AN ECONOMIC ANALYSIS OF INTERSECTORAL WATER ALLOCATION IN SOUTHEASTERN SRI LANKA BY SARATH PARAKRAMA WELIGAMAGE A dissertation submitted in partial fulfillment of the requirements for the degree of DOCTOR OF PHILOSOPHY WASHINGTON STATE UNIVERSITY School of Earth and Environmental Sciences AUGUST 2011 To the Faculty of Washington State University: The members of the Committee appointed to examine the dissertation of SARATH PARAKRAMA WELIGAMAGE find it satisfactory and recommend that it be accepted. ___________________________________ Keith A. Blatner, Ph.D., Chair ___________________________________ C. Richard Shumway, Ph.D. ___________________________________ Jill J. McCluskey, Ph.D. ii ACKNOWLEDGMENT Earning a PhD from WSU fulfills a long held aspiration in my life to earn a doctorate from a US university. I thank all those who have contributed to my achieving this goal at Washington State University. Frank Rijsberman, Director General (2001-2007) of the International Water Management Institute (IWWI), was the key person behind meeting my aspiration to earn a PhD. His vision and passion for capacity building of scientific manpower in the South led to the initiation of the IWMI’s program for capacity building that supported my dissertation research. Frank also authorized the initial support for my PhD program. I thank Frank’s successor Colin Chartres, and David Molden, Interim Director General for continued support to me. At WSU, my major professor Keith Blatner was the key person behind fulfilling my goals. In addition to his unmatched knowledge spanning across many disciplines, Keith was a constant source of support and I also appreciate his compassion and empathy. I thank Richard Shumway for helping me fulfill my academic aspirations at a very high level. Walter Butcher and Jill McCluskey also provided invaluable support as committee members. It was a pleasure to work with Jill at a later stage in my project. Steve Burkett, Associate Dean of the Graduate School, deserves a special thank you for his in-depth understanding of the issues faced by a person from half a world away trying to complete an advanced degree. Randy Barker, Piya Abeygunawardena, and Nihal Atapattu patiently went through previous drafts of my dissertation chapters and provided suggestions for improvement of academic content. They helped me shape my ideas to help make them more policy relevant. Farmers at Kirindi Oya deserve to receive my unreserved gratitude for sharing their information with me and for providing me with access to their homes. This was during a time of disturbance in their communities. However, they supported me and devoted their time to help me complete my work. I also want to thank the participants of my contingent valuation survey for iii agreeing to respond to a questionnaire and for suggesting valuable insights when responding to the open ended questions. I thank students of my agricultural marketing class for volunteering to help me facilitate the survey. I should thank all of “IWMI Family” for their untiring support and well-wishes towards the success of my program. Special thanks are due to Mark Giordano and David Van Eyck for unreserved roles played as my immediate manager and IWMI’s capacity building officer respectively. I also thank my colleagues at the Department of Agricultural Economics and Extension, University of Peradeniya, for their encouragement and support. I was fortunate to have friends supporting me and encouraging me in this journey. All of them cannot be mentioned by name here due to space constraints. The following are just a few of these individuals. Pullman-WA had changed a lot from Sumathy’s “little humorless city 1” by the beginning of my program. Even before reaching there, Dinali and Ranil helped me to make an unknown territory a second home. Other friends at Pullman: Dharshani and Thilina, Gamini, Mahesha and Vidhura, Natniel, Renuka, Shahla and Vugar and Susanne showed me much needed care beyond the limits of a simple friendship at different times. In distant parts in North America, Jeevika and Sunil, Mala and Prax, and Malika and Gamini extended friendship when needed and at critical points when I would have stopped progressing. At Peradeniya, Anusha and Rohitha, and Pushpika and Chamika kept their homes open for me whenever I wanted to stay. Elkaduwa family and Prasanthi were true friends in need throughout the period. I also wish to thank my sisters; Sriya and Susima; brother-in-law Premasiri; cousins: Lakshmi, Lal, Kanthi and Sirima, and their families and nephew Pathum who looked after my mother while I was away. 1 Sivamohan, Sumathy. 