world bank water policy water resources management

8/8/2019 World Bank Water Policy Water Resources Management

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WATERRESOURCES-MANAGEMENT


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1993 International Bank for Reconstructionand Development / THE WORLD BANK1818 H Street, N.W.Washington, D.C. 20433 U.S.A.All rights reservedManufactured in the United States of AmericaFirst printing September 1993Cover design by Walton Rosenquist and Beni Chibber-RaoLibrary of Congress Cataloging-in-Publication DataWater resources management.

p. cm. - (A World Bank policy paper)Includes bibliographical references.ISBN 0-8213-2636-81. Water resources development-Developing countries.

I. International Bank for Reconstruction and Development.II. Series.HD1702.W382 1993333.91'009172'6-dc20 93-31793

CIP

ISBN 0-8213-2636-8ISSN 1014-8124


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4 Water ResouircesManagement

Appendix A. Market Failures and Public Policy in WaterManagement 81Appendix B. Water, People, and the Environment: Lessons Learned 93Appendix C. Privatization and User Participation in Water ResourcesManagement 100Appendix D. Summary of World Bank Operational Directives

and Other Guidelines Related to Water Resources 116Appendix E. The World Bank's Experience with Investments

in Water Resources 125Bibliography 135Boxes1-1. United Nations Organizations and Water Resource Management 221-2. The Dublin and Rio de Janeiro Conferences 242-1. The Case for Government Involvement in Water Management 282-2. Fragmented Management in South India 292-3. What Do the Poor Pay for Water? 312-4. Economic and Environmental Consequences of Inadequate Sanitation 332-5. Water Scarcity in Jordan 342-6. The Increasing Costs of Supplying Water 363-1. The French System of Managing River Basins 463-2. Can the Poor Pay for Irrigated Water? 503-3. Modern Irrigation Systems in North Africa 513-4. Demand Management Programs for Municipal Water Supply 533-5. Participation of Women in Water Supply and Sanitation Projects 564-1. Project Ratings of the Bank's Operations Evaluation Department 674-2. Innovative Features of Recent Bank-Sponsored Water ResourceActivities 68TablesA-1. Characteristics of Public and Private Goods, Market Power,and Externalities in Water Sector Services 86A-2. Market Conditions and Public Policy to Assure Efficient Productionand Management of Water Resources 89E-1. Overall Performance of Evaluated Projects in Selected Sectorsfor Various Years, 1974-91 132


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Glossary

Aquifer An underground stratum that is saturatedwith water and transmits water readilyCommand and control A system of water management based onadministrative allocationsComprehensive An analytic framework for water resourcesframework that views water as a single resource withmany uses and interlinkages with the eco-logical and socioeconomic systemCost recovery Fee structures that cover the cost of provid-ing the serviceDecentralization The distribution of responsibilities fordecisionmaking and operations to lowerlevels of government, community organiza-tions, the private sector, and non-governmental organizationsDemand management The use of price, quantitative restrictions,

and other devices to limit the demand forwaterDrip irrigation A localized drop-by-drop application ofwater that uses pipes, tubes, filters, emitters,and ancillary devices to deliver water to spe-cific sites at a point or grid on the soil surface

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6 Water Resources Management

Ecosystem A complex system formed by the interactionof a community of organisms with its envi-ronmentExternality The unintended real (nonmonetary) side ef-fect of one party's actions on another partythat is ignored in decisions made by theparty causing the effectsFinancial autonomy The ability of an entity to operate and sustainits activities for a long period based on therevenue it collects from the users of its ser-

vicesGravity irrigation A system that depends on sloping canalsand fields to transport water to an irrigatedsiteMarket failure A divergence between the market outcome(without intervention) and the economicallyefficient solutionOpportunity cost The value of goods or services forgone, in-cluding environmental goods and services,when a scarce resource is used for one pur-pose instead of for its next best alternativeuseRiparian state A state through or along which a portion ofa river flows or a lake liesRiver basin A geographical area determined by the wa-tershed limits of a system of water, includingsurface and underground water, flowinginto a common terminusSewage Liquid refuse or waste matter carried off bysewersSewerage The removal and disposal of sewage andsurface water by sewer systemsTubewells Circular wells consisting of tubes or pipesplaced in holes bored into the ground to tapgroundwater supplies from one or moreaquifers


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Glossary 7

Unaccounted-for water The difference between the volume of waterdelivered to a supply system and the volumeof water accounted for by legitimate con-sumption, whether metered or not (or themeasured volume of supplied water that isproduced or treated less the water that isconsumed legitimately, the difference beingwhat is stolen or lost)Watercourse A system of surface and underground wa-ters that constitute, by virtue of their physi-cal relationship, a unitary whole and flowinto a common terminus

Watershed An area drained by a river or stream systemWatershed management A process of formulating and implementinga course of action that involves a region'snatural and human resources taking into ac-count social, political, economic, environ-mental, and institutional factors operating

within the watershed, the surrounding riverbasin, and other relevant regions to achievedesired social objectivesWetlands Areas of marsh, fen, peat land, or water thatinclude natural, artificial, permanent, andtemporary areas with static or flowing waterthat is fresh, brackish, or marine


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Executive Summary

Water resources have been one of the most important areas of WorldBank lending during the past three decades. Through its support forsector work and investments in irrigation, water supply, sanitation,flood control, and hydropower, the Bank has contributed to the devel-opment of many countries and helped provide essential services to manycommunities. Yet, as pointed out in reports of the Operations Evalua-tions Department, the investments supported by the Bank ir the areashave often encountered implementation, operational, and social prob-lems. Underlying these problems is a vicious cycle of poor-quality andunreliable services that result in consumers' unwillingness to pay,which, in turn, generates inadequate operating funds and a furtherdeterioration in services. Moreover, the Bank and governments have nottaken sufficient account of environmental concerns in the managementof water resources.The difficulties encountered by Bank-supported projects reflect alarger set of problems faced in water resource management, which arehighlighted in the World Development Report 1992: Development and theEnvironment (1992d). Water is an increasingly scarce resource requiringcareful economic and environmental management. The situation is ex-acerbated by rapid population growth and urbanization in developingcountries. As the demand for water for human and industrial use hasescalated, so has the competition for water used for irrigated agriculture.At the same time, the engineering and environmental costs are muchhigher for new water supplies than for sources already tapped. Newchallenges call for a new approach. Governments have oftenmisallocated and wasted water, as well as permitted damage to the

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environment, as a result of institutional weaknesses, market failures,distorted policies, and misguided investments. Three problems in par-ticular need to be addressed:* Fragmented public investment programming and sector manage-ment, that have failed to take account of the interdependenciesamong agencies, jurisdictions, and sectors* Excessive reliance on overextended government agencies that haveneglected the need for economic pricing, financial accountability,and user participation and have not provided services effectivelyto the poor* Public investments and regulations that have neglected water qual-ity, health, and environmental concerns.To manage water resources more effectively, a balanced set of policiesand institutional reforms should be sought that will both harness theefficiency of market forces and strengthen the capacity of governmentsto carry out their essential roles.

