THE WORLD BANK WATER RESOURCES SECTOR STRATEGY STRATEGIC DIRECTIONS FOR WORLD BANK ENGAGEMENT Edited, designed, and produced by Communications Development Inc. and its London design partner, Grundy & Northedge. Photos from Photodisc. WATER RESOURCES SECTOR STRATEGY STRATEGIC DIRECTIONS FOR WORLD BANK ENGAGEMENT Copyright © 2004 International Bank for Reconstruction and Development/The World Bank 1818 H Street NW Washington, DC 20433 USA All rights reserved Manufactured in the United States of America ISBN 0-8213-5697-6 The colors, boundaries, denominations, and classifications in this Atlas do not imply, on the part of the World Bank and its affiliates, any judgment on the legal or other status of any territory, or any endorsement or acceptance of any boundary. If you have any questions or comments about this product, please contact: The World Bank 1818 H Street NW Washington, DC 20433, USA Email: feedback@worldbank.org Web site: www.worldbank.org Cartographic design by the Map Design Unit of the World Bank Printed on recycled paper CONTENTS Acknowledgments v Overview and executive summary 1 Progress in ideas and practice 1 Scope and methodology of this Strategy 1 The main messages of this Strategy 2 Notes 4 1. Introduction and development context 5 The gloomy arithmetic of water 5 Water resources management and development are critical to the World Bank's strategic objectives of sustainable economic growth and poverty reduction 5 The World Bank's borrowers face a wide range of water development and management challenges 11 Water management must make a series of important transitions 12 The scope of this Strategy 12 Key strategic issues in the main water-using sectors 13 Notes 25 2. Stocktaking and evaluation 28 Building on the 1993 Strategy and consulting with stakeholders 28 There is broad consensus on what constitutes good water resources management, but all countries are far from managing water resources according to these principles 28 A wide variety of water resources challenges in the regions 29 World Bank engagement in water resources development and management 32 The great challenge is making progress, not achieving perfection 37 The World Bank position on the "Guidelines"of the World Commission on Dams 37 The comparative advantage of the World Bank and the need to revise business practices 38 Notes 39 3. Strategic options and possible business implications 41 The additionality and focus of this Strategy 41 Developing a portfolio of analytic work that informs management decisions and recognizes differences 42 Working with partners 43 Finding new sources of financing for water resources infrastructure 43 Dealing with risk and developing a more effective business model 45 iii How the World Bank is organized and staffed for water resources management 49 Notes 52 4. What the Strategy might mean for World Bank engagement: Some examples from the regions 53 Illustration 1: What the new sector Strategy might mean in Brazil 53 Illustration 2: What the new sector Strategy might mean in Central Asia 56 Illustration 3: What the new sector strategy might mean in India, in particular in the state of Andhra Pradesh 59 Illustration 4: What the new Sector Strategy might mean in Nigeria 63 Illustration 5: What the new Strategy might mean in the Philippines 65 Illustration 6: What the new sector Strategy might mean inYemen 67 Illustration 7: What the new sector Strategy might mean for the World Bank's work on international waters: The Nile Basin Initiative 70 Implementing the sector Strategy in the World Bank's operations: What these examples show 72 Notes 73 Abbreviations 74 Annex 1: The World Bank position on the Report of the World Commission on Dams 75 Support for strategic planning, and a dams planning and management action plan 76 World Bank policies 76 Summary 78 iv ACKNOWLEDGMENTS Preparation of the Water Resources Strategy Anwer Sahooly (Yemen), Angel Alejandrino was overseen by the Water Resources Man- (Philippines), Jerson Kelman (Brazil); Ra- agement Group (WRMG), a cross-sectoral maswamy Iyer (India); Mustaffa Bukar and entity which brings together the diverse Abedayo Adedeji (Nigeria) and to Jerome members of the water community of the Delli Priscolli of the US Army Corps of En- World Bank, chaired by John Briscoe, the gineers who facilitated the final round of Bank's SeniorWaterAdvisor,who is the prin- consultations.The materials and results from cipal author of this Strategy.The members of all the consultations were posted on the WRMG all contributed actively. They in- www.worldbank.org/water. The Govern- clude: David Grey (the Africa Region), Abel ment of the Netherlands provided funds for Mejia (Latin American and Caribbean Re- the external consultation processes through gion), Douglas Olson (East Asia and Pacific the Bank-Netherlands Water Partnership Region), Salah Darghouth (Middle East and Program. North African Region), Marjorie-Ann Brom- head and Masood Ahmad (Europe and Cen- A central element of the Strategy was the tralAsian Region),Walter Garvey (SouthAsia work done by a high-level panel of Bank Region), Fernando Gonzalez (Irrigation), staff on the issue of a new business model for Stephen Lintner (Environment), Safwat Bank engagement with high-risk/high-re- Abdel-Dayem (Drainage), Barry Trembath ward infrastructure. Praful Patel chaired the (Hydropower), Jamal Saghir (Energy and panel, which included Ngozi Okonjo- Water Supply and Sanitation), Kevin Cleaver Iweala, Alistair McKechnie, John Roome, (Rural Development), Alessandro Palmieri Jamal Saghir, Suman Babbar, Danny (Dams), Karin Kemper (Water Resources Leipziger, Barry Trembath, Stephen Lintner, Management Unit), Al Duda (Global Envi- RajivKalsi, Mark Segal, Oey Meesok. John ronment Facility), Keith Pitman (Operations Briscoe served as secretary to the Panel. Evaluation Department), Vahid Alavian (World Bank Institute), Salman Salman Excellent background work and data analy- (Legal), Usha Rao-Monari (IFC), and Angela sis were provided by Bank staff members Marcarino Paris (MIGA). Numerous other Greg Browder, Monica Scatasta, Michele Bank staff members participated in the large Diez, Carla Vale, Cora Solomon and Sanjiva number of regional, sectoral and corporate Cooke. meetings on the Strategy, and made impor- tant contributions. Senior management--specifically Kevin Cleaver (Chair of the Rural Board), Jamal The preparation of the Strategy included Saghir (Chair of the Water and Sanitation twenty-two formal external consultations, and Energy Boards), Ian Johnson (Vice Pres- and valuable inputs from hundreds of polit- ident for Environmentally and Socially Sus- ical leaders, and representatives of govern- tainable Development), Nemat Shafik (Vice ments, the private sector, external support President for Private Sector and Infrastruc- agencies, and non-governmental organiza- ture), Peter Woicke (Managing Director) and tions. Special thanks go fellow water profes- Shengman Zhang (Managing Director)-- sionals who provided detailed and critical provided critical inputs, oversight and perspectives from the "focus countries": support. v Finally, the substance of this controversial Directors played a critical role in ensuring Strategy was discussed five times with the that all views were heard, that choices were Board of Executive Directors, whose mem- made, and that a Strategy was produced bers are the representatives of the govern- which, in their view and the view of World ments of the 180 countries who own the Bank management, re-positions the World World Bank.Many of the Executive Directors Bank to become a more effective partner to heard a diverse set of views of their con- developing countries in a sector which is stituents in their governments, the private central to sustainable growth and poverty sector, professional associations and non- reduction. governmental organizations. The discus- sions with the Executive Directors were Design direction, editing, and layout was long, lively and substantive. Several Execu- provided by Communications Development tive Directors made major direct contribu- Incorporated's Meta de Coquereaumont, tions to the Strategy.The Board of Executive Wendy Guyette, and Elizabeth McCrocklin. vi Water Resources Sector Strategy: Strategic Directions for World Bank Engagement OVERVIEW AND EXECUTIVE SUMMARY Many developing countries face daunting stakeholders participate, including the state, water resources challenges as the needs for the private sector and civil society; that water supply, irrigation and hydroelectricity women need to be included; and that resource grow; as water becomes more scarce, quality management should respect the principle of Water resources declines and environmental and social con- subsidiarity, with actions taken at the lowest management cerns increase; and as the threats posed by appropriate level.Third is the instrument prin- and develop- floods and droughts are exacerbated by cli- ciple, which argues that water is a scarce re- ment are central mate change. As a consequence, there is a source and that greater use needs to be made high and increasing demand for World Bank of incentives and economic principles in im- to sustainable engagement. Lending for water resources proving allocation and enhancing quality. growth and development and water-related services ac- poverty counted for about 16 percent of all World A decade later, evidence is accumulating on reduction Bank lending over the past decade. experience with implementing the Dublin Principles. First, experience shows that the Dublin Principles have provided inspiration Progress in ideas and practice and direction for many water reform processes and that the Principles remain In 1993 the Board of theWorld Bank endorsed powerful, appropriate and relevant. Second, a Water Resources Management Policy Paper a major review of industrialized countries by (WRMPP).1 In that paper,and in this Strategy, the Organisation for Economic Co- water resources management comprises the operation and Development (OECD) has institutional framework (legal, regulatory and concluded that progress in implementation organizational roles), management instru- has been difficult, slow and uneven and that ments (regulatory and financial), and the de- even the most advanced countries are far velopment, maintenance and operation of from full compliance with the Dublin Prin- infrastructure (including water storage struc- ciples. Third, another review (by the World tures and conveyance, wastewater treatment, Bank Operations Evaluation Department, and watershed protection). The 1993 Policy OED) of the experience of the World Bank Paper reflected the broad global consensus concluded that, while the 1993 Policy Paper that was forged during the Rio Earth Summit remained relevant and appropriate, the of 1992. This consensus stated that modern major challenge was developing context- water resources management should be specific, prioritized, sequenced, realistic and based on three fundamental principles "patient"approaches to implementation. (known as "the Dublin Principles"). First is the ecological principle,which argues that inde- pendent management of water by different Scope and methodology of this water-using sectors is not appropriate, that Strategy the river basin should be the unit of analysis, that land and water need to be managed to- Managing water resources involves a dialec- gether and that much greater attention needs tic between integration (Dublin Principle 1) to be paid to the environment. Second is the and subsidiarity (Dublin Principle 2). Within institutional principle, which argues that water the World Bank, business strategies for spe- resources management is best done when all cific water-using sectors (such as water and 1 sanitation, irrigation and drainage, and consensus, where the Bank has not charted hydropower) are, in accordance with the a consistent set of rules of engagement and subsidiarity principle, determined primarily where, as a result, the Bank has not per- as part of the strategies for these sectors.This formed as a predictable, timely and effective Strategy focuses on how to improve the de- partner. This Strategy focuses primarily on velopment and management of water re- these difficult and contentious issues where sources, while providing the principles that World Bank practice needs to improve. link resource management to the specific water-using sectors. The main messages of this Since implementation is the focus of the Strategy Strategy, its preparation relied heavily on re- views of on-the-ground experience in im- Message 1: Water resources management and plementing World Bank projects. Both the development are central to sustainable growth brainstorming and review stages involved and poverty reduction and therefore of central much work in the field, and extensive con- importance to the mission of the World Bank. The main sultations (14 in all) in developing countries. Effective water resources development and management These investigations and consultations management play a fundamental role in sus- challenge is not identified areas where World Bank assis- tainable growth and poverty reduction, tance was going well and others that were through four different mechanisms. First, a vision of less successful, and then honed in on prac- broad-based water resources interventions, integrated water tices that the Bank needs to change to be- usually including major infrastructure such resources come a better development partner. The as dams and interbasin transfers, provide management country consultations were supplemented national, regional and local benefits from with consultations on the draft Strategy with which all people, including poor people, can but a "pragmatic specific stakeholder groups.There were also gain. Second, because it is usually poor peo- but principled" extensive and intensive consultations with ple who inhabit degraded landscapes, approach Bank staff, management and the Board. poverty-targeted water resources interven- tions designed to improve catchment qual- In these consultations, two distinct classes of ity and provide livelihoods for poor people challenges emerged that need to be faced if are of major importance.Third, broad-based the World Bank is to be an effective partner. water service interventions (aimed at im- The first set of challenges relates to the many proving the performance of utilities, user as- areas of water resources management where sociations and irrigation departments) there is broad consensus, where Bank prac- benefit everyone, including poor people. tices have changed for the better and where And fourth, poverty-targeted water service the need is for "more of the same." They interventions (such as water and sanitation include more attention to water quality, con- and irrigation services for the unserved servation, groundwater management, water- poor) play a major role in reaching some of shed management and institutional reform. the Millennium Development Goals. In The World Bank has increased it activities in most developing countries growth-oriented, these vital areas over the past decade and will poverty-reducing water resources strategies continue to increase such lending. Precisely will involve action in all four areas. The because there is momentum and because corollary is that the World Bank should be there are no particular barriers to Bank en- available as a "full service partner"to assist gagementwiththeseissues,nomajorchanges development of integrated, prioritized and of course are required,and there is no need for consistent action in all four arenas. Bank management and the Board to focus specifically on them.These issues--which are Message 2: Most developing countries need to be very important and constitute the majority of active in both management and development of activities with which the Bank is involved-- water resources infrastructure. For the World are thus treated briefly in this Strategy. Bank to be an effective partner, it must ap- proach water resources challenges without The second set of challenges relates to a few preconceptions. The Bank must not fall into fundamental areas where there is no global the trap of thinking that all problems can be 2 Water Resources Sector Strategy: Strategic Directions for World Bank Engagement solved with infrastructure, or the equally lending and nonlending services related to dangerous trap of assuming that even in en- water resources development and manage- vironments with minimal infrastructure all ment.The ability of the Bank to respond has problems can be addressed through better been mixed. On the very important "soft" management. side, Bank engagement is growing, rapidly and effectively. But for the many countries Message 3: The main management challenge is that need to make major infrastructure in- not a vision of integrated water resources man- vestments to complement management re- agement but a "pragmatic but principled" ap- forms, the Bank is often a reluctant, proach that respects principles of efficiency, unpredictable and expensive partner.To be a equity and sustainability while recognizing more effective partner, theWorld Bank will re- that water resources management is in- engage with high-reward­high-risk hydraulic tensely political and that reform requires the infrastructure, using a more effective business articulation of prioritized, sequenced, practi- model. This new business model, which will cal and patient interventions.To be a more ef- be followed by both the Bank and the Inter- fective partner, the Bank must be prepared to national Finance Corporation (IFC),puts de- back reformers and to pay more explicit at- velopment impact first, assesses the Most developing tention in design and implementation to the development impact of both engagement countries need political economy of reform.This means that and nonengagement by the Bank, considers to be active in solutions will have to be tailored to specific, the rights and risks of those directly and in- both manage- widely varying circumstances and that the art directly affected by such projects, meets so- of reform is in picking the low-hanging fruit cial and environmental standards, treats ment and first, not in making the best the enemy of the projects supported by the Bank as corporate development of good; in recognizing broader reforms outside projects from the start, rewards and supports water resources of the water sector (often relating to overall staff who manage such projects, and aims at infrastructure economic liberalization, fiscal and political transparent, crisp, time-bound and pre- reform) in providing the pre-conditions for dictable decisions. improving resource and service manage- ment; and in recognizing that those who are Message 6: The Bank is perceived by many to willing to change must design reform pro- have a major comparative advantage in the grams and must be supported. water sectors, and there is, accordingly, a strong demand for Bank services and a strong demand Message 4: Providing security against cli- that the Bank engage. There are two dimen- matic variability is one of the main reasons sions to the Bank's comparative advantage. industrial countries have invested in major On the one hand, as water challenges grow hydraulic infrastructure such as dams, in scale and complexity, the Bank is per- canals, dykes and interbasin transfer ceived as one of the few institutions that can schemes. Many developing countries have provide integrated support on the macro- as little as 1/100th as much hydraulic infra- economic, financial, technical, social and en- structure as do developed countries with vironmental dimensions. On the other comparable climatic variability.While indus- hand, borrowers find that the Bank is unique trialized countries use most available hydro- in convening power,relations with almost all electric potential as a source of renewable riparian countries, a combination of knowl- energy, most developing countries harness edge and financial resources, engagement at only a small fraction. Because most develop- all scales (local watershed, city, irrigation ing countries have inadequate stocks of hy- district, river basin and aquifer, country, re- draulic infrastructure, the World Bank needs to gional) and ability to integrate across these. assist countries in developing and maintaining And the Bank, IFC, and Multilateral Invest- appropriate stocks of well-performing hydraulic ment Guarantee Agency (MIGA) play an in- infrastructure and in mobilizing public and pri- dispensable role in attracting much-needed vate financing, while meeting environmental investment by the private sector.2There is si- and social standards. multaneously growing concern that, by dis- engaging from difficult, complex issues, the Message 5:There is a large and increasing de- Bank is losing its credibility as a full-service mand from the World Bank's borrowers for investment and knowledge partner. In 3 Overview and executive summary particular, the Bank must be engaged in a lar country at a particular time. The second complete range of water infrastructure and strand is the framework that the government management activities in countries that and the World Bank have agreed on for the have investment choices if the Bank is to re- next three years. The third strand contains main a credible knowledge institution, since the broad principles articulated in the World it is often experience in these countries that Bank's 1993 Policy Paper and in this Strategy. is relevant to poorer countries. The resulting Country Water Resources As- sistance Strategies will provide an explicit Message 7: The Bank's water assistance must be program of Bank lending and nonlending tailored to country circumstances and be consis- support in water that is consistent with the tent with the overarching Country Assistance Poverty Reduction Strategy Paper and the Strategies and Poverty Reduction Strategy Pa- Country Assistance Strategy and that will pers. The 1993 Policy Paper and this Strategy govern the Bank-country partnership in can necessarily provide only broad principles water for the next three years. for World Bank engagement and not inflexi- ble prescriptions. What is appropriate in a The World Bank particular country (or region) at a particular Notes will reengage time will involve adaptation of these general 1. World Bank. 1993. Water Resources Manage- with high- principles to the specific economic, political, ment: A World Bank Policy Paper. Washington social, cultural and historical circumstances. D.C. reward­ An important new instrument developed in 2. Both the IFC and MIGA participated actively high-risk this Strategy is the Country Water Resources in development of this Strategy. While fully sup- hydraulic Assistance Strategy, which will pull together porting the messages of the Strategy, the IFC infrastructure three different strands.The first strand is the and MIGA are independent institutions and specific water resources challenges, develop- thus this Strategy is formally an IBRD/IDA, not ment opportunities and policies in a particu- a Bank Group strategy. 4 Water Resources Sector Strategy: Strategic Directions for World Bank Engagement 1. INTRODUCTION AND DEVELOPMENT CONTEXT The gloomy arithmetic of water nation, and as often associated with the chal- lenges of quality as with those of quantity). The World Commission on Water has de- scribed the "gloomy arithmetic of water."1 Population and economic growth, and Water During the past century, while world popula- greater appreciation of the value of water in development tion tripled,the use of water increased sixfold. ecosystems, mean that water demands are and manage- Irrigation accounts for 70 percent of global growing and shifting. Tensions over water ment are water withdrawals, industry for 20 percent rights are increasing at the level of the vil- and municipal use for 10 percent. The in- lage, city and basin. Some of these disputes relevant to creased use of water has come at high envi- are spilling over to international river basins. poverty ronmental costs: some rivers no longer reach reduction in a the sea, 50 percent of the world's wetlands Shifting patterns of precipitation and number of have disappeared in the past century, 20 per- runoff associated with climate change cent of freshwater fish are endangered or ex- compound this gloomy arithmetic. An in- different and tinct, and many of the most important ability to predict and manage the quantity complementary groundwater aquifers are being mined, with and quality of water and the impacts of ways water tables already deep and dropping by droughts, floods and climatic variability meters every year, and some damaged per- imposes large costs on many economies in manently by salinization. the developing world. If the computer sim- ulations on climate change are correct, The World Commission on Water estimates these impacts will only heighten in the that water use will increase by about 50 per- coming decades. cent in the next 30 years.An estimated 4 bil- lion people--one half of the world's population--will live under conditions of Water resources management and severe water stress in 2025, with conditions development are critical to the particularly severe in Africa, the Middle East World Bank's strategic objectives and South Asia. Compounding the relative of sustainable economic growth scarcity of water is the continuous deteriora- and poverty reduction tion in water quality in most developing countries. Again, it is the poorest countries The mission of the World Bank is poverty and poorest people who are most directly alleviation. Water development and man- affected. agement are relevant to poverty reduction in a number of different and complemen- This gloomy arithmetic of water is mirrored in tary ways. Figure 1.1 provides a rudimen- the gloomy arithmetic of costs. While low- tary but useful typology for assessing how cost, often community-based solutions can water management affects poverty. Type 1 and should be further exploited, the "easy interventions are broad-based water re- and cheap"options for mobilizing additional sources interventions (including major majorsourcesofsupplyforhumanneedshave water storage infrastructure) that provide mostly been exploited. Many countries are national and regional economic benefits to nowfacingsharplyincreasingunitcosts(often all, including the poor. Type 2 interventions associated with interbasin transfers or desali- improve water resources management 5 f1.1 How water interventions affect poverty Nature of intervention Broad Poverty-targeted Type 1 Type 2 Broad regionwide water Targeted water resource Resources, development resource interventions interventions and management For example, multipurpose For example, watershed river basin development management in degraded water and aquifier management areas with poor farmers Type 3 Type 4 fecting Broad impacts through water Targeted improved water Af service delivery reforms services Service delivery For example, reform of For example, rural water water supply utilities and supply and The dynamics of water user associations sanitation projects risk associated for irrigation management with water resources Source: World Bank staff. variability play out from the (such as watershed projects in degraded enterprises will invest, and those that do will level of the environments) in ways that directly benefit often construct independent water supplies, poor people. Type 3 interventions improve such as private boreholes. Countries faced household to the performance of water service utilities, with extreme climate variability also incur that of the nation which benefit everyone, including the poor. large opportunity costs in adapting to the ef- state Type 4 interventions provide targeted serv- fects of water-induced shocks to the ices (including water and sanitation, irriga- economy. tion and hydropower) to the poor. There is abundant evidence of the broad Type 1 interventions: Broad policies economic impacts of droughts and floods: and investments that affect the the Zimbabwe drought of the early 1990s development and management of was associated with an 11 percent decline in water resources GDP,2 the recent floods in Mozambique led to a 23 percent reduction in GDP3 and the The dynamics of risk associated with water 2000 drought in Brazil led to a halving of resources variability play out from the level of projected economic growth.4 As articulated the household to that of the nation state. by a finance minister for India, "every one Where variability is great, investment pat- of my budgets was a gamble on rain."5 terns are adjusted to mitigate these risks. At the household level, water availability and An obvious and historic response to this rain- variability contribute significantly to the risks fall variability is to mitigate the effects by in- that poor people face in their daily lives, and vesting in water storage. A particularly this uncertainty constrains their economic ex- informative example comes from Europe. In pectations and their willingness to invest. In- temperate Europe rainfall is relatively regular, dividuals will attempt to mitigate, or to adopt and there is natural regulation through lakes, coping strategies to address, the risks posed groundwater storage and wetlands.This nat- by rainfall variability. If, however, it is uneco- ural regulation means that over 40 percent of nomic or infeasible to put in place measures runoff is available for productive uses. In the that substantially mitigate the risks of rainfall semi-arid Iberian peninsula, the situation is variability farmers will be less likely to invest dramatically different, with under 10 percent in land improvements and capital-intensive of runoff available through natural regulation. inputs and production technologies. Simi- The responses have been logical--the coun- larly, where water supply is unreliable, fewer tries of the Iberian peninsula have 150 times 6 Water Resources Sector Strategy: Strategic Directions for World Bank Engagement more storage capacity per person than do high-value crops. Each drop of water now France, Germany and the United Kingdom.6 produces much higher economic returns and each hectare of land and each drop of water Major water resources projects often form the now generate a direct demand for more than basis for broad regional development, with twice as much agricultural labor (and there- significant direct and indirect benefits for fore opportunities for poor people).15 poor people (and others). Major water devel- opment projects in Brazil,7 India,8 Malaysia9 It is these broad, systemic impacts that have and the United States10 show large direct made water-related infrastructure an essen- benefits (from irrigation and hydropower) tial building block for regional and national and indirect benefits that are typically twice as development in many OECD countries large. In many cases poor people benefit (Japan, the Netherlands, Norway, Spain, the enormously from this economic activity. In western United States and others) and de- Petrolina in Northeast Brazil, for example, veloping countries (among them Brazil, water infrastructure has been the basis for the Egypt, Mexico, Pakistan, South Africa and development of a dynamic rural economy. Thailand). Recent research by the World This has meant the creation of a large num- Bank has shown that the average incomes of The importance ber of high-quality, permanent agricultural the poorest fifth of society rise proportion- of water jobs (40 percent held by women). And for ately with overall average incomes.16 So too development as every job in agriculture, two jobs have been do the poor generally benefit from these sys- a source of created in the supporting commercial and in- temic growth-inducing investments in water dustrial sectors. These opportunities have resources management and infrastructure.In growth-oriented meant a reversal in the historic pattern of out- Tamil Nadu in India, for example, it was hy- sustainable migration, with the benefiting districts grow- pothesized that it was large farmers who had poverty ing at twice the state average.11 benefitted most from the green revolution. alleviation was A landmark study showed that large farmers Similarly in India, water infrastructure has did, indeed, benefit--their incomes in- highlighted at evened out the seasonal demand for labor,re- creased by 18 percent over the course of a the 2002 World sulting in major gains for the poor.12 Recent decade. But by far the biggest winners were, Summit on analyses in India have shown that irrigation paradoxically,the landless,whose income in- Sustainable infrastructure has a major impact on the re- creased by 125 percent as a result of the large turns to investments in education. "The re- increase in demand for their labor.17 The ap- Development turn to five years of primary schooling versus propriate image is not "trickle down" but no schooling in Indian districts where agricul- "a rising tide lifts all boats." tural conditions were conducive to the adop- tion of Green Revolution technologies was The importance of water development as a high (32 percent) whereas in districts where source of growth-oriented sustainable conditions were not conducive estimated re- poverty alleviation was highlighted at the turns to schooling were negative."13This mul- 2002 World Summit on Sustainable Devel- titude of direct and indirect impacts has a opment.The official declaration of the sum- striking impact on poverty: in unirrigated dis- mit emphasizes the role that hydropower tricts 69 percent of people are poor,while in ir- can play in poverty reduction in developing rigated districts poverty drops to 26 percent.14 countries, recognizes all hydropower as a re- newable source of energy and calls for in- Changes in policies have a similarly substan- creased support for developing countries' tial impact on opportunities for poor people. efforts to develop hydropower and other re- For example, in 1992 Mexico passed a new newable sources of energy.18 water law that introduced radical changes in the way water is managed. Most important The growth and poverty reduction potential of was giving users much greater say and intro- such infrastructure has been undercut in two ducing tradable water rights. In some areas important ways.First,too often the means has the effects have been dramatic, with sub- become the end.Instead of assessing different stantial reductions in the (unsustainable) options for meeting human needs and con- pumping of aquifers, and with water moving sidering structural and nonstructural alterna- from traditional low-value crops to new tives, there has often been a rush to build 7 1. Introduction and development context major infrastructure. In too many instances resources requires greater attention to man- the result was the construction of dams and agement of the land-water interface.There are other infrastructure that were economically, several different perspectives on this.There is socially and environmentally destructive.Sec- growing evidence that the services provided ond,such infrastructure projects often paid lit- by hydraulic infrastructure are dependent on tle attention to particular and vital groups of how land in the catchment is managed.There poor people: those who had to be resettled is also growing evidence that communities and those who were adversely affected by living in vulnerable land-water environments changes in river flows.Too often the idea was (such as eroded mountains, salinized plains that these sacrifices were "for the greater and the floodplain) can benefit greatly from good" and therefore justified. Some of the the improved opportunities that arise when World Bank's greatest and most publicized local land and water resources are managed failures have involved the financing of dams more effectively.Accordingly,there has been a that were planned and built without sufficient surge in projects--including projects financed attention to social and environmental conse- by the World Bank--that focus on land and quences.In recent decades thinking and prac- water management activities that simultane- Cooperation on tice have changed dramatically, and there is ously increase the livelihoods of poor people international now a broad consensus that those directly af- (who constitute a large proportion of the pop- waters can fected must be made the first beneficiaries of ulation in these degraded environments) and such infrastructure, and growing experience improve the quality of the land and water provide a vital that, with commitment and ingenuity, this is resources. component for usually possible. broad-based Two projects in the World Bank's portfolio in economic Finally, cooperation on international waters the Ganges Basin are outstanding examples of can provide a vital component for broad- the success of such approaches. The Shivalik development based economic development and regional HillsWatershed Management Project seeks to and regional security. A number of the largest water man- scale up the lessons from many successful wa- security agement interventions by the World Bank, tershed management projects led by non- dating back to the Indus Water Treaty of 1960 governmental organizations (NGOs). The and extending forward to current projects (in- project aims at simultaneously reducing ero- cluding the Lesotho Highlands Water Project sion, increasing groundwater recharge and and regional initiatives for the Mekong and improving the livelihoods of poor people.The Nile) fall into this category. While all citizens major investments are in building terraces,es- in the riparian countries reap the direct