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EXPERTS’ WORKSHOP
- III -
SUSTAINABLE MANAGEMENT,
ECONOMY AND FUNDING
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WORKING PAPER
CURRENT SITUATION
III.1 - OVERALL MANAGEMENT OBJECTIVES AND FUNCTIONS TO BE ASSUMED
1. Access to water or, to the contrary, the protection against its damage (floods) has always been a prerequisite for life and activity development and a strong base for community, political and social organization.
2. Today, with growth of all kinds of consumption, and with pollution that can " deplete " some resources that are nevertheless available in quantity, water might become an essential factor limiting economic and social development at the beginning of next century, as it is already the case in arid countries.
3. A global and integrated water resources management is therefore needed.
4. This global and integrated management of the resource implies that tasks be carried out in a complementary and consistent manner, regarding:
- general administration, security and enforcement,
- organization of land use,
- structuring developments,
- resource and environmental protection,
- private and collective equipment that are directly linked to the use of water for meeting various needs, - operation, maintenance and management,
- data production and management,
- research and studies,
- high-level professional and vocational training,
- education and awareness raising,
- etc ...
5. All these tasks must be organized in a sustainable manner within precise institutional frameworks with means for their funding.
6. Large institutional reforms are to be envisaged that will allow the solving of conflicts on uses that will certainly occur, as well as the organization of a coordinated action of all organizations and users concerned, the implementation and management of indispensable community infrastructures and the protection of resources and ecosystems.
7. The setting-up of modern information systems that are needed to elaborate water policies and monitor their efficiency, will also require an appropriate organization and sustainable means.
8. Finally, huge efforts in administrative and professional training as well as in awareness raising of users and populations are indispensable.
9. While the good management of this sector is a prerequisite, the mobilization of significant financial resources either for investment or operation is a must.
III.2 WATER : A NATURAL, SOCIAL AND ECONOMIC GOOD
10.Water is a natural good whose resource is limited by the climate and by the retention capacity of soil and the natural environment and whose quality may be seriously degraded by pollution of all kinds.
11. Water has also always been a social good it is part of the " basic requirements " for life and health. A general consensus has grown which states that anybody who is thirsty should not be denied water, whatever his income and purchasing power. The means used to represent this privileged social status of water vary depending on the country, where the terms " essential service ", " public service ", " universal service ", " service in the general interest ", etc... are used according to the traditions of each country.
12. Water, or rather its related services, is however becoming more and more an economic asset, with production and conservation costs, utilization values, opportunity costs, demands and offers that vary together with their price.
13. Water is not however an economic good like the others. Although its conveyance cost is the same as that of oil, its maximum sale price does not exceed the thirtieth of that of oil anywhere in the World. Only large rivers can convey water on thousands kilometers at zero cost. Man still cannot and will not be able, at least in a near future, to convey the excess water of the Amazon river to the arid zones worldwide. Modern economy and technique have not been able to set up a worldwide water market, as they are doing for market goods and energy, telecommunications, sea shipping and air transport.
III.3 SIGNIFICANT FUNDING NEEDS
14. Investments in the water sector are highly capitalistic: the building of large developments on the scale of river basins, or of inter-basin transfers, large water intake systems, water and wastewater treatment plants as well as water distribution networks, drainage or wastewater collection systems require significant funding, whose realistic amortization can only be envisaged on a very long period of several decades.
15. It must also be noted that operation and maintenance costs are in the same order of magnitude as the technical and financial amortization of investments when they are appropriately borne within the framework of a sound management.
16. The amounts paid every year by the various users for water consumption and treatment are significant, about 1 % of the World Gross Product, i.e. about US$ 300 billion per year.
17. The urban consumers pay most of this turnover, although they only represent about 10 to 15 % of the consumed volumes, as compared with 70 % for the agricultural consumers. Most of the time, the consumers in rural areas, isolated industries and irrigated agriculture only pay low water prices or charges that, in all cases, only represent today a small part of the water services’ income.
18. In many countries, the price paid by the services’ users is not sufficient to cover all the costs, those linked to investment amortization in particular. Although the operating costs are more or less partially covered, it is still rarely the case of provisions for replacement and this raises huge problems for the sustainability of the investments made.