A Framework for Improving Water Resource ManagementThe proposed new approach to managing water resources builds on thelessons of experience. At its core is the adoption of a comprehensivepolicy framework and the treatment of water as an economic good,combined with decentralized management and delivery structures,greater reliance on pricing, and fuller participation by stakeholders. Theproposed approach is consistent with the Dublin Statement (1992) fromthe International Conference on Water and the Environment as well aswith Agenda 21 from the 1992 United Nations Conference on Environ-ment and Development.Needfor a comprehensiveframework

The adoption of a comprehensive framework for analyzing policies andoptions would help guide decisions about managing water resources incountries where significant problems exist, or are emerging, concerningthe scarcity of water, the efficiency of service, the allocation of water, orenvironmental damage. The complexity of the analysis would varyaccording to the country's capacity and circumstances, but relativelysimple frameworks can often clarify priority issues. The frameworkwould facilitate the consideration of relationships between the ecosys-tem and socioeconomic activities in river basins. The analysis shouldtake account of social, environmental, and economic objectives; evaluatethe status of water resources within each basin; and assess the level and


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Executive Summary 11

composition of projected demand. Special attention should be given tothe views of all stakeholders.The results of the analyses at a river basin level would become part ofthe national strategy for water resource management. The analyticalframework would provide the underpinnings for formulating publicpolicies on regulations, incentives, public investment plans, and envi-ronmental protection and on the interlinkages among them. It wouldestablish the parameters, ground rules, and price signals for decentral-ized implementation by government agencies and the private sector.Decentralizing the delivery of water services and adopting pricing thatinduces efficient use of water are key elements of sound water resourcemanagement. But, for decentralized management to be effective, a sup-portive legal framework and adequate regulatory capacity are required,as well as a system of water charges to endow water entities withoperational and financial autonomy for efficient and sustainable deliv-ery of services.Countryfocus of the policyThe comprehensive analytical framework outlined above will need to betailored to the situations and constraints facing individual countries.Many of the countries with limited renewable water resources are in theMiddle East, North Africa, Central Asia, and Sub-Saharan Africa, wherepopulations are growing fastest. Elsewhere, water scarcity may be lessof a problem at the national level but is nevertheless severe in many areassuch as in northern China, western and southern India, western SouthAmerica, and large parts of Pakistan and Mexico. For some countries,such as those in Eastern Europe, pollution is the largest problem affect-ing water resources. In much of Africa, implementation capacity is acritical issue exacerbated by the frequency of prolonged droughts. Insome countries, water resource management is not yet a significantproblem. These differences among regions and countries will shape thedesign of strategies and programs for a given country.Water policy objectivesDifferences among countries notwithstanding, water resource manage-ment that follows the principles of comprehensive analysis, opportunitycost pricing, decentralization, stakeholder participation, and environ-mental protection outlined in this volume will yield more coherentpolicies and investments across sectors, promote conservation, and im-prove the efficiency of water allocation. The objective is to achieve, overtime, the following improvements:


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12 WaterResourcesManagement

* For industry, extensive water conservation and protection ofgroundwater sources. Experience in industrial countries suggeststhat controlling pollution will also substantially reduce the quan-tity of water used per unit of industrial output.* For water supply and sanitation,more efficient and accessible deliveryof water services and sewage collection, treatment, and disposal,with the ultimate goal of providing universal coverage. This will

be achieved by extending existing supplies through water conser-vation and reuse and by using other sustainable methods. Greaterinvolvement of the private sector, nongovernmental organizations,and user groups will be required, as will cost recovery to ensurefinancial viability while applying graduated fees to assist the poor.* For irrigation and hydropower, modernized irrigation practices,greater attention to cost recovery, drainage and salinity control,measures to reduce pollution from agricultural activities, im-provements in operation and maintenance of existing systems, andinvestments in small-scale irrigation and various water-harvestingmethods. This calls for the development of institutions and tech-nologies that respond to the needs of farmers for higher-qualityservices, including greater participation of community groups anduser associations, while reinforcing the efficient management ofdemand. Particular attention will be given to the needs of small-scale farmers, who comprise most of the agricultural community.Greater priority should be given to managing the demand forenergy, identifying small-scale and renewable energy alternatives,promoting watershed conservation practices, and retrofitting andenhancing dam facilities.* For the environment and poverty alleviation,more rigorous attentionto minimizing resettlement, maintaining biodiversity, and protect-ing ecosystems in the design and implementation of water projects.Water and energy supplies gained through conservation and im-proved efficiency can be used instead of developing new suppliesto extend service to the poor and maintain water-dependent eco-systems. Low-cost and environmentally benign methods of devel-oping new water supplies for agriculture, rural drinking water, andindustry will be pursued. The water supply needs of rivers, wet-lands, and fisheries will be considered in decisions concerning theoperation of reservoirs and the allocation of water.

The World Bank PolicyThe Bank's overarching objective is to reduce poverty by supporting theefforts of countries to promote equitable, efficient, and sustainable de-


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Executive ummary 13

velopment. This entails support for the provision of potable water andsanitation facilities, flood control, and water for productive activities inan economically viable, environmentally sustainable, and socially equi-table manner. The new approach is designed to help countries achievethese objectives more effectively while sustaining the water environ-ment, and the Bank will support member governments to that end. TheBank will give priority to countries where water is scarce or where theproblems of water allocation, service efficiency, or environmental deg-radation are serious. In these countries, through its economic and sectorwork, lending, and participation in international initiatives, the Bankwill promote policy reforms, institutional adaptation and capacity build-ing, environmental protection and restoration, and, when requested,cooperation in the management of international watercourses. Becauseof the crucial interdependencies between water and other sectors, theBank will incorporate water resource policy and management issues inits country policy dialogues and in the formulation of country assistancestrategies where water issues are considered to be significant.A comprehensive anal ytical frameworkThe Bank will encourage and, when requested, selectively help countriesdevelop a systematic analytical framework for managing water re-sources that is suitable for a country's needs, resources, and capacities.The framework will be designed so that options for public water man-agement can be evaluated and compared in the context of a nationalwater strategy that incorporates the interdependencies between waterand land use. It will enable coherent, consistent policies and regulationsto be adopted across sectors. To facilitate the introduction of such aframework, the Bank is ready to support capacity building throughtraining, demonstrating participatory techniques, and helping in waterresource assessments. The Bank will also promote the creation, .enhance-ment, and use of hydrologic, hydrogeologic, socioeconomic, water qual-ity, and environmental data bases for both groundwater and surfacewater, as well as help governments effectively use this information indecisionmaking.Institutional and regulatory systemsThe reform of water resource management policies will have im-plications for the institutions dealing with water resources. The Bankwill assist governments in establishing a strong legal and regulatoryframework for dealing with the pricing, monopoly organizations, envi-ronmental protection, and other aspects of water management. Simi-


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14 Water ResourcesManagement

larly, the Bank will support the adaptation of institutional structures atthe national and regional levels to coordinate the formulation andimplementation of policies for improved water management, publicinvestment programs, and drought planning. In many countries, insti-tutional reform will focus on river basins as the appropriate unit foranalysis and coordinated management. Such coordinating arrange-ments are particularly important in countries with federal structures, inwhich provincial or state governments have primary authority over themanagement of water resources in their jurisdictions. In such countries,before committing funds to support operations that have importantinterstate effects, the Bank will require legislation or other appropriatearrangements to establish effective coordination and agreed proceduresfor allocating water. The Bank will also use water resources sector loansto coordinate water resource activities across sectors.IncentivesMany of the problems encountered in providing water services are dueto the lack of incentives both for performance by providers and forefficiency by users. A key component of the reforms to be supported bythe Bank will thus be greater reliance on incentives for efficiency andfinancial discipline. The Bank will highlight the importance of pricingand financial accountability by using estimated opportunity costs as aguide in setting water charges. In practice, immediate adoption of op-portunity cost pricing may be politically difficult. Thus, given the lowlevel of current cost recovery and the importance of finances in thesustainability of operations, pricing to ensure financial autonomy willbe a good starting point.Water-conserving technologyAn important element in any strategy to conserve water will be incen-tives for adopting technologies and management approaches that in-crease the efficient use, allocation, and distribution of water. Suchtechnologies and management approaches will make it easier to con-serve water, to increase the efficiency of water use and conveyance, andto reuse wastewater. As water scarcity and waste disposal problemsbecome more acute, adopting and improving water conservation prac-tices, wastewater reuse systems, and overall approaches to reduce pol-lution will become increasingly important.