eco- tablishing small check structures in eroded nomic benefits of such cooperation, there is ravines,planting vegetative cover on denuded also often a security dividend that, under cer- hills, building small dams and digging wells tain circumstances, can be a powerful catalyst and canals that make better use of the pre- for broader cooperation, growth and security. served water resources. The Uttar Pradesh These broad benefits do not bypass poor peo- Sodic Lands Project in the plains works with ple; on the contrary, it is poor people who are poor, usually landless, people living in areas the most vulnerable to insecurity and who are wherelandhasbeendegradedbysalinization. accordingly the particular,albeit indirect,ben- Theprojectorganizesgroupsoflandlessfarm- eficiaries of such cooperation.The Global En- ers into small cooperatives and provides tech- vironment Facility has played an important nology and advice on land reclamation. A role in catalyzing cooperation on international notable feature of the project is that while the waters and in bringing the environmental men in the farmers cooperatives failed to benefits of such cooperation to the fore. manage the important credit component, women's micro-credit groups have filled the Type 2 interventions: Poverty-targeted vacuum and constitute an indispensable ele- policies and investments that affect ment in the overall success of the project. the development and management of water resources An interesting variant--stimulated by the recognition of dam owners that upper catch- In recent years it has become widely under- ment management is imperative for stood that better management of water maintaining the value of their assets--is co- 8 Water Resources Sector Strategy: Strategic Directions for World Bank Engagement operative watershed management. Thus, for An important element of the overall impact example, the proposed NamTheun 2 Hydro- on poor people is the impact on poor power Project in Lao PDR provides support women. In most countries it is women who for communities to improve management of fetch and carry water, and it is women who the catchment. Similarly, private companies suffer disproportionately when services fail that operate the water concessions in Manila poor people. Because of this gender reality, are investing in catchment management to women can and should play a central role in preserve the quality and quantity of the water programs that address the water and sanita- on which the city depends.19 tion needs of poor people. Finally,early efforts at better management of The irrigation story is more complex, be- ecological flows from dams have had im- cause water services are just one of several pressive results for poor people. Fishers in critical inputs (along with seeds, fertilizer, the Senegal River in Mauritania, for exam- information, credit and marketing). There is ple, saw their annual catches increase from growing evidence that, as in urban areas, 10 tons a year to 110 tons after the operating transparency and participation benefit poor rules for a hydropower dam were changed to people.Thus in the Liuduzhai Project in the Water utility allow for artificial floods.20 Yangtze Basin in China, for example, the in- reform usually troduction of water user associations has led means The bottom line is that there are (as high- to greater transparency, lower costs and bet- substantial lighted in the World Bank's recent Environ- ter and more services to poor people.24 ment Strategy21) many opportunities for Other cases suggest more complex but benefits for poor simultaneously improving resource man- equally important pathways through which people agement and the lives of poor people. Such poor people benefit from broad reforms in win-win projects constitute a substantial irrigation management. and growing part of the World Bank's water resources portfolio. A particularly interesting case is the irriga- tion projects in Northeast Brazil, where the Type 3 interventions: Broad policies initial model--five hectare lots to poor and investments that affect the farmers--was ostensibly pro-poor but in development and management of fact meant that expensive infrastructure water services was being used for subsistence agriculture, because the poor farmers were unable to Abundant evidence shows that poor people solve endemic technology, credit and mar- suffer most when water services (water keting problems. An apparently antipoor supply, irrigation and hydroelectric power) change in policy (auctioning off 50 percent are badly managed.22 In city after city in the of new areas to "commercial farmers") developing world unserved poor people ushered in a growth-stimulating and pay 10 or more times the price for a liter of poverty-reducing cycle. The commercial water than do their fellow citizens who are farmers were able to address the issues of served by formal supplies. The corollary is technological innovation, credit and mar- that poor people benefit immensely when keting. Poor farmers benefited in two ways. they live in a town where water is supplied First, the poor farmers piggy-backed on the by a modern, accountable and financially opportunities created by the commercial viable utility that can extend services to a farmers, often becoming subcontractors to larger number of users.To cite just one case, these farmers. Second, the poor farmers the concession contract in Buenos Aires has benefited by finding employment in the in- meant that 1.5 million more people (most dustries that grew up to supply inputs and of them poor) now have access to piped process the products of this now-dynamic water and that 600,000 more people (most agricultural sector.25 The key conclusion is of them poor) now have access to sewerage that water infrastructure and market- connections.23 oriented reforms (which are often decried as "antipoor"), when well-designed, can Put simply, water utility reform usually be the basis for growth and opportunities means substantial benefits for poor people. for the poor. 9 1. Introduction and development context Type 4 interventions: Poverty-targeted policies and investments that affect Poverty and gender targeting in World Bank the development and management of f1.2 projects has increased water services Percent of projects (N=103 projects) Poverty-targeted policies and investments 60 are the classic and most obvious way in 1986­92 1993­99 which water projects affect poverty, with 50 documentation most complete for urban water supply. Those who are excluded from 40 formal services (always poor people) typi- 30 cally pay much more for water than do those who receive formal services (always the bet- 20 ter off).26 Accordingly, poverty-targeted rural and urban water and sanitation projects are 10 very important for the poor. These projects There has been 0 are almost always accorded high priority by Poverty Consultation Poverty Gender substantial communities in rural development and slum analysis with the targeting targeting poor improvement in upgrading programs and form a growing part of the World Bank's water and sanitation Source: World Bank Operations Evaluation Department. 2002. how World Bridging Troubled Waters: Assessing the World Bank Water Resources portfolio. Similarly, giving smallholders ac- Strategy. Washington D.C. Bank-financed cess to improved and appropriate irrigation water projects technology (such as treadle pumps) has im- directly address portant impacts on the lives of poor people. (which benefit new people and which are, other things equal, more equitable). poverty and Summary on water resources and social concerns poverty An appropriate strategy for countries is a blend of all of these interventions: operating There are several main observations on on the resource and on water services, inter- water resources and poverty: vening in a broad, systemic manner, and di- rectly targeting the poor. For example, well · Water resources management policies conceived water infrastructure should: and investments affect poor people in a variety of direct and indirect ways,most of · Providethebasisforoverallregionaldevel- which are important in most contexts. opmentandassociatedeconomicopportu- · There has been substantial improvement nities for poor people (type 1 benefit). in how World Bank-financed water proj- · Have components that aim at improving ects directly address poverty and social watershed management, with associated concerns (figure 1.2). benefits for poor people who usually con- · There are important distinctions in the stitute the majority of people living in fiscal implications of different interven- such degraded environments, and de- tions. Broad interventions (types 1 and 3) velop operating rules that specify ecolog- generally stimulate growth and revenue, ical flows for the benefit of downstream whereas targeted interventions (types 2 riparians (type 2 benefit). and 4) usually depend on subsidies. · Be associated with reform of the power, · There are also important distinctions be- irrigation and water supply sectors, with tween the impact of management inter- broad benefits from which poor people, ventions (where the benefits are often and especially poor women, benefit (type indirect and long term) and the impact of 3 benefit). development projects (which are direct · Provide targeted benefits to poor people and immediate). who are resettled or otherwise affected by · There are distributional distinctions be- the project or who live in the vicinity of tween the poverty impact of rehabilitation the project, and generate revenues that (which benefits those who benefited from are dedicated in part to specific pro-poor the initial investments) and new projects activities (type 4 benefits). 10 Water Resources Sector Strategy: Strategic Directions for World Bank Engagement t1.1 Water resources management and the Millennium Development Goals targets Target and description Relevant water interventions (from figure 1.1) Target 1, which aims at reducing the Types 1 and 2, through their contribution to overall and targeted economic proportion of people whose income is growth. less than $1 a day. Types 3 and 4, through better general and targeted growth-inducing services. Target 2, which aims at reducing the Types 1 and 2, through their contribution to overall and targeted economic proportion of people who suffer from growth, food production and hunger reduction. hunger. Types 3 and 4, through better general and targeted growth-inducing and food-producing services. Target 5, which aims at reducing the Types 1 and 2, through their contribution to overall and targeted economic mortality rate of children under five growth and thus mortality reduction. years old. Types 3 and 4, through better general and targeted services, some of which (such as irrigation) increase income and thus reduce mortality and some of which (water supply and sanitation) directly reduce mortality. Target 9, which aims at integrating the The Dublin ecological, institutional and instrument principles, incorporated into principles of sustainable development into the World Bank's Water Resources Management Policy, are the broadly accepted country policies and programs. principles for sustainable water resources development. This Strategy focuses on how to make these principles effective in country policies and program. The World Target 10, which aims at reducing the Types 1 and 2, through their contribution to overall and targeted economic proportion of people without sustainable growth and thus demand and willingness to pay for better services. Commission on access to safe drinking water. Types 3 and 4, through better general and targeted water supply services. Water has Source: World Bank staff. estimated that investments in An important task is to translate this typol- economically productive, socially acceptable water ogy into guidance to ensure that water is and environmentally sustainable fashion. Im- infrastructure in fully and appropriately incorporated into proved resource and demand management is developing Poverty Reduction Strategy Papers (PRSPs) therefore appropriately given high priority by and into the Country Water Resources As- the World Bank and many of its borrowers. countries need sistance Strategies. The Water Resources The Dublin ecological, institutional and in- to increase from Management Group, which brings together strument principles27 provide a compass, but about $75 billion the regional and sectoral leadership on the details have to be tailored to the historical, to $180 billion a water across the World Bank, has started this cultural, environmental, social, economic and work. This will include mapping "down"to political circumstances of each country. year over the ensure that macro actions benefit poor peo- next 25 years ple, both directly and indirectly; mapping Second, all countries face a major challenge "up"to assess the broader implications and in developing and maintaining an appropri- sustainability of local water actions; and in- ate stock of water infrastructure. Framing tegrating actions to ensure consistency and this challenge is the reality that the costs of synergy across the four types of interven- water infrastructure are rising rapidly in tions illustrated in figure 1.1. many countries. An analysis of World Bank repeater water supply projects shows that Finally, water resources management is di- the cost of bulk water for the future project rectly relevant to several of the international is often two to three times greater than that development targets set by the UN Millen- for the previous one.28 The World Commis- nium Assembly in October 2000 (table 1.1). sion on Water has estimated that invest- ments in water infrastructure in developing countries need to increase from the current The World Bank's borrowers face a level of about $75 billion to $180 billion a wide range of water development year over the next 25 years.29 and management challenges In meeting these challenges, circumstances The World Bank's client countries confront differ among countries. In Central Asia, for two major water resources challenges.First,all example, where extensive water infrastruc- countries face major challenges in developing ture is fast decaying, a key challenge is the laws,regulations and institutions required triage--deciding what infrastructure to reha- for managing water resources in a more bilitate, given environmental and economic 11 1. Introduction and development context constraints and the dependence of more conflict; alternatively it can be a major than 35 million people on the maintenance catalyst for cooperation at all levels-- of this infrastructure. In other developing even economic integration. Experience countries there is significant underdeveloped has shown that cooperative programs for potential,as suggested by the following com- water resources management have been parisons. Australia and Ethiopia have similar important to regional integration and sta- degrees of climate variability, but whereas bility in Eastern Europe (the Baltic Sea), Australia has 5,000 cubic meters of water Southeast Asia (Thailand and Lao PDR), storage capacity per person, Ethiopia has 45 South Asia (the Indus Basin) and South- cubic meters.30 The United States and Nepal ern Africa (Lesotho Highlands). have roughly equivalent economically ex- · Toward public-private partnerships. Much ploitable hydropower potential, but whereas of the necessary hydraulic infrastructure is installed hydropower capacity in the United multifunctional (such as reservoirs that States is about 70,000 megawatts (MW), in generate electricity and protect against Nepal it is less than 600 MW.31 floods). Financing for water resources in- frastructure is not cleanly separable into This Strategy public and private sectors; increasingly, it does not focus Water management must make a requires public-private partnerships, both on the water- series of important transitions in investment and operation. While pri- vate investment and management are using sectors To meet these water resources challenges, a playing,and must play,a growing role,this but on water series of transitions is under way, with major must take place within a publicly estab- resources implications for water management: lished long-term development and legal management and regulatory framework, and without · Fromdevelopmentormanagementtodevelop- crowding out community-managed infra- and the ment and management. For decades water structure and beneficiary participation in connections resources management was equated with design and management of water sys- between construction of water infrastructure. Expe- tems. Attracting private investment into resource use rience showed this to be a major error, for low-income countries is particularly im- economic, social and environmental rea- portant and necessarily a major focus for and service sons. In reaction, some have stigmatized institutions like the World Bank. management dams, dykes, canals and other major hy- draulic infrastructure as unnecessary and destructive.The emerging view is that both The scope of this Strategy extremes are wrong and that in most de- veloping countries both management im- Water management can be conceptualized provements and priority infrastructure as a "comb," in which the "teeth" are the have essential and complementary roles in water-using sectors and the "handle"is the contributing to sustainable growth and resource itself, defined by its location, quan- poverty reduction. tity and quality (figure 1.3). · Fromlocaltoregionalandinternationalman- agement. Water management is moving This Strategy does not focus on the water- from being just a local issue to being a na- using sectors (which are addressed in other tional and an international issue, requir- World Bank sector and business strategies,32 ing new approaches to financing, dispute including energy, environment, rural devel- prevention and resource management. opment, irrigation and drainage, and water · From disputes to cooperation. Growing de- supply and sanitation) but on water re- mand for water for cities, industries and sources management and the connections the environment means a greater need between resource use and service manage- for consensual mechanisms (from the ment.This means addressing: local to the international level) for dispute prevention and resolution and for flexi- · The institutional framework, including the ble, voluntary methods for reallocating definition and establishment, at levels water in response to changing demands ranging from local watershed manage- and values. Water can be a cause of ment institutions to international basin 12 Water Resources Sector Strategy: Strategic Directions for World Bank Engagement f1.3 Scope of this Strategy: A focus on water resources management, not services Water resources management Institutional framework Development and management of infrastructure Management Other instruments Water uses Irrigation Environ- supply (including and Energy mental Political economy and industry drainage services of water sanitation and management navigation) The culture and principles of the Source: Global Water Partnership Technical Advisory Committee. 2000. Integrated Water Resources Management. Stockholm: Global Water Partnership. major water- using sectors agencies, of laws, rights and licenses; of service sectors. While the details of the responsibilities of different actors; and of water-using sectors are appropriately man- have a profound standards for water quality and service aged at the sector level, the linkages be- influence on the provision (especially to poor people), for tween resource management and the service ways in which the environment, for land use manage- sectors are central to overall resource man- societies ment and for the construction and man- agement and thus to this Strategy. agement of infrastructure that affects the approach the quantity and quality of water resources. Application of the principle of subsidiarity is challenges of · Themanagementinstruments,includingreg- not a matter of Cartesian mechanics,but one water ulatory arrangements, financial instru- of judgment and art. Since use of water al- management ments, standards and plans, mechanisms ways precedes concerns with resource man- for effective participation of stakeholders, agement, the culture and principles of the and knowledge and information systems major water-using sectors have a profound that increase transparency; motivate effec- influence on the ways in which societies ap- tive water allocation,use and conservation; proach the challenges of water manage- and secure maintenance and physical sus- ment. When specific water-using sectors tainability of the water resources systems. make heavy use of water resources, a strat- · The development and management of infra- egy for resource management must closely structure for annual and multiyear flow examine the internal workings of those sec- regulation, for floods and droughts, for tors. Although World Bank approaches for multipurpose storage,and for water qual- water-using sectors are addressed in detail ity and source protection. in other sector strategies and business plans, · The political economy of water management it is pertinent here to outline the main rele- and reform, in which there is particular vant features of these companion strategies, emphasis on the distribution of benefits focusing on the links to the management of and costs and on the incentives that en- water resources. courage or constrain more productive and sustainable resource use. Irrigation and drainage and water resources management Key strategic issues in the main Increased world food security is one of the water-using sectors great development achievements of the last 40 years.Over this period,despite rapid pop- As is obvious from figure 1.3, there is sym- ulation growth, per capita grain production biosis between resource management and increased 30 percent, and average daily 13 1. Introduction and development context caloric intake increased from 2,000 to 2,800. a new one has yet to take its place. The irri- This remarkable achievement has been gation community is still a long way from: driven by increases in yield as a result of the green revolution, and a sharp increase in ir- · Making a transition from the era of ex- rigated area, from 110 million hectares in pansion and construction to an era of in- 1950 to 280 million in 2001. Irrigated agri- tensification and management. culture, which accounts for less than 20 per- · Articulating and operationalizing a mod- cent of farmed land, contributes 40 percent ern institutional model that unbundles of the world's food production.33 the bulk infrastructure from the distribu- tion infrastructure, separates the public The World Bank has played a central role in and private aspects of the systems and the irrigation sector in developing countries. clarifies the public roles (legal framework Although World Bank investments in irriga- and regulation) and private (profit and tion have declined sharply in recent years nonprofit) roles for service delivery. (with project numbers and investment levels · Articulatingsound,achievable,sequenced in the late 1990s only 40 percent of the lev- approaches to cost recovery for different Although World els 20 years earlier), the World Bank remains components of irrigation and drainage Bank a major actor both directly and through key systems. investments in partnerships, including the Consultative Group for International Agricultural Re- There is broad agreement among borrowers irrigation have search (CGIAR). and the professional irrigation community declined sharply that the World Bank has an indispensable in recent years, The Rural Board is developing an Irrigation role to play in this vital reform process, both the World Bank and Drainage Business Plan, to be presented because of the major role it has historically to the World Bank Board as part of an over- played in irrigation and because of its ability remains a major all Agriculture and Food Security Strategy in to access and integrate the wide range of in- actor both fiscal 2003. While respecting the principle of stitutional and technical skills required. directly and subsidiarity, and without preempting the through key upcoming Irrigation and Drainage Business Drawing on a broad basis of sector work, Plan,this section outlines the challenges fac- OED reports and external assessments, the partnerships ing the sector in some detail because in no World Bank is formulating a new strategy for other water-using sector is the relationship the irrigation and drainage sector, with fun- between the sector and overall water re- damental implications "on the farm" and sources management so large and so fraught for the management of water resources. with daunting institutional and political obstacles. The on the farm elements of this reform agenda include: First, irrigation is by far the largest user of water globally, accounting for an estimated · Increasing the productivity of water and in- 85 percent of water use in developing coun- frastructure. World Bank-financed activi- tries.34 Second, many of the conflicts ties aim at higher productivity (more between water development and environ- crops, cash and jobs per drop) through a mental sustainability are, at their core, con- combination of means--economic, insti- flicts between irrigation and environmental tutional, agronomic (cropping patterns, conservation. Large-scale diversion of rivers intensification), hydrological (reducing and pumping of aquifers have adversely af- nonbeneficial evapotranspiration), and fected wetlands, fisheries, coastal and ma- ecological (salinity management, water- rine ecosystems and the populations that logging control, deficit irrigation, water depend on them; inadequate drainage has harvesting in rain-fed areas). led to large-scale waterlogging and salinity; · Developing a realistic,sequenced approach to and reclamation of flood plains for irrigation cost recovery. For decades there has been a has increased vulnerability to flooding. yawning gap between simple economic Third, while the irrigation philosophy of the principles (farmers should pay the full fi- 1960s through the 1980s,of continuous pub- nancial costs--operation and mainte- licly financed expansion, has run its course, nance, rehabilitation, debt servicing on 14 Water Resources Sector Strategy: Strategic Directions for World Bank Engagement existing infrastructure--and the opportu- · Explicitly addressing the political economy nity costs of water) and on-the-ground of reform. Perhaps the greatest of all chal- reality. In developed countries, in the lenges in the irrigation sector is the artic- words of the OECD, "agricultural water ulation of a prioritized, sequenced and use is still heavily subsidized,"and in de- sellable program for getting from here to veloping countries farmers typically pay there. While the pace and content of re- only a fraction of operation and mainte- form processes are necessarily place and nance costs and nothing for rehabilitation time specific, World Bank experience and amortization of investments. In the suggests that there are two overriding Indian state of Rajasthan, for example, the rules governing such processes. First, the state pays 75 percent of the costs of oper- impetus for change typically comes from ation and maintenance of irrigation, with a crisis, sometimes (such as a water qual- these costs amounting to 18 percent of the ity disaster or declining water tables) state's recurrent budget.35 As discussed in within the sector, but more often outside more detail later, the key to better cost re- because of an overall fiscal crisis or covery is a changed set of institutional process of political reform. Experience arrangements and incentives and much further suggests that the World Bank is The greatest of greater attention to the political economy most effective when staff remain aware all challenges in of moving from here to there. and able to take advantage of exogenous the irrigation · Scaling up user associations and ensuring that opportunities, concentrating the World sector is the they are representative of all farmers.The past Bank's convening and investment re- decade has seen a revolution in the role of sources to back reformers. Second, given articulation of a farmers in irrigation, with the World Bank the very large vested interests (not only prioritized, playing a powerful advocacy and demon- millions of farmers, but, in just one state sequenced and stration role. Water user associations em- in India, over a hundred thousand public sellable program power users to operate and maintain their sector employees in the irrigation de- systems,collect fees,hire professionals and partment), a reform program must deal for getting from manage water rights.They have proved ef- as much with issues of fiscal and civil here to there fective for increasing efficiency and pro- service reform as it does directly with ir- ductivity; for improving accountability, rigation issues. Here the World Bank, performance and responsiveness to farm- given its comprehensive engagement ers; and for improving the financial sus- with governments,has a comparative ad- tainability of irrigation systems. An vantage, which it is now starting to use importantelementofsuchreformsistoen- more consistently and more strategically, sure that women, who often play a major for example, in state-level reform in but undervalued role in irrigation, are Brazil and India. specifically included in such associations. · Supporting partnerships that focus on the · Modernizing formal irrigation institutions production of new crop technologies. While and the framework in which they operate. institutional reforms are crucial, it is evi- While there have been gains from water dent that the water­environment­food user associations, it has also become clear production square cannot be circled with- that irrigation reform has to be fully sup- out the development of new generations ported by institutional reform. If the of crop varieties. Accordingly, a high pri- agencies themselves are not modernized, ority for the World Bank is support to the then user associations cannot function ef- CGIAR for the development of crops that fectively and eventually are undermined. are less susceptible to droughts, floods Reforming public sector agencies, which and salt, that result in more production currently manage most of the world's per unit of water use, that are less vulner- large irrigation systems, is arguably the able to pests and spoilage and that use number one priority for improving over- smaller quantities of water-polluting fer- all performance of the irrigation sector.As tilizers and pesticides. with other infrastructure services, in- creased accountability and a competitive The irrigation reform agenda items that have environment are vital for improving major implications for water resources man- performance. agement include: 15 1. Introduction and development context · Greaterattentiontobasinwideefficiency.The communities, including traditional users) arithmetic of water conservation is not a enjoy the same legal certainty as land and simple matter. In some circumstances, other property rights. Once established, field efficiency is important because re- such rights give rise to a series of funda- turn flows degrade land and water re- mental and healthy changes. First, those sources. In other circumstances, one requiring additional resources (such as farmer's water loss is another farmer's growing cities) will frequently be able to recharge, and improved farm-level irriga- meet their needs by acquiring the rights tion efficiencies often result in only paper, of those who are using water for low- not real, water savings. Required is an im- value purposes. Second, there are strong proved, customized understanding of incentives for low-value water users to water balances and water quality in spe- voluntarily desist, making reallocation cific basins, so that the benefits from often both politically attractive and practical. costly interventions to reduce farm and Third, the establishment of formal water system losses are assessed in terms of the rights gives rise to strong pressures for contribution to overall basin water use ef- improving the data required to manage Recognizing and ficiency and water quality. Such under- the resource. And fourth, this reduces the managing water standing includes determining how much pressures of a "race to the bottom,"since rights is water can be consumptively used on a those who have rights have a powerful in- sustainable basis while still meeting envi- terest in sustainability. essential for ronmental and other in-stream flow re- This is not to suggest that there is una- managing quirements and without overexploitation nimity on the concept of water rights, for irrigation of groundwater. some see this as an unhealthy commodi- systems and for · Increased emphasis on drainage. Underin- fication of a public good. Nor is it meant vestment in drainage has meant that an to imply that it is simple to introduce managing river estimated 30 million hectares have be- rights-based systems for a fugitive re- basins and come unproductive as a result of the twin source with deep cultural implications in aquifers curses of waterlogging and salinity, and administratively weak environments. large amounts of water are lost through Nonetheless, there has been substantial nonbeneficial evapotranspiration. Ac- progress in recent years (in Brazil, Chile, cordingly, public and private investments Mexico and South Africa), and there are in drainage are imperative for arresting pressures from the local level (villagers the decline of the resource base on which who have stored rainwater in Rajasthan, irrigated agriculture (and much of the for instance) to the international level (be- world's food supply) depends and for tween the United States and Mexico, for maintaining the health of rivers and wet- example) to define the rights to use an lands. A central element in the World ever-scarcer resource.36The World Bank is Bank's overall push for irrigation sector gaining practical experience in the legal modernization is the development of a and administrative machinery for setting portfolio of investments and manage- up and managing rights-based systems of ment tools to address the financing and water management. institutional arrangements for develop- · Reducing perverse subsidies for groundwater ment and maintenance of drainage and pumping. The most dynamic and progres- environmentally sustainable disposal of sive actors in the irrigation sector in many drainage water. developing countries are the numerous · Recognizing and managing water rights. farmers who use groundwater. In contrast Recognizing and managing water rights to the heavily-subsidized surface irrigation is as essential for managing irrigation sys- systems, groundwater farmers typically tems as for managing river basins or pay the full financial costs of well drilling, aquifers. Doing that in most countries pumps and irrigation systems. In many first requires clarifying that water is pub- countries, however, groundwater farmers licly owned and that a water right is have managed to obtain and defend large usufructory--it is a right to use,not a right subsidies for their biggest recurrent cost, to own water. The essence of this change electricity. In conjunction with a lack of is that water rights (of individuals and property rights (and associated problems 16 Water Resources Sector Strategy: Strategic Directions for World Bank Engagement in managing common pool resources), the (increasingly private) and those of legisla- energy subsidies have meant heavy over- tion, regulation and planning (the vital role exploitation of groundwater.It is estimated for the state). The Energy Sector Business that 10 percent of the world's food supply Strategy emphasizes such issues as stimu- is based on unsustainable pumping of lating competition among energy suppliers; groundwater.37 Phasing out such subsidies developing and strengthening objective, is simultaneously an economic and envi- transparent regulation; establishing com- ronmental necessity and a daunting polit- mercial pricing and enterprise viability; and ical challenge. There is some evidence, expanding private sector participation. The from Mexico, for example, that progress Energy Sector Business Strategy also articu- can be made when these perverse subsi- lates a role for the World Bank, IFC, and dies are replaced in a carefully phased MIGA in mitigating risks beyond the control manner with "virtuous subsidies"(such as of private investors and private risk insurers, for investments in modern irrigation in spreading lessons of reform and in inter- equipment).38 nalizing local and global environmental externalities. In summary, in many developing countries This new era the irrigation and drainage sector is at a These broad modernizing reforms in the requires crossroads. Irrigated lands must produce electricity sector have had profound implica- irrigation greater quantities of the food and fiber re- tions for water resources management in institutions that quired to feed and clothe growing popula- countries that depend heavily on hydroelec- tions. In most countries this growth cannot tricity. They have meant a broad acceptance are radically come from mobilizing additional land and that hydropower developments (particularly different from water resources (as was done in the past), those involving storage) should be planned, the top-down, but must come from getting more out of optimized, designed and operated in the construction- less--more crop,cash and jobs per drop.This basin context in cooperation with other new era requires institutions that are radi- water-using sectors.