United Nations
Commission on Sustainable Development

Background Paper


Integrating Water Resources Management with Economic and Social Development 1/
                                     by
                                Peter Rogers
                             Harvard University
                               December, 1997

            Strategic Role of Water in Agriculture, Industry, 
                  and the Health of Humans and Ecosystems
     
  Scarcity and mis-uses of freshwater pose a serious
and growing threat to sustainable development and
protection of the environment.  Human health and
welfare, food security, industrial development and
the ecosystems upon which they depend, are all at
risk, unless the water and land resources are managed
more effectively in the present decade and beyond
than they have in the past.  (Dublin, 1992)


     The closing in of the water cycle; increasing demands, increasing
pollution, and  increasing uncertainty leads inexorably to the need for
new paradigms for strategic assessment of the resource and its use.  This
paper explores a few of the components of such a strategic view
integrating all of these points of view starting with methods to assess
the macro-economic implications of water policy, followed by a way to
look at costs and values in such a way as to help elicit sensible pricing
and tariffs that would ultimately lead to sustainable use of the
resource, then a discussion of the complexities of the uncertainties
inherent in managing water resources, and finally a short section on what
new institutions will be needed to deal with all of these complex issues. 
  
     Water resources have come under increasing competition worldwide as
burgeoning populations with increasing affluence demand more water in the
form of agriculture, industry, domestic and hydropower needs.  The
problem is exacerbated by decreasing supplies of clean freshwater. 
System resilience has dropped for many river basins as the systems are
less able to absorb shocks caused by natural variability under these
conditions of increased demand and decreased supply.  Reservoirs are
under stress due to the constraints placed on them that cannot be
satisfied.  Increasing competition in water use is a fact of life in many
countries and is inevitable for others in the near future.  Water has
become a major bone of contention both among different users and regions
in a state or country and also across international borders.

     In recent years, many international organizations have become
heavily involved in water policy (UN, World Bank, Asian Development Bank,
the Interamerican Development Bank, etc).  This interest has been
primarily in domestic and agricultural water supply, and  rural and urban
sanitation. Not much attention has been paid to other aspects, such as
industrial water, until now because water had always been considered of
minor importance to most industries and, hence, of little concern for the
governments.  But recent facts, speak otherwise. Although it is true that
agriculture accounts for most water withdrawals (69% worldwide), industry
is fast catching up, accounting for 23% of all withdrawals (Table 1). 
This varies tremendously for different countries and regions depending
upon their size, population, stage of development, economic
opportunities, and national priorities.  For example, Pakistan, with a
per capita withdrawal of 2000 m3 has a ratio of 98:1:1 for agriculture,
industry, and domestic uses, whereas the United states, with
approximately similar annual per capita withdrawals of 1900 m3 has a ratio
of 42:45:13.  Many of the developing countries are on the path of rapid
industrialization and industrial water use is rising. 

     Despite the overall apparent shortage of water, there are few
incentives for efficient use of water in many regions. This is because
most countries have not developed instruments (either regulations or
economic incentives) and related institutional structures for
reallocating water between sectors, or for internalizing the
externalities which arise when one user affects the quantity and quality
of water available to another group. Water tariffs are typically based,
at best, on average cost pricing (rather than marginal cost pricing or
market clearing prices) and typically ignore the opportunity cost of
water (i.e., benefit foregone in alternative uses). Similarly, the
effects of damages caused by industries in polluting surface and
groundwater are ignored in determination of water tariffs and typically
there are no pollution taxes and/or effluent charges to be paid by
industrial polluters in developing countries. As a result, excessive
quantities of water are used, and excessive pollution is produced. 
Industrial pollutants can have major environmental and health effects
particularly in areas where pollution loads are high compared with the
low-flow in rivers in some months.

