SELECTING APPROPRIATE WATER POLICIES



Water is a key component in many economic activities including
agriculture, power, transportation, commercial fishing, and
industry.  So it is not surprising that an inadequate supply of
acceptable quality water constrains economic development in many
countries.  Water demands continue to increase as populations and
economic activity grow.  Thus, it is now essential that we treat
water resources as an economic good and not one that is "free"
for unlimited use. 



Water Resource Problems


The importance of water, and the interdependence of its many
uses, keep water resource problems high on the agenda of
policymakers.  We can group these problems into four categories:
inefficient water use, fluctuations in water availability,
increasing scarcity, and declining water quality.  We note that
these problems are not independent as improving water quality
also increases usable water supplies.


Inefficient Water Use

Given the growing demand for good and reliable quality water,
countries cannot afford inefficient use.  Many will need to
devise demand management strategies that give consumers
incentives to conserve water (Spulber and Sabbaghi 1994).  Such
strategies should be sensitive to the needs of low income groups
but also recognize that most consumers have a high willingness to
pay for good quality water.

"Several studies show that the urban poor pay high prices for
water supplies and spend a high proportion of their income on
water....In Jakarta, Indonesia...only 14% of the households
receive water directly from the municipal system.  Another 32%
buy water from street vendors, who charge about $1.50 to
$5.20/m3" (World Bank 1993).  

To promote efficiency and still meet the needs of the poor,
Istanbul adjusts water prices depending on the amount consumed
and type of user.  For water to meet basic health requirements
(7.5 m3/month), the city charges households a modest $0.26/m3. 
In contrast, industry pays almost five times this rate.


Fluctuations in Water Availability

The second problem concerns the highly variable and unreliable
nature of water supplies (rainfall and stream flow) combined with
varying demand.  Droughts or floods plague many parts of the
world (box 1).  And countries such as Bangladesh and China
sometimes experience both floods and droughts in the same year. 
Water demands that generally are highest during the dry season
accentuate these problems.


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Box 1. African Drought 

Varying rainfall and water supplies afflict many areas.  Drought
has plagued Africa, particularly since the first half of the
1970s when the Ethiopian drought and famine claimed the lives of
150,000 people.  A second drought 10 years later, combined with
war, claimed even more lives.  

The Sahelian countries experienced similar devastation in the
1970s and 1980s, with Mali alone losing more than half its
cattle.  In 1993, Southern Africa, including the Republic of
South Africa, had the worst drought on record.  Agricultural
output in Zimbabwe, previously a major exporter of agricultural
produce, declined by almost 80%.  It had to import grain to
satisfy internal demand.  The situation was also critical in
Malawi, where maize production dropped 40%. 

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A country s ability to deal with fluctuations in water supply
will partly depend on the supply flexibility built into its water
system.  Does the system have excess capacity?  Can a country
reallocate water from low value to critical uses during drought?


Increasing Scarcity

The third problem involves the increasing scarcity of water with
several important concerns.  One is "an absolute decline in
available supplies."  This is caused by water diversions outside
the basin, pumping that depletes the groundwater, or human-
induced climate change.

For example, Manila, Mexico City, and Bangkok are rapidly
depleting their groundwater supplies.  Some countries, even in
the Middle East, use scarce groundwater resources to irrigate low
value crops.  When more than one country uses the same water
source, the political complexities multiply, making it even more
difficult to find solutions. 

Another concern involves the "increasing cost of new sources." 
The cost of a cubic meter of water provided by a new project can
be two or three times the current cost for many major cities
[note 1 ].  The same cost trends occur for irrigation water in
many major irrigated areas, including India, Pakistan, and the
United States.

[Note 1. Cost excludes treatment and distribution.  Current cost
refers to cost at the time data were gathered.  Future cost is a
projection of cost under a new water development project. 
Source: World Bank (1992:102).]

A final concern is that population and economic growth are
causing "a growing demand for water."  Projections are that the
world population will grow from 5 billion today to 8 billion by
2025.  Not only will these people need water for household uses,
but they also will need food, some of which must come from newly-
irrigated lands. 


Declining Water Quality

The fourth problem involves "a general decline in water quality."
Besides the critical health concerns highlighted in box 2,
widespread economic and ecological impacts arise from inadequate
sewage treatment.  Worldwide, people face growing problems of
inadequately-treated industrial waste and pollution form
agricultural chemicals.  Another leading contributor to water
pollution is soil erosion, caused by poor land-use practices in
agriculture, forestry, mining, and urban areas.  This pollution
combined with the loss of wetlands has caused a serious decline
in aquatic resources and habitats.