(Although,as with most oriented cally different from the top-down, other aspects of water management,practice irrigation construction-oriented irrigation agencies lags behind principle. Even in well devel- agencies that that developed over the past half century. oped environments such as Chile, for exam- developed over The World Bank's borrowers see the Bank as ple, there remain substantial challenges in an indispensable partner in effecting this reconciling the management of hydropower the past half transformation. They perceive the World facilities with the needs of downstream century Bank to have a unique combination of legit- populations.40) imacy, institutional and technical skills, knowledge, advocacy and financing power, These reforms also have meant that the own- and they look to the World Bank for leader- ers of dams have increasingly realized that ship in revitalizing the sector. Many are con- substantial amounts of storage (0.5­1.0 per- cerned about a perceived decline of the cent globally) are lost each year due to sedi- World Bank's interest in and commitment to mentation and that sediment management irrigation and drainage.Borrowers and other in catchments and dams is vital to maintain- partners, accordingly, give high priority to ing asset value. Responsible hydropower de- the process and outcome of the planned Ir- velopers have become strong advocates for rigation and Drainage Business Plan. good environmental and social practice, as articulated, for example, in the report of the Energy and water resources World Commission on Dams.41 This in- management cludes extensive consultation with stake- holders, ensuring that resettlement is done There is now a broad consensus--exempli- well, investing in community management fied in the World Bank's recent Energy Sec- of watersheds and ensuring that local people tor Business Strategy39--on what constitutes become beneficiaries. a sound energy sector. Central concepts in- clude the importance of financial and envi- World Bank and IFC experience has con- ronmental sustainability, and the need to firmed that hydropower projects offer win- distinguish the roles of electricity providers dows for improving social and environmental 17 1. Introduction and development context performance. In countries such as Brazil and Water supply and sanitation and China this means building on strong domes- water resources management tic capacity and experience; in poor countries such as Lao PDR and Uganda it means using Just as there is a global consensus on what strong external private sector developers as a constitutes a sound energy sector, so too is means for advancing good practice and de- there broad agreement on the central fea- veloping local capacity. tures of a sound water supply and sanitation sector. This agreement draws on the same A recent and important development is the principles of separating the role of provision formal recognition at the World Summit on (public and private) from that of regulation, Sustainable Development that hydropower policy formulation and assessment (a public (large and small) is a renewable source of en- role), and of stimulating competition among ergy and that, in the words of the Imple- providers. While work on a new World Bank mentation Plan, there is "a sense of Water and Sanitation Business Plan (to be fi- urgency, [to] substantially increase the nalized in fiscal 2003) has just started, it is global share of renewable energy possible to broadly identify priority policies Responsible sources...."42 This should foster mecha- and approaches to their implementation hydropower nisms enabling environmentally and socially within the water and sanitation sector and to developers have sustainable hydropower (small and large) to describe how these relate to the manage- benefit from the nascent trading in carbon ment of water resources. become strong permits.Among the first activities of the Pro- advocates for totype Carbon Fund are two transactions to An overriding thrust of the World Bank's good purchase emission reductions from small work on water and sanitation is to ensure environmental hydropower projects--$3.9 million for a $20 that poor people gain access to safe, afford- million project for displacing diesel oil with able water supply and sanitation services by and social hydroelectricity from small projects in the reducing costs and increasing accountability. practice West Nile region of Uganda,and $3.5 million In urban areas this means targeting subsi- for a run-of-the-river hydropower facility set dies to the poorest, largely unserved con- up in cascade with other hydropower proj- sumers to partially finance up-front costs of ects in a $37 million project in Chile.43 connection; incorporating the preferences of poor communities for service quality stan- Over the past decade the World Bank has dards, delivery modality and management drastically reduced its investments in hy- arrangements; permitting entry and fair dropower, from about $1 billion to about 10 competition between conventional utilities percent of that amount. The changed global and small-scale service providers; and struc- recognition of the role of hydropower and turing contracts, regulatory incentives and the stong demand from clients require a legislation to facilitate extension and up- major reengagement by the Bank in the hy- grading of services to poor communities. In dropower dector. small towns and rural areas this means em- powering communities to make informed Finally, a specific but very important impli- choices about their participation,service lev- cation for water management is that a els and service delivery mechanisms; re- "modern"energy sector should not provide aligning the rights and obligations of key large hidden subsidies for groundwater stakeholders; vesting communities with pumping, one of the most environmentally ownership rights and authority to select destructive of perverse subsidies. Experience service providers; building local capacity to has shown that this is a particularly difficult support community decisionmaking in and politically sensitive area. There have planning, management and delivery of serv- been only a few successes thus far in replac- ices; and establishing financial policies and ing destructive energy subsidies with equiv- instruments that provide incentives for com- alent virtuous subsidies. Mexico is a notable munities to contribute to capital costs and example of good practice, having replaced pay for all operation and maintenance costs. energy subsidies with subsidies for the pur- An important element of such approaches is chase of modern, energy- and water-saving to make sure that women can, in forms that equipment.44 are practical in each cultural setting, play a 18 Water Resources Sector Strategy: Strategic Directions for World Bank Engagement role that is commensurate with their knowl- the private sector has stimulated the devel- edge of local water services and interest in opment of more transparent, impartial regu- improving them. lation and greater disclosure of information: in short, greater accountability to consumers A central part of this thrust is to stimulate the and taxpayers.The World Bank has played an development of financially sound, opera- important role in this, through projects and tionally efficient, consumer-oriented water by building hands-on, utilitywide capacity and sanitation utilities.This includes realign- through sponsorship of the International ing policy, regulatory and service provision Network of Utility Regulators.46 Fourth and functions and governance structures to en- fundamental is the concern with finding bet- hance accountability and incentives for dis- ter mechanisms for getting cost-effective,ac- tinct actors to perform; strengthening countable services to the billions of people regulatory oversight capacities, institutions who still do not have access to water supply and processes to provide greater trans- and sanitation services. Important as the parency and predictability; building com- entry of the private sector is, public utilities mercially oriented and customer-focused currently provide and will for the foreseeable utilities to ensure sustainability of service; future provide water to the vast majority of An overriding strengthening government capacity to con- people in developing countries. Accordingly thrust of the tract services in transparent and accountable theWorld Bank continues to devote attention World Bank's ways; balancing remuneration with alloca- and resources to improving the performance work on water tion of risks; increasing the creditworthiness of public utilities. of water providers to enhance their capacity and sanitation is to mobilize financing for long delayed in- Experience shows that these changes in the to ensure that vestments in rehabilitation, upgrading and water and sanitation sector have profound poor people gain expansion; gradually raising average tariffs to implications for the management of water access to safe, reflect actual costs and instituting pre- resources. First, accountable utilities (public dictable, transparent adjustment mecha- and private alike) are acutely aware that the affordable water nisms; eliminating generalized supply-side services they provide depends on the avail- supply and subsidies in favor of narrowly targeted subsi- ability of a reliable quantity of good quality sanitation dies to achieve specified outcomes and to raw water.47 Second, once there is a separa- services by serve poor,largely unserved households; and tion between regulator and provider, the promoting the development of financial poli- provider recognizes that it can no longer reducing costs cies and instruments that facilitate more effi- simply confiscate water from farmers and and increasing cient allocation of public funds and increased other users in times of scarcity.48 This means accountability access to local capital markets. that reformed utilities often become active proponents of modern water resources An important change in World Bank practice management: they want to participate in over the past decade has been supplement- making resource management decisions, ing traditional support for accountable, pub- they want clarity on the rules and processes lic sector utilities with support for private that govern allocation,they push for market- sector involvement in the provision of water based rules for facilitating voluntary tempo- and sanitation services. About 40 percent of rary or permanent transfer of water rights projects it finances now involve some form of from low-value to high-value users, they be- private sector participation.45 This change come advocates of investments in sustain- has been motivated by several factors. First, able watershed management and they push while some public utilities have managed to for pricing policies to ensure that bulk water maintain high performance over protracted infrastructure is maintained and operated periods, few poorly performing public utili- effectively. ties have bootstrapped themselves to achieve sustained good performance.Second,private In the past, most World Bank water and san- sector involvement in developed and devel- itation operations dealt with the water side. oping countries alike, has challenged the In part due to a natural sequencing of de- idea of permanent unregulated public mo- mand (people first want water, then sanita- nopolies and has stimulated public operators tion, then wastewater disposal49) and in part to improve their performance.Third, entry of due to more aggressive advocacy by the 19 1. Introduction and development context World Bank,the "dirty water"side is gaining · Terrestrial services, including manage- prominence in the World Bank's work in the ment of forests and land in watersheds, sector. The World Summit on Sustainable which are essential for moderating hy- Development also added sanitation to the drological variability, reducing silt and Millennium Development Goals.The key is- conserving biodiversity. In the past sues are the sequencing of on-site and off- decade there has been a rapid increase in site investment, simultaneous consideration World Bank activity in watershed man- of the costs incurred and the benefits ac- agement at different scales, ranging from crued in terms of improved downstream land management of the whole of the water quality and step-wise approaches to Loess Plateau in China to community- investments in tandem with local demand based watershed management in the and local institutional and financial capacity. foothills of the Himalayas. As stressed in Since the setting of wastewater goals and the recent Environment,50 Rural51 and standards is the responsibility of river basin Forest52 Strategies, the core lesson from authorities and other public water resources these experiences is ensuring that such management agencies, close coordination is activities produce economic benefits for Environmental required between utilities and these bodies. local people who then have an incentive concerns, such Experience shows that unaccountable, fi- to maintain the activities. Such activities as legal and nancially unsustainable utilities often oper- can strongly benefit the poor people who ate in a climate of impunity, and pay little often inhabit these fragile areas. An en- regulatory attention to these public responsibilities. couraging recent development is recog- instruments Conversely, reformed utilities that are sepa- nition by users of downstream water governing water rated from the implicit or explicit regulatory infrastructure of the importance of catch- allocation, apparatus and that are accountable for their ment preservation. Water utilities and performance engage actively in devising hydropower companies are developing environmental sensible, sequenced strategies for innovative partnerships with upstream assessment and improvement. communities for maintenance of catch- pollution control, ment quality, and upstream catchment form part of the In summary, the institutional changes in the enhancement is becoming a standard water supply and sanitation sector over the feature of most World Bank-financed core water past decade have had profound implications large dam projects. resources not only "within the city" but "at the city · Aquatic services, including the conserva- management gate." Thishasmeantthat,outofenlightened tion and management of wetlands and activities self-interest,the better water utilities have be- floodplains, underpin the fisheries and come major change agents, assuming a pro- crop production systems on which many gressive role as advocates for better water poor communities depend and serve vital resources stewardship in many instances. functions in attenuating extreme hydro- logical events. The report of the World Environmental services and water Commission of Dams has correctly resources management stressed that the rights of "downstream ecosystems and people"have historically The environment is, of course, a special been ignored.53 Here, too, new forms of water-using "sector,"in that most environ- practice are evolving, with maintenance mental concerns are a central part of overall of ecological flows now being addressed water resources management and not part in the design of new infrastructure and of a distinct water-using sector. Environ- the recalibration of operating rules in mental concerns, such as legal and regula- river basins. The World Bank is actively tory instruments governing water allocation, engaged in bringing best practice to bear, environmental assessment and pollution through knowledge generation, partner- control,form part of the core water resources ships and its operations. management activities. There are, however, as in other sectors, important environmental An environment issue of major relevance to service activities that are typically the re- water resources management is climate sponsibility of environmental rather than change. The effect of climate change on water management agencies: stream flow and groundwater recharge 20 Water Resources Sector Strategy: Strategic Directions for World Bank Engagement varies regionally and between climate sce- multaneously and heavily in nonstructural narios. A consistent projection across most management solutions. Most developing climate change scenarios is for increases in countries have understood this and are now annual mean stream flow in high latitudes doing so (efforts range from the massive wa- and Southeast Asia, and decreases in Cen- tershed management project in the Upper tral Asia, the Mediterranean, Southern Yangtze catchment in China, to the develop- Africa andAustralia,although the amount of ment of improved hydrology data in India,to increase or decrease varies by scenario. For elimination of water-using invasive alien other areas, including mid-latitudes, there is plants in South Africa.) The third challenge no strong consistency in projections of is that global change exacerbates, in most stream flow, partly because of differences in cases, the underlying imbalances between projected rainfall and partly because of dif- human demands and natural hydrologic ferences in projected evaporation, which can patterns, making the task of developing an offset rainfall increases. The amplitude and integrated package of structural and non- frequency of extreme precipitation events structural tools more urgent. are likely to increase over many areas, and the return periods for extreme precipitation While climate change has profound implica- While climate events are projected to decrease.This would tions for water resources management,the re- change has lead to more frequent floods. It is likely that verse is also true: properly managed, water profound global warming will increase the variability can play a role in stabilizing greenhouse gas implications for of Asian summer monsoon precipitation.54 concentrations in the atmosphere. Hydro- power can, in principle, make a major contri- water resources The historical challenge of water resources bution to reducing the greenhouse gas management, management has been the reconciliation of intensity of energy production. Currently the reverse is human needs for predictable and regular about 19 percent of the world's electricity is also true: flows of water with the variable patterns of produced from hydropower.55 While about 70 precipitation and stream flow. The challenge percent of hydropower potential in Europe properly is, of course, particularly large where average and North America is already tapped, only 20 managed, water flows are especially low and where variability percent has been developed in Asia, 15 per- can play a role in is high. Societies have developed a combina- centinLatinAmericaand5percentinAfrica.56 stabilizing tion of structural and nonstructural mecha- Greenhouse gas emissions from most hy- nisms for attempting this reconciliation. The dropower plants are relatively low, with the greenhouse gas principal lessons from the experience of in- one important exception being large flat lakes concentrations in dustrial countries are, first, that infrastructure in heavily vegetated tropical areas.57 the atmosphere (dams, levies and canals) is critical, and, sec- ond, that infrastructure investments need to The Implementation Plan from the World be complemented by previously neglected Summit on Sustainable Develoment firmly nonstructural investments (in watershed establishes hydropower (small and large management, land use planning and infor- plants) as a renewable source of energy mation, and systems management, for exam- whose production should be stimulated. ple). The emphasis in infrastructure-rich Given the considerable untapped hy- industrial countries is now heavily and appro- dropower potential in many developing priately focused on nonstructural solutions. countries, the World Bank will reverse its de- clining engagement in hydropower and ac- Developing countries face three major chal- tively support the development of small and lenges. The first is that many have stocks of large hydropower plants,ensuring,of course, water infrastructure that are much smaller that this is the most appropriate option and than those of climatically similar industrial that good environmental and social practices countries. There are, accordingly, major are followed. Finally, recognition by the needs for priority water infrastructure to be World Summit on Sustainable Development developed following best practice, from a of hydropower as a source of renewable en- technical,economic,social and environmen- ergy means that environmentally and so- tal perspective (much of which is described cially sound hydropower plants should be in the report of the World Commission on eligible for revenues from the Clean Devel- Dams).The second challenge is to invest si- opment Mechanism. An encouraging start 21 1. Introduction and development context (with small hydropower plants) has been More specifically, if Helsinki chooses to sub- made by the Prototype Carbon Fund. sidize its water users, that has no relevance to water users in Timbuktu. Pricing and water rights: principled pragmatism With irrigation, where the end products are agricultural goods that trade on a global mar- Many countries face multiple concerns re- ket, the situation is quite different. If the gov- garding the growing scarcity of water, includ- ernment of a developed country chooses to ing associated conflicts among users and subsidizethewater(andotherinputsandout- ways of transferring water from low-value to puts)usedbyitsfarmers,thishasanimpacton high-value uses. It has often been stated that world prices and thus a direct impact on pro- having users pay the full cost of water would ducers in developing countries. Since agricul- solve these problems. Experience has shown tural subsidies in OECD countries are huge the situation to be considerably more com- (about $350 billion a year),58 this has a major plex and nuanced, requiring more than extol- impactonthepricesofagriculturalproductsin ing the virtues of pricing.This section outlines developing countries and on the economic re- "Principled a different approach--one of "principled turns from farming. These distortions rein- pragmatism" pragmatism." Principled because of the im- force the demands of farmers in developing stresses the portance of economic principles, such as en- countries for subsidies for water, energy and suring that users take financial and resource other inputs, usually causing further harm to importance of costs into account when using water. And the economy and the environment. economic pragmatism because solutions need to be tai- principles, such lored to specific, widely varying natural, cul- This crucial fact makes the political economy as ensuring that tural, economic and political circumstances, of water pricing reform especially complex in which the art of reform is the art of the pos- (both in theory and practice) for irrigation. users take sible.The general arguments are illustrated by Experience suggests that the appropriate ap- financial and focusing on two major users--farmers and proach is to acknowledge the need for sub- resource costs cities. Four issues are addressed: sidies and to document the existing levels. into account Then it is possible--as has been done in · The quite different economic environ- Mexico, for example59--for the government when using ments that pertain in these two sectors. and farmers to agree on a subsidy-neutral water, and the · The crucial distinctions between the per- transformation from a package of perverse need to tailor spective of economists and the perspective subsidies (of fertilizers, pesticides and water, solutions to of users on what constitutes "appropriate for example) to a package of virtuous subsi- pricing,"and some of the practical implica- dies (such as for improving land quality and specific, widely tions of these distinctions. for more efficient technology). varying natural, · Thecriticaldistinctionbetweenthefinan- cultural, cial cost of providing a service and the op- Issue 2: What economists and users economic and portunity cost of the resource itself, and understand by "appropriate pricing" and the implications of this distinction. the implications for practice political · A review of some good practice develop- Economists have long had a sound theoret- circumstances ments,and the implications for a country- ical basis for assessing the resource implica- specific, practical, sequenced approach to tions of pricing, namely charging users for dealing with these crucial issues in World the marginal cost of producing the next unit Bank-financed projects. of input.The rule is clear and correct, since it causes users to take into account the cost of Issue 1: The radically different markets in the next unit of production when they con- which irrigation and urban water operate sider using another unit of the resource. Un- The first,fundamental distinction is between fortunately, even sound theory does not the markets in which urban water supply always translate into rules that can easily be and irrigation operate. With urban water understood and applied in practice.60 supply the product can largely be considered as a local, nontradable good. The price The first reason for this is that ordinary users charged for water in Helsinki is entirely im- understand a price as a payment for a serv- material to the price charged in Timbuktu. ice rendered. When the supplier is a 22 Water Resources Sector Strategy: Strategic Directions for World Bank Engagement monopoly (and prices are set outside of the ties, however, but in re-aligning the institu- market), users view the "legitimate"price as tional arrangements so that suppliers are ac- the cost to an efficient producer to produce countable to users, and so that charges the service. In economic terms, this means become a principal tool used for ensuring that users consider average, not marginal, the mutual obligations of suppliers and cost to be legitimate. users. Two more questions arise from this: what is Issue 3: The crucial distinction between included in "cost,"and what happens if the financial costs and opportunity costs, and service provider is not efficient? Costs that the implications for practice users readily consider legitimate include the User payments for the financial costs of serv- costs of operating and maintaining the exist- ices rendered is a fundamental requirement ing infrastructure. And, with some explana- for any financially sustainable water supply tion and communication, experience shows system.This is very important.But the claims that users see the costs of replacement as le- for pricing typically go beyond that of main- gitimate costs. But even under the most ad- taining and operating infrastructure, and vantageous of settings, users vigorously suggest that if "the prices are right, alloca- For municipal resist the notion that they should pay for tion will be optimal." and industrial sunk costs which, in their eyes, have already water financial been paid for by taxes or other assessments. Proceeding from the point of view of users costs generally (as one must when considering the political The issue of the efficiency and accountability economy of reform rather than theoretical dominate oftheserviceprovideriscritical. "Whyshould elegance), it is vital to distinguish between opportunity I pay the costs of theWater Department when two different types of cost. First are the costs costs; for it is overstaffed, corrupt and fails to maintain that any user can understand, the financial irrigation the our systems?" is a frequent and legitimate costs associated with pumps, treatment complaint from consumers and farmers.An il- plants and pipes.Second is the far more sub- opportunity cost lustration of the "lower bound"of these inef- tle concept of the opportunity cost of the re- is often much ficiencies comes from the state of Victoria, source itself. There have been many higher than the Australia. Before reform, irrigation services proposals for doing sophisticated calcula- financial cost of were provided by a government department tions of this opportunity cost and charging with well-trained and well-performing staff, users to ensure appropriate resource alloca- supplying the and there was little corruption. After reform, tion. This has not worked for two funda- water once farmers had to pay the full costs of oper- mental reasons.63 First, because it is ation and maintenance, increased scrutiny of impossible to explain to the general public the supply agency led to a 40 percent reduc- (let alone to angry farmers) why they should tioninthesecosts.61 Inmostdevelopingcoun- pay for something that doesn't cost anything tries the inefficiency is much greater, and to produce.And, second, because those who users'resistance to paying for these services is have implicit or explicit rights to use the re- correspondingly higher. Exhortations to in- source consider (appropriately) such pro- crease cost recovery without addressing these posals to be the confiscation of property. fundamental accountability questions are a major part of the reason why cost recovery has Another important factor is that the ratio been so poor in many countries. An Opera- between financial and opportunity costs is tions Evaluation Department review of World often quite different for different sectors.Al- Bank experience with irrigation shows that, though everything in water (like politics) is despite theWorld Bank's insistent advocacy of local, there are two broad patterns. It costs a cost recovery for decades, "there is no evi- lot to operate the dams, treatment plants, dence of better cost recovery or of covenant pumps and pipes that provide households compliance either."62 with the modest amounts of water they use. Alongside these large financial costs, the The bottom line, then, is that in most urban opportunity cost of the resource (as meas- and irrigation systems cost recovery is criti- ured by the value of the raw water in its next cal for the supply of good services. The road best use, often irrigation) is typically quite to cost recovery does not lie in conditionali- low. For municipal and industrial water, 23 1. Introduction and development context therefore, financial costs generally domi- number of countries facing water stress have nate opportunity costs. Accordingly, as de- turned towards formal, legal, managed scribed in the earlier section on water water markets.This happened in Chile in the supply and sanitation, discussions of mu- 1980s, and in Australia, Mexico and South nicipal water supply as an economic good Africa in the 1990s. focus on financial costs and on the associ- ated issues of accountability, sustainability From the perspective of ensuring that users and transparent subsidies to ensure that take account of opportunity costs, these poor people have access to services. arrangements have a unique virtue. Once users have clear, transferable water rights, For irrigation the situation is almost exactly they automatically consider whether they the opposite. It costs relatively little (per unit wish to forgo a particular use of water in ex- of water) to build, operate and maintain the change for compensation from another user usual gravity systems that provide very large who may place a higher value on the water. quantities of water. But the opportunity cost Reallocating water then becomes a matter of of the water (for cities and, increasingly, for voluntary and mutually beneficial agree- To ensure that high-value agricultural uses) in situations of ments between willing buyers and willing users take into scarcity is often much higher (a factor of 10 sellers, and not a matter of confiscation or an account the cost in typical cases of scarcity) than the financial endless search for ever more costly new cost of supplying the water.64 sources of supply. of the resources they are using, These numbers (remembering,of course,that This is not to suggest that the establishment the emphasis every place is different) have profound impli- of water markets is simple or a panacea.The must be on cations. For ensuring that users take into ac- operation of such systems is demanding in count the cost of the resources they are using, terms of rules for establishing initial rights financial costs the emphasis must be on financial costs for (including those for the environment and in- for municipal municipal supplies and on opportunity costs formal customary rights, especially of the supplies and on for irrigation. (Cost recovery for irrigation re- poor and women, and recognition and pro- opportunity mains, as discussed above, very important for tection of the rights of small users); the infrastructure sustainability, but not for al- plumbing required to measure and move costs for locative efficiency, which is the focus in this water; the regulatory institutions need to irrigation section.) The great challenge for irrigation, in protect the rights of other water users and light of these theoretical and practical reali- the environment and to ensure that the pub- ties, is how to have farmers take account of lic interest is represented; and the informa- the opportunity cost of the resource. tion and management systems. Many consider these prerequisites to be so onerous In most parts of the world where water is that they cannot be made to work in most scarce, informal water markets have arisen, developing countries. And many point to in which those who have (implicit) rights sell early problems that all countries have faced water to those who need it.In some cases the in making such changes. practice has existed for hundreds of years and has been formalized (as in the Water Without minimizing these challenges, three Court ofValencia,Spain,which has managed observations are germane. First, the prereq- transfers among users for a thousand uisites are relevant for any form of well-man- years65). In many other cases (such as West- aged allocation system, and the absence of ern India66) water markets are extensive, so- such prerequisites is a problem for all alloca- phisticated and illegal. Throughout the arid tion systems,including the administrative al- western United States water rights have location systems practiced in most countries. long been legal property and, under differ- (As with everything in water management, ent rules in different states, can be trans- the choice is not between first and second ferred from willing sellers to willing buyers. best, but between "imperfect" and "even more imperfect.") Second, one of the many As other parts of the world have experienced virtues of a market-based system is that,once scarcity, and as the balance between the started, there is a strong demand for better state and the individual has been adjusted, a measurement, transparency, regulation and 24 Water Resources Sector Strategy: Strategic Directions for World Bank Engagement information. Third, all such established sys- made in developing countries. The World tems, often after initial adjustments, are Bank is also engaged in disseminating the working reasonably well. In none of the lessons of experience and in stimulating countries that have adopted such systems is thinking on these issues in many other there any thought of returning to the previ- countries. In all cases this requires close at- ous allocation procedures. tention to the political economy of reform. This means, as with many other reforms, Issue 4: The political economy of change picking the low-hanging fruit first, for in- and the consequences for World Bank stance, by starting with temporary trading actions in well-defined systems where good infra- The implications for World Bank actions are structure is in place; not making the best clear. First for financial cost recovery the key the enemy of the good, by having a well- is an institutional framework for making serv- defined, sequenced, prioritized and patient ice providers accountable and efficient.When approach for moving toward improvement this happens, and when users see that their rather than seeking to attain perfection in payments are used to improve the quantity one fell swoop; keeping one's eyes peeled, and quality of services, they can and will pay. by understanding that it is broader reforms The political Here (as discussed in the sections on specific outside the water sector (often relating to economy of water-using sectors) the watchwords are overall economic liberalization, fiscal and reform will mean "competition," "regulation,""transparency," political reform) that will provide the pre- picking the low "benchmarking" and "accountability." In conditions for making the critical first steps urban water supply and the energy sector in water reform. hanging fruit these ideas are common, and World Bank ac- first, not making tions are mostly consistent with them. the best the Notes enemy of the In the irrigation sector, where they are little 1. World Water Commission. 2000. A Water understood, the World Bank has recently Secure World: Vision for Water, Life and the good and become active in adapting these general in- Environment. Marseille: World Water Council. devising a stitutional principles. Having made consid- 2. World Bank staff estimates. sequenced, erable progress at the users'level, the task is 3. World Bank staff estimates. prioritized and now to tackle the major challenges of ac- 4. Financial Times. 