19. The relative invariability of this sector turnover in percentage of the GDPs is however in opposition to the great inequalities in supply costs, either in absolute value or as compared to the GDP of each country.
20. Needs might highly increase in most countries due to the growth of the populations, mainly urban, and of the standards of living, although consumption metering and tariffing seem to be controlled for some uses in industrialized countries.
But these requirements, by way of prices and taxes, will represent demands linked to the budget of consumers, public organizations and donors. Faced with the increase of other household requirements, such as electricity, telecommunications, transport, children education, etc... and with more efficient use of economic agents, nothing proves that the consumer, at least the end-consumer, will accept to pay a percentage significantly superior to the 1 % of their Gross Product or of their Gross Income that is devoted to water.
21. The potential charge increase may be higher in the irrigation water sector; but it will be mitigated, within the context of the opening of global markets ensured by TWO, by the consumption flexibility linked with the price increases that will certainly occur.
22. Whatever the case, the State cannot bear all the costs and the traditional public funds have reached their limits.
23. It is necessary to set up everywhere funding systems that are based, more than before, on the participation and solidarity of the users.
All analyses converge to show that, except in some particular cases, the funds to be raised greatly exceed the funding possibilities of national or local public budgets, and of those of bi or multilateral development assistance that only represent about 10 % of the investments made worldwide.
III.4 - TOWARDS A MORE ECONOMIC MANAGEMENT
24. The previous period was widely characterized by the prevailing of actions that mainly aimed at increasing the available water resource.
25. Wastage is becoming more and more obvious:
- evaporation in lake-reservoirs and irrigation canals
- low water efficiency in irrigated agriculture,
- losses in drinking water distribution systems,
- irresponsible behaviour of some consumers,
- insufficient recycling of industrial water.
... but savings possibilities seem considerable and their quantities in the same order of magnitude as the needs increase.
26. At the same time, the insufficient professional training of agents, mainly a poor knowledge of modern operating methods and sound maintenance of facilities, do not enable the attainment of the expected optimal yield capacities and lead to an accelerated ageing that requires new costly investments for early replacement.
27. It is obvious that behaviour, generally linked to a poor knowledge of the problems, must be first corrected:
28. To be sure, information, awareness raising, education and training are indispensable and are still under-estimated, and thus must be reinforced as a priority action,
29. But, a financial incentive is also a very efficient means : it is the " polluter-pays " principle to which must be added various " user-pays " systems;
30. The pricing of services, when proportional to uses or pollution, has also a quick educational effect.
III.5 - FUNDING SYSTEMS HAVE BEEN SET UP
· III.5.1) Billing of community services
The users :
31. - have either an easy access to the resource and individually pay the corresponding expenses and bear the costs. The question that more and more frequently arises is that of their participation in the funding of actions and community works to improve the resource;
32. - Or have no direct access to the resource and thus must rely on - public or private - " community service providers " that bill the price of their service - according to industrial and commercial practices, that cover, at least partially, the cost of supply.
The most frequent cases are:
33. - drinking water supply, sanitation and domestic and industrial wastewater treatment provided by " water services " that are usually public, rarely privatized, but more and more frequently entrusted to specialized private enterprises by the organizing community by way of subcontracted and delegated management (" affermage/leasing ", concession, leasing,...),
34. - community irrigation of large irrigated schemes, where raw water supply is organized by groups/unions/cooperatives of irrigation users or by public or private license holding enterprises under public and private law,
35. - shipping on waterways and canals for which bed dredging, lock clearance, lock crossing, etc... are generally billed to the carriers in proportion to the tonnage of goods carried or passenger traffic .
36. More and more these " community services " will have to recover all their investment, replacement, operation and management costs, using most often a billing basis that is proportional to the service provided (consumed m3 for instance), also using subsidy systems, whenever necessary, to limit the overall investment cost in particular.
It is of particular importance to inform the users that the bill they receive does not concern water as a raw material (although in-situ water has sometimes a very high patrimonial value), but the service provided related to its storage, conveyance, delivery pressure, treatment and decontamination.