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aged. Arrangements for ensuring performance accountability and forputting in place an appropriate regulatory framework to set and enforceenvironmental protection standards and to prevent inefficient monop-oly pricing will be incorporated into Bank-supported activities. Thesesteps should improve incentives for cost recovery and service provisionand give users a sense of ownership and participation. In countrieswhere provincial or municipal capabilities are inadequate to manage acomplex system of water resources, the Bank will support training andcapacity building to improve local management so that decentralizationcan eventually be achieved.ParticipationParticipation is a process in which stakeholders influence policy formu-lation, alternative designs, investment choices, and management deci-sions affecting their communities and establish the necessary sense ofownership. As communities increase their participation in managingwater resources, project selection, service delivery, and cost recoverywill likely improve. Therefore, the Bank will encourage the participationof beneficiaries and affected parties in planning, designing, implement-ing, and managing the projects it supports. In environmental assess-ments, the Bank requires consultation with affected people and localnongovernmental organizations, and will additionally promote the par-ticipation of concerned people--including the poor, indigenous people,and disadvantaged groups-in the water-related operations it supports.Special attention will be given to the participation of women becausethey are essentially the managers of domestic water. The Bank willencourage governments to follow these principles more broadly in theirinvestment programs and other activities related to water resources.Environmental protectionPreservation of the environment and the resource base are essential forsustainable development. The protection, enhancement, and restorationof water quality and the abatement of water pollution will therefore bea focus of Bank-supported operations, particularly since providing safedrinking water is so critical to maintaining and improving humanhealth. Accordingly, the Bank will increase its support of governmentefforts to improve and expand sanitation and the collection and treat-ment of wastewater. Similarly, the Bank will promote the use of effi-ciency pricing and "the-polluter-pays" principle through the impositionof pollution charges to encourage water conservation and reduce pollu-tion. For industrial waste, mining runoff, and wastewater discharges, a


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water resource management and institutions in many countries, im-plementing the necessary changes will take time. Accordingly,* In countries with significant water management problems, theBank will, in collaboration with other international and nationalagencies, assist governments through sector work, technical assis-tance, and environmental action plans in identifying and formulat-

ing priority policy and institutional reforms and investments andin determining their appropriate sequencing. These priorities-andthe degree of government commitment to them-will be high-lighted in the country assistance strategy and will guide the sectorallending program.* The priority reforms and activities to be addressed in analytic workand referred to in the country assistance strategy will deal withissues such as the appropriate (a) incentive framework and pricing,(b) service delivery to the poor, (c) public investment priorities, (d)environmental restoration and protection, (e) water resource as-sessment and data requirements, (f) comprehensive analyticalframework, and (g) legislation, institutional structures, and capac-ities. Assessing the degree of government commitment to im-plementing the requisite reforms will be an important part of theanalysis.* Progress in implementing the identified priorities will be moni-tored through normal Bank interactions with the country. Wheninadequate progress on priority actions is judged to cause seriousmisuse of resources and to hamper the viability of water-relatedinvestments, Bank lending in this area will be limited to providingpotable water to poor households and to operations designed toconserve water and protect its quality without additionally draw-ing on a country's water resources. Such operations include sanita-tion, waste treatment, water reuse and recycling, abatement ofwater pollution, drainage, and rehabilitation of the distributionsystems. These investments will be assessed on their individualmerits.* Individual water lending operations should discuss the linkage topriorities for reform, investment, and Bank support as well as thelikely impact of the overall water-related program. The analysis ofoperations will include an assessment of the implications for otherwater-using subsectors within the relevant regional setting, mostlikely a river basin. Relevant pricing issues, cost recovery, andfinancial autonomy and sustainability will receive particular atten-tion. The rationale for institutional arrangements for implementa-tion, particularly the division of responsibilities between


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Executive ummary 19

government and nongovernmental or financially autonomous en-tities, will be provided. The Bank requires the assessment of theenvironmental impact of projects, as well as environmental assess-ments of the entire river system for significant water-related pro-jects, and full consultation with affected people and localorganizations.International watercoursesExisting guidelines describe Bank policy on the financing of projectsdealing with intemational waterways. The Bank, together with otherintemational organizations, will help countries improve the manage-ment of shared intemational water resources by, for example, support-ing the analysis of development opportunities forgone because ofintemational water disputes. Through technical, financial, and legalassistance, the Bank, if requested, will help governments establish orstrengthen institutions, such as river basin organizations, to addresstransnational water management activities. Furthermore, the Bank willsupport studies and consultations to review available organizationalarrangements and help countries develop altemative solutions. In initialcontacts with riparians, the Bank will avoid setting preconditions, ex-ploring instead the most appropriate form of assistance. The Bank willbe sensitive at all times to the interests of other riparian parties, since allparties must be treated in an even-handed manner. The focus will be onintemational watercourses in which the Bank's assistance is likely tohave a substantial effect. In addition, the incremental cost of actionstaken by riparian states to protect intemational water resources and riverbasins will continue to be financed within the framework of the GlobalEnvironment Facility. The Bank will promote the acquisition of knowl-edge conceming intemationally shared groundwater to provide a basisfor establishing guidelines goveming the Bank's activities in this area.ImplementationTo help implement its water resource management policy, the Bank willundertake a range of activities, including the preparation of guidelinesand best-practices papers, staff and country training programs, capacitybuilding, and the development of coordination mechanisms to improvethe management of water resources. More specifically, in collaborationwith the United Nations Development Programme, a guide on capacitybuilding is being prepared for countries interested in formulating strat-egies for managing water resources. Guides are also being prepared onestablishing water resource information systems, on best practices for


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setting up coordinating mechanisms, on generalized economic modelsfor river basin analysis, and on best-management practices for wateruser associations. Regional units are preparing regional water strategies,which incorporate the recommendations of this water policy within thespecific circumstances of their areas. The skill mix of available andrequired Bank staff in the area of water resource management has beenanalyzed, and training programs, workshops, and seminars are beingprepared to upgrade existing staff skills. Pilot projects will be used toimplement some of the newer aspects of the water policy such asdecentralization and opportunity cost pricing. Finally, the implementa-tion of the new water policy will be reviewed in two years.


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Introduction

Water resources have been one of the most important areas of WorldBank lending during the past three decades. Through its support forinvestments in irrigation, water supply, sanitation, flood control, andhydropower, the Bank has contributed to the development of manycountries and helped provide essential services to many communities.Yet, as pointed out in studies of the Operations Evaluation Department,the investments supported by the Bank in these areas have often beenhampered by implementation and by operational, environmental, andsocial problems. These difficulties are symptomatic of the larger set ofproblems faced in managing water resources, which are highlighted inthe World Development Report 1992: Development and the Environment(World Bank 1992d). A new approach, recognizing that water is a scarcenatural resource-subject to many interdependencies in conveyance anduse-should be adopted by the Bank and its member countries. Thisvolume articulates the key elements of such an approach and providesa framework for the Bank's water resource activities.Water Problems and Bank Policy ObjectivesThe Bank's overarching objective is to reduce poverty by supporting theefforts of countries to promote equitable, efficient, and sustainable de-velopment. This entails support for the provision, in an economicallyviable, environmentally sustainable, and socially equitable manner, ofpotable water and sanitation facilities, protection from floods, and drain-age as well as of water for productive activities. The new approach isdesigned to achieve these objectives more effectively while sustainingthe water environment. Recognizing that water management has fre-quently been fragmented in the past, it stresses a comprehensive frame-

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Box 1-1. United Nations Organizations and Water ResourceManagementThe Bank collaborates closely with many United Nations organizationsinvolved in water resource management, including the United NationsDevelopment Programme (UNDP), Food and Agricultural Organization(FAO), World Health Organization (WHO), United Nations InternationalChildren's Fund (UNICEF), World Meteorological Organization/UnitedNations Educational, Scientific,and Cultural Organization (wMo/uNESCO),United Nations Department of Economic and Social Development (UN-DESD), and United Nations Environment Programme (UNEP). These orga-nizations also engage in collaborative programs among themselves.The UNDPhas supported major initiatives in the field of water resourcemanagement and collaborates with the Bank in both the irrigation andthe water supply and sanitation subsectors at the country and globallevels. It raises general public awareness through sponsorship and par-ticipation in major global conferences on water resources. Recently, itjoined the Bank in preparing a program to help countries initiate com-prehensive policies for managing water resources.The FAO recently launched an International Action Program on Waterand Sustainable Agricultural Development. The program highlights pri-ority areas for action in agriculture in the context of sustainable agricul-tural development with special reference to water use.The WHO works in collaboration with governments and internationalorganizations to improve water quality and reduce the incidence of water-borne diseases. Its program for promoting environmental health pro-vides technical support for community water supply and sanitation. Inaddition, it is engaged in an important effort to encourage safety in chemicaluse that will help protect supplies of fresh water from contamination.

