Pakistan Development ForumIslamabad

April 27 2007

Pakistan: a hydraulic Pakistan: a hydraulic nationnation

Facing the 21Facing the 21stst CenturyCentury

a modern ‘hydraulic’ nation built on over 5000 years of ‘hydraulic civilization’

Facing the hydraulic challenges of the 21st Century

Facing the 21st Century: story line

1. 20th Century water challenges faced

2. Facing 21st Century water challenges

3. Track 1: Managing the Indus system for multiple stakeholders & objectives

4. Track 2: Developing the right Indus infrastructure well

20th Century water challenges faced

1. 1960 Indus Waters Treaty: national entitlement settled2. Instruments & institutions: management & development3. Coping infrastructure: link canals, storage, hydropower4. Waterlogging and salinity reversed5. 1991 Accord: Interprovincial entitlements settled, IRSA

established6. Major recent ‘points of light’ e.g.

1. Irrigation reform: irrigation management transfer2. Ghazi-Brotha: hydropower, social & environmental focus3. Mangla: good practice resettlement4. Draft National Water Policy:

India

PakistanIn

dus

Jhelum

Ravi

Sutlej

Beas

Chenab

Nepal

ChinaAfghanistan

The Indus Water Canal System at Partition in 1947

India

Pakistan

The Indus - The Treaty (1960)

India

Pakistan

The Indus - The Treaty (1960)

INSTRUMENTS ORGANIZATIONSEntitlement to Indus System Water: The IWT:• which enabled Pakistan to focus on development of its resources• which defined processes for conflict resolution

The Indus Commission

Allocation of budget for creation of major water and drainage infrastructure and new entitlements

Finance Ministry, WAPDA, (SCARP)

Entitlement for the Provinces: Eventually the Water Accord which defined (much less precisely than the IWT) who had what and how conflicts would be resolved.

IRSA (lately)

Entitlements to Canal Water: Warabandi – Provided irrigators with predictable entitlements

The Irrigation Departments and eventually farmers organizations

Entitlements to “unlimited” groundwater –implicit encouragement of “use whatever you can”

SCARP then mostly the private sector -- Pump providers and farmers

INSTRUMENTS ORGANIZATIONSEntitlement to Indus System Water: The IWT:• which enabled Pakistan to focus on development of its resources• which defined processes for conflict resolution

The Indus Commission

Allocation of budget for creation of major water and drainage infrastructure and new entitlements

Finance Ministry, WAPDA, (SCARP)

Entitlement for the Provinces:Eventually the Water Accord which defined who had what and how conflicts would be resolved.

Indus River System Authority

Entitlements to Canal Water: Warabandi – Provided irrigators with predictable entitlements

The Irrigation Departments and eventually farmers organizations

Entitlements to “unlimited” groundwater– implicit encouragement of “use whatever you can”

SCARP then mostly the private sector -- Pump providers and farmers

Key diversion infrastructure HAD to be developed in a decade; essential storage followed – high returns

0

500

1000

1500

2000

2500

3000

3500

Predicted Actual

mill

ion

1998

US

$

Power Irrigation

benefits from Tarbela 1975-1998

Source: WCD 2000

Arabian Sea

Link canals

The ‘twin menaces’: water logging & salinity

01234567

mill

ion

acre

s

0

20

40

60

80

100

% w

ater

logg

ed

Punjab Sindh Punjab Sindh

Source: Bhutta and Smedema 2005

Under control -in Punjab

Water entitlements

• The Water Accord of 1991: distribution between provinces: major achievement

• Distribution between canal commands within provinces...

• Transparency…

Punjab & Sindh: Irrigation Management Transfer: Empowerment of Farmer Organizations

A revolution: large & small

Facing the 21st Century: story line

1. 20th Century water challenges faced

2. Emerging 21st Century water challenges

3. Track 1: Managing the Indus system for multiple stakeholders & purposes

4. Track 2: Developing the right Indus infrastructure well

Emerging 21st Century water challenges

1. Seriously threatened water resource base1. Growing water stress – & little ‘spare’ water2. Degrading resource base: water quality, wetlands, the delta 3. Unmanaged & overexploited groundwater4. Climate change impacts

2. Deteriorating infrastructure assets: 1. Lost reservoir storage, reducing regulation capacity 2. barrages, canals3. Low productivity4. Financially unsustainable

3. Increased management needs yet, weakened capacity1. Slide from technocracy to complacency: ‘unpopulated addresses’2. loss of capacity = inadequate management of system3. Low water productivity

Source: www.UNEP.orgPakistan: one of the worlds most water-stressed countries

Declining per capita availability of water in Pakistan (cubic meters per capita per year)

Source: Amir 2005

Water scarcityWater scarcity

Water stressWater stress

Figure S6: Annual Canal Diversions and “Escapages to the Sea”

