9' i WWORLOD BANMK TECHNICAL' PAPER NO. 524 'il$ 'W THE WORLD BANK WTP524 Work In progress 2002 tfor public discussion Institutional Reform for Irrigation and Drainage Proceedings of a Wo ld Bank Workshop e . b;e eytne r. l k.IH E X _st ,"s ~~~~~~~an a1 IC r~~~~~~~~~~~~~~~~~~~ X~~~~~~~~mno Go.nzalezi .1~ ~ ~ ~~rs;^t l i F-n^ZZ.r,.za.J) Co>zzzz/tz,~~~~~~~~~;~ SR,Z,}SU~i Mt~i |Aurn/b Recent World Bank Technical Papers No. 428 C. Mark Blackden and Chitra Bhanu, Gende,; GroUth, alid Poverty Reduiction Special Programii of' Assistanlec for Africa, 1998 Status Report on Poverty in Suib-Sahara i Africa No. 429 Gary McMahon, Jose Luis Evia, Alberto Pasc6-Font, and Jos6 Miguel Sanchez, Ani Eniviromnental Stiity of Artisanial, S miall, anid Medium Mito i inu hi Bolivia, Cltile, alid Peru No. 430 Maria Dakolias., Court Performlnace aroind, thie World: A Comtiparative Pcrspective No. 431 Severin Kodderitzsch, Reforms in Alaniinii Airiculture: Assessinig a Sector ini Tranisitioni No. 432 Luiz Gabriel Azevedo, Musa Asad, and Larry D. Simpson, Manengemenit of IWVter Resources: Bulk Water Pricing in Brazil No. 433 Malcolm Rowat and Jose Astigarraga, Latin Amierican lnsolvencic Systemls: A Comiiparative Assessimiceit No. 434 Csaba Csaki arnd John Nash, eds., Regionial anid Iterinationial 7Trade Policiy: Lesonis for the EU Accession10i ini tlie Rural Sector-World Banik/FAO Workslhop, Jliue 20-23, 1998 No. 435 lain Begg, EU livestment Grants Reviez No. 436 Roy Prosterman and TIim Hanstad, ed., Legal Inipedliinents to Effective Rur-al Landi Relationis ini Easternl Europe anid Central Asia: A Comparative Perspective No. 437 Csaba Csaki, Nlichel Dabatisse, and Oskar Honisch, Food anid Agricuilture inl thie Czech Republic: Fromii a "Velvet" Tranisitioni to the Challetiges of ELI Accessioni No. 438 George J. Borjas, Econiomiic Research oni the Determi-inatits of tinitigration: Lessonis J;7r the Europeani LUlott No. 439 Mustapha Nabli, Financial lItegratio,ti Vulinerabilities to Crisis, anild ELI Access;ion ini Fiv'c Cintral Eiropeaii Coutnitries No. 440 Robert Bruce, loannis Kessides, and Lothar Kneifel, Overcotniin,y Obstacles to Liberalizationi ot t/Ie /l'lcc,oli Sector inl Estotia, Poland, the Czeclh Republic, Slozeiiia, andid Hwui'ary: An7 OZ7rvCiC7o of Key Policys ConICLerS anid Potential Initintives to Facilitate the Transitioni Process No. 441 Bartlomiej Kanminski, Hunlgary: Foreign Trnade Issiues iii the Conitext of Accessioni to the ELI No. 442 Bartlomiej Kaminski, The Role of Foreigni Direct hivestmiett anid Trade Policy, in Polanid's Accession iit teil Euiropean Unioni No. 443 Luc Lecuit, John Elder, Christian Hurtado, Franc,ois Rantrua, Kamal Siblini, and Maurizia Tovo, DeMIStifijiig AIlS: Gueideliniesfor Management lhiforitation Systemzs in Social Funlids No. 444 Robert F. Towtnsend, Agrictiltural Incenitives ill Stbi-Saharan Africa: Policy Chiallcn',es No. 445 lan Flill, Forest Maitigettietit iii Nepal: Econiomtics of Ecology No. 446 Gordon Hughes and Magda Lovei, Econioin ic r rt atii wid Eu virotiitiet itnl PCt)I lrtici 1c' 'it [ t L,:iwo iics No. 447 R. Maria Saleth and Ariel Di nar, Evalniotilig Water Institlitioiis ald Wit teLr Scc t(ii [PcrO Iriiiuiic No. 449 Keith Oblitas and J. Raymond Peter in association with Gautam Pingle, Halla M. Qaddumil, and Javailtha 1'erera, Transferring Irrigatioui Manlageineti t to Fart-iers ill Atudlira Pradeshi. ltd;a No. 450 Andres Rigo Sureda and Waleed Haider Malik, eds., Jludicial Chailetg,es in tlie New1 Millemiiiiiiit: >rocceilinl,s of the Second Sulnintit of the Ibero-Amnericaii Spl-rente Coiurts No. 451 World Bank, Privatizatioli of the Poz'er atid Natuiral Gas ltidtistries in Hwiiiiury nidttu Kaz!akhstanl No. 452 Lev Freinkmarn, Daniel Treisman, and Stepheni Titov, Stulmaiatiottal Btidlgetitig iii Russia " " Potenitial Crisis No. 453 Bartlomiej Kaminski and Michelle RiboLId, Forcigit Itvestiticlit atud Ristriictiiriti,': The Et1icltitc fronti Hituigary No. 454 Gordon Hughes and Julia Bucknall, Polantd: Coitphlyitig Zwit/1 EU Etiviroititetital Legislatuire No. 455 Dale F. Gray, Assessotenzt of Corporaute Sector Value aiili Vtditerability,: Liuiks to Exelicaigc Rate riii,l Fiuiucnuinl Crises No. 456 Salman M.A. Salman, ed., Grotuid7nater: Leg,l naidI Policiy Perspectives: Proceeditigs of n7 VVorld 11uik Scntiura No. 457 Mary Canning. Peter Moock, and T imothy Heleniak, Refobrtiiig Educationi i.i thle Regiotis of Ruissi No. 458 Johni Gray, Kazakhstani: A Review of Fitriti Restrictturiig No. 459 Zvi Lerman and Csaba Csaki, Llkraitte: Revie7V of Fi7ri1i Restriectturiug Experi iClces No. 460 Gloria La Cava and Rafaella Y. Nanetti, Albaitiii: Fillinig the Vtulerability Gal' No. 461 Ayse Kudat, Stan lPeabody, and Caglar Keyder, eds., Social Assesstetit aie id .Agriciulturual Rcbrtit ii Cciitrnii Asia aid Tuirkei No. 462 T. Rand, J. Haukohl, and U. Marxen, Mlunicipal Solid1 Waste lncinieratioti: Requirliic)lts for a Successflul Prolect (List continLtes on the inside back cover) WORLD BANK TECHNICAL PAPER NO. 524 Institutional Refo:rm for Irrigation and Drainage Proceedings of a World Bank Workshop Edited by Fernando J. Gonzalez Salman M. A. Salman The World Bank Washington, D.C. © 2002 The International Bank for Reconstruction and Development / The World Bank 1818 H Street, NW Washington, DC 20433 All rights reserved. 1 2 3 4 04 03 02 Technical Papers are published to communicate the results of the Bank's work to the development com- munity with the least possible delay. The typescript of this paper therefore has not been prepared in accor- dance with the procedures appropriate to formal printed texts, and the World Bank accepts no responsibility for errors. Some sources cited in this paper may be informal documents that are not readily available. The findings, interpretations, and conclusiorts expressed here are those of the author(s) and do not necessarily reflect the views of the Board of Executive Directors of the World Bank or the governments they represent. The World Bank cannot guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply on the part of the World Bank any judgment of the legal status of any territory or the endorsement or acceptance of such boundaries. Rights and Permissions The material in this work is copyrighted. No part of this work may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or inclusion in any information storage and retrieval system, without the prior written permission of the World Bank. The World Bank encourages dissemination of its work and will normally grant permission promptly. For permission to photocopy or reprint, please send a request with complete information to the Copy- right Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, USA, telephone 978-750-8400, fax 978-7504470, www.copyright.com. All other queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher, World Bank, 1818 H Street NW, Washington, DC 20433, USA, fax 202-522-2422, e-mail pubrights@worldbank.org. ISBN: 0-8213-5178-8 ISSN: 0253-7494 Fernando J. Gonzalez is Irrigation Adviser, Rural Development Department, The World Bank. Salman M. A. Salman is Lead Counsel, Legal Department, The World Bank. Library of Congress Cataloging-in-Publication Data has been applied for. CONTENTS FOREWORD ................. ix ABSTRACT ................. xi ACKNOWLEDGMENTS ................. xiii INTRODUCTION: Institutional Reform for Irrigation and Drainage ....................1 Fernando J. Gonzalez and Salman Al. A. Salman PART I: INSTITUSTIONAL DIVERSITY IN IRRIGATION AND DRAINAGE SECTORS ........................... 11 CHAPTER 1: Bank-Financed Irrigation and Drainage Projects: Review of Institutional Components ................ 13 Geert Diemer CHAPTER 2: Irrigation Management Entities in Bank-Financed Projects: An Overview ........... 35 Itaru Minami PART II: REGULATORY FRAMEWORK OF THE IRRIGATION SECTOR .......................... 57 CHAPTER 3: Participatory Irrigation Management: An Overview of the Regulatory Framework .............. 59 Salman M A. Salman CHPATER 4: Provision of Profit Oriented Irrigation Services: Institutional Issues ....................'.77 Miguel Solanes iii CHAPTER 5: Legal Pluralism in Natural Resources Management: Implications for Water Rights .....83 Ruth S. Meinzen-Dick and Rajendra Pradhan PART III: BENCHMARKING, INCENTIVES, AND PRICING ................ 101 CHAPTER 6: Role and Use of Economic Incentives in Irrigated Agriculture ................ 103 Dirgha Tiwari and Ariel Dinar CHAPTER 7: Benchmarking for Irrigation Systems Experiences and Possibilities ................... 123 Fernando J. Gonzalez CHAPTER 8: Benchmarking Irrigation and Drainage Services Provision ................... 133 IPTRID Secretariat CHAPTER 9: Issues Affecting the Irrigation and Drainage Sectors in Latin America: Lessons from Mexico, Argentina, and Brazil ............................. 149 Jose Simas TABLES Table 1.1: Management Types at Start of Effectiveness ..................... 18 Table 1.2: Number of Project Appraisal Documents That Do and Do Not Promote Institutional Change.19 Table 1.3: Institutional Options Pursued in Project Appraisal Documents .............................................. 20 Table 1.4: Identification in Project Appraisal Documents of Selected Institutional Change Topics .............................. 23 Table 1.5: Change in Mandate and Rightsizing of Agencies Involved in Active Loans ................................ 25 iv Table 1.6: Participation of Non-agency Stakeholders in Preparation, Implementation, and Supervision ..................... 27 Table 1.7: Project Appraisal Documents Monitoring Water Efficiency and Agricultural Production .................... 28 Table 1.8: Project Appraisal Documents Monitoring Farm Income and Well Being ............................................... 29 Table 1.9: Indicators of Institutional Change or Institutional Viabilily in Project Appraisal Documents .......................... 30 Table 1.10: Aspects of Rural Development as Addressed in Project Appraisal Documents.31 Table 2.1: Typologies of Infrastructure-Based Service, Provision .................................................. 41 Table 2.2: Comparison of the Industry Structure between Municipal Water Services and Irrigation ............... 50 Table 6.1: Farmers', Government, and Societal Loss/Gain at Different Water Fees Level ($/ha/year) in Phlaichumpol Irrigation Sub-Project, Northern Thailand ....................... 106 Table 7.1: Values of Selected Indicators ..................................... 126 Table 8.1: List of Key Performance Indicators .............................. 140 Table 8.2: System Descriptors ...... 142 Table 8.3: Proposed Web Site Map for Centbal Benchmarking Unit ...... 147 Table 9.1: Latin America Irrigated Areas ...... 149 Table 9.2: Irrigation in Brazil ............ 160 FIGURES Figure 2.1: Exclusion and Consumption Properties of Various Goods and Services ....................................... 37 Figure 2.2: Externality and Public Goods ....................................... 38 Figure 6.1: Cause and Effect Loops Showing Linkages between Economic Incentives (Tax), Resource Use Efficiency, and the Economy ..................... 105 Figure 8.1: Stages of the Benchmarking Process ............................. 135 Figure 8.2: Example of Comparative Plot of Irrigation Water Delivery ....................................... 146 BOXES Box 6.1: Water Pricing System and Efficiency Gains .107 Box 6.2: Advantages and Issues in Output Pricing .108 Box 6.3: The Viability Incentive Grant System of the National Irrigation Administration in the Philippines. 108 Box 6.4: The No-Payment-No-Project Principle in Nepal Irrigation Sector Project .109 Box 6.5: The Up-front Cost Sharing in National Drainage Program of Pakistan.109 Box 6.6: Examples of Subsidy Programs and Implications for Reduction in Water Use .110 Box 6.7: Water Abstraction Charges and Reported Improvements in Water User Efficiency .112 Box 6.8: Some Additional Issues Involved in the Design of Taxes for Water Abstraction .113 vi Box 6.9: Use of TaLxes on Water Pollution and Related inputs: Reported Efficiency Gains ...................... 14 Box 6.10: They Alvays Irrigate When It Rains ............................. 115 Box 6.1 1: Some Additional Issues Involved in the Implementation of Quota System .............. 115 Box 6.12: Trading of Water Rights, Transaction Costs, anid Protecting the Right of the Poor ...1 l18 Box 6.13: Water Users Associations Have the Right and Responsibility to Handle Purchase of Operation and Maintenance Equipment.1 19 Box 6.14: Ensuring the Payment Funds of Small Farmers in Indonesia .......................1........... ...... 119 ANNEXES Annex 7.1: A Core. Set of Irrigation Performnance Indicators ...... 128 Annex 7.2: Performance Indicators for Irrigation and Drainage ...... 129 Annex 7.3: Impact of Modernization on Performance of Irrigation Projects ...... 130 Annex 7.4: Measures of Performance .......................................... 132 vii FOREWORD The world confronts major challenges in rural development as we enter the 2l't century. S'eventy percent of the World's poor live in rural areas. Most of the world's poverty is in rural areas. Yet, there is an urban bias in most countries' development strategies, and in their allocation of public investment funds. Rural people, women and minorities in particular, have little political clout to influence public policy to direct more of the public investments to rural aireas. We recognize that to be successful in reducing rural poverty, we must focus on the entire : ural space, the whole rural society and economy, including both the farm and non-farm aspects. We are convinced that crafting efficient and pro-poor policies and institutions will contribute greatly to accelerated growth in rural economies and, consequently, to measurable poverty reduction. Irrigation and drainage (I&D) play a vita] role. Two hundred and fifty million hectares of irrigated land provide 40 percent of the agricultural production of the world. The increase in food production and diversification in the last 25 years resulting from the green revolution would not have been possible without the irrigation sector. Due to this sector's importance, and our understanding that it directly relates to our rural strategy, we devoted about 50 percent of our rural portfolio to irrigation and drainage. Despite its importance, however, the sector faces many challenges, some of which come from outside the sector itself wihile others come from within. Challenges from outside the sector are numerous. Uncontrolled population growth calls for more food to produce. The World Water Vision (presented at the Second World Water Forum in the Hague in March 2000) predicts that agriculture will need nearly 20 percent more water within the next 25 years, even accounting for gains in productive efficiency. The need for an increase of water use of about 15 percent to maintain food security in the next 25 years was predicted by some researchers. 'Despite that, it is not clear if we will be able to increase abstraction of water from nature at reasonable costs without disturbing the environment. In many watersheds, the water volume being extracted for agriculture, industry, and domestic use is already beyond the level of sustainable yield. Because of these two incompatible forces, the need to increase food production and the increased scarcity of water, we often find ourselves in that uncomfortable position, "between a rock and a hard place." The main challenge remains; we need more crop per drop. But would this be possible given the current state of most irrigation systems worldwide? This takes us to the challenges within the irrigation sector itself Water efficiency in irrigation systems remains low in many cases, well around 30 percent, and productivity in many places still well under the possibilities of present knowledge and technology. Furtherrnore, the potential pollution from agrochemical threatens water quality and reduces the amoutnt of fresh water available for use, the effectiveness of I&D institutions in raising rural income is recognized but the effectiveness of investment in fighting poverty has been questioned. Moreover, about one million hectares of irrigated land is lost every year due to water-logging and salinization. Water use in the sector is 2/3 of the global use and in arid countries amounts to about 85 percent. This increases the competition on water demand between the I&D sector and other sectors, and with the environment. Due to inadequate water pricing policies, irrigation sectors are in most countries financially unsustainable and less funding sources are now available to construct new ix irrigation systems or maintain and operate existing ones. Finally, irrigation institutions that were once key for the growth of the sector are now frequently constraining participation of farmers, and the private sector. Most of these issues are highly linked to reform in general and institutional reform in particular. We need to reform the way we do irrigated agriculture in rural areas by thinking of new systems for high value crops, consider competitive agriculture, and study world markets and their relationship to food security. We also need to increase productivity of water and conduct new research schemes that consider production systems for irrigated agriculture, looking at promotion of non-farm rural activities. Equally important is the need to reform the irrigation institutions according to the new role of the state and participation of the rural society. Within the Bank today, each region is different, presenting a mosaic of institutional diversity with different roles of government, users and private sector. However, in general, our work in the past shows that the challenges need to balance policy and institutional reform with efficient investment. Our rural portfolio is showing a trend and need to consider these issues of institutional reform in a more comprehensive manner. The portfolio also considers institutional reform to be one of the most important issues in advancing rural livelihoods. This report includes several of the valuable efforts presented at the "Institutional Reform for Irrigation and Drainage Workshop." I would like to acknowledge the diversity of interests represented in this workshop and its participants. It is very clear that the papers presented in this report will have far reaching effects. The integration of both the Rural and the Water Strategies within the Bank will use the conclusions of the workshop to help the different regions incorporate the ideas in their regional action plans. Further, this report will provide those interested in institutional reform in the irrigation and drainage sector with valuable insights and information. Kevin M. Cleaver Director and Chair, Rural Development Sector Board Environmentally and Socially Sustainable Development Network The World Bank x ABSTRACT This report consists of selected papers and presentations discussed in the Institutional Reform for Irrigation and Drainage Workshop held at the World Bank in Washington DC on Diecember 11, 2000. The report consists of an introduction and three separate but inter-related parts. The Introduction provides an overview of the discussion that took place during the workshop. It argues that the irrigation sector is blamed for many environmental problems and lacks transparency and accountability. It also suggests that putting in place the right incentives and regulations, the involvement of different stakeholders, and the work with partnerships are all erucial to overcome the sector's obstacles. The first part deals with the institutional diversity in irrigation and drainage sectors. Chapter 1 reviews some institutional change components of the World Bank active portfolio of irrigation and drainage projects which were active by October st, 2000. The chapter addresses the extent to which the Bank's major policy documents of the 1990s have shaped the portfolio, and suggests some recommendations to promote institutional change in irrigation. Chapter 2 explores other organizational options beside water users' associations (WVUA) to manage canal irrigation which is promoted by Bank's strategy. This chapter suggests the introduction of alternative solutions such as the private sector, competition, service contracts, and inter- governmental agreements. The second part deals with the regulatory framework of the irrigation sector. Chapter 3 argues that participation of WlJAs in the management of the irrigation system is likely to result in a more efficient system, including a better system for collection of charges f'or operation and maintenance of the irrigation infrastructure, and also for water charges. T'he chapter also describes and analyzes the legal instruments which constitute the legal framework for the establishment and functioning, of the WUAs. Chapter 4 identifies some of the institutional issues that may be posed by privatization of irrigation management facilities. It concludes that, the few existing cases of private entities providing profit oriented irrigation services stand as evidence of the constrains caused by the economics of irrigated agriculture and the finance of such entities. The chapter also highlights the requirements for the inception and development of profit oriented irrigation services. Chapter 5 discusses legal pluralism and its effect on water rights, the chapter highlights the co-existence and interaction between multiple legal orders such as state, customary, religious, and local laws, and the fact that all these orders can provide bases for claiming property rights. The chapter argues that, rather than seeking a single definition of property rights, it is more appropriate to recognize the multiple and often overlapping bases for claims, and to regard property rights and the uses of resources as negotiated outcomes. Not only does this lead to a more accurate understanding of the situation that resource users face, but it allows greater flexibility to adapt to the changes and uncertainty. The third part deals with benchmarking system, economic incentives, pricing. Chapter 6 focuses on various examples of economic incentives which could result in imnproved water use efficiency, such as prices, taxes, subsidies, quotas, ownership, and capacity. The chapter initiates discussion on the role of the economic incentives in improving water use efficiency, and seeks to xi find out what works and what doesn't and why, and discusses lessons learned. Chapters 7 and 8 deal with the benchmarking system. Chapter 7 emphasizes the importance of establishing such system, and describes the benefits benchmarking brings to other sectors. It examines the experiences of the irrigation sector in this area, and concludes that a system of benchmarking for the irrigation sector could be achieved with the help and participation of a network of countries and organizations. Chapter 8 focuses on benchmarking of irrigation service provision. It argues that improvement in the level of service provision to water users is a key factor to increase and sustain agricultural production. The chapter illustrates the benchmarking indicators identified by the International Programme for Technology and Research in Irrigation and Drainage (IPTRID). Chapter 9 draws some of the main lessons leamed from the experience of Mexico, Argentina, and Brazil in their dealings with the issues affecting their irrigation and drainage sectors. These issues often described in the form of a vicious cycle caused by the lack of maintenance, poor irrigation service, farmer dissatisfaction, low rates of fee collection, weak irrigation budgets, and as a result, inadequate maintenance. The chapter reviews the govemments and multilateral organizations attempts to break this "cycle" in the irrigation sector, and concludes by stating the steps to be taken to overcome the major problems, such as implementation of institutional and structural reforms, and modemization programs. xii A CKNOWLEDGMENTS Many people have participated in the organization of the Workshop on Institutional Reform for Irrigation and Drainage and in the preparation and editing of its proceedings. Knowing that it is difficult to mnention them all, we would like to thank all individuals, partners, and friends who contributed to lhe success of the Workshop and the preparation of this report. We would like to extend our sincere thanks and appreciation to the guest speakers: Messrs. and Mmes: Miguel Solanes, Ruth Meinzen-Dick, and Tom Brabben for their outstanding presentations and contributions to this Report; and to Mr. Jerry Delli Priscoli for facilitating the discussion in the Workshop. Our special thanks are extended to Mr. Robert Thompson for his introductory remarks that guided the Workshop. We would also like to thank our Bank colleagues: Messrs. John Briscoe, Ashok Subramanian, Geert Diemer, Usbrand H. de Jong, Douglas C. Olson, Dina Umali-Deininger, Jose Simas, Itaru Minami, and Ariel Dinar who arranged their plans and assignments to attend the Workshop, and for their contribution to this report. Special thanks are also due to Mmes Anna Corsi and Corazon A. Solormon for their help with the logistics of the Workshop, and to Ms. Hiba Ahmed and Mr. Hisharn Abdo for their assistance in putting together this report. We would also like to acknowledge the funding provided by the Bank-Netherlands Water Partnership Program and to thank the colleagues who facilitated such funding. These efforts made possible sponsoring the Workshop and publishing its proceedings. Last, but not least, we would like to thank the participants for devoting the entire day and for the lively discussion that enriched the Workshop. These include Messrs. Bart Schultz (President of ICID), Khalid Mohtadullah (Executive Secretary of GWP), Luis Emesto Garcia (Principal Water Resources Specialist, Inter American Development Bank), and all the other participants from the private sector and academic institutions. xiii INTRODUCTION Institutional Reform for Irrigation and Drainage Femandc J. Gonzalez and Salman M. A. Salman* INTRODUCTION About 800 million people in the world go to bed hungry every night. The number of people living on less than a dollar a day is staggering. As demonstrated in the past, irrigation can play a major role in increasing food security and reducing poverty. In previous decades major success was achieved in increasing agricultural production of food and fibre. In rnany countries, the problem of hunger was transformed from one of food scarcity to that of entitlements, in which the hungry could not translate their needs into demand, rather than that of inadequate food ,upply. The price of staple foods has reached historically low levels, and stockpiles have been adequate. This situation would not have been conceivable without major investments in the irrigation sector. In recent years, however, irrigation expansion has slowed dramatically because of a considerable reduction in new investments, combined with a loss of irrigated areas due to aquifer over-drafting, water logging, salinization, and urban encroachment. With limited irrigation expansion, and growing demand for food, due to population and income growth., food insecurity is avoidable only by a subst;ntial increase in the efficiency of existing irrigation systems. However, this is a far-reaching objective in reality. The irrigation sector in many countries operates in a vicious cycle in which farmers are dissatisfied because of the lack. of maintenance and the poor irrigation and drainage services. This results in low rate of collection of irrigation service fees leading to weak irrigation budgets which, in turn, cause a state of inadequate maintenance. Inefficiency of irrigation systems in many parts of the world and scarcity of fresh water and fertile land are threatening to limit increase in food production more than ever. Not more than 10 percent more fertile lind will be available to produce twice as much food for a rapidly growing urban population of developing countries. As other sectors will demand more water, the competition for available resources will make it more difficult for irrigation to expand or even to keep the present water allocations. At present, farmers use about 70 percent of the water, but they are also the largest water wasters. These issues call for improving the way irrigation systems operate by ensuring efficiency and sustainability. A necessary condition for this is the reformn of the institutions providing irrigation services. A review of the World Bank Irrigation active portfolio showed an increased attention to institutional reform in recent years. Thirty-eight of the 47 large systems projects reviewed in the World Bank portfolio planned to implement or follow up on institutional change. Despite such ' Fernando J. Gonzalez is Irrigati,on Adviser, Rural Development Department, The World Bank. Salman M. A. Salman is Lead Counsel, Legal Department, The World Bank. 1 increased attention, mixed evidence was found regarding institutional success in the irrigation systems that were reviewed. The review showed clearly that there is a need to identify and explore in depth some of the issues involved in institutional reform in the irrigation sector, follow up on success stories of reform, and learn from failure cases. The "Workshop on Institutional Reform for Irrigation and Drainage" was conducted to address such a need. The Workshop sought to provide a dialogue format to highlight three main issues: the complexity and difficulty of the institutional reform process, the substantial long term and effort required for the reform, and the fact that the reform requirements and results are often country specific. The Workshop identified three major areas for more in-depth discussion, namely, institutional diversity in irrigation and drainage sectors, regulatory framework of the irrigation sector, and benchmarking, incentives, and pricing in irrigation. Further more, the workshop was developed with an underlying objective of providing inputs for refining the future irrigation action plans of the different regions of the World Bank and identifying partnerships to facilitate future institutional reform in the irrigation sector in different parts of the world. The following provides a brief discussion of the Workshop results in these five areas. INSTITUTIONAL DIVERSITY IN IRRIGATION AND DRAINAGE SECTORS This part consists of two chapters that review the Bank-financed irrigation and drainage projects and their management entities. The chapters also consider the rationale of Water User Associations in canal irrigation management, as well as the dissemination potential of the various privatization (or public-private-partnership) options in canal irrigation services The first chapter starts by comparing urban water and canal irrigation and argues that although there are some similarities, technical differences between the two sectors need to be understood to transfer experiences. Such differences characterize water in the former sector as a toll good and in the latter as a common pool resource. This affects the choice of public-private- partnerships (PPP) and user organizations (UO) for service provision in each sector. The chapter argues that regulation by governments becomes important in the former option, and securing the authority of UO is the key in the latter. Therefore, the former would require capacity building in the government, while users would need it in the latter. In PPP arrangements, governments should concentrate their efforts on how to arrange the service and contract out part or all of the service itself via auctions to the private sector. Governments are required to have strong capacity for procurement, monitoring, and regulation. The potential gain from PPP arrangements includes cost disclosure, efficiency via competition, and access to expertise in the private sector. On the other hand, consumers arrange (and may also provide) services for themselves in UO, just like individuals do so in ordinary markets. Governments may confine their roles to providing legal, technical, and networking support to UO. Such UO are quasi governments and would effectively govern things inside their operational boundaries. Potential gains from the UO operations include better access to local knowledge and gratis contribution by the members based on their sense of ownership. The chapter concludes by arguing that private sector options could be found in canal irrigation despite the general rationale described in the chapter. Because simple service contracts and management contracts are not necessarily for profitable tasks, they can always be introduced 2 to canal irrigation. There are possibilities of transforming canal water from a common pool resource to a marketable good. UOs working as a unit consumer (or as a Unit farm product supplier) could reduce transaction costs so that irrigation water can be traded volumetrically among UOs. Strategic investment for improving the system controllability may be made by the private sector in PPP arrangements. Canal units with better access to product markets may have more suitable conditions for P'PP options. The second chapter discusses three active cases involving private sector incentives and private operators. These were the irrigation schemes in the Bac Hung Hai Polder in Vietnam's Red River Delta, the Guanzhong, Shaanxi Province in China, and the Office (lu Niger (ON) in Mali. The chapter argues that the introduction of private sector incentives and of private operators improved the infrastructure and the water service and brought many farmers the benefits of irrigation. Also, governments may be unprepared to create safeguards to protect farmers against the risk of monopoly power abuse posed by operators. One way to create safeguards is to form water users' associations (WUAs) to whom management responsibility is transferred and water rights are allocated, and to establish a regulator with clear authority and liberal funding. The chapter suggests the need to increase and synthesize knowledge in these areas and introduce private sector options in multi-stakeholder policy dialogues with borrowers. However, most of the changes are addressing existing irrigation systems with established institutions and social organizations. Therefore, taking cultural milieu into account is critical. The institutional environment should be open and give people opportunities to participate. In the past, many countries restricted some areas to the public sector. Such restrictive systems of the past need to be changed and present knowledge must be used to make irrigation management accountable. There is a need to focus on simultaneous change in the roles and. responsibilities of agencies, users and the private sector taking into account financial sustainability and participatory approaches. REGULATORY FRAMEIWORK OF THE IRRIGATION SECTOR This part consists of three chapters which discuss participatory irrigation management, provision of profit oriented irrigation services, and legal pluralism in connection with water rights. The first chapter outlines the regulatory framework for water users associations which consists of three components: the enabling law (providing the WUA its legal status and defining its relationships with other entities), the bylaws of the WUAs, and the transfer agreement (that defines the relationship between WUA and the irrigation agency). The enabling law may consist of a general law on water resources, a specific one on WUAs, or some other law, such as laws on cooperatives, companies, local governments, or associations. A special enabling law will precisely define the attributes of the WIUA and discuss water charges and enforcement of payment in accordance with the current transfer policy. WI.UA bylaws state whom can/should become members, how water charges are set and what rights and obligations the members possess. The transfer agreement defines what is being transferred, rehabilitation conditions, duration of transfer, conditions for revocation of transfer, and dispute settlement mechanisms. Important issues throughout are the definition of the criterion for membership of the WUAs, checks on capture by large farmers and on control by the irrigation agency. 3 The second chapter shows that private ownership of infrastructure is rarely viable, yet private sector participation needs to be on the Bank's agenda. The private sector will only invest in irrigation, given other competing options, if it is profitable. Hence, it is important to think about farm income that can be generated from agriculture and the fees that can be paid for irrigation given the income generated from the crops. Private sector investment in irrigation systems requires certainty that farmers can sell crops and gain profit. The product market is important, and in most cases a private sector investor needs to be sure that there is a market and farmers can sell their crops and make a profit. Solutions should be looked for in search for market niches and in linkages with other companies such as nutrition companies. The level of return on investment depends on the level of risk undertaken. Higher risk needs longer terms and higher returns. The chapter also emphasizes that political will is needed to define policy, but without laws policy implementation is difficult. Regulation is just as necessary for public as for private sector investments. Private sector and user participation bring the need for a clear regulatory process. Some of the key areas to regulate are water rights, setting and collecting fees and risk allocation among users, private sector, and the government. The chapter argues that a private company providing services for irrigation needs to be regulated in three different areas: water distribution, water as a natural resource, and the service companies provide. For private investment needs, stable water rights are essential. Without stable rights, there are little incentives for private investments. Water markets improve efficiency of allocation. The chapter concludes by arguing that the Bank could help to open up the irrigation sector and create the right institutional environment for potential investors to take advantage of opportunities. The third chapter argues that water rights allocated to individuals or associations are becoming a critical element in water resource management. In most places, laws are silent on the issue of water rights. Secure water rights could form a sound basis for fostering incentives for private sector participation. The issues will have to be viewed in the context of a country's laws and customary rights. Water rights by their very nature have to be constantly negotiated within a fixed and reliable framework. In evolving water rights, there is a need to account for a country's old habits and customs. In many cases the old privileges constitute social injustice and inhibit regional development. In the past, water managers have not paid much attention to service quality and performance and the users have been passive and did not claim or demand better service. A new awakening in the area of water rights will make a difference but will be an evolutionary process. BENCHMARKING, INCENTIVES, AND PRICING This part consists of four chapters, the first of which is concerned with the use of economic incentives. The second and third chapters deal with benchmarking irrigation and drainage services provision. The fourth chapter outlines some case studies from Latin America and discusses some issues of reform facing Mexico, Argentina, and Brazil. The first chapter argues that economic incentives may be used as possible means for improving water use efficiency and internalizing environmental costs of irrigated agriculture if such incentives are properly designed and supported by relevant policy framework. The overall 4 impact of economic incentives depends on the planning horizon and the existing conditions. The rotential adverse impacts of some economic incentive, such as water pricing in irrigation and c6rainage projects, have been a major issue of concern in developing countries. Increased production costs leading to higher export prices may affect or alter a country's competitiveness. E]xperience with implementing economic incentives is mixed in the 68 Irrigation and Drainage (I&D) active projects in the World Bank portfolio. Some projects are designed with no economic incentives, some have several incentives implemented simultaneously, and others focus on one i ncentive. A closer look at the details of the incentives used in I&D projects suggests that some incentives relate mainly to cost recovery measures, although charging for water may not always provide incentives for more efficient water use. "User participation" is among the other incentives used in I&D projects. The chapter concludes by arguing that a review of several successful examples of incentive implementation from around the world suggests that the potential for improved water use efficiency as well as the potential for improved economic performance at the private and social levels, is great, and is achievable. The Bank could develop a policy framework that recognizes the complementarities between economic incentives and other economic, legal, and institutional interventions, and broaden the policy basis to include other sectors' inputs and outputs. The second chapter starts by defining benchmarking and argues that benchmarking is a fundamental business tactic that supports quality and excellence. In an area like the environment, benchmarking can be a process, performance, or strategic instrument. Process benchmarking seeks to identify the most effective operating practices from many companies that perform similar work functions in very different fields. Performance benchmarking is a tool that assesses competitive positions through product and service comparisons. Strategic benchmarking seeks to identify the winning strategies that have enabled high-performing companies to be successful in their market places. The chapter further argues that benchmarking has great potential to contribute to the improvement of service and operation efficiency in the water sector as most projects will benefit from knowing how they perform, their trends overtime, and how they compare with others, nationally and internationally. In irrigation, it is feasible and desirable to establish benchmarking with an underlying objective to compile, analyze, and compare a core database of irrigation projects and make such data available for sharing among practitioners. The chapter, however, acknowledges the difficulty of acquiring such data in the short term, and presents the challenges of developing international irrigation data sets. The chapter also explains different physical, social, and economic environment that might influence the comparison between countries and projects. The chapter indicates that previous research efforts to standardize irrigation indicators show that it is possible to attain the objective of comparing performance between projects and explain the impact of physical and institutional changes over time. In evolving a benchmarking framework the perceptions of farmers and the institutions could have a direct bearing on the nature of benchmarking. The role of users' perceptions and opinions is critical to developing good tools of benchmarking. The chapter concludes by arguing that linking incentives and benchmarking is a key factor. The present link is weak and very little is known about the linkage 5 in World Bank projects over the last 40 years. It is important to see how performance can be tracked and respond to incentives. The third chapter discusses the stages that benchmarking should follow, which are identification and planning, data collection and analysis, integration, taking action, and monitoring and evaluation. The chapter also establishes a set of indicators that can be used to benchmark the irrigation system of any country. These indicators were classified in a number of domains such as service delivery performance, financial performance, productive efficiency, and environmental performance. Within each domain a couple of indicators can be used such as gross agricultural production, total value of such production, change of water depth over time, total annual water delivery, cost recovery ratios, and maintenance expenditure to revenue ratios. The fourth chapter discusses reform issues in Mexico, Argentina, and Brazil. These three countries constitute 68 percent of irrigation efforts in Latin America. The chapter provides a set of challenges that face the future irrigation efforts in Mexico, such as the continuous unbalanced scarcity of water in the arid and semi arid zones, the necessity to save irrigation water to be used in other sectors, and the completion and sustainability of the transfer of irrigation districts to water user organizations. The chapter also gives some policy options that can be used to improve the irrigation system of Mexico, which are classified into two major areas: options linked to water resource management and options related to agricultural policies and actions. The chapter concludes by indicating that in the case of Mexico the irrigation agenda, at least in the arid and semi-arid zones, has to be linked to an inclusive water resource management strategy. In the case of Argentina, the chapter identifies the main irrigation issues to be the combating salinity and poor drainage, updating technology and productive systems, consolidating the process of transferring districts to private user sectors, and solving the tariff issue. In the case of Brazil reform efforts should include a number of legal and institutional policies and programmatic changes oriented towards creating a modem irrigation system that can grow on a sustainable basis. REGIONAL ACTION PLANS During the Workshop, representatives from five World Bank regions described their elements of I&D "Regional Action Plans." After the initial presentations, Workshop participants were divided into six subgroups to discuss each of the regional elements and to summarize main recommendations. Each region summary was then presented and discussed in a plenary format and is outlined in next paragraphs. The presentations made clear that different Bank regions have different hydrological conditions, agricultural sector characteristics and political contexts that make I&D institutional aspects regional and country specific. Hence, blue print policies do not apply. For example in the area of hydrological conditions, water availability varies widely among regions and countries. In the Middle East and North Africa region (MENA) and some of the Central Asian Republics, renewable per capita of water is at a very low level of around 1000/cm or below. There is a recognized need for clear links with agriculture, the environment, and water resource management for sustainability in these regions. Water rights, conservation, and management are important elements for I&D in water-scarce areas. 6 Further, the participants identified four priority areas for future work in the I&D sectors. First, the need to formulate and develop I&D regional strategies and do more sector work including institutional and communication components. There are a number of long term country dialogues that have been carried out somewhat independent of each other. In some regions, however, there has been a steep decline in projects and Bank staff working on I&D. Second, the need for regional plans to reprioritize rehabilitation and modernization before ;tarting new I&D projects was highlighted. The objective is to improve performance of the aresent infrastructure by increasing productivity and water efficiency. New area developments are now expensive especially in Africa where there are environmental concerns, doubts about influence of I&D on poverty reduction aggravated by low world market food prices. Third, there is a growing need to consider integrated water resources management especially river basin and aquifer management. In many countries, however, the Bank is coming short in the needed assistance for a well-focused integrated water resource maniagement sector work that could have a large payoff. In ECA there are major problems in international waters, rights across borders, and maintaining minimum flows. Fourth, the need to irnplement I&D institutional reform was emphasized. For such reforms, it is critical to improve performance of I&D systems. Participants also identified a frequent disconnect between concept and reality with institutional arrangements, which is caused by limited national political support and lack of ownership by local stakeholders. Institutional reform requires long-term actions and complex processes involving simultaneously organization of users and agency reform. There are different views on whether to push for a project-by- project approach, or for an overall reform country program and to look more at irrigation in the context of rural development. The following general observations were made in the regional action plans: Institutional Diversity In MENA and SAR, I&D are dominated largely by government and departmentally managed organizations and there is little institutional diversity. In ECA the institutional set up is in transition from the former soviet economy, joint stock companies are replacing state farms, and the reform on land and water laws is underway with a view of putting in place a new regulatory and legislative framework. In LAC there are high degrees of institutional diversity from the private organizations of Chile, private investment in Brazil, the Water User Associations of Mexico, and the Irrigation Authority in Mendoza, Argentina. Benchmarking, Incentives, and Pricing Pricing has policy support but translating that into action is unclear. Some regions advocate investment and O&M cost recovery. Since many governments can not comply with full investment recovery, plans call for more investment cost sharing (some states paying up to 15 or 40 percent). Bank teams need more relevant infornation on institutional performance and benchmarking indicators in order to increase accountability, effectiveness, and provide a competitive environment. 7 Regulatory Framework An effective reform involves changing simultaneously the roles and responsibilities of the agencies, users and the private sector. In order to accomplish this transformation, a regulatory framework is needed. This framework needs to specify inter-sectoral coordination. For example, in SAR the plan seeks to foster more coordination between agriculture departments and to diversify higher value crops and energy departments to harmonize water demands. Defining water rights is the necessary link with water resources and basin management. In terms of user participation there is a widespread support in policy but implementation of schemes where effective participation takes place is slow, and implementation of agency restructuring is even slower. DEFINING PARTNERSHIPS According to participants, the World Bank could bring considerable power and influence to facilitate the reform in the I&D sectors. Many participants see the Bank as an active change agent in the process; it can leverage loans with the private sector and other external support agencies, and it has an established relationship with most national governments. The Bank could help break down old perceptions of the sector and is influential enough to start a constructive dialogue on the change. It has the broadest base of knowledge on practices and instruments for designing and implementing reforms in different sectors. Most felt that capital is needed for such change and the Bank could help bring it to the table. In defining new partnerships in the sector, there was agreement that new stakeholders must be partners. These included other national ministries in the countries concerned, especially the financial sector, the private sector, and the relevant NGOs. While there are few examples of the private sector investment in irrigation systems, the private sector is willing to help and work with the Bank to set up examples of how to do it. There was a generally acknowledged need to overcome inertia of large traditional bureaucracies and bring accountability and transparency. All felt a need for information exchange of successes, failures, and best practices. Most felt the need for knowledge of how others have been doing and for new ideas especially on polices and instruments for change. The Bank can bring a new focus on institutional arrangements, performance, evaluation, and thus efficiency to the sector. While participants generally felt a need for active Bank involvement, there is some difference on how active the Bank should be. Most see the Bank as a powerful partner, others see the Bank as a more neutral advisor, but others see the Bank as an active mediator among country sectors in national governments actively helping to build consensus on reform. 8 CONCLUSION During the discussion at the Workshop, the following major themes emerged: The irrigation and drainage sector was found to be central to food security and low cost fbod. This sector uses 70 percenl: of the water, and is closely linked to poverty in nrral areas. The irrigation sector is also blamed for many environmental problems and for lack of transparency and accountability. In the context of competing demands for resources among sectors (such as drinking water and industrial vwater supply), there is an immediate need to improve irrigation performance. The goals of rural development, poverty reduction and ensuring food security will not be accomplished with a "business as usual" scenario in the I&D sectors. There is a need to promote institutional and policy change, such change however, is complex and requires substantial time and effort, and is country specific. Different regions have, varied problems ranging from land tenure and agricultural productivity issues to water scarcity issues. What remains central to the intervenlion would be to put the right incentives in place together with the regulations defining rights and responsibilities of different stakeholders. There is a need to work with partnerships in institutional reforms which would be country owned, wilh clearly specified systems that could foster user participation. There is also the need to clearly define water rights, and introduce continuous perfonnance improvements which are adequately benchmarked. The challenge is to create a new set of tensions in the I&D systems by introducing institutional diversity and a quasi-competitive environment in which benchrnarking promote accountability and disclosure of information for a more effective user participation. User organizations and agency change go together in a system of new roles and responsibilities. The creation of water users associations without reforming the agencies providing the service has not been effective. The sector has not yet used the opportunities of private sector participation. The Bank can be instrumental in bringing knowledge to the various regions and countries, considering the special circumstances of their political economies. Every case is different; water users associations may not be a right solution in certain conditions, especially where opportunity costs to establish them are high. A first step is to start building a global platform to bring sustainable improvements in the performance of irrigation institutions. 