UNICEF iS involved in providing water to rural communities through-out the world and has been a partner of governments, the Bank, and otheragencies in pioneering low-cost water supply technologies such as theMark II hand pump and in developing institutional innovations withwider community participation.UNESCO and the WMO actively sponsor the International HydrologicalProgram and recently, through their report on water resources assess-ment, stressed the importance of hydrological assessment as a first stepin planning the use of water resources.The UN-DESD, through its Science, Technology, Energy, Environment,and Natural Resources Division, helps countries to formulate policiesand projects in water resources, including rural water supply, river basindevelopment, and pollution control. It hosts the Intersecretariat Groupfor Water Resources.The UNEP, through its own programs and through its support for theGlobal Environment Fund, brings a specialist's focus on environmentalaspects and water quality to water resource management.


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Introduction 23

work for formulating country policies and public decisions that takesinto account the interdependencies that characterize water resources.Observing the waste and inefficiencies that have resulted from thefrequent failure to use prices and other instruments to manage demandand guide allocation, the new approach stresses the importance of usingdecentralized implementation processes and market forces to providewater services. Realizing that water use in all its forms impinges onnatural ecosystems and the health of people, the new approach stressesthe importance of assessing and mitigating the environmental conse-quences of public investments and of establishing effective regulatorypolicies.Country Focus of the PolicyAlthough this volume sets out the broad sectoral strategy that will guidethe Bank in water resources management, its application will need to betailored to the situations and constraints facing individual countries.Many of the countries with limited renewable water resources are in theMiddle East, North Africa, Central Asia, and Sub-Saharan Africa, theregions where populations are growing the fastest. Elsewhere, waterscarcity is less of a problem at the national level but is nevertheless severein many areas, for example, in northern China, western and southernIndia, western South America, and in large parts of Pakistan and Mexico.For some countries, such as those in Eastern Europe, pollution is thelargest management problem. In much of Africa, implementation capac-ity is a critical issue and one of the key constraints in fashioning cost-ef-fective solutions to water resource management problems that areexacerbated by frequent droughts. These regional and country differ-ences will shape the design of country strategies and programs.International Concerns about Water Resource ManagementThe Bank is not alone in raising concerns about the management of waterresources. Many organizations in the United Nations and other devel-opment agencies are also concerned about the increasing scarcity ofwater and the need to protect natural resources and the environment(box 1-1). Among them, the Canadian International DevelopmentAgency, the French Ministry of Cooperation, the German Federal Min-istry of Economic Cooperation and Development, the Overseas Devel-opment Administration (United Kingdom), and the U.S. Agency forInternational Development are developing, or have already developed,water resource strategies for foreign assistance.The issue has also received attention in international forums. The 1990Montreal International Forum "NGOs Working Together," for example,highlighted the problems of supplying drinking water and sanitation.


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The delegates called for a new approach to managing water resourcesthat emphasizes wide access to potable water and to sanitation, userparticipation and consultation, reliance on local community resources,the improvement and repair of existing systems, and a policy of com-prehensive water resource management integrating environmental andeconomic considerations. More recently, in Delft, Dublin, and Rio deJaneiro, international conferences have highlighted the growing inter-national consensus about the need to adopt comprehensive approachesto water resources management (box 1-2).

Box 1-2. The Dublin and Rio de Janeiro ConferencesThe January 1992 International Conference on Water and the Environ-ment: Development Issues for the 21st Century, held in Dublin, Ireland,called for new approaches to the assessment, development, and manage-ment of freshwater resources. The conference report sets out recommen-dations for action at the local, national, and international levels, based onfour guiding principles. First, the effective management of water re-sources demands a holistic approach linking social and economic devel-opment with protection of natural ecosystems, including land and waterlinkages across catchment areas or groundwater aquifers. Second, waterdevelopment and management should be based on a participatory ap-proach involving users, planners, and policymakers at all levels. Third,women play a central part in providing, managing, and safeguardingwater. Fourth, water has an economic value in all its competing uses andshould be recognized as an economic good.In June 1992, the United Nations Conference on Environment andDevelopment in Rio de Janeiro, Brazil, confirmed the widespread con-sensus that the management of water resources needs to be reformed.The conference stated that, "The holistic management of freshwater as afinite and vulnerable resource, and the integration of sectoral water plansand programs within the framework of national economic and socialpolicy, are of paramount importance for actions in the 1990s and beyond.... Integrated water resources management is based on the perceptionof water as an integral part of the ecosystem, a natural resource and socialand economic good" (UNDP 1990:ch.18, p.3). The conference stressed "theimplementation of allocation decisions through demand management,pricing mechanisms, and regulatory measures"(UNDI 1990:ch.18, p.5).


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Introduction 25

Organization of the VolumeChapter 2 discusses the management problems that have beset the sectorin many countries and how these are being aggravated by increasingdemands for water and rising costs of new supplies. Chapter 3 outlinesthe strategy for improving the management of water resources. Chapter4 spells out the role of the World Bank in helping countries implementbetter approaches to water resources management. Five appendixesdiscuss in detail market failures and public policy; lessons learned aboutthe relation among water, people, and the environment; privatizationand user participation; Bank guidelines related to water resources; andBank experience with investments in water resources.


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2gConditions and Challengesin Managing Water Resources

Precipitation is the primary source of freshwater, with an annual flowabout fifty times the normal stock held in lakes, rivers, and reservoirs.Annual precipitation can be highly variable, and withdrawal levels varywidely. The same area can experience drought one year and floods thenext. Precipitation per capita is highest in Latin America and the Carib-bean and lowest in the Middle East and North Africa. Withdrawals arehighest in North America and lowest in Africa. Twenty-two countriestoday have renewable water resources of less than 1,000 cubic metersper capita, a level commonly taken to indicate a severe scarcity of water.An additional eighteen countries have less than 2,000 cubic meters percapita on average (dangerously little in years of short rainfall), and theselevels are projected to decline further as population expands. Elsewhere,water scarcity is less of a problem at the national level, but it is never-theless severe in certain regions, at certain times of the year, and duringperiods of drought. Worldwide, agriculture is by far the largest user ofwater: 69 percent is used by agriculture compared with 23 percent byindustry and 8 percent by households. But in developing countries theshare used by agriculture is even higher: 80 percent.Problems of ManagementSince water is critical for human survival, public authorities in mostcountries have assumed central responsibility for its overall manage-ment. This recognizes that reliance on market forces alone will not yieldsatisfactory outcomes, and some form of remedial government action isoften required. Yet although governments may be involved for good

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Conditions and Challenges in Managing Water Resources 27

reasons, their actions, when not properly formulated or implemented,often cause serious misallocations and waste of water resources. Threeproblems related to government activities are of particular concern: (a)fragmented public sector management that has neglected inter-dependencies among government agencies and jurisdictions; (b) reli-ance on overextended government agencies that have neglectedfinancial accountability, user participation, and pricing while not deliv-ering services effectively to users and to the poor in particular; and (c)public investments and regulations that have neglected water quality,health, and environmental consequences. These problems are reviewedbelow.MarketfailuresGiven water's special characteristics, it is difficult to use unregulatedmarkets to deliver water efficiently or to allocate it among sectors (box2-1 and appendix A). Floods and droughts cause the availability of waterto be highly variable, threatening life and incomes. This extreme vari-ability is difficult to manage equitably using only pricing and marketmechanisms. Even more important, water moves through an intricatehydrological cycle of rainfall, absorption, runoff, and evapotranspira-tion that makes water activities highly interdependent and results innumerous extemalities from various uses of surface and groundwater.Moreover, because of economies of scale and limited sources of water inmany countries, the potential for monopoly control is high. Many ofthese problems of externalities and pricing can be corrected by appro-priate government policies that use market forces and incentives (forexample, taxes, regulations, and enhancement of competitive pressures).Other problems (for example, public goods and inadequate privateinvestments) may warrant public sector ownership and control of spe-cific activities (appendix A).Fragmented managementMany governments face growing problems because they have failed toaddress water resources in a comprehensive manner. Government ac-tivities are generally organized so that each type of water use is managedby a separate department or agency-for example, irrigation, municipalwater supply, power, and transportation-each responsible for its ownoperations and independent of the others. Issues related to the quantityand quality of water as well as health and environmental concerns arealso considered separately, as are matters related to surface and ground-water. Problems of uncoordinated and fragmented decisionmaking


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Box 2-1. The Case for Government Involvementin Water ManagementWater has several distinguishing characteristics that can result in marketfailures and therefore define a role for public action.