· III.5.2) The other kinds of specific funding:
37. Besides traditional funding out of the public budget, specific funding systems have been progressively set up in some industrialized countries:
* III.5.2.1 - Water charges. They are specifically levied on water uses such as raw water withdrawals, hydro-electric production, cooling systems for thermal power-stations, industry or irrigation, on drinking water use and/or wastewater discharges, and their product is entirely allocated for investments or for aiding the sound operation of installations aiming at improving the water resource or services, reducing pollution, restoring aquatic ecosystems, funding studies and the networks for acquiring the necessary data.
Here are some examples :
38. Either national systems, which transit by Special Treasury Accounts, whose funds are reallocated, either directly to large projects or programmes defined at central level, or, more often, indirectly by way of decentralized budgets for local administrations or communities.
39. Or local systems, usually organized on the scale of a river basin. In that case all funds collected for water use or pollution in the basin are reallocated to projects for improving the resource or the uses in the basin itself.
40. In "operational" systems that exist, the " Basin Committees ", gathering the administration, local authorities and users, usually propose rates for these water charges, the levy and reallocation of which are transiting by Financial Basin Agencies, whose statute is that of Public Administrative Establishments under State supervision.
41. The purpose of these water charges is to finance " Priority Action Programmes " (PAP) that are approved by the Basin Committee - generally for a five-year period - and aim at achieving the long-term objectives of master plans.
These taxes are paid into the general budget of the States or Local Communities.
*
43. Generally speaking, the specific financing principles are quite complex and an analysis must be made to understand their specificity and often their complementarity in order to implement modern and usually efficient policies for the funding of water.
44. In all cases, there is always somebody who pays, either:
The user, who buys the services provided, knowing that these services can either be:
• direct : the conveyance of drinking water to the tap, of raw water to the plant or to the irrigation plot, the connection to the community sewerage network; etc.
The user then pays the price of the water service just as he pays for electricity, telephone, fuel, transport or cleaning...
• indirect : reforestation of the upper river basins, protection against floods, upstream pollution control or the building of a dam-reservoir ... that are necessary and sometimes directly linked to the service provided, the cost of which was often borne in the past by the community. But, nowadays, the users are being called upon more and more to bear the cost according to the principles of :
- "common cause for basins and aquifers",
- "internalization of external costs",
The taxpayer, who pays his income tax to the general budget,
The offender, who must pay a fine when negligent or when the law, standards and regulations are not complied with.
The fact that the " right people " must pay is important: this means that anyone whose activities result in an adverse impact on the water cycle, must reduce the dysfunction he produces to pay less.
III.6 - MAKING PLANNING AND MARKETS COMPLEMENTARY
45. ll over the World, " Water Administrations " deliver, at least for significant uses, administrative authorizations for water withdrawals or diversion (sometimes called " concessions for use "), mostly from surface watercourses, but also more and more from groundwater.
46. In an increasing number of countries, " Authorizations for discharges " are or may be necessary to discharge wastewater, with or without a required preliminary treatment.
47. " Water rights " have been established in most traditional irrigation systems in particular. They are mostly expressed in access time to a percentage of the available flow rate from a spring or a river. One can also be the " owner " of a spring or a well ...
48. As long as available water is sufficient for all uses, these " authorizations " may be a mere administrative control to ensure that the " rights " previously acquired by users downstream will not be encroached upon by new withdrawals or that compensation has been negotiated.
49. In time or permanent situation of scarcity, the traditional systems may lead to the situation in which some upstream users, using " their rights ", may waste a scarce resource, while this resource may be lacking downstream. The summing up of poorly controlled withdrawals may also lead to an over-exploitation of the resource.
50. The issue of the allocation of a scarce resource between increasing uses is becoming acute, all the more so that notions of reserved flows for the protection of ecosystems on watercourses or of maximum renewable flow or of groundwater balance are being progressively introduced.
51. The objectives of sustainable development thus require stable long-term planning. They concern the promotion of the consumption of viable water from an ecological viewpoint, by way of long-term plans, usually master plans for development and management at the level of river and sub-river basins, based on the lasting protection of the available resources. These long-term plans must be the base used for choosing large structuring investments for resources mobilization, transfer, protection and treatment, that may be then formalized in Priority Investment Programmes, generally of a five-year duration.