2001. "Brazil unplugged: An countability and efficiency in public irriga- energy crisis threatens to wreak huge damage to patient approach tion agencies. A critical element of this the country's economy."June 6. for improvement approach is to develop innovative mecha- 5. Financial Times. 2000. "Uncertain rains and nisms for breaking out of the typical low- misplaced subsidies cast shadow over India's level equilibrium,in which services are poor, poverty line farmers."June 18; Alexander Frater. users won't pay, so service quality declines 1987. Chasing the Monsoon: A Modern Pilgrimage further. In one innovative approach the through India. London: Henry Holt. World Bank helped the government break 6. Spain, Ministry of Environment. 2000. Libro the circle by guaranteeing a new, account- Blanco del Agua en Espańa. Madrid. able operator a declining proportion of 7. Cavalcanti, J.E.A. and F.A. da Costa. 1988. "reasonable costs"over a five year period.67 "Impactos Socioeconomics do perimetro irrigato In the first year, then, the operator had suf- do Gorutuba nos municipios de Janauba e ficient revenues (mostly from the IDA Porteirinha."University of Montes Claros, credit, but some from users) to improve the Montes Claros, Minas Gerais, Brazil. operation of the system.As the level of serv- 8. Hazell, P. and C. Ramasamy. 1991. The Green ice improved, users were informed that they Revolution Reconsidered: The Impact of High- would be charged for the new, improved Yielding Varieties in South India. Baltimore, Md.: service and that, eventually, they would pay Johns Hopkins University Press. the full costs of the service. 9. Bell, C., P. Hazell and R. Slade. 1982. The Pro- ject Evaluation in Regional Perspective--A Study of From the point of view of opportunity an Irrigation Project in Northwestern Malaysia. costs, entitlements and markets, the World Baltimore, Md.: Johns Hopkins University Press. Bank has been an active partner in several 10. Ortolano, L. and K.K. Cushing. 2002. cases where systemic changes have been "Grand Coulee Dam 70 Years Later: What Can 25 1. Introduction and development context We Learn?"Water Resources Development 18(3): 29. World Water Commission. 2000. A Water Se- 373­90. cure World: Vision for Water, Life and the Environ- 11. Damiani, O. 1999. "Beyond Market Failures: ment. Marseille: World Water Council. Irrigation, the State, and Non-traditional Agricul- 30. World Bank staff calculations based on data ture in Northeast Brazil."Ph.D. dissertation, Mass- from the International Hydropower Association achusetts Institute of Technology, Cambridge. and the International Journal on Hydropower and 12. Chambers R., N.C. Saxena and T. Shah. Dams. 1989. To the Hands of the Poor. New Delhi: Oxford 31. World Bank staff calculations based on data and IBH Publishing Co. PVT. Ltd. from the International Hydropower Association 13. Pritchett, L. 2001. "Where Has All the Edu- and the International Journal on Hydropower and cation Gone?"World Bank Economic Review 15: Dams. 367­91. 32. Both the IFC and MIGA participated 14. World Bank. 1991. India Irrigation Sector Re- actively in development of this Strategy. While view. Washington D.C. fully supporting the messages of the Strategy, 15. World Bank. 1999. Mexico: Policy Options for the IFC and MIGA are independent institutions Aquifer Stabilization. Washington D.C. and thus this Strategy is formally an IBRD/IDA, 16. Dollar, D. and A. Kraay. 2001. "Growth is not a Bank Group strategy. Good for the Poor."World Bank Policy Research 33. World Bank staff estimates. Working Paper 2587. Washington D.C. 34. World Water Commission. 2000. A Water Se- 17. Hazell, Peter B.R. and C. Ramasamy. 1991. cure World: Vision for Water, Life and the Environ- The Green Revoluation Reconsidered. Baltimore, ment. Marseille: World Water Council. Md.: The Johns Hopkins Univ Press. 35. World Bank staff estimates. 18. United Nations. 2002. World Summit on 36. Briscoe, J. 1997. "Managing Water as an Sustainable Development: Plan of Implementa- Economic Good: Rules for Reformers."Water tion. [www.johannesburgsummit.org/html/ Supply 15(4). documents/summit_docs/2309_planfinal.htm]. 37. Postel, S. 1997. The Last Oasis: Facing Water 19. Far Eastern Economic Review. 2001. "To grow Scarcity. NewYork: W.W. Norton. a business, simply plant a tree."October 25. 38. World Bank. 1999. Mexico: Policy Options for 20. IUCN (The World Conservation Union). Aquifer Stabilization. Washington D.C. 2001. "IUCN Launches New Strategy: Global 39. World Bank, Energy and Mining Board. Action to Improve Dams."[www.iucn.org/ 2001. "Renewing our Energy Business." info_and_news/press/wcd.html]. Washington D.C. 21. World Bank. 2001. Making Sustainable Com- 40. Briscoe, J., P. Anguita and H. Pena. 1998. mitments: An Environment Strategy for the World "Managing Water as an Economic Resource: Re- Bank. Washington D.C. flections on the Chilean Experience."Paper 62, 22. Briscoe, J. 1992. "Poverty and Water Supply: Environmental Economics Series. World Bank, How to Move Forward."Finance and Washington D.C. Development, December. 41. World Commission on Dams. 2000. Dams 23. Alcazar, L. M.A. Abdala, and M. Shirley. 2000. and Development: A New Framework for Decision "The Buenos Aires Water Concession."Policy Re- Making. London: Earthscan. search Working Paper 2311. Washington D.C. 42. United Nations. 2002. World Summit on 24. World Bank staff estimates for theYangtze Sustainable Development: Plan of Implementa- Basin Water Resources Project-Hunan tion. [www.johannesburgsummit.org/html/ Component/Liudzhai Irrigation Project. documents/summit_docs/2309_planfinal.htm]. 25. World Bank staff estimates for the Jaiba Pro- 43. Prototype Carbon Fund. 2002. List of ject in Brazil. Projects. Washington DC [http:// 26. World Bank. 1992. Environment and Develop- prototypecarbonfund.org/]. ment: The World Development Report. Washington 44. World Bank. 1999. Mexico: Policy Options for D.C. Aquifer Stabilization. Washington D.C. 27. United Nations. 1991. "The Dublin 45. World Bank staff analysis. Statement."The International Conference on 46. International Forum for Utility Regulators. Water and the Environment. Dublin. [www.worldbank.org/privatesector/ifur/]. 28. World Bank. 1992. World Development Report 47. Far Eastern Economic Review. 2001. "To 1992: Environment and Development. NewYork: grow a business, simply plant a tree."October Oxford University Press. 25. 26 Water Resources Sector Strategy: Strategic Directions for World Bank Engagement 48. World Bank. 2000. "Philippines Focus on Dams. [www.dams.org]. Country Study and Manila Consultation 58. World Water Commission. 2000. A Water Se- Report."[www.worldbank.org/water]. cure World: Vision for Water, Life and the Environ- 49. Vanderslice, J. and J. Briscoe. 1995. "Envi- ment. Marseille: World Water Council. ronmental Interventions in Developing Coun- 59. World Bank. 1999. Mexico: Policy Options for tries: Interactions and their Implications." Aquifer Stabilization. Washington D.C. American Journal of Epidemiology 141(2): 60. Briscoe, J. 1997. "Managing Water as an 135­44. Economic Good: Rules for Reformers."Water 50. World Bank. 2001. Making Sustainable Com- Supply 15(4). mitments: An Environment Strategy for the World 61. Briscoe, J. 1997. "Managing Water as an Bank. Washington D.C. Economic Good: Rules for Reformers."Water 51. World Bank. 2002. Reaching the Poor: Rural Supply 15(4). Strategy. Washington D.C. 62. World Bank Operations Evaluation Depart- 52. World Bank. 2002. Forest Strategy. Washing- ment. 1994. "A Review of World Bank ton D.C. Experience in Irrigation."Report 13676. 53. World Commission on Dams. 2000. Dams Washington D.C. and Development: A New Framework for Decision 63. Briscoe, J. 1997. "Managing Water as an Making. London: Earthscan. Economic Good: Rules for Reformers."Water 54. Personal communication. 2002. Chairman Supply 15(4). Intergovernmental Panel on Climate Change. 64. Briscoe, J. 1997. "Managing Water as an [www.ipcc.ch/]. Economic Good: Rules for Reformers."Water 55. International Hydropower Association. Supply 15(4). 2000. "Hydropower and the World's Energy Fu- 65. Maass, A. 1978. And the Desert Shall Rejoice: ture."[www.hydropower.org]. Conflict, Growth, and Justice in Arid Environments. 56. World Bank staff calculations based on data Cambridge: MIT Press. from the International Hydropower Association 66. Shah,Tushaar. 1993. Water Markets and Irri- and the International Journal on Hydropower and gation Development: Political Economy and Practi- Dams. cal Policy. Bombay: Oxford University Press. 57. Rosa, L.P. and M.A. dos Santos. 2000. "Cer- 67. Briscoe, J. 1999. "The Changing Face of tainty and Uncertainty in the Science of Green- Water Infrastructure Financing in Developing house Gas Emissions from Hydroelectric Countries."International Water Resources Reservoirs."Prepared for the World Commission Development. 15(3): 301­08. 27 1. Introduction and development context 2. STOCKTAKING AND EVALUATION Building on the 1993 Strategy and · Discussions with relevant sector boards consulting with stakeholders and regions within the World Bank. · The report of a high-level World Bank- This Strategy This Strategy, a product of the World Bank- wide panel that examined options for a does not aspire wide Water Resources Management Group, new business model for World Bank en- to rewrite the takes as its starting point the well-received gagement in high-reward­high-risk hy- 1993 Water Resources Management Policy draulic infrastructure. 1993 Water Paper.This Strategy does not aspire to rewrite Resources the Policy Paper, but to complement it by fo- Finally, this Strategy draws on two major re- Management cusing on the lessons in translating its prin- cent international reports--the World Com- Policy Paper, but ciples into practice. The Strategy draws mission on Water Report delivered at The heavily on the OED report assessing experi- Hague World Water Forum in March of to complement it ence in implementing the 1993 Policy Paper, 2000,4 and the report of the World Commis- by focusing on complementing the OED findings with re- sion on Dams of November 20005--and the the lessons in sults of the following reviews and consulta- recent World Summit on Sustainable translating its tions held in preparing this Strategy: Development. principles into · An assessment of the World Bank's port- practice folio, with reports written on--and dis- There is broad consensus on what cussed with--each region. constitutes good water resources · In-country consultations during the data management, but all countries are gathering stage with broad cross- far from managing water sections of stakeholders in Brazil, India, resources according to these Nigeria, Philippines and Yemen (with principles complete reports of the presentations, proceedings and conclusions posted at The main thrusts of the World Bank's 1993 www.worldbank.org/water). Water Rescources Management Policy · In-country consultations with the gov- Paper6 are consistent with the global con- ernments of Brazil, China, Ethiopia, Jor- sensus (embodied in the Dublin principles dan, Lao PDR, Nepal andThailand (in the forged at the 1992 Earth Summit process and process of consulting on the report of the re-affirmed thereafter) that water resources World Commission on Dams).1 should be managed holistically and sustain- · A global consultation on international ably, respecting subsidiarity and ensuring waters hosted by Germany in Berlin.2 participation, and treating the resource as an · An extensive process of soliciting views economic as well as social good. The Oper- on the draft Strategy. The draft Strategy ations Evaluation Department review7 (and was posted on the Bank's external Web the World Bank's experience) indicates that site for comment, and eight external con- the goals of the 1993 Policy Paper remain rel- sultations were held with stakeholder evant and appropriate, but that progress has groups in Brazil, India, Nigeria, Philip- been slow in getting actions on the ground. pines andYemen, along with special con- sultations with the private sector, bilateral The Policy Paper offers a vision toward which 28 donors and international NGOs.3 countries should be moving.While experience has reinforced the relevance and importance of the Dublin Principles, a detailed recent re- Rates of return on view by the Organisation for Economic Co- f2.1 investment by development of water infrastructure operation and Development shows that even the most advanced countries are far from full Returns on investment implementationoftheseprinciplesinpractice, as indicated by the following excerpts:8 Infrastructure investments Management investments · "Insufficient progress with integrating Type 1 Type 2 Type 3 environmental and sectoral policies." · "Basic water quality standards not yet met." · "Prices rarely reflect full economic and Developing Developed environmental costs." · "Most work in improving water use effi- Source: World Bank, China Country Water Resources Assistance ciency remains to be done." Strategy 2002. · "Demand management policies are still African little developed." countries give · "Agricultural water use is still heavily sity of international river basins in Africa-- high priority to subsidized." including the Nile, the Senegal, the Niger, integrated · "The progress achieved to date is the re- the Zambezi, the Congo and the Orange-- sult of many years of effort." cooperation and benefit sharing on such programs aimed basins present a host of opportunities and at better The implication is not that the principles are challenges in terms of developing benefit- management of irrelevant, or that progress is not possible. generating infrastructure and of managing existing water Rather it is that it takes vision, persistence both the infrastructure and the rivers. and patience to make progress. infrastructure The countries of East Asia and Pacific, large and at the and small, increasingly see water resources development of A wide variety of water resources management as critical for growth, poverty new, growth- challenges in the regions reduction and sustainable development.That said, the challenges vary widely along the inducing In the Africa Region great rainfall variabil- spectrum of situations illustrated in figure 2.1 infrastructure ity militates against growth and poverty re- (developed by the Bank's EastAsia and Pacific duction. Whereas countries with temperate Region).Much of eastern and northern China climates can typically use about 40 percent face type 3 challenges,in which management of annual runoff through natural regulation of scarce water resources, existing infrastruc- (baseload in streams, groundwater and ture and greater attention to pollution are the water held in wetlands and lakes),in arid en- major concerns. In western China the situa- vironments with high rainfall variability, less tion is more a mixed type 1 and 2,with an em- than 10 percent of runoff can be captured phasis on harnessing the productive potential through natural regulation. In such environ- of water resources for hydropower and irriga- ments artificial storage becomes a necessity. tion, and simultaneous attention to inte- As a result of this and other factors, the lev- grated basin management and watershed els of water-related services (water supply, management. Indonesia, the Philippines, irrigation and hydropower) in Africa are Thailand and Vietnam are also facing mixed much lower than in other regions. type 1 and 2 conditions.These countries have abundant water resources but are experienc- Much of the infrastructure built in Africa has ing water shortage and competition for water been managed and operated poorly. Thus around large cities, as well as serious water African countries give high priority to inte- pollution problems that will require a mix of grated programs aimed at better manage- management and infrastructure investments. ment of existing water infrastructure and at In addition, large, less developed areas in the development of new, growth-inducing these countries are in need of significant infrastructure. Given the extraordinary den- investments in infrastructure. In smaller 29 2. Stocktaking and evaluation countries of the Region (Lao PDR, for exam- urban areas.Third,development of renewable ple) the situation is pure type 1. Here, the ex- hydropower is an important opportunity, port of hydropower is one of the very few with only about 20 percent of the economi- options for generation of revenue and use of cally viable potential currently tapped. these revenues to stimulate growth and re- Fourth, inland navigation is growing rapidly duce poverty. and plays a vital economic development role in the interior of the continent,but with major In much of Europe and Central Asia the environmental implications. Fifth, protection challenges are quite different. Most coun- of inland and estuarine freshwater ecosys- tries in the region inherited large stocks of tems is an important challenge. Sixth, the de- water infrastructure--so large that national velopment of major water infrastructure is budgets are inadequate for maintaining the quite uneven across the continent. In recent stock. In the Russian Federation, for exam- decades there have been some major ad- ple, it is estimated that 3 percent of hydro- vances in the use of innovative instruments power generating capacity is being lost each for managing water, such as river basin au- year due to inadequate maintenance. With thorities, stakeholder participation and water Most countries some important exceptions, the challenge in rights. In the advanced areas of the region in Europe and the region is not building more infrastruc- there is a need for consolidation and refine- Central Asia ture, but developing an appropriate strategy ment of these and other innovative instru- for deciding what infrastructure will be ments; in much of the region that process is inherited large maintained and rehabilitated, and what re- yet to start. stocks of water tired. Ensuring the safety of existing dams is infrastructure-- an important priority. The Middle East and North Africa Region so large that has the highest level of water stress.Of over- Investments in infrastructure are needed, riding importance are technical innovation national budgets however, for improved drainage manage- and more efficient allocation and use of sur- are inadequate ment and flood management in several face water and groundwater.The challenges for maintaining countries. And there is potential for the of re-use of water, desalination, irrigation the stock large-scale development of hydropower in modernization and orderly mechanisms for the upstream riparian countries of the Amu the voluntary transfer of water from low- Darya and Syr Darya rivers in Central Asia. value uses (especially agriculture, which There are also needs for investments in water uses 85 percent of the water) to high-value quality improvements in the countries to the uses (especially urban and industrial) are of north and west of the region,primarily in en- high priority. Increasing the level of waste- vironmentally sound agriculture to reduce water treatment (from the current 27 per- runoff into rivers, and in wastewater treat- cent) and re-use is a central, and expensive, ment to meet EU accession standards.A fur- challenge.While the primary focus in the re- ther major challenge includes development gion is on better management, there are of institutions, governance arrangements major infrastructure challenges, too, often and incentive policies for efficient and equi- with an international waters dimension and table water management in the transition often with major political, environmental, from centrally planned to market economies. cultural property, economic, institutional An additional challenge is that irrigation in- and financial implications. Addressing the frastructure was developed for large farms water challenges of the region will require and is ill-adapted to the small farms that detailed assessment of the long-term op- have emerged since land privatization. tions facing both low- and middle-income countries, including desalination, waste In Latin America and the Caribbean, too, water treatment and groundwater manage- there are a wide variety of water resources ment.And it will require helping countries in challenges.First,many countries in the region the region enhance research to find innova- are vulnerable to recurring natural disasters tive solutions. from floods and droughts. Second, water quality management, and the associated The South Asia Region is, in many ways, a unmet demand for urban environmental textbook case for the impacts, positive and infrastructure, are a major challenge facing all negative, of water on growth, poverty reduc- 30 Water Resources Sector Strategy: Strategic Directions for World Bank Engagement tion and sustainability. Major public invest- governments in the region have embarked ments were made in both colonial and inde- on major reform programs in these sectors. pendence eras in water storage, transmission, While commitment to reform is necessarily management and use.As documented earlier mixed in such a large region, and progress in this Strategy, these investments had huge, (for such complex issues) necessarily slow, mostly positive, impacts on poverty, through the direction is clear. The World Bank sup- direct effects on industry and agriculture and ports such reform processes and has directed indirect effects operating through the multi- resources to governments making such re- tude of linkages of energy and agricultural forms. As these reforms advance, and as il- production with the development of local lustrated in the Andhra Pradesh example commerce and industry, and even with the below, the South Asia Region will focus on economic returns of investments in human simultaneously supporting such reform capital. Over time, however, serious chal- processes and financing appropriate invest- lenges emerged. The adverse effects of large ments in infrastructure. As in other settings, water projects on some groups of people were progress will require principled pragmatism. not adequately taken into account, nor was The World Bank will act as a partner in sup- the evidence of declining performance and porting realistic, prioritized and sequenced The Middle East rising environmental problems (especially locally driven reform packages and in sup- and North Africa salinization). porting appropriate infrastructure invest- Region has the ments, which are an essential complement highest level of Compounding these problems has been a to such reforms. regionwide lack of reform of the fundamen- water stress tal underlying water-use sectors (electricity, The overall picture, then, is one of enormous irrigation and water supply). A number of diversity and one that defies a standard, f2.2 Water services and water resources Irrigation and drainage Hydropower Infrastructure Urban water and sanitation Rural water and sanitation Navigation Services Irrigation and drainage Management Hydropower Urban water and sanitation Rural water and sanitation Navigation Water projects Urban wastewater Urban drainage Flood control Industrial wastewater Infrastructure Watershed improvements Ecological Fisheries General flood infrastructure Water Multipurpose facilities resources Water resources management Environment Management Watershed management Water resources management in irrigation 31 2. Stocktaking and evaluation prescriptive approach to determining ac- The results, in brief: tions and priorities.This means that there is a need for customized, localized analytic · Lending for water accounted for about 16 work in each region, country and subna- percent of World Bank lending over the tional entity to identify the priority, mix and decade (figures 2.3 and 2.4). sequence of needed management and infra- · The major water services components (ir- structural actions. rigation, hydropower, and water supply and sanitation) each accounted for about 4 percent of overall World Bank lending World Bank engagement in water over the period (figures 2.3 and 2.4). resources development and · Lending for projects with substantial management water resources management compo- nents accounted for about 9 percent of Developing countries invest about $70 bil- World Bank lending (figures 2.3 and lion annually in water-related investments. 2.5).10 About 90 percent of investment comes from · Lending for water resources components The World Bank domestic sources. The World Bank has his- accounted for about 4 percent of Bank has historically torically invested about $3 billion a year in lending (figures 2.3 and 2.6). invested about water-related sectors, accounting for about · As documented by the Operations Evalua- 5 percent of investment in developing tion Department, in recent years there has $3 billion a year countries. been a shift away from traditional infra- in water-related structure sectors toward investments in the sectors, The level and composition of water environment and resource management.11 accounting for resource-related lending Bankwide and in the regions There are wide regional variations in current about 5 percent and anticipated levels and patterns of lending of investment in For this strategy, all World Bank-financed for water-related projects (figure 2.4),for proj- developing water projects in the past decade were re- ects with water resources components (figure countries viewed and costs allocated to the specific 2.5) and for water resources components items shown in figure 2.2.9Anticipated lend- themselves (figure 2.6). In broad outline: ing for projects with water resources com- ponents and for the components themselves · Africa was estimated for the projects in the lending · Lending for water-related projects ac- pipeline for 2003­05. counts for only 8 percent of Bank lend- f2.3 Composition of the World Bank's water portfolio as share of Bank lending, fiscal 1993­2002 Percent 16 Irrigation 14 12 Hydropower 10 Rural water supply 8 and sanitation 6 Urban water supply and sanitation 4 2 Water resources management 0 All water projects Lending for projects Lending for water with water resources components resources components Source: World Bank staff estimates. 32 Water Resources Sector Strategy: Strategic Directions for World Bank Engagement f2.4 Regional composition of water resources lending as share of total regional lending, fiscal 1993­2002 Percent 35 30 25 Rural water supply 20 Irrigation and sanitation Hydropower 15 Urban water Water resources supply and management 10 sanitation 5 Lending for water accounted 0 for about 16 Africa East Asia Europe Latin America Middle East South Asia All regions and Pacific and Central and the and North percent of World Asia Caribbean Africa Bank lending Source: World Bank staff estimates. over the past decade ing in the region over the last decade, over the last decade to 23 percent in compared with 16 percent Bankwide 2003­05 (figure 2.5). (figure 2.4). Most of this lending is for · Lending for water resources compo- urban water supply and sanitation nents will rise from 6 percent to 7 per- projects. cent of regional lending (figure 2.6). · Lending for projects with substantial water resources components is pro- · Europe and Central Asia jected to rise rapidly, from 5 percent · The region has the smallest portfolio over the last decade to 11 percent in (relative to overall regional lending) of 2003­05 (figure 2.5), in considerable water-related lending (figure 2.4). part due to the large investments the Lending for water-related projects ac- Africa Region has made in analytic and counts for only 5 percent of Bank lend- advisory work on water. ing in the region over the last decade, · Lending for water resources compo- compared with 16 percent Bankwide. nents will rise from 2 percent (portfo- · Lending for projects with substantial lio) to 3.5 percent in the pipeline water resources components is ex- (figure 2.6). pected to rise rapidly, from 4 percent over the last decade, to 11 percent in · East Asia and Pacific 2003­05 (figure 2.5). · Lending for water-related projects ac- · Lending for water resources compo- counts for 22 percent of Bank lending nents will stay about constant, at a low compared with 16 percent Bankwide 2 percent (figure 2.6). over the last decade (figure 2.4).The re- gion has had the largest hydropower · Latin America and the Caribbean program, sizable irrigation and water · Lending for water-related projects ac- resources programs and modest lend- counts for about 12 percent of Bank ing for urban water supply. lending in the region over the last · Lending for projects with substantial decade, compared with 16 percent water resources components is ex- Bankwide (figure 2.4).The region has a pected to rise rapidly, from 13 percent balanced portfolio of water resources, 33 2. Stocktaking and evaluation f2.5 Lending for projects with water resources components, as share of total regional lending, fiscal 1993­2002 and 2003­05 Percent 30 25 2003­05 20 15 1993­2002 10 5 Lending specifically for 0 water resources Africa East Asia Europe Latin America Middle East South Asia All regions components and Pacific and Central and the and North Asia Caribbean Africa accounted for Source: World Bank staff estimates. about 4 percent of Bank lending hydropower, urban water supply and cent over the last decade to 26 percent irrigation lending. in 2003­05 (figure 2.5). · Lending for projects with substantial · Lending for water resources compo- water resources components is pro- nents will rise from 6 percent (portfo- jected to rise rapidly from 8 percent lio) to 11 percent in the pipeline (figure over the last decade, to 18 percent in 2.6). 2003­05 (figure 2.5). · Lending for water resources compo- · South Asia nents is projected to rise from 4 · Lending for water-related projects ac- percent (portfolio) to more than 11 counts for 25 percent of Bank lending percent in the pipeline (figure 2.6), in the region over the last decade, giving the region the highest share of compared with 16 percent Bankwide its lending to water resources (figure 2.4).The South Asia portfolio is components. dominated by large irrigation projects. · Lending for projects with substantial · Middle East and North Africa water resources components is pro- · As the driest region the Middle East jected to rise slightly from 12 percent and North Africa has the largest (as a to 14 percent over the next three years proportion of regional lending) water (figure 2.5), while lending for water re- portfolio in the Bank (figure 2.4). sources components is projected to Lending for water-related projects ac- decline from 4 percent to 3 percent of counts for 31 percent of Bank lending regional lending (figure 2.6). in the region over the last decade, compared with 16 percent Bankwide. The changing composition of World The Region has substantial portfolios Bank lending for water resources of irrigation, urban water supply and infrastructure in the regions water resources lending. · Lending for projects with substantial Figure 2.7 shows the composition of water water resources components is pro- resources lending in the portfolio and the jected to rise still further, from 17 per- pipeline, for the World Bank and for each re- 34 Water Resources Sector Strategy: Strategic Directions for World Bank Engagement f2.6 Lending for water resources components, as share of total regional lending, fiscal 1993­2002 and 2003­05 Percent 12 10 8 2003­05 1993­2002 6 4 2 0 Africa East Asia Europe Latin America Middle East South Asia All regions and Pacific and Central and the and North Asia Caribbean Africa Source: World Bank staff estimates. gion. Once again, the patterns are quite di- · Although SouthAsia has a large portfolio verse, mostly related to the different chal- of water-related projects, the levels of lenges each region faces. lending for water resources components in the region is low and projected to Overall, there have been large increases in decline. Bankwide financing for water resources components of projects. Especially notewor- As documented by the report of the World thy are large increases in watershed man- Commission on Dams, the World Bank has agement and urban drainage. Noteworthy become a global leader in integrating social trends in the regions include: and environmental considerations into water development and management and · Latin America and the Caribbean and the has contributed to the steady improve- Middle East and NorthAfrica Regions,the ments in practice (figure 2.8) that have two regions with by far the highest invest- taken place in developing countries.12 This ments in water resources management, has meant changes in what is done (with invest heavily in wastewater treatment. large increases in projects dealing with wa- The huge overall proportional increases in tershed management, for example) and these regions are driven by large increases how. Offsetting these positive changes, in multipurpose, watershed and urban World Bank involvement in potentially drainage components of projects. controversial hydraulic infrastructure fi- · Africa is also expanding rapidly from a nancing (such as dykes, dams, major canals low base and moving toward a diverse and interbasin water transfers) has de- portfolio of water resources activities. clined sharply. For example, whereas the · Water resources activities in Europe and World Bank financed 3.5 percent of dams Central Asia remain very low but are ex- constructed in the 1970s, it financed less panding gradually. Lending constraints in than 1 percent in the 1990s, with World the region are tight,and in the first years of Bank lending accounting for less than 0.5 transition the Bank's emphasis has been percent of total financing for new dams in on economic reform and social protection developing countries. And Bank invest- rather than on investments in infrastruc- ments in hydropower declined by 90 per- ture. Extensive sector work is ongoing. cent over the last decade. 35 2. Stocktaking and evaluation f2.7 Changing levels and composition of Bank investments in water resources, as share of total regional investments, fiscal 1993­2002 and 2003­05 Percent 4 All regions 3 2 2003­05 1993­2002 1 0 Multi- Watershed Flood Wastewater Urban purpose control drainage Percent Percent 4 4 Africa East Asia and Pacific 3 3 1993­2002 2 2 1993­2002 2003­05 2003­05 1 1 0 0 Multi- Watershed Flood Wastewater Urban Multi- Watershed Flood Wastewater Urban purpose control drainage purpose control drainage 4 Europe and Central Asia 4 Latin America and the Caribbean 2003­05 3 3 2 1993­2002 2 1 1993­2002 1 2003­05 0 0 Multi- Watershed Flood Wastewater Urban Multi- Watershed Flood Wastewater Urban purpose control drainage purpose control drainage 4 Middle East and North Africa 4 South Asia 1993­2002 3 2003­05 3 2 2 1993­2002 1 1 2003­05 0 0 Multi- Watershed Flood Wastewater Urban Multi- Watershed Flood Wastewater Urban purpose control drainage purpose control drainage Source: World Bank staff estimates. 36 Water Resources Sector Strategy: Strategic Directions for World Bank Engagement resource. The study's major lesson, however, The social and environmental is that"translating policies into practice is dif- f2.8 quality of the design of large ficult."13 More specifically, the study's major dams conclusions include: Percent · Selectivity and sequencing are important: 60 "Such a large task cannot be accom- Information plished everywhere at once--or quickly. 