     Many countries are now realizing just how much is being spent on
subsidizing irrigated agriculture (United Nations, 1992).  This is
leading to a rethinking of strategies to manage resources, such as water,
with such a vast differences between the price charged and the real
opportunity costs foregone.  Allocative efficiency implies the
utilization of a scarce resource like water in sectors that generate the
most value-added from the water use.  This usually means that industrial
and urban uses be given priority over agriculture in water-scarce
regions, although actual shifts in allocation may be beset with political
and social problems.

     Just as industry is catching up with agriculture as a primary
withdrawer of water, another quiet revolution is occurring.  The concern
regarding water quality in many water sources is shifting from biological
to chemical contamination.  Yet another revolution that is occurring is
in the options open to regulators to deal with the problems caused by
water use - both due to water consumption and due to effluent discharge. 
The number of options available to the regulators has increased
tremendously.  Traditional command and control approaches involving
quotas on water withdrawal, limits on discharges, and mandating
technologies for processes and treatment have now been augmented with
more innovative approaches involving both quantity-based (e.g. bubbles,
offsets, tradable permits) and price-based (e.g. effluent charges, more
effective water pricing, taxes, and privatization) incentives.  This has
added more instruments in the regulator■s arsenal in order to effect the
desired changes taking into account various technical and economic
factors.  This necessarily involves a paradigm shift in the approach to
water and wastewater regulation - from expensive standards that provide
little incentives for innovation to more comprehensive performance
standards that achieve the same ends at lower costs to society.

Demands on Physical Resource

       Table 1 shows a regional and sectoral breakdown of water withdrawal
uses worldwide (Gleick, 1993).  The total amount of  3,240 km3 represents
about 27% of the estimated 12,500 km3 of relatively easily accessible
runoff 2/.  Postel et al., (1996) added another approximately 3,000 km3
for reservoir losses and instream water uses claiming that fully 54% of
the accessible water is already fully utilized. This wide range of
estimates of the stress on the aquatic system reflects judgements on the
use of different technologies for wastewater treatment that may, or may
not, be in place now or in the future.  54% seems as though human uses
are rapidly approaching the limits, but 27% sounds reasonable.  Suffice
it to say, however, that even the Postel et al., paper claimed only 18%
being used consumptively.  So with good management we still will have on
average plenty of maneuvering space.  This does not offer too much solace
to those countries already withdrawing high percentages (in some cases
over 100%) of available water.   

 TABLE 1: Sectoral Breakdown  3/ of Annual Water Withdrawals (in Km3)  
                 (sectoral percentages in parentheses)

------------------------------------------------------------------------
Region                                       Sector
                     ---------------------------------------------------
                        Agriculture      Industry         Domestic
------------------------------------------------------------------------
Africa                     127                7              10
                          (88%)              (5%)           (7%)
------------------------------------------------------------------------
Asia                      1317              123              92
                          (86%)             (8%)            (6%)
------------------------------------------------------------------------
N.&Central America         912              782             168
                          (49%)            (42%)            (9%)
------------------------------------------------------------------------
South America               79               31              24
                           (59%)            (23%)           (18%)
------------------------------------------------------------------------
Europe                     118              194              47
                           (33%)           (54%)            (13%)
------------------------------------------------------------------------
U.S.S.R.
(former)                   232               97              25
                           (65%)           (27%)            (7%)
------------------------------------------------------------------------
Oceania                      7.8             0.5             15
                           (34%)            (2%)            (64%)
------------------------------------------------------------------------
World                     2236             745              259
                           (69%)          (23%)             (8%)
------------------------------------------------------------------------


     Demands on Economic and Financial Resources

     Data on the investment requirements for the water sector are very
unreliable for industry and irrigation and may be slightly better for
urban water supply.  For example, the World Bank (Jones, 1995) claims
that there are no reliable statistics on global irrigation investment and
Rogers and Harshadeep (1996) came to the same conclusion for industrial
water investments.

