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Water Allocation and Pricing Strategies in the Brantas River Basin, East Java, Indonesia

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Water Allocation and Pricing Strategies in the Brantas River Basin, East Java, Indonesia Water Allocation and Pricing Strategies in the Brantas River Basin, East Java, Indonesia Charles Rodgers1and Rizaldi Zaafrano2 Abstract: Within many regions of East and South Asia, demand is increasing both for agricultural commodities and for fresh water resources, competition is increasing between the agricultural and non-agricultural sectors for available fresh water, the performance of irrigation infrastructure is in decline, new irrigated area is increasingly expensive to develop, and foreign direct assistance is unlikely to continue at historical levels. All of these developments represent implicit or explicit threats to the irrigated agricultural community’s economic well- being. All plausible solutions to the impending water crisis involve improvements in water productivity, from the individual plant up to the river basin level. We describe the development and application of an integrated economic -hydrologic river basin policy simulation model, intended to assist water managers in designing and evaulating strategies to improve the physical and economic productivity of water. The model is specified for the Brantas Basin in East Java, Indonesia, a densely populated catchment of 12,000 km 2 containing extensive irrigated agriculture. The Brantas is seasonally water constrained, and municipal and industrial users compete with irrigated agriculture for increasingly scarce water supply. As options for supply augmentation in the Brantas are limited, Brantas water managers will depend increasingly on demand management strategies to address the growing scarcity, and the integrated policy simulation model is intended to provide a decision support system. We present selected results from preliminary, diagnostic simulation runs to illustrate the pot ential value of the integrated modeling approach. Simulations include baseline, year 2020 projection and dry year scenarios; and a series of progressively increasing volumetric water charges to irrigators. The diagnostic runs provide preliminary evidence that the model recreates the physical and economic behavior of the system. The water charge analysis suggests that volumetric water fees up to full cost recovery level result in modest shifts in cultivation patterns, and improve physical and economic water use efficiency. A Paper Prepared for the Conference on Irrigation Water Policies: Micro and Macro Considerations held in Agadir, Morocco 15-17 June 20023 1 Postdoctoral Fellow and Project Manager, International Food Policy Research Institute, Washington, D.C. USA 2 Engineer, Research and Development Bureau, Perum Jasa Tirta 1, Malang, East Java, Indonesia I) Introduction: This paper describes the development of a water resources simulation-optimization model of the Brantas Basin in East Java, Indonesia. The Brantas Basin is densely settled, and the waters of the Brantas are used intensively for irrigation, hydropower generation, municipal, industrial, domestic and other purposes. Water supply in the Basin is now seasonally scarce, and current and potential surface and groundwater storage are extremely limited. It is the responsibility of water managers in the Brantas, as elsewhere in the water-scarce world, to balance the claims of the community of existing water users against increasing new, and often competing, demand; and against ever more pressing requirements for water to serve environmental purposes. This model is intended as a tool to assist water managers in performing this task efficiently and equitably. The goal of this modeling study is to provide decision makers with information, albeit “synthetic” information, that will allow them to anticipate the consequences of proposed policies or actions (including the policy of “business as usual”), thereby increasing the likelihood of successful implementation and minimizing the risk of unforeseen, possibly disastrous consequences. The development of the integrated policy simulation model is but one anticipated output of the project titled Irrigation Investment, Fiscal Policy and Water Resource Allocation in Indonesia and Vietnam, funded by Asian Development Bank (ADB) and conducted by IFPRI and its Indonesian partners: Perum Jasa Tirta (PJT), the Center for Agro-Socioeconomic Research (CASER) and the Directorate General for Water Resources Development (DGWRD). The project consists of three components: (1) An assessment of water allocation mechanisms and institutional structures for river basin management and effects on irrigation management, (2) An assessment of the effects of taxation, pricing policy and irrigation investment on the incentives for irrigated farming, and (3) The development and application