9 PART I INSTITUTIONAL DIVERSITY IN IRRIGATION AND DRAINGE SECTORS CHAPTER 1 Bank-Financed Irrigation and Drainage Projects: Review of Institutional Components Geert Diemer* 'INTRODUCTION This chapter aims to review some institutional change components of the Bank's active portfolio of irrigation and drainage loans. It complements the review of the implementation of the Water Resources Management Policy by the Operation Evaluation Department (OED) that focuses on projects completed by 1999, whereas the present review concerns projects that were active in 1999. From the start of the 1990s, awareness grew that the institutional environment of irrigation management needs qualitative changes. Staff involved in large-scale irrigation and drainage entered the 1990s wilh the recognition that in the preceding decade efforts to improve cost recovery through fee collection by the Irrigation Departments did not raise enough resources to allow adequate maintenance. As the decade went on, the emphasis on institutional conditions for fee collection and fee expenditure grew. The 1993 Water Resources Management Policy reinforced this position by proclaiming key institutional principles and by emphasizing the institutional dimension relative to the hardware part. The 1994 OED Review of the Irrigation Sector recognized irrigation's contribution to the alleviation of poverty and the production of food. It recommended that the entities that provide Operation and Maintenance (O&M), whether public or private, receive their funding directly from the users rather than from general revenues. It also recommended the participation of the farmers in the design, operation, and maintenance of schemes. The Bank's Rural Development Strategy 'From Vision to Action' stressed the need to operationalize the participatory approaches to irrigation. The questions addressed by this chapter are therefore: * to what degree has the emphasis on institutional change in these documents shaped the active portfolio ? and; * what recommendations can be made to the country teams and the Rural Development Department to facilitate institutional change in irrigation and drainage to improve water delivery? The current OED review of the implementation of the water resources management policy will provide one answer to this question by focusing on projects that were completed in or Senior Water Resource Management Specialist, Rural Development Department, The World. Bank. 13 before 1999. Its draft report, released in October 2000, points to the need to increase the emphasis on institutional reform and on poverty alleviation. The present review chapter gauges the progress made by a later generation of projects than the ones examined by OED, for it focuses on projects active on October St, 2000, almost all of which (92 percent) became effective after 1993. Assuming the portfolio has gone through changes since then, the results of the present review are likely to differ from those found by OED. The present review may be read in conjunction with a review of the same portfolio by Ariel Dinar that focuses on the use made of economic incentives. Both reviews have for major goals to draw a contemporary picture of where the portfolio is standing and where improvements are possible. GLOBAL CONTEXT AND CONCEPTS In many client countries, the large schemes built by governments to help millions of farmers secure their harvests and grow their cash crops, are in a poor state of maintenance. Often this is due to the fact that the state, after having made the investment in construction, remains the main source of funding for O&M. However, the rate of funding is usually inadequate. Farmers are seen and treated as beneficiaries of these investments, not as participants. More often than not, they were not required to pay the real cost of this water service. States planned to recuperate the investment by their national treasuries through land improvement taxes on increased production, water fees and other tax-like measures. Monies collected were, however, insufficient to pay for upkeep and operation. And if they were sufficient, Ministries of Finance would not necessarily allocate this money to irrigation, allocations being the result of political competition. This insufficiency led to a state of disrepair that discouraged farmers from paying their water fees and land improvement taxes. It triggered a vicious cycle in which poor maintenance led to poor water delivery, which led to an inability and unwillingness to pay fees and taxes, and which led to insufficient funds for maintenance. At present, some schemes in India and Pakistan have not delivered water to tail end sections equal to one third or more of their command areas. Water service to the middle reaches has been irregular, which depresses yields or forces farmers to dig wells. This vicious cycle was reinforced, rather than remedied, by efforts to rehabilitate the schemes. These rehab investments were made fifteen years earlier than anticipated at construction and were essentially a response to the deferred maintenance. They were justified as a means to put the schemes back into good working order, in order to give the government agency a new start. But the rehabilitations did not address the institutional vicious cycle mentioned above. Rather, they often worsened it, for the Irrigation Departments would hire new staff to design and supervise the rehabilitation, which staff would stay on once the rehab was done, adding to the cost of water service delivery. Loan conditionalities to raise water fees and collection rates to improve cost recovery were generally agreed between lender and borrower but often remained without effect. 14 The vicious cycle was reinforced as well by the political nature of the public irrigation schemes. Farmers had a short term interest in seeing water fees as a form of taxation, and politicians had consequently an interest to propose reductions rather than support any increases aimed at meeting the actual cost of O&M. A recent well-publicized example was the halving of the water fee by the current President of the Philippines. It is in this state of institutional ineffectiveness and poor incentive structure that irrigated agriculture is called upon to increase production to feed the world's growing population and at the same time decrease water use. As populations grow and economic development increases, demand for water is increasing and likely to continue to do so. In addition, there is increasing recognition of the need to preserve wetlands and minimum in-stream flows for environmental management purposes. Since irrigated agriculture in developing countries consumes around 80 percent of the available fresh water, it is called upon to reduce its share. The vicious cycle and the need to increase the efficiency of water use by irrigators both call for a reform of the institutions through which the large schemes are operated and maintained. As regards to remedying the vicious cycle, the Irrigation Departments need to shift their focus from construction and management to oversight and regulation of the operation and maintenance (O&M) of the large schemes. Users need to relinquish their beneficiary view of themselves and take responsibility for the management of their schemes. Money flows need to be redirected. Fees paid by users need to stay within the scheme and farmers need to be able to see that their fees are used indeed for the upkeep of the scheme and not for any other purposes. Staff managing the schemes should no longer be accountable only to their hierarchical superiors and be able to ignore the demands of users, but need to become accountable to users, and dependent in part on the satisfaction of the users for the payment of their salaries. Responses to the global water crisis require putting in place economic incentives that reward farmers and managers when they save water. These incentives cannot be effective as long as the management of the large schemes is supply based, supplies are irregular and inadequate and the rates contain no incentives to reduce water use. To be effective, the rules of the game need to be changed, and responses to the global water crisis therefore depend on institutional reforms being put in place. Many key concepts associated with these reforms are opposites of the key concepts of the current management paradigm. Where supply driven management was the norm, demand driven management will need to take its place. Where managers were public servants, managers are now likely to be on the payroll of water users' associations (WUAs) or privatized utility companies that make their money selling water to these WUAs. Where Irrigation Department (ID) staff was answerable to their superiors and could simply dictate to farmers, it now becomes accountable to users, awaiting their instructions and market signals. Where ID staff was all- powerful, users now need to be empowered, either through their WUAs, or through their roles as buyers of water, or through both ways. Where money flows were opaque, and the use of budgets intended for O&M discussed and decided primarily in the offices of the ID,;, they now need to become transparent and be dJiscussed, decided and monitored in general assemblies of WUAs, in local councils or in the public shareholder meetings of utility companies. WVhere farners were given a delivery schedule and an allocation, they now need to be granted a right to water that can 15 be upheld in court. Where IDs held access to water from the reservoir or river on the basis only of their administrative status of government organ, the new managers, whether WUAs or companies, need to have a right to that same source, to defend their business against any claims by other parties to that same source. Other new concepts and practices are needed, as well as new public-private partnerships. In particular; the concepts of regulation, natural monopoly, competition, decentralization and private service provision; and new practices in financial management, accounting, planning delivery schedules, and their application to improve irrigation service delivery require greater consideration. Large schemes tend to become natural monopolies because marginal costs of operation or construction go down with an increase in scale. This makes it difficult, if not impossible, for competitors to enter the market. In the process, farners may get locked in: only one provider serves their farms and may abuse his position to impose a high fee or deliver sloppy service. One solution to this problem is the empowerment of farmers through WUAs, another is the establishment of a regulatory authority that sets and monitors standards for the behavior of private providers in terms of quality of service and price. If competition in the market is often not feasible in irrigation management, competitionfor the market often is. Service providers can be asked to bid for the provision of water delivery services to a given area during a given time span. Using predetermined and transparent procedures, contracts can be awarded. Another substitute is benchmark competition, in which scheme managers compete with each other in terms of an agreed set of benchmark indicators such as quality of service, user satisfaction, and cost of delivery. Bidding procedures require information of the actual cost of service delivery, as opposed to the cost items that the administrative Irrigation Department imputed to it. This information can be generated only if accounting systems are set up in such a way that the cost of producing a certain output can be traced.- At present, most IDs are set up with financial information systems that focus primarily on tracing expenditures to original budget allocation only, with no focus on output. The reforms demanded from the irrigation sector are fundamental and in many states directly involve hundreds of thousands of farmers and tens of thousands of ID staff. Their implementation requires extensive consultation of the major stakeholders, first on the need for the reforms, then on the institutional arrangements preferred, and last but not least on their implementation and ways of addressing the legitimate concerns of the ID staff. Projects therefore need to include in their designs, activities that generate consensus on the need for reform and that involve other stakeholders than ID staff in the supervision of the implementation, so as to help overcome resistance by the vested interests, as well as resources needed to address the legitimate concerns of the ID staff. Generating consensus on the need for reform is often an assignment in itself, as most stakeholders are unable to compare the performance of the local ID with that of other management systems. Often, citizens outside the ID do not know public data on the funds 16 allocated to the O&M staff, data on service delivery and user satisfaction are rarely collected. The dissemination and public debate of such information is likely to help governments and champions of reform generate the support needed to start a debate on alternative public-private partnerships. What are the implications for the present paper? It obliges this review of the Project Appraisal Documents (PADs) to collect and analyze information on: * the types of institutional arrangements that borrower and lender agreed tc, strive for; * the attention given to crucial topics in these arrangements; * activities planned to generate and maintain stakeholder support; * indicators meant to keep the project on its institutional course. Since irrigation is an important component of rural development, attention is given as well to the direct and explicit rural development contents of the loans. METHOD AND OUTLINE OF THE CHAPTER This chapter reviews all loans that: * their Task Managers classified as belonging to the irrigation and drainage sub-sector, whether for all components or only some; * were active on October 1st, 2000; * are concerned with large irrigation or drainage networks. Per October ISt, 2000, the (AI) sub-sector contained 66 active loans.' Out of these loans, 47 were concerned with large irrigation or drainage networks, 8 with small schemes, 6 with water resource management: only, and 5 with miscellaneous topics ranging from flood emergency to the restoration of sodic soils. The review focuses on the 47 loarns concemed with large networks. The review does not consider the irrigation support activities fimded through projects for natural resource management, social protection, private sector development, rural development, watershed management, poverty alleviation and other headings. It is assumed that most of these focus on irrigation networks that are not managed by a state agency, usually because they are smaller than 1,000 ha. Management of these networks is therefore unlikely to present the same institutional challenges as management of the large networks. This review is based on information that is readily available. Its main source is the Staff Appraisal Reports (SARs), later christened Project Appraisal Documents (PADs). These documents are the main source of systematic substantive information about all projects, but they do not describe reality on the ground, rather, they are statements that convey the agreed 'The expression 'Al' refers to the Rural Development Portfolio that subdivides Agricultural loans ('A') into various sub-sectors, among which the irrigation and drainage sector, abbreviated as 'AF'. 17 intentions of borrower and lender. Where information on reality on the ground was available, for instance through reports, articles or missions, this information has been used. To gauge trends in time, the active portfolio of 47 loans was split into two halves. One group consists of projects that became effective before May 1997 and the other group consists of projects that became effective after that date. It is expected that comparisons between the halves would help discern changes in the way that institutional change is handled. Many tables will show this split between these 24 'early PADs' and 23 'late PADs'. The unit of analysis is the loan. This matches the Bank's core business, but has the drawback of giving sometimes undue weight to countries that have signed more than one loan, as is the case for instance for China and the Kyrgyz Republic. The next section of this chapter focuses on the pursued output of the loans in terms of the number of loans pursuing change and the kind of change they aim for. The Features of Process and Project Design section looks at stakeholder involvement in the preparation, implementation and supervision of loans, as well as at the design and use of monitoring indicators. The Rural Development Focus section addresses the topic of to which degree the irrigation and drainage loans explicitly and directly address issues of rural development. INSTITUTIONAL ARRANGEMENTS PURSUED In this section, attention is given to the following questions: * What management types were operational at the start of the effectiveness of the loan? * How many PADs promote institutional change? * What institutional arrangements do lender and borrower pursue? * What issues do they identify as requiring attention and action? * How many projects deal with the irrigation agencies that have defined or are defining new mandates and that are rightsizing their staff numbers or have done so already? What is the institutional starting point for the loans discussed in this chapter? Table 1.1 below indicates the type of organization in charge of the schemes for which the Bank provided a loan: ministry, public sector agency, or farmer governed organization. Table 1.1: Management Types at Start of Effectiveness Type of organization Number Percentage Ministry 26 55 Autonomous Public 15 32 Agency L Farmer governed entity 16 13 | TOTAL 47? 100 Source: Project Appraisal Documents for Irrigation Projects active on October 1st, 2000 (World Bank, Washington, D.C.). 18 The Table shows that the Bank caters to multi-user schemes managed by public sector organizations, be they line ministries or agencies that enjoy a degree of financial and administrative autonomy. Farmer-governed organizations manage about 10 percent of the schemes in which the Bank is involved.2 Comparison with a world-wide inventory of management types in all irrigation shows that in the regions where the Bank operates, only around half (46 percent) of the schemes is managed by ministries or public sector agencies, and over a third (36 percent) by farmer groups or individual farmers. (The remaining 18 percent could not be classified for lack of data). How many of the 47 P'ADs promote institutional change? An answer to that question requires a definition of the concept of 'institutional change'. In this chapter, that notion comprises two types of change: realignment of accountabilities within an existing organization, as well as realignment of responsibilities among stakeholders in a sector, or reallocation of responsibilities to stakeholders in other sectors. The latter type of change is commonly called 'reform' and the former 'restructuring'. Table 1.2 shows that four out of five loans in the present portfolio are concerned with these two types of institutional change. Table 1.2: Number of Project Appraisal Documents That Do and Do Not Promote Institutional Change PADs that Number Percentage Do not plan an institutional change 9 19 Plan, implement or follow up on 38 81 institutional change |TOTALS 47 100 Source: Project Appraisal Documents for Irrigation Projects active on October I", 2000 (World Bank, Washington, D.C.). What is meant in this table by the expression 'planning, implementing or following up on reform'? A project is said to be planning a reform when the government is debating and studying options or is conducting an experiment with the management of a primary system to find out how a particular institutional solution works out. A project is not said to be planning irrigation reform when the PAD contains numerous sentences proclaiming the need for farmer participation but identifies no concrete actions in irrigation management in the narrow sense of the word. This may apply even if the document proposes to shift the mandate of the ILrigation Department to the direction of a Water Resource Management Authority. A project is said to be implementing change when the government is doing any of the following: drafting or has submitted to Parliament reform related legislation, actually establishing WUAs and providing them training, or corporatizing forrner public utilities, experimenting with outsourcing of pumping stations, or is providing training in commercial 2 If anything, this figure is on ihe high side. It comprises Turkey, where some schemes are managed through townships, and Mauritania, where the loan is concerned with both large and small networks, and only the latter are farmer managed. 19 accounting practices and in customer relations as part of a restructuring program. A project is said to be 'following up on institutional change' when, for instance, it provides credit to WUAs to purchase equipment needed for their new maintenance tasks, or provides extension and field irrigation equipment to help farmers grow high value crops that may raise their incomes and help them pay their increased water fees. To sum up, the overwhelming majority of the PADs for active projects focus on bringing a measure of institutional change. The question is therefore: what institutional arrangements have borrower and lender agreed on in the PADs? This question is addressed in the next paragraph. Table 1.3 below shows that next to the familiar model of transfer to WUAs that in due course may federate, the model of a corporatized utility supplying bulk water to a tertiary level WUA has become popular. In addition, the PADs contain two other models. Table 1.3: Institutional Options Pursued in Project Appraisal Documents PADs that Number Percentage 1. Transfer management authority to 16 42 WUAs that in due course federate 2. Relocate management authority with a 15 39 combination of W1IUA and agency (or irrigation department) 3. Outsource management tasks to private 2 5 agents 4. Concern a scheme under co- 1 3 management 5. Explore change but do not define a new 4 11 model yet TOTAL 38 100 Source: Project Appraisal Documents for rrigation Projects active on October Ist, 2000 (World Bank, Washington, D.C.). Model #1 is perhaps best known. It usually has its legal basis in a new law that shifts the O&M from Irrigation Department staff to associations of water users. These WUAs are legal persons recognized by law; which are party to a transfer agreement signed with the Ministry; and are or will be empowered to use, maintain, repair, and modify the infrastructure; impose labor and cash fees on their members, enforce payment through courts; pass financial transactions and sign contracts to buy services, purchase, own, and sell property. They also hold a right to receive a defined discharge to be delivered at their turnout at certain moments. They manage bank accounts, collect fees; contract and supervise maintenance; operate water delivery and hire staff. The WUAs are expected to gradually develop the skills and social capital to increase the scope of their operation from the tertiary through the secondary to the primary. 20 This model is pursued primarily in South Asia (three Indian states, the Philippines, ]ndonesia) and Latin America (Brazil, Dominican Republic, Peru, Uruguay). A well-known and successful case is found in Albania. In most cases of model #2, the Irrigation Department or irrigation agency is transformed into or replaced by a water utility company. This utility is fully autonomous from the financial and administrative points of view. It operates and maintains the primary and secondary systems for its own account and may also be responsible for operating and maintaining the headworks. It may be governed by a Board of Directors composed primarily of officials, or primarily of users, or by a judicious mix. It derives its income mainly from the billed delivery of bulk water to WUAs, ideally on the basis of contracts stipulating discharges, timing, and conflict resolution mechanisms. Much like in model #1, the tertiary WUAs have a legal basis in a law. Ideally, the WUAs are legal persons recognized by law; which are party to a transfer agreement signed with the Ministry; and are or will be empowered to use, maintain, repair and modify the tertiary infrastructure; impose labor and cash fees on their members, enforce payment through courts; pass financial transactions and sign contracts to buy services, purchase, own, and sell property. They may also hold a right 1:o receive a defined discharge to be delivered at their turnout at certain moments. They manage bank accounts, collect fees; contract and supervise maintenance; operate water delivery and hire staff. Model #2 is in evolution and consists of at least two sub models: 2A and 2B. 2A is described above and consists of a combination of an autonomous water utility company that delivers water to WUAs wilh a legal status. In 2B, WUAs make payments to the irrigation department of the ministry (case of Egypt), or to an agency that is somewhat independent from the ministry but has no clear political and legal obligation to recover its expenses from service delivery to WUAs or other activities (case of Iran, Morocco). Model #2A is found primarily in PADs for projects in Vietnam, the former Soviet Union, Eastern Europe and in China, where it is known as Self-financing IrrigalLion and Drainage Districts (SIDD). Out of 10 loans to former Communist countries that are focused on institutional change in irrigation, nine opt for model #2A. Model #3 involves outsourcing of O&M tasks for components of a system. The present portfolio contains three cases, two of them in Egypt. One consists of experiments with multi-year contracts with private agents to operate and maintain pumnping stations in Egypt. The second case in Egypt consists of privatizing the production of drainage pipes. The third case is located in Guanzhong, China, where a practice is emerging in which the ID signs 5 to 10 year contracts with private agents to operate, maintain tertiary systems, and 10 to 20 year contracts to rehabilitate, operate, and maintain them. Model #3 does not refer to the common practice of awarding service contracts to building contractors to clean, repair, build, or rehabilitate canals. Model #4 is a rare case of user involvement without WUAs. It is found in Mali, where the government replaced the vast rural development and production mandate of the Office du Niger (ON) (literacy, public health, rural roads, guest houses, seed production, milling, 21 equipment manufacturing, and produce marketing) with a brief limited to the core business of management of the irrigation network. It sold ON's many subsidiary activities and established ON as a private company with shares held by the Government. ON exercises its mandate through three-year performance contracts that the Government negotiates with both the ON and elected farmer representatives. A distinguishing feature is the co-management committees on the secondary and apex levels in which elected farmers and ON staff have equal numbers of seats. These committees are empowered to set maintenance priorities; to supervise the operation and maintenance budget; and to award bids for maintenance. The committees also sign off for the reception of the work, increasingly on the basis of technical reports by verification agencies. On the other hand, fees are not collected by the co-management committees but by the ON, that also handles the court cases to enforce payment. In summary: the model of federated WUAs is at present the preferred choice of many borrowers in South Asia and Latin America, but borrowers in the formerly communist countries and elsewhere are searching for other institutional arrangements. Their search moves in the direction of financially autonomous utilities that sell bulk water to corporatized groups of water users. The Mali case shows that corporatization of the user groups is not always necessary. Changes where the public agent outsources the management of system components, such as pumping stations and tertiary canals directly to private agents are rare. Divestiture of non-core activities has occurred (ON), or is envisaged (drainage pipes, Egypt). A government wishing to move towards one of these models, needs to handle all or several of the following issues: * definition of water rights for the schemes and for the users; * regulation to protect users against abuses or poor performance by service providers, or by their WUAs, or by private agents; * introduction of accounting procedures that allow users to be informed about the use of their fees; * establishment of procedures to allocate rehabilitation grants once O&M has been transferred; * definition of policies to increase transparency and accountability fee use and general scheme management; * definition of policies to increase user representation in the sector. Preliminary indications of the substantive quality of the portfolio were obtained by recording if borrower and lender identify these issues in their PADs. Table 1.4 presents an overview of the frequency of references to these topics in the project appraisal documents. Each of these six items is a crucial component of institutional change. If O&M of a scheme run by an irrigation agency is taken over by a federation of WUAs or by a corporatized agency, the new management entity will lack the status of a government organ and be unable to secure its access to water on the basis of its administrative status. Rather, the new entity will need a legal right to water that is opposable to third parties. The importance of such rights will only increase, as competition for uncontaminated water in the catchments grows. However, in 22 the present portfolio, only 10 out of 45 PADs for which this is applicable mention the need to (lefine such rights, and the early PADs do not differ from the late ones. Table 1. 4: Identification in Project Appraisal Documents of Selected Institutional Change Topics Effectiveness Before 5/1/1997 Effectiveness After 5/1/1997 (N=23) (N=24) - Topic Identified Not Not Identified Not Not identified applicable identi- appl-icable .__ _ _ _ _ _ ._ _ _ _ _ _ _ . _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ f le d Water rights 5 17 2 5 16 2 (for users and schemes) Regulation 4 20 4 19 Financial 4 20 3 20 accounting practices _ Funding 3 21 2 21 conditions for rehab__ _ _ _ __ _ _ Transparency 7 17 8 14 1 in collecting and spending fees _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ User 15 9 14 8 1 representation in sector _ Source: Project Appraisal Documents for Irrigation Projects active on October lst, 2000 (World Bank, Washington, D.C.). User access to water will also need adaptation as reforms of the management and governance institutions progresses. On agency managed schemes, users are commonly defined as beneficiaries and therefo-re water is delivered to plots and farms on the basis of a technical allocation and delivery schedule that has no legal basis and is not binding on the agency. As the management of the main networks and the tertiaries is privatized, users on the schemes will need to hold rights to prevent (new) abuses of monopoly power. This is a difficult area, because service providers do not control all factors that govern the availability of water. The complexity of the issue does not, however, reduce its urgency and it may be concluded that the portfolio is likely to benefit from more legal support in this field. Regulation is a cru,cial component of decentralization and the introduction of private sector incentives, because irrigation management entities operate in natural monopolies and decentralization carries the risk of abuse of users. However, in the portfolio, regulation issues 23 receive as little attention as water rights, and the PADs that mention the issue, generally do not do much more that simply raising it. This review does not allow identifying the reasons why so few PADs mention regulation. It may be assumed, however, that a lack of familiarity with regulation issues in irrigation in developing countries, contributes to this state of affairs. Regarding this topic as well, the conclusion may be that sector work is likely to improve the quality of the portfolio. Financial accounting practices by irrigation departments generally seek to produce budgetary justification for the expenditures of funds and tend not to tie expenditures for maintenance to output in terms of lengths of canals or numbers of structures maintained or repaired. The records do not therefore allow to link output to water fees perceived, nor do they allow comparison of actual O&M funds to the funding required for sustainability. Additionally, management does not define the actual requirements in terms of person hours, staff, and equipment needed to maintain the system. Institutional change of irrigation management therefore implies a change in accounting practices, but only seven PADs mention this issue. More global notions of promoting transparency in collecting and spending water fees are mentioned in half the number of PADs, however. Institutional change usually goes hand in hand with rehabilitation and modernization investments. WUAs accepting O&M responsibility usually do so only after the agency consents to rehabilitate the system. Such rehabilitations are often due to a practice of deferred maintenance by the agency. WUAs may be tempted to follow the agency's example and defer maintenance, unless conditions are agreed between government and WUA that specify that in the future the govermment will make rehab funds available only if the WUA correctly maintains its network. Regular technical audits should verify the maintenance effort by the WUA. In the absence of credible mechanisms of this sort, decentralization and privatization may not improve water service in a sustained way. A total of only five PADs mention this component of management transfer. The table shows that the need to strengthen the role of WUA in the management of irrigation is widely recognized by the majority of the PADs. The whole of these findings may appear surprising in the light of the remarks made in the Global Context and Concerns section on the need for public-private partnerships. The background to these findings may be that the recognition of the need for regulation, water rights, 'analytic' new accounting systems and new conditions for rehabilitation and modernization is relatively new to the irrigation engineering community. Expertise in these fields is therefore rare and this may explain in part why these topics are not mentioned in the PADs as the above mentioned section of this review might have led the reader to expect. In summary: only a minority of PADs identifies crucial topics such as water rights, regulation, financial accounting and conditions for rehabilitation. Since early and late PADs do not differ in this regard, the overall impression is one of stagnation in the growth of attention to these crucial topics. This may point to a demand for substantive inputs from other parts of the Bank or from outside the Bank. It is recommended that sector work be done to develop and provide those inputs to task teams during identification, preparation, and supervision. Such 24 sector work might include inputs by experienced financial and general management consultants, now only too rare in the irrigation scene. Institutional reform of irrigation management often implies a change in mandate of the f ormer irrigation agency and the corresponding rightsizing of its staff. Tablel.5 below conveys ]1ow many PADs mention a change in mandate or deal with agencies that already renewed their nandates. A change in mandate is defined as the uptake of new responsibilities or the dropping 3f current ones. An example is an agency that shifts from implementing the O&M to overseeing, monitoring and regulating the implementation of O&M by WUAs or private agents. It also shows how many PADs are involved in rightsizing the agency or deal with agencies that were already rightsized. Table 1.5: Change in Mandate and Rightsizing of Agencies Involved in Active Loans Loans effective before Loans effective After 5/1/1997 (14=24 5/1/1997 23) Yes No NA Yes No NA New mandate 5 17 2 3 17 3 planned or already effective L___ _- Rightsizing of 7 17 9 14 agency planned or already implemented I_ _. .__ _ _ _ Source: Project Appraisal Documents for Irrigation Projects active on October 1', 2000 (World Bank, Washington, D.C.). According to the PAI)s, only eight loans involve a change of mandate for the inigation agencies, or deal with agencies that have adjusted their mandates. Examples are the privatization loan for Turkey, the national rural infrastructure loan for Mali, and the two loans to the Philippines for operational support and water resource management, and the Mexico On-farm loan. Examples of loans planning new mandates for the agencies are the Water Resources Consolidation Projects for India and the loans for Pakistan's National Drainage: Program. By contrast, 16 PADs mention rightsizing, or deal with agencies that will rightsize or have rightsized already. Still, 31 out of 47 appear to steer clear from these politically treacherous waters. Do irrigation agencies transform themselves into river basin management agencies? It is worthwhile to establish how often this happens, for that change is sometimes proposed in policy dialogues, in view of the engineering and management skills of agency staff. It appears that this option is indeed sometimes exercised. Some agencies seek to expand their responsibilities by combining old style irrigation management responsibilities with river basin management. Other 25 ones combine new style responsibilities with a river basin management mandate (Mexico CNA, Macedonia WME), and one may do so if the project is implemented (WAPDA in Pakistan NDP). In summary, changes in mandate are infrequent so far (eight PADs mention it), while rightsizing is mentioned in about one third of the documents. The shift to river basin management responsibilities occurs in two ways: one in which the new mandate is simply added to the old style irrigation management mandate, another in which the irrigation mandate is redefined and the river basin mandate is integrated with it. FEATURES OF PROCESS AND PROJECT DESIGN In this section, the review focuses on: * involvement of non-agency stakeholders in preparation, implementation and supervision; * selection of indicators; and * design of monitoring and evaluation. Previously, national ID staff and borrowing government were often the sole stakeholders with access to Bank staff. Stakeholders with other interests such as producers' organizations, agro-processing industries, NGOs focused on governance, empowerment of the poor and landless, environment, public health and gender issues, laborers' unions, Chambers of Agriculture and the like, were rarely in a position to discuss the institutional change components of loans with the Bank task teams. Rather than involving these stakeholders in a structured policy dialogue on the irrigation sector, the Bank restricted its dialogue to Government and ID staff. In this dialogue, it tended to favor a conditionality approach: agree to rehabilitation and purchase of hardware (computers, vehicles) if Government and ID agree to transfer management responsibilities to users, raise user contribution to O&M and create other incentives to improve water service delivery. Awareness has grown that this conditionality approach has not been overly effective, as is testified by the small number of loans dealing with agencies with changed or changing mandates and right-sized staff numbers. The pace of institutional change remains slow while the urgency of change only increases. It is gradually being recognized that institutional change in irrigation requires the involvement of all stakeholders, because only in this way constituencies for change can be built that provide politicians with the support needed to go ahead and, more importantly, follow through on reform as vested interests mount counter strategies. Some PADs contain elements of such an approach. One project in India for instance contains a public awareness and information plan targeted at staff, unions, farmers, other customer groups, other government departments; and politicians on objectives of each component, progress in implementation, expectations in irrigation service level improvements, participatory management arrangements, cost recovery, pricing of services, and agricultural intensification activities. In this section we look at the involvement of non-agency stakeholders in the stages of the project cycle (preparation and supervision) as well as their involvement in the actual 26 implementation of the loan. The table below summarizes the evolution that may be discerned in the active portfolio. Table 1.6: Participation of NVon-agency Stakeholders in Preparation, Implementation, and Supervision Loans effective Loans effective Change in share of yes before 5/1/1997 after 5/1/1997 l (N=24) _ (N=23) Yes No Yes No % before % after 5/1/97 _ _ _ _ _ _ _ __5/1/97 Preparation 3 21 9 14 12% 39%/0 Implementation 9 14 11 12 37% 48% (Not applicable =1) . Su ervision 1 23 5 18 14% ___22% _ __ J Source: Project Appraisal Documents for Irrigation Projects active on October 1 st, 2000 (World Bank, Washington, D.C.). The table shows that within the active portfolio, the involvement of non-agency stakeholders has been increasing. Non-agency stakeholders consulted are primarily farmers, and, in the former Soviet Union, the managers of formerly collective farms. Consultations take place through social assessments and meetings with farmers. They focus on the importance of irrigated agriculture to the local economy and especially on the ability and willingness of farmers to contribute towards rehabilitation and the cost of O&M of the rehabilitated canals. The table also shows that there is scope for further improvement, for the number of projects involving non-agency stakeholders can shoot up considerably. The under-representation of irrigation managed by farmer groups may in part be due to the fact that these groups are rarely involved in the preparation of loans. Also, the range of stakeholders can be enlarged. At present, most non-agency stakeholders are farmers, nmost of whom are consulted as individuals and not as representatives of national organizations. It is only rarely that other groups, such as in China, the National Women's Federation in China, are involved. Representatives of national producers organizations, agro-processing industries, local and provincial govermnents, NGO groups focused on governance, poverty and environment issues, farm laborers' unions, Chambers of Agriculture and Commerce rarely appear in the PADs but could be consulted in a systematic manner. Stakeholder involvement can be intensified as well. At least one PAD mentions an action plan detailing steps how to involve farmers in project design, implementation and follow-up operation and maintenance and how to feed farmer inputs back to project management and ensure timely adjustment. This plan may in due course and in other countries also include project monitoring. Multi-stakeholder committees may not only help prepare but also help supervise the institutional change components of loans. Public multi-stakeholder monitoring can 27 be expected to help keep change on the national political agenda. It may mobilize the non-ID interests and offer the Bank, local reform champions, and the government a helping hand to achieve the change targets, especially in countries where the ID fended off earlier outside efforts at institutional change. Projects need to monitor project output and development impacts and compare them to the project's objectives. Staff do so primarily by defining and monitoring indicators. Their selection and formulation are important because the indicators help steer the allocation of time and resources once the project is under way. The use of indicators increases over time. All PADs that became effective after May 1s, 1997 use impact indicators and differentiate them from performance or output indicators. Among the early PADs however, about half have no clear impact indicators, although they may contain output indicators. If PADs define no impact indicators but do present output indicators, then these output indicators are assimilated to impact indicators because they can be expected to help steer the allocation of resources.3 The indicators for the irrigation loans are split into physical indicators, farm income indicators and institutional change indicators. Table 1.7 below shows the number of PADs that define physical indicators to monitor the increase in water use efficiency and in agricultural production. The indicators for water use efficiency are quite varied. Some are defined at system level only, others at field or secondary level, yet others in terms of increases in the comnmand areas served, depending in part on the project's goals and activities. Table 1.7: Project Appraisal Documents Monitoring Water Efficiency and Agricultural Production Indicator Effective before 5/1/1997 Effective after 5/1/1997 (N=23) (N=24) Yes No NA Yes No NA Hydraulic efficiency 10 14 14 8 1 Agricultural production 10 14 15 7 1 Source: Project Appraisal Documents for Irrigation Projects active on October I", 2000 (World Bank, Washington, D.C.). 3 Distinctions can be made between input indicators (measure the quantity and sometimes also the quality of resources provided for project activities), process indicators (measure the effectiveness and timeliness with which a project's inputs are being procured, used or deployed to generate outputs), output indicators (measure the quantity and sometimes also the quality of goods and services that have been created or provided through the use of inputs), outcome indicators (measure the quantity and some also quality of direct results that have been achieved through the provision of project goods and services), and impact indicators (measure the degree to which wider sector project objectives are being achieved through the direct outcomes of project activities). (Source: PAD for Pakistan's National Drainage Program). Few projects make all of these distinctions however and that provides an additional reason to group the indicators. 28 The indicators for agricultural production group yield per hectare with increases in production due to the delivery of water to areas previously not served, or not served in the dry season, and with increases in production due to the delivery or improvement of drainage services. Twenty-four out of 46 PADs define hydraulic efficiency indicators, with nearly two thirds of the late PADs using such indicators compared to less than half of the early PADs. There is also a change in the number of PADs that set targets for the improvement of water efficiency. Of the early PADs, only six out of 13 set targets, and among the later PADs, 10 out of 11 do so. Evidently, where no targets are set, any increase in water efficiency may be considered an achievement, but where targets are set, increases that stay under the mark may incite to further efforts to reach the goal. The use of production indicators increased, from over 40 percent to nearly 70 percent, as did the use of targets for agricultural production, from zero percent in the early PADs to 30 percent in the late PADs. As regards farm incorae, a trend occurs that resembles the one in agricultural production. The resemblance is that use of the indicators increases: nearly one third of the early PADs defined an income indicator, and over one half the late PADs do so. The difference with the agricultural production indicators is that only two projects define a target. One is an irrigation project that defines its target in terms of the percentage of households under the poverty line; the other is a drainage project that defines the impact in terrns of aggregate income increases for the farms in the project area. Table 1.8: Project Appraisal Documents Monitoring Farm Income and Well Being Indicator ]_ffective before 5/1/1997 Effective after 5/1/1997 (N=23) i(N=24) ___ Yes No NA Yes No _ Farm income '7 17 14 8 N Well being 1 23 5 17 _ Source: Project Appraisal Documents for Irrigation Projects active on October 1", 2000 (World Bank, Washington, D.C.). With regard to well being, six out 47 PADs include indicators related to housing, clinics, hospitals, schools, water borne diseases, and water supply. Two of these are comprehensive colonization type projects, three have rural water supply components that are not necessarily linked to irrigation, and only one mentions the reduction of water borne diseases. A trend appears in the direction of inclusion of well being indicators. The small number of projects involved in water supply may be explained in part by the fact that irrigation and water supply are located in separate vice-presidencies, although they may be considered natural companions. It is perhaps due to this departmentalization that only three loans focus on rural water supply. It would be interesting to compare the Bank's Al sector in 29 this respect with 'social fund' projects that are involved in irrigation and with the irrigation projects of bilateral donors. Indicators for the institutional activities are more varied and generally less well defined than for the other dimensions. Many indicators refer to input in the improvement of the agency (staff training, study tours) and are not concerned with issues of institutional change or conditions for institutional viability such as collection rates. Those that are concerned with such issues use a variety of indicators, depending on the context. Some PADs record the numbers of WUAs established or set goals for the numbers of hectares transferred. Other ones focus on the evolution of the collection rate or define the output of the project in terms of legislative proposals. The table below shows the number of PADs that use at least one indicator of institutional change. Table 1.9: Indicators of Institutional Change or Institutional Viability in Project Appraisal Documents Indicator Effective before 5/1/1997 Effective after 5/1/1997 (N=23) (N=24) Yes No NA Yes No NA Various components of 8 11 5 16 5 2 institutional change or institutional viability I Source: Project Appraisal Documents for Irrigation Projects active on October lst, 2000 (World Bank, Washington, D.C.). In this respect as well, the portfolio shows a clear trend. Whereas only eight out 17 of the early PADs for which this was applicable defined an institutional indicator as described above, over two thirds of the late PADs did so. (The PADs classified under Not Applicable had no logframe summaries or change objectives). Issues of staff accountability to users and transparency to users of fee collection and expenditures are vital for the long-term sustainability and the quality of service. However, these issues do not receive explicit attention in the indicators. No mention is made of methods to increase accountability. Methods that may be considered are user surveys (mentioned in one PAD), the publication of management improvement plans and of reports on their implementation, the establishment of consultative committees for O&M that set maintenance and operation priorities, and the distribution of summaries of annual reports on the financial, agricultural, and hydraulic performance of the schemes. As regards the increase in transparency, no PAD mentions the possibility of making farmers party to the bid procedures for maintenance contracts, the use of farmer friendly units of measure in the maintenance and repair contracts or the use of commercial verification companies. This is perhaps a missed opportunity, as such mechanisms might help generate support for the institutional changes needed (Note that quite a few PADs mention the need to improve the transparency in the collection of fees but that this concern does not find expression in the indicators). 30 In summary: indicators of hydraulic efficiency and agricultural production are used in about half of all documents, as are indicators of farm income. Only six PADs have a focus on well being in terms of water supply, public health and the like. Twenty-four contain indicators of institutional change but no PADs monitor increases in accountability and transparency towards users. Indicators help steer a project but are also useful to gage the impact of a project as a whole. This requires the use of control groups in a with/without design. Only two PADs use control groups. The other projects therefore miss important opportunities to develop, without much cost, insight into the contribution of such common but costly components as rehabilitation and lining, and compare their impact to that of institutional reform and market liberalization. RURAL DEVELOPMENT F'OCUS The physical construction of large irrigation schemes is often justified as a means to combat rural poverty. It appears that this goal was lost from view when the time came to build new institutions for the management of these schemes. In the table below, an overview is given of the explicit verbal attention in the PADs to various aspects of rural development. Table 1.10: Aspects of Rural Development as Addressed in Project Appraisal Documents PADs effective before 5/1/1997 PADs effective after 5/l/1997 (N=23) (N=24) PADs that Yes No Yes No Present data on 9 15 13 10 land ownership Focus on poor 3 21 2 21 regions Propose special 3 20 3 20 assistance to poor Monitor income 0 24 3 20 development small farmers/share of farmers under poverty line Monitor/aim for 0 24 1 22 off-farm employment Monitor/aim to 1 23 5 18 improve well- being Are gender 4 20 7 16 specific I I .I_ _- Source: Project Appraisal Documents for Irrigation Projects active on October 1", 2000 (World Bank, Washington, D.C.). 31 A poverty focus requires stocktaking of the distribution of access to irrigated land: share of large and smallholdings, numbers of people without access to irrigated land, and the like. However, only 22 PADs present some data on this topic. Even fewer PADs propose special assistance to the poor. The form chosen is usually a subsidy on the purchase of equipment. The number of projects that monitor the impact of reform efforts on the income of small farmers is even smaller. Generating off-farn employment is an objective in only one project, although investments in irrigation are often justified in part by invoking the multiplier effect on farm labor, transport, processing, and marketing. Well being is a goal or monitoring topic in six PADs. Three are concerned with water supply; one mentions the incidence of water borne diseases; the two other ones construct health clinics and monitor the quality of housing. The reduction of gender discrimination has not yet been mainstreamed in the portfolio, with only 11 out of 47 PADs raising the issue or dealing with it. Some projects promote the election of women farmers to the boards of the WUAs; others make sure that equipment and extension are made available to women farmers. All in all, the effort is not commensurate with the share of woman farmers and woman laborers in irrigated agriculture. In summary: the portfolio addresses issues of rural development primarily through the promotion of irrigated agriculture and irrigation management. Livelihood, public health, and well-being issues appear beyond the horizon of most projects. There probably are good reasons for this state of affairs. Most Irrigation Departments are not the vehicles most suited to help poor or landless farmers gain access to water, through rights or treadle pumps. Water borne diseases have rarely been eradicated by irrigation agencies unequipped to effectively manage their schemes. NGOs and other government agencies may be better placed to do so and it may be wise for a project and an ID to focus on key tasks. It must also be noted, however, that on large irrigation schemes, NGOs and other agencies are often conspicuous by their absence. A debate seems in order how the Bank can best fulfill its mandate of alleviating the poverty of people living on and near the large schemes. CONCLUSION The question addressed by this chapter is: to what degree has the emphasis on institutional change in the three major policy documents of the 1990s (the 1993 Water Resources Management Policy Paper, the 1994 OED Review of the Irrigation Sector and the 1997 Rural Development Strategy 'From Vision to Action') shaped the portfolio and what recommendations can be made to promote institutional change in irrigation. Four of out five loans concerned with large irrigation and drainage networks plan, implement or follow up on institutional change. Four out of five also concem schemes managed by public agencies, whether ministries or public sector agencies. This compares to a share of about fifty percent of publicly managed irrigation in the regions where the Bank operates, and over a third that farmer groups or individual farmers manage (The remaining schemes carmot be classified for lack of data). The overwhelming majority of the PADs projects focus on bringing a measure of institutional change. The model of federated WUAs is at present the preferred choice of many 32 borrowers in South Asia and Latin America, but borrowers in Europe and Centbal Asia, China, and elsewhere are searching for other institutional arrangements. Their search moves in the direction of financially autonomous utilities that sell bulk water to corporatized groups of water users. The Mali case shows that corporatization of the user groups is not always necessary. Outsourcing the management of system components such as pumping stations and tertiary canals directly to private agents is rare. Divestiture of non-core activities has occurred (ON) or is envisaged (drainage pipes, Egypt). Only a small number of PADs identifies crucial topics such as water rights, regulation, financial accounting, and conditions for rehabilitation. Since early and late PADs do not differ in this regard, the overall impression is one of stagnation in the growth of attention to these crucial topics. This may point to a demand for substantive inputs from other parts of the Bank or from outside the Bank, due in part to the newness of these concepts to the national irrigation engineering communities. It is recommended that sector work be done to develop and provide those inputs to task teams during identification, preparation, and supervision. Changes in mandate are infrequent so far (eight PADs mention it), while rightsizing is mentioned in 16 documents. The shift to river basin management responsibilities occurs in two ways: the new mandate is sirnply added to the old style irrigation management mandate, or the irrigation mandate is redefined and the river basin mandate is integrated with it. The involvement of non-agency stakeholders in the project cycle has been increasing, with nearly one half of the 'PADs involving them in preparation and one fifth in supervision. Non-agency stakeholders consulted are primarily farmers. Indicators of hydraulic efficiency and agricultural production are used in about half of all documents, as are indicators of farm income. Six PADs have a focus on well being in tenns of water supply, public health, and the like. Over half contain indicators of institutional change, and the use of such indicators is on the rise, but no PADs monitor increases in accountability and transparency towards users. Two PADs mention the use of control groups in a with/without design. The other projects therefore miss opportunities to develop, without much cost, insight into the contribution of such common but costly components as rehabilitation and lining, and compare their impact to that of institutional reforn and market liberalization. Last but not least, issues of rural livelihoods, public health, and well being are rarely addressed directly. The review justifies the following recommendations: * step up sector work. on water rights, regulation, and financial management; * include indicators on accountability and transparency to users into the project designs; * enlarge the range of non-agency stakeholders involved in preparation and supervision; * define conditions for future rehabilitation after institutional change; * design monitoring so as to allow with-without comparisons; 33 * start sector work on linking institutional change to livelihood and public health programs for poor people living on and near the schemes; * conduct more experiments in institutional arrangements. 