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Economic and Financial Instruments for IWRM Water management issues and instruments for efficiency, equity and sustainability, 28-8-7 based on chapter 2 Meine Pieter van Dijk UNESCO-IHE
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Page 1: 4. capnetch2.1

Economic and Financial

Instruments for IWRM

Water management issues and instruments for efficiency, equity and sustainability, 28-8-7 based on chapter 2 Meine Pieter van Dijk UNESCO-IHE

Page 2: 4. capnetch2.1

Learning objectives of the session

1. To make the participants aware of the problems people face concerning water

2. To learn to appreciate that issues have technical, social, cultural and economic aspects

3. To make participants aware that this implies a different approach to water management

4. To understand the difference between economic and financial instruments

5. To clarify the difference between efficiency, equity and sustainability in the case of water related decisions

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Outline presentation

The issues: from achieving the MDGs

to involving private initiative p.3-4

Social and economic good: a more

rational use of resources p.4-6

Efficiency, equity and sustainability

Conclusions

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Introduction

After the introduction to integrated water resource management (IWRM)in chapter 1 we will now review the issues in the water sector

They invite the use of economic and financial instruments to help to solve the issues

An economic and a financial approach to water issues will be explained

Finally, the use of three important criteria: efficiency, equity and sustainability, will be discussed

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water cycle management: cost and revenues at all the points

Water resource

Water intake

Water treatment

Distribution

Use and Re - use Wastewater collection

Wastewater treatment

Urban water cycle management

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Major issues in water management 1

1. Achieving the MDGs

2. Anticipating consequences of climate change

3. Pollution of water resources

4. Inadequate distribution of water resources

5. Involving all stakeholders & using private initiatives

6. Water is not sufficiently conserved

7. The physical infrastructure is not in place or poorly maintained

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Major issues in water management 2

8. Not sufficient funds available for water management & waterf and sanitation

9. Government agencies are not doing what they are supposed to do

10. Can role of government be limited to an enabling environment & regulating?

11. How are water rights allocated?

12. Floods and droughts

13. What is the best level to deal with these issues: the national, regional or local?

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Major forces causing the issues 1

1.Economic growth

2.Population growth and increased urbanization

3.Concerns about the health of the people and about the environment

4.Forces to increase the scale of production & modern equipment

5.Uncoordinated management & development

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Major forces causing the issues 2

1. Government failure to deal adequately with the issues

2. Market failure, to pick up the challenges

3. Increasing critique on the poor management of utilities and river basin organizations

4. Achieving economic, environmental and social sustainability

5. Climate change

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A more rational use of resources

Water as an economic good?

1. Cost of treatment and distribution?

2. Competing use of water: ind./agric/cons.

3. Economics as dealing with scarcity. Also

Creating an economic environment and using economic instruments

Demand and supply are matched at a certain price

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The importance of institutions

Norms and traditions

Legal frameworks and policies

Rules and procedures

FROM below institutions are more effective

PLUS need for social enforcement & control

IF necessary there will be a reform of the

institutions or the creation of new ones

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Reform of the institutions: different types

1. Introducing new practices through legal reforms, like decentralization, stakeholder participation, more rigorous cost recovery or private sector involvement

2. A new goal for the organization

3. Rationalizing the production process

4. Redesigning tasks and responsibilities

5. Changing different procedures

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Think about it

1. Discuss what is the most important water

related issue in your country and why?

2. Quelles institutions impotantes dans votre

pays controle l’’utilisation de l’eau?

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Besides economic there are financial instruments

If Operation & Maintenance necessary

If investments need to be made

If different sources of finance need to be

tapped

If a financial proposal needs to be prepared

YOU NEED BANK SPEAK! To use different

financial instruments & different conditions

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Economic and financial elements of water

management

Economic principles: rational use of resources, cost recovery and polluter pays

Economic instruments: taxes &subsidies

Fixing a tariff is based on the market price and some other (social) considerations

Other criteria used for a tariff are: efficiency, equity and sustainability

Financial is what you have to pay in reality!

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Economic efficiency = allocative and technical

efficiency

Allocative efficiency refers to the use of inputs in

a way that maximizes total net revenues for firms

or consumer surpluses for consumers

Technical efficiency is related to production and

refers to firms getting a maximum output per unit

of input or use minimum input for a given output

Economic efficiency = technical and allocative

efficiency together

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Equity issues

Equity in water is being concerned about the situation of vulnerable groups of society

Do poor people, women and children have access to safe water and sanitation?

Are the cities better off than the rural areas?

What solutions do we have?

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Ways of helping the poor

West Africa: Standpipes or mobile water vendors

South Africa and Ghana: Lifeline approach

Santiago de Chile: Municipality reimburses poorest

20 percent the largest part of their water bills

Microcredit for paying connection fees for water

and sanitation

Cross-subsidies to help the needed

Other suggestions?

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What is meant by “sustainability”?

A service is sustainable according to IRC when it

is functioning and being used;

is able to deliver an appropriate level of benefits (quality,

quantity, convenience, continuity, health) to all, including

the poorest women and men;

continues to function over a prolonged period of time;

management is institutionalized;

operation, maintenance, administrative and replacement

costs are covered at the local level;

can be operated and maintained at local level with limited

but feasible external support; and

does not affect the environment negatively

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Towards the total sustainability concept

Economic sustainability:benefits are bigger than the implied costs

Financial sustainability: an activity can carry on without the need for additional outside financing

Environmental sustainability, an activity which does not go at the expense of the environment (Brundlandt: does not affect the situation for future generations)

Social sustainability: a solution is socially acceptable in a given social and cultural context

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Total sustainability: definition & measurement

Total sustainability, the combination of economic, financial, social and environmental sustainability, or total sustainability

However, to measure it, you have to give weights to the different types of sustainability!

Other indicators: operational efficiency, consumer satisfaction, etc.

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Conclusions, leading ideas and cliff hanger

1. To improve water resource management it is important to create an appropriate economic environment

2. Economic instruments can be used to achieve the goals formulated for IWRM

3. If investments are necessary it is important to speak the language of the financial world: investment cost, of rates of interest and pay back periods

4. Show projects bring about cash flows because of users paying fees, then bankers can be convinced to provide money

5. Another idea that will be elaborated is that there are many sources of finance with their own procedures & conditions

Cliff hanger: now we go into detail, before coming up with the necessary policies & the role of different actors

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Possible role play

We confront two groups with an important

issue and ask them to defend the

traditional sectoral way of dealing with the

issue and ask one group to deal with the

issue in an integrated way (10 minutes)

The arguments for the two approaches are

presented and the differences are

discussed (10 minutes)

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Think about it

1. Discuss experiences in your country with a more economic approach to water

2. What would, while respecting the cultural value of water and with an open eye for the social problems in your society, a more economic approach imply in your country?

3. Qu’est-ce que est le plus important pour vous, l’equite ou léfficience et pourquoi?