50 disclosure Selectivity is therefore important.... it is 40 important to focus on doing a few things right to demonstrate new approaches 30 that work. So, while it is necessary to be Participation by comprehensive, it is not necessary to be 20 affected people complex.... the agenda is extremely am- 10 Anticipating bitious, and agreeing on the sequence ecosystem impacts and scope of activities in a country setting 0 is difficult, time-consuming, and risky." The goal of this Before 1950s 1960s 1970s 1980s 1990s 1950 · Progress takes place more through "unbal- Strategy is not to anced" development than comprehensive dismiss the goal Source: World Commission on Dams. 2000. Dams and Development: A New Framework for Decision Making. London: Earthscan. planning approaches: "Institutional devel- of integrated opment efforts should abandon compre- hensiveness of scope and schedule and a water The IFC has 6 investments (with total com- partial,cumulative,and highly focused ap- management, mitments of about $500 million for IFC's proach [should be] pursued...." but to define own account and the account of partici- · Triggers for reform usually come from out- practical, pants) in water and sanitation and 10 in hy- side the water sector: "In all cases the pre- dropower (also totaling about $500 million cursors to water reform were outside the implementable in commitments for IFC and participants). water sector--and reform of water is typ- and therefore Currently, MIGA provides political risk in- ically second or third generation, follow- sequenced and surance to one water and sanitation project ing in many cases reform of the power prioritized and four hydropower projects. Although sector....In many of these cases water re- business as usual scenarios suggest that hy- form also benefited from the synergy of actions that can dropower would remain a relatively small political and economic liberalization." lead to that end portion of IFC and MIGA business,they may be called to play an enhanced role in ensur- There is some concern that this sequenced ing that the private sector remains engaged and prioritized approach means abandoning in the development of water infrastructure in the idea of integrated water resources man- emerging markets. agement, which was a core principle of the 1993PolicyPaper.Thisisnottheidea.Asnoted earlier, even the world's most developed The great challenge is making countriesarealongwayfromintegratedwater progress, not achieving perfection resources management, and progress has been slow and incremental. The goal of this The OED study of implementation of the Strategyisnottodismissthegoalofintegrated 1993 Policy Paper found that the volume of water management, but to define practical, World Bank lending for water has increased implementable and therefore sequenced and since 1993 and that the composition of the prioritized actions that can lead to that end. portfolio has changed considerably, with less spending on sectoral infrastructure, and greater attention to water resources manage- The World Bank position on the ment and environmental and institutional as- "Guidelines" of the World pects. It also found that consistency with the Commission on Dams Policy Paper has improved, with more sus- tainability, better institutional arrangements As is evident in many places in this Strategy, and some progress on water as an economic the report of the World Commission on 37 2. Stocktaking and evaluation Dams issued in late 2000 is a major reference The World Bank is committed to support its point in the ongoing debate about dams and borrowers in developing and managing pri- their role in development.The main thrust of ority hydraulic infrastructure in an environ- the report is advocacy of: mentally and socially sustainable manner. In doing this the Bank believes that the World · Five core values--equity, efficiency, partic- Commission of Dams' core values and ipation, sustainability and accountability-- strategic priorities are appropriate principles for future decisionmaking on dams. and consistent with Bank practice and poli- · Seven strategic priorities--gaining public cies. The Bank will not, however, comply acceptance,assessing options,addressing with the 26 guidelines. Rather, it will con- existing dams,sustaining rivers and liveli- tinue to work with its borrowers in effective hoods, recognizing entitlements and implementation of current World Bank op- sharing benefits, ensuring compliance, erational policies,which theWorld Commis- and sharing rivers for peace, develop- sion of Dams describes as "the most ment and security. sophisticated set of policies,operational pro- · A set of criteria for assessing compliance cedures and guidelines amongst the inter- The World Bank and 26 guidelines for review and approval national donor community." is committed to of projects at five stages of decisionmaking. support its A United Nations Environmental Program­ Most organizations involved in the debate led follow-up process (in which the World borrowers in concur with the five core values and seven Bank is participating) is proceeding on a developing and strategic priorities. However, in the two basis similar to that articulated by the World managing years since the report was issued, no con- Bank: acceptance by all stakeholders of the priority hydraulic sensus has emerged on the applicability of core values and strategic priorities but rec- the 26 guidelines. ognizing that there is no consensus among infrastructure in stakeholders on the 26 guidelines.15 an environmen- The World Bank conducted a detailed com- tally and socially parison of the 26 guidelines and the Bank's sustainable safeguard policies (see Annex 1).14 Although The comparative advantage of the there is much in common, there are several World Bank and the need to revise manner important differences. First, while there is business practices agreement on the importance of the rights of affected and indigenous people, the World The World Bank's role in water resources Bank believes that adoption of the World management has been discussed exten- Commission of Dams principle of "prior in- sively with borrowers and other stakehold- formed consent"amounts to a veto right that ers in 14 formal and multiple informal would undermine the fundamental right of consultations. There is much commonality the state to make decisions in the best inter- in the views expressed, the most important ests of the community as a whole. Second, of which include: while there is agreement on stimulating good faith negotiations on international · Improved water development and man- rivers, World Bank experience and policies agement are essential for sustainable are based on proactive engagement rather growth and poverty reduction in many de- than disengagement from countries that are veloping countries. not already negotiating with their neighbors · The World Bank has played a major role in on international waters, as advocated by the improving technical, financial, social and World Commission of Dams. And, third, environmental performance of water while there is agreement on the importance management. of consultation and public acceptance, expe- · Borrowers find that the World Bank has a rience suggests that the multistage, negoti- strong comparative advantage in convening ated approach to project preparation power, ability to link water issues to other recommended by the World Commission of sectors through economywide engage- Dams is not practical and would virtually ment, a multidisciplinary perspective, re- preclude the construction of any dam. lations with almost all riparian countries, a combination of knowledge and finan- 38 Water Resources Sector Strategy: Strategic Directions for World Bank Engagement cial resources, and engagement at all ability to come to closure on controversial scales (local watershed, city, irrigation projects. district, river basin and aquifer, country, · Because of the high transactions costs regional) and ability to integrate across and what some describe as the risk- these. averse approach of the World Bank, bor- · The World Bank, both directly and rowers increasingly see theWorld Bank as through its role in the Global Environ- a less preferred source of financing (com- ment Facility, has a major role to play in pared with domestic sources, commercial facilitating cooperation on international lenders, bilateral donors and other multi- waters and in helping finance priority lateral development banks). investments resulting from cooperative · The reduced Bank engagement with management.The basis for success must major infrastructure has lessened the be a focus on sharing benefits, not on Bank's ability to influence critical legal, in- sharing water. Recent work has shown stitutional and regulatory reforms. that such an emphasis can bring bene- · The Bank must be engaged in a full range fits "to the river" (enhanced environ- of infrastructure and management activi- mental quality), "from the river" ties in "countries that have investment Because of the (economic benefits), reducing costs choices"if the Bank is to remain a credible high trans- "because of the river" (conflicts among knowledge institution, since it is often ex- actions costs riparians that are exacerbated by con- perience in these countries that is rele- and what some flicts over water) and "beyond the vant to poorer countries. river" (broader economic cooperation describe as the among riparians).16 These realities pose a formidable challenge risk-averse · There is a strong appreciation for the for the World Bank, in basing advice on approach of the scope of the World Bank Group's instru- sound, objective analysis; in being realistic; World Bank, ments to assist borrowers in the area of in taking advantage of opportunities that private sector participation in infrastruc- arise; and in working with its borrowers to borrowers ture. There are a number of instances in identify a set of prioritized, realizable man- increasingly see the water sector of successful collaboration agement and infrastructure investments that the World Bank between the World Bank and IFC. can help make steady improvements as a less · An important and growing area of World through an evolving, long-term approach. Bank involvement is in increasing the ben- preferred source efits of existing hydraulic infrastructure and of financing in the associated challenge of rehabilitat- Notes ing and maintaining infrastructure stocks. 1. World Bank. 2001. "Responding to the WCD · Borrowers have a strong desire that the Report: A Progress Report from the World World Bank remain involved, especially in Bank."[www.worldbank.org/water, section on the most challenging and contentious dams and the World Commission on Dams]. issues. 2. See www.worldbank.org/water under "Sec- · There is a broad recognition that neither tor Strategy." infrastructure alone nor management re- 3. See www.worldbank.org/water under "Sec- forms alone are adequate, and a general tor Strategy." recognition that it is integrated packages 4. World Water Commission. 2000. A Water of software and hardware that are needed Secure World: Vision for Water, Life and the in most developing countries. It is essen- Environment. Marseille: World Water Council. tial that a least-cost mix of infrastructure 5. World Commission on Dams. 2000. Dams and and management approaches be used to Development: A New Framework for Decision Mak- achieve development objectives. ing. London: Earthscan. · In all cases,the Bank must emphasize the 6. World Bank. 1993. Water Resources importance of institutions and capacity Management: A World Bank Policy Paper. Washing- building from the national to the local ton D.C. level. 7. World Bank Operations Evaluation · Borrowers expressed concern with the in- Department. 2002. Bridging Troubled Waters: As- creasing complexity, cost and rigidity of the sessing the World Bank Water Resources Strategy. World Bank's business processes, and its in- Washington D.C. 39 2. Stocktaking and evaluation 8. Organisation for Economic Co-operation 12. World Commission on Dams. 2000. Dams and Development. 1998. Water Management: and Development: A New Framework for Decision Performance and Challenges in OECD Countries. Making. London: Earthscan. Paris. 13. World Bank Operations Evaluation Depart- 9. The data in this section are based on unpub- ment. 2002. Bridging Troubled Waters: Assessing lished analysis done by World Bank staff for this the World Bank Water Resources Strategy. Strategy. Washington D.C. 10. A project is defined as having "substantial 14. World Bank. 2001. "Responding to the water resources components"when more than WCD Report: A Progress Report from the World 30% of project cost is allocated to water Bank."[www.worldbank.org/water, section on resource infrastructure and management, as de- dams and WCD]. fined in figure 2.2. 15. www.unep-dams.org. 11. World Bank Operations Evaluation Depart- 16. Sadoff, C., D. Whittington and D. Grey. ment. 2002. Bridging Troubled Waters: Assessing 2002. Africa's International Rivers: An Economic the World Bank Water Resources Strategy. Perspective. Directions in Development Series. Washington D.C. Washington D.C.: World Bank. 40 Water Resources Sector Strategy: Strategic Directions for World Bank Engagement 3. STRATEGIC OPTIONS AND POSSIBLE BUSINESS IMPLICATIONS The additionality and focus of this of attention devoted to a particular issue im- Strategy plies how important an issue is judged to be), the approach is illustrated schematically.Fig- Two distinct classes of challenges need to be ure 3.1 shows that this Strategy applies a This Strategy faced if the World Bank is to be an effective magnifying glass primarily to the con- applies a partner. Class 1 challenges relate to the tentious and difficult issues, giving less at- magnifying glass many areas of water resources management tention to the more numerous (and very primarily to the where there is broad consensus, where Bank important) issues that progress naturally, practices have changed for the better and with few impediments. Chapter 4 shows contentious and where the need is for "more of the same." how the Strategy (and the 1993 Water Re- difficult issues, Class 2 challenges relate to a few funda- sources Management Policy Paper) might giving less mental areas where there is no global con- play out in different country contexts, show- attention to the sensus, where the Bank has not charted a ing in most cases that it will be a mix of man- consistent set of rules of engagement and agement and development investments that more numerous where, as a result, the Bank has not per- need to be undertaken. issues that formed as well as it could as a reliable and progress effective partner. The objective of this Strategy is to position naturally, with the World Bank as an effective partner for Class1challengesarenumerous.Theyinclude countries as they seek to develop and man- few more attention to water quality, conservation, age their water resources to stimulate sus- impediments. groundwater management, watershed man- tainable economic growth and poverty agement and small-scale, community-based reduction.The Strategy builds on the follow- solutions, and institutional reform. As docu- ing assessment: mented earlier and in the Operations Evalua- tion Department report, the World Bank has · In all countries there is a major need for invested heavily in these vital areas over the more effective management of water re- past decade and will continue to increase such sources, to ensure increased benefits lending.1 Precisely because there is momen- across sectors while taking into account tum and no particular barriers to Bank en- the diverse interests of stakeholders (in- gagementwiththeseissues,nomajorchanges cluding poor people). of course are required,and there is no need for · In all countries there is need for greater Bank management and the Board to focus attention to water allocation, demand specifically on them.These issues--which are management, water rights and the use of very important and constitute the majority of pricing and other economic instruments. activities with which the Bank is involved-- · In all countries there is a need for im- are thus treated only briefly in this Strategy. proving the benefits from existing infra- Instead the Strategy focuses on the difficult structure and for developing institutional andcontentiousclass2challengesthatrequire and financial arrangements for sustain- the attention and guidance of senior manage- able rehabilitation and maintenance. ment and the Board. · In many developing countries appropri- ate management and institutional actions Because it is easy to misinterpret this Strat- need to be complemented by investments egy (by incorrectly assuming that the amount in a range of new hydraulic infrastructure. 41 Many of these issues are complex, con- f3.1 A sharper focus on tentious and longstanding. It is not realistic contentious issues to expect that this Water Resources Sector Strategy will bring quick and final closure to all, or even most, of these issues. The Strat- egy is thus not a detailed business plan. Issues on which there is consensus Rather it focuses on major strategic chal- The scope of Contentious lenges in positioning the World Bank to be the 1993 issues Policy Paper The scope an effective "full service" partner to its of this borrowers. Strategy Developing a portfolio of analytic work that informs management decisions and recognizes differences Continued engagement by These investments require long-term fi- While there are many common challenges the World Bank nancing, and financing requirements will facing all countries, there is also a high de- only continue to grow as costs increase. gree of specificity in water resources devel- Group can only Effective support will require deployment opment and management. Accordingly, take place in the of the full range of instruments available global lessons of experience have to be context of a through the World Bank Group (includ- crafted into realistic and appropriate country transparent and ing IFC and MIGA). and sometimes regional goals and strate- · As demands for water services rise, in- gies, depending on cultural, historical, polit- candid creases in supply will require the use of ical, economic and natural conditions. assessment of next-generation technologies, including Economic and sector work is critical for this risks and the demand management, interbasin trans- adaptation process. The Operations Evalua- management of fers and the sharing of benefits from tion Department report documents an en- transboundary waters.Together, these re- couraging increase in the quantity of these risks sult in significant increases in the finan- water-related analytic work and a shift in through a cial and transaction costs of delivery. such work toward the key management diversity of · Potential returns to packages of manage- challenges.2 instruments and ment and infrastructure investments are large. In many countries investments in An important area for deepening the World oversight water resources management infrastruc- Bank's portfolio of economic and sector work, ture can have high direct and indirect eco- as pointed out by the Bank's Quality Assur- nomic growth and development payoffs ance Group, is in more explicitly linking ana- (including mitigation of climate change lytic work,which focuses on the challenges to impacts on the poorest, and conflict pre- the country, to World Bank activities--both vention). There are risks, but there are "upward" to the Country Assistance Strate- also high returns. gies and Poverty Reduction Strategy Papers, · Sound water resources management is a and "downward"to investments. As part of significant public good (flood control, in- the process of preparing this Strategy, each terbasin and transboundary issues) and is region has initiated (with seed funding from part of an effective strategy for poverty re- the Global Public Goods fund) a Country duction (employment generation, health Water Resource Assistance Strategy for one and livelihood enhancement). priority country in the region. These will not · Continued engagement by the World usually involve new analytic work and will Bank Group can only take place in the generally be short, action-oriented papers. context of a transparent and candid as- They will be a mechanism for focusing the at- sessment of risks (of both engagement tention of the country team on water re- and nonengagement) and the manage- sources issues, for engaging regional and ment of these risks through a diversity of global water knowledge in the World Bank instruments and oversight. and for reaching agreement with clients. A 42 Water Resources Sector Strategy: Strategic Directions for World Bank Engagement central element of the Country Water Re- water resources projects. The World Bank source Assistance Strategy will be the politi- Netherlands Water Partnership Program pro- cal economy of change in water resources vides a useful model.7 Under this program the management--identifying potential triggers World Bank's Water Resources Management and defining how to be selective and how to Group has identified a series of cutting edge allocate World Bank resources where there issues (including poverty and livelihoods in are windows of opportunity. Country Water water projects, international waters, water- Resource Assistance Strategies will eventu- shed management, irrigation reform, waste- ally be prepared for many of the Bank's bor- water management, water rights, river basin rowing countries. management, groundwater, ecological flows and flood management). For each issue a team of experts with field experience is as- Working with partners sembled. World Bank operations have easy access to the services of these experts, who As described by the Operations Evaluation help incorporate these issues intoWorld Bank Department report, "creating a shared vi- operations and help disseminate lessons. sion among the World Bank, borrowers, and There is now other development partners is the key to broad consensus successful implementation of the World Finding new sources of financing among Bank's water strategy.... and the World Bank for water resources infrastructure developing has some major accomplishments" both at the global and regional level. However, "a Numerous assessments have documented countries that major concern is the inability to meet the the huge financing needs for water-related the required cost of proliferating partnerships."3 infrastructure in developing countries. The infrastructure World Commission on Water estimates that cannot be built With the exception of first-hand access to investment needs to increase from the cur- global best practice, the regional develop- rent level of about $70 billion a year ($17 bil- with public ment banks share most of the World Bank's lion for hydropower,$28 billion for water and funds alone and comparative advantages. Accordingly, an sanitation and $25 billion for irrigation8) to that the private emerging pattern in some countries is for $180 billion a year to ensure water security by sector has an close cooperation in knowledge sharing and 2025.9 There is now broad consensus among finance between the World Bank and the re- developing countries that while public funds important gional banks. Bilateral agencies typically do have been and will remain dominant and in- complementary not have the same global mandate or sec- dispensable, the required infrastructure can- role to play toral spread. not be built with public funds alone and that the private sector has an important comple- Partnerships that make things happen on mentary role to play in financing water re- the ground are already under way, not least sources infrastructure. The Monterrey at the regional level, where the Africa Re- Conference on Financing for Development, gion4 and Middle East and North Africa Re- for example, highlights "a need for the rele- gion,5 for example, have developed effective vant international and regional institutions operationally oriented regional water re- to increase their support for private foreign sources partnerships.The logical corollary is investment in infrastructure...."10 that the World Bank will give priority to ac- tion-oriented partnerships--such as the Over the 1990s there has been a major change Global Water Partnership,6 which stimulates in the role of the private sector in financing in- action-oriented partnerships in regions and frastructure, including water-related infra- countries for better water management-- structure, in developing countries.11 Starting and largely disengage from partnerships from a very low base,the private sector has in- that do not directly lead to action on the vested about $700 billion in infrastructure in ground. developing countries over the past decade (figure 3.2). Of particular importance is the development of a new set of bilateral partnerships for stim- A closer look at the data shows that there are ulating cutting edge action in World Bank significant challenges to be faced if the private 43 3. Strategic options and possible business implications f3.2 Private investment in infrastructure, 1987­2000 U.S. dollars (billions) 60 Telecommunications 50 40 Energy 30 Transport 20 10 Water/sewerage Over the past Hydropower decade there has 0 been a major 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 change in the Source: World Bank Private Participation in Infrastructure database. role of the private sector in financing sector is to play a major role in financing investment there is a need for a more collab- water infrastructure. First, while private in- orative public-private partnership, an ap- infrastructure, vestment in infrastructure rose dramatically proach in which the World Bank has a role to including water- during the 1990s,it had declined considerably play.This approach will necessarily include: related by the end of the decade. In the current fi- infrastructure, in nancial market environment of markedly re- · Options assessment and project identifica- duced appetite for risk in emerging markets tion. Private (and public) investments in developing the late 1990's level of financing is unlikely to dams and major conveyance infrastruc- countries be reached again soon. Second, only a small ture can only take place if the public sec- proportion of private investment in tor has done the necessary upstream infrastructure went into water-related hydrologic,economic,environmental and infrastructure--about 5 percent into water social assessment of options. and sanitation and another 5 percent into hy- · Investing in public goods. Multipurpose dropower. Third, these investments were projects produce both private benefits heavily concentrated in relatively low-risk (such as hydropower), which can be ei- economies in East Asia and Latin America. ther privately or publicly financed, and public benefits (such as flood protection), Even within these favored environments, which must be publicly financed. En- the outlook is sobering. A detailed assess- gagement of the private sector in such ment in Latin America, for example, shows projects requires partial public financing. that private investment (at 1998 levels) is · Assigning and managing risks through sufficient to cover only 5 percent of water public-private partnerships. Managing risk and sanitation and 20 percent of energy (in- will involve assistance to the private sec- cluding hydropower) investment needs. tor in managing foreign exchange risk Worldwide, only about 5 percent of water when long-term fixed rate local currency services are currently provided through the financing is not available and short-term private sector. financing does not match the economic life of the assets.And it will involve blend- Private international financing is particularly ing public and private sector funding to important for small countries that do not have lower the overall cost of capital. the capacity to raise funds from domestic · Legal and regulatory frameworks. Only the public or private sources.To stimulate private public sector can develop a stable 44 Water Resources Sector Strategy: Strategic Directions for World Bank Engagement enabling environment with effective and agement of water rights, so that transfers can predictable rules and institutions for bal- take place voluntarily and with compensa- ancing the interactions of investors, gov- tion.15 Also, the concession holders have ernment, and users and other affected pushed for and invested in improved water- people. For water projects this institu- shed management, recognizing that their in- tional capacity is needed at both the na- vestments depended on the quality of their tional and local government levels and is bulk water.16 In a similar vein theWorld Com- necessary for both private and au- mission for Dams report shows that most tonomous public service providers. good practices in licensing and benefit shar- · Output-based aid. Greater use should be ing are associated with commercially oper- made of output-based aid, with funds ated infrastructure.17 disbursed on the basis of actual services delivered.12 This approach is now being In this regard, the World Bank Group is at a implemented for wastewater treatment in crossroads.While theWorld Bank has played Brazil, for example, by both public and a role in highlighting the benefits of private private service providers.13 involvement, when it comes to controversial infrastructure, the World Bank is now often The "gloomy In stimulating these additional sources of fi- perceived (by both the private and public arithmetic" of nancing, there are complementary roles to sector) as a costly and risk-averse partner. water is be played by all members of the World Bank matched by the Group in many of the World Bank's borrow- In summary, the "gloomy arithmetic" of ing countries: for MIGA to provide political water is matched by the "gloomy financing" "gloomy risk insurance,for IFC to participate as an in- of water. The financial requirements of financing" of vestor in priority infrastructure and for IBRD meeting the growing needs of growing pop- water and IDA to provide a combination of invest- ulations are very large and far outstrip cur- ments, guarantees and assistance in devel- rent levels of investment. It is essential to oping legal, regulatory and institutional make the best use of every public and private arrangements. While cooperation among dollar, to manage demand more effectively, World Bank Group members has improved and to develop bankable public and private substantially in recent years, there is still projects that can attract additional financing. more to be done. Because water reforms are never one-shot transactions, there is a par- ticular need for the transaction-oriented IFC Dealing with risk and developing a and the development-oriented Bank to fully more effective business model cooperate on critical reform efforts. The in- volvement of IFC is particularly critical in Risk lies at the heart of the development low-income countries, where domestic and challenge. "Developing countries"is almost international commercial financing is often synonymous with "high risk"--for the peo- not available. ple who live there and for those who might invest. A core raison d'etre for the World The second reason the private sector is im- Bank is to help reduce these risks, for local portant for water resources management is people and for investors. Consultations on more subtle but no less relevant. Improved drafts of this Strategy showed that there are water resources management only happens widely differing views of how risk should af- when there are incentives for empowered ac- fect what the World Bank does and how it tors to make things change. The Operations does it. Evaluation Department review and theWorld Bank's consultations show that the insertion Some believe that the engagement with risk of the private sector (as operator of an urban must be defensive, governed by the precau- water supply or a hydropower plant) provides tionary principle (when an activity might a powerful incentive to change.14 The case of harm human health or the environment, the water concession contracts in Manila pro- precautionary measures should be taken vides a graphic illustration. Private operators even if some cause and effect relationships have become a potent source of pressure to are not fully established scientifically, so that modernize the system of allocation and man- the proponent of an activity bears the bur- 45 3. Strategic options and possible business implications den of proof).18 There is broad agreement It is possible to discern different patterns with that an essential part of good development middle-income and low-income countries. practice is the assessment of risks, to differ- Middle-income countries express frustration ent groups of people, and from both action at what they perceive as a rigid, rule-bound, and inaction. Most practitioners, however, risk-averse approach from the World Bank. believe that the application of the precau- They increasingly see the World Bank as the tionary principle would be a recipe for paral- least-preferred source of funding (after do- ysis, and that few development projects mestic sources, private capital and other in- would ever be undertaken if such an ap- ternational financing institutions) because of proach to risk were taken. the monetary,transaction and delay costs that are a part of dealing with the World Bank. But The issue of affirmative engagement with they often still express a strong desire to have risk has emerged as a major challenge for the World Bank engaged in cutting edge, the World Bank in water, forestry, mineral high-reward­high-risk water infrastructure resources and other areas. Consultations because they believe that the World Bank has for this and other strategies have shown a unique comparative advantage in helping The issue of that there are strong concerns from gov- them deal appropriately with the range of affirmative ernments, the private sector and many economic, institutional, social and environ- engagement Bank staff that when development risks are mental challenges posed by such projects. high, and Bank engagement is particularly Despite this wish to engage with the Bank, with risk has valuable and important, the Bank must en- countries with choices are less and less en- emerged as a sure that it is a risk mitigator, not a risk gaged with the Bank in these areas. major challenge multiplier. There is also a concern that the for the World Bank has focused largely on errors of com- Low-income countries have many of the mission (risks of engagement) and paid same concerns as middle-income countries, Bank in water, less attention to the vital errors of omission but these poor countries do not have access forestry, mineral (risks to people of nonengagement by the to the other sources of financing that are resources and Bank). available to middle-income countries and other areas thus see no alternative to the World Bank, Accordingly, an important part of the work both as a direct source of financing and as done for this Strategy was the convening of a the catalyst for resources from the private high-level World Bank Group-wide panel to sector. They remain engaged with the Bank articulate a vision for how the World Bank because they seldom can proceed without might actively engage with high-reward­ Bank engagement. high-risk investments.The task for the panel was explicitly not to dilute the World Bank's World Bank projects that include major commitments to sound economic, social and water infrastructure can be classified by environmental practice but to sketch a new whether the World Bank was involved early business approach to ensure that the objec- or late and whether the borrower's and the tives of social and environmental safeguards developer's capacity was strong or weak. An would be met; that better quality projects examination of a cohort of projects comes to would be the result; that decisions would be the following conclusions: made in a clear, predictable and timely man- ner; and that risk aversion among staff would · That the best possible situation is when be reduced by providing more assurance of the World Bank is engaged from the early support from senior management. This sec- planning stages, and the project has a tion draws heavily and often directly on the strong borrower and a strong developer. report of the panel. · That such ideal conditions are, almost by definition, rarely encountered in the To date discussion of risk in the World Bank World Bank's borrowing countries. has been too narrowly and internally focused. · That, other things being equal, the dis- The definition of risk for people in develop- tance between the ideal and the actual is ing countries must start with the develop- least for the World Bank's better devel- ment risks of World Bank engagement or oped borrowers (who also have choices nonengagement. and are less and less engaged with the 46 Water Resources Sector Strategy: Strategic Directions for World Bank Engagement World Bank on these issues) and greatest · The probability of such projects going for the poorest borrowers. to the Inspection Panel is rapidly ap- · That practice (the World Bank's and the proaching certainty. borrowers') has improved consistently · Senior managers find that these con- and markedly in recent decades. troversial projects occupy a large pro- · That early engagement means that the portion of their management time. World Bank can have a major influence on · The result of this set of disincentives is critical issues such as options assessment predictable--the World Bank is less and and environmental offsets. less involved in complex, high-reward­ · That late engagement means that the high-risk water infrastructure (and simi- World Bank's focus is necessarily prima- larly controversial projects in other areas). rily on safeguards (with strong evidence that there can be a lot of added value from An improved approach for World Bank the World Bank's engagement even at involvement in high-reward­high-risk that stage). activities (including water management) · That the World Bank needs to deal much might involve a two-step set of rules of more transparently and proactively with engagement. The World Bank known and unknown risks. will follow an · That third party oversight can be useful in Step 1: How the World Bank should improved specific cases. decide whether to be involved in a approach for · That a proactive cost-effective communi- specific major water infrastructure cations strategy with all stakeholders is project involvement in essential. high-reward­ · That disengagement by the World Bank is The project should be relevant to the devel- high-risk the result of a set of disincentives embed- opment objectives of the borrower and the activities ded in theWorld Bank's business practices. World Bank: An examination of the incentives that oper- · Relevance to overall national development ate within the World Bank reveals the strategies as reflected in the Country Assis- following: tance Strategy. This will always include · There is evidence (as manifested in the re- poverty reduction, but it can and should cent discussion on the cost of doing busi- also include broader strategic objectives. ness) that theWorld Bank's clients perceive In the case of China, for example, this the World Bank to be walking away from would include the evolution from a com- areas that are reputationally risky to it, and mand to a market economy and from a perceive such behavior to be driven by in- rural to an urban society. And in the case ternal disincentives for managers and staff of international water projects (such as to deal with such projects. the Nile Basin Initiative) the relevance to · There is powerful internal evidence of the regional security and conflict prevention reluctance of many managers to get en- are of major