34 CHAPTER 2 Irrigation Management Entities in Bank-Financed Projects: An Overview Itaru Minami* INTRODUCTION This chapter intends to explore alternative organizational options to water users' associations (WUA) for canal irrigation management. The Bank strategy in this area is to promote the establishment of WUA, their empowerment, and federation. Other infrastructure sectors utilize different strategies, such as self-financing corporations (utilities) or a variety of public-private partnerships. One concern is the viability of introducing the private sector, which proved efficiency in other sectors such as water and sanitation, as an option for the irrigation sector. Another concern is the absence of successful cases in reforming the higher tiers of irrigation management, should layers of WUA federations be promoted, transform the irrigation department into utility type corporations, or push joint management by these two? This chapter reviews and analyzes the literature on public goods and privatization for studying the principles on, and identifying options for infrastructure services provision. The chapter compares reforms in the municipal water supply and irrigation sectors based on the above principles, and reviews and synthesizes some cases of irrigation reforms, inigation modernization, and strategies in Bank-financed projects. FROM THE LITERATUR1E ON PUBLIC GOODS AND PRIVATIZATION Two issues need to be discussed and analyzed under this section: public goods and options for service provision. Public Goods Concepts of collectivity (or non-rivalry), excludability, and controllability are often used for characterizing goods and services that require government interventions to maximize social benefits. Pure public (or collective) goods are defined as those with non-rivalry and non- excludability of consumption. Goods with non-rivalry and excludability are called toll goods, and those with rivalry and non-excludability are named as common pool resources. Goods/services with rivalry and excludability are individual goods, which can be traded efficiently in markets. Excludability is not an issue of acceptance or rejection, it is more of cost and difficulty. Information on traded goods/services is also a crucial element if more than whether free or total ban is at stake. Property rights or ability to control are other elements of ownership. To make markets work, the commodity must be fully controlled by the seller and tangible by buyers. Collectivity is relevant to goods or services associated with the non- Water Resource Specialist, Rural Development Department, The World Bank. 35 consumptive (or non-immediate depreciating) type of resource use or the supply systems of consumptive resources, the formner is an aesthetic use of natural resources, while most infrastructures are the latter. The public (or collective) goods require the political process for deciding how much to produce, how much individuals will have to pay as a duty, and how to allocate. The following are explanations of those concepts. Toll goods are the goods/services that are consumed by many people, and are fully controlled by the owner to sell. Among the toll goods are many services based on infrastructures: e.g., toll roads, municipal water supply, local power and telephone networks. The difference between public goods and toll goods is the cost and benefit of exclusion. When the traffic through a road is small and an additional car causes no negative effect on the traffic that is already there, the utility gain of the additional driver equals the net gain in social benefits. In such a situation, the road should be open to the public free of charge. At some point, however, his entrance would start causing congestion. Once the social benefits of a reduced congestion exceeds the sum of the costs for levying a toll and the lost benefits of new drivers, the toll should be levied. Many of such toll goods are natural monopolies, which can effectively prevent competitors from entering the market. Single owners can dominate the market if, unit costs for producing products/services continue to decline along with their operational scale. Monopolies have a tendency to produce less or charge higher prices rather than maximizing the social benefit. To balance the monopoly power, the government must regulate the market so that companies produce sufficient quantity and quality of goods/services for reasonable prices. Governments justify their interventions to own and operate such industries for the above reasons. Public corporations, however, can also fail to control their own monopoly powers. Public monopolies tend to charge excessive prices, get subsidies, and compromise the quality of services. Many cases show that government ownership has little control over its monopoly powers. Common pool resources (CPR) are the goods/services (mostly natural resources) that are consumed individually and that are either too hard or too expensive to exclude from non- paying consumers. Therefore, markets cannot handle CPR, and anarchical consumption would easily lead to their depletion. Fish in oceans and water in aquifers are among this category. The status of CPR of these resources depends on the physical setting that controls the access to resources. The same fish and water in a private tank are individual goods. They become CPR where efficient mechanisms are absent for allocating property rights or disclosing the information about individual consumption. In general, collective actions are employed to manage such goods or services. There are a huge number of local organizations that successfully manage their commons. The underlying force that makes such organizations manage CPR is their recognition of the net benefit of collective actions and the their capacity to punish violating members. Because CPR is characterized by their non-excludability, change of technologies and prices, as well as the government policies and institutions, could transforrn such CPR to individual goods. The free rider problems associated with CPR lead to the exhaustion of 36 resources, and therefore, "transforming the common-pool good into an individual good is likely to solve the problem."' E igure 2.1: Exclusion and Consumption Properties of Various Goods and Services Less expensive <.._ Excludability p Expensive Individual goods Common pool resources Individual Market purchases Fish in the sea Consumption Street parking telephone National defense Collective Toll goods Public goods Source: Adapted from Savas, 2000.2 Governments that seelk more competitive and market oriented economies would legally transfer traditional commons to individual properties. This would succeed where the government has a sufficient registration capacity and community members can agree on permanent resource allocation. The international community would take collective actions when the environmental problems take a global dimension. On the other hand, the increasing scarcity value of such resources and the technical innovations for transactions, transform some common pool resources, either from CPR to individual goods, or from the resource belongs to a local group to that of geographically dispersed stalceholders. With the help of information technologies, transforning the resources to private property becomes one of the effective strategies to avoid the "tragedy of commons." Private groups often buy up specific resources for conservation (free market environmentalism). CPR of one time could become excludable at any timne when prices or technologies change. Externality is another dimension for characterizing public goods. One description of CPR is rivalry and non-excludability, the other is negative externality. Goods/services with positive externality are called merit goods or worthy goods. Some goods/service have such large positive externality, which the primary consumers do not benefit from, so that markets tend to produce less than the socially desirable level unless the government intervenes. 'Id. at 53. 2 Emanuel S. Savas, Privatizaticin and Public-Private Partnerships, at 46 (New York, NY: Seven Bridges Press) (2000). 37 Figure 2.2: Externality and Public Goods PROMOTION Externality + SUBSIDY Public Merit goods goods > Net Benefit of Exclusion CPR Cigarette SOCIAL et al RESTRAINT Source: Author's on-going work. Vaccination against contagious diseases is a typical merit good, which would benefit not only the individual who have actually been vaccinated but also others by preventing their infection from that individual. Governrment subsidy becomes important when the positive externality of a good/service is large and the direct consumers are poor. A merit good can also be a collective good or toll good; e.g. a new toll road benefits the drivers on the alternative highway if it becomes less congested, thanks to the construction of the toll road. Tolls are often discounted (or subsidized) or even open to the public for free when exclusion is hard or not economical. Due to their negative externality, the consumption of CPR is socially or politically restrained. Individual goods with negative externality can be taxed. Options for Service Provision Most of public services have been justified by one of the above market failures. Two strategies are widely identified to avoid excessive public involvement and its consequent deficiency: decentralization and the introduction of market force. Although these strategies are broadly encouraged, policy makers must closely analyze the industry structure and the trade-off associated with the selected option. Arguments for decentralization or the subsidiarity principle are straightforward, to give such tasks, lower tiers of the organization can effectively handle needed resources and authority to a lower tier as an integrated and consistent package. This also suggests freeing service provision of bureaucratic boundaries. Each unit clarify its terms of reference and operational boundaries. Devolution requires the manager at the higher tier to stop intervening in the daily operations of the units in the lower tiers. Instead, a set of benchmarks is compared. Hence, competition (by comparison) among operation units can be introduced. Market force and competition can be employed where it is feasible. For example, competition can be introduced to natural monopolies by auctioning the exclusive right for operation (competition for the market). Consumption, production, and arrangement (writing specification and judging the price and quality) are three basic functions in market transactions. In ordinary markets, consumers are also arrangers. On the other hand, roles of governments are both of an arranger and producer, where the government is a single producer. By separating the latter role and securing fair competition, the government can concentrate on arranging task, 38 which is to specify the terms of reference of the goods or services to be procured, and set transparent and fair rules for the procurement. To realize the specified quality and fair competition, the government also has to build regulatory, monitoring, and enforcement capacities. Because governments often maintain asset ownership, and because governments u-range the service provision, a series of such strategies are called Public Private Partnership (PPP). The potential benefit of PPP include the introduction of expertise from the private sector, efficiency through competition, transparency and accountability fi-om functional demarcation, and investment from private financial markets. In general, short intervals of auctions would maintain a competitive circumstance, while longer intervals allow contractors to leam and improve their operations. Therefore, simple tasks that require low skills can be auctioned for short terms. Short tenm auctions may also be effective if skilled competitors are abundant in the market. Major gain from such PPP would be expertise in the private sector and efficiency through competition. Complicated tasks require a longer time for learning, and a longer term of responsibility allows contractors to invest based on their long-term business plans. As more responsibility is delegated for a longer term, potential efficiency gain from the private sector participation, increases. To delegate more tasks to the private sector, however, the govermment has to achieve a stronger capacity for designing terms of contract and for regulating prices, service quality, and proper use of durables. Contracting does not mean the entire retreat of the government. "In a contract arrangement, goveniment ideally is (1) an articulator of democratically expressed demands for public good and services, (2) a skillful purchasing agent, sophisticated inspector (3) efficient collector of fair taxes, and (4) parsimonious disburser. Contracting is feasible and works well when the scope of work is unambiguous, several potential producers are available, government can monitor the contractor's performance, and contract document is appropriate and enforced."3 It is mostly in (leveloping countries that general and basic institutions for market economy are absent, or need modernization. The costs and political feasibility of restructuring government staff would be other issues to consider. "Privatization increases the need for well- educated public managers and reduces the need for low-skilled public employees."4 Although actual possibilities are not limited, there are several typologies that fit well with short, middle, and long term partnerships in infrastructure based seruices. The service contract is suitable for a short-term partnership for relatively simple tasks. Any distinctive task can be auctioned to the lowest price bidder. The government (or any person/organization) can contract out a well-defined specific task for a fixed price without delegating the task of asset management or the whole service operations. As described before, potential gains from service contracts are limited to cost disclosure, efficiency from competition, and an access to expertise in the private sector. Risk is also mitigated in such a partnership. For medium-term and more comprehensive delegation for higher efficiency, one option is the so-called management contract, which allows the contractor to manage whole service delivery for an agreed price. The government (or whoever provides the service owning resources and infrastructure) is still responsible for setting the service charge (and, of course, monitoring and regulating the service 3Id. at 70. 41d. at 310. 39 quality). The lease delegates the exclusive right to make money from the access to the resource and infrastructure and therefore, requires the contractor to take a commercial risk. The lease is an option only for marketable goods or services, which are controllable by the seller and tangible by buyers. The government is still responsible for long term investment in its own infrastructures, and now also responsible for price (i.e. service charge) regulation. The concession is usually a longer-term partnership that requires adequate level of investment for maintaining long term serviceability.5 There is a substantial variety in the way of bundling services to franchise. The common aspect is the government's out-sourcing of producer role and focusing on service arrangement role. By allowing different parts of a system to be run by different companies, more and better information on costs and performance are likely to be generated so that the service arranger can compare company performance more easily.6 This would facilitate the government to detect poorly performing, high-cost companies, and to set prices correctly. Moreover, by allowing companies to run only small part of an overall system, non-performing companies can be changed easier than when they control a whole system (competition by comparison). On the other hand there may be real benefits from integrating different parts of a system. Integration may save managerial and administrative overhead costs, and render easier labor redeployment. System operations itself may also be slightly easier, and less measurement and contracts at interfaces between the parts of the system will be necessary (economy of scale). Payment can also flow either directly between consumers and producers, between the service arranger and producer, or both, depending on contracts content and profitability of the service production. Contractors would pay for profitable concessions, while the government has to pay contractors for the service production for which contractor cannot directly charge consumers. Here are few variety examples: A service contract may be awarded to a private sector contractor at the lowest bid in the case of out-sourcing simple tasks. A concession contract may be awarded to a company with the highest concession fee offer in the case of a profitable business concession. Concession fees can also be negative if the business is not profitable. Although chances of a higher gain in efficiency rest in more discretion of a private company, less profitable businesses require negative concession fees or subsidy, which could dilute the contractor's incentive toward efficient operations. Between stronger public intervention and privatization is the pendulum of institution design moving in a log term. Divestiture of public assets to the private sector is among the options where an ineffective public service is reformed. Some people argue that ownership by the private sector makes organizations more efficient. It is clear, however, that the major drive for efficiency in privatization is the introduction of competition. The introduction of private ownership, competition by comparison in the case they are local monopolies, and the separation of service producers from the regulator can be the logical sources of the efficiency gain from divestiture. However, pouring public funds to private industries would not be justified for a long 5TOOLKITS FORPRIVATE PARTICIPATION IN WATERAND SANITATION, World Bank Stock No. C14003 (1997). 6 Vanita Gagwal, IRRIGATION PRIVATIZATION, Background paper prepared for Irrigation Institution Day (December 2000). 40 term. Divestiture of a monopoly to a private company is, therefore, a rare option, though many cases are tried in the United Kingdom. Divestiture is mostly for either the publicly run businesses that have faced competition from the private sector or toward user organizations. Trable 2.1: Typologies of InJrastructure Based Service Provision Options for service PPP/Any PPP PPP User Organs/ provision Quasi Public Suitable goods/services Any Marketable Marketable CPR ____________erv__ goods/serices goods/services Service Arranger/Owner .Any Public Public User Organ Service Producer Private Private Private User Organ! Private Infrastructure use Service Lease Concession (Divestiture) Contract Duration of relationship Short Middle Long Permanent Rolls of the government ToR, +price/quality +investment Legal, bidding, regulation regulation technical, BMK, -service -asset networking overall management management support asset/service management Underlining governing Profit/ Profit/ Profit/ Self help force Competition Competition Competition Functional bundling O&M + Commercial + Investment -Integration Risk Operational bundling Per Task + Per Asset + Per System + Per OM Unit + Payment Ar. to SCont. C to Lholder, C to Cholder, Member Fee Lholder to Ar. Cholder to Ar. Potential Gain Cost + Learning + Access to Local disclosure, curve in a private finance knowledge, efficiency by longer term for investment contribution competition by ownership _ & expertise _ Risk Small Medium, Asset Exploitation of Overload and ____________ deterioration consumers imnasse Source: Author's on-going work. User associations anid informal local organizations have witnessed their effectiveness in managing CPR. "If a service can not be clearly specified, only with close supervision, extensive monitoring, frequent feedback from consumer to the producer, which can best be achieved where no third party stands between."7 Although such organizations are self-govening in general and 7 Supra note 1, at 93. 41 include both service arranger and consumers, their organizational structure and rules of resource allocation depend on the characteristics of the particular group and resources to be managed. The smaller the organization size becomes, the more likely it becomes the service producer which employs its members' labor skills; however, integration of all three functions is not the requisite for user organizations. Competition and market force may be employed through service contracts. Organizations for managing a CPR, whose governing areas do not agree with the local jurisdictions, would need special treatments in national legislation. This is why user associations tend to exist as a single objective public entity outside the ordinary local jurisdictions. Although there are grounds for user organizations existence, many issues require serious attention especially when their size becomes large. The core feature of user organizations makes smaller organizations tend to be more effective. "[I]f voluntary action fails to provide an adequate supply of collective goods, where the social unit is large and diverse, contributions must be obtained by legally sanctioned coercion....The basic principle is that the smallest collective unit that embraces most of the beneficiaries should provide the collective goods."8 At least, economy of scale can be easily canceled out. "Group size presents a tradeoff between potential economies of scale and increases in transaction costs....First, increases in group size reduce observability and punishment capacity. Larger group increase anonymity."9 However, the size of such group must become larger if a CPR is accessible to a larger group. A larger organization needs more formal institutions and centripetal force to be effective. It is often the case that larger organizations tend to face more complicate tasks. They would need more sophisticated capacity either in house or with outside advisory services. Hence, user organizations become similar to the governments that play both arranger and producer roles, or the one which concentrates on arranging. Being a single objective entity, however, neither cross subsidy from other sectors nor logistic support from the general hierarchy of public networks is available. As a consequence, stagnation in personnel management is also a typical longer-term problem in such organizations. Unless the organization is making a decent profit or members are wealthy enough from other economic activities, support from the government becomes an important element for their operations. Inter-government agreement is another option. "Government service is likely to be inefficient because the production unit must be the same size as the consumer unit, without regard to the optimal size."10 An option to acquire such facility, whose unit capacity exceeds the size of the consumer, is to share it by the federation or stratified organizations. Other potential benefit of federation includes stronger bargaining power against the government authority or other sectoral groups and other miscellaneous benefits from networking. Its negative point would be the extra bureaucratic costs if federated associations become the service producer. As described in a previous paragraph, net gain from the economy of scale in user associations is not clear. Another option is trading such a capacity between neighboring organizations. Specific services can be provided either by the neighboring association that have an extra capacity or by government agencies or local governments for a negotiated price. 8'd. at 53. 9Ashok Subramanian, ET AL., User Organizations for Sustainable Water Services, World Bank Technical Paper No. 354, at 24 (1997). ' Supra Note 1, at 94. 42 URBAN WATER SECTOR The municipal water sector is generally characterized as a toll good. It is a natural monopoly because the large part of its initial costs is associated with piped networks. Once networks are installed, additional users inside the service area can largely share thle network with small costs while its duplicate would be unacceptably expensive for competitors. While the networks are used collectively, water itself is consumed individually and the network owner can effectively exclude non-paying users and charge fee based on their consumption. Technically, this can be done through individual connection, meters, and locked valves. From the supply side, seller can provide water on (lemand through pressured pipe networks. The networks, unlike hierarchies, can respond flexibly to demands under the designed upper limit of flow rate. Another important feature of the municipal water sector is its operational cost structure. While networks require little additional costs once they are buried, operation costs directly link with the volume of water the operator sold. Power is needed in treatment plants and pumping stations (from aquifers in case it depends on aquifers) to deliver water to customers, which links to the amount of water. This cost structure provides the operator relatively clear financial management guideline. There are also negative characteristics in this sector's efficient operations. Once networks are buried, they are hard to see, and it is often the case that asset management is forgotten for long. It is indeed not too difficult to steal water by illegal connection. Although it is straight forward for municipal governnents to run water service as its core services, that convenience could easily hamper the managerial independence of the water sector. Among other typical problems are general perception of water as a social good to be provided free of charge, and whether or not and how to service expanding squatters. Under the increased recognition of the scarcity value of water, ,uch cost-benefit circumstances that have traditionally allowed free access to municipal water, are quickly changing. Another important factor that facilitates such transformation is the availabrility of pricing instruments that associate with individual metering. Block tariffs, for example, allow service providers to charge affordable prices to the poor while balancing the account. Availability of such instrument is an essential condition for the service provider to market water. Regular competition (in the market) is possible at the bulk supply only if multiple sources of water are available, or in the area of network boundaries. "For example, in areas where the territories of two water companies meet, it may be sensible to allow consumers to contract with either one of the water companies. In other cases it may be efficient, particularly for large customers, to build their own water supply system.... Such types of limited competition or bypass of existing systems are possible when governments award service areas to water companies without the exclusive rights to service customers in the particular area."'1 Because potable water services are asually run inside the boundaries of municipalities, the regulator can compare their performancc: (competition by comparison). Replication of service know-how is also relatively easy for operators. X'Michael Klein, in Vanita Ciagwal, IRRIGATION PRIVATIZATION, background paper prepared for Irrigation Institution Day, chapter 2, at 22 (December 2000). 43 Service Provision To complement the technologies, market and competition introduced into the service provision play the major role in improving efficiency in water services. Traditionally, potable water has been handled by municipal governments or by public utilities. In such model, the service arranger is a municipal government, the service producer is also the municipality or a public corporation (utility), and payment is made by consumers as part of the tax or volumetric tariff at rates set by the government. Although public corporations usually maintain a separate account, assume fee based operations, and claim autonomy in management decisions, the lack of competition and political influence to its management tend to lead utility companies to an unaccountable entity with endless dependence on the government subsidies. To reform such regime, more municipalities are introducing auctions towards franchising part or all of utility operations, i.e., public private partnership (PPP). The main issue in designing PPP is how to allocate responsibility for such functions as asset ownership and capital investment between the public and private sectors. The functional allocation in PPP in municipal water services depends on a variety of factors. Extremely important is the quality of water in water and sewerage services to protect public health and the environment. The government capacity as the service arranger and both economic and environmental regulator is an important determinant of the franchising strategy. Lack of regulatory framework and required skills of the government staff can easily lead to serious problems. Political resistance for raising tariffs requires public relations activities as an essential part of such reforms. No resale value of assets is the barrier to attract private competitors. For the government that would like to start short term partnerships with deteriorated infrastructures, funding from donors and their intention are also an important factor. Reflecting the pervasive problems described above, many governments opt for phased PPP reforms, in which they start with a simple arrangement and later to those that delegate a higher degree of responsibility to the private sector, along with their own capacity building. An example of a short-term delegation is the service contract of reading meters, repair and maintenance services. Longer term responsibilities in lease contracts would include the entire management of systems, and concessions would require needed investment, too. "One striking feature of the water and sewerage sector is the dominance of concessions compared with other forms of private participation. Concessions are attractive to governments because they place full operational and investment responsibilities (and associated commercial and investment risk) with the private sector, thus maximizing potential benefits from efficiency improvements and gaining access to private sector financing." 2 Most concession projects take the form of BOT (Build- Operation-Transfer) contracts, with ownership reverting to the government after the initial contract period. Divestiture of public water and sewerage assets is comparatively rare, so is the co-operative model. (Saguapac/Bolivia's water cooperative shows one of the best performance in Latin America.) Various PPP arrangements can be found in terms of service bundling for running water supply and sewerage services. "A single company may be responsible for investment, finance 12 Silva Gisle, in Vanita Gagwal, IRRIGATION PRIVATIZATION, Background paper prepared for Irrigation Institution Day, chapter 2, 26 (December 2000). 44 and operations of a whole vater and sewerage system as in many cities of the world. Alternatively, different part of the system may be the responsibility of different companies. For example, water and wastewater treatment plants as well as pipelines and storage facilities may all be run by separate companies. Such is the case in China in several cities, such as Tanzhou, Guangzhou, and Nanchang, where the water treatment plants are built and operated by joint ventures between the municipality and private water companies.""3 Different operators could also be allowed to bid for the right to perform some specific functions contracted out by water and sewerage companies (e.g. reading meters, collecting bills, maintaining or repairing the network etc.). In some cases, water and sewerage companies could themselves have to compete against such operators to undertake specific activities. Some countries tend to choose integrated systems, for example En land and Wales, whereas others have a tradition of more unbundled systems, such as France.' CANAL IRRIGATION Under this section two issues need to be discussed and analyzed. Those issues relate to public goods and industry structure; and service provision. Public Goods and Industry Structure Irrigation water via canal systems is often described as a common pool resource (CPR).'5 Water is consumed individually (at least in canals in arid and semi-arid regions) without being measured or charged for. From the user's point of view, a canal system provides no built-in incentive to save water for downstream farmers. This causes notorious tail-ender problems. Such water allocation along a canal inherently causes loss in social benefit if fanners individually optimize water application.'6 From the operator's side, sellers must measure consumption at a large number of intakes, exclude non-paying consumers, and convey water in the demanded mode to market water to individuals. However, the control structures of water consumption at the individual level have been dismissed from the design scope in most large- scale canal designs in developing countries. Even in the case there are some, the remoteness of such structures in a large rural area tends to make them vulnerable to vandalism.'7 Being given such a structure, it would be a very costly service for producers. Moreover, there is no financial benefit for the operator to save water in a canal system that diverts river water without pumping. It would just cause more costs to save water for canal operators due to labor intensive control systems at the absence of their capacity to sell water volumetrically. 13 Supra note 11, at 22. 4 Supra note 6, at 24. 15 Supra note 8. 16 DANIEL W. BROMLEY, PROPERTY REGIMES AND PRICING REGIMES IN WATER RESOURCES MANAGEMENT, in DINAR, ARIEL. ED., THE POLITICAL ECONOMY OF WATER PRICING REFORMS (New York, NY: Oxford University Press) (2000). "7PETER P. MOLLINGA & ALEX BOLDING, SIGNPOSTS OF STRUGGLE: PIPE OUTLETS AS THE MATERIAL INTERFACE BETWEEN WATER USERS AND THE, STATE IN A LARGE-SCALE IRRIGATION SYSTEM IN SOUTH INDIA, in DIEMER, GEERT & HUIBERS, FRANS P. ED. CROPS, PEOPLE AND IRRIGATION. WATER ALLOCATION PRACTICES OF FARMERS AND ENGINEERS (London, UK: Intermediate Technology Publications Ltd) (1996). See also Herve Plusquellec ET AL., Modern Water Control in Irrigation. Concepts, Issues, and Applications, World Bank Technical-Paper No. 246 (Irrigation and Drainage Series) 4(1994). 45 Canal designers and operators have stronger inclination to control water in higher tiers of canal systems. Major constraints are physical feature of canals though sometimes the controllability depends also on social and institutional contexts: e.g. the level of banditry. Many folds are technical and economic impediments to control water as a marketable product in the open channel systems. Unlike hydraulically closed piped networks, downstream demands do not pull water from upstream reaches. Water delivery must be planned beforehand and calculated based on trials and errors until meeting the set of delivery goals. Such simulations have to assume many unrealistic conditions for the sake of calculation, and the hydraulic problems of canals and control structures as well as human errors in gate operations all prevent the simulation results from reproducing in reality. Canal design can never be ideal unless significant vertical gaps and jet flow can be employed. To convey orders from fields to the system manager who synthesizes the entire orders, significant investment must be made in communication systems. Due to such technical problems, canal systems tend to be incapable for providing responsive services. While farmers can consume water in canals causing negative externality to others, collective canal systems have been subsidized in both developed and developing countries. Irrigation proponents have assumed many positive externalities including national food security, rural development, and poverty reduction with canal irrigation. As a result, irrigation fees in public schemes tend to target only the costs of operation and maintenance leaving the capital investment to be covered by the government. Governments produce the service at a much lower price than the service costs responding to the claim that it has a large positive externality. It is rather striking that water in canals is indeed a CPR that can not be priced or sold at all. If any of such irrigation investments can prove financial viability, and indeed most should have done so, then this could lead to some contradictions. Part of the gap can be explained if such investment plans had dismissed the CPR characteristics of the water in canals. The rest of the price gap must also be clarified as whether recoverable or not. Whether irrigators are subsidized or taxed is not known and depends on the specific case. "[I]n an environment in which irrigation water is priced below its shadow price so that it must be administratively allocated, raising water prices or creating a market for water while leaving trade distortions in place may further implicitly tax the crops that trade policy already discriminates against."'8 Collective paddy irrigation in a relatively water abundant regions has different collectivity and excludability from those in arid and semi-arid regions. The individuality of water consumption is not clear in such paddy irrigation. A substantial part of irrigation water infiltrates and recharges the groundwater, then reduces the infiltration in adjacent fields and increases the flow rate in downstream canals. Unlike the case of drier regions, their externality of individual water use is neither definitely negative nor positive. A large portion of water is used as non- consumptive and collective mode in paddy irrigation. The intake of a paddy field would be the drain of its upper next field at traditional systems. In such a circumstance, it is technically difficult to identify the precise volume of individual consumption (i.e., evapotranspiration), while such a volume may be practically modeled well by a linear function of irrigated areas. 18 Xinshen Diao, & Terry Roe,, The Win-Win Effect of Joint water Market and Trade Reform on Interest Groups in Irrigated Agriculture in Morocco. In Dinar, Ariel. Ed., The Political Economy of Water Pricing Reforms, at 142 (New York, NY: Oxford University Press). 46 Therefore, excluding or marketing irrigation water at the individual level is often not crucial as long as paddy irrigation is planned and executed at scheme wide. Other types of irrigation schemes would also have very different cost/benefit structures which result in different public goods characteristics and shape of effective service provider. For example, pumping scheme operators would have a clear cost indicator that directly links to water delivered. If the pumping scheme depends on aquifers, however, even such prices may not reflect the real costs for society that include "extraction cost externality of current extractions by farmer, make future extractions more expensive to all farmers."19 Groundwater in aquifers are certainly a CPR, but commercial suppliers could effectively make profit while eroding social benefit. Infrastructure use in hierarchic canal systems also shows special typ)es of collective resources. A major issue with the public goods characteristics of canals is the incentive for maintenance.20 While most gravity systems pay little costs for diverting water to canal systems, dredging canals is a major expense for a canal operator. Canal systems are natural monopolies as in the case of piped networks. A single canal scheme serves its command area though sometimes competition arises by conjunctive use. All these things are simrtilar to those of municipal water sector. However, users at tertiary canals become less anonymous, and canal use becomes more individual toward downstream. More importantly, maintenance of a canal segment is the concern of the downstream farmers, that's why collective interest for proper canal maintenance may not hold within a single tertiary canal, the presumptive operations and maintenance unit. On the other hand, canals are more tangible than buried pipes. Under a successful user organization, for example, the tertiary canal in its service area can be easily recognizable as its member's productive asset. Therefore, clear contractual responsibility could also lead to successful decentralized maintenance. These conflicting structural features lead to subtlety in system maintenance. Service Provision "There are six basic non-governmental organizational models which are used for managing irrigation systems around the world. Integrated water users' association, public utility, local government, irrigation district, mutual company, and private company.",21 Among these options, "(a) mutual company is normally a limited liability corporation established through stock shares in the irrigation system which are owned by water using landowners. This model tends to work best in commercialized economies where management depends more on investment than government subsidies."22 Irrigation districts can also be governed based on the share of land holding or by general assembly in which every member has a single vote. "Some districts rely on a popular vote; others use weighted votes that are proportional to assessed land values....The latter scheme is especially common .... where corporate owned farms are more 19 Yacov Tsur,, Water Regulation via Pricing: The Role of Implementation Costs and Asymmetric Infonnation, in Dinar, Ariel. Ed., The Political Economy of Water Pricing Reforms, at 113 (New York, N%Y: Oxford University Press). 20 Supra note 16. 21 Douglas L. Vernillion, & Juan A. Sagardoy, Transfer of Irrigation Management Services. Guidelines. Food and Agriculture Organization of the United Nations (FAO), Irrigation and Drainage Paper No. 58, at 39 (1999). 22Id. at42. 47 common."23 In those cases, water delivery is controlled to the extent that commercial farmers pay volumetric prices. The collective canal systems with non-excludable tertiary canals are reasons which made government agencies, irrigation districts, or user associations provide irrigation services. The first option works as both service arranger and service producer to act for the absent market. On the other hand, the latter two are service arrangers as well as consumers. In most cases, they are also service producers. User associations are self-governing entities based on political processes, and mobilize membership fees or labor contribution to fulfill their collective needs. Large scale irrigation services tend to be handled by an agency of a central government because irrigation schemes are often designed beyond the boundaries of local jurisdictions. WUA and irrigation districts are the smallest and simplest organizations that manage irrigation efficiently. Payment is collected often as part of tax via central government systems, or as a crop/area based irrigation duty by a user organization. The prevailing models in recent canal irrigation services reforms are various types of joint management by the government agency and water user associations. The argued rationale for these types of reform includes the "tragedy of the commons" in water allocation along a canal; users better knowledge of tertiary canal operations; limited capacity of the government; and the vicious cycle (poor service, less satisfaction of users, and unpaid fee) of entire scheme management by the irrigation agencies. Reform trends are federating and bringing WUA towards higher operational tiers. Another trend is the decentralization inside the government. Functional demarcation is tried in some cases at the mode of joint management. For example, there are cases where a new institution empowers user associations to govern their canal management while it mandates irrigation department staff to give technical advice to user associations. Such model seeks functional demarcation under the reality of irrigation services monopoly. Impediments for irrigation reforms often include the deterioration of infrastructure, under priced fees, huge training needs of farmers, and lack of legal foundation of water user associations (WUA) as quasi government which is a single objective jurisdiction or non-profit corporation for common property management. While the first two issues are also common in the urban water sector, the latter two are not. As shown in many cases, a potentially significant challenge is to empower WUA, especially as a service arranger in higher canal tiers and a financial manager. Water user associations may require substantial support from the irrigation agency. Lack of legal authority and regulatory and enforcing capacity can also erode their effectiveness. All these problems tend to be intensified mainly due to the rapid reform process. OVERVIEW OF THE DIFFERENCES Technical differences in institutional arrangements between the urban water and irrigation sectors can be attributed to their service nature. Piped water is often regarded as a toll good, but canal irrigation services are common pool resources that have difficulties in 23 RICHARD J. MCCANN, & DAVID ZILBERMAN, GOVERNANCE RULES AND MANAGEMENT DECISIONS IN CALIFORNIA'S AGRICULTURAL WATER DISTRICTS, IN DINAR, ARIEL. ED., THE POLITICAL ECONOMY OF WATER PRICING REFORMS, at 80 (New York, NY: Oxford University Press). 48 responding to individual demand. or charge volumetric fees. Excludability and controllability are rot only relevant to a huge number of individual intakes, but also to the physical nature of canal systems. While closed pipe networks are hydraulically demand-driven, open channels are not. Open systems require separate information systems, the demand synthesis and flow simulations process, and artificial gate operations based on the results of simulations for responding to demands. Closed systems could result in varying degrees of responsiveness due to the poor design and altitude (pressure) distribution, but the problems can be corrected through mechanical improvement of network systems, e.g., installation of booster pumps and pressure reduction valves. Hydraulic problems of canal design must be corrected, but it may not resolve the problems with controllability of whole systems. Effective coordination mechanisms are indispensable as long as open channels are used. The comparison of cost structure shows that municipal water has a rather clear incentive for volumetric pricing or marketing water, while gravity canal irrigation has negative incentives for that. Many municipal water systems depend for their water source on aquifers using pumps. The potable water needs treatment and pressure to be delivered. All those operations require power, and the power costs directly linked to the amount of water actually produced. On the other hand, canal systems have no such cost signal with their operations unless they pump up water from its source. They even have negative incentives to save water or control water to add value for consumers, because there is no mechanism to link added value to the revenue. Regarding the costs associated with infrastructure maintenance, buried pipe networks do not require much to do. On the other hand, canal hierarchies require regular desiltation and cleaning all along the canals, which is the major part of the operation and maintenance (O&M) costs. Because a tertiary canal runs in the very front of farmers' fields and because it is clear who benefit from it, the subsidiarity principle suggests users' role in doing the job. Institutional arrangements resulting from the different characteristics cif two sectors can be sumrmarized as follows: * Functional demarcation in urban water vs. operational demarcation in irrigation; * Cases in unbundling services in both sectors and clear trends from their physical structure; * Needs for establishing regulatory frameworks for urban water P'PP vs. needs for granting legal authority to user organizations in irrigation manageiment transfer; and * Capacity building needs for the government vs. those for user org;mizations. Because individual exclusion is feasible in urban water systems, market mechanisms are introduced for better efficiency. Services with clear specification are separated from the core function of the government (service arrangement, regulation, and enforcement), and the government capacity for those core roles is upgraded. Unbundling services for clear unit costs and comparison are practiced in case by case. In canal systems, social and political forces are mobilized in canal irrigation to control individual behaviors so that the collective benefit is maximized, notwithstanding the fact that mechanical exclusion of individual usage is economically unfeasible. User organizations are legally authorized and empowered as quasi governments, not only due to non-excludability of canal water, but sometimes for canal 49 maintenance. By requiring user organizations to take charge of their tertiary canals, service is unbundled under the secondary tier. Table 2.2: Comparison of the Industry Structure between Municipal Water Services and Irrigation Aquifer based Paddy irrigation with Gravity canals in arid municipal water purnping irrigation Mode of Water Use Excludable Non-excludable, Little-excludable, neutral extemality Nega. externality Mode of Collective Collective More individual Infrastructure use Physical Individual meters & Water use in near Technical as well as Controllability & demand driven farms affects each costs problems prevail Observability distribution based on other. Canals are pipe networks designed at water ____ ____ ____ ___ duty Positive Externality Yes: Public health, Yes: Food security et Ditto poverty et al al Cost Structure: Nat. monopoly: Nat. monopoly: Nat. monopoly: Major Capital Cost distribution networks pumps, canals, and reservoirs, head works, Competitive: pumps, drainage channels Gates and canals treatment plant Major Operation Volumetric: Volumetric: Non-volumetric: Costs Treatment, pumping Gate operations, Gate operations & & metering dredging canals, dredging canals pumping Infrastructure Municipalities Central government Central government Ownership _ Source: Author's on-going work. Recognizing the CPR characteristics of canals, and introducing user associations to manage them have been significant steps in improving efficiency in canal irrgation management. However, there is a long way to go comparing to the municipal water sector which has started transforming it from a free social good to a toll good reflecting the increasing scarcity value of water. "The physical performance of water sector is evaluated in terms of demand- supply gap, physical health of water infrastructure, conflict resolution efficiency and smoothness of water transfers across sectors."24 In piped network systems, together with individual metering and pricing regimes, the value signal can directly work on users. Irrigation also needs some mechanisms that convey the signal to users. Where WUAs have been successfully established, they would work effectively for conveying the value signal and reflecting it on their members' 24 Ariel Dinar, & R. Maria Saleth, Evaluating Water institutions and Water Sector Performance, World Bank Technical Paper No. 447, at 5 (1999). 50 water use and payment. Besides, there must be another mechanism that connect user associations to upstream inter-sectoral water markets. Messages from the literature call contractual demarcation at the operation boundaries. "Contracts between the agency and farmers are particularly desirable because they specify the rights and responsibilities of both parties, along with the sanctions if either fails to fulfill its obligations."2 "Modem irrigation schemes consist of several levels which clearly defined interfaces....An enforceable system is in place that defines the mutual obligation."26 To make such demarcation effective, physical capacity to fulfill the agreed duties is indispensable. Technically, modernization for achieving a responsive conveying capacity must be done from the upper tier of canal systems. Key policy issues reflecting the structural problems of canal irrigation schemes are: how to finance O&M, how to subsidize it while promoting maintenance, and how to improve infrastructures while maintaining financial health of service providers.27 Even if controllability (and observability) or marketability of canal irrigation are improved, it could still be a merit good, which requires substantial subsidy. Unlike the case of municipal water, pricing instruments that bring cross subsidy are not innovated in irrigation so far. More investments in infrastructure modernization are needed, because output price is integrated in the international market, where wealthy developed countries still subsidize irrigation and other elements of agriculture. To justify the subsidy and to determine the level of subsidy, competition and comparison may be employed. ALTERNATIVE REFORMA STRATEGIES Below is an attempted re-examination of the above arguments which prevail as actual reform strategies. The focus of this section is on excludability, system modernization, and the management of higher tiers. Excludability in Canal Irrigation As stated earlier, excludability is a matter of difficulty and (costs & benefit). In canal systems, the difficulty and costs would differ at scheme levels or unit for exclusion, hydraulic controllability of the scheme, modes of water demand (crop choice), and social discipline or the enforcement capacity (e.g. punishment for robbery and vandalism). Arguments of canal water as a common pool resource can be changed especially in higher tiers of canal systems for a reasonable cost, taking into account its value. Physical exclusion must be possible at higher levels of canals employing information systems, rational control structures, properly oriented workforce, and right institutions. It suggests that effective and responsible user organizations can be dealt with as clients, and billed volumetrically in some way so that they can trade irrigation water in a market similar to those of urban water. Unfortunately, on and off, or total volume are not all that marketability requires. Water can be marketed as a valuable input for 25 Supra note 9, at 60. 26 See Herve Plusquellec ET AL., Modem Water Control in Irrigation. Concepts, Issues, and Applications in, Supra note 17, at 6. 27 Supra note 21. 51 crop production only if it meets the quantity, flow rate, and the demanded timing. The seller must, at least, be capable of showing the evidence of the service delivered. This is why many canal structures require modernization for marketability of water. Physical modernization is strongly linked to excludability and marketability in canal systems. "[P]articipation of farners and action research will remain paper exercises if the design concepts of irrigation canals and structures are not taken into account....When water delivery is erratic, water users lose respect for the rules and regulations governing water usage.28 Traditional design of canal systems is based on water duty by the planned crop and rotation delivery. Canal segments often have only the capacity of the above duty. This would hamper flexible water delivery. Although the peak capacity is prepared in few other infrastructure industries, expansion of channel capacities especially in lower canal tiers may become necessary to accommodate flexible water delivery on demand. Installing pipe-lines (closed system) for lower tiers is another modernization proposal for flexible supply. Other issues discussed as modem design include the functionality of control structures (on-off and flow rate adjustment), accurate measurement devices, information systems, and drainage facility for hydraulic functionality.29 One of the things that need attention is lining. Channel lining is not regarded as a modernization strategy because it would not contribute to the better controllability of water. The costs of exclusion may include the wide array of physical infrastructure modernization as well as the transaction costs for measuring and billing. Benefits of exclusion or controlling depend highly on crop choice, and crop choice on its turn depends on the available level of irrigation services. In paddy areas, individual volumetric amounts, that are diverted through each farmer's intake, may not represent farmer's water consumption, as already discussed. Water use itself depends highly on surrounding farners. On the other hand, most horticultural crops have higher market values, and the farmers who cultivate such crops can afford to purchase more expensive and better services. More deliberately controlled irrigation services can be sold to them. In other words, farmers may choose some crop options only if reliable water delivery is secured. "Vegetables are characterized by their high commercial value but sensitivity to water stress and shallow root zones....No one irrigation schedule (rate, duration, interval) is optimal for all soil types."30 Existence of the output market that accept such horticultural products and the price distortion are also important factors. Part of canal command close to the market would have a higher purchasing power of better irrigation services. By realizing the benefit of exclusion, cross subsidization to more expensive area of users may become possible too. Rational canal operators would be reluctant to deliver water to farther sections without a counter valuing incentive. This of course, requires prior policy decision on the endowed rights. CONCLUSION The literature on public goods endorses the legitimacy of traditional solutions while it also suggests the limitation of such models. User associations look certainly suitable to the role 28 See Herve Plusquellec ET AL., Modem Water Control in Irrigation. Concepts, Issues, and Applications in, supra note 17, at 3. 29 Id. 30 Id. at 20. 52 of tertiary level management of large gravity canals with poor small holders, however, two consequent strategies, federation and technical support by the government, sound barely necessary but not sufficient for improving further. User organizations could be losing their comparative advantage when thley federate up to multiple layers, while the task required in hiigher tiers of irrigation management becomes more of technical professionals and officials (the .atter include procurement, regu:lation, and enforcement) than of common interest groups. The literature also suggests alternative solutions and several conceptual possibilities. Introduction of the private sector and competition is feasible even to the service delivery relevant to common pool resources. 