Predictions of city growth over the next 25 years in the developing
world imply for the urban water supply and sanitation services the
financial needs will be much greater than at present.  Currently in large
urban areas 30% of the population lack access to safe water supply and
50% lack access to adequate sanitation, and as a result there are
currently 510  million urban residents without access to water and 850
millions without access to sanitation.  If we look to the year 2020, then
an additional 1900 millions will be in need of water and sanitation
services.  This implies a total capital cost of US$ 24 billion per year
for water supply and, if conventional wastewater disposal technology is
to be applied to the additional population needing services, another US$
82.5 billion per year.  The World Bank estimates that on average
developing countries spend 0.5% of their GDP on water and sanitation. 
This implies that currently they are spending US$ 26 billion per year. 
We calculate that a fourfold increase in annual spending would be
necessary to achieve full coverage by 2020. Multilateral lending for this
area was around US$ 1 billion per year at the beginning of the 1990s
(Rogers, 1992).  Examining these rough estimates, one can now begin to
understand the expressions of alarm emanating from the water managers and
the professional staffs of the MFIs.

     Given the lack of a data base estimating irrigation expenditures is
more approximate, but irrigated area is expected to grow at 1% per annum
over the next few decades.  At a capital cost of roughly $5,000 per ha,
a 1% increase on a world installed capacity of 225 million ha, would lead
to annual capital expenditures of $11.25 billion.  For industrial water
investments, the capital cost of water and wastewater disposal are
typically less than 2% of the total industrial capital investment.  For
1996 the total foreign capital flows to developing countries was $224
billion.  Assuming that this met fully 50% of the investment needs of
those countries implies that as much as $400 billion would be invested
in industry giving about $8 billion per year as the capital expenditure
on water and wastewater by industries.  These admittedly shaky numbers,
do help, however, to help put the relative expenditures for water by
sector in perspective.  They show that urban water investments will be
several times the costs of  irrigation expenditures during the coming
decades, and that industrial expenditures will be slightly less than
those for irrigation.  These projections have serious implications for
how countries should structure their management resources to deal with
the water sector.
     
Demands on Management Resources

     Even if the economic and financial resources were forthcoming the
institutional and management resources in the water sector around the
world is sadly lacking. Moreover, there is a tremendous asymmetry in the
staffing and competencies of the existing institutions.  Many countries
have large, some would say bloated, irrigation institutions with
competencies in designing, building, and operating large-scale surface
irrigation systems in old fashioned supply directed ways.  The
International Irrigation Management Institute (IIMI) has been working
diligently for more than a decade to change the emphases of these
institution towards demand directed management.  Some notable
improvements have been achieved, but these are coming at a time when the
major water management issues in most countries is now moving away from
irrigation toward domestic and industrial water supply management.  

     The experiences in municipal water management, particularly private
sector involvement, are the subject of many papers and monographs (World
Bank 1992, ADB, 1996, ESCAP, 1997).  Encouraging results are now
appearing for the water supply side, but little success is reported in
the much more complex and much more expensive wastewater treatment and
disposal side of the problem.  

     Industrial and commercial water management seems to be the
Cinderella department of water management.   Rogers and Harshadeep (1996)
reviewed the subject for the United Nations Industrial Organization
(UNIDO) and concluded that there was a need for more concerted government
action via pricing, effluent taxes, and environmental monitoring in this
area.  Most governments, particularly local governments who are most
often charged with the regulation of industrial water and wastewater, do
not have the manpower nor the regulatory tools to effectively manage this
part of the water sector.  This is an area in great need of capacity
building involvement of the multilateral and bilateral agencies. 


Incorporation of the Water Sector into Nation-Wide Economic Planning

All of the recent literature on the water sector calls for a need
to integrate water resources planning and management into the national
economic framework.   This is leading to research on new ways to assess
water in the overall macro-economic scene. Bouhia and Rogers (1997)
reviewed the literature in this area and have formulated a multi-
disciplinary tool which highlights the flows linking water and the
economy.  They have developed a methodology based upon Leontief■s Input-
Output Analysis, which is a widely accepted approach to study the
interdependence of economic sectors and agents in a nation or a region.