Source:: World Bank 2003

0

50

100

150

200

Flow

s (M

AF)

1975-76 1979-80 1983-84 1987-88 1991-92 1995-96 1999-00 2003-04Years

Figure 1 Annual Canal Diversion and Escapages to the Sea

Existing Canal Diversion Escapages to the Sea

Wetlands at risk Source: Zachariah 2005

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

1960

1965

1970

1975

1980

1985

1990

1995

2000

2003

Tube

wel

ls (t

hous

ands

)

The growth in use of (unregulated) tubewells

Source: Steenbergen and Gohar 2005

Salinity management remains a major challenge

0%

20%

40%

60%

80%

100%

NWFP Punjab Sindh Baloch. Pakistan

Salt free Slightly saline Moderately saline Strongly saline

Environmental degradation

The Indus Delta

Growing cities

Figure 25:Accumulated effects of deglaciation on Indus river flows over ten decades

Rees et al 2005

Decade

Decade

Canals & barrages losing their design capacity...

0

5

10

15

20

25

1975 1985 1995 2005 2015 2025

Years

Stor

age

in M

AF

18 MAF

15.6 MAF

10. 4 MAF

7 MAF from Basha

2.9 MAF from Manglaraising

15.6 MAF from Tarbela Mangla and Chasma

12.8 MAF of current capacity

Increasing sedimentation and reducing storage capacitySource: World Bank 2003

0

5

10

15

20

25

0 10 20 30 40

Storage MAF

Storage-additional yield curve for the Indus

Source: Lieftinck, 1968

Current Current storage storage levellevel

Additional yield in MAF/year

Effect of loss of storage?

Low productivity: wheat yields per unit of land and waterSource: Ahmad 2005

012345678

Imperial Valley, USA Bhakra, India Punjab, Pakistan

Tons

/ha

0

0.2

0.4

0.6

0.8

1

1.2

kg/c

ubic

met

er

Tons/ha yield kg/m3

Facing the 21st Century: story line

1. 20th Century water challenges faced

2. Emerging 21st Century water challenges

3. Track 1: Managing the Indus system for multiple stakeholders & purposes

4. Track 2: Developing the right Indus infrastructure well

Track 1: Managing the Indus system for multiple stakeholders & objectives

1. Modern institutional framework for multipurpose system management

2. State of the art, multidisciplinary capacity and tools

3. Interprovincial trust in institutions, entitlements, equity

4. Sound finances within a business environment

High level Pakistani officials visit to Australia 9/06: at the National Water Commission

Australia institutional model: A. Guiding Principles

• Institutional elements:– Separation of

policy, service provision & regulation– Corporatization of water service provision

– Devolution of responsibility to lowest possible level

Regulator

Water entitlement

holder

Service provider

Entit

lem

ent r

egist

er

Operating licence

Supply contract

Australia Model: B. Strong Institutions at all levels:

• At Federal/National level: (National Water Commission)

• At the River basin Level (Murray Darling Basin Comm.)

• At State level– Government responsible for

policy and regulation function– Corporate bodies provide bulk

water service delivery

• At Irrigation district (or canal command) level– Corporate service providers

(public & private)

UsersUsers

Replace-ment

Interest

EfficientO & M

Financial Requirements

Who pays

TaxpayersTaxpayers

Australia model

Excess man-power

O & M

Replace-ment

Interest TaxpayersTaxpayers

TaxpayersTaxpayers

TaxpayersTaxpayers

UsersUsers

UsersUsers

No oneNo one

Current model

Financial Requirements

Who pays

Build/Neglect/Rebuild modelBuild/Neglect/Rebuild model

Facing the 21st Century: story line

1. 20th Century water challenges faced

2. Emerging 21st Century water challenges

3. Track 1: Managing the Indus system for multiple stakeholders & purposes

4. Track 2: Developing the right Indus infrastructure well

Track 2: Developing the right Indus infrastructure well

1. Coordinated system management 1. Surface and groundwater conjunctive use2. Expanded power generation3. Optimized storage operation for irrigation, power

generation, flood mitigation4. Sediment management5. Environmental flows

2. Benefit sharing1. Interprovincial mechanisms2. Community level mechanisms (beyond LA and R&R)

3. Financing major investments

Proposed dam sites on the Indus

1. Managing storage & sediment on the Indus

15

5

10Long Term Storage with Sediment Management

Long Term Storage Depletetion

Tarbela on line

Diamer Basha on line

Tarbela Flushing

DB Flushing

2000 2050 2100

0%10%20%30%40%50%60%70%80%90%

100%

0 1000 2000 3000 4000

Economically viable potential GWh/year

AfricaAfrica

North North AmericaAmerica

IndiaIndia

EuropeEuropeJapanJapan

ChinaChina

The development of economically-feasible hydropower potential in Pakistan in international context

South South AmericaAmerica

PAKISTANPAKISTAN

Source: World Bank 2003

2. Power generation in an “Indus Cascade”

River Flow

Ghazi Barotha

Diamer Basha

ROR3Tarbela

ROR1ROR2

8000-9000 MW max.??Head

Historical Investments

Kuznets Curve & adaptive investment

Low

environmental & social costs

Low

High

Adaptive Investment

No investment

Income Highincomes/benefits

New TechnologyEtc….