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Box 2. Waterborne Illness

Polluted water used for drinking and bathing represent the
principal pathway for infectious diarrheal diseases.  They
annually kill more than 3 million people, mostly children, and
make more than a billion others sick.  Other diseases from
polluted water include roundworm, which inflicts nearly one
billion people.  Another 500 million suffer from the eye disease,
trachoma, and 200 million more from schistosomiasis transmitted
by liver flukes.  
Source: The World Bank (1992).

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Policy Choices


Policymakers dealing with these water problems need to make
difficult choices between alternative actions and institutional
arrangements.  For example, in a country facing growing urban
water demands, decisionmakers must choose whether to build a new
reservoir, transfer water out of irrigated agriculture, or
develop a demand management program.  This program could include
actions such as water metering, volumetric water charges, and
education about water conservation (box 3).  


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Box 3.  Demand Management Programs for Municipal Water Supply

To limit the need for increased water supplies, many
municipalities have employed demand management programs.

Bogor, Indonesia, faced high investment costs in developing
additional water supplies.  Municipal authorities decided to cut
domestic and commercial water consumption substantially.  They
increased water fees by about 30%.  This decreased consumption by
29%.  The city then used a campaign to reduce water use further,
particularly among consumers with more than 100 m3/month. 
Consumers received advice and the necessary devices to reduce
consumption.  Three months later, average monthly water use
decreased another 29%.

To cut water use per capita by one-sixth, Mexico City replaced
350,000 toilets with smaller six-liter models.  This saved enough
water to meet the household needs of 250,000 residents.

Beijing charges for the actual volume used.  New administrative
regulations set quotas on consumption and authorize fines for
excessive use.

Water-saving devices, leak detection and repair, and more
efficient irrigation in its parks helped Jerusalem reduce its use
of water per capita by 14% from 1989 to 1991.

A water conservation program in Waterloo, Canada, included higher
prices, education, and the distribution of water-saving devices. 
The program reduced water use per capita by nearly 10%.  

Source:  Adapted from The World Bank (1993).

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Another area may suffer from highly variable surface water
supply. Those decisionmakers may choose whether to increase
storage capacity, encourage farmers to change the mix of crops
grown, or restrict groundwater use to drought years when surface
water is scarce.



Institutional Setting 


Policy design and action take place within a social and
institutional framework.  This includes organizations, customs,
laws, rights, responsibilities, regulations, and informal rules
that guide and influence the success or failure of a particular
policy or action.  Effective policy implementation may require
changing certain institutions or organizations as well as
developing policies to guide these changes.

Institutional arrangements specify who can benefit from water use
and establish incentives that guide water use.  Well-designed and
functioning institutional arrangements can set up water markets
and/or administrative control over water use.  However,
inadequate institutional arrangements can impede efficient water
use.

Institutional arrangements also establish the interface between
government and private sector water management.  Management
usually involves a mix of government and private sector activity.

The mix will depend on the country's objectives, existing
institutional arrangements, and on the technical, political, and
management capabilities of the public and private sectors. 

Most countries have many public agencies and commissions with
various responsibilities for water management.  Often each agency
is responsible for only one aspect of water resources, such as
irrigation, water supply, or hydropower. 

To integrate water policies, governments may need to alter roles,
functions, and responsibilities of agencies and change the way
agencies relate to one another.  Policymakers should encourage
water agencies to exchange information, communicate regularly,
engage in joint planning and coordinated operations.



An Integrated Approach


An integrated approach should consider water demands across all
sectors and assess supplies available.  However, many water
management decisions can be done effectively at a lower level. 
This often means a more limited role for central governments and
a greater reliance on the private sector, local government
officials, financially independent utilities, and water user
associations.

If so, the central government can then focus on: 
* developing a comprehensive strategy for water resources 
  planning;
* resolving conflicting interests;
* minimizing adverse impacts;
* supplying technical assistance to local groups;
* fostering complementary institutional arrangements by 
  developing appropriate legal, regulatory, and incentive 
  systems; and
* preventing monopoly pricing.

Even in an integrated approach, governments should divide water
resource management so that oversight and enforcement functions
are separate from operations.  This separation will reduce
conflicts of interest and opportunities for bribes and other
illegal payments.   

Some countries, such as Mexico, Chile, and Tunisia, are already
implementing water policies that emphasize integrated planning
and decentralized management.  Yet to initiate such policies
effectively, countries need to design the policies based on their
water resource conditions and management capabilities.  



Selecting Actions and Policy Instruments


Table 1 shows a partial list of policy actions and related
instruments to help resolve different water problems and improve
water management [note 2].  Not all actions are appropriate for
each country.   Sometimes a combination of policy actions and
instruments may be more effective than the use of a single action
or instrument.  An example is a rapidly growing city faced with
very expensive new water supplies.  Instead of choosing the
costly option of increasing water supplies, a water agency could
select a much smaller and less costly expansion of water supply
combined with a program of higher water fees and water
conservation assistance for users (box 3).