The use of water in the Input-Output methodology highlights the
availability of water at the macro-economic level and the examination of
the sectoral value-added provides a reliable guide to water resource
decision-making.  This approach enables the determination of the economic
value of water, shadow prices, overall demand curves, subsidies,
strategic sectors impacted by water policies, and generally examines the
impacts of water resource management decisions on the macro-economy and
vice-versa.

Accounting for Water in the Economy

Precipitation, groundwater, rivers, lakes, fresh water, polluted
water are all part of the same unitary resource.  Yet, they appear in
different parts of the hydrological cycle, and are often used by
different economic sectors.  Surface and ground water that has already
been used can be treated and clarified for reuse, while unused surface
water can recharge the groundwater for later use.  Therefore, the entire
hydrologic balance must be considered, not just part of it; we call the
resulting framework the hydro-economic balance. 

Consider a country with a GNP of $1,100 per capita, where the
agriculture sector represents one of the most important sectors of the
economy; it consumes 85% of the total water available and provides 40%
of the total number of jobs.  This sector is heavily effected by water
variability, and the effects reverberate throughout the economy.  Figure
1 shows the hydro-economic balance for such a hypothetical country.  The
hydro-economic system includes both the hydrological cycle and the
national economic system.  Water is accounted in this newly defined
closed system: either in one of its physical forms or embedded in the
economic products.  In order to capture the characteristics of water, for
each sector of the economy, the water balance of Figure 1 illustrates the
input to the system, as well as the output in terms of quantity and type
of water (in this figure, E stands for evaporation, and C stands for
consumption that goes out of the system).


                     Figure 1:  Hydro-Economic Balance

                                [ not available ]   


     Impact Studies

To address direct and indirect effects, parameters that depend on
the final I/O table coefficients, such as employment, pollution, etc.,
can be computed as a table of multipliers for the sectoral outputs. 
These multipliers and ratios give numeric measures to the relationships
among the component sectors of the economy.  The multipliers take into
account the fact that the total effect on output depends on the sectors
that are affected by the initial changes in the final demand.  The
multipliers most frequently used to estimate the economic changes (Miller
and Blair, 1985) are:

- Output Multipliers: change in outputs of the sectors in the
economy.  This multiplier represents the ratio of the direct
effects and the indirect effects (from the Leontief inverse
matrix).

- Income Multipliers: change in income earned by households (as a
result of the change in output).  These multipliers are
determined from the coefficients of the Leontief inverse, which
measures the direct and indirect effects on household income.

- Employment Multipliers: change in employment in physical terms
(to be generated as a result of the change in outputs).  By
determining the relationship between the value of the output in
a given sector (such as agriculture) and the total employment
(physical terms), we can determine the effect of the change in
output on the level of employment, using the same method as the
income multipliers.  For example, this would help us determine
the effect of water or macroeconomic policies on agricultural
employment.

Using the new methodology we can also compute:

- Water Use Multipliers: representing an indicator of the effect
of water on the output of each sector, by looking at the total
quantity needed of the different water qualities and both primary
inputs (bulk water) and intermediate inputs (water supply) of
water in value terms as part of the total output of a given
sectors.  Using the employment multipliers, the impact of water
availability on employment could be evaluated through employment
and water use multipliers.

This set of multipliers represents tools for deciding upon the level
of investment in the different economic sectors, as well as the supplied
water.  These multipliers also give a hint regarding which are the most
strategic sectors of the economy.  Depending on the objectives and
constraints, in terms of meeting a national goal, such as an increase in
the GDP or creation of new opportunities for employment, the best
alternatives and options could be evaluated using these multipliers. 
Also, in order to highlight the relationship between the initial effect
(own sector income effect) and the total effect (including the
consumption induced effect).