* Large, lumpy capital requirements and economies of scale inwater infrastructure tend to create natural monopolies, warrant-ing regulation to prevent overpricing. Moreover, many waterinvestments produce joint products, such as recreation, electricpower, flood control, and irrigation, which make pricing andallocation decisions difficult.* The large size and extremely long time horizons of some invest-ments, given underdeveloped capital markets and the potentialfor political interference in many water infrastructure invest-ments, reduce the incentives for private investments in the sector;in such situations, public investments may be warranted.* The uses of water within a river basin or aquifer are interdepen-dent. Withdrawals in one part of the basin reduce the availabilityof water for other users; groundwater pumping by one user maylower the water table and increase pumping costs for all users;and pollution by one user affects others in the basin, especiallythose located downstream. These interdependencies suggest thathaving all users agree to the rules of the game or lacking that,imposing government regulations, taxes, or both-could im-prove the social value of water resources.* Certain aspects of water activities, such as the control of floodsand waterborne diseases, are (local) public goods, which cannoteasily be charged for on the basis of individual use. In such cases,public initiative may be required to ensure that levels of invest-ment are appropriate.* Water resources are often developed because of their strategicimportance for national security and for regional development.Governments thus typically maintain ownership of water thor-oughfares, providing services such as the coast guard and trafficregulation.* Some regions are subject to periodic droughts. Because water isessential to sustaining life, governments may take control of water

abound. Resolving these problems is particularly difficult in federalgovernments, where states or provinces have jurisdiction over water intheir territory. In such cases, individual states may develop the samewater source without considering the impact on other states (box 2-2).Similarly, domestic, industrial, and commercial supplies often are pro-


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Box 2-2. Fragmented Management in South IndiaWater resources have been overdeveloped in a number of countriesprimarily due to fragmented decisionmaking. One example is the ChittarRiver in south India, whose highly variable flows have traditionally beendiverted at many points into small reservoirs (tanks) used to irrigate themain rice crop following monsoon rains. Diversion channels are large toaccommodate flows during floods. Thus, when a storage dam wasconstructed, the uppermost channel was able to absorb essentially all theregulated flow. The upper tanks now tend to remain full throughout theyear, concentrating benefits and increasing evaporation losses. The moreextensive lower areas have largely reverted to uncertain rainfed cultiva-tion. Constructing the storage dam without adequately consideringdownstream users and the storage capacity already in the basin is a goodexample of how developing an individual project in isolation can causesignificant economic losses.The Sathanur Dam was constructed on the Ponnaiyar River in TamilNadu to serve a left bank command area, but it deprived the traditionaland productive delta areas of irrigation water. The rights of downstreamirrigators are recognized in the dam's operating rules, but most of theregulated flow below the dam is diverted into the upper channels. Losseshave greatly increased in the wide sandy bed, and no surface water hasreached the sea for twenty or more years. Continued spills in about 50percent of all years were used to justify subsequent construction of theright bank irrigation command, further aggravating shortages in thedelta and producing endless conflict between the two Sathanur com-mands. Moreover, additional storage dams on upstream tributaries areincreasing evaporation losses in what was already a fully developedbasin. High-return cropping has been replaced by cultivation on lessproductive lands served by tributaries that are inherently more variablethan the main river was before the dam was built.The Amaravati River is a tributary of the Cauvery, which is the mostdisputed major river in India. Without a Cauvery agreement, Karnataka(the upstream riparian state) has steadily developed massive irrigationschemes, depriving the delta (Tamil Nadu's rice bowl) of its accustomedsupplies. Moreover, Tamil Nadu has been developing the Amaravati. Asat Sathanur, releases are made from the Amaravati Dam for the tradi-tional areas, but these areas are far downstream, and substituting regu-lated flows for flood flows has encouraged the development of privatepumps along the river bank. New electric connections have now beenbanned, but little can be done to control illegal connections or dieselpumps, and little water now reaches the lowest command areas, let alonethe Cauvery. Finally, new storage dams are being constructed on tribu-taries both in Kerala and Tamil Nadu, further depriving not only the oldlands but also the new lands and the pump areas of water.


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vided by local government units, which are not coordinated with pro-vincial or national water departments. This detachment may lead tosituations in which different agencies are developing the same watersource for different uses within an interdependent system.Overextended government agenciesGiven that water is essential for life, when it is scarce, governments tendto base allocations on political and social considerations rather than onpurely economic criteria. Government involvement reflects the under-standable concern that relying exclusively on unregulated marketswould not work. In many countries, the result has been a tradition ofheavy dependence on centralized command and control administra-tions for developing and managing water resources and excessive reli-ance on government agencies to develop, operate, and maintain watersystems. In many instances, this has stretched too thin the government'salready limited implementation capacity. Moreover, in most cases usershave not been consulted or otherwise involved in planning and manag-ing the water resources. The result has been a vicious cycle of unreliableprojects that produce services that do not meet consumers' needs andfor which they are unwilling to pay. The absence of financial disciplineand accountability for performance-along with political interference indecisions about allocations and pricing-are reflected in a litany ofproblems: inefficient operations, inadequate maintenance, financiallosses, and unreliable service delivery.UNDERPRICING OF WATER. Pricing water well below its economic valueis prevalent throughout the world. In many countries, expanding thesupply is politically expedient, and therefore pricing and demand man-agement have received much less attention. The preference for expand-ing supply has led to investments in infrastructure that could have beenavoided or postponed and that have increased the pressure on water-dependent ecosystems. Farmers in both industrial and developing coun-tries often pay little for their publicly supplied irrigation water. Theyhave few incentives to refrain from growing water-intensive crops or toconserve water. For example, in some arid areas, water prices are so lowthat it is profitable to grow irrigated alfalfa, corn for silage (for example,in southern California), rice, and sugarcane. Similarly, many towns andcities charge fees that provide no incentive to conserve water; somecharge nothing. A recent review of Bank-financed municipal watersupply projects found that the price charged for water covered onlyabout 35 percent of the average cost of supply, and charges in manyirrigation systems are much less.


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Conditions ndChallengesn ManagingWaterResources 31

As a result of underpricing and other distorting policies, the value ofwater differs greatly among various uses in industrial and developingcountries, often indicating gross misallocations if judged by economiccriteria. In particular, agriculture, which absorbs the lion's share ofwater, often includes low-value uses per cubic meter compared withhigher-value domestic and industrial uses. In California, for example,reallocating water from two agricultural areas to the metropolitan areasof San Francisco and Los Angeles would yield economic benefits ofabout $2 billion in 1990-2000.'SERVICEDELIVERYTO THE POOR. Even after the International DrinkingWater and Water Supply Decade, nearly 1 billion people in the develop-ing world lack access to potable water, particularly the rural poor, and1.7 billion must contend with inadequate sanitation facilities.2 While theupper and middle classes often receive subsidized services, inefficientwater operations have left little funding for extending services to thepoor. Large numbers of poor people in urban areas depend on watervendors, paying at least ten times what a middle-class person pays for aliter of water (box 2-3). A review of vending in sixteen cities reported inthe World Development Report 1992 (World Bank 1992d) shows that the

Box 2-3. What Do the Poor Pay for Water?Several studies show that the urban poor pay high prices for watersupplies and spend a high proportion of their income on water. Forexample, in Port-au-Prince, Haiti, the poorest households sometimesspend 20 percent of their income on water; in Onitsha, Nigeria, the poorpay an estimated 18 percent of their income on water during the dryseason compared with upper-income households who pay 2 to 3 percent;and in Addis Ababa, Ethiopia, and in Ukunda, Kenya, the urban poorspend up to 9 percent of their income on water. In Jakarta, Indonesia, ofthe 7.9 million inhabitants, only 14 percent of households receive waterdirectly from the municipal system. Another 32 percent buy water fromstreet vendors, who charge about $1.5 to $5.2 per cubic meter, dependingon their distance from the public tap. In some cases, households purchas-ing from vendors pay as much as twenty-five to fifty times more per unitof water than households connected to the municipal system. Someexamples of this phenomenon are found in Karachi, Pakistan; Port-au-Prince; Jakarta; Nouakchott, Mauritania; Dacca, Bangladesh;Tegucigalpa, Honduras; and Onitsha.