'Service contracts can also be introduced even without water measuring structures. Cleaning, messaging, and fee collecting are among the tasks that the private sector can compete for with lower skilled labor. Also inter govermnent agreements are option. While participation and user organizations have to build up from the bottom of hierarchies, system modernization and service improvement must start from upstream. Competition and comparison could best suit to an observable number in the middle. Combined with the introduction of key controlling structures and measuring facilities together with a set of benchmarks, unbundling secondary canal operations could introduce effective competition. Once these conditions are met, auctioning the unbundled service to the private sector would become viable. For common pool resources and their lingering problems, hybrid solutions are suggested from the literature as a dynamic strategy for improvement. Hybrid arrangements mean not only the combination of guiding principles (market force and social/political force), but also of reform principles (functional demarcation and decentralization) and physical investment. This would not sound new, but a close look could reveal subtle and important details.31 For example, rehabilitation and modernization of canal systems, federation and inter government agreements of user associations, corporatization and privatization of infrastructure services are all different concepts that associate with different set of incentives. Closer look at the experience in urban water sends both encouraging and cautious signals in replicating their strategies. There are similarities and fundamental differences in the industry structure between two sectors in terms of their public goods. The comparison also revealed substantial variety even among the types of canal irrigation services. This suggests careful application of alternative arrangements into the irrigation service provision. Experience in the urban sector suggests that the mere separation of accounts from the government does not achieve accountability in putblic corporations or overcome their monopolistic behaviors. Where it is feasible, market and competition must be introduced, however, a thought-out process is necessary to in the governmnent to regulate price, quality, benchmarking, and enforcement. In municipal water reforms, as well as in an irrigation reform market oriented developed country, such a process has been certainly painstaking.3 31 William ET AL. Easter, IRRIGATION IMPROVEMENT STRATEGY REvIEw. A REVIEW OF EIANKWIDE EXPERIENCE BASED ON SELECTED "NEW STYLE" PROJECTs, Paper prepared for The World Bank Water Week (December 1998). 32 K. John Langford ET AL., Toward a Financially Sustainable Irrigation System. Lessons from the State of Victoria, 1984-1994, World Ban): Technical Paper No. 413 (1999). 53 Comparison of the two sectors also sheds a dim light over the acute need of investment in canal systems. The successful partnership with the private sector could invite needed investments from the private financial market. There are options with varying degrees of sophistication and potential gain from the private sector participation to choose from. One direction in institutional reform should certainly seek this goal. Preparation for such a partnership with the private sector would include further empowerment of users to handle many trade-off issues, capacity building in the core role of the government, long term policy directions, and clarification of initial right allocation. 54 BIBLIOGRAPHY Bromley, Daniel W. "Property Regimes and Pricing Regimes in Water Resources Management." In Ariel Dinar Ed., The Political Economy of Water Pricing Reforms (New York, NY: Oxford University Press) (2000). Diao, Xinshen, and Terry Roe. "The Win-Win Effect of Joint water Market and Trade Reform on Interest Groups in Irrigated Agriculture in Morocco." In Ariel Dinar, Ed. The Political Economy of Water Pricing Reforms (New York, NY: Oxford University Press) (2000). Dinar, Ariel, and R. Maria Saleth. Evaluating Water institutions and Water Sector Performance, World Bank Technical Paper 447 (Washington, D.C.: World Bank) (1999). Easter, William, and others. Irrigation Improvement Strategy Review. A Revielw of Bank-wide Experience Based on Selected "New Style" Projects, Paper prepared for World Bank Water Week; Washington, D.C. (December 1998). Gagwal, Vanita. "Irrigation Privatization." Background paper prepared for Irrigation Institution Day (Washington, D.C.; World Bank) (December 2000). Langford, K. John, and others. Toward a Financially Sustainable Irrigation System, Lessons from the State of Victoria, 19s84-1994. World Bank Technical Paper 413 (Washington, D.C.: World Bank) (1999). McCann, Richard J., and David Zilberman. "Governance Rules and Managemnent Decisions in California's Agricultural Water Districts". In Ariel Dinar, Ed. The Political Economy of Water Pricing Reforms (New York, NY: Oxford University Press). Mollinga, Peter P., and Alex Bolding. "Signposts of Struggle: Pipe Outlets as the Material Interface between Water Users and the State in A Large-Scale Irrigation Systerm in South India." In Geert Geert and Frans P. Huibers. Ed. Crops, People and Irrigation. Water Allocation Practices of Farmers and Engineers (London, UK: Intermediate Technology Publications Ltd) (1996). Plusquellec, Herve, and others. Modern Water Control in Irrigation. Concepts, Issues, and Applications, World Bank T'echnical Paper 246, Irrigation and Drainage Series, (Washington, D.C.: World Bank) (1994). Savas, Emanuel S., Privatization and Public-Private Partnerships (New York, NY: Seven Bridges Press) (2000). Subramanian, Ashok, and others. User Organizations for Sustainable Water Services, World Bank Technical Paper 354 (Washington, D.C.: World Bank) (1997). Toolkits for Private Participation in Water and Sanitation. World Bank. (Washington, D.C.: World Bank) (1997). 55 Tsur, Yacov. "Water Regulation via Pricing: The Role of Implementation Costs and Asymmetric Information" In Ariel Dinar, Ed. The Political Economy of Water Pricing Reforms (New York, NY: Oxford University Press) (2000). Vermillion, Douglas L., and Juan A. Sagardoy. Transfer of Irrigation Management Services. Guidelines. Food and Agriculture Organization of the United Nations (Rome), Irrigation and Drainage Paper 58. (1999). 56 PART II REG(ULATORY FRAMEWORK OF THE IRRIGATION SECTOR CHAPTER 3 Participatoiry Irrigation Management: An Overview Of the Regulatory Framework Salman M. A. Salman * INTRODUCTION Water is a scare resource. It is a resource with no substitute and over w"hich there is total dependency. Although about 70 percent of the earth surface is covered with water, 97 percent of that water is salty and unusable. Moreover, about 87 percent of the remaining usable three percent is locked in ice caps, glaciers, in deep aquifer or in the atmosphere. As such, only 13 percent is actually usable. Hence, the unusable amount is actually equal to less than half percent of the total amount of water covering the earth. A number of problems characterize that small percentage of available water, the first of which is the high degree of spatial and seasonal variations. On the spatial variation side, some parts of the world have far more water than what they actually need while other parts are threatened with water shortages and drought. The Middle East and North Africa region which houses more than five percent of the world's population, is endowed with less than one percent of the world's annual renewable fresh water. On the seasonal variation side, some months of the year are far more rainy than others in some parts of the world with the possibilities of floods and destruction.. In other months, water shortages and droughts are a great threat in many other parts of the world. One extreme example is the Ganges river where the flow could reach two million cubic feet per second during the rainy season in July and August and drop to less than ten thousands cubic feet per second during the dry season in March and April. The second problem is the substantial increase in water use in recent years. "Global water use has increased fivefold this century, and today's per capita availability is predicted to decline by a third over the next generation."' This increase in water use is caused largely by population growth. During the twentieth century the population of the world has grown from about one and a half billion to six billion people, and is expected to reach close to nine billion by the year 2025. This huge population growth has not only contributed to a significant increase in water use, but has also resulted in the deterioration of the environment as a whole, which in turn, has affected both the quantity and quality of water. The increase in population is inevitably leading to an increase in food production which, in turn, requires additional large amounts of water. Industrial development and urbanization are other factors contributing to the increasing demand for, and use of, water. * Lead Counsel, Legal Department, The World Bank. This chapter is the outcome of a desk study of the regulatory framework for participatory inigation management in six countries (Columbia, India, Mexico, Nepal, Philippines and Turkey). ' From Scarcity to Security - Averting Water Crisis in the Middle East and North Africa, World Bank Publication, at 5 (1995). 59 IRRIGATED AGRICULTURE AND WATER USE Globally, irrigated agriculture is the single largest user of all water taken from rivers, lakes and aquifers. The use of water for irrigated agriculture has more than quadrupled in this century because of the population growth. "Land under irrigation increased from around 50 million hectares at the turn of the century to over 250 millions hectares today."2 Industry, domestic and municipal uses account for a considerably smaller percentage, compared to irrigated agriculture. "Today about 73 percent of all water withdrawals (and higher proportions for consumptives use) are for irrigation. This share is even higher in low income countries."3 In most developing countries irrigation uses a higher percentage than the global figure of 73 percent. In Africa, it accounts for over 80 percent of total water use.4 In India, irrigation accounts for 93 percent of present gross water used.5 "At least 17 percent more fresh water than is available now will be needed by 2025 to produce sufficient food for 8.8 billion people - even if everything were to be done to make irrigated agriculture more water efficient. If this is not done, at least 55 percent more fresh water would be needed."6 However, it is generally agreed that the irrigation sector, world-wide, is one of the least efficient of the public sectors. It is run by a large army of government employees at a very high financial cost, and with limited or no accountability on its performance. Irrigation investments costs have been rising steadily, particularly in Africa. Subsidies are rampant and include not only agricultural inputs, but also water. In most countries water is provided at heavily subsidized prices "with users seldom paying more than 10 percent of operating costs."7 Moreover " ... water is lost as it moves through leaky pipes and unlined aqueducts, as it is distributed to farmers, and as it is applied to grow crops. Some analysts estimate that "the overall efficiency of water is 40% (Postel 1997), meaning that more than half of all water diverted for agriculture never produces food."8 As such any serious attempt for addressing the issue of water scarcity and water resources management would need to pay particular attention to the large amount of water used for irrigation. Different theories have been suggested for improving the efficiency of the irrigation sector, including modernization of the irrigation system, a bigger role for the private sector and stake holders participation. This chapter is concerned with the issue of farmers participation. The chapter argues that participation of farmers in the management of the irrigation system through their water users' associations is likely to result in a more efficient system, including a better system for collection of charges for operation and maintenance of the irrigation infrastructure, and also for water charges. The chapter also discusses the basic elements of the regulatory framework for such farmers participation. 2 Peter H. Gleick, The World's Water - The Biennial Report on Fresh Water Resources, at 6 (1998-1999). 3World Bank, World Development Report, Development and the Environment, at 100 (1992). 4Id, at 20. 5 India, Irrigation Sector Review, World Bank Report no. 9518-IN, Volume 1, at 16 (1991). 6 Supra note 2, at 24. 7 Supra note 3, at 100. 8 Supra note 2, at 23. 60 The term "water users associations" (WUA) as used in this chapter refers to the grouping of farmers, usually in one hydraulic unit, command, or irrigation district in one formal body for the purpose of managing parts of an irrigation system, including collection of water charges. The primary objective for the establishment of water users' associations is to achieve optimum utilization of available water through a participatory process that endows farners with a major role in the management decisions over water in their hydraulic unit. This process is often referred to as participatory irrigation management, or irrigation management transfer.10 The Water Resources Management Policy Paper of the World Bank lists a number of benefits which participation of users in managing and maintaining water facilities may bring. The benefits listed include (i) increasing the likelihood that these water facilities will be well maintained, (ii) contributing to community cohesion and empowerment in ways that can spread to other development activities, and (iii) reducing the financial and management. burdens on the government as a result of users' participation in operation and maintenance of such water facilities. In addition, the Policy Paper states that "In irrigation projects, user participation helps promote sustainability by ensuring that design choices and operational practices are consistent with local crop requirements cad farmer capacities. Such projects are more likely to be valued and maintained by the local population than projects without these elements .... Governments are finding that by involving strong water user associations in project management and fee collection at the local level, they can use the capacity of community members to exert social pressures on their neighbors to pay. Equally, because associations-managed systems have a consumer orientation, they are likely to provide better services and improve willingness to pay."' l Moreover, the Operational Policies of the Bank on Water Resources Management specify a number of priority areas where the Bank would assist borrowers. These areas include: "Decentralizing water service delivery, involving users in planning and managing water projects, and encouraging stakeholders to contribute to policy formulation .... Thus it (the Bank) supports projects that introduce different forms of decentralized management, focusing on the division of responsibilities among the public and private entities involved."'2 The Dublin Water Principles announced at the end of the International Conference on Water and the Environment held in 1992, emphasized that water development and management should be based on a participatory approach involving users, planners and policy makers at all levels. A similar statement was also issued by the Hague Water Forum in March 2000. However, notwithstan(ling those benefits, there are a number of factors which could work against participation of farmers in managing and operating water facilities. In many societies, the 9 This grouping of farmers has been given varying names such as water users' organization, farmers organizations and irrigation unions. The term water users' associations (WUA) as used in this chapter refsrs to any of the above grouping of farmers. 0 Although the two theories may appear similar, those advocating the term irrigation management transfer argue that transfer is wider and implies full responsibility of the farmers than participation. For them participation means that the government still has a major role in the management process. " l World Bank, Water Resources Management, Policy Paper, at 57 (1993). 12 The World Bank Operational Manual, Operational Policies, WATER RESOURCES MANGEMENT, OP 4.07, paragraph 2 (c) (July 1993). 61 government is seen as, the ultimate provider of such services, and there is reluctance on the part of farmers to take over such responsibilities, not knowing exactly what this may entail. Moreover, in many societies water is considered a God-given resource for which no fee should be levied, and the establishment of WUAs could be seen by farmers as a process for facilitating the levying of such water fee, or for ending other subsidies provided to them. On the other hand, government bureaucracy could view such participation as an attempt to curtail its wide range of authority, and may resist such participation. THE REGULATORY FRAMEWORK FOR PARTICIPATORY IRRIGATION MANAGEMENT The legal framework for the establishment of WUAs, and for enabling them to operate and maintain such parts of the irrigation system, consists basically of three sets of legal instruments, namely: * The enabling law, * The bylaws or charter of the WUA, and * The transfer agreement between the irrigation department'3 and the WUA. The Enabling Law For a WUA to be established as a legal entity, there has to be a law authorizing its establishment. This law could be a general comprehensive "Water Law" that deals with all aspects related to water, including establishment of WUAs. The National Water Act in Mexico,'4 and the Water Resources Act in Nepal,'5 are examples of such a comprehensive law. The enabling law could also be special rules and regulations dealing specifically with WUAs, and deriving their authority from a basic law, such as the "Implementing Rules and Regulations on the Provisions of Republic Act No. 7607" on small farmers in the Philippines.'6 In some countries where there is no special law on water or on WUA, those countries have relied on different laws to establish WUAs. In the Indian State of Maharashtra, WUAs have 13 The term "irrigation department" is used in this chapter in a generic sense to refer to any department, department or ministry that is responsible for irrigation or water related matters in the whole country or in a state or a province in that country. 14 In Mexico, Article 50 of the National Water Act, 1992, authorizes the granting of concessions of water for irrigation to "Bodies corporate, for the purpose of managing or operating an irrigation system or for the common use of national waters for agricultural purposes." 15 In Nepal, Section 5 of the Water Resources Act, Act No. 2049 (1992), states that "(1) Persons willing to make use of water resources for collective benefits on an institutional basis may form a Water Users Association in a manner as prescribed. (2) The Water Users Association, constituted pursuant to sub-section (1) shall be registered in a manner as prescribed before the prescribed authority." Although the Water Resources Act authorizes the establishment of the Water Users Association, such Water Users' Association would be registered as a society under section 4 of the Association Registration Act. 16 In the Philippines, Act No. 7607 (1993) is also known as Magna Carta of Small Farmers. Rule 59, under Section 19 of the Implementing Rules requires some irrigation agencies to "provide technical assistance to farmer organizations in the operation of irrigation systems. On the other hand, the farmer organization shall be responsible for the maintenance, rehabilitation and repair of irrigation systems turned over by DA and NIA." DA refers to the Department of Agriculture, and NIA to the National Irrigation Department. 62 been established and registered as co-operative societies under the "Co-operative Societies Act." Similarly, in the State of Tamil Nadu and the State of Orissa in India, WUAs are established and iegistered as societies, under the "Societies Registration Act."17 Other laws that have been used include local government laws or laws authorizing the establishment and operation of non- governmental organizations (N(JOs). Although such laws provide a convenient mechanism for ,he establishment of WUA as a legal entity, the absence of specific provisions on the policy on participatory irrigation managerment in those laws could be problematic. Since there is no direct iegal obligation on the Irrigation Department, such department may not take the whole exercise 3eriously. Absence of a such basic law, and the resultant use of other laws may also been seen as indicating lack of political comrnitment for the concept of participatory irrigation imanagement. The law establishing WiJAs would usually include provisions indicating that the WUA to be established is a legal entity. The National Water Act in Mexico defines "individual or body corporate" as "individuals, ejidos, communities, associations, companies and other bodies coTorate recognized as having legal status by law, with the forms and limitations established by it." 8The Water Resources Act in Nepal states in Section 6(1) that "Users Association shall be an autonomous corporate body with perpetual succession." Such enabling law would also address the relationship between the WJUAs and the irrigation department, the duties and obligations of the irrigation department, and those of the WUAs, and the structure of water rates and the operation and maintenance and other fees. The enabling law may also lay down some of the main issues to be addressed in the bylaws of the WUA, and in the transfer agreement. Bylaws of the Water Users Associations Whether established under a separate law or under an umbrella enabling law, the WUA would, in most jurisdictions, be required to prepare and agree on its bylaws before it can be registered as a legal entity, and before it can be allowed to operate. Those bylaNvs may be called "Regulations," "Constitution," "Charter" or "Articles of Associations." The issues that such bylaws need to address include information about he basic facts, including the name of the WUA, the law under which ii: is registered and its registration number, its address, and a clear definition of the area that the WUA is serving or its area of operation. This area of operation could be an entire irrigation district, or an entire command of a distributary, minor, sub-minor or a water course. It could also be defined by its size in acres or hectares. A broad statement on the objectives of the WUA is usually included in the bylaws. Such objectives would include: participation in the management; operation; maintenance; upgrading cf the irrigation 17 Section 3 (1) of The Tamil Nadu Societies Registration Act, 1975, (Tamil Nadu Act 27 of 1975) states that ".... Any society which has for its object the promotion of education, life nature, science, religion, charity, social reform, art, crafts, cottage industries, athletics, sports (including indoor games), recreation, public health, social services, cultural activities, the diffusion of useful knowledge or such other useful object with respect to which the State Legislature has power to make laws for the State which may be prescribed, may be registered under this Act." The central government in India has issued the Water Policy which is not a legislation, but merely a statement of best practices aimed at influencing legi;lation, policies and practices of the states of India on water related matters. On participatory irrigation management, the National Water Policy urges that "Efforts should be made to involve farmers progressively in various aspects of management of irrigation systems, particularly in water distribution and collection of water rates. Assistance of voluntary agencies should be enlisted in educating tie farmers in efficient water use and water management." 18 Mexico, National Water Act, supra note 14, Article 1, VII. Ejidos, as used in this Section, refers to farmers' communities. 63 infrastructure works that the WUA has taken responsibility for; collection of water charges; and provision of irrigation and drainage services to the members of the WUA. Most bylaws restrict membership of the WUA to the registered land owners in the hydraulic unit, who are engaged on a full-time basis in farming.19 If any member of the WUA sells his land, his membership will be automatically canceled, and the new owner will be eligible for the membership of the WUA. However, the bylaws in some countries extend the right to become a member to both owners and tenants, such as in Nepal where membership of the WUA is open to "farmers having lands or tenancy rights ... ..20 In a third group of WUAs the list of those qualified for membership includes more than just owners and tenants. In Mexico it is stated that "Both founder and future members of the Association shall be owners or possessors by whatever right of the lands located within the limits of the unit marked on the plan ....,,21 In the Indian State of Maharashtra membership of the WTJA is extended to "Any owner/cultivator/permanent tenant/protected tenant in the area of operation of the society .... The last two examples extend membership of the WUA beyond owners and tenants to farmers with customary rights over the land they are famning, but who may have no registered title to this land. The Maharashtra bylaws seem to include other categories of users such as sharecroppers and encroachers who are prevalent in some parts of India. Regarding the number of farmners needed for establishing a WUA, most of the bylaws state that at least 51 percent of the registered land owners in the command area where the WUA would be established should be enrolled as members before the WUA can seek registration, and before it can be allowed to operate. However, some bylaws allow the WUA to seek registration based either on the number of farmers enrolled, or the size of the land holdings coming under its operation regardless of the number of farmers enrolled. In Orissa "At least 51 percent of the registered land owners in the command area covered by the Association should be enrolled as members, or the land holdings of the members should cover at least 51 percent of the total area under the proposed Association."23 The first part of the criteria is likely to have the WUA dominated by farmers with large holdings, to the exclusion of small-holders. In some other countries, once 51 percent of the farmers are enrolled and registered in the WUA, all other farmers within the command area will be deemed to have become members in that WUA. In Mexico, "all users listed in the register who, while not founder members of the Association, apply and pay for irrigation services, thereby tacitly agreeing to belong to the Association, shall also be deemed to be members with the same rights and obligations."24 19 The land tenure system in some countries where farmers are allowed to hold land for a short period of time may not encourage the formation of WUAs, as farmers under such circumstances may be reluctant to enter into long term investments when they are not sure how long they will be allowed to continue using the land. 20 See Nepal, "Chapakot Farmers Irrigation Organization Constitution," ,2045, paragraph 6 (1989) 21 See Clause 8 of "the Articles of Farmers-Users Association, Irrigation Unit K-61, Upper Main Canal, Rio Yaqui Irrigation District 041, State of Sonara, Mexico (1992) 22 See Maharashtra "Model Bye-laws of Water Users' Co-operative Society," paragraph 5. 23 See clause 5 (i) of the Orissa "Model Bye-Laws of Water Users Association," 1995, italics mnine. The provision regarding "51 percent of the land holding" mnay end up favoring farners with large holdings, possibly to the exclusion of small farmers. 24 See Clause 8 of Articles of Farmers-Users Association, supra note 21. 64 Although the enabling law would usually specify that the WUA is a legal entity, further details regarding what this entails are generally included in the bylaws. It is often stated that the 'NUA is authorized to enter into contracts in its name, and that the WUA can sue in its own name, and answer suits instituted against it.25 The WUA can also be authorized to borrow funds 26 i3rom private sources, using, if necessary, its assets as a collateral. The president or the secretary of the WUA would usually be designated as the person in whose name the suits will be i nstituted, and who will sign, orn behalf of the WUA, all contracts, pleadings, power of attorney, ..etitions and statements. Although WUAs may be organized differently, the two most common ways of organizing a WUA at the membership level are: (i) a general body of the WUA which would consist of all registered members who are current in the payment of their dues, as in Mexico, Nepal, and the Indian States of Maharashtra, Orissa, and Tamil Nadu; or (ii) a general body, which could be called the general assembly, which would consist of delegates directly elected to represent the different irrigation districts or sub-units within the hydraulic unit, as in the case of some WVUAs in Turkey. In the latter case, there is an absence of one single forum encompassing all members. The general body would usually meet once a year to elect the executive body, discuss and approve the budget, the annual work program, and in some cases, crop patterns and water rotation, and set the water charges structure. The general body also fixes the borrowing limit, approves settlement of claims, and would be authorized to remove any member of the executive body, or pass a vote of no confidence on the executive body and elect a new one. The bylaws would also include details about the manner in which meetings of the general body are called, the quorum required for such raeetings, and the consequences of the absence of a quorum in any meeting. The executive body is usually elected by the general body every specified number of years. However, the executive body may, instead, consist, as in the case of the Indian State of Tamil Nadu, of the elected leader of each sluice command, rather than be elected by the general body. The executive body is authorized to run the day-to-day affairs of the WUA, subject to the control of the general body. The executive body would usually consist of a number of offices, which do not, in many countries, carry remuneration. One exception is Turkey where the president of the WUA is paid a salary, and the other members of the executive body are paid 25 See, for example, Section 20 (1) of the Tamil Nadu Societies Registration Act, supra note 10, which states that the executive conmnittee or any office:r "authorized in this behalf by its by-laws may bring or defend or cause to be brought or defended any action or other legal proceeding touching or concerning any property, right or claim of the registered society and may sue or be sued in respect of any such property, right or claim." However, Section 21 (1) states that judgments passed against such officer "shall not be enforced against the property movable or immovable, or against the body of such officer, but against the property of the registered society." 26 In Nepal, in addition to the bylaws of the WUA which are called "constitution," the executive body of the WUA can issue its own operating rules l(called bye-laws). The "Farmers Irrigation Association Bye-laws in Nepal (with Special Reference to Chapakot Inigation Project)," supra note 15, state in Section 6.2 that "Since the bank loan needs a collateral security, beneficiaries shall provide their Lalpuija (land ownership document) to the bank through the Organization." It should be noted in this case that although the loan will be extended to the WUA whio will be the recipient and who will sign the loan documentation in its own name, the collateral is provided by individual members, each of whom is a legal entity distinct from the WUA. 65 honoraria. Salaries of the president and employees of the WUA, and honoraria of the other members of the executive body are fixed by the Union Assembly. The bylaws would also include provisions about other details such as the quorum required for the meetings of the executive body, and the manner in which vacancies resulting from resignations or any other cause would be filled. Membership of the executive body may also be extended to non-governmental organizations (NGOs) or any other institutions interested in irrigated agriculture, including a representative of the irrigation department, but such members usually do not have the right to vote. In carrying out the day-to-day activities, the executive body shall have all the powers necessary for administration of the affairs of the WUA and achieving its objectives. This would include the powers to employ on remuneration personnel needed for assistance in the operation, maintenance and repairs of the irrigation and drainage system, and to establish policies and procedures for deciding on the different charges to be levied on both members and non- members, together with policies for operation and maintenance. Those charges include water charges, operation and maintenance charges, and membership fees.27 The membership fee, as its name indicates, is imposed only on members. The fee would be collected at specified time or times every year, and used only for member related activities such as rental of premises, office equipment and furniture, training, preparation and dissemination of information, and for covering any costs incurred in the meetings of both the executive body and the general body. The bylaws may require late payment charges of a certain percentage if the particular charge has not been paid by a certain date. A bank account in the name of the WUA is usually opened, with separate sub-accounts for water charges, operation and maintenance fund and membership fees. The executive body would also approve work expenses, engage labor, organize labor contributions from members, keep systematic accounts and records of amounts collected and those spent on the water charges, operations and maintenance fund, and membership fees. The executive body is usually required to have such accounts and records audited annually, and submit such accounts and audit reports to the general body during the armual meeting for apgproval. The executive body could include members who are specifically designated as auditors.28 The executive body is also expected to make the necessary arrangements for training and educating the members of the WUA on water management, optimal and efficient use of water and cropping patterns, and to establish procedures for settling disputes among members of the WUA. The bylaws would include procedures for dealing with complaints from, and disputes among, members of the WUA, and among such members and the executive body. Procedures for 27 Dues and charges do not necessarily have to be paid in cash. In one village in the Philippines "The fees were to be paid in kilograms of paddy per hectare: 130 kilograms of paddy per hectare during the wet season and 95 kilogramns per hectare for the dry season. For each sector, the water tender would deliver the bills to each farner and, after the harvest, the fee collector would pick up the paddy from each farner and provide him a receipt. The collector would then sell the paddy and turn the revenues over to the association." See Charles Gunasekara, Philippines, Communal Irrigation Project, The World Bank Participation Sourcebook, at 112 (1996). See Bylaws of Irrigation Union of Korkuteli in Turkey. 66 'roting the executive body out of office, through a vote of no confidence, including the majority nleeded for such a decision, would also be specified in the bylaws. One of the primary objectives of the WUA is to operate and maintain the transferred irrigation and drainage systemn efficiently and economically, and with the full and active participation of all the members. Operation would include receiving water in bulk from the irrigation department at a prescribed rate at the head of the minor or distributary and distributing such water equitably and in a timely manner, as per procedures and criteria agreed with the irrigation department, to all farmers in the hydraulic unit, whether members or non-members. The bylaws would lay down, in agreement with the irrigation department, the criteria for allocation of water to both menmbers and non-members, which could be based on the type of crop grown or the size of the area to be irrigated, or both. The bylaws would also include the criteria for assessing water charges and operation and maintenance charges from both members and non- members. The operation and mnaintenance fund could include sources other tham charges from farmers. The WUA would be authorized to enforce discipline in water use among the users, and resolve any disputes in sharing of water by the individual farmers under the outlet, or group of farmers under the outlets of lateral, minor or distributary. The main responsibilities of the WUA include; (i) collecting water charges from water users, whether members or non-members, and remitting them to the irrigation department, and (ii) determining and collecting the charges for operation, maintenance and repairs of the irrigation and drainage system from members and non- members. In addition, the WUA may have responsibility, in some cases, for approving the cropping pattern and area to be irrigated for each crop within the area of operation of the WlUA. The WUA would also have the power to inspect the irrigation and drainage systems under its operation, to establish a water distribution process to ensure prevention of wastage, misuse, or unauthorized use of water, and to deal with allocation of water during shortages and crisis. Reference to water chzarges is usually included in the enabling law vthere it would be stated that users shall be required to pay for the use of water, and the law would also specify the manner in which such water charges are calculated.29 Moreover, other details on water charges are also included in both the bylaws and the transfer agreements. Inclusiorn of provisions on water charges in the bylaws would serve the purpose of establishing the paymient obligations of each member of the WUA, whereas the provisions in the transfer agreement would establish the payment obligations of the WUA, as a legal entity, vis-a-vis the irrigation department. The National Water Policy in India states that: "Water rates should be such as to convey the scarcity value of the resource to the users and to foster the motivation for economy in water use. They should be adequate to cover the annual maintenance and operation charges and a part of the fixed costs. Efforts should be made to reach this ideal over a period, while ensuring the 29 See World Development Report, 1992, supra note 3 where it is stated that irrigation water in most countries in the world is heavily subsidized, and no more than 10 percent of operating costs is being paid by the users. The justification frequently given for this subsidy is that it is "... a means for offsetting low farm prices controlled to keep down food prices in the cities." See Jeremy Berkoff, A Strategy for Managing Water in the Middle East and North Africa, The World Bank, at 36, 1994. 67 assured and timely supplies of irrigation water. The water rates for surface and ground water should be rationalized with due regard to the interests of small and marginal farmers."30 Generally speaking, water charges could be based either on a volumetric, or on a per hectare irrigated basis.3' However, the formula may include other details, such as crop and season. In India, water charges "... are levied annually for surface schemes on a per hectare-crop basis with different rates depending on crop and season; generally higher rates for more water consuming crops and in seasons when irrigation water is more scarce." The transfer agreement would usually include provisions on the manner in which water charges are calculated, and the due date or dates for payment of the water charges by the WUA to the irrigation department. It may include provisions for the payment of comnmission or discount by the irrigation department to the WUA on water charges collected by the WUA. On the other hand, the WUA could be charged a late payment fee or interest on amounts paid after the due date. The transfer agreement would also include provisions giving the irrigation department the right to suspend delivery of water if the WUA fails to make the payments of the water charges within the prescribed or extended time limit.33 Moreover, non-members of the WUA may be required to pay higher water rates than those paid by members. 3 Both founder and joining members shall have the same rights and obligations, including the right to equitable share of the water distributed. Dues and charges to be paid by the WUA's members would include membership fees, water charges, and fees for operation and maintenance of the irrigation system. The membership fee would be a fixed amount for every member, whereas the water charges would vary, depending on the volume of water delivered, or on a per hectare basis. The fee for operation and maintenance of the irrigation system would be prorated, on a per hectare basis, within the overall area under the WUA, and paid in advance. Dues and charges could also include a fee for water conduction losses.35 Such fee would be determined by the executive body, based on the volume of water delivered to each user. Under the bylaws of most WUAs, each member of the WUA would have one vote regardless of the size of his land holding. The bylaws would also need to address the issue of proxy voting - it is allowed, and if so, the maximum number of proxy votes one member may cast on behalf of other members. 30 See India, National Water PoIcGy, supra note 5, paragraph 11. 31 The World Bank General Projects Notes No. 2.10 on "Irrigation Water Charges, Benefit Taxes and Cost Recovery Policies (1984) states in Paragraph 12 that "Volumetric pricing of water is desirable in all irrigation schemes ... Where metering is too difficult or costly to allow volumetric pricing, it may sometime be feasible to use alternative charging schemes that have simnilar efficiency effects. However, unless such proxies for volumetric pricing, for exanple differential taxes on crop production related to the water consumption of the crops, are carefiully constructed, they may include distortions to cropping patterns and water use." 32 See India, Irrigation Sector Review, supra note 5, Volume 2, at 59. 33 See Orissa "Model Memorandum of Understanding," paragraph "Miscellaneous (v)" (1995). 34 The Orissa Model Bye-Laws, supra note 19, allow the WUA to charge non-members higher water rates, not to exceed 30 percent of the rate applied to members. A similar provision is included in the Model Agreement between the Government of Maharashtra and Water Users' Co-operative Society. 35 Conduction losses are losses of water due to evaporation and seepage. For procedures on calculating the fee for water conduction losses, see Clause 13.3 of Articles of Farners-Users Association, supra note 15. 68 Failure of a member of' the WUA to meet membership obligations as described in the bylaws, such as failure to make payments, permit inspection of the irrigation system in the member's land, comply with the terms of the transfer agreement, carry out proper maintenance, or allow delivery of water to other users may subject such a member to sanctions. Such sanctions may include member suspension, and the suspension shall continue until all outstanding obligations are met. Members who were discovered to be drawing off an unauthorized volume of water, or using their share of water for purposes other than those agreed upon without obtaining permission for such use, shall. also be subject to sanctions. Non-members shall also pay the prescribed water rate, which as we have seen could be higher than those paid by members, and the operation and maintenance fees. In some cases, joining members may inherit the obligations of their predecessors. In Mexico, in the event of any form of legal transfer of ownership or possession of a land holding on which there are outstanding dues to be paid, those dues become the responsibility of the new owner, and would have to be paid by the person to whom such ownership or possession is transferred before the start of provision of services to such a member. Provisions would usually be included in the bylaws themselves, describing the procedures for interpreting provisions of the bylaws in case there are different views as to what a certain provision may mean. Procedures and quorum required for amending the bylaws would also be included in the bylaws. Usually interpretation of provisions of the bylaws would be referred to a central body such as the Registrar of Societies, or the irrigation department, and amendments would be effeclive after approval of such body.36 Not all countries require such prior approval for amendments of the bylaws. In Nepal, amendments to the bylaws" ... require advance approval of the Chief District Officer in accordance with section 8(1) of the "Association Registration Act, 2034," but only when changes to the objectives of the Farmers' Association are envisaged or the Association is to be merged with other organizations. Other amendments can be carried out by the General Assembly meeting in conformity with the quorum envisaged in Section II of Chapter 4."37 The bylaws may include provisions stipulating the number of years for which the WUA would continue in existence., without prejudice to the right of the members to extend or reduce this duration. The bylaws -would also include provisions for liquidation of the WUA, if a proposal to this effect is approved by not less than a certain percentage (usually 66 percent to 75 percent) of the registered niembers, in a meeting of the general body which may have to be called expressly and specifically for this purpose. In addition to provisions on liquidation of the WUA in the bylaws, the WVUA may be dissolved as a result of a court decision. Provisions would also be included for disposition of the WUA's assets after meeting all its outstanding obligations and liabilities. Remaining assets may be handed over to the liquidator, or the irrigation department, or distributed tc its members, or sold to another WUA. 36 Section 12 (4) of the Tamil Nadu Societies Registration Act, supra note 17, states that "If the Registrar is satisfied that any amendment of the memorandum or the bye-laws is not contrary to the provisions of this Act, or the rules made thereunder, he may register the amendment. When the Registrar registers the amendment of the memorandum or the bye-laws, he shall issue to the registered society a copy of the amendment certified by him, which shall be conclusive evidence that the amendment has been duly registered." 37 See Nepal, supra note 15, paragraph 21. 69 The bylaws of some of the WUAs in some countries include provisions enabling the establishment of a federation, or an Apex Committee, encompassing registered WUAs in one command area. Those bylaws specify the responsibilities of the federation, and the relationship between such a federation and each of the affiliated or member WUAs. Usually, the presidents of each of the WUAs that decided to establish or join such a federation would represent their WUA in that federation. The federation would have an advisory non-binding role over the member WUAs, and may be used to resolve any disputes among such member WUAs, or between WUAs and the irrigation department. Another purpose that could be achieved by establishing a federation of WiUAs is that such a federation "... permits greater economies of scale in the use of maintenance machinery and equipment, purchased by the WUOs (Water Users' Organizations) or turned over to the WUOs at the time of transfer, and thereby reduces the cost of maintenance and operation for all farmers in the district."38 In addition to the advantages of economy of scale, federations could be entrusted with responsibilities over the next higher level of the irrigation system. Moreover, they can deal with external agencies with greater authority than a single WUA. The Transfer Agreement The transfer agreement is the agreement between the WUA and the irrigation department in which the irrigation department agrees to transfer to the WUA responsibilities for operation and maintenance of certain parts of the irrigation system, including the drainage system, and the collection and remitting of water charges; and the WUA agrees to carry out such responsibilities. This agreement may also be called "Memorandum of Understanding (MOU)," "Transfer Protocol," "Concession Agreement" or just "Concession." Transfer of the irrigation system to the WUA for operation and maintenance is also known as the turnover or the handover. The transfer agreement would need to define clearly the irrigated area to be transferred, specifying the size of the area, and the command under which it falls, and including the irrigation system existing there that is being transferred. The system to be transferred is usually the irrigation system at the level of primary, secondary and tertiary, including the drainage of such areas too. A copy of a map showing such area may be attached to the agreement. The agreement would specify whether the ownership of the irrigation system, including the land and structures and works thereon, remains with the irrigation department or is being transferred to the WUA, together with the operation and maintenance of such irrigation system.40 Provisions should also be included clarifying whether the ownership of any ancillary equipment is being transferred. Some agreements may provide for a joint management of the irrigation system for a short period of time by both the irrigation department and the WUA. The rationale for such joint management is to prepare the WUA, during this interim period, for taking over full responsibility 38 Cecilia M. Gorriz ET AL., Irrigation Management Transfer in Mexico, Process and Progress, World Bank Technical Paper No. 292, at 27 (1995). 39 The system to be transferred may also be called distributary/minor/subminor, or the irrigation system at the level of distributary and the system below it. 40 In Chile ownership of the irrigation and drainage system itself, including dams, can be transferred to the WUA. See Renato Gazmuri S., Chilean Water Policy," International Irrigation Management Institute, Short Report No. 3, at 8 (1994). 70 ibr operation and maintenance of such irrigation system. During this interim period which may iun for up to one year, officers of the irrigation department would train WUA representatives in ( ompiling necessary data, and preparing and testing operation and maintenance plans for the distributaries, minors and sub-minors to be transferred to them. They would hold joint inspections to identify any problems in the irrigation and drainage system, and to agree on how to deal with them. This transfer will be preceded by a number of actions including: the preparation of an inventory of the works, structures and equipment to be transferred; joint inspections of those works, structures and equipment by both the irrigation department and the WUA representatives; carrying out of necessary testing, and repairs, if any, at the irrigation department cost; and handing over management of the system, along with all necessary documents and instructions to the WUA. The WUA would need to satisfy itself that the system is, indeed, in a good working condition, as the transfer agreement would include provisions that the irrigation system, at the time it is transferred, was in good working condition. The agreement would spell out clearly the responsibilities of both the irrigation department and the WUA. Responsibilities of the irrigation department would include handing over the system in a reasonably operating manner, delivery of water to the WlIA in bulk at the agreed time and providing the WUA with any agreed upon financial assistance and other benefits. The agreement could include provisions absolving the irrigation dlepartment from liability should it be unable to deliver the agreed upon amount of water, or unable to deliver it at the agreed time, for reasons of force majeure, or act of God. In periods of water scarcity or emergency, after the demand for domestic and other priority uses is satisfied, the irrigation department would usually have the authority to decide that the remaining water for irrigation shall be allocated to crops of utmost importance to the community there. Moreover, the irrigation department may give itself the right, in case of emergency and to prevent further serious (lamage to the irrigation system, and in consultation with the WUA, to use any farm area for transportation of workers and equipment. The use of such farm area in case of emergency should be without prejudice to the rights of the affected farmer for full compensation for any physical damage caused to the used land, water distributary system, or crops. As we have seen in the previous part, the executive body of the WIUA may include representatives from NGOs and the irrigation department who would attend meetings of the executive body, but usually do not have the right to vote. Conversely, in some: countries, such as the Philippines, farmers may also be represented on the boards of government agencies dealing with agriculture and irrigation. A number of the responsibilities of the WUA detailed in this section of the agreement are usually spelled out in the bylaws of the WUA, but may still be included in the transfer agreement to clarify the obligations of the WIUA towards the irrigation department. Such responsibilities would include: operating and maintaining the irrigation system transferred to it, including the drainage system, in a proper and satisfactory manner; receiving water in volumetric basis, and distributing such water equitably and in a timely manner, based on clearly defined criteria, to both members and non-member farmers in the operation area, and collecting the water charges agreed with the irrigation department. The responsibilities also include establishing the operation 71 and maintenance fund, and maintaining and repairing, in a satisfactory manner, all the field channels, field drains, minors, sub-minors and distributaries, together with the structures thereon in the operation area of the WUA. In addition, the WUA may be responsible for the maintenance and repairs of any equipment and machinery transferred to it. Such equipment and machinery may be transferred to the WUA as part of the irrigation system for which it is now responsible, or may be separately leased by the irrigation department to the WUA at an extra cost. The WUA would also be responsible for the security of the infrastructure transferred to it, and such responsibility could either be carried out by the members of the WUA themselves, or through hired labor. Maintenance would usually include silt clearance and removal of weeds from all water courses under the WUA. It would also include earthwork to restore banks and repairs to other structures, in addition to maintenance of service roads. Usually minor repairs are carried out by the WUA and major repairs by the irrigation department. Definitions of what is "minor" and what is "major" should be included in the transfer agreement (repairs to damage caused by natural disasters such as heavy rains, floods or earthquake are usually considered major repairs). The WUA may be required to prepare an annual maintenance program for the irrigation system under its responsibility, including any machinery and equipment, and to submit such program to the irrigation department for approval prior to implementation. Operation and maintenance of the irrigation and drainage system, other than the one transferred to the WUA, would continue to be the responsibility of the irrigation department. The executive body of the WUA would have the authority to carry out any actions that would assist in fulfilling the WUA's responsibilities under the transfer agreement. The agreement would authorize the irrigation department to suspend supply of water to the WUA if maintenance and repairs were not being carried out properly, or to carry out the repairs itself and recover the cost from the WUA. The agreement would also include provisions on how disputes between the WUA and the irrigation department, arising in the course of the operation and maintenance of the transferred irrigation system, would be settled. Such disputes could be referred to a committee comprising one representative from the irrigation department and the water users' federation. Although the enabling law may include provisions on the termination of the transfer agreement, usually more detailed provisions are included in the transfer agreement itself. The agreement terminates after expiry of the number of years specified in the transfer agreement, which may be as high as twenty years as in Mexico. However, the agreement would usually be subject to renewal for another similar period. Moreover, failure by the WUA to comply with the provisions of the agreement, including the failure to properly operate and maintain the irrigation system transferred to it, or to make timely payment of water charges, or to take corrective measures within a specified period of time, as agreed with the irrigation department, would give the irrigation department the right to terminate the transfer agreement. Other reasons given for the irrigation department to terminate the agreement include alteration of the manner of using the water and infrastructure without prior authorization of the irrigation department, and failure to provide the irrigation department with any information and documentation required from the WUA. Termination is usually preceded by a warning, or by suspension of some of the rights of the WUA. 72 I'ARTICIPATORY IRRIGATl[ON MANAGEMENT - SOME RESULTS Although the concepts of participatory irrigation management (PMI) and irrigation management transfer (IMT) have been under discussion for some time, it is only recently that the movement towards wider implementation of those concepts has started in a serious manner. It is perhaps too early to judge the extent to which those concepts have succeeded, and to identify areas for further improvements. However, assessments carried thus far in some countries are quite encouraging. It has been noted that "management transfer by itself can have measurable impacts on management procedures, cost of irrigation to government and farrners, cost efficiency and financial viability of irrigation management and quality of O&M."41 The Privatization and Self Management of Irrigation Programn which was conducted by International Irrigation Management Institute (IIM1) and interviews with staff working on PIM/IMT, indicated a number of positive results.42 The Program has concluded that PIMIIMT has definitely reduced governnent expenditures for operation and maintenance of the irrigation system. There were mixed results on whether PIM/IMT result in higher agricultural and economic productivity, with some countries under the program reporting higher productivity, while others indicated that MrF did not undercut profitability of irrigated agriculture. In water- short areas in Turkey and the Indian State of Andhra Pradesh, it has been reported that there were considerable savings of water which enabled provision of more water to more farmers. This result was attributed in both countries to the more efficient system of collection of water charges by the WUAs. Both countries also reported a considerable reduction in government expenditures for operation and maintenance. CONCLUSION The review and analysis in the preceding sections of the enabling law, the bylaws of the WUAs, and the transfer agreements between the irrigation agencies and the WUAs has shown a number of variations in the manner in which the different issues are addressed. Those variations are, in my view, the inevitable result of the different environment in which each WUA is operating, and the length of experience of each country with the concept of participatory irrigation management. The existence of a basic law on water, or on WUAs, is certainly an imnportant parameter for the other parts of the legal framework because the basic law would usually specify the main issues that need to be included in the bylaws and transfer agreements, and would also determine the manner in which those issues are addressed. Those issues would often include the procedure for establishing WUAs, the rights and duties of the WUA and the irrigation (department and the relationship between them, and the structure of the water rates and other fees. Use of laws that may not be quite relevant to the water sector for the establishment and operation of WUAs have resulted in a number of shortcomings, including committing the Irrigation Department to the concept of participatory irrigation management. Indeed, reliance on such laws may indicate less political commitment than is usually needed for a meaningful participation of farmers. 