52. On the other hand, some markets do exist that already give some precious indications on opportunity costs and water use values: water retail sales and reselling by the informal sector, sales in containers and bottles, wholesales between neighbouring communities, sales of irrigation water, sales or leasing of water rights between irrigation users, etc. These " informal " and more or less " underground " markets should be progressively formalized, acknowledged, and made more transparent. The definition, registration and possible negotiation of water rights would prevent aberrant economic uses in many countries.
Such a policy, combined with overall quotas for resources withdrawals that would be based on the objectives of sustainable development, would undoubtedly contribute to a more rational balance between the use of groundwater and that of surface water. Many heavy infrastructures that aim at conveying water over hundreds of kilometers at costs that are out of proportion to the users’ solvency and public financial capacities, would thus be avoided or at least be more difficult to finance.
III.7 - SUBSIDIES AND EQUALIZATION
· III.7.1) Subsidies will remain necessary in the short term
53. The history of economy shows that no water supply, sanitation or irrigation service of today’s industrialized countries has been set up without any direct or indirect equipment subsidy. Besides, the building of networks and facilities has been carried out over very long periods. Today, the cost-effectiveness of the net assets of these services is noticeably lower than 2 %, as shown by recent analyses. It is true that, today, in many emerging countries, the development of financial markets allows the commercial funding of investments with long-term amortization. Rapidly, it will not be true in other countries, in the Least Developed Countries (LDC) in particular.
54. Subsidies out of the budget, or their equivalent in the form of soft loans, will continue in most cases, at least in the transitory period, although the principle of the recovery of all costs from the users must be a long-term objective.
55. In many industrialized countries, a lot of drinking water supply services were still entirely free in the 1970s and, even today, few farmers effectively pay irrigation water at its real supply cost. The application of the polluter-pays principle for non-point pollution, either agricultural or not, must be encouraged. It must favour practices that are respectful of the environment and be a real incentive for the reduction of the sources of pollution for the natural environment.
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· III.7.2) Different types of equalization offer varied solutions
56. An industrial and commercial approach to water services is compatible with equalization systems that enable the sharing of financial efforts by several categories of users, should this equalization be undertaken with transparency of costs and prices.
There are several systems:
a) " Local " equalization
57. The principle of budget balance and price transparency would imply that there were as many water cost prices as community supply services. But there are examples of equalization between the services in the same local circumscription to split the more or less high cost of access to the resource or of decontamination between the users.
b) Intersectoral equalization
58. There are multi-purpose municipal service providing companies that organize an equalization between services, either profitable or not, such as electricity, urban heating, water, wastes collection and treatment, electricity distribution, etc...
59. Equalization between water and electricity sectors may lead to interesting possibilities and has the advantage of a single billing to the users.
60. It occurs that tariff equalization between municipal water and irrigation water, or even industrial water necessary for large establishments, is done for the funding of large multi-purpose facilities.
c) Equalization between users
61. It is a " fair social justice " to have those who can afford it to pay a little more than the average price to favour access to water for the poorest. This is the case of the principle that implies, together with a search for the best economy of the water used, the setting up of gradual pricing starting with a first set of very low tariffs for a limited consumption bracket that corresponds to the minimal requirements for food and hygiene.
d) Equalization between activities
62. This is the role of the water charges that have been established at the level of river basins in particular, to ensure a common cause between upstream and downstream users and the funding of activities of general administration, data collection or the building of structures or developments in the general interest.
· III.7.2) Search for the least overall cost
63. In every case, good adequation between investments made and real needs and efficient management guarantee the least water cost for everyone.
The disseminated studies and information do not insist enough on:
64.- on one hand, the high costs that are actually paid by some village inhabitants or by the populations of underprivileged districts to have access to small quantities of water that are vital:
* the cost of the work of women who walk everyday over long distances from the village to fetch water is rarely taken into account,
* individual expenses borne by the inhabitants to get the water they need for their use (cisterns or reservoirs, borehole and pumping, disinfecting treatment ...) whose amount are not well-known, but whose summing up may reach very high amounts that would be better used by the community.
* the price paid by the poorest for a bucket of water distributed at the cistern by " unofficial channels " is higher in proportion then that of the community services.
Generally speaking, the rare studies made on the expenses borne by individuals to compensate the services lacking, show that their total amount would enable the funding of greater improvements of community facilities.
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