Our Water Systems: Public, Private, or Both? by K. William Easter Professor of Applied Economics University of Minnesota Seminar - February 7, 2009

2 The Gadag Rural Water Project (India) will replace the need for getting water from a traditional scrape in the river bed with piped supplies

3 1.Introduction 97.5% of world’s water is salt water and another 2% is frozen or not accessible Four to five fold increase in water use since 1940s (2 to 4% growth rate) Over a billion people lack clean water and about two billion have poor sanitation –Women or children may have to walk 5 to 10 miles for water (15% of women’s time) One billion people become ill annually from unclean water Bottled water costs $30 to $300 per barrel (oil is now only $40 to $50 per barrel)

4 1.Introduction - - contd. Eight gallons of water to produce a gallon of milk Four gallons of water to produce a gallon of ethanol Consumptive water use in LDCs (distribution) Agriculture (irrigation), 70-80% Commercial and industrial uses, 10-22% Domestic uses, 8-10%

5 1. Introduction - - contd. Supply of water and demand are variable within a year and between years (scarcity can occur anytime) –Rainfall and Storage (supply) –Temperature and humidity (demand) –Is the frequency of scarcity and variability increasing?

6 2. Water Services and Dis-services a.Consumptive uses –Domestic and industrial water supply –Irrigation – big user –Non-crop agricultural uses (water for livestock, etc.) –Dry land agriculture and forestry

7 2. Water Services and Dis-services, cont’d b. Non-consumptive uses –Hydropower –Fish culture –Recreation –Navigation –Dilution of waste materials –Aquatic habitat –Bathing and washing clothes –Cooling for buildings and power plants (biggest use in Minnesota)

8 2. Water Services and Dis-services, cont’d c. Dis-service –Flooding For example in India flooding covered 25 million hectares in 1960, 40 million in 1978, and 58 million in the mid-1980s. (The problem seems to be getting worse.) –Disease vector 5,000 to 10,000 persons die from malaria annually in Cambodia –Soil erosion Lost productivity that fills rivers and reservoirs

9 3. Why have we failed to provide clean drinking water to over one billion people? Related questions: –Who should provide this clean drinking water – the public or private sector? –Should everyone be provided the same level of service?

10 4.Human rights to water and the private sector a.Basic right to water for domestic use Access to village well or public water tap? Should this be right to “safe water”? Low price for basic human water needs? Allocate a greater share of water to domestic use? How does this compare to basic right to food or housing?

11 4. Human rights to water and the private sector - - contd. b. Agricultural and commercial use (90% of consumptive uses) Isn’t this water better treated as an economic good? Do we need to reduce demand and reallocate more to domestic and environmental uses? If we do, then we need to price water at its scarcity value c. How much to allocate for environmental uses? 30% of stream flow in dry season to 50% in wet season

12 5. How water was developed in the 20 th century In early stages of settlement, people located near water sources (rivers and lakes) As populations, cities, and demands for food all increased, access to water became more difficult First approach in LDC was to develop large multipurpose irrigation projects with foreign assistance – TVA model Some private irrigation was also developed, such as the Gezira Scheme in Sudan, with farmers as tenants

13 5.How water was developed in the 20th century, cont’d In 1980s large expansion of private irrigation well development in Asia and U.S. Great Plains About one-third of the world’s food comes from irrigated land Cost of new irrigation is now quite high and easily irrigated areas have been done This makes it more difficult to transfer water out of agriculture for urban uses

14 6. How urban water supply and demand has developed a. Growth in LDC cities took off in 1960s and 1970s In 1960, only one LDC city over 10 million In 2000, seventeen LDC cities over 10 million Now in LDCs, 50% live in urban areas b. Large cities in LDCs under-invest and poorly manage water supply and sewage systems 50% of water is unaccounted for in Cairo, Lagos, Mexico City, Jakarta, Manila, and Lima Cost of new supplies may be 2 to 3 times cost of existing supplies

15 6. How urban water supply and demand has developed -- contd. Poor quality water service continues particularly for the urban poor in LDCs Still 50% of the people, including the poor, live in rural areas where many have unsafe water supplies first UN water decade; is UN “water for life” decade During the first water decade, we just kept up with population growth. The number of those without safe water stayed constant. Many times, LDC consumers in urban areas must pay private vendors 3 to 4 times the public rate for water. In some cases this is a high percentage of low income families’ income (as much as half).