41 Doug Vermillion, Impact of Irrigation Management Transfer: Results from IIMI Research, International Network of Participatory Irrigation Management Newsletter, No 7, at 12 ( April 1998). 42 Id. at 3. 73 Bylaws and concession agreements would need to be drafted carefully. As we have seen issues like the number of farmers needed to establish a WUA could result in a non-inclusive WUA, or in the domination of such WUA by the rich farmers with large holdings, to the exclusion of smallholders. Failure to provide mechanism for dispute settlement between the Irrigation Department and the WUA could result in either the dominance of the former, or lack of effective environment for operation of the latter. Although it may be early to assess the outcome of PLAJIMT, the early indications are that there has been considerable reduction of government expenditures for operation and maintenance of the irrigation system, considerable savings in some water-short areas and an increase in payment by farmers of water charges. If further studies confirm those trends, water users associations can play a significant role in addressing some of the problems related to water resources management. For such a role to be played, close attention would have to be paid to the regulatory framework. 74 ]3IBILOGRAPHY (Selected) Berkoff ,Jeremy. A Strategy for Managing Water in the Middle East and North Africa. (Washington, D.C.: World Bank) (1994). Gazmuri, Renato S. Chilean Wdter Policy. International Irrigation Management Institute. Short Report 3 (Colombo) (1994). Gleick, Peter H. The World's Water 2000 - 2001, The Biennial Report on Fresh Wvater Resources. (Oxford University Press) (2000). Gorriz, Cecilia, and others. Irrigation Management Transfer in Mexico, Process and Progress, World Bank Technical Paper 292 (Washington, D.C.: World Bank) (1995). Gunasekara, Charles. "Philippines, Communal Irrigation Project." World Bank Participation Sourcebook (Washington, D.C.: World Bank) (1996). Salman, Salman M.A. The Legal Framework for Water Users' Associations, A comparative Study, World Bank Technical Paper 360 (Washington, D.C.: World Bank) (1997). Verrnillion, Doug. "Impact of Irrigation Management Transfer: Results from IIMI Research." No.7, International Network of Participatory Irrigation Management Newsletter (Colombo) (April 1998). World Bank. From Scarcity to Security - Averting Water Crisis in the Middle East and North Africa (Washington, D.C.: World Bank) (1995). World Bank. General Projects Notes No. 2.10. Irrigation Water Charges, Benefit Taxes and Cost Recovery Policies (Washington, D.C.: World Bank) (1984). World Bank. India, Irrigation Sector Review. World Bank Report 9518-IN, Volume 1 (Washington, D.C.: World Bank) (1991). World Bank. Operational iManual, Operational Policies, Water Resources Management. OP 4.07 (Washington, D.C.: World Bank) (July 1993). World Bank. "Water Resources Management Policy Paper." (Washington, D.C.: World Bank) (1993). World Bank. World Development Report: Development and the Environment. (Washington, D.C.: World Bank) (1992). 75 CHAPTER 4 Provision of Profit Oriented Irrigation Services: Institutional Issues Miguel Solanes' INTRODUCTION This chapter intends to identify some of the institutional issues that may be posed by privatization of irrigation management facilities, to supply irrigation water to the public, for a profit. Privatization in this context means private development or management, or both, of irrigation facilities, with a view to serve customers with irrigation water or drainage or both. Other, non-profit, institutional alternatives for private involvement in developing and managing irrigation facilities have been explored in the report "Decentralization of Water Management: The Case of Water User's Associations", submitted to the 14th World Bank Agricultural Symposium" in 1993. General regulatory topics relevant to public utilities, and indicative of subjects relevant to the profit oriented private provision of irrigation services to the public, resull from the report "Utilities Regulation: Still Falling Short". Empirical evidence of private sector taking the risk for developing systems for the provision of irrigation services to third parties does not abound. Documented experiences in the US, discussed later, point out that the capital requirements of large scale irrigation, coupled with the economic characteristics of the sub-sector, did not in the past create an environment favorable to private risk taking in service-oriented irrigation development. Other recorded experiences, such as the Bas-Rhone-Languedoc,l consist mostly of public shareholders integrating a nalional development company. In Northern Africa, ongoing attempts to involve outside corporations in service-oriented irrigation development evidence that, at least in the initial negotiation, contractors are tacitly reluctant to bear investment risks. Whether this reluctance results from perceived risks in the countries themselves, or from the nature of the activity, or both, is a question open for further discussion. ORGANIZATIONAL ALT'ERNATIVES FOR WATER-RELATED SERVICES Organizational alternatives for the provision of water related services include privately held stock corporations providing services for a reasonable profit to the public at large. Privatization of state-owned enterprises has expanded the possibilities of private corporations 'Regional Advisor, Water Legislation, United Nations Economric Commission for Latin America and the Caribbean (ECLAC), Santiago, Chile. ' United Nations, Departmnent of ]Econornical Social Affairs, Abstractions and Use of Water, A Comprehensive Legal Regimes, UN Doc (ST/ECA/154) p 109 (1972). 77 providing water related services to customers outside their membership. These are private corporations subject to public regulation to assure the quality of the services, reasonable rates, non discrimination, adequate capitalization and financial viability. They are particularly active in areas of drinking water supply, and sanitation, and hydroelectric power generation and distribution. However, private organizations have faced some problems in providing irrigation services, including corporations organized under Carey Act and Carrier Ditch Companies. These problems include, inter alia, inability to finance, overestimation of available water resources, cost overruns, and engineering mistakes.2 PRIVATE PROVISION OF IRRIGATION SERVICES: REGULATION Carey Act Corporations intended to promote the development of irrigation through private investment. They were "beset with problems."3 Private investment was not enough for the massive development of irrigation in the Western American States. The Carey System intended to work through a combination of construction and operating companies. In addition to the problems sketched above, companies oversold their stocks and were unable to collect dues from beneficiaries. To solve this problem, farmers debts were liens on the properties in arrears. The end result was a tangle of litigations on the properties. As of 1958 lands patented to settlers under the system were about one eighth of lands applied for under the Act. Carrier Ditch companies were created to provide water to consumers for a profit. They are entitled to a decreed amount of water and subject to regulations and price approvals. They are "virtually relics of the past" Consumers dealing with carrier companies have a right to service and are protected from arbitrary actions. In this respect irrigation companies are somehow subjected to a public utilities regime, although irrigation is not usually included into the notion of public utility activities, probably due to the availability of a wide range of global and local markets providing agricultural commodities. Should any irrigation service be assimilated to a public utilities regime, the following issues would be important to take into account: service of acceptable quality and quantity; reasonable rates; information; access to key facilities and natural resources; and binding rules for accounting; procedural matters and dispute settlement to ensure transparency and impartiality. Such regulations should be tempered only if market structures are clearly able to ensure effective competition.4 There do not seem to be many sources of information on the protection of the interests of farmers served by commercial or public utility irrigation companies, the reason is the dearth of such companies in the international scene. Yet, some American cases illustrate the experience of the Western States. The issue was important enough to have been addressed by the California 2 John Davidson, Distribution and Storage Organizations, in Robert E. Beck, Water and Water Rights, Vol. 3, at 469, The Michie Company, Charlottesville, Virginia (1991) see also Court decisions cited therein. 3 Id. at 493. 4 United Nations Economic Commission for Latin America and the Caribbean, EQUITY, DEVELOPMENT, CITIZENSHIP, (LC/G.2071(SES.28/3), p 275, Twenty-Eighth Session, Mexico City (3-7 April, 2000). 78 Constitution of 1879, providing that all distribution of water by a public utility was subject to regulation. In application of the article the California Courts have declared that water rights acquired from Ditch companies are subjected to regulation. Consumers have a right to service which afforded substantial legal protection. There is a right to continuity of service., except in cases of droughts for which the company is not responsible. Fair water apportionment have also been considered an important element, particularly at times of scarcil:y. Public utilities commissions may extensively regulate rates. Such regulation "in extenso" is a logical consequence of the monopoly power of the company providing services. According to our research, the structural rigidities of irrigation and the risks of the activity have resulted in few profitable projects of irrigation services to the public. Consequently, the monopolistic power of the supplier was, and still is, a fact to be reckoned with. In the case of the Bas Rhone-Languedoc Company the Government exercises close supervision, through a Commissioner whom it appoints, who has the right to veto decisions of the company. Charges are approved by the National Government.5 Public utilities regulations require the irrigation companies to provide services to the public generally.6 Regulatory experiences are not limited to private and stock companies. Issues on the regulation of non-commercial water users associations and public irrigation districts may also provide useful indicators on regulatory needs. Thus, Mendoza Province in Argentina, regulates and controls the appointment of the authorities of the associations, their budgets and accounts, and also the performance of their functions. In Belgium, Wateringue organizations are required to obtain authorizations for certain water works. Irrigation districts in the US; are increasingly subjected to command and control regulation, with keen concern for financial issues.7 OWNERSHIP OF WATER RIGHTS AND WATER MAR1KETS Another important aspect related to irrigation services is ownership of water rights. While in some American States rights are owned by the server company, in others rights belong to the farmers, while states such as Colorado admit the existence of a joint appropriation, i.e. the farmer plus the company. The example above shows that there are several alternatives to vest water rights, including the eclectic. Arguments favorable to investing the rights on the companies could stress that this type of investment consolidates the patrimony of the investor and reduces transaction costs. On the other hand, it could also be argued that vesting water rights on the farmers is a means of social empowerment, and build a powerful confidence at the level of the users to demand company services and to invest in farming activities. In any case there is an amnple empirical evidence that stable and properly regulated water rights are significant institutional incentives for water development and conservation. 5 Supra note 1. 6Supra note 1, at 495 - 500. 7 Miguel Solanes, Decentralizatio,n of Water Management at p. 14, at the 14il World Bank Agricultural Symposium (December 1993). 79 Water markets, i.e. the private transfer of water rights is also an institutional means to improve the efficiency of water allocation between and within sectors.8 MARKETING OF AGRICULTURAL PRODUCTION The economic environment where irrigation companies operate is crucial to their eventual success. An important institutional element in the improvement of this economic environment is the marketability of agricultural outputs. Thus, FAO report illustrates that while Pakistan's water user's associations have generally been successful, they face problems that affect performance, although they are not primarily related to water management such as marketing.9 In this respect a Chilean marketing expert notes that the development of irrigation infrastructure requires the consideration of at least three factors (Markets, Infrastructure, and Productive Options). Without proper commercial conditions agricultural development is not sustainable.10 CONCLUSION There do not seem to be many examples of private companies engaging in provision of profit oriented irrigation facilities and services to the public. However, the few existing cases stand as evidence that they were affected by constraints related to the economics of irrigated agriculture and the financing of such companies. These types of services, when in existence, have been subjected to close governmental regulation. The inception and development of profit oriented irrigation services will require careful design of economic and institutional strategies and financing alternatives, with careful attention being paid to regulatory issues. Performance improvements requires holistic approaches with a systemic consideration of, inter alia, economic and financial factors, legal and institutional alternatives, design and attribution of water rights, and marketing strategies. 8 For more detailed explanation of water markets See generally Miguel Solanes and Fernando Gonzalez-Villarreal, The Dublin Principles for Water as Reflected in a Comparative Assessment of Institutional and Legal Arrangements for Integrated Water Resources Management, Technical Advisory Committee Paper No 3, Global Water Partnership (1999). 9 Food and Agricultural Organization of the United Nations, Regional Office for Asia and the Pacific, Report of the Regional Water Expert Consultation on Water Users Associations, at 16 - 19, Thailand (11-14 Julyl989). 10 Personal Note of Patricio Galeb, on Algunos Puntos de Andlisis al Decidir Macroinversiones en Infraestructura de Riego (November 22, 2000). 80 E,IBILOGRAPHY Davidson, John. "Distribution and Storage Organizations." In Robert E. Beck. Water and Water Rights, Vol. 3 (Charlottesville, Virginia: The Michie Company) (1991). FAO (Food and Agricultural Organization of the United Nations). Regional Office for Asia and the Pacific, "Report of the Regional Water Expert Consultation on Water Users Associations." (Bangkok) (July 11-14, 1989). 3olanes, Miguel. Decentralization of Water Management at p. 14, at the 14'h World B3ank Agricultural Symposium (Washington, D.C.: World bank) (December 1993). Solanes, Miguel, and Fernando Gonzalez-Villarreal. The Dublin Principles for Water as Reflected in a Comparative Assessment of Institutional and Legal Arrangements for Integrated Water Resources Management. Technical Advisory Committee Paper 3, Global Water Partnership (Stockholm) (1999). United Nations, Department of Economical Social Affairs. Abstractions and Use of Water, A Comprehensive Legal Regime, UN Doc (ST/ECA/154) (New York) (1972). United Nations Economic Commission for Latin America and the Caribbean. Equity, Development, Citizenship (LCIG.2071(SES.28/3), p 275, Twenty-Eighth Session, Mexico City (3-7 April, 2000). 81 CHAPTER 5 Legal P]luralism in Natural Resources Management: Implications for Water Rights Ruth S. Meinzen-Dick and Rajendra Pradhan* INTRODUCTION There is a widespread recognition that property rights play a fundamental role in shaping how people manage natural resources. Many conceptions of property rights have focused only on static definitions of property rights, usually as defined in statutory law. Lega'l anthropological perspective highlights the co-existence and interaction between multiple legal orders such as state, customary, religious, project, and local laws, all of which provide bases for claiming property rights. Individuals may choose one or another of these legal frameworks as the basis for their claims on a resource, in a process referred to as "forum shopping." The plurality of legal orders (or legal pluralism) may appear to be redundant especially when it creates uncertainty. Legal pluralism can create uncertainty especially in times of conflict because any individual is unlikely to have knowledge of all types of law that might be relevant, and because rival claimants can use a large repertoire to lay claim to a resource. However, at Ihe same time the multiple legal frameworks facilitate considerable flexibility for people to maneuver in their use of natural resources. Legal pluralism also introduces a sense of dynamism in property rights, as the different legal framework.s do not exist in isolation, but influence each other, and can change over time. Unless these aspects of property rights are recognized, changes in statutory law intended to increase tenure security may instead increase uncertainty, especially for groups with less education and contacts. In this chapter we argue that, rather than seeking a single definition of property rights, it is better to recognize the multiple and often overlapping bases for claims, and to regard property rights and the uses of resources as negotiated outcomes. Not only does this lead to a more accurate understanding of the situation that resource users face, but it allows greater flexibility to adapt to the changes and uricertainty. The next section presents the understanding of property rights derived from the perspective of legal pluralism, and how it allows us to understand the richness and complexity of claims on resources. We then discuss how legal pluralism relates to uncertainties of environment, livelihood, society, politics, and knowledge. In the subsequent section we apply these concepts to the case of water rights, to illustrate the application of legal pluralism, and how multiple, flexible, and dynamic legal orders are more responsive to these uncertainties and changes than a single, fixed legal system with a static propelty regime. Ruth Meinzen-Dick is Senior Research Fellow, International Food Policy Research Institute, Washington DC; Rajendra Pradhan is Principal Investigator, Water Rights Project, Legal Research and Development Forum, Kathmandu. This paper was presented at a Workshop on Institutions and Uncertainty, Institute of Development Studies, Sussex, UK (November 6-8, 2000). A shorter version of this paper is forthcoming in the IDS Bulletin. See www.ids.ac.uk. 83 LEGAL PLURALISM AND PROPERTY RIGHTS To go beyond the limitations of many conventional treatments of property rights, it is useful to turn our analysis upside down. Instead of beginning with statutory law and regarding all behaviour as either following or deviating from those regulations, legal anthropologists argue for starting with the perspective of people's experience with access and control, in which individuals draw upon a range of strategies for claiming and obtaining resources. From this vantage point, it is clear that multiple legal and normative frameworks coexist. In most domains of social life and in most social settings, more than one legal system (defined broadly) becomes relevant. For many social scientists, and especially anthropologists, law is not limited to acts, rules, administrative orders, and court decisions enacted or made by the various state organs. Law is understood very broadly, at least by lepal anthropologists, as cognitive and normative orders generated and maintained in a social field. Any social field, such as a village, an ethnic community, an association, or a state, is able to generate and enforce rules or normative and cognitive repertoires. It is thus possible to have various kinds of law such as state law, religious law, customary law, donor law, and local law. The coexistence and interaction of multiple legal orders within a social setting or domain of social life is called legal pluralism.2 In such situations individuals can make use of more than one law to rationalize and legitimise their decisions or their behaviour. We do not know in advance which of the several laws individuals will use in all cases because "Which specific repertoire, in which specific case, people will orient themselves to, will mostly be a matter of expediency, of local knowledge, perceived contexts of interaction, and power relations."3 During disputes and negotiations, claims are justified by reference to legal rules. The disputants use different normative repertoires in different contexts or forums depending on which law or interpretation of law they believe is most likely to support their claims, a process known as forum shopping.4 The different normative and cognitive orders may be sharply distinguished in some contexts, as for example, in the courts, but they are less sharply distinguished in the everyday life of local communities. At the local level we find a mixture of several normative orders, which are based on long historical tradition, e.g., customary law, new forms of self-regulation, elements of 1 Sally S.F. Moore, Law and Social Change: The Semi-autonomous Field as an Appropriate Field of Study. LAW AND SOCIETY REvIEW, 70: 719-746 (1973). 2 For legal pluralism see: J. Griffiths, What is legal pluralism? JOURNAL OF LEGAL PLURALISM, 24: 1-50 (1986); See also S. E. Merry, Legal pluralism, LAW AND SociETY REvIEw, 22: 869-896 (1988); See also F. von Benda- Beckmann ET AL., Local Law and Customary Practices in the Study of Water Rights, in Rajendra Pradhan ET AL., Water Rights, Conflict and Policy, pp. 221-42, Colombo: International Irrigation Management Institute (1997); See also Franz von Benda-Beckmann ET AL., Water Rights and Water Policy, in H. L. Joep Spiertz, and Melanie G. Wiber (eds), The Role of Law in Natural Resource Management, pp. 77-100, The Hague: VUGA (1996); See also H. L. JOEP SPIERTZ, WATER RIGHTS AND LEGAL PLURALISM: SOME BASICS OF A LEGAL ANTHROPOLOGICAL APPROACH, in BRYAN R. BRUNS AND RUTH S. MEINZEN-DICK (EDS.) NEGOTIATING WATER RIGHTS, pp. 162-199 (London: Intermediate Technology Publications) (2000). 3 H. L. JOEP SPIERTZ, Id. 4 K. VON BENDA-BECKMANN, THE BROKEN STAIRCASE TO CONSENSUS: VILLAGE JUSTICE AND STATE COURTS IN MANANGKABAU, (Dordrecht, The Netherlands: Foris) (1984). 84 old and new state laws, and donor laws. This whole mixture of norms and niles that are e xpressed and used at the local level is called local law.5 Applying legal pluralisrn to an examination of the use of resources, it is important to recall that the concept of property rights is an "umbrella concept" which includes several types of rights to different forms and uses of resources.6 These various kinds of rights may be grouped into two broad categories of rights, namely rights to use and rights to regulate, control and make decisions (or in short, decision-making rights).7 Following Wiber's approach,8 property rights may be defined as claims to use or control resources by an individual or group that are recognized as legitimate by a larger collectivity and that are protected through law.' Individuals or groups (users, community, corporation, and state) may assert claims of various kinds over resources such as rights to use the resource, derive income from it, rights to control use and make rules regarding resource use and users, as well as rights to transfer it to another through sale, lease, gift, or inheritance. It is not sufficient to assert claims to the resource; unless claims are accepted by a larger collectivity than the claimants they are not considered legitimate. This becomes clear when there are conflicting claims. Rights are only as strong as the institution or collectivity that stands behind them. Legitimating institutions vary. The state, as represented by an appropriate government agency, is import:ant, but it is not the only relevant one, and in many cases it may not be as relevant as village or ethnic communities, users groups, or irrigation management committees. Recognition of claims over resources is based on rules that define who has rights, the types of rights they have, andi the procedures and conditions by which persons (individual or corporate) establish, maintain, transfer, and lose rights. In many cases, different laws offer different definitions of rights. There usually are a plurality of rules or laws within a social field or locality that individuals can call upon in their discourse and negotiation. Rules and laws themselves are subject to negotiation, reinterpretation, and change. The way in which people call upon different legal orders, and the negotiation between them, provides some of this dynamism. Nor is it only that local law adapts to be consistent wvith statutory law, the latter also changes takinlg into account a range of religious, customary, and other types of law. Thus, different legal orders should not be seen as isolated from one another, but as interacting, influencing each other, and "mutually constitutive."10 Principles, rules or in short laws concerning property rights do not reflect actual practice or actual configuration of property rights relations. Many authors assume that rules can be 5 F. von Benda-Beckmann ET AL., Local Law and Customary Practices in the Study of Water Rights, Supra note 2. 6Fran von Benda-Beckmann ET AL., Water Rights and Water Policy, Supra note 2. 7 F. von Benda-Beckmann ET AL., Supra note 2; See also Edela Schlager and Elinor Ostrom., Property-Rights Regimes and Natural Resources: A Conceptual Analysis, LAND ECONOMICS, 68(2): 249-62 (1992). 8 Melanie G. Wiber, Levels of Property Rights and Levels of Law: A Case Study from the Northern Philippines, MAN (N.S.). 26: 469-92 (1992). 9 Rajendra Pradhan and Jeffery Brewer, Water Rights in Nepal (Manuscript Report prepared for the International Irrigation Management Institute) (1998). 10 David Guillet, Rethinking Legal Pluralism: Local Law and State Law in the Evolution of Water Property Rights in Northwestern Spain. COMPARATIVE STUDIES IN SOCIETY AND HISTORY, 2: 97-117 (1998). 85 derived from practice or that practice is necessarily and directly based on rules.'1 It is important to differentiate between "the legal construction of rights from the actual social relationships that connect concrete right holding individuals, groups and associations with concrete and demarcated resources." 12 Elsewhere,'3 these are referred to as categorical and concretised rights, corresponding to general rights in principle, and specific rights that an individual can avail. It is at the level of the actual social relationship concerning various forms of property that other types of rights and social-relationships become very significant, e.g., rights to land, to residence in a village or to become member of a commnunity. Power relationships are also very important for they often determine the distribution and actualisation of rights. The actual rights relationships depend on specific contexts and are a product of locality, history, changes in resource flow, ecology, cropping pattern, social relationships, negotiation, and disputing. Laws are but one resource used in the strategies of individuals and groups to acquire, establish, protect, and continue their rights, and laws, like rights, also change. The processes of acquiring and maintaining rights are as important as the rules that are used to justify claims.'4 LEGAL PLURALISM AND UNCERTAINTY While legal pluralism is applicable in almost all contexts, it has particular applicability to contexts of ecological or livelihood uncertainties,'5 as well as social and political uncertainties and changes. At the same time, legal pluralism can generate or increase knowledge uncertainties. The linkages between pluralism in property rights and different types of uncertainty include: Ecological Uncertainties Unpredictable fluctuations in the natural resource base call for different sets of rules to deal with different situations. Who is allowed to use how much water or grazing land will differ in a drought, compared to a period of bountiful rainfall. Legal pluralism expands the repertoires available to people to apply in different situations. In particular, people who are experiencing hardship due to drought or other ecological fluctuations may appeal to a variety of norms regarding sharing and meeting basic human needs, instead of rules that give some the rights to exclude others during "normal" times. This is seen in situations as diverse as pastoralists in semi-arid areas of Africa exercising access options for grazing land (e.g. Meams 1996; Ngaido and Kirk),16 to irrigators in Bali "borrowing" water when their own system flows are " Supra note 8; See also H. L. JOEP SPIERTZ, Supra note 2. 12 F. von Benda-Becktmann ET AL., Local Law and Customary Practices in the Study of Water Rights, Supra note 2. see, Griffiths 1986, Merry 1988, F. and K.'3 Franz von Benda-Beckmann and Spiertz 1996, 1997; Spiertz 2000. Keebet von Benda-Beckanann, Gender and the Multiple Contingencies of Water Rights in Nepal, in Rajendra Pradhan ET AL., Water, Land and Law: Changing Rights to Land and Water in Nepal, pp 17-38, Kathmandu: FREEDEAL, Wageningen: WAU, Rotterdam: EUR (2000). 14 This paragraph is based largely on Pradhan and Brewer 1998.F. von Benda-Beckmann ET AL., Local Law and Customary Practices in the Study of Water Rights, Supra note 2. 15 Lyla Mehta ET AL., Exploring Understandings of Institutions and Uncertainty: New Directions in Natural Resource Management, Discussion Paper 372, Institute of Development Studies, Brighton, UK (2000). 16 Robin Mearns, Community, Collective Action and Commnon Grazing: The Case of Post-Socialist Mongolia, JOURNAL OF DEVELOPMENT STUDIES, 32(3): 297-339 (1996); See also TID1ANE NGAIDO AND MICHAEL KIRK., COLLECTIVE ACTION, PROPERTY RIGHTS, AND DEVOLUTION OF RANGELAND MANAGEMENT: SELECTED EXAMPLES FROM AFRICA AND ASIA, in RUTH S. MEINzEN-DICK, ANNA KNOX, AND MONICA Di GREGORIO (EDS.), COLLECTIVE ACTION, PROPERTY RIGHTS, AND DEVOLUTION OF NATURAL RESOURCE MANAGEMENT: EXCHANGE OF KNOWLEDGE 86 insufficient.17 Such adaptations increase the livelihood security of households that depend on fluctuating natural resources. Livelihood Uncertainties Changes in the ways in which natural resources can be used, as well as changes in who uses different resources often evoke different bases for claims on a resource. As in the case of ecological uncertainties, legal pluralism expands the bases of claims on the resource, and allows for dynamic adaptation to new circumstances. For example, locally-defined or "customary" rights to forest or fishing resources may be sufficient to deal with subsistence level exploitation of the resource, but not to deal with outside users, new technologies that allow for more efficient exploitation of the resource, or market penetration that changes the value of the resources. In these cases national or even international law may be called upon to define and enforce rights and limits on resource exploitation. Pomeroy relates how fishers on San Salvador Island in the Philippines faced a loss of livelihood as outside fishers, integratiorn into the global market for aquarium fish, and. introduction of destructive fishing technologies (fine mesh nets, blast fishing, and use of cyanide) depleted fish stocks and were destroying the reefs that were needed for fish breeding grounds. In response, a community group worked to have portions of the fishing grounds declared a rnarine sanctuary, with other areas declared a marine reserve. This brought to bear both statutory law (a Municipal Ordinance) and rules of a newly created fishers' association to enforce restrictions on use, in order to protect the resource base (coral reef and fish stocks) upon which fishers' livelihoods depend. Other instances of livelihood uncertainties evoking multiplicity of bases for claiming property rights are seen in programs that extend access to resources to providle livelihoods for more users. Government or donor-funded projects that seek to extend irriga,tion systems that were farmer-managed provide a clear example of this, as discussed below in the section on water rights. In addition to an influx of new users, livelihood uncertainties can result from the r emoval of customary users, as when. men migrate to cities and leave women to take over all farning activities. In such cases customary rules that limit women's participation in management bodies limit the control rights of femnale-headed households. However, new rules supported by the state, extemal donors, or NGOs may call for more female involvement, and hence p)rovide a basis for stronger claims by women farmers. AND IMPLICATIONS FOR POLICY, pp. 146-176, (Feldafing, Germany: Zentralstelle fLir Emanhrung umd Landwirtschaft) (2001). 17NYOMAN SUTAWAN, NEGOTLTION OF WATER ALLOCATION AMONG IRIGATORS' ASSOCIATIONS IN BALI, INDONESIA, IN BRYAN R. BRUNS AND RuTH S. MEINZEN-DICK (EDS.) NEGOTIATING WATER RIGHTS, pp. 315-336 (London: Intermediate Technology Publications) (2000). 18 ROBERT S POMEROY, DEVOLUTION AND FISHERIES CO-MANAGEMENT, IN RuTH S. MEINZiN-DICK, ANNA KNOX, AND MONICA Di GREGORIO (EDS.) COLLECTIVE ACTION, PROPERTY RIGHTS, AND DEVOLUTION OF NATURAL RESOURCE MANAGEMENT: EXCHkNGE OF KNOWLEDGE AND IMPLICATIONS FOR POLICY, pE). 108-145, (Feldafing, Germany: Zentralstelle flir Emahrung und Landwirtschaft) (2001). 87 Users may also acknowledge essential livelihood uses as a basis for claiming resources, even though formal rules prohibit it. For example, in the Kirindi Oya irrigation system in Sri Lanka, according to regulations from various government agencies, water from standpipes is not supposed to be used for bathing or gardens, and tank water is not supposed to be used for making clay pots, but inforrnants responded that these uses are allowed by local norms: "because they need it and there is no other source" of the water. Even busloads of pilgrims who come to Buddhist holy sites in the area are given preference for water. 9 In this context, as in many others, most people consider natural resources not only as commodities, but also as objects which have symbolic (including prestige and religious), social security, and social exchange aspects. The links between symbolic and social security aspects of property rights are part of what Scott referred to as the moral economy.20 Social and Political Uncertainty Influxes of new migrants, changes in regimes, and other social and political upheavals create uncertainties that are at least as profound as ecological and livelihood uncertainties. Legal pluralism can both emerge from such conditions, as well as help people cope with these uncertainties. Smucker, White, and Bannister)21 relate how locally defined property rights to land, enforced by local recognition, offer peasants in Haiti defense against a predatory state. Unruh provides a more extreme example from post-war Mozambique, where massive displacement and resettlement of people from different areas disrupted many customary forms of property rights, but the state also lacked the capacity to define or arbitrate property rights.22 In this situation multiple rules of evidence were employed, including social (testimony establishing a link between a person and a community), cultural-ecological (signs of human activity on the landscape, like old planted trees), and physical (natural terrain features establishing familiarity with an area). Settling conflicts required bringing all these types of evidence to bear. Social and political changes also bring profound changes to decision-making rights and authority. New political regimes can change laws and rules, as well as affect which law or rule is to be applied, which reshapes property rights. Clear examples have been seen in the rise and fall of communist or socialist regimes in Eastern Europe. However, even South Africa and Zimbabwe have had considerable restructuring of rights to land and water, based on state and customary laws, in the past few years with the rise of a new power structure (or at least the crumbling of the old). '9 Ruth S. Meinzen-Dick and Margaretha Bakker, Water Rights and Multiple Water Uses: Framework and Application to Kirindi Oya Irrigation System, Sri Lanka. EPTD Discussion Paper 59, International Food Policy Research Institute (2000). 20 AJAMES C. Scorr, THE MORAL ECONOMY OF THE PEASANT: REBELLION AND SUBSISTENCE IN SOUTHEAST ASIA, (New Haven, Connecticut: Yale University Press) (1976). 21 Glenn R Smucker ET AL., Land Tenure and the Adoption of Agricultural Technology in Haiti. CAPRi Working Paper 6, International Food Policy Research Institute, Washington DC (2000). 22 Jon Unruh, Land Dispute Resolution in Mozambique: Evidence and Institutions of Agro-forestry Technology Adoption. CAPRi Working Paper 12, International Food Policy Research Institute, Washington DC: (2001). 88 Kaowledge Uncertainty While legal pluralism can provide a means of coping with ecological, livelihood, social arkd political uncertainty, it also exacerbates knowledge uncertainty. No one will know all of the pe,rtinent or possibly applicable legal frameworks, and what provisions they have regarding property rights. Instead, knowledge is partial and fragmented. A lawyer may know much of slatutory law, a government official may know project regulations, a village elder may know customary law, and a priest may be an expert on religious law and norms related to rights, but eich of them is likely to know less about the other possible legal frameworks. Other resource users are likely to have partial knowledge of several of the types of law that relate to property rFghts. In many countries, state laws are largely unknown in villages, and sometimes when new laws are promulgated, not only villagers but also government officials at the district or village l'tvels are ignorant of the new lavs. The result is that resource users may act in ignorance of some definitions of property tights. For example, those who do not know that the state claims sole rights to harvest certain frees will continue to cut them, or newcomers may follow their understanding of state law and violate local rules that they do not know of. On the other hand, someone who is aware that c"ertain rules exist but is not sure what they are may act out of fear of violating umknown rules, whether those be unknown statutory or local laws. The other form of knowledge uncertainty that legal pluralism creates or enhances is the knowledge of what other people will do. Institutional economists point out that the great advantage of institutions lies in the way they allow people to predict the behavior of others, much as knowledge of traffic rules allows one to make assumptions about what others will do, and act on the basis of those assumptions. In common property theory, this predictability helps provide assurance that if one abides by the rules governing use of a resource, others will too, thereby overcoming the fear of free riders and the "tragedy of the commons." But if multiple legal frameworks can be applied at the same time, and others may be abiding by different laws and definitions of property rights, then that assurance is eroded (just as, in the example of traffic rules, if some drivers are American and others British, one might not be able to lpredict on which side of the road others will be driving). If one cannot predict how property rights will be determined, tenure security is also eroded. These factors often lead economists interested in increasing efficiency, as well. as policymakers and analysts interested in sustainable natural resource management, to seek to reduce pluralism and consolidate all under a unitary "rule of [state] law." While knowledge uncertainties may be inherent in legal pluralism, these are not necessarily major obstacles to equitable and sustainable natural resource management. Certainly the flexibility that legal pluralism allows provides an important coping stralegy to deal with environmental, livelihood, and social and political uncertainty. Consolidating all property rights under statutory law, even if it were possible, would be cumbersome and inappropriate to many situations, and hence we wowld sacrifice adaptability to changing circumstances. Statutory law can even become a major source of livelihood uncertainty, especially to those who have less money, education, connections, or other assets to give them access to the state legal mechanisms. Recognizing diverse sources of property rights is more equitable because it offers most parties 89 some basis for a claim on the resource. Furthermore, legal pluralism distributes knowledge uncertainties among the different stakeholders, so that no one has a monopoly on knowledge, nor is anyone likely to be totally without some notion of property rights. The interaction between legal frameworks provides a source of dynamism that can respond to changing circumstances. What legal pluralism does call for is much more attention to negotiation processes. Forum shopping, by which different parties base their claims on whichever legal framework they feel best fits their situation, is inherent in situations of legal pluralism. Power relationships are entailed in these negotiations. Given the heterogeneous and hierarchical nature of local comrnmunities, negotiation means that the powerful often can establish stronger rights. Women, members of lower classes, or otherwise disadvantaged groups often lack the knowledge and bargaining power needed to actualize their rights. Establishing effective platforms for negotiation is critical for effective natural resource management. For equity in distribution of concretized property rights, external intervention may be needed to "level the playing field," to either strengthen the negotiating ability of disadvantaged groups, or expand the repertoire of claims they can make on a resource (e.g. by passing statutory laws giving women more claims to property). Without effective negotiating forums, conflicts can escalate, but with effective means of negotiating, various stakeholders can adapt to changing conditions. The discussion of water rights in the following section illustrates these points. EXAMPLES FROM WATER RIGHTS Ultimately, all the arrangements linked with sharing water encumber water rights with so many customary constraints and restrictions that they tend to become simply nominal values which in their concrete aspect (that is, the quantity of water which someone with a water right actually acquires) are fluid and variable. As a result there is continued negotiation, which requires the mobilization of power, and this makes the definition of one's identity (either through lineage or status group membership) a primordial need.23 In many parts of the world, water rights are dynamic, flexible and subject to frequent negotiations.24 This is because water rights, like rights to natural resources in general, are embedded in social, political, and economic relationships and are often closely tied to other rights. For example, rights to water are often closely coupled to land rights and rights to pasture may be tied to membership of a pastoral community. Changes in any of these relationships and rights affect property rights to natural resources. However, water rights are perhaps more dynamic, flexible, and subject to continued negotiation than other natural resources because of the characteristics of water as a resource. Water is a mobile, fluid, and fugitive resource, with a great deal of inherent uncertainty regarding 23 A HAMMOUDI, SUBSTANCE AND RELATION: WATER RIGHTS AND WATER DISTRIBUTION IN THE DRA VALLEY, iln ANN ELIZABETH MAYER (ED.) PROPERTY, SOCIAL STRUCTURE, AND LAW IN THE MODERN MIDDLE EAST, pp. 27-57 (Albany, N.Y.: State University of New York Press) (1985). 24 BRYAN BRUNS, RANDOLPH AND RUTH S. MEINZEN-DICK (EDS.), NEGOTIATING WATER RIGHTS, (London: Intermediate Technology Publications) (2000); See also Rajendra Pradhan ET AL., Law, Rights and Equity: Implications of State Intervention in Farmer Managed Irrigation Systems, in Rajendra Pradhan ET AL., Water Rights, Conflict and Policy, pp. 111-34, Colombo: International Irrigation Management Institute (1997); See also Franz von Benda-Beckmann and Keebet von Benda-Beckmann, Gender and the Multiple Contingencies of Water Rights in Nepal, Supra note 13. 90 ils quantity and location. The amount of water available in water sources such as rivers, lakes, r-servoirs, and aquifers depends on the vagaries of rainfall and hence varies fi-om season to season and year to year. Environmental changes, such as deforestation or reforestation, often change the hydrological systern of a watershed or river basin. This uncertainty of water availability is often compounde(d by floods and landslides, which may change river courses and cestroy intake structures, making it impossible to convey water to the locations at the periods Nhen it is needed. But there is demand and need for specific quantities of water at specific times nd locations, especially for irrigation and domestic water uses. Water is needed on a daily basis lor domestic needs and livestock, and too much or too little water supplied early or late affects the harvest of crops. Thus ecological uncertainties contribute to livelihood uncerta,inties. Capturing and conveyingi water to the locations where it is to be used requires collective effort, both to appropriate and convey water and to make and enforce rules for appropriation, aillocation, and distribution. Because water is essential for life and virtually all economic onterprises, there often are mult;iple users and uses of the same water source. Further, there are often different categories of riglhts and rights holders to water as it flows along its course and is '-aptured and impounded or conveyed by canals and pipes to different locations.' 5 For example, [he state may claim ownership, control and use rights to a river throughout its course, vhile riparian communities may clairn control and use rights to the river water as it flows past their localities as against the claims of other communities located at a distance from the river which may claim use rights based on prior appropriation. The farmers who capture and convey water through infrastructures they constructed and operate will claim ownership, contrc,l and use jights to the water in their canals or vwells. However, others may have tolerated access and limited use rights to water in the canals for irrigation as well as non-irrigation uses, such as for watering livestock, washing clothes and utensils, traditional mills, and mini hydro-electric plants.26 The demand for water and the change in the uses of water have increased with the rapid growth of population and lifestyles, urbanization, and industrialization. Although irrigation is still the largest sector of water consumption worldwide (and particularly in most Asian countries), municipal and industrial uses are growing as much as ten times faster. As a consequence, there has been a tremendous increase in competition and conflict over water between the state and water resource based companies on the one hand and local communities on the other, between different local communities and between members of the same local communities. 25 Ujjwal Pradhan, Farmers' Water Rights and their Relation to Data Collection and Management, in J. Sowerwine ET AL., From Farmers' Fields to Data Fields and Back, pp. 187-198, Kathmandu: International Irrigation Management Institute and IAAS (1994); See also R.S. MEINZEN-DICK, PUBLIC, PRIVATE, AND SHARED WATER: GROUNDWATER MARKETS AND ACCESS IN PAKISTAN, in BRYAN R. BRUNS AND RUTH S. MEINzEN-DICK (EDS.), NEGOTIATING WATER RIGHTS, pp. 245-268 (London: Intermediate Technology Publications) (2000). 26 Supra note 19; See also RAjENDRA PRADHAN, AND UJJWAL PRADHAN, NEGOTIATING ACCESS AND RIGHTS: DISPuTEs OVER RIGHTS TO AN IRRIGATION WATER SOURCE IN NEPAL, in BRYAN R. BRUNS AND RUTH S. MEINZEN- DICK (EDS.) NEGOTIATING WATER RIGHTS, pp. 200-221 (London: Intermediate Technology P'ublications) (2000); See also Indra Sodemba, and Rajeiidra Pradhan, Land and Water Rights in Thulo Sangrumba, 1lam, in Rajendra Pradhan ET AL., Water, Land and Law: Changing Rights to Land and Water in Nepal, pp 101-128, Katlunandu: FREEDEAL, Wageningen: WAU, Rotterdam: EUR (2000). 91 The need for water is urgent and time specific, but the uncertain supply of water from sources such as rivers and reservoirs has to be conveyed over a long distance, and there are many claimants to the water source for various uses (irrigation, domestic use, and waste disposal). As a result, the claimants for water need to frequently negotiate with other claimants to safeguard their share of the uncertain water supply. This is problematic in large river basins without a 27 centralized authority to allocate water shares and make water appropriation schedules. But a case study from Dang, Nepal by Adhikari and Pradhan,28 shows that even when there is a centralized body to allocate water shares and schedules in a smaller river basin, the rights holders are not necessarily guaranteed their traditional share of water. Attempts by government agencies to regulate water use by different users by means of state law have often not succeeded in decreasing conflicts and may in fact have led to uncertainty about water rights for the traditional rights holders. As many studies have shown, in the process of negotiation for water rights, power relations are very important: the elites are more likely to negotiate better water rights for themselves than the less powerful.29 This is because the elites control the decision-making processes that legitimize the rules for allocation and distribution of water.30 However, programs and alliances can help disadvantaged groups have a stronger negotiating position. For example, there is a public interest law firm assisting Hispanic acequia31 owners in New Mexico to protect their rights against golf courses, developers, and others seeking more water.32 Although the acequia owners have the most senior water rights in New Mexico, they are at a disadvantage because they have less education, knowledge of English, and exposure to statutory law than the developers and other interest groups. Key components of the strategy include legal literacy programs to make acequia owners aware of their rights and improve their understanding of statutory legal procedures; and working to have the process of statutory water rights adjudication recognize multiple forms of evidence, including testimony of elders and even archaeological evidence, to strengthen the bargaining power of the acequias. 27 Ajaya Dixit, Inter-Sectoral Water Allocation: A Case Study in Upper Bagmati Basin, in Rajendra Pradhan ET AL., Water Rights, Conflict and Policy, pp. 195-220, Colombo: International Irrigation Management Institute (1997); See also Dipak Gyawali and Ajaya Dixit, Fractured Institutions and Physical Interdependence: Challenges to Local Water Management in the Tinau River Basin, Nepal, in Marcus Moench ET AL., Rethinking the Mosaic: Investigations into Local Water Management pp. 57-122. Kathmandu and Boulder, Colorado: Nepal Water Conservation Foundation and Institute for Social and Environmental Transition (1999). 28 Madhukar Adhikar and Rajendra Pradhan, Water Rights, Law and Authority: Changing Water Rights in the Bhamke Khola Basin, in Rajendra Pradhan ET AL., Water, Land and Law: Changing Rights to Land and Water in Nepal, pp 71-100, Kathmandu: FREEDEAL, Wageningen: WAU, Rotterdam: EUR (2000). 29 Supra note 23; See also Rajendra Pradhan and Ujjwal Pradhan, Staking A Claim: Law, Politics and Water Rights in Farmer Managed Irigation Systems in Nepal, in H. L. Joep Spiertz, and Melanie G. Wiber (eds.), The Role of Law in Natural Resource Management pp. 61-76, The Hague: VUGA (1996); See also Supra note 13; See also BRYAN BRUNS, RANDOLPH AND RuTH S. MEINzEN-DICK (EDS.), NEGOTIATING WATER RIGHTS, Supra note 24. 30 Supra note 28. 3 Acequias are traditional small-scale irrigation systems. 32 NORTHERN NEW MEXICO LEGAL SERVICES, STREAM ADJUDICATIONS, ACEQUIAS, AND WATER RJGHTS IN NORTHERN NEW MEXICO, in BRYAN RANDOLPH BRUNS AND RuTH S. MEINZEN-DICK (EDS.), NEGOTIATING WATER RIGHTS, pp. 337-352 (London: IT Publications) (2000). 92 The following examples show the complexity and dynamism of water rights in different ty,es of situations. While most are drawn from irrigation in South Asia, rather than other sectors ard countries, similar principles are to be found in many contexts, if we look beyond simple statutory explanations. D)ry Seasons and Years In times of drought and wvater scarcity, the rules applied during normal periods or periods of water abundance are often negotiated. Examples include the temporary reallocation of land in ihe bethma system in Sri Lanka,33 "borrowing" or rearrangement of water flows between .3alinese subaks, and farmers in some villages in Nepal being allowed to 'steal' water or given Lolerated access during drought seasons.34 According to Nepalese state law irrigation should begin with the fields nearest the water source and then move serially down the canal. This law is usually applied when the water flow is abundant but in times of scarcity, water distribution follows a rotation system in whlich the head and tail ends receive water first alternately so that there is a more equitable distribution of water, especially if the tail enders become powerful.35 In these circumstances, norms that appeal to sentiments of equity, community ties, and religion come into play. Rebuilding Water Systems At the other extreme of water supplies, when floods and landslides destroy structures or change the course of a river, then the claimants have to negotiate and renegotiate rights to water, especially the allocation of water shares and turns. Shukla et al. describe one such case in the plains of Nepal, where frequent floods destroy the fragile diversion weirs. The farmers of the different irrigation systems then have to negotiate new locations of their intake structures and water shares from the river.36 The farmers belonging to separate irrigation systems have to renegotiate water shares and turns to their branch canals. In such cases, the location of the intake structures and the water allocation and distribution rules are based on compromises reached during disputes and negotiations rather than directly on the provisions of the Nepalese state law. Power relationships often dewermine which sections of farners get better locations for intake structures and more favorable water shares and turns. Conversely, Lam found that rebuilding systems with permanent heaelworks instead of those that require annual replacement could, by reducing the labor requirements of a system, weaken the bargaining power of the tail enders 33 H. L. JOEP SPIERTZ AND I. J. H. DE JONG, TRADITIONAL LAW AND IRRIGATION MANAGEMENT: THE CASE OF BETHMA, IN G3EERT DEEMER AND J. SLABBERS, IRRIGATORS AND ENGINEERS: ESSAYS IN HONOR OF LUCAS HORST, ED., pp. 185-202, (Amsterdam: Thesis Publishers)(1 992). 