Water DistributionPublic, Private, or Both

by

K. William Easter

Professor of Applied Economics

University of Minnesota

KREI Seminar - May 14, 2008

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The Gadag Rural Water Project (India) will replace the need for getting water

from a traditional scrape in the river bed with piped supplies

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1.Current conditions

• 97.5% of world’s water is salt water and another 2% is frozen or not accessible

• Four to five fold increase in water use since 1940s (2 to 4% growth rate)

• Over a billion people lack clean water and about two billion have poor sanitation

• Women or children may have to walk 5 to 10 miles for water

• Bottled water costs $30 to $300 per barrel (oil $120)

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1.Current conditions - - contd.

• Four gallons of water to produce a gallon of ethanol

• Consumptive water use in LDCs (distribution)

• Agriculture (irrigation), 70-80%

• Commercial and industrial uses, 10-22%

• Domestic uses, 8-10%

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2.Human rights to water and the private sector

• Basic right to water for domestic use

• Access to village well or public water tap?

• Should this be right to “safe water”?

• Low water price for basic human needs?

• Allocate a greater share of water to domestic use?

• How does this compare to basic right to food?

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2. Human rights to water and the private sector - - contd.

• Agricultural and commercial use (90% of consumptive uses)

• Isn’t this water better treated as an economic good?

• Do we need to reduce demand and reallocate more to domestic and environmental uses?

• If we do, then we need to price water at its scarcity value

• How much to allocate for environmental uses?

• 30 to 50% of stream flow

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3. How water has developed in the 20th century

• In early stages of settlement, people located near water sources (rivers and lakes)

• As populations, cities, and demands for food all increased, access to water became more difficult

• First approach in LDC was to develop large multipurpose irrigation projects with foreign assistance – TVA model

• Some private irrigation was also developed, such as the Gezira Scheme in Sudan, with farmers as tenants

• In 1980s large expansion of private irrigation well development in Asia

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3. How water has developed in the 20th century - - contd.

• Growth in LDC cities took off in 1960s and 1970s

• In 1960, only one LDC city over 10 million

• In 2000, seventeen LDC cities over 10 million

• Now in LDCs, 50% live in urban areas

• Large cities in LDCs underinvest and poorly manage water supply and sewage systems

• 50% of water is unaccounted for in Cairo, Lagos,Mexico City, Jakarta, Manila, and Lima

• Cost of new supplies may be 2 to 3 times cost of existing supplies

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3. How water has developed in the 20th century - - contd.

• Poor quality water service continues particularly for the urban poor in LDCs

• Still 50% of the people, including the poor, live in rural areas where many have unsafe water supplies

• 1980 was first UN water decade; the 2005-2015 decade is UN “water for life” decade

• During the first water decade, we just kept up with population growth. The number of those without safe water stayed constant.

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4. Given this situation, what can we do?

• What about the private management options in urban areas? (Table 1) Design and build is most common U.S. private activity.

• Irrigation has also helped meet rural domestic water needs

• Some existing systems using groundwater and springs

• Punjab, India, southeastern Brazil, and Bangladesh: wells and hand pumps

• Oman and Brazil: examples of water markets

• Might use markets to reallocate water to domestic uses both permanent and temporary

• California did in 1990s -- temporary

• Chile and Australia have done a little -- permanent

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Types of Agreements or Concessions

Description of Functions and Services Provided

Acquisition – private ownership

Public utility sells facility to private entity resulting in private ownership and operation.

Joint venture Private entity owns and operates facility in conjunction with public utility.

Design, build, own, operate and transfer ownership to public

Private entity builds, owns, and operates facility. At end of specified period, such as 30 years, facility is transferred to a public utility.

Design, build and operate

Private entity designs, constructs, and operates facility. Public utility retains ownership and financing risk, while private entity assumes performance risk for service and/or compliance.

Operate and maintain

Public utility contracts with private entity for a fee to operate and maintain facility. Public utility owns the facility.

Design

and /or build

Private entity designs and/or constructs facility and turns it over to public utility to operate.

Provide specific services

Private entity contracts to provide public utility with specific services such as meter reading or billing and collection.

Management Private entity manages and supervises public utility personnel.

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5. Villages not adequately served, can’t treat them equally

• Type I villages – high willingness to pay (WTP) for private connections but not for public taps.

• Type II villages: low WTP for private connections but majority will pay for public taps.

• Type III villages: WTP for improved service but too costly for them.

• Type IV villages: low WTP for improved service.

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6. Conclusions

• Technology for obtaining clean water is much improved.

• No one model fits all.

• Community must be involved in water investment decisions.

• Subsidies for low income communities who want and will maintain system (Type III).

• Technical assistance for those who want system and can pay (Type I and II).

• In some cases, subsidies for public taps (Type I)

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6. Conclusions - - contd.

• For communities not ready for improved service, wait until they are ready (Type IV).

• Use private sector where it can help, but public sector will still need to play an important governance role.

• We will need to improve water use in agriculture and industry so that there is more for domestic and environmental uses.

• World Bank estimates we need to invest $600 to $700 billion in water improvement and development.

15DSM Industries Trichy - Deep Well Hand Pump

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Malawi is a landlocked, sub-Saharan country that is fighting chronic water shortages

and the effects of a severe food crisis in 2006.

17Sosal, Honduras: Girl washing clothes at her new pila. Photo credit: WaterPartners International

18Women getting water from the Ak-ela well in March 2004.

The Senai Foundation is a non-profit support organization for the people of Eritrea.

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Indian woman getting water from a truck

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URL to access presentation

http://www.apec.umn.edu/faculty/weaster/