importance. gaged with such projects.There appear to · Relevance to poverty reduction. Water proj- be four related phenomena driving this ects often contribute to poverty allevia- disengagement: tion both directly (through resource · The costs of preparing and supervising management and services targeted to the such projects are typically many times poor) and indirectly (through better over- those incurred in preparing and super- all resource management and improved vising a normal World Bank project. operation of service providers). The logical behavior for country direc- · Relevance to development of the World tors faced with a budget constraint is to Bank's comparative advantage. Many best shy away from these high-cost projects. practices in the area of water infrastruc- · There is a palpable down-side for ture (such as for resettlement in China or managers (from vice presidents to for benefit sharing in Brazil) have been country directors to task managers) developed by the World Bank's more de- who get engaged in such projects, and veloped borrowers. If the World Bank is to little up-side. be a credible knowledge partner it must 47 3. Strategic options and possible business implications be engaged not only with the borrowers by the major global private actors and who have no other options but with its thus affects the Bank's ability to attract middle-income borrowers. private partners for similar projects in Uganda. The performance of an inter- The risk profile must be assessed: basin transfer in East Asia has implica- tions for World Bank engagement with · The development consequences of World borrowers in the Middle East and North Bank nonengagement, which must include: Africa who have similar needs. And the · The possibility that the project, and its repercussions of the World Bank's per- net development and poverty reduc- formance on a dam in Argentina have an tion benefits, will not be undertaken if impact on the availability of IDA funding the World Bank is not engaged. for Bangladesh. · The possibility that the project will be · Theprojectsinvolvedealingwithcommon done anyway, but with lower net ben- sets of environmental and social issues. efits without World Bank involvement. · The projects involve dealing with com- In both cases, standard methods for as- mon sets of stakeholders, including the High-reward­ sessing the magnitude and distribution of private sector, the media and NGOs. high-risk costs and benefits (including economic, projects will be environmental and institutional) will be Accordingly, these high-reward­high-risk coupled with probabilistic assessments of projects will be treated as "corporate proj- treated as likely outcomes to evaluate the "no-Bank- ects."The key elements of such an approach "corporate engagement"development outcome. are: projects" · The risks to the World Bank from engage- ment or nonengagement: · Accountability. Regional vice presidents · From the perspective of the borrower. and country directors will be account- · From the perspective of civil society in able for these projects. From an early the borrowing country. stage these projects will be brought to · From the perspective of private the attention of senior management, developers. who in support of the regions, will par- · From the perspective of public percep- ticipate in decisions on whether the tion in developed countries and the re- World Bank will engage and how risks lated perceptions from NGOs. will be managed. · The risk implications must be assessed (by · Improved implementation of safeguards. impact and likelihood), as must the impli- Good preparation, including adequate cations for managing them, monitoring attention to environmental and social and responding. issues, involves higher short-term costs, · These risk implications must be considered but lower long-run costs. For these proj- by regional and World Bankwide man- ects there will be an agreed-on corpo- agement, which views them in the con- rate strategy for ensuring that the text of other risky projects and the objectives of the safeguard and other regional andWorld Bankwide appetite for operational policies are respected, while risk. focusing attention and resources on safeguards that are material in particu- Step 2: How the World Bank should lar circumstances. manage major water infrastructure · Communication.An essential element will projects be the development of a unified commu- nication strategy for addressing head-on These high-reward­high-risk projects are a in an open manner the concerns of dif- special class of operations,with spillovers that ferent stakeholders, including critics. go well beyond the country and the region: · Resources. While there will not be an au- tomatic provision of special corporate re- · Perceptions (of borrowers, the private sources to such projects, management sector and NGOs) are global. For exam- will continue to use a common-sense ap- ple, the World Bank's performance on a proach to such projects, providing addi- hydropower project in Lao PDR is known tional resources on a case-by-case basis 48 Water Resources Sector Strategy: Strategic Directions for World Bank Engagement as the need arises during preparation and gion's work on water resources and have implementation. assigned substantial regional resources · Incentives for front-line staff.Central to this for this work. The regional adviser and approach is the necessity to reduce trans- team (most of whom continue to work in actions costs and to change the incentives their host departments) have a strong facing front-line staff. Task managers presence both at headquarters and on the leading risky projects will not be left on ground in Africa, where the World Bank's their own, but will have consistent sup- leadership is widely acknowledged and port from regional and corporate man- respected.The growing portfolio of water agement and will get recognition for this resources lending in Africa is a direct re- difficult and vital work. sponse to this investment by the Africa Region. · In the Middle East and North Africa the How the World Bank is organized sector manager for water and environ- and staffed for water resources ment in the rural department has func- management tioned as the region's water adviser. This arrangement has worked well, providing This Strategy Water resources management is not a sector high-level visibility for the Bank's water does not but a set of cross-cutting legal, regulatory resources work in the region. The Re- propose any and operational activities. For this reason it gional Management Team sees the next fundamental does not fit--in countries or in the World step as working to integrate the Bank's Bank--easily into established ministries or water assistance to countries. An impor- organizational sectors. This Strategy does not propose any tant mechanism for achieving this inte- change, but fundamental organizational change in the gration is the Country Water Resources rather a fine- World Bank, but rather a fine-tuning of ex- Assistance Strategy. These strategies will tuning of isting institutional arrangements to ensure build on the normative strategic work accountability and resources for making the done in the region and develop more op- institutional necessary connections. erational strategies that take into account arrangements to the political economy of the country and ensure In the regions result in sequenced, prioritized engage- accountability ment by the Bank. There have been many ways in which the · In Latin America and the Caribbean too, and resources Regions have adjusted their accountability the regional water adviser is a sector and staffing arrangements to deal with the manager, this time responsible for the growing challenge of water resources man- urban and water portfolio in the Private agement.Two years ago there were regional Sector and Infrastructure Department. water resources advisers (or their equiva- The regional appointment has been mir- lents) in just three regions; today there are rored in joint appointments with Envi- designated advisers in all regions. ronmentally and Socially Sustainable Development in key countries (notably The formal nomination of these regional ad- Brazil). These changes have made a large visers, and their appointment to represent difference in the coherence of the Bank's the region on the Water Resources Manage- work in water resources in the region and ment Group, has been a major step forward have contributed to rapid growth in the in improving the coordination of the Bank's regional portfolio of water resources work on water resources across the Bank and investments. in the regions. Appropriately, given the · In SouthAsia the regional adviser was re- widely varying challenges in the regions, ac- cruited with a mandate to provide leader- countability and organizational responses ship on water resources in the region.The have varied substantially by region: adviser reports to the director of the Re- gional Environment Department.There is · In Africa the regional vice president and no formal structure for coordinating the the Regional Management Team have Bank's work on water resources and no given the regional water resources adviser joint accountability for work on water re- a mandate to stimulate and direct the re- sources in other departments. The Re- 49 3. Strategic options and possible business implications gional ManagementTeam has recognized the Policy Paper. A core task was to improve the importance of strategic investment in coordination among the disparate parts of sector staff capacity that is not driven by theWorld Bank Group that worked on water short-term budget priorities and has de- resources, to ensure greater coherence. The cided to allocate resources to the regional manager of the unit (the senior water ad- water adviser for strategic work not di- viser), reported to the vice president of Envi- rectly related to country or regional oper- ronmentally and Socially Sustainable ational tasks. Development. · The East Asia Region has been operating under a more informal approach to water In 2000 the president of the World Bank resources management than other re- Group announced a ramping up of organi- gions.Two years ago the region appointed zational arrangements for water resources in the first regional water adviser. Although response to the growing consensus that the informal approach has been effective, water resources was emerging as a critical regional management is designing a development issue and with the under- more defined approach, including the es- standing that greater coordination across Modest tablishment of a virtual water team coor- units working on water was vital. The vice additional dinated by the regional water adviser that presidents of Environmentally and Socially resources are will have responsibility for preparing and Sustainable Development and Private Sec- implementing cross-sectoral activities, tor and Infrastructure announced the cre- being made such as regional and country water re- ation of the Water Resources Management available to the sources strategies; enhancing quality Group with some of the functions of a Sec- regional water through reviews of project concept, ap- tor Board, namely enhancing the quality of advisers to praisal and other related documents and lending and analytic work, human re- analytic work; and improving coordina- sources, corporate positions and outreach, facilitate the tion of water-related activities through- and knowledge management. necessary out the region. strategic · In Europe and Central Asia responsibility Members of the Water Resources Manage- leadership and for coordinating the Bank's work on ment Group are the regional water advisers, water resources is shared by a manager as well as the leaders of the anchor units on coordination with responsibility for natural resources water supply and sanitation, irrigation, hy- within their and a water professional with extensive dropower and environment and key staff regions operational responsibilities. Information working on water-related issues in the IFC, sharing and coordination of the modest MIGA, the Legal Department and the World but gradually expanding water portfolio Bank Institute. The group is chaired by the are done informally but effectively. senior water adviser. By agreement between the vice presidents of Private Sector and In- As a result of the discussions that were part of frastructure and Environmentally and So- this Strategy, modest additional resources are cially Sustainable Development, the Water being made available to the regional water Resources Management Group and the an- advisers in some regions to facilitate the nec- chor unit (the former Global Water Unit) are essary strategic leadership and coordination housed in and financed by Environmentally within their regions. These resources must and Socially Sustainable Development. necessarily come out of regional budgets and be assigned after considering this and other In some respects the Water Resources Man- priorities. agement Group has worked reasonably well. It has managed major policy tasks (including In the anchors the response to the report of the World Com- mission on Dams and this Strategy); it has Seven years ago, in response to the World managed the major water partnerships (in- Bank's 1993 Water Resources Management cluding the $14 million World Bank­Nether- Policy Paper, a Global Water Unit was set up lands Water Partnership Program, the Global to help the Bank become a better partner in Water Partnership, the World Water Council) implementing the principles of integrated and the World Bank's engagement in major water resources management articulated in events (such as the World Water Forums and 50 Water Resources Sector Strategy: Strategic Directions for World Bank Engagement the World Summit on Sustainable Develop- whelming majority of staff are interested in ment); it has developed a Human Resources training in both water resources manage- Plan for Water Resources in the World Bank ment and knowledge management. Needs and effective collaborative arrangement on are greatest for legal, institutional (river substance with all relevant Sector Boards and basin management, international waters) on water resource-related human develop- and financial and economic expertise, in ad- ment issues with the Water Supply and San- dition to drought, flood, coastal zone and itation and Rural Development Boards groundwater management and water and (which most staff working on water re- environment issues. sources are mapped). The objective of the water resources man- But to provide the necessary leadership and agement Human Resources Strategy, as ap- coordination in this vital and growing area, proved by theWater Resources Management two modest changes will take place in the Group, is to ensure that the right number of operation of the Water Resources Manage- staff have the right skills and motivation to ment Group.The chair of the group (the sen- respond to the mounting challenges in client ior water adviser) will formally report to the needs and demands in water resources Water resources vice presidents of both Private Sector and In- management. The Human Resources Strat- management frastructure and Environmentally and So- egy consists of four building blocks: training and cially Sustainable Development and both knowledge units will contribute to the budget for the · The World Bank needs to maintain and Water Resources Management Group and renew a well-trained, experienced core management the anchor unit. group of water resources professionals who need to be made can prepare and supervise projects and available to a Human resources maintain a high-level policy dialogue, in- wide variety of cluding strategy and economic and sector As part of its mandate, the Water Resources work.They should have a background in at staff, not only Management Group has done an extensive least one area related to water resources those who work survey of staff working on water resources, management that provides a multidiscipli- full time on and developed a draft Human Resources nary vision as the basis for becoming inte- water resources Strategy for water resources. grators of cross-cutting issues between water sectors and dealing with the highly management Some 230 staff in the World Bank deal with varyingcontentofcurrentandfuturewater issues water resources on a full- or part-time resources projects. Sector staff (water sup- basis--about half from Environmentally and ply, energy, agriculture) continue to spe- Socially Sustainable Development and half cialize in their sector, but need to improve from Private Sector and Infrastructure.About their knowledge about the linkages to 80 percent would consider having water other water sectors in order to make good resources as a family affiliation were the op- policy and investment decisions. tion available.Renewal of experienced staff is · A specific career stream needs to be a major challenge, with half of staff (the most spelled out for core water resources man- experienced half) due for retirement in the agement staff in order for the World Bank next 10 years. About 15 percent of the 169 to be able to attract,maintain and develop survey respondents spend up to 100 percent the needed talent and skills. of their time on water resources manage- · A training program is being developed,in a ment activities, and half spend up to 25 per- partnership between the Water Resources cent. This implies that water resources Management Group and the World Bank management training and knowledge man- Institute,19 for core water resources staff.It agement need to be made available to a wide will include drill-downs in water re- variety of staff, not only those who work full sources legislation and institutions with time on water resources management issues. practical applications; water resources economics; groundwater, drought and Survey results and experience from the an- flood management; water and environ- nual World Bank Water Week and water ment issues; and a base course to provide resources seminars reveal that the over- staff working mainly in water-related sec- 51 3. Strategic options and possible business implications tors with a more integrated water re- sessing the World Bank Water Resources Strategy. sources management perspective. Washington D.C. · Knowledge management activities, espe- 2. World Bank Operations Evaluation cially of a cross-regional nature, will be Department. 2002. Bridging Troubled Waters: As- further developed by the Water Resources sessing the World Bank Water Resources Strategy. Thematic Group, the knowledge man- Washington D.C. agement arm of the Water Resources 3. World Bank Operations Evaluation Management Group. Again the resource Department. 2002. Bridging Troubled Waters: As- limitations of the Water Resources Man- sessing the World Bank Water Resources Strategy. agement Group have meant that progress Washington D.C. has been slow. 4. www.nilebasin.org, for example. 5. www.worldbank.org/mena, the regional Bank re-engagement with high-reward­ water initiative for MENA. high-risk hydraulic infrastructure implies a 6. www.gwpforum.org. re-aligned profile of professional staff. 7. www.worldbank.org/bnwpp. Specifically, after a decade of focusing on re- 8. Briscoe, J. 1999 "The Financing of Bank re- cruitment of social and environmental staff, Hydropower, Irrigation and Water Supply Infra- engagement there is need for a new emphasis on recruit- structure in Developing Countries." International with high- ing experienced technical staff.As with most Water Resources Development 15(4). other staffing decisions in the Bank, this will 9. World Water Commission. 2000. A Water reward­ not take place through a center-driven Secure World: Vision for Water, Life and the high-risk process, but in response to changing de- Environment. Marseille: World Water Council. hydraulic mands from the regions. 10. www.un.org/esa/ffd/. infrastructure 11. World Bank staff calculations. The fact that water resources is a cross- 12. World Bank. 2002. Private Sector Development implies a re- cutting issue and not a sector in the Bank Strategy: Directions for the World Bank Group. aligned profile of poses special challenges in recruiting and re- Washington D.C. professional taining specialized staff. The Sector Boards 13. Brazil, National Water Agency (ANA). 2002. staff (especially the Water and Sanitation, Rural, [http://www.ana.gov.br/prodes/]. Energy, and Environment Sector Boards) 14. World Bank Operations Evaluation Depart- have responsibility for recruitment and ment. 2002. Bridging Troubled Waters: Assessing human resource actions for staff who work the World Bank Water Resources Strategy. on water resources. The Water Resources Washington D.C. Management Group recognizes that primary 15. World Bank. 2000. "Philippines Focus responsibility is with the Sector Boards, and Country Study and Manila Consultation so the group offers to play a quality en- Report."www.worldbank.org/water. hancement role. This has worked well with 16. Far Eastern Economic Review. 2001. "To grow the Water and Sanitation Board for some a business, simply plant a tree."October 25. time, and is now working well with the Rural 17. World Commission on Dams. 2000. Dams Board, too. and Development: A New Framework for Decision Making. London: Earthscan. 18. World Bank. 2002. "ExternalViews of the Notes World Bank's Draft Water Resources Sector 1. World Bank Operations Evaluation Strategy."www.worldbank.org/water. Department. 2002. Bridging Troubled Waters: As- 19. www.worldbank.org/wbi. 52 Water Resources Sector Strategy: Strategic Directions for World Bank Engagement 4. WHAT THE STRATEGY MIGHT MEAN FOR WORLD BANK ENGAGEMENT: SOME EXAMPLES FROM THE REGIONS In any given country setting the World Bank's domestic capacity in water service and activities in water resources management are water resources management.1 During the the result of three principal drivers: the nature last decade, the country has adopted un- of the challenges in the country and society's precedented reforms of the legal and insti- The World Bank approach to them; the Country Assistance tutional framework for water resources has a long Strategy, in which the government and the management at the federal and at the state history of World Bank agree on priorities and ap- levels. These reforms, based on the Dublin engagement proaches; and the strategic thrusts of the 1993 Principles, were passed by Congress after a Water Resources Management Policy Paper broad consultation process with civil society with water and,now,this Strategy.The following sections and political representatives. The World management in give some sense of how the strategic direc- Bank has been a key partner of the govern- Brazil tions highlighted in this Strategy are likely to ment in advancing the reform agenda and influence the World Bank's activities in water has a Country Assistance Strategy that resources management in one country in builds on its comparative advantage and each of the World Bank's regions, with a par- value added. ticular emphasis on the following issues: The World Bank has a long history of en- · Management: How can the general princi- gagement with water management in Brazil. ples of the 1993 Policy Paper be applied to In the early years World Bank cooperation widely varying local contexts, with an em- focused on building the infrastructure nec- phasis on sequencing,patience and atten- essary to meet the water supply, irrigation tion to the political economy of reform? and energy demands of a rapidly growing · Infrastructure: What is the likely engage- and urbanizing economy. As this first wave ment of the World Bank in hydraulic infra- of primary demands was met, the focus structure of varying scales, including shifted to second-generation challenges: high-reward­high-risk infrastructure? · In the urban sector.Development of finan- The examples show that the challenges fac- cially viable urban water and sanitation ing different countries and regions vary utilities and, recently, stimulation of pri- widely and that appropriate support from vate sector participation and formal ap- the World Bank similarly varies widely. This proaches to regulation; development of diversity notwithstanding, it is clear that in technologies and social approaches for most settings Bank engagement will involve increasing coverage (especially of poor a mix of knowledge and investment services, people) with affordable sewerage serv- which include both management and devel- ices; and addressing the increasing chal- opment components. lenges of the urban environmental agenda (water source protection, waste- water management and treatment and Illustration 1: What the new sector urban drainage) in large and medium- Strategy might mean in Brazil size metropolitan areas. · In the energy sector. Liberalization and de- Brazil is the eighth largest economy in the velopment of an appropriate regulatory world (map 4.1), and a country with strong structure (which includes many river 53 m4.1 Brazil basin and water rights issues since hy- Over the past decade the World Bank has dropower accounts for 90 percent of elec- been engaged directly in the political econ- tricity supply in Brazil). omy of water reform. A first key element was · In the rural sector. Devising innovative the engagement of leading political figures in technical and institutional models to deal understanding the stakes, in seeing (through with water and soil management on continuous policy dialogue, seminars, sector small watersheds, expanding water and work,study tours and other mechanisms) the sanitation services in small localities means for making changes and in supporting based on community-driven models and legislative and institutional reforms at the private sector participation, stimulating federal level. Over the past five years this new forms of irrigation user organiza- process was facilitated by the World Bank's tions and transforming the focus of irri- decentralization policy.The World Bank's res- gation from rural welfare to commercially ident country director has been immersed in oriented growth enhancing employment the political reality of the country, and field- generating agriculture. based staff were easily accessible to all stake- · On water resources management. Stimulat- holders and perceived as full-time partners. ing innovative approaches to participa- tory resource management at the state A second key element has been focusing and federal level, including the develop- concentrated advisory and investment re- ment of appropriate financial, legal, regu- sources in "reforming states," which have latory and institutional approaches; and shown the way now being followed by many supporting infrastructure and manage- other states. A third element has been a ment arrangements for sustainable water move toward demand-driven projects with services in the dry and poor areas of clearly established eligibility and ranking Northeast Brazil. criteria.This has meant opening programs to 54 Water Resources Sector Strategy: Strategic Directions for World Bank Engagement municipalities (in the case of urban utilities) ects, such as the proposed interbasin trans- and states (in the case of water resources fer out of the Rio Săo Francisco in the management in the Northeast) that commit Northeast; the "water highway" up the to making fundamental reforms. These Paraná River, which is vital for the export of changes in business practices, important in agricultural produce from the interior; or the themselves,have also had demonstration ef- further development of hydroelectric power fects. For example, in a water resources proj- in the Amazon Basin. This, in the eyes of ect in the Northeast the World Bank many leading Brazilian thinkers, is where introduced a screening tool designed to en- the World Bank is really needed--for its sure that all infrastructure was financially ability to link the macroeconomic, financial, and environmentally sustainable. The gov- environmental and social aspects with the ernment has adopted the process and made technical issues and to mobilize knowledge it mandatory for all federally funded proj- from global experience. ects.The new National Water Agency (ANA) has taken the logical next step (consistent The World Bank and the government are with the paying for results, or output-based currently in the process of refining their co- aid approach now being piloted as part of operation strategy in a Country Water Re- Leading political the World Bank's new Private Sector Devel- sources Assistance Strategy in light of the and professional opment Strategy) of using pollution control main messages emerging from this Water figures in Brazil resources not to build treatment plants but Resources Sector Strategy. While the stress that the to pay for results (in this case, treated efflu- process is not yet complete, the main lines ent).Fourth and finally,theWorld Bank's en- are clear: value of the gagement has been the result of a strategy World Bank is that stressed selectivity based on poverty · Continued support through investment not in dealing impact, comparative advantage and value and advisory services to cutting-edge with the routine added. water resources management programs in states that undertake water reforms. but in the The country stakeholders'generally positive This will concentrate on the Northeast, difficult issues perception of World Bank engagement has which is both dry and poor. Support will that are now at been dampened, however, by one wide- continue to be made available to reform- the fore such as spread concern about the evolution of the ers on a demand-driven basis. Particular relationship with the World Bank in recent emphasis will be placed on the definition major hydraulic years. Country officials have been concerned of rights and licences and their manage- infrastructure about the direction in which the World ment at the state and federal level. projects Bank's business practices are evolving, · Continued support through dialogue, which they see as increasingly focusing on sector work and lending to complete re- minimizing reputational risks, sometimes at forms in the legal and regulatory frame- the expense of urgent development impact. work of water supply and sanitation The general view is summed up by one of the services delivery to improve the efficiency most admired political reformers in Brazil: of utilities, expand coverage to poor peo- "When I have to build, at the request of local ple and reduce alarming levels of water people,a small dam in the semi-arid interior, pollution in selected urban river basins. the World Bank makes me go through due · Majorsupportfordevelopingeffectivein- diligence processes that are the same as if I stitutional arrangements and financing were building Itaipu [the world's largest hy- priority investments in a few stressed droelectric dam]." river basins.This is likely to mean a focus on the multistate Paraíba do Sul River in Leading political and professional figures in the Southeast (where pollution control Brazil stress that the value of the World Bank and protection of drinking water quality is not in dealing with the routine.What they are the main challenges) and on the want is World Bank engagement (some- multistate Săo Francisco River in the times by providing advice, sometimes Northeast (where the challenges are pri- through lending too) in the difficult issues marily quantity management, manage- that are now at the fore in Brazil. These in- ment of the cascade of dams down the clude major hydraulic infrastructure proj- river and interbasin transfers out of the 55 4. What the Strategy might mean for World Bank engagement: Some examples from the regions river). Major issues include the role of the Illustration 2: What the new sector federal and state governments, participa- Strategy might mean in Central tion in the basin agencies and allocation Asia and management of consumptive and nonconsumptive water rights. The countries of Central Asia (map 4.2) are · Support to the new National Water water scarce.2The Amu Darya and Syr Darya Agency (ANA) in a number of ways, Rivers are the principal water sources, espe- including: cially for the downstream countries of · Linking support to ANA with support Uzbekistan, Turkmenistan and southern to reforming states as part of a "paral- Kazakhstan, which have largely desert cli- lel track strategy" of federal and state mates. Irrigation has been practiced in Cen- initiatives. tral Asia for millennia, but irrigated area · Supporting ANA in identifying roles almost doubled between 1950 and 1980, for states and the federal government leading to large-scale diversions of water in water rights and administration. from the rivers and an 80 percent reduction · Supporting ANA and the states in de- of the water flow into the Aral Sea.About 35 veloping the information and human million people depend in one way or an- resources required for more effective other on irrigated agriculture.The shrinking water resources management in prior- of the Aral Sea, whose surface area has de- ity basins. clined by half over the last 40 years, has · Helping pilot the output-based aid meant economic losses for the 3.5 million model for pollution control. This will people living near the sea--from declining include collaboration in monitoring fisheries and loss of wetlands to health im- experience and improving business pacts from blowing salt and highly saline practices in this innovative program by shallow groundwater. identifying business risks and devising strategies for mitigating them. Irrigation has played a central role in the eco- · Support for ANA in the development nomic development and environmental de- of its strategic planning and business cline of Central Asia. The former Soviet management approaches. Union invested massively in surface irriga- tion systems in the downstream states, pri- As with the other focus country studies the marily for the production of cotton. Some 8 experience of the World Bank in Brazil had a million hectares are under irrigation. In substantial impact on the main messages of Uzbekistan,for example,irrigated agriculture this sector Strategy, highlighting the impor- is the backbone of the economy,contributing tance of: 35 percent of GDP, 60 percent of foreign ex- change earnings and 45 percent of employ- · Developing sequenced, prioritized ap- ment. Irrigation in Central Asia faces a host proaches to dealing with the daunting set of converging, major challenges--of sustain- of water-related service and resource ing as much economic productivity and em- management challenges. ployment as possible, of generating greater · Giving priority to acting where there is a livelihoods from less water (70 percent of strong demand for change, and support- which is currently lost through leakage), of ing political reformers willing to imple- developing new forms of organization to re- ment that change. place those of the Soviet era and of reducing · Starting with the low-hanging fruit and adverse environmental impacts. then, with credibility and experience, moving on to bigger challenges. As in other parts of Europe and Central Asia and in other regions, the World Bank has Finally, Brazil brings to the fore the issues of promoted the role of water user associations, development and reputational risk and the with some success especially in Kyrgyz Re- imperative that the World Bank stay en- public. But effective irrigation is impossible gaged, even in middle-income countries, in without functioning infrastructure. A key the twin challenges of management and challenge, accordingly, is rehabilitation of ir- development. rigation infrastructure. Infrastructure has 56 Water Resources Sector Strategy: Strategic Directions for World Bank Engagement m4.2 Central Asia Whereas the tradeoffs between water and energy were previously internalized in the command and control system of the Soviet economy, they are now deteriorated over the last 10 years as institu- Before 1990 water in the basin was managed much more tions have weakened, systems for funding as a single, integrated irrigation system, with operation and maintenance have collapsed water stored in the winter and released dur- visible and need and adequate alternatives have not yet been ing the growing season to downstream to be managed put in place. areas. The lower riparian areas, rich in ther- more explicitly mal energy sources, provided coal, oil and Particularly important for irrigation man- gas to the upstream areas for winter heat. agement in arid lands is removal of drainage water. The excessive application of water to Since the 1990 breakup of the Soviet Union irrigated lands has led to waterlogging and and moves toward market pricing for thermal salination. Some 6 percent of the irrigated energy, the management system has area now has highly saline soils, and water changed. The upstream countries, with very tables are now within 2 meters of the surface low per capita incomes and few natural re- for about 35 percent of the area. Salinity lev- sources apart from hydropower,have increas- els and unreliable water delivery are espe- ingly released water from reservoirs in winter cially severe problems at the tail-end of the to generate electricity for heating and to save irrigation system, in the deltas of the Amu the foreign exchange costs of imported fossil Darya and Syr Darya Rivers.The World Bank fuels. But these winter releases of water for is working with borrowers and partners in electricity are incompatibile with the summer CentralAsia to develop a drainage and salin- demands of the downstream countries