Report no. 46456 Africa Region Water Resources Unit Working Paper 1 Benefit Sharing in International Rivers: Public Disclosure Authorized Findings from the Senegal River Basin, the Columbia River Basin, and the Lesotho Highlands Water Project Public Disclosure Authorized November 12, 2008 Public Disclosure Authorized Final Version Winston H. YU The World Bank, Africa Region Sustainable Development Department Public Disclosure Authorized 1 TABLE OF CONTENTS Acronyms Acknowledgments Executive Summary I. Introduction .................................................................................................................. 8 Literature Review........................................................................................................ 10 Methodology and Objective ...................................................................................... 11 II. Senegal River Basin ................................................................................................. 12 A. Introduction ........................................................................................................... 12 B. Project Objectives and Description..................................................................... 15 C. Quantifying Economic Benefits and Costs ........................................................ 17 D. Actual Benefits and Costs .................................................................................... 20 E. An Evolving Senegal River .................................................................................. 23 III. Columbia River Basin............................................................................................ 27 A. Introduction ........................................................................................................... 27 B. Project Objectives and Description..................................................................... 32 C. Quantifying Economic Benefits and Costs ........................................................ 37 D. Actual Benefits and Costs .................................................................................... 41 E. Lessons Learned in the Columbia....................................................................... 44 IV. Lesotho Highlands Water Project........................................................................ 46 A. Introduction ........................................................................................................... 46 B. Project Objectives and Description..................................................................... 49 C. Quantifying Economic Benefits and Costs ........................................................ 53 D. Actual Benefits and Costs..................................................................................... 56 E. Challenge of Growth versus Poverty Alleviation ............................................ 63 V. Summary Findings................................................................................................... 64 VI. Moving Forward ..................................................................................................... 68 VII. References............................................................................................................... 72 VIII. Appendix .............................................................................................................. 78 List of Figures 1 International river basins in Africa 2 Senegal River Basin 3 Manantali Reservoir 4 Diama Reservoir 5 Major Irrigation Schemes along the Senegal River 6 Agriculture, value added (annual % growth) 1968 – 2005 7 GDP growth (annual %) 1968 – 2005 8 Columbia River Basin 9 Monthly Un-regulated flows at The Dalles Dam 2 10 Annual flows at The Dalles Dam 11 Flooding in Vanport, OR 12 Railroad Dike Break in Vanport, OR 13 Flooding in Portland, OR 14 Grand Coulee Dam 15 Dams built under the Columbia River Treaty 16 Columbia River Treaty Organization 17 Effect of Reservoir Regulation on Flood Peaks and Damages 18 Lesotho Highlands Water Project 19 GDP annual growth (%) and GDP per capita 20 Value of worker remittances in Lesotho (and as % of GDP) 21 Energy Purchases and Peak Demands in Lesotho 22 Vaal River Supply Area Existing and Projected Water Demand 23 Katse Dam 24 Mohale Dam 25 Institutions to manage and implement LHWP 26 Results of the 1983 analysis of alternatives (RSA cents/cms) 27 LHDA Water deliveries and royalty payments List of Tables 1 Cost Allocation across Service Sectors 2 Cost Allocation of Reservoir across Service Sectors and Member States 3 Summary of CRT Storages and Details 4 Summary of the LHWP Project 5 Summary of Incremental Benefits and Costs of LHWP Phase 1 6 Fiscal accounts as a % of GDP 7 Electricity Generation and Sales Revenue 8 Economic Growth Rates for Lesotho 9 Summary results from Lesotho SAM 10 Incidence, Severity, and Depth of Poverty 11 Summary Table List of Boxes 1 History with the Libby Dam 2 Economics of Reservoir Storage 3 Calculating payments for flood control 4 Details of LHWP Phase 1A and 1B 5 The South Africa Demand Assumption 6 Lesotho Social Accounting Matrix (SAM) 2000 3 Acronyms af Acre-feet AOP Assured operating plan ASCRB Adjusted separable cost remaining benefit BC British Columbia BC Hydro British Columbia Hydro and Power Authority BCM Billion cubic meters BOAD Banque Ouest Africaine de Développement BPA Bonneville Power Authority cfs Cubic feet per second CBT Columbia Basin Trust CIDA Canadian International Development Agency CRB Columbia River Basin CRT Columbia River Treaty DOP Detailed operating plan DWAF Department of Water Affairs and Forestry of South Africa EIB European Investment Bank FCFA Franc Communauté Financière Africaine (also XOF) GDP Gross domestic product GNP Gross national product GWh Gigawatt hour ha Hectare ICREB International Columbia River Engineering Board IJC International Joint Commission IDB Inter-American Development Bank kg Kilogram kWh Kilowatt hour LFCD Lesotho Fund for Community Development LHDA Lesotho Highlands Development Authority LHRF Lesotho Highlands Revenue Fund LHWP Lesotho Highlands Water Project m3 square meters MCM million cubic meters mm millimeter NGO non-government organization O&M Operations and maintenance OERS Organisation des Etats Riverains du Sénégal 4 OMVS Organisation pour la Mise en Valeur du fleuve Sénégal PASIE Environment Impact Mitigation and Monitoring Program PEB Permanent Engineering Board of the Columbia River Treaty RHDP Regional Hydropower Development Project RSA Republic of South Africa SACU Southern African Customs Union SAM Social Accounting Matrix SAR Staff Appraisal Report SRB Senegal River Basin t/ha tons per hectare TCTA Trans Caledon Tunnel Authority USACE US Army Corps of Engineers USAID US Agency for International Development XOF Franc CFA 5 Acknowledgments This report was prepared by Winston Yu, Water Resources Specialist, during his tenure in the Africa Region Water Resources Unit. The author would like to thank several World Bank staff (Inger Andersen, Barbara Miller, Ashok Subramanian, Marcus Wishart, Andrew Macoun, Daryl Fields, Claudia Sadoff, Ariel Dinar, Ousmane Dione, Vahid Alavian, Manuel Contijoch, Len Abrams, Vivien Foster, and Jonathan Lautze) and two external reviewers (Tim Newton and John Keith) for the valuable comments and insights they provided to this paper. 6 Executive Summary This paper explores two propositions regarding international river basins: 1) cooperative development of international rivers offers unique economic advantages over unilateral development and 2) benefit sharing is a necessary condition for facilitating this cooperation. Despite the intuitive appeal of benefit sharing, clear benchmarks and good practices in structuring agreeable benefit sharing arrangements are lacking. Lessons from past experience are critical for guiding emerging regional institutions and potential water-related investments in several international river basins in Africa. By examining three parallel case studies – the Senegal River Basin, the Columbia River Basin, and the Lesotho Highlands Water Project – this paper explores how the riparian countries quantified the benefits and costs of cooperative development and reached an acceptable formula for sharing these mutual gains. This paper also explores the institutional and policy arrangements needed to implement these benefit sharing schemes and common challenges to realizing growth and poverty alleviation objectives. It is clear from these three international experiences that cooperation between riparian countries offered distinct additional economic possibilities for mutual gain that otherwise would not have been achievable through domestic means. In all cases, by focusing on the division of benefits and not on the physical allocation of water, mutual gains could be identified that were both substantive and transformative in nature. However, the process to reach a cooperative agreement can take decades, in large part because of the technical complexity of regional projects, the difficulty in establishing benefits and costs and reaching an equitable division of gains, differing policy and political environments, and unclear roles and responsibilities among project, national, and regional institutions. Different approaches can be taken to divide mutual gains among riparians. Achieving perceived equity is critical to concluding an agreement, although it is not necessarily congruent with the ideas of economic efficiency. That is, in all three cases non-economic