1999. Postcolonial Dis/Content: South Asian Women And Feminist Theory. P.hD diss. Washington State University. p v. iv AN ECONOMIC ANALYSIS OF INTERSECTORAL WATER ALLOCATION IN SOUTHEASTERN SRI LANKA Abstract by Sarath Parakrama Weligamage, Ph.D. Washington State University August 2011 Chair: Keith A. Blatner This dissertation analyzes current patterns and expected benefits of allocation of water in Kirindi-Menik-Kumbukkan composite river basin in southeastern Sri Lanka. The Veheragala Diversion Project changed the historical flow regime of Menik Ganga River by diverting water to the Kirindi Oya Basin for irrigation. This diversion reduced water flow to the Yala Protected Area Complex, a unique, nationally and globally important wildlife refuge situated further downstream, but dry season flows were enhanced. This study develops and applies empirical methods to estimate economic benefits related to two major uses: irrigation and environment. A procedure to quantify water applied on rice farms, based on farmer recall, was developed and empirically used in the Kirindi Oya Irrigation and Settlement Project (KOISP), where differential access to water between its two subareas exists. A production function for rice with water quantity as an input was estimated. Plans to allocate newly diverted water to maximize system-wide annual net benefits by equating marginal value products of water were generated. The value of water for the environment was estimated through a contingent valuation study that asked respondents about their willingness to pay for water releases through the YPC. Benefits were expected as emanating from non-use values of water. v Findings showed a diverse pattern of distribution and abundance of irrigation systems across three river basins when the sizes and the types of systems were considered. Average water quantity applied by farmers in the Old Irrigated Area of the KOISP was 17 percent higher than that of farmers in the New Irrigated Area, while annual net rice revenues were 36 percent higher in the Old irrigated Area. The optimum water allocation plan for the KOISP would generate annual incremental net benefits of SLR 157 million and is 28 percent higher than the “Business as Usual” Plan. Mean willingness to pay for water releases estimated using random willingness to pay method was SLR 627 per household per annum. This can be aggregated to a national benefit stream with net present worth of SLR 17.4 billion. This value can be considered as the value of water allocated for environmental uses. vi TABLE OF CONTENTS ACKNOWLEDGMENT .................................................................................................... iii Abstract........................................................................................................................... v TABLE OF CONTENTS ................................................................................................. vii LIST OF TABLES ........................................................................................................... xi LIST OF FIGURES ....................................................................................................... xiv DEDICATION ................................................................................................................ xv CHAPTER ONE INTRODUCTION ............................................................................................................ 1 1.1: INTRODUCTION .................................................................................................. 1 1.2: SRI LANKA: BACKGROUND INFORMATION ..................................................... 2 1.3: STUDY AREA AND STUDY PROBLEM ............................................................... 3 1.4: ORGANIZATION OF THE DISSERTATION ......................................................... 4 1. 5: REFERENCES ..................................................................................................... 6 CHAPTER TWO WATER RESOURCES IN SRI LANKA WITH SPECIAL REFERENCE TO SOUTHEASTERN DRY ZONE ..................................................................................................................... 7 2.1: INTRODUCTION .................................................................................................. 7 2.2: SRI LANKA: ADMINISTRATIVE REGIONS AND CLIMATIC ZONES .................. 7 2.3: WATER RESOURCES OF SRI LANKA AND ITS UTILIZATION .......................... 8 2.4: WATER RESOURCES IN THE SOUTHEASTERN DRY ZONE OF SRI LANKA 11 2.4.1: Irrigation in KMK Basins .............................................................................. 12 2.5: SPATIAL PATTERNS OF DISTRIBUTION OF IRRIGATION SYSTEMS ........... 13 vii 2.6: DESCRIPTION OF THE STUDY AREAS ........................................................... 14 2.6.1: Kirindi Oya Irrigation and Settlement Project (KOISP) ................................. 14 2.6.2: Veheragala