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IWMI Working Paper Revitalizing Canal Irrigation: Towards Improving 160 Cost Recovery Ravinder P. S. Malik, S. A. Prathapar and Madhavi Marwah Working Papers The publications in this series record the work and thinking of IWMI researchers, and knowledge that the Institute’s scientific management feels is worthy of documenting. This series will ensure that scientific data and other information gathered or prepared as a part of the research work of the Institute are recorded and referenced. Working Papers could include project reports, case studies, conference or workshop proceedings, discussion papers or reports on progress of research, country-specific research reports, monographs, etc. Working Papers may be copublished by IWMI and partner organizations. Although most of the reports are published by IWMI staff and their collaborators, we welcome contributions from others. Each report is reviewed internally by IWMI staff. The reports are published and distributed both in hard copy and electronically (www.iwmi.org) and where possible all data and analyses will be available as separate downloadable files. Reports may be copied freely and cited with due acknowledgment. About IWMI IWMI’s mission is to improve the management of land and water resources for food, livelihoods and the environment. In serving this mission, IWMI concentrates on the integration of policies, technologies and management systems to achieve workable solutions to real problems—practical, relevant results in the field of irrigation and land and water resources. IWMI Working Paper 160 Revitalizing Canal Irrigation: Towards Improving Cost Recovery Ravinder P. S. Malik S. A. Prathapar and Madhavi Marwah International Water Management Institute The authors: Ravinder P. S. Malik is a Principal Researcher – Economics at the International Water Management Institute (IWMI), New Delhi, India; S. A. Prathapar was Leader, Irrigated Systems - Strategic Research Portfolio (SRP), CGIAR Research Program on Water, Land and Ecosystems (WLE), and Theme Leader – Productive Water Use, IWMI, Colombo, Sri Lanka, at the time this report was prepared; and Madhavi Marwah is a Consultant at IWMI, New Delhi, India. Malik, R. P. S.; Prathapar, S. A.; Marwah, M. 2014. Revitalizing canal irrigation: towards improving cost recovery. Colombo, Sri Lanka: International Water Management Institute (IWMI). 52p. (IWMI Working Paper 160). doi: 10.5337/2014.211 / canal irrigation / irrigation systems / cost recovery / farmers / irrigation water / budgets / fund / investment / efficiency / public services / Pakistan / India / ISSN 2012-5763 ISBN 978-92-9090-795-4 Copyright 2014, by IWMI. All rights reserved. IWMI encourages the use of its material provided that the organization is acknowledged and kept informed in all such instances. Please direct inquiries and comments to: [email protected] A free copy of this publication can be downloaded at www.iwmi.org/Publications/Working_Papers/index.aspx Acknowledgements Many colleagues in the country offices of IWMI helped us with data collection from their respective countries. We would like to express our sincere thanks, in particular, to Ram Bastakoti (Researcher - Irrigation, IWMI, Nepal); Oyture Anarbekov (Senior Research Officer, IWMI, Uzbekistan); Kindie Getnet (Research Economist, IWMI, Ethiopia); Aatika Nagrah (formerly Researcher - Institutions and Policy Analysis, IWMI, Pakistan); K. Jinapala (formerly Institutions Specialist, IWMI, Sri Lanka); and Emmanuel Musaba (formerly Researcher – Agricultural Economics, IWMI, South Africa) for their assistance. Donors This research study was funded by the following: This work has been undertaken as part of the CGIAR Research Program on Water, Land and Ecosystems. IWMI is a member of the CGIAR Consortium and leads this program. Contents Summary ............................................................................................................................vii Introduction .............................................................................................................................. 1 Conceptual Issues - Which Costs? Which Revenue? ................................................................. 3 Which Costs? ........................................................................................................................ 3 Cost of Water Provision ....................................................................................................... 3 Which Cost Should Form the Basis for Recovery? ............................................................. 5 Should the Entire Cost Intended to be Recovered be Recovered from the Farmers? ......... 5 Which Costs are the Countries Currently Seeking to Recover? .......................................... 7 What Proportion of the Intended Costs are the Countries Currently Able to Recover? ..... 9 Which Revenue? ................................................................................................................. 10 What is Being Estimated: Cost Recovery of Project or of Services? ................................ 14 Towards Improving Cost Recovery ........................................................................................... 15 More Efficient Spending of O&M Funds ........................................................................... 15 What are O&M Costs and How are they Determined? ..................................................... 15 Gap between Realistic and Actual Funding for O&M ....................................................... 16 Pattern of Spending of O&M Funds ................................................................................... 17 Working Expenses in India ................................................................................................. 17 Trend in Allocation for Working Expenses, Capital Expenses and Gross Revenue ......... 18 Allocation of Working Expenses ........................................................................................ 19 Working Expenses in Pakistan ........................................................................................... 20 Increasing Water Tariffs ...................................................................................................... 21 Improving Collection Efficiency ........................................................................................ 22 Improving Cost Recovery: An Appraisal Based on Stakeholder Perception .................... 28 Efforts Underway at Improving Cost Recovery ................................................................. 32 Summing Up and Moving Forward .......................................................................................... 38 References ............................................................................................................................ 40 v Summary Most of the large irrigation projects around the world have been built, are owned, and are being operated and maintained by the governments. The cost recovery from such projects through levy of Irrigation Service Fees (ISF) in almost all the countries presents a dismal picture. The limited cost recovery from ISF in irrigation projects has meant that extensive contributions from governments’ public investment and current expenditure budgets have been necessary to sustain irrigation systems. Over the years the underlying conditions have however changed. With government finances coming under increasing pressure they have been unable to provide adequate funds for maintenance of the built infrastructure. They have also failed to increase the user charges from the users of water to any significant level. The widening gap between financial resources required to maintain the infrastructure and that available from government budgets plus that collected as user fees, has led to the deterioration not only of the quality of the built infrastructure but also of institutions managing and governing such infrastructure, creating a vicious circle of low-cost recovery, poor maintenance of infrastructure, inadequate and unreliable water supply, inefficient and corrupt institutions, unwillingness of the farmers to pay and low cost recovery. Breaking this vicious circle requires, apart from other interventions, identifying ways to improve availability of financial resources to keep these systems in perfect working order. Improving cost recovery from all users including irrigators of the water, offers one of the most important avenues for raising financial resources. The present study examines some of the important issues that impinge on improving the cost recovery in canal irrigation and assesses the feasibility of some of the efforts being made to improve cost recovery in irrigation. As in the case of any infrastructure development, in the case of irrigation infrastructure also there are three basic questions relevant to the financing of capital and recurring costs of infrastructure: (1) who pays? (2) how much is paid? and (3) how is the money used? In terms of who pays and who should pay the answer is obvious – not the farmers alone. It has however long been recognized that while farmers may be the primary beneficiaries of the investments in irrigation, they are rarely the sole beneficiaries. From even the most casual comparison of the economic activity in a region before and after the availability of irrigation, it would be obvious that the benefits of growth as a result of the availability of irrigation water are reaped not only by multiple segments of the rural population
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