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unit cost of vended water is much higher than that of water from a pipedcity supply-from 4 to 100 times higher, with a median of about 12.Neglect of water quality, health, and the environmentCountries have generally paid too little attention to water quality andpollution control. In many developing countries, water supplies are ofpoor quality and are often unsafe for human consumption. Using pol-luted waters for human consumption is the principal cause of manyhealth problems such as diarrheal diseases, which kill more than 3million people each year-mostly children-and render sick more thana billion more. In addition to human suffering, water pollution causesdevastating economic and environmental damage (box 2-4). Inade-quately treated sewage aggravates poverty by polluting water-depen-dent food sources, engendering disease, and limiting access to safedrinking water. Furthermore, water-related diseases such as malaria,filariasis, and onchocerciasis are common in Sub-Saharan Africa. Theyare caused not by water pollution but by inadequate water management,poor hygiene, and lack of adequate public health education. Thesediseases have a debilitating impact on people and significant, negativeconsequences on productivity, particularly in rural areas. The dischargeof untreated industrial waste, the runoff of agricultural chemicals, andpoor land use practices in agriculture, forestry, and mining cause wide-spread degradation of land and water resources.WATER POLLUTION. Many countries do not have standards to controlwater pollution adequately or the capacity to enforce existing legislation.In addition to pollution that is visible and degradable, new types ofpollution have arisen involving small quantities of nondegradable syn-thetic chemicals that are invisible, toxic, persistent, and difficult andcostly to treat. Although in recent years there has been improvement inthe levels of water pollution in the industrial world, problems of waterquality remain. In the United States, almost 50 percent of the waterwaysare still impaired by pollution, as are many of the major rivers andnear-shore waters of Great Britain, Japan, and Scandinavia. In Franceand Germany, despite decades of collecting pollution effluent charges,the Rhine, Rhone, and Seine rivers remain polluted.ENVIRONMENTAL IMPACT OF PROJECTS. Many public investment projectshave adversely affected the quality of water and contributed to thedegradation of aquatic ecosystems. In part, this has resulted becausepiecemeal evaluations of water resource projects have often overlookedthe cumulative environmental degradation caused by several projects


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and because the interactions within the ecosystem have not been ade-quately considered. The misuse of land, particularly in agriculture,forestry, and mining, has resulted not only in the sedimentation ofwaterways and water pollution but also in poverty-as lands fail andfamiliesare forced to relocate, often to overcrowded cities. Becausemany

Box2-4. Economic and EnvironmentalConsequencesof Inadequate SanitationAlthough undingfor water supplyprojects eceives ttention, oo oftenadequatesanitationdoesnot. Largeamountsof new water are broughtinto urban areas, which creates large amounts of untreated, pollutedwastewater hat is oftenused by the urbanpoor. Thisnot only perpetu-ates diseasebut also creates arger environmental roblemsdownriver,especiallywhen sanitationprojects ncludeonly the collection f sewagewithout adequate reatment. n developingnations,higheconomic ostsare associatedwith the practiceof boiling water as well as with thetreatment of diseases,such as the HepatitisA outbreak n Shanghaiorthe recentcholeraoutbreaks n Brazil nd Peru. n Peru,more han 1,000peoplediedfromcholera,and osses n agricultural xportsand tourismrevenueswere estimatedat close o $1billion. n 1991, olluted waterfrom Amman's poor sewage works and industrial effluentsseverelydamaged6,000hectaresof land downriverused for irrigatedvegetablecrops.In Colombia,cleaningup the BogotaRiver would cost an estimated$1.4 illion. n Shanghai, he cost of moving ntakesupstream,becauseof pollution, is $300million,while in Lima,upstream pollution of theRimacRiverhas increased reatmentcostsby 30percent.Arecent eviewof the WorldBank's xperience ith 120watersupplyand sanitation projects found that, while 104 projects funded watersupply,only 58 ncluded a sanitation omponent.Also sanitationcom-ponentswithin projectswere ofteneliminated ecauseofcost overruns.In only a few of the citieswith Bank-financed ater supplyprojectswasadequatesewer or sanitation provided o handle the increasedwaste-water createdby the project.Thereviewconcluded hat the Bankand itsborrowershave not adequately nvested n the removaland treatmentofsewage. Diseaseswill continue to spread among the poor, and theeconomic nd environmental eteriorationwill continueuntiladequatewastewater disposal accompanies he provision of water. Improvedlow-cost nd more appropriateechnologiesre now availableo mitigatethe high costsof conventional ewerage nd sewagedisposalsystems.


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irrigation projects lack drainage components, they have caused water-logging and concentrated large quantities of salts that have severelydamaged irrigated land around the world. Moreover, when water isdiverted upstream for irrigation and other uses, downstream areas thatsupport sensitive water-dependent ecosystems, including wetlands, be-come less able to fulfill their valuable functions, such as filtering pollu-tants and supporting biodiversity. Important river fisheries have beeneliminated by such diversions, and important deltas have been impairedby low flows. Some development projects have deprived poor people,particularly the rural poor, of access to water of adequate quality andquantity to sustain them and their economic activities. This has occurredwhen traditional riverine communities have not participated in plan-ning and implementing projects and when their needs have not been

Box 2-5. Water Scarcity in JordanWater resources in Jordan are scarce and expensive to exploit. Jordan'seconomy has been transformed since the early 1950s, when its populationwas only 0.6 million, with agriculture largely confined to rainfed farmingand livestock raising. Population (currently 3.2 million, increasing at 3.8percent annually), increasing urbanization (currently 70 percent of thepopulation), and rising incomes have increased the demand for water.Approximately 48,500 hectares have been brought under irrigation in theJordan Valley, the northern highlands, and southeasternJordan. This hasraised concerns about the balance of water use between irrigation andmunicipal and industrial purposes. The strategy in the past has been touse surface water principally for irrigation and groundwater both formunicipal and industrial uses and for irrigation. This strategy has beenrational because groundwater is of better quality and is concentrated inthe uplands, where most of the population lives.Municipal and industrial water currently accounts for about 25 per-cent of total water use, and water consumption is modest for a countrywith Jordan's per capita income. Water is metered, and charges are highby the region's standards. However, since the population is expected toincrease from 3.2 million in 1990 to 7.4 million in 2015, even with modestconsumption rates, the demand for municipal and industrial water isexpected to increase, so that by 2015 it will account for about 40 percentof total demand for water. In response to the growing scarcity of water,irrigation is now done by sprinkler and drip pressure pipe systems,which have largely replaced less efficient systems.


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Conditions nd Challengesn ManagingWaterResources 35

incorporated in them. Large cities such as Bangkok and Mexico City aredangerously depleting their groundwater supplies. In some areas ofBangkok, overpumping of groundwater has caused an annual subsi-dence rate of 14 centimeters, which worsens floods and destroys infra-structure (appendix B).Trends in Demand and SupplyAgainst this background of mismanagement and waste, populationis growing rapidly, and with it the demand for water. At the sametime, the cost of tapping new sources of water is also rising. Thesetrends will aggravate the water management problems outlined above(box 2-5).

Three underexploited sources of water remain inJordan, two of whichare shared internationally: water that would be made available by theconstruction of a storage facility on the Yarmouk River, known as theWehdah Dam; water from the Disi aquifer in southeastem Jordan; andtreated sewage effluent, which will be increasingly available, collected,and reused for irrigation. Water planning strategies in the 1980s envis-aged using all the water from the proposed Wehdah Dam for irrigation,thus permitting more land to be irrigated in the Jordan Valley. Licenseswere also granted to develop the Disi aquifer for irrigated agriculture.Increasing awareness of water scarcities, however, caused this strategyto be revised. It was realized that the Disi aquifer should be regarded asa strategic reserve, to be used for municipal and industrial water as theneed arose, and that "mining" it for agriculture was not in the interestsof the country. Yet this future source of municipal and industrial watermay be saved only if an international agreement can be reached bycountries using the aquifer.Even with rational planning and allocation of Jordan's water, allknown water sources within Jordanian territory would be fully used by2015, and about one-third of the irrigation water in the Jordan Valleywould consist of treated effluent. After that, the alternatives would be toreduce irrigated area, to demineralize the water, or to import water fromother countries (such as through the proposed Turkish "peace" pipeline).Jordan is not the only country in this region to face critical water short-ages, but it is one of the first to appreciate the seriousness of the problemand to seek new strategic solutions.