Due to the mixed units, one of the innovative approaches of this
approach is that each one of the multipliers and each one of the ratios
are of two categories, one corresponding to the effects related to the
economic sector in dollar terms, and the second category related to the
effects from the water related activities in cubic meters.

Table 2 illustrates the relationship between initial or own sector
effects, indirect and consumption induced effects for income, employment
and water use.


             Table 2: Income, Employment and Water Use Ratios

------------------------------------------------------------------------
                       Income Ratio   Employment Ratio   Water Use Ratio
------------------------------------------------------------------------
Rainfed Agriculture          0.99          2.47             0.10

Irrigated Agriculture        2.42          2.35             3.01

Manufacturing                2.36          1.49             6.42

Services                     0.88          1.09             

Water Supply                 0.88          8.03             0.23

Sanitation                   0.64         20       
------------------------------------------------------------------------


     These ratios can be used as a measure of the impacts of water
policy, for example, each dollar of household income accruing in the
manufacturing sector is associated with $2.36 in household income in
sectors which have direct and indirect impacts from manufacturing. 
Similarly, the employment effect for both rainfed and irrigated  are
similar and higher than the other sectors, since up to 40% of the
employment of this example is in agriculture, although the total output
of this sector contributes much less than manufacturing to the GDP. 
However, the water use ratios show that each cubic meter of water used
in the manufacturing sector is associated with 6.42 m3 of water used by
all sectors of the economy, through the indirect and consumption induced
effects, while for the case of agriculture, it will cause only 3.01 m3 of
water to be used in all the sectors.  This set of ratios reflects the
macro-economic impact of developments in the water sector


Management Approaches to Reconcile Demand with Supply:  The Concept of
Sustainable Water Management

     The potential role of economic tools in providing socially
acceptable public decisions is not widely appreciated, particularly in
many highly regulated situations. Furthermore, contrary to the public
perception, with the improvement of the use of economic tools, the role
for government regulation in managing water as an economic good is
increased, not decreased.

     There are several general principles involved in assessing the
economic value of water and the costs associated with its provision. 
First, an understanding of the costs involved with the provision of
water, both direct and indirect, is key.  Second, from the use of water,
one can derive a value, which can be affected by the reliability of
supply, and by the quality of water.  These costs and values may be
determined either individually, as described below, or by analysis of the
whole system simultaneously.  Regardless of the method of estimation, the
ideal for the sustainable use of water requires that the values and the
costs should balance each other; full cost must equal the sustainable
value in use.

     Of course, the value in alternative uses and opportunity costs are
determined simultaneously when water supplies match water demands for
user sub-sectors over time and space.  Water markets, if functioning
properly, will perform the function of matching water demands (both for
quantity and quality) with supplies if appropriate policies (regulatory
and economic incentives) are used to take care of externalities.  In the
absence of such well-functioning water markets, efficient water
allocations (and resulting values and costs) can be approximated by
government actions based upon systems analysis models (Sinha, Bhatia, and
Lahiri (1986); Anandalingam, Bhatia and Cestti (1992); and,  Harshadeep
(1995)).

Components of Full Cost

Figure 2 shows schematically the composition of the various components
that add up to make the full cost. There are three important concepts
illustrated in this figure:  the Full Supply Cost; the Full Economic
Cost; and the Full Cost.  Each of these is composed of separate elements
that are explained in more detail in Rogers, Bhatia, and Huber (1997). 
We have chosen to split the externalities into economic externalities 
and environmental externalities.  The environmental externalities are
costs associated with the effect on public health and ecosystem
maintenance.  The economic externalities deal with the more conventional
up-stream down-stream impacts of one user on the production function of
others. 