for ir- ity management strategy and to fund prior- rigation. Whereas the tradeoffs between ity drainage works. water and energy were previously internal- ized in the command and control system of Hydropower plays a major role in the region, the Soviet economy,they are now much more accounting for 35 percent of electricity gen- visible and need to be managed more explic- eration in the Aral Sea Basin countries. itly. The countries do have cooperative and 57 4. What the Strategy might mean for World Bank engagement: Some examples from the regions barter arrangements, but these do not always that there is more infrastructure than can be work well.And countries have differing views maintained.In irrigated areas theWorld Bank on what is a "fair"price for electricity. has worked with borrowers in applying im- mediate band aids to critical infrastructure, Solutions include development of more eq- but also on medium-term strategies for de- uitable, mutually agreeable financial or trad- termining which infrastructure (both supply ing arrangements, construction of increased and drainage) should be maintained and water storage and hydroelectric generating which retired. Recent analytical work has in- capacity in Kyrgyz Republic and Tajikistan dicated that system rehabilitation, combined (possibly jointly financed with the down- with demand management, can reduce crop stream countries) and construction of in- water requirements by more than 30 percent. creased water storage for irrigation in This work also shows that the majority of Kazakhstan. serviced area can economically be irrigated, even if users pay the operation and mainte- As in many other developing regions water nance costs for water and drainage infra- and sanitation utilities in CentralAsia are hav- structure. But water prices can be increased The countries of ing to make a transition toward financially au- only when water delivery is reliable and Central Asia face tonomous, accountable utilities that recover when farmers receive a fair market price for a unique set of their costs from the charges paid by users.The what they produce. Agriculture is now effec- World Bank has been, and will remain, in- tively taxed by price and trade restrictions on challenges: for volved in working with its borrowers in mak- several key commodities. The key, then, is the most part, ing these transitions. To date this has been seeing water pricing reforms as a component the problem is difficult,especially in the poorer countries,be- of an overall package of institutional reforms that there is cause of low incomes, perceived social risks of and infrastructure investments, with atten- increasing water tariffs, and an unfavorable tion given to prioritization and mechanisms more investment climate for the private sector.The for effecting transitions. infrastructure World Bank has had more success in develop- than can be ing community-based approaches to water Urban water and sanitation utilities in the maintained supply and sanitation in rural areas, and has former Soviet Union also have a peculiar set projects in several countries. of infrastructure challenges. First, domestic water supplies were heavily subsidized, and Water supply and sanitation utilities in the in- per capita use was extraordinarily high (typ- dustrialized parts of the region face a partic- ically around 400 liters per capita per day) ular resource problem as a result of pollution and wasteful. This meant that both water of surface water with toxic chemicals from in- supply and wastewater treatment plants dustrial discharges and from leachates from were often overbuilt. As water use (and abandoned mine tailings. World Bank en- sewage production) has fallen to about 100 gagement in water supply for the new liters per capita per day, there is often large Kazakh capital of Astana illustrates what overcapacity in terms of treatment and a good economic and environmental advice need to retire major pieces of infrastructure. can contribute.Faced with high levels of mer- cury in the nearby river, the government was With regard to dams, the primary challenge planning to construct a long-distance inter- is to maintain existing stock in a serviceable basin transfer.A National Environmental Ac- and safe manner.The World Bank continues tion Plan and World Bank-supported sector to be involved in working with countries to work showed, however, that cleaning up the ensure dam safety, including Lake Sarez in mercury was far more cost effective (with a Tajikistan, formed after an earthquake, and cost of bulk water of about US$0.08 per cubic currently the highest dam in the world. An- meter instead of the US$0.80 for the inter- other challenge is monitoring and dissemi- basin transfer). nating data on river flows, precipitation and temperature. With the decline in public The countries of Central Asia face a unique funding in the past decade hydrometeoro- set of challenges in developing and main- logical equipment has become outmoded, taining an appropriate stock of water infra- and data systems are no longer reliable. structure. For the most part, the problem is Existing data series indicate that Central 58 Water Resources Sector Strategy: Strategic Directions for World Bank Engagement Asia will be affected by climate change, with · Assistance with restructuring water utili- temperatures, precipitation and net evapo- ties in major urban areas,to improve serv- transpiration rising, and extreme weather ice levels and move toward financial events becoming more frequent. viability. · The use of both advisory and investment In summary, the challenges of water re- tools for facilitating benefit sharing on in- sources management and development in ternational rivers. Central Asia are daunting. Solutions do not lie within the water sector alone. Rather, The World Bank's ongoing and planned progress (which will continue to be slow work in Central Asia both supports and and difficult) requires concerted and inte- feeds into the main themes of this Water Re- grated action in a wide variety of sectors sources Sector Strategy.The challenge is the (including the usual water-related sectors, use of both management and infrastructure but also macroeconomic, fiscal, governance instruments,with infrastructure instruments and social). For the World Bank to be an ef- largely confined to the development and im- fective partner, it has to use both analytic plementation of a strategy for maintaining and investment tools. It must also foster in- an appropriate stock of infrastructure. It is Water resources ternal and external partnerships, so that also apparent that the task is identifying a management there is consistency in the actions of multi- prioritized set of policies and actions that and ple partners. The World Bank's work in can help manage this very difficult transi- development Central Asia accordingly includes the fol- tion. As elsewhere, management of the po- lowing elements: litical economy of change at all levels--the has played a farm, the city, the country and among major role in · Work on a regional water strategy that riparians--is the overriding challenge, and development, will build on this sector Strategy and re- one that the World Bank is addressing with food security gional experience. the full range of its analytic and investment · AnalyticandadvisoryworkinCentralAsia tools. and poverty analyzing the economic, social and envi- reduction in ronmental feasibility of irrigation rehabili- India tation, the energy-water nexus, water and Illustration 3: What the new sector salt strategies, and water and wastewater strategy might mean in India, in strategies in industrialized areas. particular in the state of Andhra · Gradually increased lending for irrigation Pradesh and drainage rehabilitation, within coun- tries' macroeconomic and borrowing Water resources management and develop- constraints. ment has played a major role in develop- · Support to wetland, grassland and fish- ment, food security and poverty reduction in eries restoration in delta areas. India.3 These investments have led to an · Continuing work on mitigating the effect enormous increase in the production of food of the Aral Sea environmental catastro- and food grains, with major positive impacts phe by improving living conditions and for the many poor people who are net food reducing poverty for the millions living purchasers, large declines in poverty (with near the sea. poverty rates in unirrigated districts almost · Support to water user associations for three times the level in irrigated districts) managing on-farm irrigation and drainage and large multiplier effects (on the order of infrastructure and for strengthening trans- two) in terms of secondary and tertiary eco- parent financial management of water de- nomic impacts. livery institutions. · Lending for improved soil and water con- The World Bank has been a key partner for servation and watershed protection in India in water development over the rainfed agricultural areas, rangelands and decades. In addition to assisting in the forested areas. achievements mentioned above, the World · Continued assistance to address the Bank has played a major role in negotiating legacy of water pollution from mining the historic Indus WaterTreaty with Pakistan and industrial waste. and in providing the investments in water 59 4. What the Strategy might mean for World Bank engagement: Some examples from the regions m4.3 Andhra Pradesh The World Bank can be most effective when it identifies reforming political leaders and provides them with backing for their reform programs development projects that underpinned the role more suited to the challenges facing the treaty. country and more broadly accepted by all parties. Over the past decade and more, however, water development and management In recent years the World Bank has taken a challenges in India have changed.While im- radically different position to overall en- portant opportunities remain for the devel- gagement in India.The pillars of this reform opment of water resources (for hydropower strategy, as laid out in recent Country Assis- in the mountainous states, for example), the tance Strategies: major challenge has shifted to getting the greatest productivity from existing re- · The central issue is not vision, but how to sources, paying greater attention to the en- move from here to there, or the political vironment and managing scarce resources in economy of reform. an efficient and accountable manner. In too · TheWorldBankisabletoexertlittlelever- many cases the result has been stagnation or age through conditionality. standoff. Stagnation in the sense that failed · The World Bank can be most effective institutional models have not been reformed when it identifies reforming political and standoffs between proponents of water leaders and provides them with backing projects (who point to their economic bene- for their reform programs. fits) and opponents (who tend to emphasize the economic and social costs). During this What has this change meant, and what period the World Bank struggled to find a might it (in conjunction with this Strategy) 60 Water Resources Sector Strategy: Strategic Directions for World Bank Engagement mean for future World Bank work in water the Andhra farmers say they will not allow a management in India? new government to give them free water." Irrigation is the largest water-using sector Global experience shows that water user as- and the key to improved water resources sociations are a necessary but not sufficient management in India. As in many other condition for improving irrigation perform- countries public irrigation agencies, so im- ance. Equally important (and generally portant to food security, rural development much more difficult) is reforming the way in and poverty reduction, have become inflexi- which managers of the infrastructure (the ir- ble and ineffective in providing the services rigation departments in India) perform. The that users demand.The World Bank has rec- state government of Andhra Pradesh real- ognized for some time the importance of re- izes that this is the next challenge. Discus- forming the way public irrigation services are sions with the World Bank center on the provided, but has struggled in finding a way assessment of options for developing service to translate ideas into actions. providers that operate on modern institu- tional principles, including competition and A critical turning point came in the late accountability to users and for management Discussions with 1990s, with the World Bank's focus on re- and maintenance of assets. the World Bank forming states. The first and strongest re- center on former was the government of Andhra On the water resources side the challenge in options for Pradesh (map 4.3). Drawing on interna- Andhra Pradesh is to assist the state in its ef- tional best practice,theWorld Bank provided forts to be a facilitator. For example, the state developing strong support for the introduction of water (which is an emerging global software cen- service providers user associations as a first step in this reform ter) has made substantial advances in the that operate on process. With strong political and bureau- collection of data, but interpretation and use modern cratic leadership from the state, water user of those data for decisionmaking lag behind. associations were formed in all of the state's The challenge includes developing a legal, institutional public irrigation systems.This ambitious ex- regulatory and institutional basis for making principles, periment shows initial signs of success. Last water reallocation more flexible and volun- including year, for example, during a severe drought, tary, with careful attention to the highly sen- competition and water distribution and overall productivity sitive issue of the water rights of users and to improved. The success is attributable to two ecological requirements (for example, re- accountability to factors: the intelligence and ingenuity of leases into estuaries for the sustenance of users farmers, and the extraordinary political and mangrove swamps and fisheries). These are bureaucratic leadership. (To cite just one ex- key elements of an integrated river basin ap- ample, every few weeks the chief minister proach to water management,a central prin- has a videoconference with senior adminis- ciple in the Indian National Water Policy and trators in each of the 20-odd districts. Cen- in the water policy of most Indian states. It tral and district administrators are called on fits well with the government of Andhra to account for their performance, including Pradesh's SMART (Simple, Moral, Account- in managing irrigation systems. Equally re- able, Responsive, Transparent) philosophy. markable, the press, both in the capital and But it is a task that will take decades of per- the districts, is invited.) sistence to complete, as well as a sequenced, prioritized program of actions tailored to the The Andhra water user association revolu- political realities as they evolve. The World tion has set a standard for other states to fol- Bank is, and is likely to remain, a central low. As a group of Haryana farmers who partner for both advice and investments in went on a study tour of Andhra Pradesh advancing this ambitious and vital agenda. noted: "Andhra farmers are poorer, but they pay much more for water than us.... they are While supporting "the focus states with in- happy, because they get better service...and tegrated packages of fiscal, civil service and better cooperation between Agriculture and sector reforms" remains the foundation of Irrigation Departments....we would pay the World Bank's India Country Assistance more if we got better service.... this will not Strategy,there is also room to support stand- change if there are political changes,because alone innovations in "nonfocus states"that 61 4. What the Strategy might mean for World Bank engagement: Some examples from the regions will both directly address poverty and have a simple economic analysis shows that devel- high likelihood of a demonstration effect be- oping these water resources for irrigation is cause of commitment to reform or good sec- not the best use of limited financial re- tor performance. Thus, for example, the sources. But the political and security imper- World Bank has supported a series of suc- atives are great. While the state has decided cessful watershed management projects in not to build major dams (because of forest the Himalayan foothills and a project for the submersion and resettlement issues), it is reclamation of sodic lands in the Gangetic likely to proceed with some form of lift irri- plains. In both cases the beneficiaries are gation. The World Bank can and probably poor farmers and the environment. should play a productive role by working with the state on exploring options (new In the urban water sector, the World Bank technologies, staged development, pilot has (as in irrigation) a long history of coun- schemes) that will meet the real political and try activity within the existing institutional security needs while maximizing the likeli- framework, but with mixed results. Accord- hood of sustainability and limiting fiscal ingly, the World Bank has decided to discon- damage to the state. The World Bank tinue financing urban utilities unless they is actively are associated with major institutional re- TheWorld Bank is actively engaged inAndhra engaged in forms. The World Bank is now focusing its Pradesh in the provision of knowledge and analytical and advisory services on states advisory services: on the water components Andhra Pradesh that have shown commitment to fiscal and of the state's "2020 Vision" document, on in the provision institutional reforms. benchmarking and irrigation reform options, of knowledge on utility reform, on groundwater manage- and advisory In hydropower the World Bank's strategy is ment and on water rights administration and much the same. India has substantial unde- ecological flows. While further World Bank services: on veloped hydropower potential. But the elec- investment support forAndhra Pradesh is yet benchmarking tricity sector still has major institutional and to be discussed, a next-generation package and irrigation financial problems. The World Bank has de- might include: reform options, clined to finance the development of new generation capacity (including hydropower) · A sectoral adjustment-type approach in on utility reform, and would only consider re-engaging if which the World Bank finances a part of on groundwater there are fundamental energy sector re- the government's program of reforms and management forms. If this happens, and if new hydro- investments. and on water power generating capacity is an appropriate · Strong emphasis on a carefully sequenced option, World Bank involvement is likely to and prioritized program of institutional rights be primarily in the form of guarantees for reforms, efficiency enhancements and administration private sector participation. resource management measures both and ecological within the principal sectors (water utili- flows Most of the infrastructure challenges in India ties, irrigation) and for overall water re- relate to the more effective use of existing in- sources management. frastructure and to the environmental and fi- · A component of high-priority, well (but nancial sustainability of that infrastructure. not narrowly) justified investments that That said, there are still challenges relating to would include modernization of major ir- the development of water resources, as illus- rigation systems and some new invest- trated in Andhra Pradesh.The waters of one ments, including possibly a phased, major river in the state, the Krishna, are fully piloted Godavari lift scheme. developed, but there is considerable poten- tial in the other major river,the Godavari.The The World Bank's experience in India is a problem is an elevation separation of about powerful illustration of the central messages 300 meters from the place where the water is of this sector Strategy. First, water resources available to the place where there is land and infrastructure can be the basis for sustainable a major demand for water (with entitlement economic growth and poverty reduction and issues going back to the pre-independence can even help to improve relations among ri- days of the Nizam and with water scarcity parian countries. Second, development must contributing to endemic security issues). A be accompanied by management reforms. 62 Water Resources Sector Strategy: Strategic Directions for World Bank Engagement Third, reforms are difficult, and can only be in the world. Only 4 percent of water pro- made when there is demonstrated local po- duction capacity goes toward the creation of litical leadership. Fourth, when there is such revenue. leadership, the World Bank can play a vital role in bringing new ideas to the table and in- The World Bank (including IFC and the vesting in ways to make reforms durable. World Bank Institute) has been heavily in- Fifth and finally, reforms cannot be achieved volved in supporting the state and federal in a day. The art of reform is defining a se- governments in exploring options, and quenced, prioritized set of reform actions, of modest gains have already been made. picking the low-hanging fruit first, of not Lagos will be split into two zones. The first making the best the enemy of the good, and zone (Lekki and the Islands) is being pre- ensuring an appropriate incentive system for pared for private management through a political leaders who take these risks. concession contract, to be awarded by com- petitive bidding. The remainder of the city will be served by a less ambitious manage- Illustration 4: What the new Sector ment contract, currently under preparation. Strategy might mean in Nigeria Closely associated is the issue of drainage For Nigeria, the and sanitation in Lagos, an issue the World World Bank has In many respects the Nigeria­World Bank Bank is addressing through lending and ad- developed a relationship is atypical, given the World visory services. multitrack Bank's disengagement during the years of military rule in the 1990s.4 With the return of The situation in many other Nigerian cities engagement democracy, however, the World Bank has re- is not much different. Even in Kaduna, the strategy that engaged, opening a daunting set of chal- greatest beneficiary of World Bank loans (for can be lenges for the World Bank in which the 20 years),the water utility still does not cover considered a two-way link between water and politics all of its operation and maintenance costs. (present everywhere) is particularly evident The World Bank will support Kaduna, and as "best practice" (map 4.4). In the water sector the most im- many as five other states where the political application of mediate and visible problem is urban water will exists, to undertake reforms similar to the main strands and drainage services, with Lagos particu- those in Lagos. In small towns, which have of this Strategy larly prominent. among the lowest service levels in Africa, the government, with World Bank support The recent performance of the water through a Learning and Innovation Loan, is institutions--agencies for managing urban piloting the innovative, demand-driven and rural water supply and sanitation, irri- Small Towns Project, which includes com- gation, and the domestic and international munity contributions to the construction rivers--has been extremely poor. With a costs of the facilities while contracting out soaring and urbanizing population the chal- the operation and maintenance to the pri- lenges in the coming decades are immense. vate sector. In response to this challenge, the World Bank has developed a multitrack engage- The second track of the World Bank's strat- ment strategy that, in many respects, can be egy for water management in Nigeria in- considered a "best practice" application of volves addressing a series of important, the main strands of this Strategy. The first though politically less explosive, water serv- track involves assisting Nigeria to rapidly ice challenges. These include developing a address the most politically visible issues in sustainable strategy for addressing the for- innovative ways. The performance of public midable urban sanitation and rural water utilities has come to symbolize the poorest and sanitation problems and following up aspects of governance in Nigeria. Lagos is a on the World Bank's successful family-based test case.The publicly run Lagos State Water groundwater irrigation project. The World Supply Corporation has been described, in a Bank might also address the large public sec- recent consultant's report, as "in a dramatic tor irrigation projects run by the river basin state of neglect, close to collapse,"and holds development authorities, where less than 10 the dubious distinction of having the high- percent of the command area of 400,000 est recorded level of unaccounted-for water hectares actually gets regular supplies of ir- 63 4. What the Strategy might mean for World Bank engagement: Some examples from the regions m4.4 Nigeria rigation water. Here the test for the World management, on which the World Bank re- Bank is to bring best practice both to the user cently initiated an innovative first project level (drawing on the growing body of expe- with a strong poverty focus. And finally rience with user associations in other coun- there is a set of important international tries) and the utility level (applying the ideas water issues relating to management of the of benchmarking, competition, private sec- Niger and Benue Rivers and the Lake Chad tor participation and accountability). Basin,where theWorld Bank is already play- ing an important facilitating role (with the The third track involves laying the ground- assistance of Global Environment Facility work for the longer term water manage- funding). The focus in these endeavors has ment challenges in Nigeria. This includes appropriately been on raising awareness working with the federal government to fa- and building capacity. cilitate institutional rationalization, legisla- tive reform and development of capacities The experience of the World Bank in Nige- for strategic water resources management ria, and the views of a variety of stakehold- planning. At the river basin level, it means ers on this experience, were important supporting the development of modern elements in defining the main strategic lines stakeholder-based institutions for river for this Water Resources Sector Strategy. It is basin management. As in other countries, not surprising, therefore, that the World this will require starting where there is a Bank's strategy in Nigeria is broadly consis- strong demand for reform. One place might tent with the main themes of this Strategy. be the conjuncture of irrigation, urban water supply and ecological flows for floodplain The political reality of Nigeria poses a major agriculture in the Hadeija Jamaare Basin. A challenge in designing and implementing second important area is micro watershed World Bank activities, especially those in- 64 Water Resources Sector Strategy: Strategic Directions for World Bank Engagement volving infrastructure investment. Reputa- Illustration 5: What the new tional risks are high because of complex en- Strategy might mean in the vironmental, social and governance issues. If Philippines the World Bank engages in such activities and cuts corners, there will inevitably be The recent experience with water manage- mistakes and blots on its reputation (espe- mentinthePhilippinesisagraphicillustration cially in a country with many institutional of one of the central themes emerging from limitations and a history of corruption). On the Operations Evaluation Department re- the other hand, if the World Bank chose to view of the experience in implementing the require full comfort before engaging, World Bank's 1993 Water Resources Manage- progress on the ground would be slow, and ment Policy Paper (map 4.5).5 In particular, it the opportunity cost in terms of develop- is a striking example of how, in the words of ment benefits for the people of Nigeria that report, "Progress takes place more would be great. In this case, the World Bank through`unbalanced'development than com- would be unable to make a contribution in prehensive planning approaches and....insti- the critical areas where the effectiveness of tutional development efforts should abandon civilian rule will be judged and might there- comprehensiveness of scope and schedule Progress in fore miss the window of opportunity which and a partial, cumulative, and highly focused water manage- now exists. approach [should be] pursued...."6 ment takes place more In the past few years the World Bank has The first part of the Philippines story is the dealt with these challenges in imaginative fate of a high-level effort in the 1990s to in- through and courageous ways. To a large degree the troduce comprehensive, integrated water `unbalanced' World Bank's strategy for engagement with resources management. Despite initial lead- development Nigeria is best practice under extremely ership by President Fidel V. Ramos, despite than compre- challenging circumstances. This is so be- first-rate technical assistance from an exter- cause the World Bank: nal financing agency and despite the exis- hensive planning tence of an apex national water resources approaches · Has developed a prioritized, sequenced management agency, water resources re- and multitrack approach. form was not successful. · Has built, where possible, on formidable grassroots capacities (for example, in the The second part of the story relates to the di- fadama irrigation project and the water- rect and ripple effects of the decision to issue shed management project). two concession contracts for water and sew- · Has realized that without fundamental erage services in Manila. President Ramos building blocks--sound institutions at took this decision after the striking success the service level--there can be no with the introduction of private sector elec- progress on the more difficult resource tricity suppliers. The World Bank was an en- management issues. thusiastic partner,since the publicly operated · Has realized that the best must not be the water utility had become a textbook case for enemy of the good, and has thus pro- the failure of donor-supported incremental ceeded with some radical changes (for ex- reform. (After 30 years of World Bank loans, ample, through the concession contract unaccounted-for water had increased from for Lagos), aware of the significant room 45 percent to 65 percent.) The IFC advisory for improvement in governance and reg- service played a major role as an effective ulatory conditions and ready to support partner to the government in the concession the government in identifying and man- process, which has become a model (docu- aging the risks that will materialize in ex- mented in an excellent book by the civil ser- ecuting the contract. vant who led the process7) of transparent · Hasproceededonparalleltracksinbuild- governance. The Manila concessions are not ing the knowledge and institutional base yet stable and face major challenges in man- for dealing with the longer run resource aging the effects of a major devaluation. management challenges within Nigeria and in the international basins of which In urban water services, the World Bank, in Nigeria is a part. partnership with public sector banks,is trying 65 4. What the Strategy might mean for World Bank engagement: Some examples from the regions m4.5 The Philippines to build on the momentum of Manila and to fair and transparent rules for addressing respond creatively to the new reality of fiscal competing uses between urban and agricul- decentralization in the Philippines.TheWorld tural users and are helping develop a robust Bank's urban water group is developing an solution to the allocation issue. The hidden imaginative portfolio aimed at consolidating issues of allocation rules, water rights and the concessions in Manila (with special at- fairness were thus brought to the surface by tention to regulatory issues and participatory private sector participation in Manila. The performance audits), bringing lease contracts World Bank has been active as a knowledge to small towns and focusing on difficult sew- partner on water rights issues and is helping erage issues.An implicit element of this strat- define transparent mechanisms for water re- egy is developing competition for the Local allocation under a transferable water rights Water Utilities Administration, the national framework with equitable compensation. urban water supply agency that is now under heavy pressure to reform. Second, the private operators of the conces- sions (international consortiums, led by In resource management, the ripple effects Philippine companies) also understood that from Manila are transforming the way water their raw water assets were threatened by resources are managed in the Philippines. erosion in the catchment and initiated pro- These transformations began with theAngat grams for stimulating better land and water Dam, the main source of bulk water for conservation practices in the catchment. Manila and for about 30,000 irrigated hectares. First, although water distribution Given the illustrious history of water user as- has been concessioned, the Metropolitan sociations in the Philippines (dating back to Waterworks and Sewerage System, the old the 1970s, which have been an inspiration to public agency, still has the bulk water rights much of the participatory irrigation move- and is under contract to supply water to the ment around the world), there has been sur- two concessionaires. The concessionaires prisingly little progress in modernizing have helped raise awareness of the need for irrigation management in the Philippines. 