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Population growthPopulation growth and urbanization are key factors underlying theenormous growth in the demand for water and the increased environ-mental degradation. Under the most optimistic scenario, the world'spopulation is expected to grow from 5.3 billion in 1990 to 6.2 billion by2000 and to at least 8 billion by 2025. This will increase the demand forfood supplies and thus for new and improved systems of irrigatedagricultural production. The growth in population, some 90 percent ofwhich will occur in urban areas, will also increase the demand for waterof quality suitable for domestic and industrial use and for treatment ofwastes. But the existing systems of urban water supply and sanitationin many countries already fail to provide adequate services, and thus theproblems posed by pollution are likely to grow. Urbanization andindustrialization will also increase the demand for energy and hydro-power. These developments pose a great challenge for governments intheir management of water resources in the coming decades.

Box 2-6. The Increasing Costs of Supplying WaterMany cities convey water over long distances and use high-cost pumpingextensively. In addition, intensive use of water has created the need foradditional treatment because the quality of the new source is poor or theoriginal source was rejected because the damage to its quality wasirreversible. In the following examples the figures do not include thecost of treatment and distribution.

Amman, Jordan. When the water supply system was based ongroundwater, the average incremental cost was estimated to be$0.41 per cubic meter, but chronic shortages of groundwater ledto the use of surface water. This raised the average incrementalcost to $1.33 per cubic meter. The most recent works involvepumping water up 1,200 meters from a site about 40 kilometersfrom the city. The next scheme contemplates the construction ofa dam and a conveyor, at an estimated cost of $1.50 per cubicmeter, which is also about the cost of desalinating seawater, $1 to$2 per cubic meter.Shenyang, China. The cost of new water supplies will rise from$0.04 to $0.11 per cubic meter, almost a 200 percent increase,between 1988 and 2000. The main reason is that the quality ofgroundwater from the Hun Valley Alluvium, the current watersource, is not good enough for potable water. As a result, waterwill have to be conveyed to Shenyang by gravity from a surface


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Conditions nd Challengesn ManagingWaterResources 37

Cost of new water suppliesEven with measures to contain the growth in demand and to improvethe efficiency of existing systems, new water supplies will be needed formany urban areas. However, the lowest cost and most reliable sourcesof water have already been developed in many countries. The newsources of supply currently being considered have higher financial andenvironmental costs than those developed earlier. The costs of municipalwater supply and irrigation will increase even further when adequatedrainage and sanitation facilities are included as essential parts of theseinvestments. The authorities in Beijing, for example, may have to obtainbadly needed water from a source more than 1,000 kilometers away,while those in Mexico City must consider expensive schemes to pumpwater over a height of 2,000 meters. For other cities, the cost of a cubicmeter of water provided by "the next project" can be two to three timesthe cost of current supplies (box 2-6), even before environmental costsare factored in. In fact, the cost may be so high in some cities that

source 51 kilometers from the city. In Yingkou the average incre-mental cost of water diverted from the nearby Daliao River isabout $0.16 per cubic meter. However, because of the heavypollution, this source cannot be used for domestic purposes. As aresult, water is currently being transported into the city from themore distant Liu River at a cost of $0.30 per cubic meter.* Lima, Peru. During 1981 the average incremental cost of a projectto meet short- and medium-term needs, based in part both on asurface source from the Rimac River and on groundwater sup-plies, was $0.25 per cubic meter. Since the aquifer has beenseverely depleted, groundwater sources cannot be used to satisfyneeds beyond the early 1990s.To meet long-term urban needs, atransfer of water from the Atlantic watershed is being planned, atan estimated average incremental cost of $0.53 per cubic meter.* Mexico City, Mexico. Water is currently being pumped over anelevation of 1,000 meters into the Mexico Valley from theCutzamala River through a pipeline about 180 kilometers long.The average incremental cost of water from this source is $0.82per cubic meter, almost 55 percent more than the previous source,the Mexico Valley aquifer. The aquifer has been restricted due tothe problems of land subsidence, the lowered water table, and thedeteriorated water quality. The newly designed water supplyproject for the city is expected to be even more costly, since it willhave a longer transmission line and water will be pumped overan elevation of 2,000 meters.


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desalinization will become a viable option for potable water. The sametrend can be found in irrigation, where the real cost of new large-scaleirrigation systems has been increasing.International Water ResourcesInternational watercourses are a classic case in which national interestsamong countries are likely to diverge because of externalities. Given theinternational context, however, inefficiency caused by interdependentwater uses cannot be resolved through a single government's policies.Upstream countries see little benefit from increasing or maintaining theflow and quality of water for those downstream. Without enforceableinternational water-use rights established by treaty, countries makedecisions without considering the consequences for other countriesusing the same resource. However, securing such international agree-ments is often difficult. The end result may be environmental, social, andeconomic losses in the downstream countries that are greater than thebenefits to the upstream country.Scope of the ProblemMore than 200 river basins are shared by two or more countries. Thesebasins account for about 60 percent of the earth's land area. Fragmentedplanning and development of the associated transboundary river, lake,and coastal basins is the rule rather than the exception. Although morethan 300 treaties have been signed by countries to deal with specificconcerns about international water resources and more than 2,000 trea-ties have provisions related to water, coordinated management of inter-national river basins is still rare, resulting in economic losses,environmental degradation, and international conflict.Institutional and Political ChallengesCountries guard their perceived water rights. Treaties notwithstanding,many have not devoted funding to manage these surface and subsurfacewater resources jointly. Data are not shared freely among nations, andcooperation is often lacking. As a result, water disputes over quantityallocations remain unresolved, and additional concerns are now arisingover the effects that poor water quality and low flows have on aquaticecosystems.


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E E} W

ImprovingWaterResourcesManagement

The challenges and weaknesses outlined in chapter 2 require a renewedemphasis on improving the management of water resources based onsound policies and strengthened insti-tuitional arrangements. This ap-proach has two guiding principles. First, water resource managementpolicies and activities should be formulated within the context of acomprehensive analytical framework that takes intto account the inter-dependencies among sectors and protects aquatic ecosystems. Such aframework would guide the establishment of improved coordinationamong institutions, consistent regulations, coherent policies, and tar-geted government actions. Second, efficiency in water managementmust be improved through the greater use of pricing and throughgreater reliance on decentralization, user participation, privatization,and financial autonomy to enhance accountability and improve perfor-mance incentives. Water services to the poor require special attention.At the same time, systems for protecting and restoring water and envi-ronmental resources need to be established. Furthermore, internationalagencies, such as the World Bank, can play a larger role in helpingdeveloping countries to improve the management of their internationalwater resources.Comprehensive ApproachThe primary roles of the public sector are to define and implement astrategy for managing water resources; to provide an appropriate legal,regulatory, and administrative framnework; to guide intersectoral alloca-tions; and to develop water resources in the public domain. Investments,policies, a-nd regulations in one part of a river basin or in one sector affectactivities throughout the basin. Thus, these decisions need to be formu-