              Figure 2.  General Principles for Cost of Water

                         [ not available ]


Components of the Value of Water  

     For economic equilibrium the value of water, which we estimate from
the value-in-use should just equal the full cost of water.  At that
point, the classical economic model indicates that social welfare is
maximized.  In practical cases, however, the value-in-use is typically
expected to be higher than the estimated full cost.  This is often
because of difficulties in estimating the environmental externalities in
the full cost calculations.  However, in somecases it may be lower than
Full Cost, Full Economic Cost, and even below Full Supply Cost.  This is
because often social and political goals override economic criteria.  

The value of water depends both upon the user and to the use to
which it is put.  Figure 3 shows schematically the components of the
Value-in-Use of water, which are the sum of the Economic and Intrinsic
Values.  As shown in the figure, the components of Economic Value are:

- Value to users of water
- Net Benefits from Return Flows 
- Net Benefits from Indirect Use
- Adjustments for Societal Objectives
     
     For domestic users the value represents the willingness-to-pay of
the consumer; while for agriculture and industry, the value to users
correspond to the marginal value of product, meaning the additional value
of an additional unit of water.

     If we are able to calculate the components of full cost  and full
value we would be well on our way to being able to assess realistic
tariffs on water that would lead ultimately to the sustainable use of the
resource.  It is difficult, however, to complete the calculations, but
Rogers, Bhatia, and Huber (1996) show how it is possible to derive
reasonable estimates of most, if not all, of the components.


              Figure 3.  General Principles for Value-in-Use

                         [ not available ]


Inter-Sectoral Water Reallocation

     Water reallocation among different sectors appears to be one of the
options that governments typically avoid due to the social and political
implications that would result from it.  An example of such a
reallocation is between urban use and irrigation.  Cities require such
small quantities of water, that any small increase in the price charged
to agriculture would, under normal economic behavior, free up sufficient
water for urban uses.  Also loss reduction programs to increase the
efficiency in the agriculture sector would also make this small volume
of needed water available.

     As an example, Rogers and Bouhia (1997) looked at a small region in
Morocco in the vicinity of Casablanca, located downstream of the Oum Er
Rbia river basin.  There are two main demands in the region, the urban
use by 9 million people concentrated in the city of Casablanca and the
70,000 ha of the large scale irrigated area at Doukkala, to which water
is transferred from the Oum Er Rbia river, upstream of Casablanca.  Water
is supplied from the Oum Er Rbia River through two main reservoirs; 240
Million Cubic Meter (MCM) is allocated to Doukkala, for each year, while
only 12.8 MCM is allocated to Casablanca per year.   The population in
the region is estimated to double over the next 15 years, while the
irrigated area will be expanded only slightly.  Assuming that water will
be supplied at the same price as it is today ($0.32 per m3 for urban water
and $0.04 for irrigation water), this would result in an increase of
water demanded by the city of Casablanca to 25.6 MCM and to 264 MCM for
Doukkala by the year 2020. 

     In order to accommodate the 12.8 MCM increase in the urban demand,
it will only necessitate a $0.005 increase in the price of water for
agriculture; agricultural water demand could be cut to 227.2 MCM, with
a price increase of $0.045 per m3 representing a 12% increase in the price
of water for agriculture.  

     If, in addition, by undertaking water conservation measures in
agriculture and urban uses, the water saved could be reallocated to urban
use.  There is a large range of actions that can be taken to reduce water
losses in the system for both urban supply and irrigation.  In the case
of Casablanca and the irrigated area, in order to meet the extra 12.8 MCM
demand in Casablanca, a 14% increase in the efficiency of the irrigation
system will make it possible to provide water to Casablanca until the
year 2020.  Also, if 15% of the losses are reduced in the urban supply
system in Casablanca, a 12% change in efficiency will suffice for
agriculture.     

     A combination of methods could, therefore, be used to ensure water
to Casablanca until the year 2020, either by increasing water efficiency
in the system or applying a small change in the water pricing.  A mix of
this two options could be adopted to reallocate the water between
Doukkala and Casablanca.  Table 3 summarizes the different possible
options for both urban and agriculture.