16 7. Given this situation, will private management and/or ownership help? a. What about the private management options in urban areas? (Table 1) Design and build is most common U.S. private activity. b. Irrigation and private water development have also helped meet rural domestic water needs c. Some locally developed systems using groundwater and springs Punjab, India, southeastern Brazil, and Bangladesh: wells and hand pumps Oman, Spain and Brazil: examples of locally developed water markets

17 Types of Agreements or Concessions Description of Functions and Services Provided Acquisition – private ownership Public utility sells facility to private entity resulting in private ownership and operation. Joint venturePrivate entity owns and operates facility in conjunction with public utility. Design, build, own, operate and transfer ownership to public Private entity builds, owns, and operates facility. At end of specified period, such as 30 years, ownership of facility is transferred to public utility. Design, build and operate Private entity designs, constructs, and operates facility. Public utility retains ownership and financing risk, while private entity assumes performance risk for service and/or compliance. Operate and maintain Public utility contracts with private entity for a fee to operate and maintain facility. Public utility owns the facility. Design and /or build Private entity designs and/or constructs facility and turns it over to public utility to operate and maintain. Provide specific services Private entity contracts to provide public utility with specific services such as meter reading or billing and collection. ManagementPrivate entity manages and supervises public utility personnel. Table 1 - Alternative Roles for the Private Sector

18 7. Given this situation, will private management and/or ownership help? – cont’d d. Might use markets to reallocate water to domestic uses both permanently and temporarily California did in 1990s – temporary reallocation Chile and Australia have done a little – permanent reallocation Mexico had the chance to do it, but decided to just take farmers’ irrigation water and give it to urban areas during a drought period

19 8. Reservations about private management and ownership Concerns about possible private water monopolies People’s values concerning private rights to water Concerns about overuse of ground water stocks Third party impacts through water diversion and pollution

20 9.Villages not adequately served, public sector should not treat them equally (WTP and public health concerns) a. Will they maintain the water system once it is in place? b.There are at least four different types of villages that require different approaches. Type I villages – high willingness to pay (WTP) for private connections but not for public taps. - Provide subsidies to install some public taps for those with low WTP - Provide technical assistance

21 Type II villages: low WTP for private connections but majority will pay for public taps. –Provide with technical assistance for building system with public taps. –System should allow families to pay extra to get private connections. Type III villages: WTP for improved service but too costly for them to cover costs. –Provide subsidy and technical assistance so that they can cover the cost of installing a water system with public taps Type IV villages: low WTP for improved service. –Wait until village’s demand for better water increases –Provide educational material regarding the importance of clean water (many don’t understand germ theory)

Conclusions Technology for obtaining clean water is much improved. No one model fits all. Community must be involved in water investment decisions. Subsidies and technical assistance for smaller communities should be designed, based on a community’s ability and willingness to pay for different levels of service.

Conclusions -- contd. Use private sector where it can help, but public sector will still need to play an important governance role. We will need to improve water use in agriculture and industry so that there is more for domestic and environmental uses. World Bank estimates we need to invest $600 to $700 billion in water improvement and development. LDC must invest more in their urban water and sewer systems. Hyderabad, India is building seven water treatment plants. This is a key area for development aid, particularly in Africa.

24 DSM Industries Trichy - Deep Well Hand Pump

25 Malawi is a landlocked, sub-Saharan country that is fighting chronic water shortages and the effects of a severe food crisis in 2006.

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

27 Women getting water from the Ak-ela well in March The Senai Foundation is a non-profit support organization for the people of Eritrea.

28 Indian woman getting water from a truck

29 URL to access presentation