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Improving Water ResourcesManagement 41

lated in the context of a broad strategy that takes the long-term view,incorporates assumptions about the actions and reactions of all partici-pants in water management, and fully considers the ecosystems andsocioeconomic structures that exist in a river basin. This is an indicativeplanning process for dealing with cross-sectoral issues. The goal is toensure the sustainability of the water environment for multiple uses asan integral part of a country's economic development process. The levelof complexity of the strategy will differ among countries, depending ontheir problems, resources, priorities, and capacities. Its execution andmanagement should involve the public sector, private enterprises, andwater user groups; its degree of decentralization will depend on eachcountry's capabilities.AnalyticalframeworkAt the heart of the approach is the development of a comprehensiveanalytical framework for water resources management. Water resourcesshould be managed in the context of a national water strategy thatreflects the nation's social, economic, and environmental objectives andis based on an assessment of the country's water resources. The assess-ment would include a realistic forecast of the demand for water, basedon projected population growth and economic development, and aconsideration of options for managing demand and supply, taking intoaccount existing investments and those likely to occur in the privatesector. The strategy would spell out priorities for providing water ser-vices; establish policies on water rights, water pricing and cost recovery,public investment, and the role of the private sector in water develop-ment; and institute measures for environmental protection and restora-tion. The framework would facilitate the consideration of relationshipsbetween the ecosystem and socioeconomic activities in river basins. Inessence, this comprehensive approach breaks down very complex prob-lems in a river basin into more manageable elements to achieve coherentcross-sectoral water management. Alternative public investment op-tions and patterns of water management can be considered and evalu-ated, especially in light of supply and land use interdependencies andof the major social and environmental consequences that characterizewater resource sector investments or reallocations.Although the complexity of the analysis will vary with the circum-stances, it is often possible to clarify priorities and to take account of keyinterdependencies, using relatively uncomplicated frameworks. Once asuitable overall framework has been formulated, individual projects canbe more easily designed to fit the country's objectives without addingunnecessary complexities. The analytical framework provides the un-


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derpinnings for formulating public policy. Regulations governing pol-lution, health standards, and environmental protection address waterquality interdependencies among users. Appropriate pricing and charg-ing systems (and water markets where feasible) must be established thatprovide the correct signals so that decentralized decisionmaking canimprove the allocation of resources. Within a decentralized system, ade-quate charges would also endow water entities with operational andfinancial autonomy to provide reliable and sustainable services. In general,countries should move toward decentralizing the delivery of water ser-vices, to the extent possible, and toward using appropriate pricing to createthe preconditions for efficient, sustainable delivery of water services.Public water investmentsSpecific options for investment and development must consider theinterrelations among different sources of water. Surface and ground-water resources are physically linked, so their management and devel-opment should also be linked. Land and water management activitiesas well as issues of quantity and quality need to be integrated withinbasins or watersheds, so that upstream and downstream linkages arerecognized and activities in one part of the river basin take into accounttheir impact on other parts. Investments in infrastructure may displacepeople and disturb ecosystems. Thus, water resource assessments needto consider these cross-sectoral implications.1Where noneconomic objectives (such as biodiversity, food security,and equity) preclude fully using the economic value of water to guidedecisions, the need for transparency in decisionmaking would be servedby measuring the economic costs (in terms of economic benefits forgone)of satisfying these objectives. A proper evaluation of costs would alsotake into account the possibility of implementation problems and envi-ronmental costs and risks, including the costs of relocating people andrestoring their sources of livelihood as well as the estimated costs ofecological damage. 2 Many types of models have been developed to aidthese evaluations. Selection of a model should be guided by determiningits prime use at the outset. Careful interpretation and judgment concern-ing how modeling results are to be used are also essential elements ofsuccessful planning and decisionmaking.Opportunity cost of waterAn important tool that can be derived from the comprehensive analyti-cal framework is the opportunity cost of water. It provides a measure


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ImprovingWaterResourcesManagement 43

of the scarcity value of water to society, thus highlighting any cross-sectoral differences in value, taking into account society's multipleobjectives and water's multiple uses and interdependencies. If economiccriteria alone are employed, water should be allocated to a given usewhen the opportunity cost is lower than the value of the selected use.Determining the opportunity cost of water requires information about,and analysis of, future demand, supply options, investment alternatives,and the economic costs of pollution and other environmental damage.In turn, the opportunity cost can help to guide the price structure forsales to decentralized distribution entities, to evaluate the economicviability of investment proposals, to establish the magnitude of thepenalties to be imposed on polluters, and to guide cross-sectoral alloca-tions of water.Infornation needsIn many cases, inadequate and unreliable data constitute a seriousconstraint to developing and implementing a country's water resourcestrategy and to managing water effectively. For a country to make sounddecisions about water management-especially in the context of largeinvestment projects and real-time management of the resource at thelevel of the basin or watershed-a considerable amount of informationis required. Of course, the appropriate degree of detail and sophistica-tion of information systems needs to be determined in the context of thespecific country and river basin. In general, a long-term demand fore-cast, with a time horizon compatible with the type of project involved(for example, the lifetime of most dams and open channel deliverysystems exceeds fifty years), is needed, as are adequate assessments ofwater resources and environmental impacts. Equally important arecurrent data concerning water supply and demand conditions so criticalfor efficient day-to-day management. To meet these information needs,countries should (a) define information requirements for national waterresources, taking particular account of the multiple demands for water;(b) review institutional arrangements linking the providers and users ofdata; (c) identify and implement new mechanisms for funding hydro-logical services, where such mechanisms are required to provide ade-quate financial resources; (d) select appropriate technologies forcollecting data, particularly data on water quality and on groundwater,and for implementing user-friendly data management systems; (e) es-tablish national data banks for information on water resources; and (f)define the human resources needed for hydrological information sys-tems and provide education and training to meet those needs.


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44 Water ResourcesManagement

Institutional and Regulatory SystemsAn institutional setting should be created within an effective legal andregulatory framework to facilitate cross-sectoral actions that contributeto improved management of water resources. Institutional reformshould be responsive to traditional norms and practices and should, tothe extent possible, integrate these within the new structures. In manycases, regulatory systems and coordination structures exist but functionpoorly because they lack authority and the appropriate resources forenforcement. Changes in legislation to ensure that regulations are coor-dinated and enforced may thus be necessary ingredients of institutionalreform.Legal and regulatoryframeworkLegislation provides the basis for government action in the regulatoryand operational areas and establishes the context for action by nongov-ernmental entities and individuals. In many countries, surface waterbelongs to the state, subject to varying recognition of historical privateor local rights. In addition, the state is often charged with holding inpublic trust, and managing for the common good, aquatic living re-sources. Governments authorize water use, but allocations and prioritiesare often vaguely stated or are absent, and many uses (such as instreamor environmental uses) may be overlooked. Often the procedures to befollowed in reallocating water to higher-priority or higher-valued pur-poses are not explicitly stated; thus reallocations may not take place ormay follow ad hoc decisions at a high cost. Governments should clearlyindicate priorities for reallocations and establish practical rules for han-dling the year-to-year variability in precipitation and availability ofwater. The rights to water need to be clearly defined, with due concernshown for the interests of indigenous people, the poor, and other disad-vantaged groups. The legal basis for water user associations also needsto be established both for agriculture and for domestic water supply andsanitation.The prevalence of social concerns, environmental externalities, andthe tendency toward natural monopoly in water services mean thateffective regulatory systems are prerequisites for decentralized manage-ment. Regulatory systems monitor and enforce established laws, agree-ments, rules, and standards. Among subjects covered to varying degreesare the administration of water rights and allocations, standards ofservice, water quality and environmental protection, prices charged byregulated utilities, competitiveness of entry to water service industries,and the financial viability of public utilities. In many countries regula-


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tory functions are weak and are formulated and enforced inconsistentlyby different agencies. The need for coordination and coherence in for-mulating regulations should be addressed by applying a comprehensiveanalytical approach.Coordination structuresMost countries have a multiplicity of public agencies and commissionswith overlapping responsibilities for managing water resources. Be-cause public agencies typically focus on only one type of water use,decisionmaking tends to be fragmented. Different agencies often haveconflicting plans to develop the same publicly owned water resources.Pricing policies also may be inconsistent, leading to the misuse of waterresources. Institutional arrangements thus need to be developed thatencourage water-related agencies to coordinate and establish mutuallyagreed upon priorities and policies for investment, regulation, andallocation, especially for the management of river basins. River basinorganizations can be an effective means for coordination when they haveadequate authority and financial autonomy. Other altematives includeestablishing coordinating committees, with representatives from majorpublic water agencies. Such committees could have responsibility forreviewing and recommending changes in investments and managementto promote the overall water resources strategy and achieve consistencywithin each river basin. To coordinate activities at the national level,committees may need to be set up in planning or finance ministries andhave adequate authority to monitor and review water activities and toenforce consistency with national strategies. An important principle inassigning responsibility is that policy, planning, and regulatory func-tions must be separated from operational functions at each level ofgovernrment.RESOLUTION OF INTERSTATE CONFLICTS. In countries with a f

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