                      Table 3:  Reallocation Measures

------------------------------------------------------------------------
Measures                 Urban                   Agriculture
------------------------------------------------------------------------
Pricing                                          12% increase

Conservation             15% loss reduction      12% loss reduction

Mixed - pricing and                               6% price increase
conservation                                      7% loss reduction
------------------------------------------------------------------------


Establishing the Value of Water Resources Under Hydrological Variability
and Economic Uncertainty

     Incorporating uncertainty in the planning for water resources is
particularly important for countries where the economy is highly
intertwined with water.  Either because of too much water or too little
water, water availability is a major challenge for development.  Water
catastrophes, floods or droughts have for a long time gained the
attention of water resource planners worldwide, and today there is a
conscious effort to take them into consideration while formulating their
nationwide strategy. In many developing countries, water is central to
economic development and hydrologic uncertainty (in the form of droughts
and floods - two sides of the same coin) translates itself into economic
swings. As decision-makers have to internalize hydrologic uncertainties,
they also have to consider relative risks in terms of not meeting some -
requirements■.

     There are several type of uncertainties: hydrologic, economic,
objectives, decision making, methodologies, etc. This type of analysis
would assist decision makers in looking at water fluctuation as part of
their formulation of water resource strategy.  This will provide to the
policy analysts, an assessment of the risk undertaken in the targeted
actions.

     Many studies, going back as far as James, Bower, and Matalas,
(1966), and Schwarz, (1977), attempt to assess the relative impacts of
various parameters affecting water resources decisions under uncertainty
on the Potomac River.  This classic paper by James, et al., clearly
demonstrates that the major source of uncertainty in river basin planning
is not the stochasticity of the hydrology, but rather the uncertainty in
the economic parameters.  They found that the uncertainties in the
economic variables were by far the most important determinant of system
behavior followed by variability in the political variables.  Trailing
far behind these were the environmental variables and with the
uncertainty in the hydrological variables being the least important. 
Even though the James et al., study was a theoretical exercise,
subsequent events clearly validated their predictions.

In 1963 the U.S. Army Corps of Engineers recommended that 16 major
reservoirs costing $400 million and 418 headwater reservoirs costing a
further $100 million be built in the Potomac Basin (U.S. Army Corps of
Engineer District, 1963).  Nine of the new reservoirs were recommended
for immediate authorization in order to meet the flow requirements and
water quality improvements by 1985-90.  The details of the actual
implementation of the Potomac Plan are given in Scheer (1986), but the
important point is that eventually only one small water supply reservoir
was built.  The water supply goals and the greatly improved water quality
goals were met mainly by operating the existing separate systems more
efficiently as one large system, and by implementing the Federal Clean
Water Act of 1972.  This is a cautionary tale that should be closely
examined by those who would have us make important decisions before we
have fully understood the implications of the relative uncertainties in
the overall system.

This caution should become particularly useful when dealing with one
of the current concerns with climate change and its potential impacts on
water resources.  Several books (Waggoner, 1992, Frederick, 1994,
Frederick, Major, and Stakhiv, 1997), numerous conferences, and a
multitude of papers have been written on the subject of climate change
and water resources since the 1977 National research Council study
entitled, Climate, Climate Change, and Water Supply.  Over these twenty
years the basic data and the models have improved but the conclusions of
the early studies have not changed radically.  At the geographic scale
of interest to water planners, the new findings have done little to
narrow the regional uncertainties; even the direction of the changes in
rainfall and precipitation are uncertain.  Essentially, we are still
warned that climate change may increase or decrease the wetness of a
region.  More promising results are available in predicting snow melt and
sea level  rise, but one still needs to ask the question raised by the
James et al., study if these uncertainties are not swamped by the
economic and political uncertainties?

