Postgraduate Institute of Agriculture , University of Peradeniya. SEMESTER I 2006

1. Postgraduate Institute of Agriculture , University of Peradeniya. SEMESTER I 2006/2007

2. 2 EC5108:WRE I (2)COURSE FOCUS  � ������ Socio-Econ., Geographic. & Eng. Concepts ������ Institutional Arrangements ������ Affects on Water Use in Sri Lanka ������ Irrigation Management Economics.

3. 3 COURSE OUTLINE � I.���ECONOMIC ASPECTS 1. Economics of Water Use 2. Water Resource Uses in Sri Lanka 3. Water Allocation & Water Rights - Quiz 1 4. Economic Perspective of Irrigation 5. Governing of Irrigation System - Mid Term� 6. Watershed Management 7. Groundwater Resources Management- Quiz 2� II. MANAGEMENT ASPECTS - Term Paper Water Resources and the Economy The Value of Water, Economic Tools for Water Resources Management., End Term

4. 4 Not for the economists, not an economics lesson, but an economic perspective Hire economists to lay out, or quantify the specifics. WR decision makers need perspective. Not � cost effectiveness, financial sustainability, cbaNot for the economists, not an economics lesson, but an economic perspective Hire economists to lay out, or quantify the specifics. WR decision makers need perspective. Not � cost effectiveness, financial sustainability, cba

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7. 7 THE DEFINTION OF IWRM � A Process which Promotes The Coordinated Development of Water, Land & related Resources, in order to Maximize the Economic & Social Welfare in an Equitable manner without comprising the Sustainability� Question: How to link Economics with IWRM?

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15. 15 Importance of Water Pricing Revenue Sufficiency: revenues adequate to operate & maintain the system, & extend service new customers Resource Allocation: signal socially appropriate water resource allocation, ensuring that values to society outweigh their costs Resource Conservation: signal the value of water, encourage efficient use and conservation Getting Prices �Right�: Recognizing the incentives resulting from price structures, and ensuring they align with social objectives Basic: Small percentage for basic needs, some 2-3 % world wide Env: in-stream flows, watershed management, expense of clean-up productivity- women:health, time, also care for the ill, their time and opportunities settlement: historically shaped by water & transport access, poorest farthest from water, wiped out by flood & drought, poorest always the most vulnerable patterns of growth: availability of water determine sectoral options, ie, ag focus -- regional growth//Ethiopia obstacles are both economic and political; markets, infra, trade, virtual water, conflictBasic: Small percentage for basic needs, some 2-3 % world wide Env: in-stream flows, watershed management, expense of clean-up productivity- women:health, time, also care for the ill, their time and opportunities settlement: historically shaped by water & transport access, poorest farthest from water, wiped out by flood & drought, poorest always the most vulnerable patterns of growth: availability of water determine sectoral options, ie, ag focus -- regional growth//Ethiopia obstacles are both economic and political; markets, infra, trade, virtual water, conflict

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18. 18 System values will not be the straight sum of user values, be of physical interdependencies (evap), opp costs and externalities.System values will not be the straight sum of user values, be of physical interdependencies (evap), opp costs and externalities.

19. 19 Two-User System with Irrigation and Hydropower Potential

20. 20 Development Path 1: Upstream agriculture

21. 21 Dev.Path 2: Upstream power & downstream agriculture

22. 22 Development Path 1 yields lower System Value ($0.038/m3), with all benefits accruing to upstream user. Development Path 2 yields higher System Value ($0.061 /m3), with benefits to both users. The downstream user will prefer Path 2. The upstream user will prefer Path 1, where system-wide benefits are smaller, but upstream riparian reaps higher gains. Some form of mandate or benefit sharing/ redistribution will be required to motivate Development Path 2. Results

23. 23 System values of water will be driven by the range of potential user values in the system Some user values may be higher than system values (systems losses such as evaporation) Economic optimization does not necessarily exclude low value uses of water Development paths that combine both consumptive and non-consumptive uses of water will increase systems values Integrated management of a river system will virtually always enable greater total productivity - but distributional issues may well arise User>systems, because they don�t take into account externalities. Those who are hurt (maybe by foregone opportunities) effectively subsidize those who gain. Low user values (i.e., power in Path 2, the lowest in the basin). User>systems, because they don�t take into account externalities. Those who are hurt (maybe by foregone opportunities) effectively subsidize those who gain. Low user values (i.e., power in Path 2, the lowest in the basin).

24. Questions / Issues to Discuss 1.��Is the concept of water as an economic good acceptable? Is it practiced in any way? How could/should it be practiced? 2.�How does water resources management impact economic growth and patterns of development in developing countries? 3.�Do you believe that there could be, an important role for economics in the management of water resources in developing countries?