66 Water Resources Sector Strategy: Strategic Directions for World Bank Engagement World Bank staff have long seen that reform Manila that has given rise to a host of new of the National Irrigation Agency is neces- (also creative) tensions to resolve in the serv- sary. However, as in so many other cases, the ice and resource arenas. World Bank engaged in the gradual and dif- ficult task of incremental reform. The unin- For the World Bank there are powerful les- tended effect may have been to prop up an sons from the Philippines experience.These agency that has not been effective and ac- include: countable to users, in part because about 80 percent of its capital budget and a large part · Acting where there are strong forces de- of its operating revenue come from donor manding solutions, and not in response funding. to an idealized notion of how a sector should be managed. The World Bank is re-thinking its approach · Understanding that the reform process is to irrigation reform in the Philippines. The dialectic and never final--each success starting point is the idea that while user as- gives rise to a new, higher form of sociations are key, reform of the service challenge. agency is central.And,again,theWorld Bank · Providing reforming politicians and civil The Philippines has much to bring to the table in terms of servants with access to international best experience tools for assessing institutional options, for practice, and with timely advisory indicates that benchmarking and for stimulating competi- services. "the politics of tion among service providers. While there · Building on political momentum in one are encouraging signs of donor convergence arena to stimulate reforms where new reform is the on this issue, the essential ingredient will be tensions are created. politics of political and civil service leaders willing to · Backing away when it is clear that incre- tension" address the thorny issues of agency reform. mental reforms are perpetuating the sta- tus quo. In water resources management, it is clear · Fostering the synergies that can be cre- that effective action requires both working ated when members of different parts of from the top (enabling legislation and sup- the World Bank Group and members of port for local efforts) and from the bottom, differentWorld Bank families (in this case, where there is a real demand for solutions. rural and infrastructure) work together on There are water resources hot-spots in the water issues. areas around Manila and Cebu, with a third area of scarcity emerging in the CagayanVal- ley in Northern Luzon. In Manila, privatiza- Illustration 6: What the new sector tion has helped catalyze reforms. In Cebu, Strategy might mean in Yemen local civil society has been the leader in push- ing for solutions to the acute local water re- Yemen faces one of the most dramatic water sources problems.In the past theWorld Bank management challenges in the world (map has tended to engage in top-down river 4.6).8 Most of the population lives in high- basin planning exercises in areas without land areas and depends almost entirely on strong demand for reform.In the future it will groundwater for domestic, agricultural and need to seek opportunities, going where industrial supplies. Over the last 20 years a there are immediate needs for reform and ac- groundwater revolution has taken place, tors who want to make the changes happen. with the widespread adoption of tubewell technology. While bringing prosperity to As with the other focus country studies, the rural areas, this revolution is not sustainable. experience of the Philippines had a substan- Groundwater is being pumped at a rate ap- tial impact on the main messages of this sec- proximately four times that of natural tor Strategy. The Philippines experience recharge. This situation has dramatic short- indicates, in the words of one participant in term results, with some previously produc- the Manila consultation,that "the politics of tive valleys already abandoned, with reform is the politics of tension."It has been pumping depths already great and increasing the introduction of a new "creative tension" constantly and with a sharp rise in conflict in the form of the concession contracts for between users competing for disappearing 67 4. What the Strategy might mean for World Bank engagement: Some examples from the regions water resources. But in the long term the sit- regional strategy, the region took the next uation is even more serious, for there is sim- logical step of developing country strategies. ply no way people can live where they do The country water strategy forYemen (1997) unless water is managed more sustainably. was in many ways also a pathbreaker, this time for the country water resources assis- Compelling as the demographic and hydro- tance strategies advocated as part of this logical imbalance is, the odds are heavily new sector Strategy. stacked against effective action. Groundwa- ter management is a classic open access re- The hydrological,political,economic and so- source management problem, which poses cial complexity of water management in major difficulties even in the best of inst- Yemen made this strategic view particularly tutional environments. In arid parts of de- important. The Yemen water strategy also veloped countries, for example, where there succeeded in highlighting the water issues in is excellent hydrogeological information, the government's development plans and, where decision support systems are avail- consequently, in the World Bank's Country able, where property rights are clearly de- Assistance Strategy. Yemen faces fined and enforced and where there are one of the most strong local organizations, it still often re- Coincident with the formulation of the dramatic water quires the heavy hand of the courts to force Yemen water sector strategy, the World Bank actions that will lead to sustainable ground- supported a set of pilot activities on key is- management water management. InYemen none of these sues, intended as first steps in a long process challenges in the conditions are in place. The notion of na- of learning and adjustment.These first-gen- world: there is tional management and national legislation eration pilot projects included efforts to: no way people is unrealistic in a country with incomplete national integration and severe capacity · Improve the efficiency of water use in can live where constraints in all sectors. This means that agriculture, focusing particularly on re- they do unless groundwater management necessarily has ducing real losses (water lost through water is to be done at the local level, aquifer by evapotranspiration) rather than paper managed more aquifer. Hydrogeology is a complex and fre- losses (water that percolates down into quently misunderstood subject. Clear, accu- the aquifer). sustainably rate and practical information on the · Reinforcestrong,traditional,community- hydrogeological consequences of different based management systems for manag- actions is available in only a few select set- ing flash flood flows. tings inYemen.And even where some infor- · Improve the efficiency of urban water mation is available, the situation presents supply. formidable challenges,including inequitable · Starttoaddresstheenormoustaskofsus- use of resources (with a handful of large tainable management of selected landowners typically responsible for most of aquifers. the abstractions),an absence of formal water rights and a lack of local institutional struc- As emphasized in this sector Strategy, a uni- tures for managing the new type of conflicts versal lesson of water reform is that it takes that the tubewell has created. patience and persistence, with only partial successes over the course of decades (wit- Over the past decade the World Bank, to- ness the experience of developed countries). gether with other donors, has come to play When effective management instruments an important role in the massive task that are few (as inYemen), even greater modesty, lies ahead of Yemen. The starting point for patience and persistence are required.This is the World Bank, following the 1993 Water always difficult advice to convey, especially Resources Management Policy Paper, was given the enormity and immediacy of the the formulation of a regionwide water sector water problem inYemen. strategy for the Middle East and NorthAfrica Region, a task that was completed in 1995. Most important, the Yemen experience has This exercise, involving extensive consulta- meant doing and learning and thinking and tions with clients and partners, was the first adjusting simultaneously. There has been of its kind in the World Bank. Building on the vigorous debate within the World Bank on 68 Water Resources Sector Strategy: Strategic Directions for World Bank Engagement m4.6 Yemen what can and cannot be learned from the the capacity of the national water manage- first generation of World Bank-financed ment agency, especially in information and water projects, and from the efforts of oth- decision-support systems. Again, the ap- ers. This is an intrinsically difficult process, proach will have to be step by step, learning especially for an institution with high aims and adjusting as lessons accumulate. But if and global standards, since it means ac- even partial success can be achieved in the knowledging situations that are less than Sana'a Basin, which includes the national desirable and formulating options that may capital, this could have a big demonstration not be optimum but correspond to the harsh effect on the rest of the country. realities of the country. The water resources challenges of Yemen The second generation of World Bank- are an extreme case and shed unusually clear financed water projects is now coming on light on some of the central strategic water line in Yemen. These are reflected in the management questions facing the World Sana'a Basin Water Resources Management Bank. There are few issues relating to major Project and Groundwater Management and water infrastructure, but many on minor in- Conservation Project, both under prepara- frastructure, especially on the political econ- tion. Building on the experiences of the first omy of water resources management. generation activities, they address better in- tegrated management of land and water Perhaps the greatest challenge for the World (through watershed management compo- Bank is to be realistic about the nature of the nents), further attention to maximum return challenge and about what change is possible per unit of evapotranspiration, development in what time frame. Water management re- of local capacity for resource management form ideally derives from underlying factors efforts to improve the legal and institutional such as participation and a market economy. framework and efforts to selectively improve While Yemen has made progress in recent 69 4. What the Strategy might mean for World Bank engagement: Some examples from the regions years, it still ranks near the bottom of world for these reform discussions has been a tables for these indicators. It is therefore very client's request for major infrastructure in- unlikely in the foreseeable future that the vestments. Where the scale of perceived in- water sector inYemen will look anything like vestment needs is vast, a review of current an ideal Dublin Principles-type water sector. practices and options is generally called for. In Africa the need for major water infra- In such a context how does the World Bank structure investments is great: access to formulate approaches that correspond to re- potable water is lower than in any other re- ality and not idealized forms of social and gion, and rainfall variability is roughly three political structure? How does the World times that in temperate regions but water Bank work with the borrower to formulate storage per capita in reservoirs is far below achievable (but far from perfect) targets for that in developed countries.Water resources the next 5, 10 or 20 years? How does the management capacity and infrastructure in- World Bank help staff who are struggling vestment levels are low; both must be ad- with this massive task,in particular to ensure dressed for either to be truly effective. that the focus is on what is possible and re- How does the alistic, so that the best does not become the An additional complication is that Africa has World Bank enemy of the good?And how does theWorld more international rivers (shared by three or focus on what is Bank help borrowers pick the low-hanging more countries) than any other continent.The fruit, an approach that is essential for build- World Bank is increasingly asked to facilitate possible and ing confidence and capacity, but that is easy and support cooperative management of in- realistic, so that to characterize as inadequate given the mag- ternational water resources. These requests the best does nitude of the challenge? reflect the World Bank's capacity as a not become the knowledge bank offering global experience in The Sana'a Basin Water Resources Manage- water resources management and its capacity enemy of the ment Project suggests that the World Bank is as an investment bank underwriting the good? approaching these dilemmas seriously and investments that will deliver the development sensibly.The project has been designated as benefits of international cooperation. a corporate project, signaling that integrated water resources management approaches in Tensions over the control of Nile waters the context of scarce resources and compet- (map 4.7) are longstanding obstacles to ing claims for the resource can pose serious growth and development in the region. challenges to governments and to those, like Conflict prevention and cooperative water the World Bank, that support them. The resources management in the Nile Basin are learning-by-doing approach adopted in the therefore central development challenges interventions in Yemen supported by the for the 10 countries that share the Nile River. World Bank reflects the formidable chal- lenges, realizable accomplishments and A clear example of the importance of this need to look for solutions beyond the usual Strategy is the Nile Basin Initiative. The ini- blueprints. tiative is a cross-regional international water resources program supported by the Africa and Middle East and NorthAfrica Regions of Illustration 7: What the new sector the World Bank. The initiative is led by the Strategy might mean for the World Council of Ministers of Water Affairs of the Bank's work on international Nile Basin States (Nile-COM), supported by waters: The Nile Basin Initiative a small secretariat in Entebbe.The Nile Basin Initiative's Strategic Action Program is Since 1996 the Africa Water Resources Man- guided by a shared vision "to achieve sus- agement Initiative has sought to improve tainable socio-economic development national water resources management through the equitable utilization of, and through institutional and legal review and benefit from, the common Nile Basin water reform efforts, with an emphasis on owner- resources." The action program includes a ship and stakeholder participation, environ- basinwide SharedVision Program of techni- mental sustainability, demand management cal assistance-style projects designed to lay and cost-efficiency. Often, the point of entry the foundation for cooperative action, and 70 Water Resources Sector Strategy: Strategic Directions for World Bank Engagement m4.7 Nile River Basin two subbasin investment programs that will neutrality and, importantly, its capacity to fi- promote poverty alleviation, growth and im- nance cooperative investment programs. proved environmental management. While the overarching goals of the Nile At the request of Nile-COM, the World Bank Basin Initiative are conflict prevention, is facilitating discussions among the riparians, poverty alleviation and environmental backstopping the Nile Basin Initiative's tech- management--not simply the construction nical work and coordinating international of major water infrastructure--its mutually support for the initiative and the investments agreed projects will deliver the most appar- it identifies. The World Bank has a compara- ent and immediate development impacts. tive advantage in this role because of its strong Should it be difficult for the World Bank to national-level working relationships with provide this support, for example due to the many of the riparian countries, its develop- reputational risks of financing major infra- ment focus, its technical capacity, its political structure in the Nile Basin, this could un- 71 4. What the Strategy might mean for World Bank engagement: Some examples from the regions dermine the Nile Basin Initiative process. ingly, the implications of the Strategy for World Bank disengagement from invest- the World Bank's work in a particular coun- ment could erode riparian confidence that try can only emerge over time, in response efforts will lead to real development gains, to demand from borrowers and as part of a and donor confidence that the Nile Basin larger relationship. Initiative investments are sound. Some projects might find financing without sig- That said, the examples serve to illustrate nificant donor involvement. It is unlikely, how the broad themes of this Strategy are however, that all countries would be able to likely to play out in differing contexts. They access funding. Such asymmetric access to show: finance could increase tensions in the re- gion. Moreover, best practice environmental · Onwaterresourcesmanagement,theim- and social safeguards are more likely to be portance of paying explicit attention to: ensured with the involvement of donor · The wide variation in the underlying partners. challenges, from a natural, economic, political and social perspective, and When the World When the World Bank commits to long- the wide variety of starting points for Bank commits to term, high-reward­high-risk undertakings the appropriate ambition and pace of long-term, high- like the Nile Basin Initiative, it is essential reform. that it have a clear institutional mandate to · The need to move away from slogans reward­high-risk fulfill the range of functions--in both advi- based on principles and to focus di- undertakings sory and investment support--required by rectly on issues of political economy. like the Nile such a commitment. This means close attention to prioritiz- Basin Initiative, ing and sequencing reform actions, This Strategy maintains an emphasis on the taking advantage of windows of op- it is essential World Bank's knowledge-based support to portunity thrown open by exogenous that it have a water resources management and reform, economic and political reforms, un- clear institu- while reconfirming its commitment to sup- derstanding that the best should not tional mandate port sound, environmentally sustainable become the enemy of the good and and cost-effective investments in water in- operating with patience and to fulfill the frastructure. Implementation of the Strategy persistence. range of will strengthen the effectiveness of the · The need to see water resources re- advisory and World Bank's support to water resources forms through an expansive lens,going investment management in the Africa Region--in both well beyond hydrology to the political, its efforts to provide management and insti- social and cultural underpinnings. fuctions required tutional support and advice and its efforts to · The need to use the World Bank's com- finance infrastructure investments. In prac- parative advantage, by linking water re- tice, institutional support and investment fi- formstobroaderreformsingovernance, nance are often interlinked in project design civil service reform and financing. and client relations. · On the development of water infrastruc- ture: · That most developing countries need Implementing the sector Strategy to invest substantially in water in the World Bank's operations: infrastructure. What these examples show · That the appropriate image is not the old one of development first and The World Bank's activities in water re- management later, nor the equally sources in any particular country are the unbalanced management first and product of three factors: the water re- development later, but that what is sources challenges in the country and the required is a context-specific mix of government's approach to them, the over- investments in management and all framework governing the relationship development. between the country and the World Bank · That the World Bank must find more (as embodied in the Country Assistance effective ways of becoming engaged if Strategy) and this sector Strategy. Accord- it is to have a seat at the table and serve 72 Water Resources Sector Strategy: Strategic Directions for World Bank Engagement as a full-service advisory and invest- Notes ment partner to developing countries. 1. This assessment is based in part on consulta- tions held with stakeholders in Brasilia in As described above, this Strategy is the third February 2000.The presentations, panel discus- in a trilogy of World Bank statements on sions and reports from that meeting are water resources management. The first, the available on www.worldbank.org/water.These 1993 Water Resources Management Policy consultations were complemented by a Paper, outlines the principles governing the discussion in Fortaleza in March of 2001 with World Bank's work in water resources. The senior political, civil service, professional and second, the 2001 Operations Evaluation De- civil society leaders on the report of the World partment assessment of experience with im- Commission on Dams. plementation of the Policy Paper, concludes 2. For all other regions, these assessments of that the Policy Paper remains valid and ger- what the Strategy might mean are based in part mane, but that the ambition and the pace of on consultations held with stakeholders in implementation must be tailored to the wide preparation for this Strategy. Due to budget variety of circumstances found in the coun- constraints, no consultation was held in Europe tries that borrow from the World Bank.9 This and Central Asia. The World Bank Strategy, the third part of the trilogy, builds 3. This assessment is based in part on consulta- needs to move on the principles of the 1993 Policy Paper tions held with stakeholders in New Delhi in away from and the lessons of the Operations Evalua- May 2000.The presentations, panel discussions slogans based tions Department study and focuses on how and reports from that meeting are available on to translate principles into action. www.worldbank.org/water. on principles 4. This assessment is based in part on consulta- and to focus These examples from Brazil, Central Asia, tions held with stakeholders in Abuja in directly on India,Nigeria,the Philippines,Yemen and the September 2000.The presentations, panel issues of Nile Basin underscore the main messages of discussions and reports from that meeting are this Strategy. First, in most developing coun- available on www.worldbank.org/water. political tries it is necessary to simultaneously improve 5. This assessment is based in part on consulta- economy the management of water resources and in- tions held with stakeholders in Manila in Febru- vest in developing water resources. Second, ary 2000.The presentations, panel discussions even under the best of circumstances, im- and reports from that meeting are available on provement in resource management is a task www.worldbank.org/water. that is only partially accomplished. It requires 6. World Bank Operations Evaluation patience, persistence, realism and greater at- Department. 2002. Bridging Troubled Waters: tention to the prioritization and sequencing Assessing the World Bank Water Resources of reforms and their linkage to broader polit- Strategy. Washington D.C. ical and economic reform efforts. Third, the 7. Dumol, Mark. 2000."The Manila Water Con- World Bank needs to re-engage as a partner cession: A Key Government Official's Diary of in developing high-reward­high-risk water the World's Largest Water Privatization." infrastructure through a new approach that Directions in Development Series, World Bank, focuses primarily on the development risks of Washington D.C. not being involved and that leads to more 8. This assessment is based in part on consulta- predictable, crisper decisions, without com- tions held with stakeholders in Sana'a in promising social and environmental stan- September 2000.The presentations, panel dards. Fourth and most important, the discussions and reports from that meeting are examples illustrate graphically that improved available on www.worldbank.org/water. water resources management and develop- 9. World Bank Operations Evaluation ment are essential for environmentally and Department. 2002. Bridging Troubled Waters: As- socially sustainable growth and for the reduc- sessing the World Bank Water Resources Strategy. tion of poverty. Washington D.C. 73 4. What the Strategy might mean for World Bank engagement: Some examples from the regions ABBREVIATIONS CAS Country Assistance Strategy CGIAR Consultative Group for International Agricultural Research GDP gross domestic product IDA International Development Association IFC International Finance Corporation MIGA Multilateral Investment Guarantee Agency NGO nongovernmental organization OECD Organisation for Economic Co-operation and Development PAD Project Appraisal Document PRSP Poverty Reduction Strategy Paper UNEP United Nations Environment Programme WCD World Commission on Dams 74 ANNEX 1: THE WORLD BANK POSITION ON THE REPORT OF THE WORLD COMMISSION ON DAMS December 13, 2001 · Seven strategic priorities--gaining public acceptance,assessing options,addressing Dams are important contributors to the de- existing dams,sustaining rivers and liveli- velopment of many countries.They improve hoods, recognizing entitlements and The World Bank and expand power generation, irrigation, sharing benefits, ensuring compliance, shares the World and domestic and industrial water supplies, and sharing rivers for peace, develop- Commission on and provide security against droughts and ment and security. Dams core protection from floods. At the same time, · A set of criteria for assessing compliance they often submerge substantial areas and and 26 guidelines for review and approval values and change the pattern of river flows down- of projects at five stages of decision- concurs with the stream, causing, in some cases, significant making. need to promote adverse impacts on the environment and the seven local communities. World Bank staff have reviewed the Report thoroughly, and have consulted widely strategic The World Commission on Dams (WCD) with its Executive Directors, with govern- priorities has produced a carefully prepared and well- ments themselves, with nongovernmental written Report which has stimulated a wide- organizations, with other international fi- ranging and productive discussion of many nancing institutions and with private fin- of the most difficult issues facing developing anciers and developers. In common with countries and agencies that work with these virtually all those consulted, the World countries. The process used by the WCD in Bank shares the WCD core values and con- preparation of the Report facilitated an un- curs with the need to promote the seven precedented dialogue between all parties. strategic priorities. The Report makes a substantial contribution to addressing the wide-ranging issues sur- The focus of much controversy regarding the rounding large dams. It presents innovative WCD Report has centered on the 26 "guide- ideas for dams to contribute more depend- lines,"which have been interpreted by some ably to sustainable development. The World proponents and critics of the Report as a pro- Bank has disseminated the WCD Report posed new set of binding standards. The widely among its shareholders, and contin- World Bank's conclusion on the guidelines is ues to participate in and benefit from the on- best summarized by the Chair of the WCD, going discussion. who has explained that "our guidelines offer guidance--not a regulatory framework.They The Report of the WCD advocates: are not laws to be obeyed rigidly....They are guidelines with a small `g'."Individual gov- · Five core values--equity, efficiency, par- ernments and private sector developers may ticipation, sustainability and accounta- wish to test the application of some of the bility--for future decision-making on WCD guidelines in the context of specific dams. projects. In such cases, the World Bank will · A rights and risks approach for identify- work with the government and developer on ing stakeholders in negotiating develop- applying the relevant guidelines in a practi- ment choices and agreements. cal, efficient and timely manner. 75 Support for strategic planning, and major differences regarding the World a dams planning and management Bank's operational policies on environmen- action plan tal assessment, natural habitats, safety of dams or cultural property; there are limited The World Bank supports its many borrow- issues regarding projects on international ers that want to continue to learn and waterways; there are some issues related to improve practice--planning, technical, eco- involuntary resettlement and indigenous nomic, environmental, and social--in con- peoples; and the WCD Report proposes a struction and operation of dams. Consistent different framework for project preparation. with the WCD recommendations, the World The following sections outline the differ- Bank will support strategic planning pro- ences between the recommendations of the cesses conducted by borrowers to enhance WCD and current World Bank operational the evaluation of options and alternatives for policies, and the position of the World Bank energy and water management. The World regarding the recommendations. Bank will also support borrowers in financ- ing sound priority investments emerging On the project preparation and The World Bank from such processes, and will continue to consultation process agrees with the apply its existing policies to these and other Chair of the projects. The WCD Report recommends a multi- stage process including the following steps: WCD that the As part of this process, the World Bank has the location, scope and design of the project 26 WCD initiated a "Dams Planning and Manage- is determined based on an agreement by all guidelines "offer ment Action Plan"to strengthen its work in stakeholders; a stakeholder forum assesses guidance--not a the water and energy sectors and to improve alternatives for the detailed layout of the the evaluation, implementation, and opera- dam; cumulative and interactive aspects of regulatory tion of dams when they are the appropriate existing infrastructure on the river are ad- framework. They development option. The Action Plan com- dressed in the design of the dam through an are not laws to prises activities in six complementary areas: agreement reached with the stakeholders be obeyed and operators; final design includes provi- · Working with borrowers to move "up- sions for emergency preparedness and de- rigidly....They are stream," so that all energy, water supply commissioning; mitigation, resettlement, guidelines with a and flood and drought protection options monitoring and development plans are small `g'" are assessed. agreed with affected groups and signed as · Continuingtoemphasizeinstitutionalre- "contracts" with them; performance bonds form for more efficient use of water and are secured, trust funds established and in- energy. tegrity pacts signed before project imple- · Effectively implementing the World mentation starts; and licensing to construct Bank's existing safeguard policies. and operate the dam is conditional on satis- · Continuing to support borrowers in im- factory implementation of agreed mitigation proving the performance of existing and development plans. dams. · Practicing a proactive and development- The World Bank remains committed to im- oriented approach to international waters. plementation of its operational policies to · Continuing to support innovative ap- ensure that: key stakeholders are systemati- proaches and capacity building for dealing cally identified and involved in project plan- with complex dam-related management ning and implementation; meaningful and technical issues. upstream consultations are held with af- fected groups to guide project decision- making, and their views and preferences are World Bank policies reflected in the plans developed as an inte- gral part of the project. The implementation In reviewing the WCD Report, the World of mitigation and development plans is Bank has paid particular attention to the sec- funded as an integral part of the project tions that are relevant to World Bank opera- budget and regularly monitored, both by the tional policies. In broad outline: there are no Borrower and the World Bank. The World 76 Water Resources Sector Strategy: Strategic Directions for World Bank Engagement Bank notes that in both developed and de- are finalized. Implementation of the agreed veloping countries the state has the right to mitigation and development plans is re- make decisions that it regards as being in the flected in the legal agreements between the best interest of the community as a whole, World Bank and the Borrower. and to determine the use of natural re- sources based on national priorities. Resettlement implementation is monitored by the Borrower and the World Bank, and On involuntary resettlement "independent panels" are increasingly en- gaged in projects with major resettlement The WCD Report recommends that: all ad- impacts. The recently approved World Bank versely affected people negotiate formal and operational policy on involuntary resettle- legally enforceable mitigation plans (in cases ment also requires an early review of reset- where negotiations stall, an independent tlement implementation to use the lessons dispute resolution process is required); any learned for subsequent implementation. outstanding resettlement issues associated World Bank-financed projects are not con- with existing large dams on the same river sidered complete until agreed plans are fully be identified and remedied before new in- implemented, and follow-up surveys are The World frastructure is built; adversely affected peo- conducted at project completion to docu- Bank's ple be recognized as first among the ment the extent to which the incomes and resettlement beneficiaries of the project, and mutually standards of living of affected people have policy is built on agreed and legally protected benefit sharing been restored. The findings of these surveys mechanisms negotiated to ensure imple- form the basis of discussion on follow-up the principle of mentation; a clear agreement with the af- measures, as necessary, with the Borrower.A informed fected people be reached on the sequence chapter of the forthcoming World Bank re- participation of and stages of resettlement before construc- settlement sourcebook will describe good- affected people tion on any project preparatory works be- practice elements of reservoir resettlement, gins; compliance plans be enforced through drawing on, among other sources, the ex- in resettlement independent review; and the license to con- tensive knowledge base compiled by the planning and struct and operate the dam include condi- WCD. implementation, tions related to successful completion of but does not resettlement, mitigation and development In the past the World Bank has, when re- plans. quested by the Borrower, supported actions require the to resolve outstanding resettlement (and negotiation of The World Bank's resettlement policy is built other social and environmental) issues from development on the principle of informed participation of past projects. The World Bank is also willing and mitigation affected people in resettlement planning to assist Borrowers in developing their na- and implementation, but does not require tional, regional or sectoral social and envi- plans the negotiation of development and mitiga- ronmental policies and legal frameworks. tion plans. This approach ensures that af- fected people are assisted in their efforts to On indigenous peoples improve, or at least restore, their standards of living, in a manner that is consistent with The WCD Report proposes that indigenous their cultural preferences, while retaining and tribal peoples should give their free, the rights of the state to exercise eminent prior and informed consent to the project. domain for the larger public interest as ap- propriate in the circumstances. The World The World Bank requires that free and Bank has been and remains committed to meaningful consultations with directly af- seeing that thorough baseline studies are fected indigenous groups be undertaken conducted to identify affected people and prior to the initiation of detailed project the extent of impacts. Its operational policies preparation, and the draft operational policy require that affected people are provided op- on indigenous peoples requires that the portunities to participate in resettlement World Bank and the Borrower take into ac- planning and implementation, and draft count the results of such consultations in de- plans are disclosed in the project area to ob- ciding whether to proceed with the project. tain the views of affected people before they Where the World Bank decides to proceed 77 Annex 1: the World Bank position on the Report of the World Commission on Dams with project processing, mechanisms are es- the project and have voiced no objection. If tablished to ensure the informed participa- there is an objection from one of the ripari- tion of indigenous peoples in project ans,thenWorld Bank staff assess and confirm preparation and implementation. If indige- that the project will not cause appreciable nous peoples are likely to be adversely af- harm to the interests of the other riparians. fected by the project, the Borrower is TheWorld Bank may in appropriate cases ap- required to conduct a social assessment to point one or more independent experts to ex- help assess the scope and extent of adverse amine the project details and submit a impacts,and to discuss proposals to avoid,or technical opinion thereon. However, the minimize and mitigate them. World Bank considers a blanket prohibition on work with an agency that has built a dam Indigenous Peoples Development Plans are in contravention of good faith negotiations to prepared to help mitigate adverse impacts be too broad and to foreclose many opportu- and to promote tailoring of benefits based nities for productive collaboration.TheWorld on the preferences of the people concerned. Bank has been and remains committed, in Such plans are reflected in the legal agree- accordance with the main objective of its op- The World Bank ments between the Borrower and the World erational policy on projects on international is dedicated to Bank. The World Bank is thus dedicated to waterways, to taking a proactive role in sup- ensuring that ensuring that the views of the affected peo- porting riparians to make appropriate agree- ple are carefully documented and taken into ments or arrangements for sharing and the views of account by project decision-makers, without managing the entire waterway or any part indigenous infringing on the right of the state to make thereof. people are taken decisions which it judges to be the best so- into account by lution for the community as a whole. Summary project decision- On projects on international makers, without waterways The World Bank considers the WCD Report infringing on the to be a major contribution in defining the is- right of the state The WCD recommends that where a gov- sues associated with large infrastructure in ernment agency plans or facilitates the con- developing countries, and in engaging a to make struction of a dam on a shared river in wide variety of stakeholders in the debate. decisions in the contravention of the principle of good faith The World Bank is committed to continued best interests of negotiations between riparians, external fi- support for its borrowers in developing and the community nancing bodies withdraw their support for managing priority hydraulic infrastructure in projects and programs promoted by that an environmentally and socially sustainable as a whole agency. manner, and views the WCD Report as a sig- nificant point of reference in this process. The scope of theWorld Bank's policy for proj- The World Bank intends to continue to work ects on international waterways is not as with its borrowers in effective implementa- broad as the recommendation of theWCD in tion of current World Bank operational poli- this regard. Except in specified circum- cies, which the WCD describes as "...the stances,theWorld Bank policy does not allow most sophisticated set of policies, opera- financing of a project on an international wa- tional procedures and guidelines amongst terway until all the riparians are notified of the international donor community." 78 Water Resources Sector Strategy: Strategic Directions for World Bank Engagement The World Bank 1818 H Street N. W. Washington. D.C. 20433 USA Telephone: 202 473 1000 Fax: 202 477 6391 Web site: www.worldbank.org Email: feedback@worldbank.org ISBN: 0-8213-5697-6