The interaction between economic uncertainties and the hydrologic
uncertainties have been nicely demonstrated by Bouhia (1997) when she
used a stochastic river basin model to assess the shadow prices on the
water used for different economic sectors under different levels of
supply uncertainty.  She considered precipitation and runoff in a country
with very variable rainfall, Morocco.  Table 4 shows how the shadow
prices for urban and irrigation water varied as the supply became more
uncertain.  The 75th percentile refers to the lower tail of the
distribution, that is those flows that are exceeded 75 percent of the
time, the 50th percentile refers to the median flow conditions, and the
35th percentile refers to the upper tail of the distribution. 


                      Table 4.  Shadow Prices ($/m3)

-------------------------------------------------------------------------
                                           Reliability in the Flows
-------------------------------------------------------------------------
Shadow Price in $/m3                      75%        50%        35%

Urban                                     0.52       0.5        0.48

Agriculture                               0.26       0.12       0.08
-------------------------------------------------------------------------


Given the nature of the willingness to pay for water, the shadow
prices for irrigation water are much more sensitive than those of urban
water.  Note that the shadow prices for both over the entire range are
still substantially higher than the actual tariffs applied in Morocco.
The existence of stochastic shadow prices raises some interesting
philosophical issues about the use of shadow prices in setting tariffs.
Which should be used and when?

Needed Changes in Institutions and Human Resources Development

     The discussion of the earlier sections of this paper all point
towards the need for developing better institutions and trained human
resources to staff them.  We have said little about the current drive for
private sector participation in urban water supply and wastewater
management.  How this plays out will have important consequences for
overall water management.  We have also said little about integrated
river basin management because there is a large amount of material on
this subject and most, if not all water professionals are committed to
implementing the concepts.  We have, however, stressed the strategic role
of water in the overall economy and stressed the relative magnitudes of
the urban and industrial water sectors in comparison to the more
traditional agricultural water uses.  We believe, however, that the
importance of getting water resources properly assessed in the broader
economy should take precedence over even important issues such as
integrated river basin planning.  

     Even for river basin planning itself there is a need to rethink many
of the transboundary issues which plague international river basins as
well as inter-jurisdictional boundaries within nation states.  Multi-
facet approaches will be needed to promote the adoption of the proposed
UN Protocols on International Watercourses and at the same time devise
acceptable river basin committees or commissions that will be able to
deal with the inherent upstream-downstream conflicts in fair and
acceptable ways.  This is no easy task since many of the international
rivers flow across particularly contentious borders.  

     In order to implement such assessments it will be necessary to
create new institutional ways of doing things.  Not only do we need staff
training, we also need new more flexible institutions into which the
staff can fit and function effectively.   Given the complexities of the
institutional issues, the economic issues, and the technical issues it
is important that these new and improved institutions ensure that there
is adequate disciplinary inputs to ensure that no major contributors are
left out.  Similarly, every effort must be made to ensure citizen
participation at every stage of the decision-making process. Bad
experiences world-wide occur when citizen groups are excluded from
informed participation.  This is a great challenge in many societies
where large parts of the population are illiterate, but this does not
have to be the case as successful  consultative processes in some
southern African countries demonstrate.


                                   Notes

1/      Prepared for the Department of Economic and Social Affairs, Division
for Sustainable Development, United Nations, Expert Group Meeting on Strategic
Approaches to Freshwater Management, Harare, Zimbabwe, January, 1998.

2/       The "accessible 12 500 km3" figure found most commonly in the
literature refers mostly to surface water runoff for basins, where sufficient
data are available during sufficiently long time series, that is for major
surface water bodies of the industrialized countries, including former USSR.

3/        A distinction must be made between measured and derived data - many
of the data used in water resources planning are derived from an examination
of related parameters; agricultural water use is rarely measured - it is often
estimated by assumptions about the crop types, planting patterns, water
consumption rates, regional climatology and method of irrigation (Glieck,
1993).

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Date last posted: 8 December 1999 15:15:30
Comments and suggestions: DESA/DSD