter water bodies from 'point' or 'non-point' sources. Examples of point sources include municipal and industrial wastewater and runoff from municipal dumps, and agricultural sources such as feedlots and poultry farms - all discharging into streams, lakes and oceans. Non-point contamination includes rural wastewater, nitrate pollution of groundwater, and pesticide accumulation in runoff. The characteristics of major point and non-point sources are explored below (see Robbins et al., 1991).

The main point sources of pollution are municipal and industrial wastewater. Partially treated and untreated discharges are a major source of nutrients like nitrogen and phosphorus, bacterial pathogens, viruses, parasites and organic contaminants. Nutrients can accelerate algal growth and eutrophication in water bodies. Water supplies contaminated with bacteria, parasites and viruses may affect downstream users and incur higher treatment costs. Industrial effluent can affect water in many ways, from changing the temperature (thereby altering sensitive biochemical processes) to harming and even destroying aquatic ecosystems by direct effects of toxicity or by raising biological oxygen demand.

Major non-point sources of contamination include urban and agricultural runoff, forestry management, and mining. Urban runoff may contain suspended solids, heavy metals and organic contaminants (FWPCA, 1969). Agricultural runoff can carry suspended solids, salts, nutrients, organic loads, pesticides and pathogens. Suspended solids are the largest pollutant category to affect surface water and many of the aforementioned pollutants may be adsorbed onto soil particles and thus be carried to surface waters. Irrigation return flows may contain high concentrations of suspended and dissolved solids, pesticides and trace elements. Irrigation-related salinity is a serious problem in arid and semi-arid areas. Other agricultural non-point sources of pollution include grazing areas and ranches. Forestry management activities such as logging and clear-cutting may increase surface runoff and reduce groundwater replenishment. Mine effluent contains metals and other substances that can alter the pH of surface waters, and this can dramatically harm sensitive species.

Sensitive ecosystems

Modifications to hydrology and water quality may have the greatest effect on wetlands - marshes, estuaries, coastal zones and inland lakes (see Dugan, 1990). Wetlands are productive ecosystems and are important in preserving biological diversity, providing buffers against floods and also serve as natural water purification systems. Low streamflow conditions decrease wetland areas and subject them to more concentrated pollutant loadings.

Estuaries are important nurseries and staging areas for many species of shrimp, fish and waterfowl. Low stream flows with high contaminant concentrations degrade estuarine habitats and may also change the balance of fresh- to salt-water, possibly resulting in saline intrusion into a coastal aquifer.

Coastal zones form important habitats for shellfish and perform important functions in nutrient cycling and waste treatment (World Bank, 1991). Coastal zone ecosystems can be affected by municipal and industrial waste discharges, pollution from urban and agricultural runoff, destructive fishing practices (e.g., using dynamite) and dredging.

Inland lakes are important sources of water supply and provide benefits such as fishing, navigation and recreation. They can also influence the local climate and the groundwater regime. Waste discharges can have dramatic effects on the populations of fish, other aquatic species and plants. Nutrients from municipal wastes and agricultural runoff can accelerate algal growth and eutrophication, leading to increased turbidity levels, taste and odour problems, and can deplete dissolved oxygen, creating anoxic conditions in the deeper parts of the lake, which can affect many fish and other species. In severe cases, algal blooms may release harmful toxins, resulting in fatalities, as occurred in Australia in 1993.

Effects on public health

Partially or untreated urban wastewater entering surface waters and groundwater can spread diarrhoea, cholera or other waterborne diseases. Such public health hazards can be exacerbated under low-flow conditions, when wastes become more concentrated, prolonging the survival and growth of pathogens.


Groundwater pumping can induce the inward migration of poor quality waters from adjacent areas. Inter-aquifer movement of poor-quality water can occur when there is a difference in the hydraulic head across aquifer boundaries, through well screens, perforated casings or open boreholes. Overextraction could cause permanent decline in groundwater levels and over-pumping from freshwater aquifers overlying salty waters can lead to saline contamination by upwelling.

Effects of rising water table

Irrigation can cause waterlogging which then results in salinization if the deep groundwater is saline or contacts naturally saline strata. In dry climatic zones, waterlogged soils concentrate salts in the plant root zone and it may not be possible to reclaim soils unless drainage is installed and accompanied by suitable management practices at an early stage.

Groundwater quality

Groundwater systems have some ability to purify themselves; this depends on the material and properties of the aquifer. Self-purification occurs largely through the filtering action of water infiltrating the aquifer material and also through biochemical processes that may be influenced by the level of available oxygen and the type of substrate material.

A variety of chemicals can contribute to groundwater contamination. Salts, fertilizers and agrochemicals such as insecticides, herbicides and fungicides used in agriculture may be leached to groundwater. Other sources of contamination include surface disposal of liquid wastes, septic tanks, leaking sewers and underground storage tanks, industrial wastes and oil field brine disposed of through injection wells, as well as mining wastes (Everett, 1990). Remedial action is generally more difficult and therefore more expensive than treating surface water pollution because aquifer properties and behaviour are harder to understand and define. Contaminated areas and aquifers that are highly vulnerable to pollution should be noted in the water resources assessment.

Priority environmental issues

Water pollution and over-allocation of water resources are the two principal causes of conflict among competing users of water. Such conflicts invariably affect the poor and the environment. Excessive surface water diversion and groundwater pumping result in low downstream flows and basin depletion respectively.

Allocation of water resources

Over-allocation of water is often a result of poor planning, poor management decisions or undue influence of vested interests. Environmental allocation should be safeguarded and incorporated into river basin management plans.

Pollution control

Pollution from point and non-point sources affects all beneficial uses. Controlling waste discharges from point and non-point sources should be a priority objective for protecting surface water and groundwater quality. This would first require identifying major point and non-point sources and loads, then reviewing and using the various instruments (standards, permits or incentives) for controlling waste discharges and, finally, monitoring changes in pollutant loads to enforce compliance and determine the effectiveness of the controls to meet the water quality objectives adopted for surface water bodies and underground aquifers.

Specific environmental needs should be incorporated into the information system activities described in Chapter 7. Discharge, water quality and waste discharge data collected at low and high flow periods in major tributaries and streams can be collated to estimate the proportion of pollutant loads originating from different sub-basins or point sources. Priority basins or geographic areas to be targeted in the short term should be identified in the country water resources management strategy. In addition, priority investment needs for pollution-control infrastructure should be identified.

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