34Durga K.C. and Rajendra Pradhan, Improvement and Enlargement of A Farmer Managed. Irrigation System in Tanahu: Changing Rights to Water and Conflict Resolution, in Rajendra Pradhan ET AL., Water Rights, Conflict and Policy, pp. 173-194, Colombo: Intemational Irrigation Management Institute (1997).; See also RAJENDRA PRADHAN, AND UJJWAL PRADHAN, NEGOTIATING ACCESS AND RIGHTS: DISPUTES OVER RIGHTS TO AN IRRIGATION WATER SOURCE IN NEPAL, Supra note 26. 35 Rajendra Pradhan ET AL., Water Rights, Conflict and Policy, Colomnbo: International Irrigation Management Institute (1997); See also Rajendrn Pradhan ETAL., Water, Land and Law: Changing Rights. to Land and Water in Nepal, Kathmandu: FREEDEAL, Wageningen: WAU, Rotterdarm EUR (2000). 36 Athutosh Shukla ET AL., Dynamics in Water Rights and Arbitration on Water Right Con flicts: Cases of Farmer Managed Irrigation Systems From East Chitwan, in Rajendra Pradhan ET AL., Water Rights, Conflict and Policy, pp. 173-194, Colombo: International Irrigation Management Institute (1997). 93 (because head enders would no longer need their labor to rebuild the system), and hence weaken the effective water rights of the tail enders.37 It is ironic that increasing concrete in the headworks reduced the concretized water rights of tail enders. Thus a program to reduce environmental uncertainty can have the effect of increasing livelihood uncertainty. Expanding Systems In many parts of the world, especially in developing countries heavily dependent on agriculture, a lot of money has been spent by donor agencies and national governments to expand irrigated agriculture, either by constructing new irrigation systems or more often by expansion of existing systems.38 Expansion of existing systems with government or donor funds leads to negotiations between old and new rights holders and claimants. While original rights holders may claim rights over the irrigation system and water by virtue of their own (or their ancestors') investment in the system, newcomers claim rights to the enlarged system and water by virtue of project investment and government grants. The new claimants argue that because the enlarged irrigation system is no longer private or common property of the original rights holders but 'public' or government property by virtue of the project investment or government grant, the original rights holders can no longer deny the new claimants with land in the official command area rights to use the water and to participate in decision-making processes relating to irrigation management. Different legal orders construct rights, rights holders, and property regimes of the same irrigation system differently. Whose claims will be accepted or what kind of water rights arrangements will be effectuated depend on negotiation between the rival claimants and their manifold social, political and economic relationships as well as other norms brought into play.39 Changing Power and Alliances Though water rights are constructed by legal orders, the actualization of water rights, both categorical and concrete, are effectuated by social processes because water rights are embedded in social, political and economic relationships.40 Changes in these relationships affect water rights relationships. Adhikari and Pradhan describe how in a river basin in Dang, with every change in political regime in Nepal, a different set of elites emerged who were able to control the decision-making body, which allocated water shares and turns.41 The new political elites assigned to themselves and their supporters more water shares and better turns than they formerly enjoyed. In another case, after the restoration of democracy in Nepal, the low caste tail enders in an irrigation system that had been expanded with a grant from a donor agency were finally able to establish secure water rights and a better supply of water once they received WAI F. LAM, GOVERNING IRRIGATION SYSTEMS IN NEPAL: INSTITUTIONS, INFRASTRUCTURE, AND COLLECTIVE ACTION,(Oakland, CA: ICS Press)(1998). 38 William I. Jones, THE WORLD BANK AND IRRIGATION, A World Bank Evaluation Study, World Bank Doc. 14908, WB Stock No C 13249, (1995). 39 JEFFREY D. BREWER, NEGOTIATING SEASONAL WATER ALLOCATION RULES IN KIRINDI OYA, SRI LANKA, in BRYAN R. BRUNS AND RUTH S. MEINzEN-DICK (EDS.) NEGOTIATING WATER RIGHTS, pp. 112-136 (London: Intermediate Technology Publications) (2000); See also Supra note 13; See also Rajendra Pradhan and Ujjwal Pradhan, Staking A Claim: Law, Politics and Water Rights in Farmer Managed Irrigation Systems in Nepal, Supra note 29; See also Rajendra Pradhan ET AL., Water Rights, Conflict and Policy, Supra note 35. 40 Supra note 13. 41 Supra note 28. 94 support from a strong political party and the tail enders threatened violence against the upper caste farmers in the head and middle sections of the system.42 In Nepal, women, long denied jights to participate in decision-making processes and to become members of managemcnt i,ommittees of irrigation systems, have lately acquired rights, even if only categorical, to become :nembers of committees and to l)articipate in meetings, thanks mainly to recent state laws and the fforts of donor agencies and NGOs. Current studies by FREEDEAL reveal that wonmen's irrigation water rights have improved, even if only marginally, due to changes, however small, in gender relations. Intersectoral Competition The increasing intersectoral competition and conflicts over water also affect water iights of traditional rights holders. Because of the growing financial and environrnental costs of building new water control structures, water is increasingly taken out of agriculture for industries, including tourism, domestic, and especially urban water supply, and recreation (golf courses and swimming pools), or the flow of the river altered to generate hydro-electricity. Cities and industries use a variety of means to divert water from other uses (especially agriculture). In some cases (such as New Mexico, California, or Chile) there are mechanisms for water trades or sales, that irmplicitly or explicitly acknowledge the prior rights of farmers, negotiate with them, and provide various forms of compensation.43 At the other extreme there are also numerous examples of extra-legal maneuvers and subversive mneans such as unauthorized pumping of water from irrigation canals.4 In between lies a range of other practices such as government administrative orders transferring water to municipal and industrial uses, or purchasing or renting irrigated land in order to take the water for a factory or city. Because of the disposal of sewage, industrial effluents, and agricultural chemicals, intersectoral competition over water is not over quantities alone, but also affects quality. Intersectoral water transfers have especially affected water rights of irrigators but also rights of citizens to clean rivers, used as sources for domestic water supply and for religious purposes (such as ritual bathing). As yet, most types of water rights and enforcing institutions have not been able to address water quality issues adequately. Drinking Water Following the Second World Water Forum,45 there has been considerable international and national debate over whether access to basic water should be considered a "basic human right." But whether or not national and international bodies endorse this principle, many religious doctrines and local norms dictate that rights to domestic water supplies, especially for drinking purposes, override or overflow the narrow definitions of property regirnes. For example, according to Nepalese state law valid until 1990 and which is still used as local law in the 42 Rajendra Pradhan ET AL., Water Rights, Conflict and Policy, Supra note 35. 43 Mark W. Rosegrant and Claudia Ringler., Impact on food security and Rural Development of Reallocating Water from Agriculture, WATER POLICY, 1:567-586 (1998). 44 Ajaya Dixit, Inter-Sectoral Water Allocation: A Case Study in Upper Bagmati Basin, Supra note 27; See also GANJAR KURNIA ET AL., FARMERS, FACTORIES AND THE DYNAMICS OF WATER ALLOCATION IN WEST JAVA, in BRYAN R. BRUNS AND RUTH S. MEINZEN-DICK (EDS.) NEGOTIATING WATER RIGHTS, p:p. 292-314 (London: Intermediate Technology Publications) (2000). 45 For more information about the forum see www.worldwaterforum.org 95 villages, the proprietor of land on which a water source such as a spring or well is located is the 'owner' of the water source. The owner has the right to exclude other villagers from using the water in his or her land. However, in most villages, the owner's co-villagers have rights to use the water for domestic purposes, especially for drinking and cooking, by virtue of a Hindu norm. The landowner may appeal to state or one version of local law to prohibit other villagers from using the water but social pressure and appeal to a religious norn would force him to grant use rights to the villagers.46 Depending on which law is used, water located in someone's land is either 'private' or 'common' property. However, despite religious laws about granting access to drinking water for all, low caste or low status households and individuals may have difficulty in concretizing their rights even to drinking water, as Sadeque's study of competition between deep irrigation tube wells and shallow domestic pumps shows in Bangladesh .47 What all these point to is, as Hammoudi observed,48 that water rights are relational, that is, they are relationships between people over water.49 In other words, what one holds in one's hand is not water but relations, relations which are often hierarchical, fluid, and transitory, subject to change like the supply of water. CONCLUSION With every change in water supply from a water source, introduction of new uses or users, change in property regime, or social or political upheaval, old rights holders and new claimants dispute and negotiate and renegotiate their water rights relationships. In the process of disputes and negotiations, the claimants refer to different sets of legal orders or different interpretations of the same legal order to legitimize their claims. A single, rigid rule for allocation and distribution of water is unsuitable for taking into account the uncertainties in the quantities and timings of water supply for multiple users and uses. The fluid nature of water certainly enhances the uncertainty and need for flexibility in dealing with this resource, and the long history and intimate connection between water and life have contributed to the multiplicity of legal orders that address who should have how much water, in what places for what uses. Yet the principles of legal pluralism apply to other resources, as well: * Instead of looking for clearly defined rules within a single, coherent legal system, it is more useful to recognize the ambiguity of rules, and the multiplicity of legal systems. This ambiguity and pluralism gives scope for human agency, through forum shopping and adapting rules in the concretization of rights. Such agency is critical for dealing with uncertainties that arise from environmental fluctuations, livelihood changes, social and political upheavals, and other sources. 46 Bishnu R Upreti ET AL., Community Level Water Use Negotiation: Implications for Water Resource Management, in Rajendra Pradhan ET AL., Water, Land and Law: Changing Rights to Land and Water in Nepal, pp 249-270, Kathmandu: FREEDEAL, Wageningen: WAU, Rotterdarn: EUR (2000). 47 SYED ZAHIR SADEQUE, NATURE'S BOUNTY OR SCARCE COMMODITY: COMPETITION AND CONSENSUS OVER GROUNDWATER USE IN RURAL BANGLADESH, in BRYAN R. BRUNS AND RUTH S. MEINZEN-DICK (EDS.) NEGOTIATING WATER RIGHTS, pp. 269-291 (London: Intermediate Technology Publications) (2000). 48 Supra note 23. 49 Supra note 13. 96 o Instead of trying to identify a single authority, whether it be the state or formal user groups, it is better to identify the overlapping and polycentric forms of governance that influence resource management. Farmer managed irrigation systems, with their flexible rules and rights embeddeid in social, political and economic relationships are often better able to adapt rules and rights to such changes than irrigation systems managed by government agencies.50 l'o enable institutions to adapt to uncertainty, programs seeling to set up user groups to manage resources should allow flexibility and adaptation in the organizations, not seek to specify all the rules from the outset. o At the same time, we should not assume that local groups would be equitable or even have sufficient technical knowledge to manage their resources. We have seen many cases in which power differences and social relations obstructed the actualization of rights, especially for women or low-status groups. Externally-defined lawvs (from the government, projects, or newly developed organizations) can provide such disadvantaged groups with additional bases for claiming property rights, and increase their bargaining power in negotiations for resources. However, for this to be effective, new laws aimed at strengthening the rights of the poor or other marginal groups must be accompanied by programs to create awaxeness by all parties, so that the new laws can be cited and accepted in the negotiation process. In general, legal pluralism calls for greater humility in policies and programs. It is not a matter of getting the "right" law or "right" institution to allocate or manage resources. Instead, rights to resources will be determined through a dynamic process. Yet this also provides the scope to respond to the uncertainties that resource users face. 50 See generally Salman M. A. Salman, The Legal Framework for Water User's Associations: A Comprehensive Study, World Bank Technical Paper No. 360 (1997). 97 BIBIOGRAPHY (Selected) Adhikari, Madhukar, and Rajendra Pradhan. "Water Rights Law and Authority: Changing Water Rights in the Bhamke Khola Basin." In Rajendra Pradhan and others. Water, Land and Law: Changing Rights to Land and Water in Nepal. pp 71-100 (Kathmandu: FREEDEAL) (2000). Benda-Beckmann, F. von, and others. "Local Law and Customary Practices in the Study of Water Rights." In Rajendra Pradhan and others. Water Rights, Conflict and Policy. (Colombo: International Irrigation Management Institute) (1997). Brewer, Jeffrey D. "Negotiating Seasonal Water Allocation Rules in Kirindi Oya, Sri Lanka." In Bryan R. Bruns and Ruth S. Meinzen-Dick, Eds. Negotiating Water Rights (London: Intermediate Technology Publications) (2000). Bruns, Bryan Randolph, and Ruth S. Meinzen-Dick, Eds. Negotiating Water Rights (London: Intermediate Technology Publications) (2000). Griffiths, J. "What Is Legal Pluralism?" Journal of Legal Pluralism. 24: 1-50 (1986). Guillet, David. "Rethinking Legal Pluralism: Local Law and State Law in the Evolution of Water Property Rights in Northwestern Spain." Comparative Studies in Society and History 2: 97-117 (1998). Hammoudi, A. "Substance and relation: Water Rights and Water Distribution in the Dra valley." In Ann Elizabeth Mayer, Ed. Property, Social Structure, and Law in the Modern Middle East, (Albany, N.Y.: State University of New York Press) (1985). Kurnia, Ganjar, and others. "Farmers, Factories and the Dynamics of Water Allocation in West Java." In Bryan R. Bruns and Ruth S. Meinzen-Dick, Eds. Negotiating Water Rights (London: Intermediate Technology Publications) (2000). Lam, Wai F. Governing Irrigation Systems in Nepal: Institutions, Infrastructure, and Collective Action (Oakland, CA: ICS Press) (1998). Meams, Robin. "Community, Collective Action and Common Grazing: The Case of Post- Socialist Mongolia." Journal of Development Studies 32(3): 297-339 (1996). Meinzen-Dick, R.S. "Public, Private, and Shared Water: Groundwater Markets and A.ccess in Pakistan." In Bryan R. Bruns and Ruth S. Meinzen-Dick, Eds. Negotiating Water Rights. (London: Intermediate Technology Publications) (2000). Meinzen-Dick, Ruth S., and Margaretha Bakker. Water Rights and Multiple Water Uses: Framework and Application to Kirindi Oya Irrigation System. EPTD Discussion Paper 59 (Sri Lanka: Intemational Food Policy Research Institute) (2000). Merry, S. E. "Legal pluralism." Law and Society Review 22: 869-896 (1988). 98 Moore, Sally, S.F. "Law and Social Change: The Semi-autonomous Field as an Appropriate Field of Study." Law and Society Review 70: 719-746 (1973). Nqorthern New Mexico Legal Services. "Stream Adjudications, Acequias, and Water Rights in Northern New Mexico." In Bryan Randolph Bruns and Ruth S. Meinzen-Dick, Eds. Negotiating Water Rights (London: IT Publications) (2000). Pradhan, Rajendra, and Ujjwal Pradhan. "Negotiating Access and Rights: Disputes over Rights to An Irrigation Water Source in Nepal." In Bryan R. Bruns and Ruth S. Meirizen-Dick, Eds. Negotiating Water Rights (London: Intermediate Technology Publications) (2000). Rosegrant, Mark W., and Claudia Ringler. "Impact on Food Security and Rural Development of Reallocating Water from Agriculture." Water Policy 1:567-586 (1998). Sadeque, Syed Zahir. "Nature's Bounty or Scarce Commodity: Competition and Consensus Over Groundwater Use in Rural Bangladesh." In Bryan R. Bruns and Ruth S. Meinzen-Dick, Eds. Negotiating Water Rights (London: Intermediate Technology Publications) (2000). Schlager, Edela, and Elinor Ostrom. "Property-Rights Regimes and Natural Resources: A Conceptual Analysis." Land Economics 68(2): 249-62 (1992). Scott, James C., The Moral E,conomy of the Peasant : Rebellion and Subsistence in Southeast Asia (New Haven, Connecticut: Yale University Press) (1976). Sodemba, Indra, and Rajendra Pradhan. "Land and Water Rights in Thulo Sangrumba, Ilam." In Rajendra Pradhan and others. Water, Land and Law: Changing Rights to Land and Water in Nepal (Kathmandu: FREEDEAL) (2000). Spiertz, H. L. Joep. "Water Rights and Legal Pluralism: Some Basics of A Legal Anthropological Approach." In Bryan R. Bruns and Ruth S. Meinzen-Dick, Eds. Negotiating Water Rights (London: Internediate Technology Publications) (2000). Sutawan, Nyoman. "Negotiation of Water Allocation Among Irrigators' Associations in Bali, Indonesia." In Bryan R. Bruns and Ruth S. Meinzen-Dick, Eds. Negotiating Water Rights (London: Intermediate Technology Publications) (2000). 99 PART III BENCHMARKING, INCENTIVES, AND PRICING CHAPTER 6 Role and Use of Economic Incentives in Irrigated Agriculture* Dirgha Tiwari and Ariel Dinar** INTRODUCTION Irrigated agriculture consumes about 70 to 80 percent of the total water use, and contributes about 38 percent of global food production. It has played a major role in generating employment opportunities in rural areas and for providing food to the urban poor at relatively cheaper prices. Globally, the irrigated agricultural lands have increased almost by 2.4 percent in the 1970s to 1.4 percent during 1980s and late 1990s. It is projected to increase further by 0.4 percent per annum for the next 34 years.' This indicates that the irrigation sector not only uses a large amount of global water, but the demand for water will also continue to increase in the years to come. On the other hand, vhile the world population has doubled in the last four decades, water use for domestic and industrial purposes has increased almost by three-fold during the same period,2 and demand for water for other usage is also expected to rise sharply with the growing urbanization, industrialization and the need for maintaining ecosystem health. There is evidence that irrigation water world-wide is not used efficiently. Using various measures of Water Use Efficiency (WUE)3 indicates that only 40 to 50 percent of the water delivered at various levels is actually used. For example: * In China, the surface irrigation efficiency is reported to be between 30 to 40 percent and canal efficiency between 40 to 50 percent.4 This chapter is based on a background paper and on a desk review of the active Irrigation and D)rainage Portfolio of the World Bank. However, the fincings of the review are not comnpleted yet and only 5 'non-pedestrian' examples are included in this chapter. Partial results of 50 out of the 66 active projects reviewed will be included in the presentation at the workshop only. " Dirgha Tiwari is Environmental Economist, Kathmandu, Nepal; Ariel Dinar is Lead Economist, Rural Development Department of, The WAorld Bank. l See generally, Global Perspectives Studies Unit, Food and Agriculture Organization of the United Nations Agriculture: Towards 2015/30, Teclmical Interim Report (2000). 2 Commission on Sustainable Development, Proposed Outcome of the Special Session, Fifth Session of the CSD (April 8-25, 1997) (last modified May 5, 1997) . 3 There are several 'system-level' indicators to measure the ratio between water that enters the system and water applied/used by the crop (WUE). They include: technical efficiency, economic efficiency, environmental ef'ficiency, end-use efficiency, allocative efficiency, institutional efficiency, static and dynamic ef'ficiency, basin-wide efficiency. 4See generally, L.C. QIAN, AND D. Xu., SUSTArNfNG IRRIGATED AGRICULTURE IN CHINA, SUSTAINABLE IRRIGATED AGRICULTURE (Kluwer Academic Plress) (1994). 103 * In India loss of water from seepage in irrigation canals is estimated at 45 percent and in Pakistan it ranges from 20 to 70 percent.5 * In Ethiopia, water losses in some areas reach 40 percent and in Jordan and Sudan water system experience even higher losses. In Egypt, average conveyance losses between the irrigation outlets and the fields are 11 percent and those between the outlets and main canals are 25 percent.6 There is also evidence, as examples in this chapter attempt to demonstrate, that, among other measures taken to address the low WUE in irrigation, economic incentives (EIs), when implemented properly have resulted in improved WUE. Economic incentives are defined here as signal-mechanisms that affect the decision making process and motivate water users to use water efficiently. The list of Els used in this chapter includes, among many others, the following categories: prices, taxes, subsidies, quotas, ownership/rights, and capacity. There are many nuances to each category, and there are various ways they may be implemented, taking into account the physical, socio-economic, political, and institutional conditions that prevail. In this chapter, we attempt to summarize a broader background report under a similar title and focus on various examples of El implementation, providing a range of conditions and combinations of EIs used. The chapter will attempt to initiate discussions on the role of EIs in improving WUE, on the relevance of part of the existing EIs, on experience in implementation. The chapter will attempt to answer the questions: what works and what doesn't, and why and discuss lessons learned. ROLE OF ECONOMIC INCENTIVES IN MOTIVATING IMPROVED WATER USER EFFICIENCY The relationship between different economic incentive mechanisms and efficiency measures can be explained with the help of the concepts of marginal benefit (demand), marginal cost (supply), and marginal damage cost. The potential adverse impacts of economic incentive measures such as introduction of environmental taxes or removal of perverse subsidies for inputs have been a major issue of concern in the developing countries mainly for two reasons. The first is due to the lack of basic understanding of the linkages between economic policy measures, the national economy, and the environment, or the resource base. The second reason is the fear of losing competitive position in the world agriculture market due to these measures. The general hypothesis is that the introduction of user charges and environmental/resource taxes would raise the production costs and hence export prices, which could affect or alter countiys competitive position in the market. 5 M. Yoduleman, Sustainable and Equitable Development in irrigated Environments, in Environment and the Poor: Development Strategies for a Common Agenda, in H. Jeffrey (ed.), US Third World Policy Perspectives, No. 11, Overseas Development Council, Washington D.C. (1989). 6 P. Kirpich ET AL., Problemns of Irrigation in Developing Countries, JOURNAL OF IRR1GATION AND DRAINAGE ENGINEERIN, 125, 1-6 (1999). 104 Figure 6.1 could help to conceptualize both the potential costs and benefits of econormic .ncentive measures. In a closed-loop diagram (characterized by several positive and negative loops as indicated by different letters)., enviromnental tax is introduced as a means for improving water use efficiency and internalizing environmental damage costs of irrigated agriculture, and making a shift towards adopting resource conserving/sustainable agriculture practices. The potential effects in the short-run could be both negative and positive on the resource use efficiency, producers' cost, trade and fiscal balance as shown by the positive (+ve sign indicating negative impacts with widening effects) and negative (-ve sign indicating positive impacts with self stabilizing effects) feedback loops. In the long run, the system may however, adjust and will be in general equilibrium, and that unlike price alone, resource use efficiency and environmental quality would drive the economy to a sustainable development path. Figure 6.1: Cause and Effect Loops Showing Linkages between Economic Incentives (Tax), Resource Use Efficiency, and Ihe Economy. _ I.nvirmnumC,tni ~~ta H~nv/nrnnentni +~~~~~~~~~~ Agiuituri ioput/r / Htumlan health tOCI*energ- pr rbsko agricultum\ \ practicti6 p/\Iuctielt \ / ~~~~~~~~~~Agicnultum \t t+A I pniducdvlty \lciD Technonogkal substotitudn + CA ~ ~ ~~~~~~~~- Goi%'rwntn rn,docuon fO Input usc Iniport/ inwsurnent on cean teehnoiA/ + \ i EJo¢ /FV UCM -_ =j > ~4 @ue-ueri v bipoto Source: Author's on-going work. The rest of this chapter provides a brief description on the use of economic incentive measures in various countries at various levels of policy intervention. 105 USE OF VARIOUS ECONOMIC INCENTIVES The issues relevant to the use of various economic incentives that need to be addressed include prices, subsidies, taxes, quotas and water rights. Prices Basic Concepts and Means of Implementation "Water price" denotes any charge or levy that farmers have to pay in order to obtain access to water in their fields,7 and is based on the users' pay principle (UPP) that those who benefit from the use of scarce resource should pay.8 Mechanisms include pricing irrigation water without transfer of water rights, which could promote technical eficiency; with transfer of water rights that could promote allocative efficiency; and with incorporation of environmental costs which again could promote ecological or environmental eJficiency or overall WUE. Both the pricing of water and farmers, government and societal loss could vary under different water charge schemes with and without transfer of property rights. A comparison between the three mechanisms is presented in Table 6.1. Table 6.1: Farmers', Government, and Societal Loss/Gain at Different Water Fees Level ($/ha/year) in Phlaichumpol Irrigation Sub-Project, Northern Thailand Cases Farmers' Government Societal Loss Loss/Gain Revenue (-)/gain(+) 1. Water fees without transfer of water rights 230.75 (-) 26.0 plus (-) 153.0 ($24.25/ha/year) administration costs 2. Water fees without transfer of property rights 145 50.25* (-) 99.75 ($87.0/ha/year) 3. Water fees with incorporation of environmental costs at: ($84.25/ha/year)** 147.75 84.25 (-) 40.25 ($147.0/ha/year)*** 85 147 (-)40.25 * Rest is supposed to be retain by the farmers' organization. ** $24.25 (willingness to pay value) + 60.0 (environmental costs). *** 87.0 (marginal value product of water) + $60.0 (environmental costs?. Source: Tiwari (1998).9 7 Organization for Economic Co-Operation Development, Water Subsidies and Environment (1998). 8 See generally, E. Doemmen, The Four Principles of Environmental Policy and Sustainable Development: an Overview, In E. Doemmen, Fair Principles of Sustainable Development: Essays on Environmental Policy in Developing Countries (Edward Elgar Press, Brookfield, Vermont) (1993). 9 D.N Tiwari, Determining Economic Value of Irrigation Water: Comparison of Willingness to Pay and other Conventional Approaches, CSERGE Working Paper No. 1998-05, University College, London, UK (1998). 106 ?vricing Water as an Input The accepted basis for pricing irrigation water is to consider 'water' as one 'input' among others in the agriculture production system and charge for water based on the quantity used. The -ffectiveness of direct water charges on volumetric basis in changing the farmers' behavior will depend mainly on the price elasticity of water. For the improvements in WUE, charges need to be implemented both on the abstraction and authorization to use, and need to be combined with mechanisms that provide incentive to release surplus water (Box 6.1). Box 6.1: Water Pricing System and Efficiency Gains In Germany, water charges have been effective in raising revenue, but charges are too low to affect the farmers' behavior. In Israel, where the irrigation water price is close to the marginal value product, efficiency gain was evident: a 50 percent reduction in water use was reported after improvements in water pricing system. Water allocation to agriculture declirned significantly from 74 percent in 1986 to 62 percent in early 1990s and productivity gains were also realized as per unit of land has doubled during the same time. In case of Netherlands, the experience was mixed as there was improvement in water quality with the introduction of water charges, but no reduction in water use was reported. In Spain, the effect of pricing policy was uncertain, but has encouraged the farmers to save, irrigation water.'0 In France, the tariff structure for irrigation water determined separately based oni off-peak and peak costs. The peak period for irrigation lasts for five months from mid-May to rnid-September and the water tariff during this season reflects the long-run marginal costs including the operating costs. During the rest of the year or the off-peak season, only the operating cost is included in the tariff structure. This dual pricing structure has helped to use scarce water more efficiently during the period when the demand is high compared to the supply.l Source: Sanz (1999), Risk andl Policy Analysis (1999), and Ahmed (2000). Water Pricing Based on the W'ater Productivity or Outputs In some countries, irnigation water is also charged on the basis of output per area, i.e., irrigators pay a certain water fee for each unit of output they produce. The basic concept is that farmers' should pay the charge according to the crop productivity or value of output, and represents the value of on-site irrigation water in terms of output.12 Though water pricing based on outputs has several advantages (Box 6.2) and that advanced methods to predict water use based on yield output, it is still rarely used. Apart from the difficulty in measuring and fixing the water price based on output, another problem with output-based pricing is that, while the real cost of irrigation doubled in the past, the cereal prices fell sharply.' '° G. L. Sanz, Irrigated Agriculture in the Guadian River High Basin (Castilla-La Mancha, Spain): Environmental and Socioeconornic Irnpacts, AGRICULTURAL WATERMANAGEMENT, 40: 171-181. (1999). " Id., also see generally Departnent of the Enviromnent, Transport and the Regions, London, UK, Economic instruments in Relation to Water Abstraction, Risk and Policy Analysis, Final Report (1999), See also M. Ahmad, Water Pricing and Markets in the Near East: Policy Issues and Options, WATER POLICY 2: 229-242 (2000). 12 D. C. Gibbons, The Econornic Vialue of Water, Resources for the Future (1986). 3 For example in India and Indonesia, since the early 1970s, and in other countries such as Thailand and Philippines, the real cost of irrigaLtion increased by 50 percent while the world cereal prices fell sharply, by almost 107 Box 6.2: Advantages and Issues in Output Pricing There are several advantages of the output pricing system in terms of ease of implementation. One of the advantages is that it is easy to measure per ha crop productivity on which, the per unit price depends than measuring water volume at each farmer's plot. Given the level of water charge based on the output, farmers' would either try to use available means for maximizing the profit, or switch to other crops when cultivation of a high water consuming crop would no more be profitable to them. One of the examples on how output pricing could affect the crop diversification is evident from a case of banana in Jordan. If the import ban on banana is lifted, then such a policy could increase supply of banana, which will result in, the decreased price of banana in the market. In such a case, farmers will have to diversify crops because producing banana would no more be profitable with increased water price. Source: Shatanawi and Al Jayousi (1995). 14 In addition to providing incentives to water users, a system of incentive can be built also into the operation of the water supplier. As known already, users would be reluctant to pay for non or low quality service. Therefore, incentives to agency personnel can play an important role in improving service and rate collection (Box 6.3). Box 6.3: The Viability Incentive Grant System of National Irrigation Administration in the Philippines The National Irrigation Administration (NIA) Viability Incentive Grants (VIG) system in the Philippines provides 10% bonus to regional and system level staff, totaling 10% of Irrigation Service Fees (ISF) collection. Although this bonus level leaves a very narrow margin for Operation and Maintenance (O&M), and is under review, it is an interesting incentive system for cost recovery collection by the staff of the supply agency. Source: World Bank Staff Appraisal Report, Philippines Irrigation Operations Support Project 2 , 1993. 40 percent over the same period, see generally Food and Agriculture Organization of the United Nations, Water Policies and Agriculture: Special Chapter of the State of Food and Agriculture (1993), see also Supra note 5. In such a situation, not even the double cropping of the higher valued crops can make irrigation system economnical, Supra note 5. Another concem is that the government policy of imposing taxes on agriculture products or a measure which keeps the agriculture prices relatively low would result in a low MVP. This would further encourage excessive use of water and other agriculture inputs. See generally, K.W. Easter, Intersectoral Water Allocation, County Experiences with Water Resources Management, Economic, Institutional, Technical and Environmental Issues, in G.L. Moigne ET AL., World Bank Technical Paper No. 175 (1992). 14 M. R. Shatanawi and 0. Al-Jayousi .M., Evaluating Market-Oriented Water Policies in Jordan: A Cornparative Study, WATER INTERNATIONAL, 20: 88-97 (1995). 108 S iibsidies Basic Concepts and Means of Implementation Subsidy as an economic incentive policy for improving WUE has two implications. The first implication is the removal of the existing subsidy for eliminating the existing inefficiency, and the second is the shift from "negative' to 'positive' subsidies, to improve efficiency of water use. Subsidy measures for promoting efficient resource use is often practiced for promoting environmentally friendly technologies to promote water savings, from which society as a whole may benefit.'5 Different types of subsidies such as direct subsidy (grants or payments to iarmers), budgetary subsidies (e.g., tax credits), provision of extension services, preference loans, and debt relief, could be implemented depending upon their effectiveness and suitability to a particular country, such as: * direct subsidy for adoption of existing efficient water application technology compensated on the basis of savings in water use and net societal benefits as a result of the technological shifts; * providing subsidy-incentives to user organizations to transfer technology, which could take place either through government-led financing and subsidies, or through private wvater companies (Boxes 6.4 and 6.5). Box 6.4: The No-Payment-No-Project Principle in Nepal Irrigation Sector Project In accordance with the Irrigation Policy (IP) principles, private and public systems would be considered eligible for funding under (Nepal Irrigation Sector Project) NISP upon written applications of beneficiary fanners backed up by their financial contribution to investment costs. The no Payment No Project principle would be applied. Source: World Bank Staff Appraisal Report Nepal Irrigation Sector Project NP PE10530 (1998). Box 6.5: The Up-front Cost Sharing in National Drainage Program of Pakistan The National Drainage Programi project in Pakistan will progressively ensure that all operation and maintenance (O&M) costs are covered. Provincial Irrigation and Drainage Agencies (PIDAs) and Area Water Boards (AWBs) would become financially self-sustained for O&M cost within 10 years and Farmer Organizations (FOs) within 7 years. Up-front cost sharing for capital investment (compared with back-end cost recovery in many other projects) vvill prevail. This cost sharing agreement will be stipulated in the Participation Agreements between the Provinces and PIDAs, AWBs and FOs. Source: Pakistan National Drainage Program. World Bank Staff Appraisal Report 15310 (1997). 5 If the reduction in social cost is greater than the value of the subsidy, it is usually justified. 109 * extension facilities for increasing farmers' knowledge on water application, technology adoption, efficient use of fertilizers, and pesticides.. all of which are directly or indirectly related to the water use and conservation; * capacity building such as strengthening of water users' organization which is a key to the implementation of other economic incentive measures. Box 6.6: Examples of Subsidy Programs and Inplications for Reduction in Water Use The provision of direct subsidy for environmental improvement is quite rare. Instead, there has been a gradual phase out of subsidies on agricultural inputs such as water, fertilizer and pesticides, which have shown high efficiency gains both in the developed and developing countries. The land set-aside program introduced in Western Europe and Conservation Reserve Programs practiced in the United States, are two of the measures, which provide direct subsidies to farmers. Both these programs could have positive impacts on water use, as the major objective is to reduce the area under cultivation and land conservation. The Conservation Reserve Program (CRP) under which farmers agree to retire eligible lands for 10 years in exchange for annual payments, plus cost sharing to establish land cover with grasses or trees, now sets aside about 30 million acres of environmentally vulnerable land in the United States. This could have significant impact on the water use, if taken out from the irrigated lands, but the cost itself is quite high, which is estimated at about $2 billion a year. Obviously, such programs and even subsidizing the adoption of technology would take large portions of the development budget and increase fiscal deficits and food scarcity in developing countries. Another approach, which could have some impact on the reduction in water use, involves compliance schemes. Under this scheme, to receive payments from certain agricultural programs, a farrner must meet certain conservation standards such as leaving a minimum amount of crop residues. This is being implemented on nearly 150 million acres of land that is prone to high erosion in the United States. Retaining crop residues in croplands also helps in soil-moisture conservation, leading to less water demands for crop irrigation.'6 In China, capital intensive application methods such as drip and sprinkler are already adopted in about one-sixth of cultivated lands and the problem in expanding these technologies is that their expense is often well above the low price charged for agriculture water.17 Likewise, in Bangladesh, the groundwater market seems to be highly monopolistic, because, the market development is seriously constrained due to unavailability of credit to the small and marginal farmers would not be able to compete if no credit facilities are provided.'8 In such cases, subsidies for adopting these technologies could help improve WUE. Source: Ervin, 2000; Nickum, 1998; Fujita and Hussain, 1995. 16 D. E. Ervin, Shaping a Smarter Environmental Policy for Farning, Issues in Science and Technolofy, Statement before U.S. Department of Agriculture Conservation Fonun (October 20th, 1999) (last visited August 8 , 2001) 17 S.E. Nickurn, Is China Living on Water Margin, THE CHINA QUARTERLY, 880-910 (1998). '8 K. Fujita, and F. Hossain., Role of the Groundwater Market in Agricultural Development and Income Distribution: A Case Study in a Northwest Bangladesh Village, THE DEVELOPING ECONOMIES, XXXIII, 442-463 (1995). 110 Taxes 'lasic Concepts and Means of Implementation Tax incentives are designed to modify behavior by encouraging particular groups or activities, and could be implemented in the form of preferential tax treatment to certain producers through tax credits, exemption or deductions, or through tax benefits provided to investors. Irrigated agriculture does not only consume a large share of the available water, but also generates externalities during the agricultural production process. For example, the excess pumping of ground water directly lowers the water table and also increases trans-evaporation of water, which results in negative regional water balance. The excess withdrawal of water also results in degradation of ecosystems because the minimum water requirement of the ecosystem is not met due to lowering of the 'water table and reduction of regional water balance. A tax incentive equal to the marginal environmental damage cost could be designed and implemented so that the water price also addresses these ecological concerns. Indirectly, environmental taxes also can be imposed on the water-related inputs such as energy inputs and chemical fertilizers, which also partly influence the level of water use. Usually energy used in water abstraction is highly subsidized and encourages farrners to use more water at a relatively lower cost of extraction. The design and impleomentation of environmental taxes for improving resource use efficiency, however, is not so simnple. There are several issues related to the design of tax such as the selection of a tax base, incidence of tax burdens, and stability of revenue generation when a shift of tax from 'good' (promotion) tax to 'bad' (prevention) is made for reducing the overall burden. The design of the optimal environmental tax is based on the Pigouvian concepts of equating marginal benefits with marginal cost, which requires information on both of these aspects. This is, however, almost a Herculean task for developing countries. Yet, the experience of some developed countries on water abstraction charge and taxes on agriculture inputs could help in conceptualising the benefits of such measures for improving WUE (Box 6.7) and gradual adoption of environmental tax measures. 9 See generally, Ministry of Supply and Services Canada, Canada's Green Plan: Economic Instruments for Environmental Protection, Discussion Paper (1992). Box 6.7: Water Abstraction Charges and Reported Improvements in Water Use Efficiency Very few countries have actually imposed water abstraction charges, and not much information is available on the impacts on reduction in water use. The water abstraction charge in France is 0.01 - 0.02, Germany 0.02 - 0.53, UK from 0.006 to 0.021, and in Netherlands at 0.08 and 0.15 ecu per cubic meter at provincial and national levels. In Demnark, under the green tax reforms program, the water tax is imposed at 1-5 DKK per cubic meter at 1998 price. However, farmers can deduct this tax for their value added taxes (VAT) Proceeds.20 The effectiveness of water abstraction charges practised in these countries is yet to be known. In general, the adoption of abstraction charges has resulted in the shift from ground to surface water. The introduction of the charging scheme for groundwater in Hamburg has resulted in a significant return of unused water rights - one of the main aims of the scheme. Whereas in Hessen, Germany, which levies the highest charges, a reduction in water consumption by 11 percent has been reported although some of this reduction may be the result of the slowdown in economic activity. In the Netherlands, the New National Groundwater Tax together with the existing provincial groundwater charge could probably be sufficiently high to provide some incentive to use less water.21 Smith (1995) indicated that though these charges would have helped for efficient water use to some extent, the charges or taxes do not incorporate the external cost generated from the water abstraction. 22 Source: Krinner ET AL., 1999; Organization for Economic Co-Operation and Development, 1998; Smith 1995. Taxes on Water Abstraction The water abstraction charge consists of an application fixed charge when applying for a license, and an annual fixed charge. The annual charge is based on the licensed volume taking into account (1) the source, with highest charge on ground water abstraction, (2) seasonal factor, with higher charges levied in the summer, and (3) loss factor, i.e., how much of the abstracted water is returned. The tax has regional variability to take into account the spatial scarcity of water.23 Various other factors influencing abstraction charges are briefly discussed firther (Box 6.8). Taxes on Environmental Damage In practice, the problem of agriculture water pollution, both in the Western European countries and the United States, have mainly been addressed through a series of directives and provision of subsidies for controlling pollution. The tax-based incentives have not been applied 20 See generally, C. Krinner ET Al., Sustainable Water Use in Europe, Sectoral Water Use, Project Manager. Environmental Assessment Report No 1, Part 1, European Environment Agency (1999), see also Supra note 7. 21 C. Krinner ET Al, Id. 22 See generally, S. Smith, "Green " Taxes and Charges: Policy and Practice in Britain and Germany, The Institute for Fiscal Studies, An ESRC Research Center, London, UK (1995). 23 C. Krinner ET Al., Supra Note 20. 112 nuch to agriculture. One reason might be the non-point source nature of agricultural pollution and nonitoring difficulties. Another reason as Scheierling (1995)24 points out, could be concerns about Box 6.8: Some Additional Issues Involved in the Design of Taxes for Water Abstraction rhe implementation of abstraction charge requires volumetric measurement of 'water to define the total annual licensed volume of abstraction. As the contribution of ground water abstraction to the total fresh water augmentation and externalities generated through irrigated agriculture practices, highly varies according to the locality, the unit charge could be based on the extent of the location or region specific impacts. In order to have effective abstraction charges or taxes, the charges on actual abstraction need to provide an incentive to abstractors for reducing use and the external cost of abstraction. Other factors to be considered are: (a) the volunme abstracted in relation to the river flows or ground water capacity and recharge rates, the poiInt of abstraction and timing, location of any retums of the water and opportunity cost of water; (b) potential impact on the environment of any changes in abstraction rates which needs to take into account the local catchments and regional conditions; (c) quality of return flows; and (d) the problem faced while applying these concepts in developing countries is that they require serious efforts in information collection and sound monitoring systems including water-measuring devices. Source: Authors' on-going work. the adverse effects on the farrming sector. The only example available on the adoption of water charge considering both the users' pay and polluters pay principles is that of France. While several economic incentives have been suggested for controlling non-point agriculture,25 it would be more practical to tax polluting inputs directly for the excessive use of such inputs mainly responsible for water pollution downstream. In the case of ecological damages due to excess water diversion or abstraction, the water abstraction charge should also reflect these cos-ts. Taxes on Related Inputs Other major agriculture inputs, which may influence WUE in irrigated agriculture, are energy and chemical fertilizers. It is estimated that the total amount of energy needed to operate irrigation equipment is about five times that required for its manufacture, and it accounts for about 23 percent of energy use for all other agricultural field operations. The energy requirements may increase with the inefficient water application practices. Taxes on energy and chemical inputs (Box 6.9), tradable quotas, and subsidies for land retirement or water conserving agriculture practices, could be some of the direct and indirect means for reducing water-related inputs and water use.26 24 See generally, S. M. Scheierling, Overcoming Agricultural Pollution of Water: The Challenge of Integrating Agricultural and Environmental Policies in the European Union, World Bank Technical Paper No. 269 (1995). 25 Malik S. A. ET AL., Econo.mic Incentives for Agricultural Non-point Source Pollution Control, WATER REsouRcE BULLETIN, 30: 471-480 (1994). 26 Id. Adjustment in the energy price, or taxes on energy inputs used in irrigation water extraction and applications, could thus help change inefficient water use practices. Most developing countries subsidize energy use in agriculture with the aim of increasing agriculture production. One possible government policy intervention could be a gradual shift of such subsidies by equalizing the energy price with other sectors and re-investing the gains for subsidizing the transfer and adoption of energy efficient technologies in agriculture. 113 Box 6.9: Use of Taxes on Water Pollution and Related Inputs: Reported Efficiency Gains Some developed countries have already introduced tax measures for controlling pesticides and chemical fertilizers. For example, Denmark, Finland, Norway and Sweden have introduced taxes on agriculture inputs such as fertilizers and pesticides. In Denmark and Norway, the retail sale o pesticides is subject to taxation at 20 and 13 percent respectively.27 The performance of these market-based measures is visible in the declining use of chemical fertilizer per ha of cultivated lands. In one German State (Baden-Wurttemberg) the funds raised are used to compensate farmers for the effects of reduced fertilizer use and the application of more expensive, but environmentally more acceptable, pesticides. Source: Krinner ET AL., 1999; Organization for Economic Co-Operation and Development, 1996. Quotas Basic Concepts and Means of Implementation The quota system is used to define the limit on water use or how much to use, when, by whom, and for what purpose. When users' behavior is not very responsive to price changes, because of rigid price elasticity, for example, quota regulation is suggested as one of the measures for reducing water use.28 The difference between quota and pricing system is that in the former case, the marginal social costs associated with each unit of abstraction are assumed minimized through the setting of some standards and the total allocation of rights. The basic difference between a quota and right allocation is that the formner may have various conditionalities, including a pre-determined price, and be subject to modifications, based on external conditions and number if users, or participants. In the water right case, the regulator simply defines or allocates property rights, and the market defines the price of quota or the permit.29 The effective implementation of quota system among others, requires specification of: (a) quota entitlements, (b) total amount of water allocated under quota system, that corresponds to the sustainable level of water augmentation, and (c) transferability among farmers, and between farmers and users of other economic sectors,30 although some quota systems are not transferable (the "use-it-or-loose-it" principle). Quotas could be defined in terms of right to use and the government can auction the quota in the market or 'give away' according to historical use patterns. The newcomers who would like to have rights to water abstraction or use would be required to buy quotas from those that already have the rights. Quotas are difficult to monitor by a central administration and is recommended to be given to WUAs to both allocate monitor and enforce. Efficiency gains are a 27 Organization for Econornic Co-operation Development, Implementation Strategies for Environmental Taxes (1996). 28A.S. Mohamed and H.H.G. Savenije, Water Dernand Management: Positive Incentives, Negative Incentives or Quota Regulation, PHYSICS, CHEMISTRY AND EARTH, 25: 251-258 (2000). 29 See Risk and Policy Analysis, Supra note 11. 30 See generally, T. TIETENBERG, ENvIRONMENTAL AND NATURAL RESOURCE ECONOMICS, 2nd Edition, (Scott, Forseran and Company, Boston, USA) (1988). 114 function of the rigidity of the quota mechanism (traded or personal quotas, and for general or for a specific use). Some absurd situations exist with rigid quota mechanisms (Box 6.10). ]3ox 6.10: They Always Irrigate When It Rains Many California farmers, under ihe water entitlement system in projects of the Federal and State gwvernments had a fixed personal water quota. The quota was administered under a rigid semiority system, and with the water year ending in October all; unused quota was lost. A czmmon phenomena in rainy early October days was that many of San-Joaquin Valley farmers irrigate their fields with the entire left-over of their annual quota, sending most of it to a rising Later table below through cracks in the summer-heated silt soil. Source: Authors' on-going worl. Box 6.11: Some Additional Issues Involved in the Implementation of Quota 'System Additional conditions requiring the successful implementation of quota system, include: the need for maintaining minimum flow of water in the canal system for downstream users in the case of droughts, and institutional arrangements in order to avoid monopolistic situations, where large landowners could monopolize water entitlements and water trading. If the quota systems are binding, raising irrigation water prices does not necessarily increase water productivity and efficiency, and thus may be merely a tax, especially on efficient farmers. If the quota allocation and trading systems do not address the ecological limits of water abstraction and use, over extraction and use of river and groundwater could have serious ecological impacts. As a rule of sustainability, allocation of quotas and trading between sub- catchments should be managed via a series of measures that allow for minimum evaporation, loss to groundwater, and effects of the trade on environmental flows.31 Source: Amir and Fisher 2000; Young 1997. Ownership or Water Rights Basic Concepts and Means of Implementation "Ownership" or "water rights" refers to the right acquired to the user under government regulation or water law for the abstraction, diversion, and use of water. Water right is acquired through quota or permits, if the right belongs to the government (state property regimes), through entitlements or sharing resource mobilization if under the community (common property regimes) and traditional right regimes. Lessons from successful water markets in Mexico also indicate that water rights need to be clearly defined and allocated.32 There is also an interrelation between the property regimes and pricing regimes, and water management needs to be 3 M. Young, Water Rights: An Ecological Economics Perspective Center for Resource and Enviromnental ',tudies, Ecological Econornics Program, Working Papers in Ecological Economics, Australian National University, Canberra, Australia (1997). 32 W. H. Kloezen, Water Markets br,-tween Mexican Water User Associations, WATER POLICY 1: 437-455 (1998). 115 understood as a part of the structure of property right regimes.33 Property-right systems also help in achieving ecological efficiency as they define the ecological limits, and then leave the market to work out what prices and charges are necessary to keep use within those limits across space and through time.34 Usually, property rights are assigned on the basis of traditional use, resource mobilization patterns and land entitlements, and through the quota system to new users who will have to purchase quotas to acquire the rights over water from the right holders. Water rights can be allocated in terms of a share of stream flow, aquifer, or reservoir and in terms of quota or water purchase rights. When rights are defined by quantity, typically two methods are used to address water scarcity - on a priority basis (e.g., senior water-rights holders as in California, USA) and on a proportional division based on expected shortages.35 Water rights also specify how water will be divided between sectors (industrial, domestic, and agricultural consumption) and also within sectors, as might be the case between individual farmers.36 These different kinds of private or community regimes take place at various levels of hierarchy and in some cases property rights are distinguished according to the water-related infrastructures and by considering water as a production input. Likewise, granting rights to users' groups for the regulation, collection, and use of water fees is another means of implementing the water rights. Rights on Water Infrastructures Under the state property regimes, the allocation of water right simply refers to the right to use. The state holds the operation and management authority over the water supply systems, such as reservoirs and main canal systems. The rights over physical infrastructures such as those below the main canal or secondary canal is handed over to the "water users' groups" for operation and maintenance, and users hold right on these infrastructures. The entitlement for water use under such property right structure is usually limited to farmers within defined boundaries such as within tertiary or secondary canals, and thus could only partially help to increase distributive efficiency. These types of arrangements for rights over physical infrastructures exist in large-scale irrigation projects in the developing countries. The advantage with such a system is that operation and management responsibility is shared between the government and users and technical efficiency could be improved, if there is better coordination in operation and management. Rights on Water as a Production Input or Commodity Increasingly, water rights are acquired through quotas or permit systems if they are under the state property regimes, or as water allocation units, under the common property regimes. Such water rights arrangements provide ownership of the water to users or license holders and 33 See generally, D.W BROMLEY, PROPERTY REGIMES AND PRICING REGIMES IN WATER RESOURCE MANAGEMENT, in A. DINAR (ED.),THE POLITICAL ECONOMY OF WATER PRICING REFORMS, Oxford University Press, New York, USA, (2000). 