[Note 2. The policy instruments and actions discussed here relate
closely to those adopted in a watershed management plan, compare
with Brooks, Kenneth N., Peter F. Ffolliott, Hans M. Gregersen,
and K. William Easter.  1994.  POLICIES FOR SUSTAINABLE
DEVELOPMENT: THE ROLE OF WATERSHED MANAGEMENT.  U.S. Agency for
International Development, Environmental and Natural Resources
Policy and Training Project/Midwest Universities Consortium for
International Activities Policy Brief 6.  Arlington, Virginia.]


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Table 1.  Water Resource Problems and Policy Actions

Policy Instruments   
   Policy Actions for Specific Problems           

Fiscal incentives
   Shortages and Inefficient Use
     * Use opportunity cost pricing**
     * Legalize water markets
   Variable WaterSupplies           
     * Use peak load pricing
     * Legalize water markets
   Declining Water Quality
     * Make polluter pay for damages
     * Use tradeable pollution permits

Regulatory mechanisms and institutions
   Shortages and Inefficient Use
     * Promote water user associations
     * Establish river basin entities
     * Impose restrictions on use
   Variable WaterSupplies           
     * Ration water deliveries
     * Establish priorities for water use in droughts
   Declining Water Quality
     * Set water quality standards
     * Establish land use zoning around streams and in watersheds

Direct public investments
   Shortages and Inefficient Use
     * Transfer water from surplus regions
     * Install water meters
   Variable WaterSupplies           
     * Public groundwater development
     * Expand reservoir storage
   Declining Water Quality
     * Install waste treatment plants
     * Install aerators on polluted rivers

** basing prices on the value of the highest alternative use

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Assessing Impacts 


Selecting appropriate policy actions and instruments is an
interactive adjustment process.  It often depends on assessment
of the economic, social, and environmental impacts of each
proposed activity.

These assessments must also be part of ongoing management
activities so that administrators can take corrective actions
when needed.



Implementing Policies


Policymakers need to develop policy actions that take advantage
of social, institutional, economic, and political conditions in
their countries.

Policymakers should promote water management procedures that are
transparent, decentralized, and responsive to users' requests
(ISPAN 1993).  They can do this by fostering formal or informal
water-user associations that have a strong sense of owning the
water resources.

This ownership can grow out of users' direct involvement in
project planning, construction, and management.  It can also
occur through granting water rights to water-user associations
and/or direct user involvement in financing water structures. 
Other options include water management by financially independent
water utilities or concessional management contracts with private
firms.

Policymakers need to develop clear lines of accountability and
responsibility.  Who is responsible and accountable for
delivering water to a consumer or a water-user association?  What
actions can be taken against those responsible if the water does
not arrive on schedule?  If users pay water fees, who will make
sure those funds are efficiently used to maintain and operate the
water system?

Accountability is much easier to establish when management
depends on users for its finances.  Thus, private firms and
financially independent utilities have more incentive to provide
good service than a centrally-funded water agency using tax money
(World Bank 1994).

Policymakers need to develop and use a system of data collection,
monitoring, and information delivery.  Water managers must have
information about water supplies and demands.  Users must know
about likely supplies so they can plant the right crops for the
water available.  Timely information can improve decisions at
both levels.  Without such information and monitoring systems, it
is difficult to assign responsibility for inappropriate water
management decisions.

Policymakers must change incentives so water managers gain from
efficient and equitable water distribution.  There are several
ways to set up these incentives.  One is to give users more
responsibility for water delivery and allocation.  Another is to
give water users tradeable water rights and let them actually
employ the water managers.  A third alternative is to have the
managers' salaries depend on the efficiency of water delivery
and/or the percentage of fees collected from users.  In the
Philippines, for example, managers receive a bonus when 90% of
farmers paid their water fees.  The important point is to have
some strong link between those using water and those managing it.

A key factor in carrying out all these policy actions is the
political will of the country involved.  Donor help can
facilitate such policy actions only when a country has made the
necessary commitments.  Yet donor help may be necessary to
initiate incountry discussions of appropriate policy actions. 

For example, in many water-scarce areas, such as the eastern
Mediterranean and sub-Saharan Africa (where all major rivers are
international), external assistance, like that provided India and
Pakistan, will probably need to occur for more efficient and
sustainable use of water resources (see box 4).


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Box 4. International Water Resources

It is more difficult to establish an integrated approach to water
resource management when the water resource is the boundary
between countries or crosses national boundaries.  For example, a
river may flow through two or more countries or a lake or aquifer
may cross national boundaries.  In such cases, countries often
adopt policies that conflict with those of other countries using
the same water resource.

To help resolve such conflicts, technical and financial
assistance may be necessary for an extended time.  For example,
resolving the water conflict between India and Pakistan, over
their northern rivers, required outside assistance for nine
years.  They finally signed the Indus Water Treaty in September
1960.

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