of tools and integrated impact analysis to assess the effects of components (1) and (2). An integrated approach is believed to be particularly relevant in evaluating the feasibility of using direct water charges to recover irrigation costs. If irrigated farmers are heavily taxed through general fiscal and price policies, effective irrigation cost recovery through direct water charges will be much more difficult to achieve. This paper will focus on the third component, although the relevance of policy simulation output to the broader project goals should be obvious. Efforts to address the pr oblem of water scarcity or shortage are often conceptualized as falling within one of two broad approaches: supply augmentation and demand management. Supply augmentation includes the construction of reservoirs, tanks and other regulated surface storage, development of groundwater resources, rainwater harvesting and related activities associated with the discipline(s) of Water Resources Engineering. Demand management, by contrast, emphasizes changes or modifications in peoples’ behavior with respect to water, typically through the use of incentives and/or penalties. Demand management strategies serve to induce improvements in technical efficiency, including the development of new technologies and processes that improve water productivity; reduction of sys tem leakages, and the development of improved water allocation rules, strategies and institutions, such as water markets and water banking. This paper will focus on demand management, specifically the use of economic instruments as policy tools. It must be emphasized, however, that this modeling approach is potentially useful in simulating supply augmentation strategies as well. This paper is organized as follows. Section II contains a description of Brantas Basin physical and economic geography. Section III contains a description of key model components and 3 This paper has not been subject to peer review, and may not be quoted without the pemission of the authors 2 equations. Section IV describes four model scenarios: Baseline, 2020, Dry Year and increasing water charges to irrigated agriculture. The final section (V) describes priority policy scenarios. II) The Brantas Basin Hydrosystem and Economy: A) Brantas Basin Physical and Economic Geography: The Brantas Basin, approximately 12,000 km2 in areal extent, lies entirely within the Province of East Java, Indonesia, between 110030’ and 112055’ East Longitude and 7001’ and 8015’ South Latitude. It is located within the Intertropical Convergence Zone, in which the semiannual reversal of prevailing winds results in distinct wet (November -April) and dry (May-October) seasons. During the wet season there are around 25 rainy days per month, compared to seven or fewer during the dry season. Annual precipitation is around 2,000 mm on average, with roughly 80% occurring in the wet season. Mean annual temperatures range from 24.20C at Malang (elevation 450 M) to 26.60C at Porong in the Delta, and relative humidity varies seasonally between 55%-95%. The plains and delta consist of alluvial soils (silt, clay loams) well suited to paddy cultivation. The basin contains two active volcanoes: Mt. Semeru to the East, and Mt. Kelud near the basin center. Volcanic ash is both a major source of soil fertility and a primary cause of reservoir sedimentation within the basin. Figure 1 depicts the Brantas Basin and its primary topographic and hydrologic features. The Brantas River is approximately 320 km in length, and has its headwaters in the Arjuno volcanic massif, a major topographic feature dominating the southeast -central portion of the basin. It courses clockwise around the massif, south through the Malang Plateau (elevation 400 M), then west through the major dam and reservoir complex consisting of Sengguruh, Sutami, Lahor, Wlingi and Lodoyo, respectively. At the confluence with the Ngrowo river in the Southwestern portion of the basin, the Brantas turns north through the agriculturally productive plains region and finally east through the delta, also an important paddy growing area, where it discharges into the Madura Strait. Primary tributaries above the delta include the Lesti (Southeast), Ngrowo (Southwest), Konto (Central) and Widas (Northwest) Rivers. The annual water balance of the Brantas Basin is summarized in Table 1. Brantas Basin population for 1997 is estimated at 13.5 million (BPS, 1999), and current (2002) population is probably between 15 and 16 million persons. Population is concentrated in the lower Basin, in the major metropolis of Surabaya and surrounding communities; and in the upstream communities of Malang, Kediri and Blitar. Industry is also concentrated in the downstream and delta regions. Important water-using industries in the Brantas include sugar processing, pulp and paper, leather and food products. The agricultural
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