34 Supra note 31. 35 See generally, Easter ET Al., (1997), in R. C. Johansson, Pricing Irrigation Water: A Literature Survey, World Bank (2000). 36 See generally, Holden and Thobani (1996), in R. C. Johansson, Pricing Irrigation Water: A Literature Survey, World Bank (2000). 116 erncourage them to invest in conservation activities, as they would benefit from suchi investments in the long run. In such a case, entry and exit from the system could be made possible only by trading a part of the shares entitled to the initial users. Similar impacts are expected in the case o f land ownership,37 which motivates owners to invest in long-term practices for improving VWUE. Box 6.12 addresses the issue of incentives associated with trading of water rights. 3 See generally, G. FEDER ET AL., LAND POLICIES AND FARm PRODUCTIVITY IN THAILAND (Baltimore and London: Johns Hopkins Universit) Press) (1988). 117 Box 6.12: Trading of Water Rights, Transaction Costs, and Protecting the Right of the Poor Trading of water rights: One of the basic aims of allocating property rights in the context of changing demand pattems is to provide incentives to users to trade water in order to maximize the net benefits. Users would not only be encouraged towards water conservation, but would also trade the surplus or conserved water with other sectors and receive higher economic benefits. The successful trading of water takes place through the creation of WUAs as has been done in Mexico, where users are granted rights for water use and use o irrigation infrastructures. In addition, they need to be provided certainty in user rights by creating a Public Registry of Water Rights and be allowed to transmit the rights between users within the same basin or between those who make the use of the same water source or aquifer.38 On the other hand, water markets also help users to allocate the scarce resource more efficiently, diversify crops, and reduce water quality problems. Allocation of water rights with trading rights thus will help to improve WUE and water quality. Making water right allocation system more effective requires government interventions. A survey carried out in the UK indicated that there is a need for helping the buyers and sellers during trading, like finding buyers and sellers and for approving quotas and trading permits. The quota holders also wanted some restrictions in trade in the same sector, allowing prices to vary with demand and location, and consideration of environmental aspects while approving or rejecting trades.39 Protecting the right of the poor: Irrigation has played vital role in the poverty reduction. For example, the generation of both on-farn and off-farm employment resulted from irrigation helped to reduce number of people living below poverty line in India by 15 percent during 1970-90. The construction of large-scale irrigation systems and tube- wells has contributed to the increased cropping intensity and employment opportunities. In sub-Saharan Africa, where most of the agriculture system is rain-fed, the case was different.40 Increase in cropping intensity and productivity alone, however, are not sufficient conditions in reducing poverty. Usually the poor suffer most from both the increasing water scarcity and water pricing policy. In the water market, where natural monopolies could exist, usually the poor and smallholders do not receive their entitlements, and are usually exploited by large landowners. Water rights of the poor thus need to be protected by the state law, and the poor need to be compensated through the creation of off-farm employment opportunities for rrinimizing the impacts of pricing policy reforms. Transaction cost: Further, as Howe (1996)4' pointed out, there are economic limits to the public purchase of water rights (under the trading system) when social and cultural goals are sought. The small farmers are often victimized as they face difficulties in acquiring quotas and trading them. In such situations, regulatory measures to protect the smallholders' rights may be necessary. The transaction cost involved in the enforcement of quotas is also reported to be very high. For example, in Queensland, Australia, transaction cost is reported at A$ 100, 150 and 200 for the first, second and third transactions respectively. In Victoria it is reported to be A$ 70 per transaction. In Mexico, the transaction cost is fixed and does not vary with changes in water volume. In South Africa, transactions took some 3-6 months time and cost to the sellers was R200 to R600 per transaction. To buyers it ranged from R2000 to R6000.42 Source: Klozen 1998; Risk and Policy Analysis 1999; Baker and Koppen 1999; Howe 1996. S Supra note 32. Supra note Risk and Policy Analysis, 11. 40 See generally, R. Barker, and B. van Koppen, Water Scarcity and Poverty, International Water Management Institute, Sri Lanka, WATER BRIEF, No. 3 (1999). 4 Howe, C.H., Sharing Water Fairly, OURPLANET, 8: 15-17 (1996). 42 See Risk and Policy Analysis, Supra note 11. 118 Itights to Collect and Use of Revenue to the User Groups Provisions of water rights are not limited to handing over responsibility for O&M of irrigation infrastructures and for water use as one of the production inputs. Water is usually (considered as a part of the national wealth and the revenue generated from water use goes to the public fund. In such a case, the. stability of the water right itself is questioned, users need to be provided rights to create their own financial autonomous association and participate in decisions ;nd investments.43 Users could be granted rights over regulation and collection of water charge, and recycle part of the revenue collected for investing in efficient water application technologies. Box 6.13: Water Users Associations Have the Right and Responsibility to Handle Purchase of Operation and. Maintenance Equipment In a World Bank project (Turkey Privatization of Irrigation Project) a new aspect of use of rights to use revenue was introduced, in order to promote ownership, and to contribute to successful completion of the project. The responsibly for purchasing the O&M equipment was transferred to users, in addition to the common practice of managing O&M only. Thus the main implementation agency is the WfUO. Source: World Bank Staff Appraisal Report TR PA 9072 (1997). Box 6.14: Ensuring the Payment Funds of Small Farmers in Indonesia All farmers would receive a one time grant through their farmer group during the project period in the form of complete input package for one ha for one season. After the harvest the farmers would deposit the value of the input package in a revolving fund. The revolving funds would be managed by the farmer groups and used to purchase inputs for members during following crop [seasons. Source: World Bank Staff Appraisal Report, Indonesia Integrated Swamps Development P'roject, 1994. CONCLUSION Several issues emerge from the discussion in this chapter. First, it is clear that Els will have better impact when thev are grouped and complement each other. Second, it becomes more evident that Els are an effective policy instrument that may motivate all layers of the sector government, suppliers, and users. Third, many EIs that do not have a direct and imnmediate 'financial' input, may produce the needed motivation for the individual or the group to become more efficient. And finally, it is clear that the emerging option of delegation of responsibility, to user groups, of allocating water, collecting and handling fees, and even purchasing necessary equipment, is used more frequently in water sector reforms. A careful adaptation of Els to accommodate group interests, and conflicts, is recommended. 43 Supra note 32. 119 BIBILOGRAPHY Ahmad. M. "Water Pricing and Markets in the Near East: Policy Issues and Options." Water Policy 2: 229-242 (2000). Amir, I., and F.M. Fisher. "Response of Near-Optimal Agricultural Production to Water Policies." Agricultural Systems 64: 115-130 (2000). Barker, R., and B. van Koppen. "Water Scarcity and Poverty, International Water Management Institute." Sri Lanka Water Brief No. 3 (Colombo) (1999). Bromley, D.W. "Property Regimes and pricing Regimes in Water Resource Management." In A. Dinar, ED. The Political Economy of Water Pricing Reforms (New York: Oxford University Press) (2000). Commission on Sustainable Development. "Proposed Outcome of the Special Session." Fifth Session of the CSD (April 8-25, 1997) (last modified May 5, 1997) . Department of the Environment, Transport and the Regions. 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Environmental and Natural Resource Economics 2nd Edition, (Boston: Scott, Forseman and Company) (1988). Tiwari, D. N. "Deternining Economic Value of Irrigation Water: Comparison of Willingness to Pay and Other Conventional Approaches." CSERGE Working Paper No. 1998-05, University College, London (1998). Yoduleman, M. "Sustainable and Equitable Development in Irrigated Environments" in Environment and the Poor: Development Strategies for a Common Agenda, in H. Jeffrey, Ed. US Third World Policy Perspectives No. 11 (Washington D.C.: Overseas Development Council) (1989). Young, M. "Water Rights: An Ecological Economics Perspective Center for Resource and Environmental Studies." Ecological Economics Program, Working Papers in Ecological Economics, Australian National University, Canberra, Australia (1997). 122 CHAPTER 7 Benchinarking for Irrigation Systems: E xperiences and Possibilities Fernando J. Gonzalez* [NTRODUCTION This chapter highlights the importance of establishing a benchmarking process for i rigation systems. It briefly describes the benefits that benchmarking brings to other sectors, including the multitude of private companies and other public services such as Water Supply and Sanitation. The chapter examines the experiences in the irrigation sector and the efforts ma(le by institutions and organizations in the area of performance indicators, and tries to identify difficulties as well as positive results. Finally it concludes that a system of benchmarking for the irrigation sectors is important, and could be achieved if a network of countries and organizations is formed. International organization and donors can participate in the effort. Benchmarking is a fundamental business tactic that supports quality and excellence. Since early 1990s, it has beconme widely regarded as a method that should be communicated and utilized in day-to-day private and public business operations. For example, recent developments are utilizing this technique for government operations in municipal and state services. Benchmarking has also broad applications in problem solving, planning, goal setting, process improvement, innovation, reen,gineering, strategy setting, and in various other contexts. The on-going adaptation of best practices helps an organization avoid being ambushed by unexpected circumstances, a. company can accelerate its own rate of improvement by systematically studying others., and by comparing its own rate of operations and performance with the best and most effective practices of highly innovative and successful companies. The search for best practices draws managers to outside the confines of their own culture and personal habits, promoting a pragmatic approach to managing change and performance improvement. A quick review of benchmarking identifies at least three different types, the first concentrates in the processes, the second in performance, and the third in strategies. BENCHMARKING TYPES Process Benchmarking Process benchmarking focuses on discrete work processes and operating systems, such as the customer complaint process, the billing process, the order-and-fulfillment process, the recruitment process, and the strategic planning process. This form of benchmarking seeks to identify the most effective operating practices from many Companies that perform similar work Irrigation Adviser, Rural Development Department, The World Bank. 123 functions in different fields. In recent years, process benchmarking has grown in stature in the United States (US). Many of the most impressive US benchmarking success stories refer to process benchmarking. Its power lies in its ability to produce bottom-line results. Performance Benchmarking Performance benchmarking enables managers to assess their competitive positions through product and service comparisons. Performance benchmarking usually focuses on elements of price, technical quality, ancillary product of service features, speed, reliability, and other performance characteristics. Reverse engineering, direct product or service comparisons, and analysis of operating statistics are the primary techniques applied during performance benchmarking. The automotive, computer, financial services, and photo copier industries, among others, regularly employ performance benchmarking as a standard competitive tool. Strategic Benchmarking In general terms, strategic benchmarking examines how companies compete. Strategic benchmarking is seldom industry-focused. It rows across industries seeking to identify the winning strategies that have enabled high-performing companies to be successful in their marketplaces. BENCHMARKING VIABILITY IN IMPROVING IRRIGATION PERFORMANCE In the water sector, benchmarking has an important potential to contribute to the improvement of the services and the efficiency of the operations. It has been applied successfully in the Water Supply and Sanitation sectors in different conditions. Within the irrigation sector Australia is now advanced in the application of this technique to improve the performance of the systems in a systematic way. The objective is to compile, analyze, and compare a core data base of irrigation projects, which are or should be available in the files of well managed irrigation agencies. The data will not fulfill the needs of all involved in irrigation, the idea is to identify the most important processes and cost centers, and to start with simple indicators that could describe the improvement of a system in time and the comparison of similar systems. A real network to share information and knowledge to improve operations. Most projects will benefit from knowing how they perform, their trends overtime, and how they are compared with others, nationally and internationally. It is expected that each project or national agency will enhance this core set by adding its own specific indicator (for example on pollution of water at entry). In the short term some of the core indicators may require data that is not currently collected by all projects. It is expected that this will be rectified over time as users begin to appreciate the value of understanding their comparative performance in these key areas. 124 l'AST EXPERIENCE Performance of irrigation systems has been the topic of many research, studies, and proposals of standardization. Studies by research institutions, such as the International Water M,anagement Institute (IWMI) and the International Livestock Research Institute (ILRI), have contributed to an excellent documentation of the gaps between stated and actual performance of some categories of irrigation systems (Pakistan, Indonesia). These institutions deserve credit for having made their results accepted by irrigation agencies. These studies were based on long tenn and costly field research required to quantify some indicators, particularly those related to ;ervices. Metric benchmarking once established will help to identify areas of relatively good and poor performance. The initiatives taken by IWMI, ILRI, the Intemational Commission on [rrigation and Drainage (ICID) and others, to standardize irrigation indicators show that it is possible to attain the objective of cross comparison of performance between projects and the impact over time of physical and institutional changes. The Australian benchmarking experience focused on management, and demonstrated the potential and the feasibility to establish the system in a country and the way to share the information. The U.S. Bureau of Reclamation collects and publishes statistics about lhe Reclamation projects in the 17 Western States. However the last statistics Summary published in 1992 contains only a minimum of basic data: acreage, gross crop value, depth of water supplied to farms, and operation and maintenance cost per acre. Very few indicators can be calculated from this set of data. Benchmarking is not intended to substitute other diagnostic and appraisal analysis to identify ways to overcome the performance gaps. Therefore approaches like the one developed by the World Bank, that combines diagnosis research based on rapid field appraisal process, or the University of Colorado appraisal methodology, are complementary and should be appropriate when a performance gap is idlentified by the systematic benchmarking process. These studies have developed a set of indicators to summarize their findings. DIFFICULTIES IN ESTAB]LISHING A BENCHMARIUNG SYSTEM Developing international data sets for irrigation is a difficult task for many reasons, as seen from the experience of the Water Supply and Sanitation Utilities: it is difficult to agree on a universal set of indicators and their detailed definitions; the availability of data can be limited; the comparison between countries and projects can be influenced by the different physical, social, and economic enviromnents. The goal of getting consensus on a universal set of indicators have paralyzed the establishment of a benchmarking system. There has been no agreement on a universal set of indicators and there is no much overlap between the existing sets recommended or identified in the different studies and experiences. The external set of indicators used in the Bank study are 125 similar to the IWMI list but the definition and detailed calculations differ. The set of Australian indicators is unique and adjusted to the particular demands of their irrigation reform. The ILRI list is different and seems to have a more research oriented approach. Table 7.1: Values of Selected Indicators Seq INDICATORS UNIT SOURCE Average Min. Max. 1 Output per comnand area $/ha -WMI 500 2700 2 Output per cropped area $/ha IWMI 450 3600 3 Output per unit irrigation supply $/m3 IW .04 .63 4 Output per water consumed $/m3 IWMI .03 .91 5 Relative water supply IWMI .80 4.00 6 Relative irrigation supply lWMI _ .41 4.81 7 Water delivery capacity % .80 3.5 5.1 8 O&M cost recovery % 0 9 Fee collection % 10 Personnel costs/total op. Costs % I11 Maintenance costs/ total op. Costs %_ 12 Lands affected/commtand area % _ 30 13 Social indicator. 14 Perccntage of lined canals % Burt 60 0 100 15 Length of canals/ha M/ha Burt 13.0 6.9 33.3 16 Peak flow at head of canal system L/s/ha Burt 1.5 .4 3 1 7 Annual flow diverted m3/ha Burt 18 Annual flow delivered to fields m3/ha Burt 13,743 3,300 28,000 19 Conveyance and distrib. Efficiency % 20 Cropping intensity c Burt 1.2 .3 2 21 Crop yield (rice) Ton/ha Burt 4.6 3 6.5 22 Annual O&M expenditures $/ha Burt 75.6 6.5 110 300 23 Annual O&M expenditures $/Mm3 Burt 9345 1664 24038 24 Average water charge $/ha Burt 39.9 0 136 25 Average water charge $/Mrni3 Burt 4030 0 21,219 26 Hectares per O&M employee Ha Burt 120 2500 27 Farmns per operator No Burt 50 540 28 Operated turnouts per operator No Burt 26.3 5 81 29 Canal length per O&M employee Km Burt _ _ 30 Functioning control structures/total Estimate 10 95 Source: Food and Agricultural Organization of the United Nations, Water Report (Rome, 1994). Availability of data has to be considered. There are no reliable flow measurements below off-takes of secondary canals in a large proportion of irrigation projects in developing countries. In most Asian countries, water delivery is centralized (the delivery is decided by the central authority and not delivered on pre-arranged demand). No data on the quality of service (e.g. reliability, adequacy) are available in project files. The few quantified projects for which data are available were the subject of intensive field research. Many projects have very poor accounting systems, making it difficult to identify operation and maintenance costs, salaries, and many projects do not recover full operation and maintenance (O&M), therefore, they do not have any replacement funds or asset management techniques. 126 When comparing between countries and projects, there are number of reasons why performance of an irrigation project may be quite different from another one because of differences in the physical, social, and economic environments, and in the design and operational procedures of these projects. CONCLUSION A benchmarking system for irrigation is feasible and desirable. Should a central monitoring system be developed? The answer is no. A more feasible objective is for a network of stakeholders to build their own with the help and support of donors and international institutions. The network could have monitoring capacities, make use of modem information and spatial technology, and make data available to its members. If shared definitions are used by a sufficient number of participants, at least 1:or a core of indicators, this network will add value to all its users by providing them with useful international comparative information, a benchrn-arking website for irrigation would be a very useful tool. As a result, each large association fully responsible for O&M can use the system for il:s own uses with a sub website at a national level (for exarnple, Mexico and Turkey). Following the example of the Water Supply and Sanitation sector, it is suggested that the users enter their basic data in a predetermined template and the indicators are calculated automatically by a software. This approach can be used for a number of irrigation indicators(O&M cost/ha; m3/ha at diversion). However the complexity or specificity of calculation of some indicators nmay require separate calculations by the users themselves (overall p)roject efficiency, relative water supply, and total value of crops). In addition, a list of key features qualifying the project and its management should be included in the package. This list of features is very important for identification of comparative projects (for example, rice projects, projects with pumping cost or highly silted water, arid versus humid areas). Table 7.1 presents the average, minimum and maximum values of the indicators for the projects assessed under IWMI studies or the World Bank research study. This limited information shows already interesting issues. A tentative first list of indicators is proposed in the attached Annexes (7.1 to 7.4) for preliminary discussions. That list includes a core set considering the interests of policy makers, donors, and government agencies. 127 ANNEX 7.1 A CORE SET OF IRRIGATION PERFORMANCE INDICATORS The main output considered is crop production while the major inputs are water, land, and finances. This list includes four indicators of agricultural output, three indicators of water supply, and four financial indicators, and one environment indicator. The list proposed below is mostly drawn from the list of IWMI indicators. However some further changes are suggested in the following comments in response to some of the important concerns addressed during the second Water Forum(held at the Hague in March 2001): the gap between the potential and actual production and the long-term sustainability of irrigation systems. 1. Output per unit command area (US$/ha) 2. Output per unit cropped area (US$/ha) 3. Output per unit irrigation supply (US$/m3) 4. Output per unit water consumed (US$/m3) 5. Relative water supply (total water supply/crop demand) 6. Relative irrigation supply (irrigation supply/irrigation demand) 7. Water delivery capacity (canal capacity to deliver water at system head/ peak irrigation consumptive demand) 8. O&M cost recovery (billed water charges/O&M expenditures) 9. Fee collection performance (fees collected/fees due) 10. Personnel costs as a ratio to total operating costs (depreciation and debt service excluded) 11. Maintenance costs as a ratio to total operating costs 12. Environment impact (percentage of lands affected by salinization and/or water- logging/command area) 13. Social indicator: ratio of areas with active user associations to command areas. LIST OF IWMI PERFORMANCE INDICATORS 1. Output per cropped area 2. Output per unit command 3. Output per unit supply of water 4. Output per unit water consumed 5. Relative water supply 6. Relative irrigation supply 7. Water delivery capacity 8. Gross return on investment 9. Financial self-sufficiency 128 ANNEX 7.2 FERFORMANCE INDICATORS FOR IRRIGATION AND DRAINAGE ILRI/IWMI Research Prograni on Irrigation Performance JVater Balance Indicators J. Water delivery performance: actually delivered volume/intended volume of delivered water !. Field application ratio 3. Tertiary unit ratio 4. Overall consumed ratio 5. Conveyance ratio 5. Distribution ratio 7. Dependability of duration: Actual duration of delivery/intended duration of delivery 8. Dependability of irrigation interval: Actual irrigation interval/Intended irrigation interval Environmental Sustainability and Drainage 10. Sustainability of irrigabie area; Current irrigable area/initial irrigable area 11. Relative groundwater depth: Actual ground water depth/critical groundwater depth 12. Relative EC ratio Maintenance Indicators 13. Relative changes of water level: changes of level/intended level 14. Effectiveness of infrastructure: Number of functioning structures/total number Socio-Economic Performance 15. Financial self-sufficiency: Actual income/total O&MM requirements 16. O&M fraction: Cost oi O&M/ total agency cost 17. Fee collection performance 18. Yields versus cost ratio: Added value of crop/cost applied irrigation water 19. Yields versus water supply ratio: Added mass of marketable crop/mass of irrigation water delivered 20. Relative water cost: total cost of irrigation water/total production cost of major cost 21. Social capacity: technical knowledge staff knowledge needed/actual knowledge 22. User stake in irrigation system: Active water user organizations/total number of WU organizations 129 Annex 7.3 IMPACT OF MODERNIZATION ON PERFORMANCE OF IRRIGATION PROJECTS Overview of Projects 1. Percentage of lined canals 2. Peak source canal capacity 3. Annual volume delivered to fields 4. Cropping intensity 5. Main season rice yields 6. Ratio of crop yields (head/tail) 7. Percentage of projects with active water user associations 8. Number of fines levied by a typical user association 9. Values of land (close to and far away from canals) 10. Average farm management size 11. Monthly salaries 12. Annual O&M expenditures including salaries per hectare 13. Annual O&M expenditures /million m3 of beneficial use 14. Water charges ($/ha) 15. Water charges ($/million m3 delivered to farms) 16. Percentage of water charges collected 17. Number of project operated turnouts/operator 18. Number of hectares/operator 19. Number of farmers/operator 20. Percentage of final distribution of water done by farmers 21. Number of farmers who have to cooperate on final distribution 22. Gross income per farm management unit 23. Output per hectare expressed in labor-days External Indicators 1. Output per cropped area 2. Output per unit command 3. Output per irrigation supply 4. Output per water consumed 5. Relative water supply 6. Relative irrigation supply 7. Water delivery capacity 8. Percentage of O&M collected 9. Dry season relative water supply 10. Wet season relative water supply 11. Annual relative water supply 12. Dry season relative irrigation supply 13. Wet season relative irrigation supply 14. Annual relative irrigation supply 130 1:5. Annual project irrigation efficiency Iiiternal Indicators Water Delivery Service 1. Actual service to individual fields 2. Actual service to point of'differentiation 2. Actual service to average point of deliberate flow differentiation i . Actual service by main canals to sub-canals Stated service to individual fields (O. Stated service to point of'effective differentiation Stated service to point of'deliberate flow differentiation 8. Stated service by main canals to sub-canals 9. Lack of anarchy index Main Canal Characteristics 10. Cross regulators 11. Capacities 12. Turnouts from main canals 13. Regulating reservoirs 14. Communications 15. General conditions 16. Operation Sub-main Canal Characteristics 17. Cross regulators 18. Capacities 19. Turnouts 20. Communications 21. General conditions 22. Operation Other Indicators 23. Budgetary 24. Employees 25. Water user associations 26. Pressurized systems to day 27. Pressurized systems to morrow 28. Number of turnouts per operator 29. Sophistication 30. Computer used for billing and records 31. Computer used for carnal control 131 ANNEX 7.4 MEASURES OF PERFORMANCE AUSTRALIAN IRRIGATION WATER PROVIDER BENCHMARKING REPORT The Australian benchmarking program covers six activity areas listed below: Hydraulic 1. Deliveries to diversions (volumes diverted to farmers/volumes diverted) Environmental 2. Environmental management 3. Water table trends Financial 4. Full cost of irrigation activities per 1000 m3 5. Full cost of irrigation activities per total employees 6. Operation and management cost per 1000 m3 delivered 7. Operation and management cost per operation and management employee 8. Provider average water price 9. Average asset age 10. Total renewal expenditures as a percentage of the replacement value of assets Business 11. Business management (business planning, quality assurance, information systems) 12. Asset management (infrastructure and hydraulic management) 13. Innovation (managerial, research and development) Customer 14. Customer management (participation and customer feedback, time to supply) Crop water use 15. Crop water use (m3/ha/crop). 132 CHAPTER 8 Benchmarking Irrigation and Drainage Services Provision* IPTRID Secretariat*" INTRODUCTION Benchmarking is defined here as a systematic process for securing continual improvement through comparison with relevant and achievable internal or external norms and standards. The overall aim of benchmarking is to improve the perfonnance of an organization as ineasured against its mission and objectives. Benchmarking implies comparison - either internally with previous perfonnance and desired future targets, or externally against similar organizations, or organizations performing similar functions. Benchmarking is in use in both the public and private sector. Irrigation and drainage are inputs to agriculture. The provision of irrigation and drainage ,ervices is important and often critical in determining the productivity of agriculture. However, there are number of other key agricultural processes, inputs, and services that contribute to the final product. It is difficult, if not impossible to benchmark the "entire irigation production system". On the other hand, it is relatively easy to benchmark irrigation or drainage service provision. The current initiative is focused on benchmarking irrigation service provision. As experience is gained, the scope of benchmarking may be extended to cover other services and production process in the irrigation and drainage sector. It is firmly believed that improvement in the level of service provision to water users is a key factor to increase and sustain agricultural production. It is for this reason that the International Programme for Technology and Research in Irrigation and Drainage (IPT.RID) is facilitating a study to identify simple indicators for benchmarking and to formulate and pilot test the methods. IPTRID's involvement is in response to the World Bank's Institutional Reform in Irrigation and Drainage Program. WHY IS IRRIGATION AND) DRAINAGE BENCHMARKING NEEDED? There are several reasons why irrigation and drainage service providers mnay be interested to benchmark their activities. These reasons depend upon whether the provider is private or public. A private sector service provider is primarily driven by a desire to improve return on investment or return to shareholders. The aim of a public sector service would be to improve the quality, reliability, and cost effectiveness of service provision. In general, service providers are responding to a variety of "drivers", including: * This chapter is a synthesis of working papers and draft guidelines for the benchmnarking initiative being undertaken jointly by the International Programme for Technology and Research in Irrigation and Drainage (IPTRID), the World Bank, the International Water Management Institute (IWMI), the Food and Agricultural Organization of the United Nations (FAO) and the Intemnational Commission on Irrigation and Drainage (ICID). - Prepared by Arumugam Kandiah & Tom Brabben, IPTRID, FAO, Rome, and based upon the concept paper and draft guidelines prepared for IPTRID) by Hector Malano and Martin Burton. 133 * Increasing competition for water, both within the irrigated agriculture scctor, and from other sectors, which in turn is driven by an increasing interest from the wider community for productive and efficient water resource use and the protection of aquatic environments. * Increasing demand for irrigated agriculture to produce more food for growing populations. Coupled with the pressure on available water resources, this results in the "more crop per drop" initiative promoted by international agencies such as the International Water Management Institute (IWMI) and the Food and Agriculture Organization of the United Nations (FAO). * Growing pressure to effect cost savings while increasing the productivity and efficiency of resource use. * Turnover and privatization of irrigation and drainage systems to water users, leading to more transparent and accountable (to users) management practices and clearer accountability to both government and water users in respect of water resource use and price paid for water. BENCHMARKING PROCESSES AND PROCEDURES Benchmarking Stages The stages of the benchmarking process are shown in Figure 8.1, and discussed in more details below. Sections of these stages are illustrated by referenice to a recent benchmarking study carried out in Australia.' Stage 1: Identification and Planning An important starting point for benchmarking is the identification and planning of the following: * the purpose, drivers and desired outputs of the .benchmarking process; * the "customers" - both within and outside the organization; * what areas of the organization's activities are to be benchmarked; * against whom or what performance is to be benchmarked; * indicators of performance; and * what data is required and how it will be collected. The planning phase of the benchmarking process, like that of many other processes, is one that will determine to a large extent the success of the benchmarking activity. The extent and specifications of data needed for benchmarking are defined at this stage. Consistency in the ' Australian National Committee on Irrigation and Drainage (ANCID), 1998/99 Australian Irrigation Water Provider-Benchmarking Report, Victoria, Australia (2000). 134 cefinition of the performance indicators used for benchmarking is of critical importance to r nsure that all the data collected are comparable. FZigure 8.1: Stages of the Benchmarking Process 6. _ Source: Australian National Comm~~dentiictteeon rian inadDang. Montt 2 Data collectioo evlnation Benchmarkingc Process Analysis Integratio Source: Australian National Committee on Irrigation and Drainage. 2 Stage 2: Data Collection The core of any benchimarking exercise is data collection. In order to enable comparison between irrigation and drainage schemes, data used for benchmarking needs to be consistent and comparable. This is a crucial aspect that requires adequate provisions of financial and staff resources during the identification and planning phase of the program. There are three types of data collection: * data collected for day-to-day management, operation and maintenance of the irrigation and drainage systems, * data collected for benchmarking and comparison with other systems, and * data collected as part of the diagnostic process within the benchrnarking exercise to identify causes of performance. It must be recognized that data collected for the day-to-day operation of the system play a critical role in achieving high performance of service delivery and in helping to interpret the outcomes of the benchmarking comparison. 2 Australian National Committee on Irrigation and Drainage, Report of the Annual Conference (Towoombo, 2000). 135 An important factor is the unique nature of each irrigation and drainage scheme. There are many variables, which influence the performance of irrigation and drainage schemes, making comparative performance difficult. This is one of the major challenges to any benchmarking activity in irrigation and drainage. To be able to group similar types of system for benchmarking purposes, it is necessary to collect background descriptive data on each scheme. This information includes information such as the location, climate, water source, type of crops grown, irrigated area, average farm size, irrigation method, type of management, and type of drainage. Most irrigation and drainage organizations around the world are collecting data on various aspects of their operations. Each organization, however, is collecting information for its own internal management processes, and though there may be some overlap between different organizations, it is unlikely that there is sufficient data being collected to undertake a benchmarking comparison between organizations. The extent, maturity, and accuracy of the data collected vary widely between organizations. To enable organizations with different levels of data available to participate in the benchmarking initiative a range of benchmarking indicators is proposed. Using the level of data collection effort and complexity as criteria, the indicators have been classified in two sets: (a) basic and (b) enhanced. The basic set comprises a set of performance indicators that require a minimal data collection effort. This is suggested as a minimum set of benchmarking measures for organizations that desire to join the study but cannot afford a large initial effort of data collection, or need to adapt their information system to meet the benchmarking data requirements. This basic system can provide a springboard for organizations that subsequently may wish to incorporate new benchmarking measures. The enhanced (advanced) level of benchmarking incorporates a more complete set of indicators, which will enable the organization to benchmark a wider section of their management processes against other organizations. Organizations with more advanced information systems may be able to undertake the benchmarking activity incorporating some or all of these indicators. This classification is only intended as a guide for benchmarking partners to design their plan for data collection. In fact this list of indicators must be viewed by the benchmarking partners as a continuum of measures in the design of their benchmarking plan. This plan often evolves progressively with time allowing partners to incorporate new indicators that they may consider relevant to their operation. The proposed performance indicators are outlined in Table 8.1. Stage 3: Analysis The analysis stage identifies the performance gap between the organization and the organization(s), norms or standards with which the organization is compared. From the analysis comes the understanding of: * the performance gap; 136 * the causes of the performance gap; and * action required to close the performance gap. Thus benchmarking is not just a comparative performance assessment exercise, it also incorporates diagnostic analysis, to find out about the causes of identified levels of performance. Once the causes are understood then solutions can be identified and action to be taken to apply ihe solutions. It is at this stage that the desired performance targets are formulated. The final i.arget values are established during the integration stage (Stage 4) when the feasibility of achieving these values are discussed and agreed with key personnel within the organization. The analysis phase leads not only to the quantification of the performance gap between organizations and schemes; but more importantly, to a full understanding of the factors that cause a difference in performance between organizations and schemes. This analysis must take into account the specific characteristics of the systems being compared. A thorough understanding of the reasons for differences in performance is needed before organizations can act on their management practices to close the performance gap. Performance data provides the basis for the comparison of performance and identification of gaps between organizations. Systems descriptors are essential to help interpret these gaps. The analysis of both types of data can provide further insight on the causes of performance differences. Using the sorting facility within the data spreadsheet the data can be sorted in ascending order to show the range of the data set. Individual schemes can look at their relative location within the plot and use the knowledge gained to assess: * whether that is where they want to be (relative to other schemes); and * whether they want to do something about their position/performance level. This together with background descriptive data can be then used to interpret why the scheme is in that position and, if necessary, what actions can be taken to improvfe performance. Stage 4: Integration The action plan developed from the analysis phase must be integrated into the operational processes and procedures of the organization in order to bring about the desired change. It is crucial that those responsible for benchmarking have the power within the organization to bring about change. Benchmarking programs often fail at this stage, leaving those involved disillusioned with the process, and with the performance of the organization. The process of gaining adoption of the new processes and procedwues is often termed "internal marketing", and leads to the development of a sense of ownership and suppoft by key personnel for the benchmarking process. Training is a key element of this process. 137 Stage 5: Action Once acceptance of the new processes and procedures has been gained, they can be put into place to bring about the desired change. Monitoring and evaluation of the process is required at this stage to ensure that desired targets are being achieved, and that corrective action, where necessary, is taken in time. Training is also a key element here. Stage 6: Monitoring and Evaluation The success of benchmarking is marked by the continuing measurement of the organization's performance against the target norms and standards established during the analysis and integration stages. These targets are, however, changing over time, and continual updating and revision of the targets is necessary to maintain best practices and relative performance. CATEGORISATION OF SCHEMES In order to make comparisons between irrigation and drainage schemes, it is necessary to categorize schemes into similar types. There are a variety of ways in which this categorization can be done, typical being: * Type of water control (fixed proportional division, manual control, automatic control); * Method of water allocation and distribution (supply, arranged-demand, demand); * Water availability (abundant, scarce); * Water source (surface water, groundwater); • Predominate crop type (rice, non-rice, subsistence/cash cropping); * Climate (humid, arid); * Size (large, small); * Location (Asia, Africa, Americas); * Type of management (government agency, private agency, farmer managed); . Socio-economic setting (Gross Domestic Product, degree of industrialization, developing/developed nation). In order to be able to group the schemes being benchmarked background data are required as listed in Table 8.2. Data Capture In order to ensure consistency in the comparison of results, organizations joining the benchmarking study will need to collect the data required for the calculation of the benchmarking indicators according to established specifications and protocols. Partner organizations will carry out the primary data processing to convert raw data into the format required for input into the benchmarking spreadsheet. This task must be carried out according to the instruction provided. For each indicator, the definition, measurement specification, processing needs, and an example of the data entry spreadsheet will be provided. 138 Some indicators are based on primary data that the organization either collects as a normal part of its operation or collects for the specific purpose of benchmarking. Variables such as inflow volumes, revenues collected from water users, and total operation expenditure fall into tlus category. 139 Table 8.1: List of Key Performance Indicators Domain Basic or Performance indicator Data required enhanced Service delivery Basic Total annual water delivery Total daily/period measured water supply to the irrigation performance scheme Main system water delivery efficiency Daily/period measured inflow to main canal system and daily/period measured outflows at delivery points Enhanced Relative water supply Total daily/period inflow volume to system Daily/period volume of water required by crop Relative irrigation supply Daily/period volume of water delivered Daily/period volume of water required by crop Daily/period volume of water provided by rainfall Water delivery capacity Design main canal capacity Peak irrigation water demand Security of supply System water right 10 years minimum water availability flow pattern Financial Basic Cost recovery ratio Total revenue collected from water users Total management, operation and maintenance (MOM) cost Maintenance expenditure to revenue ratio Total maintenance expenditure Total revenue collected from water users Operating cost per unit area ($/ha) Total operation expenditure Total command area serviced by the system Total cost per person employed on water delivery ($/person) Total cost of MOM personnel Total number of people employed Revenue collection performance Total service revenue collected Total service revenue due Enhanced Staffing numbers per unit area (Persons/ha) Total number of MOM staff Total command area serviced by system Average revenue per cubic meter of irrigation water Total service revenue collected I supplied ($/m3) Total volume of water delivered I Remaining life of assets (Years) Estimate of remaining life of each individual asset Domain Basic or Performance indicator Data required enhanced __._.__ _ _ Productive Basic Gross agricultural production (Tonnes) Total tonnage produced under each crop efficiency Total value of agricultural production Total tonnage of each crop Crop market price Output per unit command area ($/ha) Total tonnage of each crop Crop market price l _______________ ______________________________________________________ Total cultivable com m and area Enhanced Output per cropped area ($/ha) I oia; ivolnage of each rrop Crop market price Total irrigated crop area Output per unit irrigation supply ($/m) Total tonnage of each crop Crop market price Total inflow volume of water Output per unit water consumed ($/m3) Total tonnage of each crop Crop market price Total volume of water required by crop Environmental Basic Water quality: salinity of supply and drainage water Electrical conductivity of periodically collected water samples performance ._ Depth to water table Periodic depth measurement to water table Change of water table depth over time Periodic depth measurement to water table Enhanced Biological and chemical quality of supply and drainage BOD and COD measurements on periodically collected water water ____ samples____ Salt balance Periodic measurement of salt content of irrigation water Periodic measurement of salt content of drainage water Sourcc: InteAmation31 Programme for Technology and Research in Irrigation and Drainage (IPTRID) Reports (Rome, 2001). Other indicators rely on the use of secondary data for their calculation. For instance, the calculation of evapo-transpiration requires climate data for the particular location but in the format specified by the calculation method. This type of data may be collected either by the partner organization itself or an external organization. When data comes from an external organization, special attention must be paid to the data processing method to insure a consistent quality and to trace possible calculation errors. Table 8.2: System Descriptors Code Descriptor Possible options Location Dl Country D2 Continent D3 Scheme name D4 Latitude D5 Longitude Climate and soils D6 Climate * Arid * Semni-arid * Humid * Humid tropics D7 Average annual rainfall (mm) D8 Average annual reference crop potential evapotranspiration, ET (mm) D9 Peak daily reference crop potential evapotranspiration, ET (mm/day) DI 0 Predominant soil type(s) * Clay * Clay loam * Loam * Silty clay loam * Sand Institutional Dl1 Year first operational D12 Type of management * Government agency * Private company * Joint government/local organization/private * Water Users Association/Federation of WUAs * Other. D13 Agency functions * Irrigation and drainage service * Water resources management * Reservoir management * Flood control * Domestic water supply * Fisheries I . .. _ . * Multiuose/other 142 Code Descriptor Possible options ID14 Type of revenue collection * tax on irrigated area * charge on crop type and area * charge on volume of water deli vered charge per irrigation D1)5 Land ownership * Govemnment * Private * Communal Socio-economic Dl 6 (National) Gross Domestic Product (GDP) D137 Farming system * Cash crop * Subsistence cropping _ Mixed cash/subsistence Water source and availability D18 Water source * Storage on river * Groundwater * Run-of-the river * Conjunctive use of surface and groundwater Dl 9 Water availability * Abundant * Sufficient * Water short D20 Duration of irrigation season(s) Number of months per season: * Season 1: * Season 2: * Season 3: Size . D21 Commanded area (ha) D22 Total number of water users suplied l D23 Average farm size (ha)_ D24 Average annual irrigated area (ha) __. D25 Average annual cropping intensity (%) Infrastructure - Irrigation __.__ - D26 Method of water abstraetion * Pumped diversion o Gravity diversion e Groundwater D27 Water delivery infrastnicture (Length * Open channel and %) * Pipelines * Lined o Unlined 143 Code Descriptor Possible options D28 Type of water control equipment * None * Structure at main intake only * Structures at primary & secondary level * structures at primary, secondary & tertiary level D29 Discharge measurement facilities e None * Primary canal level * Secondary canal level * Tertiary canal level * Field level Infrastructure - Drainage D30 Area serviced by surface drains (ha) D3 1 Type of surface drain * Constructed * Natural D32 Length of surface drain (km) * Natural * Constructed * Open * Closed D33 Area serviced by sub-surface drainage (ha) D34 Number of groundwater level measurement sites Water allocation and distribution D35 Type of water distribution * On-demand * Arranged-demand * Supply orientated D36 Frequency of irrigation scheduling at * Daily main canal level * Weekly * Twice monthly * Monthly * Seasonally * None D37 Predomninant on-farm irrigation * Surface - furrow, basin, border, flood, practice furrow-in-basin * Overhead - rain gun, lateral move, center pivot * Drip/trickle Cropping D38 Main crops (with percentages of total area) Source: International Programme for Technology and Research in Irrigation and Drainage Reports (IPTRID) (Rome, 2001). 144 DATA PROCESSING AND ANALYSIS Partner Benchmarking Analysis Much of the data analysis is compiling ratios of the data collected to produce the value of the required performance indicat:or, and that can be easily performed on a spreadsheet. Partner organizations will be responsible for processing the raw data collected to conform to the established specifications and protocols. Data collected by partner organizations, in the past, may he in a variety of formats, which do not meet these specifications. Such data should be treated carefully. P'artner Internal Analysis In some cases the partner organization may wish to pursue the data analysis further by using statistical methods to analyze internal trends. This type of analysis may be especially useful in trying to explain causative factors of low performance. This might be the case, for -xample, with data on Delivery Performance Ratios (DPR) taken at tertiary off-take points throughout the irrigation network, where the weekly average DPR values might be statistically analyzed to obtain seasonal trends or variability (coefficient of variation). Whilst this analysis can be of considerable value to the partner organization, it is not required for establishing a comparative analysis with other organizations. Comparative analysis The essence of the benchmarking process is to provide organizations with the ability to compare their performance to similar organizations or similar processes. The comparative analysis will consist primarily of ranking performance levels for individual indicators both numerically and graphically. Figure 8.2 provides an example of comparative analysis carried out by the Australian benchmarking program. Similar type of analysis will be carried out in this study. IMPLEMENTATION OF THE STUDY Data Handling Framework The main aim of the benchmarking study is to enable the partner organizations to access data and information collected and presented in a similar manner. There will be two levels of data handling within the benchmarking study involving the partner organization itself and the Central Database and Processing Unit (CDPU). Basic data will be collected and processed by the partner organization before is entered into the benchmarking database. It is envisaged that data sharing through the CDPU will subsequently encourage exchange of data. and information between the partner organizations. The CDPU will be hosted and maintained by IPTRID and IWMI. Partner organizations will have two options to capture data either: directly into a tailor-made benchmarking template via the internet; or 145 * into a tailor-made benchmarking template provided on a computer disk, and then posted to the CDPU. The data will become part of the IPTRID central benchmarking database. The CDPU will have three functions (a) warehousing benchmarking data bases from partner organizations to enable data sharing; (b) hosting software; and (c) carrying out comparative performance analyses. At least in the initial stages of the study, the CDPU will be required to produce printed reports for those benchmarking partners, which may not have access to internet facilities. Figure 8.2: Example of Comparative Plot of Irrigation Water Delivery Water delivered per unit area 1.800 . 1.600- 1.400 1.200 1C000 b 0.800 -C 4-~ ~ ~ ~ ~ ~ ~ ~~4 0.600- - - - - - - - - 0.400 0.200 nun, HH fl - - . n IUIH~~. Confernce (Twoomb, 2000. I 146 Table 8.3: Proposed Web Site Map for Central Benchmarking Unit Item Description Start-up kit Replica of start-up kit provided to partners on diskette available on web site. P'artners data spreadsheet Individual spreadsheets submitted by partner organizations by email or posted diskette. ]3enchmarking analysis The data collected as described above will be tabulated and analysed to produce information such as that presented in CFgjure 8.2). In these cases the data have been processed and rarnked in ascending order. Each irrigation scheme can then see where it is placed relative to other schemes. The use of graphs facilitates the understanding of the data. Publications & documents Listing of documents and report prepared in relation to the benchmarking study including benchmarking concept paper, Eguidelines, and other relevant publications. Discussion forum Space available for partners to post questions and share information. Functionality must allow other partner organizations or CDPU to answer queries and participate in discussion. Source: International Programme for Technology and Research in Irrigation and Drainage Reports (IPTRID) (Rome, 2001]). CONCLUSION There have been a significant progress on the implementation of the benchmarking study. A small workshop was held in FAO, Rome, in August 2000 to discuss position papers, previous experience and agree definitions. This was then followed in October 2000 with the preparation of a concept note on benchmarking performance in irrigation and drainage prepared jointly by Hector Malano and Martin Burton on behalf of IPTRID. Guidelines for participating organizations have now been drafted and are being finalized. The guidelines contain recommended roles and responsibilities of the partners in this study, which will continue to be coordinated by IPTRID. A progress report on the study was presented in Cape Town on the occasion of the International Commission on Irrigation and Drainage (ICID) meeting in late October 2000. Representatives from FAO, ICID, World Bank, and IWMI underlined the importance of benchmarking irrigation and drainage projects to improve performance of such projects, and expressed their support and participation in the activity. Very strong support to the initiative came from IWMI, which proposed taking responsibility for developing an e-mail / internet based networking and data collection and processing for the benchmarking exercise. Representatives from Australia, China, fran, Mexico, Pakistan, Sri Lanka, and USA exriressed interest in participating in the benchmarking activity. The meeting accepted the proposal of the President of ICID to set-up an ICID Task Force to facilitate the field testing of the benchmarking methodology. 