Good GovernancePublic Participation

Water & Water & Responsible Responsible

GrowthGrowth

Benefit SharingFlexible Design

Irrigated AgricultureFloodmngmt.

WatershedManagement

RegionalTransmissionSystem

LocalCommunityInfrastructure

HydrometSystem

Hydropower

From Single Output …

Growth PoleInvestments

to Multiple Interests

Energy for growth

Fisheries & aquatic ecosystems

Benefit sharing

• framework to maximize & distribute benefits across stakeholders

• Consider early in project conceptualization & design

• Involve stakeholders as potential beneficiaries • Improve methodologies & data to quantify

benefits• Ensure adequate institutions, policies &

capacity to realize benefits

REGIONAL LEVELIrrigationElectricityNavigation

LOCAL LEVELPublic healthElectrificationFisheriesMicro-projectsAgro-forestryDrinking water

Senegal River Basin Benefit-SharingJointly-owned infrastructure

Asset Holding Company

Operating Company

Provincial Govts. Municipalities

Management contract or concession

shareholders

bulk buyers (discos)

customers

Regulator

Consider institutional options to build trust & share benefits

Columbia Basin Benefit-Sharing

REGIONAL BENEFITSFlood managementHydropowerEnvironmental assets

LOCAL/NATIONAL BENEFITS“Micro projects”Environmental assetsHydropowerCapacity buildingColumbia Basin Trust

Affected people as shareholders

Hydro project finance: lessons from recent experience

• Tension between (short-term) financial viability and long-term economic benefit

– Question of how to finance non-revenue earning aspects of the project.

• Many financing instruments – both public and private - can be used across the full range of financing models (public/private distinction is blurred). – But lack of replicability of models from one

project to another– RISK is major issue for private sector

• Time taken to organise finance should not be underestimated

• For all financiers – project must meet international standards of sustainability

Gap between economics and finance

If there is a gap between economic and financial viability it can only be filled by:

– Introducing public subsidy in one form or another; and/or

– Restructuring the project to separate out the financially viable elements and secure a revenue stream.

Private finance is averse to risk

• The boundaries between private and public finance are not clear cut – private finance is not solely associated

with private development

• Private sector remains averse to risk – loading risk onto the private sector is

expensive and may derail a project

• Because of higher risk, Private sector is particularly averse to large/ multipurpose water projects – range of financing instruments needed– guarantees can reduce risk perception

• Private finance requires a secure revenue stream and an implementing agency in which it has confidence

Financing takes time to arrange

• Nam Theun 2 – cost $1.25 billion: 18 months to arrange – Large range of

players involved including two countries – but experience not atypical.

Other lessons –• International Financing Institutions offer a wide range of financing

instruments to suit most project structures, and can leverage other funds.

• In almost all projects the Public sector has large role to play in early preparation - and must play it well with good quality studies and analysis

• Exchange rate fluctuations remain a particular concern. This can be managed to some extent by using local currency funding wherever possible

• In some cases export credits can be an important source of debt financing, although the scope is limited for most water projects.

• Refinancing after a project is complete is relatively easy and can result in improved terms as the project then has an operational record and an existing revenue stream.

Conclusions: some thoughts from the World Bank

• Need for investment in management & reform

• Real appetite for Indus management reform

• Many & growing ‘points of light’

• Need for development partners to work together

PakistanPakistan’’s s Water Water

Economy: Economy: Running DryRunning Dry

19951995

Track 1: Indus Basin Managementsome early recommendations

• Strengthen Federal role by adoption of a National Reform Agenda to build trust, equity, capacity & efficiency

• Establish Indus Team in Ministry of Water & Power: expert foundation for reform agenda

• Enhance reform capacity & implementation in provinces

Track 2: Indus Basin Developmentsome early recommendations

Major new infrastructure must be economically sound & technically/ socially/ environmentally ‘do-able’, AND:

• Justification clear for all stakeholders• Planned as Indus system asset restoration & expansion, in

conjunctive operation with existing infrastructure, • Planned in context of climate change • Fiscal space grows without distorting other priorities• Environmental & social issues & consultation fully integrated

into decision making• “Giant projects”: financing very difficult, need blend of

multiple sources, confidence of all parties• Timeframe must be realistic: no short cuts

Indus21Managing a great river in 21st Century: growing demand & climate change

From the high Karkoram

Through a desert

To its delta & the Arabian Sea

Thank you!