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ECONOMIC VALUE OF WATER FOR AGRICULTURE, HYDROPOWER AND DOMESTIC USE A CASE STUDY OF THE LUNSEMFWA CATCHMENT, ZAMBIA Submitted in partial fulfilment of a Master of Science Degree in Economics at Södertörn University, Stockholm, Sweden. Name: Daniel Phiri Supervisor: Prof. Ranjula Bali Swain Date: 29th May 2020 DECLARATION I Daniel Phiri, herewith declare that I am the sole author of this master thesis: Economic value of water for agriculture, hydropower and domestic use: A case study of the Lunsemfwa catchment, Zambia, and that I have conducted all works connected with the master thesis on my own. This thesis is being submitted for the degree of Master of Science in Economics at Södertorn University in Stockholm, Sweden. This master thesis has not been presented to any other examination authority. Date: ___________________________ Signature: ________________________ ii ABSTRACT The Lunsemfwa river catchment is of paramount importance to the Zambian economy, particularly with regards to energy, agricultural and water for domestic, as well as wildlife. Water shortages during dry spells in the area present a huge problem for the various stakeholders in the basin. As the impact of climate variability increases in the basin, water resources managers in the basin are increasing challenged to efficiently allocate decreasing reserves of water resources against increasing levels of demand. This paper attempts to highlight the value of water resources to the earlier mentioned sectors; hydropower, agriculture and households, in order to inform allocation decisions in the Lunsemfwa catchment area of Zambia. The paper uses the SDDP method to investigate the average cost of electricity production, coupled with market electricity prices to ascertain the value of a unit of electricity given reservoir outflow levels. The PF method was used to evaluate the marginal value of water is agriculture, while the value of water for domestic consumers was evaluated using the Contingent Valuation method, particularly the willingness to pay, which essentially uses market prices to represent the consumers’ willingness to pay. A value of US$93/MWh is attached to hydropower produced here, while the marginal value of water in agriculture is estimated to be US$0.068/m3. The willingness to pay for connection to piped water is approximately US$34.13, while the monthly value is US$6.9. The Gross Financial Value (GFV) generated from hydropower, agriculture and domestic water supply is US$24,174,000, US$ 262,083,045.91 and $7,140,000.00 respectively. Keywords: Economic value, hydropower, agriculture, domestic water use, contingent valuation iii ACKNOWLEDGEMENTS I am immensely grateful to the Almighty God for giving life and the strength to work through this master’s programme. My sincere gratitude goes to the Swedish Institute for supporting me financially and professionally throughout my studies. This research would have been very challenging without the support of Prof. Ranjula Bali Swain who diligently guided me during this process. Special thanks to Dr. Kawawa Banda, Mr. Chisha Chanda, Ms. Agness Sililo Musutu, Mr. Kasenga Hara and Mr. Oscar Silembo for the assistance rendered during the data collection process. I would also like to extend my sincere gratitute to the Ministry of Energy, particularly the Acting Director Mr.Arnold Milner Simwaba and Mr. Allan Chivunda for providing data pertaining to the energy sector. God bless you all! iv ABBREVIATIONS CV Contingent Valuation IPP Independent Power Producer LHPC Lunsemfwa Hydropower Company LgWSC Lukanga Water and Sewerage Company MPM Market Price Method MVU Maximum Use Value NRW Non-Revenue Water NSO National Statistics Office NUV Non-Use Value NWASCO National Water Supply and Sanitation Council PF (M) Production Function Method SDDP Stochastic Dual Dynamic Programming TCM Travel Cost Method TEV Total Economical Value UN United Nations UNEP United Nation Environmental Programme UNESCO United Nations Educational, Scientific and Cultural Organization US$ United States Dollar UV Use Value WWF World Wide Fund for Nature (WWF) WTP Willingness to Pay ZESCO Zambia Electricity Supply Corporation ZMW Zambian Kwacha v Table of Contents DECLARATION .......................................................................................................................................... ii ABSTRACT ................................................................................................................................................ iii ACKNOWLEDGEMENTS ........................................................................................................................... iv ABBREVIATIONS ....................................................................................................................................... v Table of Contents .................................................................................................................................... vi Dedication ............................................................................................................................................... ix CHAPTER ONE: INTRODUCTION ................................................................................................. - 1 - STUDY AREA ................................................................................................................................ - 4 - 1.1 Zambia ................................................................................................................................. - 4 - 1.2 Central Province of Zambia ............................................................................................... - 5 - 1.3 Socioeconomic status........................................................................................................... - 5 - 1.4 Lunsemfwa catchment Area .............................................................................................. - 6 - 1.5 Problem statement .............................................................................................................. - 8 - 1.6 Main Objective .................................................................................................................... - 9 - 1.7 Specific Objectives .............................................................................................................. - 9 - 1.8 Research Questions ........................................................................................................... - 10 - Justification of Study .............................................................................................................. - 10 - CHAPTER TWO: LITERATURE REVIEW ................................................................................... - 11 - 2.1 Review of literature in Hydropower Ecosystem services valuation ............................. - 13 - 2.2 Experiences in the valuation of Agriculture and Livestock .......................................... - 16 - 2.3 A Review of Domestic & Industrial water supply valuation studies ............................ - 17 - CHAPTER THREE: THEORY AND METHODS .......................................................................... - 19 - 3.1 Valuing water for hydropower - Method .......................................................................... - 20 - 3.2 Water for Agriculture Production ...................................................................................... - 21 - Crop water production function ............................................................................................ - 22 - Translog Production Function ............................................................................................... - 23 - 3.3 The value of Domestic Water ............................................................................................ - 24 - 3.4 Data Sources ...................................................................................................................... - 25 - 3.5 Study Limitations .............................................................................................................. - 26 - CHAPTER FOUR: STUDY RESULTS ........................................................................................... - 27 - 4.1 Description of Value ........................................................................................................... - 27 - 4.1.1 Water & Hydropower................................................................................................... - 27 - 4.1.2 Water and Agriculture .................................................................................................. - 30 - 4.1.3 Domestic use ................................................................................................................ - 33 - 4.2 Average and Marginal Economic values ............................................................................ - 33 - vi 4.2.1 The value of water in hydropower production ............................................................. - 33 - 4.2.2 The marginal value of water ........................................................................................ - 34 - 4.2.3 The value of domestic water ........................................................................................ - 35 - 4.3 The Gross Financial Value of Hydropower, Agriculture and Domestic water use ............. - 35 - CHAPTER FIVE: DISCUSSION ..................................................................................................... - 37 - CHAPTER SIX: CONCLUSION AND RECOMMENDATIONS
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