147 The next stages include: * preparing practical guidelines to carry out benchmarking in selected irrigation and drainage projects; * setting up the data collection and processing protocol; * selecting a manageable number of projects for the benchmarking exercise, (January- March 2001); commencing data collection for the pilot phase; * establishing a network of participating institutions; * holding a workshop at the end of the pilot phase to review the experience, finalize guidelines and prepare future actions; and * preparing documentation for wide dissemination. 148 CHAPTER 9 Issues Affecting the Irrigation and Drainage Sectors in Latin America: Lessons from Mexico, Argentina, and Brazil Jose Simas* INTRODUCTION The objective of this chapter is to highlight some of the main institutional and efficiency issues related to the use of irrigation infrastructure in selected countries of the Latin America and the Caribbean (LAC region). Latin America currently irrigates over 15 million hectares under very diversified systems, ranging from arid zones to tropical coastal plains and covering a wide array of crops from temperate-climate fruit trees to tropical fruit and rice. Table 9.1 below shows the current best estimates of irrigated areas by country. Five countries (Mexico, Brazil, Argentina, Chile, and Peru) constitute about 88 percent of the total area under irrigation in the LAC region. Due to its diversified cropping systems, climatic and economic conditions and culture, a rich experience was gained and numerous lessons could be drawn frorn these coumtries for other LAC countries and elsewhere. Table 9.1: Latin America [rrigated Areas COUNTRY IRRIGATED AREA % of Irrigated Area Annual Use of Feitilizers 1999 of Total Cultivated 1993 1,000 ha Land kg/ha 1993 Argentina 1,500 6 11 Bolivia 80 7 6 Brazil 3,169 6 85 Caribbean 100 15 N.A. Central America 250 15 N.A. Chile 1,265 30 58 Colombia 1,037 10 94 Ecuador 240 18 31 Mexico 5,700 30 60 Paraguay 67 3 14 Peru 1,753 37 44 Uruguay 140 10 72 Venezuela 185 5 65 REGION 15,250) 12 59 Source: Global Water Partnership, Water for the 2 1t Century, Vision for Action, South America. Senior Water Resource Engineer, Enviromnent Family (LCSEN), The World Bank. 149 There are numerous reports analyzing the performance and efficiency issues affecting the irrigation sector in many countries, which are often described in the form of a vicious cycle caused by wrong policy choices and inadequate institutional frameworks leading to the lack of maintenance, poor irrigation services, farmer dissatisfaction, low rates of fee collection, weak irrigation budgets, and as a result, inadequate maintenance. In an attempt to break this "cycle" in the irrigation sector, governments and multilateral organizations have supported reforms through policy dialog and financial support to projects. One operational instrument has been to promote a "new style" of projects that combine a mix of physical rehabilitation improvement and management reforms, including user participation, improved financial performance with increased attention to operation and maintenance (O&M). This chapter summarizes main issues and policy options and describes this policy instrument as a new rationale to support public interventions when they are justified by a number of factors including the questionable economic viability of new irrigation projects, the increased recognition of environmental objectives, the improved understanding of the need for user participation and the perception that rehabilitation projects offer good rates of return. Common components in investment programs include support for: (a) selective subprojects, mainly for rehabilitation; (b) improving water resources management capacity, with particular attention to basin-level management and environmental needs; (c) strengthening of institutional and regulatory frameworks; (d) improving cost recovery to ensure reliable services and adequate O&M (including for depreciation of system assets); and (e) agricultural services that complement irrigation improvement efforts.' MEXICO CASE The sustainable development of Mexico, as well as its irrigation, are critically dependent on the efficient management of its scarce water resources. Irrigation is by far the country's largest water user (82 percent of total water) and its management is a top priority in the agricultural and water resource agendas. The country's size is slightly less than two million km2, and at the turn of the 21st century it had around 100 million inhabitants. Comparing this population figure to that of the 1950s, it is noted that the population has quadrupled over the past 50 years. Population growth has occurred nationwide but was greater in the North, Northeast, and Central regions. Those regions are the ones with greater irrigation density and major water shortages. During the same period (1950-99), the economy, measured according to the gross domestic product, has increased from US$40,000 million to slightly more than US$400,000 million (constant US$ values in 1994); an increase of around tenfold. Over the last five years, Mexico's population and economy, despite the severe financial crisis of 1995, have continued to grow at annual rates exceeding 1.5 and 3.0 percent, respectively. These figures implied a growing demand for water for urban and industrial use in arid and semi-arid zones. In Mexico, the population's location and economic activities are inversely related to the availability of water. Less than one-third of total runoff occurs in 75 percent of the territory (arid and semi-arid zones) where the country's major cities, principal industries, and irrigated zones 'William Easter ET AL., IRRIGATION IMPROVEMENT STRATEGY REVIEW. A REVIEW OF BANK-WIDE EXPERIENCE BASED ON SELECTED "NEW STYLE" PROJECTS, Paper prepared for The World Bank Water Week (December 1998). 150 are located. Consequently, surface runoff and groundwater become increasingly insufficient to nmeet the high demands for growrth and economic activity, resulting in conflicts over the use of water. In addition, water pollution is reducing the potential use of various rivers and other bodies of fresh water. Conflicts among competitive uses and intersectorial users are generating rnajor political and social effects. Paradoxically, the abundance of water in the extreme southem part of the country also presents severe problems related to drainage and urban and rural ilooding. Most of the country (3/4) is arid or semiarid. Consequently, socioeconomic growth and the well-being of the people have been closely linked to the availability and development of the water resources. The history of the development and management of water resources in Mexico began long before the Spanish conquest. Due to its rapid population and economic growth and to the increasing difficulties of continuing to develop new water sources, Mexico is currently facing critical challenges in the management of irrigation and of water resources; these challenges will increase in the future. Irrigation water savings in certain regions represent the last resort and the most economic source for intersectorial reallocation of water. Legal and Institutional Framework As part of its economic modernization program, the Government of Mexico (GOM) is facing emerging problems concerning increased water shortages, prolonged droughts, and the overall need to conserve and protect the nation's natural resources and environment. The National Congress approved the new National Water Law (LAN) in December 1992 and its respective regulation in January 1994. The LAN established broad-based mandates for the development and implementalion of plans and policies related to irrigation and water resource management. Responsibility for these mandates was assigned to the National Water Commission (CNA). While over the past 20 years the value of Mexico's agricultural production has remained nearly constant, the participation of irrigated agriculture in the total value of production grew from 45 percent to 55 percent; at the same time the harvested area decreased by 18 percent and the area in use remained constant. In the early 1990s, the value of production and the physical yield per hectare of the irrigation zones were greater than those of rain-fed zones (175 percent and 150 percent, respectively). Currently, irrigation production is the source of 70 percent of agricultural exports, contributing strongly to the commercial balance of the agricultural sector. Irrigation is also very important to the NAFTA scenario (of free import export barriers) and maintaining its productivity and competitiveness is extremely strategic to the Mexican economy. Irrigation in Mexico (lominates a physical area of around 5.4 million ha with annual harvests on a surface area of around 6.3 million ha. These irrigation areas are organized in two major typologies: * Irrigation Districts (IDs), totaling around 3.3 million ha and organized in 82 DDs; and * Irrigation Units (IUs), which comprise around 22,000 units and cover about 2.1 million ha, of which: 151 (a) 1.1 million are from groundwater or mixed sources; and (b) 1.0 million ha are from surface water sources, small accumulation dams, derivations and direct pumping from rivers and lakes. Irrigation Units (IUs) groundwater are the subject of three World Bank loans (PRODEP Ln.-3704-ME ; PROMMIA Ln.-4050-ME 3; and Agricultural Productivity - Ln -4428-ME4) and thus are not included in the scope of this project. Loans granted to Secretaria de Agricultura y Ganaderia- (SAGAR) (Ministry of Agriculture) have modernized around 420,000 ha in the last four years. The IUs dealt with by this project refer exclusively to those irrigated from surface water sources. Recent Reforms and Future Challenges The economic crisis of the 1980s strongly affected irrigation infrastructure and its maintenance leading to its neglect and resulted in it being substandard. At the same time the lack of funds drastically reduced the growth of areas under irrigation while the productivity of these areas was strongly affected by major reductions in maintenance. The irrigation and drainage sector loan financed by the World Bank,5 supported the GOM in: (i) rehabilitation and maintenance of irrigation infrastructure; (ii) creation and development of water users' organizations (WUOs); and (iii) transference of administration, operation and maintenance to WUOs. Currently, 92 percent of the surface area of irrigation districts (comprising about 55 out of the 82 IDs) has been transferred to WUOs, 70 percent of the latter is transferred completely and sustainably; while 20 percent is at an advanced stage and needs consolidation through reh'abilitation, organization and training efforts. The remaining 10 percent (the smallest and most problematic part) is now starting or in the process of being transferred and merits greater institutional attention and physical investments. The irrigation agenda in Mexico (at least in the arid and semi-arid zones and wh re scarcity and sustainability are the name of the game), has definitively to be linked to an inclusive Water Resources Management Strategy as key instrument. This points to the need to rea#ocate water savings to other sectors, selecting appropriate water saving policies, developf g and promoting water markets, strengthening water user organizations and river basin conimittees, producing more with less water, conserving the resources, stabilizing the downward of aquifers and reducing their contamination, and adopting cutting edge technology. At the same time more attention could be given to agronomic and marketing issues and to research and extension. Mexico is an international example of good practices on several areas of Irrigation Reforms and improved Water Management, particularly for third world water stressed countries. 2 On-farm and Monitor Irrigation Networks Improvement Project, Loan Agreement, June 10, 1994, Nacional Financiera S.N.C. - International Bank for Reconstruction and Development, L3704 ME. 3 Water Resource Management Project, Loan Agreement, September 28, 1996, Nacional Financiera S.N.C. - International Bank for Reconstruction and Development, L4050 ME. 4Agricultural Productivity Improvement Project, Loan Agreement, May 11, 1999, Nacional Financiera S.N.C. - International Bank for Reconstruction and Development, L4428 ME. 5 Irrigation and Drainage Sector Project, Loan Agreement, December 6, 1991, Nacional Financiera S.N.C. - International Bank for Reconstruction and Development, L3419 ME. 152 However, there is still much to be done on its water resources management agenda. As far as Irrigation and Water Resources Management in Mexico, major problems and challenges towards the millennium include: * perverse incentives that aggravate the unbalanced scarcity of water in arid and semi-arid zones (3/4 of Mexican territory); * lack of incentives to iransfer water to high value uses, particularly :from inefficient irrigation to other secl;ors like urban and industrial supply; * incomplete decentralization and transfer of IDs to WUOs; * decreased competitiverness of Mexican agricultural exports mainly from irrigated areas, an issue relevant to NAFTA schedules; * accelerated deterioration of groundwater which is a strategic resource; * increased contamination and deterioration of surface water resources due to uncontrolled discharges from Industrial and municipal sources; and * weak institutional framework of river basin and aquifer organizations - Committees ("Comites de Cuenca" and "COTAS"). Policy Options Solving these issues and challenges is key for Mexico's sustainalble development, specifically the rural economy. Hence this matter might require priority attention from the Mexican Government at its Federal and State levels, as well as civil society. With respect to Irrigalion, two sets of policy options are complimentary and necessary, both involving institutional and structural components: (a) Irrigation and Water Resources Management Policies (under the current government of Mexico GOM structure more linked to Comision Nacional del Agua (CNA) (National Water Commission) and Instituto Mexicano de Tecnologia del Agua (IMTA) (National Institute of Water Technology); and (b) Agricultural Policies and Actions linked to SAGAR and Instituto Nacional de Investigaciones Forestales Agricols y Pecuarias (IFAP) (National Agricultural Research Institute). The set of main actions related to the Irrigation Policy Options which are linked to Water Resources Management might include: * decentralize the water management to lowest possible level, closer to the water sources and uses/user like the Regions, River Basins, and Aquifers; * make the irrigation sector self-sustainable, and less reliant on the public funds through the completion and consolidation of the transfer or IDs to WUOs under a sustainable basis; 153 * make the irrigation sector more efficient and competitive through modernization of its management and key infrastructure, and improvement of irrigation technology and practices; * strengthen the irrigation water user organizations (WUOs) roles in the river basin committees, and aquifer committees; * create more appropriate conditions for inter-sectoral reallocation of scarce water resources; * develop markets and economic incentives to favor investments on improvement/ modernization rather than expansion of new "green areas"; * improve the empowerment of the WUOs through the selection of the priorities and cost sharing of investments related to modernization; and * avoid public investments in "unbalanced" groundwater fed areas / aquifers (IDs and IUs) that are not linked to relevant aquifer stabilization programs. In the case of the Agricultural Policies and Actions related to irrigated agriculture, main actions could be linked to the provision or improvement of: * adaptive research related to on-farm irrigation management best practices; * mechanisms for technology transfer to smaller and worse-off farmers; * agricultural research to improve / reconvert irrigated crops; * marketing development for internal markets; and * marketing information and development for NAFTA and other external markets. ARGENTINA CASE Argentina has 125 irrigation systems or zones, including complementary and full-season irrigation, both public and private. In certain zones, especially in the arid region, there is a state registry of water concessions and uses; in others this use is mainly private, by direct pumping of surface, underground sources, or both. This is generally done without volumetric or flow measurement of a water use concession or permit, which hinders the control and exact knowledge of surface areas. Lands potentially suitable for irrigation are estimated at around 6.3 million ha, of which only 2.5 million may be feasibly adapted for full-season irrigation. The total irrigated area is around 1.5 million ha (73 percent or 1.1 million ha in arid and semiarid zones), while the surface with available irrigation infrastructure (including all registered) covers around 1.75 million ha. Although this may indicate a great potential for expansion, in many cases large investments are required to be able to deliver water to areas to be incorporated. 154 Currently 68 percent of the area under irrigation is located in and and serniarid regions, ,md the remaining 32 percent in humid regions. The latter constitutes complementary irrigation or irrigation for rice production. Seventy four percent of the systems or areas belong to (or administered by) the public sector, and 26 percent by the private sector. Although. the area under irrigation represents only five percent of the country's agricultural area (30 million ha), its participation in sectoral production value has fluctuated between 25 percent and 38 percent. However, Argentina's irrigation sector is experiencing a profound structural crisis, not only in producers' loss of profitability but also in outdated technology throughout the productive system. Main Irrigation Issues Based on an in-depth analysis of the sector, it is concluded that the best sectoral policy is the recovery and modernization of areas currently equipped with irrigation, in contrast with investments in expansion. Four major problems are identified as requiring attention: * combating salinity and poor drainage; * updating technology in the productive system (agronomic and marketing base); * consolidating the process of transferring districts to the user sector (private); and * the tariff issue. Of the total 1.5 million ha under irrigation, about 500,000 ha are considered to be affected, to varying degrees, by drainage or salinity problems. Efficiency in water use is generally very low: the average is less than 40 percent. Competitiveness and Agriculture Technology Gaps Small and medium-scale farmers were being bypassed, not only in terms of the incorporation of new cropping and irrigation technologies but, more importantly, in terms of the adoption of organizational breakthroughs and new varieties of fruits and vegetables with better commercial acceptance. In contrast to their Chilean neighbors, Argentine irrigation producers, lacking information, repeated traditional crops, thus highlighting pre-existing monocropping situations. Outdated irrigation technologies are reflected in deficient maintenance methods and obsolete systems of applying and distributing water through the use of gravity. The financial restriction, experienced by provincial economies since the 1995 crisis, and the subsequent lack of credit have hindered the re-conversion of perennial crops with the most outdated technologies, and have delayed the implementation of diversification processes. This had serious repercussions on the increasing obsolescence of civil works, installations, machineries and other equipment. The Incomplete Transfer Agenda Most Irrigation Districts, initially under the aegis of the Federal Government and comprising (around 800,000 ha), were transferred to the provinces when the privatization process began. This new provincial responsibility opened the process of decentralizing the operation and 155 maintenance of systems in users' organizations supervised by the water authority. The timetable established for transfers is different in each province and depends to a great degree on the idiosyncrasy of its producers. Promoting and supporting provinces in the transfer of this irrigation infrastructure is an important political decision to improve the sector's efficiency by transferring decision-making to the lowest and most appropriate management levels. However, the transfer process in Argentina is incomplete and still requires government attention to be effective, as indicated by World Bank experience in other countries where similar policy decisions were made. In Mexico for example, it was essential to promote associations of irrigation system users and to grant them greater responsibilities in the management, administration, operation and maintenance of distribution systems, including giving them the function of charging tariffs or fees and the function of levying penalties for non-payment. In both Mexico and Turkey, the most successful associations were those that had areas of over 18,000 ha, which took advantage of economies of scale. This is also relevant in: the rehabilitation and modernization of primary infrastructure; the establishment of adequate water tariff structures; the introduction of efficient operation and maintenance technologies; agricultural marketing technology; and assistance in financing improvements to irrigated lands. The provincial roles that could be considered are those of: regulation, promotion of sustainable and competitive use, inter-linkage with the water and sanitation sector, financing and supervision of irrigation functions. Improving Water Efficiency and Aquifer Protection Inefficient water use in the urban water supply and irrigation sectors wastes a large amount of the resources, such a waste needs to be reduced urgently. A modest 10 percent gain in efficiency in these sectors would mean a savings of around 3 billion m3 of water. These resources would be immediately available to extend service. However, for this gain to be long- lasting and sustainable, actions need to be included in an integrated management system, taking into account legal, institutional, socioeconomic, technological, and environmental aspects. Improved efficiency in irrigation will be sustainable if it is supported by the modernization of the sector whose structural crisis is analyzed above. In the drinking water sector, waste could be reduced through the use of various quickly applied technological measures, especially metering and tariffs based on consumption, however, water conservation is implemented over the long term with relevant communication and educational efforts and an adequate tariff system. Urban water supply cannot be separated from deficiencies in sewer services and contaminated aquifers whose protection is as much a priority as waste reduction. Aquifer protection measures need to be analyzed in the context of each province. Aquifers constitute a strategic reserve and a national asset that is being lost due to contamination. It is also a matter of protecting public health from the risks of contamination of water supply sources, particularly in rural areas and small cities. Aquifer protection needs to include a set of technical, economic, and institutional efforts. First, there is an urgent need for a program to cap abandoned wells that are contaminating water tables in the Northern Oasis of Mendoza and placing the very existence of the province's socioeconomic life at risk. 156 Another urgent program is the protection of safe water supply sources, withlout the risk of :oxicity, for the rural populations and small cities. This consists of establishing protection Lerimeters around groundwater sources, principally in the provinces of Santa Fe, C6rdoba, Buenos Aires, Catamarca, Mendoza, San Juan, La Pampa and Jujuy. For cases of natural contamination with arsenic or fluorine, with higher than normal values, the feasibility of dual systems will be analyzed: water for drinking and cooking purified using advanced technology, and water for other home uses with standard treatment. Finally, in areas with strong development of complementary irrigation (Central-Pampa Region and Buenos Aires), training and awareness are needed to prevent widespread pollution, especially by nitrates, thereby avoiding the negative experiences of various European countries. They would form part of the policy of public awareness and the formation of public opinion in favor of the protection and sustainable use of the country's natural resources. Reclamation of Lands with Drainage or Salinization Problems The recovery program for these lands (half million hectares, i.e., one-third of the country's irrigated area) is a key complementary step in the modernization of the irrigation sector. For the preparation and implementation of the program's technical, financial aLnd institutional components, the highly positive experiences of Mexico may be utilized. Modernization of Water Resources Management Institutions and Technologies The widespread lack of structured data and infonnation on water resources leads to inefficient management. It is essential to quickly overcome delays in. designing and implementing national and provincial information systems for water resources management. This implies the systemization of data on resources and management at natiornal and provincial level, as well as the updating and modernization of records on water rights and uses. The systems will include advanced technologies for the integrated management of resources, particularly those for aquifer simulation aimed at their protection. The provincial implementation program will assign priority to provinces with the most environmental problems (Mendoza, San Juan, Catamarca, Tucuman, C6rdoba and Santa Fe). There are various water management systems in the world and in Latin America (especially Brazil and Mexico) that could be used to be to learn lessons and principles in order to facilitate a dialogue on water policy and institutions in the Argentine context. Modernization of the Irrigeition Sector The principal objective of a modernization programn for the irrigation sector would consist of returning its competitiveness, without which efforts to improve efficiency in water resources management would be useless. The program would also be multisectoral and involve structural and non-structural components such as the training of farmers both in technology and management; the organization of users' associations; and financial structiring for credit to farmers. The transfer of irrigation districts is not completed and further actions need to be considered. Issues to be analyzed are: granting user associations greater administrative, financial and institutional authority as well as the authority to set and collect sustainable water tariffs. Volumetric delivery, measurement and infrastructure maintenance technologies have a great 157 potential for performance improvement. The broad experiences of Mexico and Turkey stemming from irrigation district transfer projects, partially financed by the World Bank, would be useful in designing and implementing this program. BRAZIL CASE Brazil's area is 8.45 million square kilometers and it has the fifth largest population in the world (161 million people) it also has one of the world's largest economies. Its gross domestic product (GDP) of over $800 million (in 1997) was only a little less than China's and well over twice that of Mexico, the second largest economy in Latin America.6 Ninety two percent of the country's area lies in the tropics. That fact, along with the relatively low altitude of its surface, explains the predominance of warm temperatures, generally above 200C. Equatorial, tropical, tropical of altitude, tropical Atlantic, semi-arid, and sub- tropical climates are all existed in the country. Despite being a large and relatively prosperous country in overall terms, Brazil also has the dubious distinction of leading the Latin American region in terms of the number of people below the poverty line, and is a world leader in income inequality. The World Bank conservatively estimates that about 24 million Brazilians fell below the poverty line in 1990, equivalent to 17.4 percent of the population.7 Distribution of poverty is not even, however, rural areas are significantly poorer than Brazil's rapidly developed urban areas. Regionally, the share of the population living below the poverty line ranges from 6.9 percent in Sao Paulo, to almost a third of the population in the Northeast. Water Resources Management and Irrigation The Government of Brazil (GOB) Plan, established to stabilize and liberalize the economy, has translated into the creation of a new legal and institutional framework designed to improve the efficiency and effectiveness of water resources management. For the first time, water has been explicitly recognized as an economic good, that needs to be managed accordingly. In the Irrigation Sub-sector, this means GOB involvement will need to increasingly shift towards irrigation as an economic and commercial input, rather than (as has traditionally been the case) a mean to achieve mainly social purposes such as resettlement. This does not mean irrigation policies and programs would have no social benefits. On the contrary, viable enterprises generate substantial social and economic benefits to society, including economic growth, employment, and social cohesion. Nor does the enterprise concept imply a bias towards only large-scale corporations. On the contrary, again, viable enterprises are those that are efficient and effective enough to be financially sustainable, and the evidence is far from overwhelming in Brazil. The current irrigated area in Brazil is estimated at about 3.2 million hectares, but the potential for irrigation is enormous and estimated at over 20 million hectares. Irrigation in Brazil 6 See generally Steven N. Schonberger,, Micro-finance Prospects in Brazil, World Bank (June 1999). Unless otherwise indicated, all figures are from World Bank, World Development Indicators (1998). 7 See generally World Bank, Brazil: A Poverty Assessment (1995). 158 h as very specific characteristics as compared to other LAC countries from the standpoint of iLstitutional, financial, technological, and diversified objectives. From the institutional viewpoint, the systems are predominantly private (90 percent) from their origins, including planning, construction, operation and ownership. A large portion of these "private" system (perhaps 50 percent) were supported by electrical grids (sub-transmission and (listribution) supported by government programs. Financing systems and matching grants of 50 percent were also offered to farmers during the 1970s and 1980s. The origins of "private irrigation" developments stem from the beginning of the last century, from 1910 when entrepreneurs from Rio Grande do Sul (RS) State began to irrigate rice, which now accounts for slightly over 1 million hectares, only in RS. The so-called "public" irrigation developments began in Brazil under government programs in the arid zones of the Northeast, associated with settlement programs for small family units, from three to eight hectares as part of large Systems similar to Irrigation Districts where most of the infrastructure investments are public. Currently ihere are about 350,000 hectares of public irrigation in Brazil. The Bank has mostly been involved with these due to linkages with the NE Region and poverty issues. From the agro-technical viewpoint, Brazilian irrigation is diversified: a reasonable ,,lassification could be: (i) Rice Irrigation; (ii) Complementary Irrigation; (iii) Tropical Fruit [rrigation; (iv) Biomass Irrigation (sugar cane and pastures); (v) Public Irrigation Districts .miscellaneous crops); and (vi) Horticulture Irrigation. Although irrigation methods in Brazil are modem, as compared with other LAC countries, gravity irrigation methods still prevail with 58 percent (42 percent Rice flooding and 16 percent furrows and other gravity nnethods), while pressurized irrigation methods cover about 42 percent (hand move sprinklers 19 percent, mechanized sprinklers 19 percent, and localized irrigation 4 percent). Agriculture The Brazilian economy is highly diversified with services and industry representing the highest share of GDP. Agriculture, which represents only 10 percent of GDP, contributes 30 percent of the value of total exports and is the basis of Brazil's important agro-processing industry, which accounts for a further 20 percent of GDP. Despite this, the agricultural sector depends heavily on the Government, particularly for financing. Inadequate technologies ;nd land concentration have contributed to Brazil's relatively low average yields, but production has experienced a significant evolution in recent years. Increased planted area and productivity have been experienced for high-performing export crops. Brazil I oday represents 32 percent of the world's total soybean bran exports, 16 percent of coffee and 8.5 percent of sugar exports. 159 Table 9.2: Irrigation in Brazil MAIN AREAS MAIN PREVAILING REGIONS MAIN CROPPING Million ha CROPS IRRIGATION STATES SYSTEMS _ METHODS _ - RGS, SC, RICE 1.3 Rice Flooding Alluvial MG, RJ, Plains GO, TO, MA, AL, SE Seeds, cotton SP, MG, COMPLEMENTA Staple grains: Mechanized Savanna GO, TO, -RY 0.8 - maize sprinklers Uplands BA, MS, IRRIGATION - wheat (Cerrados) MT, MA, - beans, etc. and DF Bananas MG, BA, TROPICAL Mangoes Sprinkler Arid Zones PE, CE, FRUITS 0.3 Grapes, Furrows and RN, PB, Citrus Localized Savanna SE, AL, Passionfruit Uplands SP, GO, Acerola, etc. and DF BIOMASS Sprinklers All less PRODUCTION 0.3 Sugar cane Furrows All Amazonia Pastures Flooding n States PUBLIC Miscellaneou Sprinkler RS, MG, IRRIGATION 0.3 s Furrows Arid Zones BA, PE, DISTRICTS (all types) Localized CE, PB, PI, RN, AL, SE PR, SC, HORTICULTURE 0.2 Long List Sprinkler All GO, DF, Localized SP, RI, MG, RS, BA, PE, CE TOTAL 3.2 _ _ _ Source: World Bank Working Paper for Irrigation in Brazil. Regional Characteristics of Brazil When referring to the economy, water resources, irnigation and agriculture, it is important to remember that Brazil is a diverse country with major climatic, topographical and cultural differences, distinguished among five regions: North, Northeast, Center-West, South, and 160 Southeast. As Table 9.2 highlights, the South, Southeast and more recently the Center-West dominate agricultural production and are the most capital intensive and technologically advanced.8 The South produces 87 percent of all oranges and 63 percent of all sugarcane.9 The fi)llowing descriptions surmmarize the topography, climate, and irrigation development for each rogion. P orth The North is the largest region in the country, encompassing 3.87 million km2 of largely tropical, humid climate, including most of the Amazon rainforest. This region has little agricultural activity or irrigation. which is limited to relatively small areas of rice and sugar cane. lNortheast With 1.56 million km , the Northeast includes most of Brazil's semi-arid region, with very rew humid areas in addition. This semi-arid climate has irregular rainfall, averaging from 200 to 700 mm a year. The Northeast Region, while accounting for only about a quarter of Brazil's population and 20 percent of its land area, contains over half of Brazil's poor population. Agriculture is largely at the subsistence level with irregular production. While the region holds the largest share of agricultural, labor and accounts for almost half of Brazil's Jarm units, more than 70 percent of these units are less than 10 hectares. The public sector has concentrated on promoting irrigation more in this region than any other one. In recent years, this support (albeit currently very limited), has shifted towards irrigated fruit orchard development, which has a significant comparative advantage in the region. Southeast Extending from approximately 140 South to the Tropic of Capricorn, the Southeast has an area of 927,000 km2 and is the most populated region in the country (68.4 million). This region also has both the most industry and the highest agricultural output. It is a humid region, with rain concentrated in the summer. Winters are mild, pernitting an average of two harvests a year. Irrigation often augments the productivity of these harvests. South With 577,000 km2, the South has a sub-tropical climate, with cold winters and hot and humid summers. Due to frost, opportunities to develop agriculture in winter are quite limited. Due to regular precipitation in the winter, it is not usually advantageous to irrigate traditional crops (corn, soy and beans). On the other hand, rice irrigation in the South is greater than in other regions due to favorable low-level land conditions that are conducive to flood irrigation methods. 8 See Generally World Bank. Brazil: The Management of Agriculture, Rural Development and Natural Resources, World Bank Report No. 11783-BP. (July 1990). 9 See Generally World Bank, Brazil Agricultural Sector Review: Policies and Prospects, World Bank Report No. 7798-BR (1990). 161 Center-West This is a region of agricultural expansion. Bordering the Amazon to the north, the Southeast and Northeast to the east, and Bolivia and Paraguay to the west. The Center-West is the second largest region and encompasses 1.61 million kM2. Rainfall is adequate here, with humid summers and dry winters, but somewhat sporadic. As such, second and third harvests depend on irrigation development, which has been increasing in the region. Although traditional crops continue to dominate production, good potential for onions, tomatoes and some fruits has been demonstrated and producers have begun to diversify accordingly. Irrigated Agriculture and Development Although at first glance it would appear that agriculture per se plays a relatively minor role in the economic development of the country, it is the sector with the greatest percentage of micro- enterprises. When these micro-entrepreneurs have access to credit to develop irrigation, just as agricultural corporations which have to date sporadically built irrigation, it becomes possible for them to cultivate high-value crops for the export market, such as industrial tomatoes, rice, table grapes, and melon. Compared to traditional, rain-fed crops such as beans, corn and manioc, these high-value crops employ more workers, retain them longer, and pay them more.'0 Additionally, irrigated, non-traditional crops account for a higher percentage of export crops than traditional ones. Although national irrigation production amounts to just 5 percent of the total cultivated area, it produces 15 percent of the output, which is valued at 35 percent of the value of all agricultural production. Despite significant irrigation potential (29 million ha), only some 3 million ha have been developed to date. Most of this (over 90 percent) has been sporadically and unevenly developed by the private sector, with little institutional, technical, or financial support from the Government. Given the amount of irrigation potential and the profitability of the limited irrigation development to date, irrigation clearly can be used to further develop agricultural exports and create employment, provided that proper government and market incentives are in place. As Table 9.2 shows, the amount of planted area under irrigation is small (ranging from 2.34 percent in the Center-West to 8.29 percent in the Southeast), leaving significant room for development. Policy Options and Recommendations In general, the main options the GOB may wish to consider in designing a policy framework for the Irrigation subsector fall into the following categories: (a) maintaining the status quo, or doing relatively little to modify the current situation; (b) carrying out mostly centralized, large-scale interventions similar to policies and programs carried out in the 1960s and 1970s; (c) focusing on only institutional and technical reforms oriented towards modernizing the existing policy framework; or (d) undertaking a parallel track approach that links well-justified and targeted infrastructure investments to key modernization reforms. Option (d) may offer the best 10 Octavio Damiani, Beyond Market Failures: Irrigation, the State, and Non-traditional Agriculture in Northeast Brazil (1999), (PhD Thesis, Massachusetts Institute of Technology (Cambridge, MA)). 162 chance to take advantage of existing irrigation development potential whilc also enabling nodernization reforms that promote long-term sustainability. The more specific recommendations :hat follow would fall under the parallel track option. While they draw on the analysis and lessons ,rovided in the previous sections, they are preliminary in nature, and intended mainly to guide ongoing policy dialogue. Furiher analysis may be required to solidify or deepen specific recommendations.l' Irrigation Development Potential and Institutional and Regulatory Framework Issues related to irrigation development potential and institutional regulatory framework in Brazil include the need to strengthening institutional and regulatory framework at both federal and state levels and private sector participation. Federal Level There is a need to strengthen the institutional and regulatory frameworks at the national as well as state and local levels. Two basic principles underpin the frameworks: (i) policy- and strategic-level responsibilities., typically under the purview of public agencies, need to be consolidated as much as possible; and (ii) program and project implementation should be decentralized to the lowest level possible, provided that adequate implementation capacity exists; where it does not, training and coaching could be provided. State Level At the state level, capacity is uneven, with only a handful of states capable of managing irrigation. These more advanced states need to be drawn upon to help lead the way for the weaker states. The latter will need temporary support from the Federal Government. This is especially relevant in today's environment of fiscal cutbacks and institutional instability. Private Sector Participation An active and growing private sector is one of the fundamnental tenets of a modem, sustainable irrigation sub-sector. Yet private participation and investment have stagnated. Strengthening the institutional and regulatory framework, as suggested above, is perhaps the first critical step towards renewing and promoting the expansion of private-sector growth in irrigation development. Economic Efficiency Policies In general, economic efficiency policies support private sector participation in irrigation because they send the right signals to producers regarding costs, markets, expected prices, and revenues. Such policies also tend to be consistent with the objective of promoting financially sustainable irrigation development. Six recommendations can be identified umder this heading. These recommendations are: "Pending GOB approval, resources from a Japanese Grant would be available to support such studies. 163 * Establishment of New Market-based Credit Mechanisms. The following are policy options for establishing credit.12 Phasing out interest subsidies for large producing farmers and ensuring that financing is available for small producers ca be tried. For credit related to on-farm irrigation, large farmers typically have ample access to adequate credit; as such, there is a tendency to either avoid subsidized interest lending (due to cumbersome application procedures) or use it for speculative purposes. Therefore, subsidized lending to these farmers might need to be phased out. On the other hand, as described above, small producers often have difficulty obtaining credit. A policy that focuses on ensuring funds for these producers can not only stimulate private-sector participation but also help alleviate rural poverty. The policy could be carried out following a two-step approach: (i) set up a pilot program to find out whether efficiency and equity objectives can be better served by replacing interest rate subsidies with more transparent transaction cost subsidies, and (ii) explore means of strengthening Group Credit associations as sources of lending in remote and poor areas. To do the latter it might be necessary to amend banking laws and regulations in order to authorize such associations as autonomous, community-based and govemed organizational units with a clear basis for existence as legal and juridical entities, that can enter into contractual relationships with third parties for themselves and on behalf of their members, and have the ability to secure compliance from members and impose sanctions for non- compliant behavior. Pilot New Approaches to Financing Collective Infrastructure. Although the GOB will likely have to take the lead in financing collective infrastructure (whether for rehabilitation improvement or expansion) in specific regions, notably the Northeast and to a lesser degree the Center-West, current trends and fiscal constraints will render such financing highly limited, if available at all. As such, new models need to be tested to attract greater private sector participation for these types of investments. To some extent, many of the recommendations identified in this section can help in this regard. However, lessons and experience from other sectors (i.e. energy and urban water supply) could be applied to irrigation development, particularly for multi-purpose bulk water supply-type projects. Concessions; project finance guarantees; build, operate, and transfer (BOT) arrangements and the like are all feasible alternatives provided that an adequate institutional and regulatory framework is in place to support them. Corporations, well-functioning WUAs and other entities could participate as well as compete under such financing arrangements. As with on-farm credit policies, new collective infrastructure models could be tested on a pilot basis, with scaling up to follow depending on whether or not pilot results yield approaches that are equitable, competitive, and sustainable. * Development WUAs and other Producer Associations; * Financially Sustainable Irrigation;13 12 See generally World Bank. Brazil: The Management of Agriculture, Rural Development and Natural Resources, World Bank Report No. 11783-BR, Vol. II (July 1990). 13 Unless otherwise noted, this section draws from Asad ET AL., Bulk Water Pricing in Brazil, World Bank Technical Paper No. 432, (June 1999). 164 * Sustaining the Course on Macroeconomic Policy; * Investment in Economically Viable Projects; * Rationalizing Pricing and Making Subsidies Transparent; and * Creation of Conditions for Water Markets. Adoption of Modern Technologies and Practices Several measures can be considered to promote these practices: * Differential pricing of'water and electric power that promotes nocturnal use; * Availability of long-term credit for the purchase of modem irrigation equipment, which could be negotiated with credit institutions such as the Bank of Northeast Brazil and the National Bank of Economic and Social Development (BNDES); * Promotion of an efficient system of technical assistance services; and * Strategies to attract innovative producers to specific areas. The experience of the Jaiba project and of CODEVASF irrigation projects in Petrolina-Juazeiro ha,s shown that the presence of firms has been essential to bring know-how on irrigation and agricultural technology and marketing.14 A strategy of attracting firms could include temporary benefits targeted to firms with specific characteristics (i.e. with experience in irrigated agriculture and contacts in export markets). Just as in well-designed concession contracts, however, such benefits would be best offered under some sort of competitive bidding procedure, with subsequent regulation and monitoring of winning firms, and with consequences for firms that do not comply with contractual agreements. Link Support Services to Irriigation Development Even if most of the elements critical to sustainable irrigation are in place, if producers are not aware of important research results or cannot efficiently get their products to market, irrigation development in itself will be of little value. As such, efforts need to be made to renew a research program that was once the envy of Latin America. That doesn't necessarily mean the GOB must take the lead in all major research, although clearly it has a critical role to play and existing institutions might be drawn upon to lead the way. Similarly, the GOB needs to consider the possibility to focus on imLproving the marketing environment for firms and small producers alike. The following include key approaches that could be taken even considering the tight fiscal constraints currently facing the GOB. 14 In Petrolina-Juazeiro, for exauple, agricultural firms were the ones that first introduced new crops-notably export crops like mango and table grapes-and new crop and post-harvest technologies, such as the use of chemical products to control the harvest season in mango and the use of hot water treatment against fruit fly in mango. In addition, firms played a major role in opening new domestic and export markets for these new crops, bringing connections and experience in solving common problems of exporting. 165 Agricultural Research Considering the public-good nature and economies of scale that characterize a great deal of agricultural research, public funds should be allocated to support them. Part of the research on irrigated agriculture could support the development of irrigation in regions with potential but little experience in irrigated crops. Such research might focus on identifying crops that could be grown with irrigation, their demand for water, potential yields, response to fertilizers, possible pests and diseases, costs of production, investments required, and potential profits. A second line of research might focus on solving problems of existing irrigated crops, such as generating varieties of seedless table grapes, to create varieties resistant to specific pests and diseases, and to generate technologies to concentrate the harvesting of crops at certain times of the year. A third line of investigation could focus on identifying potential markets for new and existing irrigated crops, quality characteristics required by consumers, foreign government regulations concerning pests and use of pesticides, and other market information. As in other countries (Chile may be the best example), many of these research activities could be carried out by the private sector (i.e. through exporter associations) and funded by a government program of competitive grants. Technical Assistance The main objective regarding technical assistance in irrigated areas is to develop a market for these services, in which a number of suppliers (professionals, consulting firms, and NGOs) compete for providing these services, and producers are willing and able to pay, and select providers according to the balance of price and quality of their services. While the producers' ability and willingness to pay for technical assistance and the presence of private providers are substantially higher in irrigated areas than in dry land agriculture, many problems still arise. In the case of public irrigation projects, Companhia de Desenvolvimento do Vale do Sao Francisco (CODEVASF) (San Francisco Valley Development Authority) and Departamento Nacional de Obras Contra as Secas (DNOCS) (National Department of Drought Management Works) have been paying for the full costs of providing technical assistance to small irrigators, usually contracting private consulting firms and NGOs, and occasionally government agencies. While these private services have performed better, small irrigators do not contribute to the costs of the services, so the suspension of government support is likely to compromise sustainability. In addition, the lack of farmers' contribution affects accountability because producers are less likely to demand performance for a service that they do not pay for. Marketing "Supply chain management", or solving inefficiencies in the agricultural productive chains and reducing marketing costs, will be key for the sustainability of irrigated agriculture, especially for exports. Dealing with this problem requires investments in basic transportation infrastructure, as well as policy reforms that promote private participation and competition for investing in or managing such infrastructure. In addition, other efforts are needed to focus on solving problems that may jeopardize access to foreign markets (i.e. controlling pests and avoiding the farmers' use of pesticides forbidden in other countries). Given the success of producer associations in solving these 166 problems, any combination of public interventions should promote the creation and strengthening of such associations. Priority can be given to areas of irrigated agriculture with good basic and irrigation infrastructure but lacking producer associations dealing with the marketing of production. The GOB could play an "incubator" role, providing funding and technical assistance during the start-up phase of producer associations in order to enable them to develop organizational capacity and initiale several activities useful for producers (i.e. setting up quality- and pest-control programs, training, collection and dissemination of market information). Sutpport can also be provided to promote farmers' visits to successful associations that could serve as a model for creating their own. CONCLCUSION To improve integrated water management in Mexico, irrigation is a key sector that require simultaneous attention in the agricultural sector and in water distribution withirn the irrigation s"stems. Argentina irrigation sector could benefit by implementing a modernization program to retum its competitiveness. This program may include: training of farmers, organization of users' a3sociations, financial structuring of credit to farmers, transferring irrigation districts to farners, introduction of volumetric delivery and measurement, and the improvement of infrastructure maintenance technologies. Brazil is on the verge of implementing wide-ranging reforms that could convert the water sector into one of the most advanced and modem in the world. However, the implementation of rnodernization reforms is slow and the design of the reforms themselves is neither well integrated across nor reflected in all water sub-sectors. Changes needed to modernize the legal, institutional and policy framework for irrigation are lagging, and irrigation development has been relatively stagnant for over a decade. Although 1he private sector has developed well, and today accounts for over 90 percent of all irrigation development, much of this is arguably linked to efforts made by the GOB in the 1970s and 1980s ;o promote private irrigation development. In addition, private irrigation tends to be mostly on- farm, as opposed to large-scale collective infrastructure, and is uneven from a national perspective. At the same time, oddly enough, the potential for irrigated development in Brazil is tremendous and it has been demonstrated that properly designed and well-targeted irrigation projects have potential for high returns and socio-economic benefits. In recognition of this irrigation development potential, as well as of the modernization lag described above, there is a growing interest within the GOB to reform and renew the role it plays in the Irrigation sub-sector. l.his role includes a number of legal, instituticnal, policy, and programmatic changes oriente(d towards creating a modem irrigation system that can grow on a sustainable basis. These include: (a) strengthening the institutional and regulatory framework at both the federal and state levels; (b) promoting a variety of policies that could renew and expand private sector growth in irrigation development; and (c) supporting initiatives oriented to improve and broaden the use of technologies and support services critical to sustainable irrigation development. Without this reform, Brazil runs the risk of renewing traditional approaches to 167 irrigation development or continuing to do relatively little to support the sub-sector. Either way, these approaches are not likely to lead to sustainable irrigation development nor are they likely to enable Brazil to fully benefit from its significant unrealized irrigation development potential. 168 BIBILOGROPHY Agricultural Productivity Improvement Project. Loan Agreement, May 11, 1999, Nacional Financiera S.N.C. - International Bank for Reconstruction and Development, Loan 4428 Mexico. Azevedo, Loiz Gabriel, Mosa Asad, and Larry D. Simpson. Management of Water Resources. .9ulk Water Pricing in Brazil. World Bank Technical Paper 432 (Washington D.C.: World Bank) June 1999). Damiani, Octavio. "Beyond Market Failures: Irrigation, the State, and Non-traditional Agriculture in Northeast Brazil" PhD Thesis, Massachusetts Institute of Technology (Cambridge, MA) (1999). Easter, William and others. "Irrigation Improvement Strategy Review. A Review of Bank-wide Experience Based on Selected "New Style" Projects." 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Framllework Governiig Buisines.s il Blglyaria 104~~~~~t I .:.: X v co O T G) CDe. C) c I51789C