Technical Assistance Consultant’s Report Project Number: 45353-001 June 2015 Azerbaijan: Developing Water Resources Sector Strategies in Central and West Asia RETA 8015 Prepared by Ramchand Oad, Dennis Wichelns, Ted Patterson, Steve Parsons For Asian Development Bank and Ministry of Emergency Situations, Government of Azerbaijan This consultant’s report does not necessarily reflect the views of ADB or the Government concerned, and ADB and the Government cannot be held liable for its contents. (For project preparatory technical assistance: All the views expressed herein may not be incorporated into the proposed project’s design. Currency Unit – Manat (As of 15 May 2015) $1.00 = 1.03 Manat (In Sept-Dec 2014, when this study was conducted in Azerbaijan, the currency conversion rate was $1.00 = 0.75 manat. All currency numbers mentioned in the report are at this rate). Abbreviations ADB – Asian Development Bank AOJSC – Azerbaijan Amelioration and Water Management Open Joint Stock Company AZN – Azerbaijan Manat 3 billion m – Billion cubic metres CCA – cultivable command area EAP – Environmental Action Plan EC – European Commission EECCA – Eastern Europe, Caucasus and Central Asia (countries) EU – European Union FAO – Food and Agriculture Organisation of the UN GDP – Gross Domestic Product GEF – Global Environment Fund GIS – Geographic Information Systems GISS – Goddard Institute of Space Science GFDL – Geophysical Fluid Dynamics Laboratory IFAD – International Fund for Agricultural Development ISD – Irrigation Systems Department IWRM – Integrated Water Resources Management Plan JICA – Japanese International Co-operation Agency JSC – Joint Stock Company KfW – Kreditanstalt für Wiederaufbau - German development bank MAC – Maximum allowable concentration mcm – Million cubic metres 3 m /s – Cubic metres per second MENR – Ministry of Ecology and Natural Resources NHD – National Hydro-meteorology Department (of MENR) NPD – National Policy Dialogue NWS – National Water Strategy OECD – Organisation for Economic Co-operation and Development OSCE – Organization on Security and Cooperation in Europe OJSC – Open Joint Stock Company O&M – operation and maintenance PCB – Polychlorinated Biphenyls PRECIS – Climate modelling system from UK Met Office (Providing Regional Climates for Impacts Studies) RBMP – River Basin Management Planning SAWR – State Agency for Water Resources SIDA – Swedish International Development Agency SPSD – State Program for Socio-economic Development SNC – Second National Communication (to the UNFCCC) TA – Technical Assistance TACIS – Technical Assistance to CIS (EU aid programme) UNDP – United Nations Development Program UNECE – United Nations Economic commission for Europe UNESCO – United Nations Education, Scientific and Cultural Organisation UNFCCC – United Nations Framework Convention on Climate Change USAID – United States Agency for International Development WFD WB – World Bank WFD – Water Framework Directive WUA – Water User Association WUAP – WUA Development Support Project WEIGHTS AND MEASURES ha – hectare km – kilometer 2 km – square kilometer m – meter m3 – cubic meter NOTES (i) The fiscal year (FY) of the Government of Azerbaijan ends on 31 December. FY before a calendar year denotes the year in which the fiscal year ends. (ii) In this report, "$" refers to US dollars. CONTENTS PREFACE iv EXECUTIVE SUMMARY v 1. INTRODUCTION 1 1.1 Purpose 1 1.2 Motivation for a Water Strategy 1 1.3 Objectives, Strategies, and Tactics 2 1.4 This Study 3 1.5 Structure of the Report 4 PART A: WATER RESOURCE ASSESSMENT 5 2. NATIONAL SETTING 6 2.1 Location 6 2.2 Climate 6 2.3 Population 7 2.4 Economy 8 3. WATER RESOURCES 9 3.1 Rainfall 9 3.2 Surface Water 10 3.3 Groundwater 11 3.4 Marginal Quality Water 12 3.5 Floodwater 12 3.6 Climate Change 12 4. WATER USE 13 4.1 Agriculture 14 4.2 Domestic 14 4.3 Industry and Energy 15 4.4 Environment and Recreation 15 5. WATER MANAGEMENT 15 5.1. Physical Features 15 5.2. Water Monitoring 16 5.3. Water Policy and Legislation 16 5.4. Institutions 17 5.5. Financing the Water Sector 19 5.6. Managing Floods and Droughts 20 5.7. Water Sector Reforms 21 6. AGRICULTURE, IRRIGATION, AND LAND DRAINAGE 22 6.1 Overview 22 6.2 Crop Areas and Yields 22 6.3 Government Policies – Agricultural Subsidies 24 6.4 Ensuring Food Security 25 6.5 Irrigation and Drainage 26 PART B 27 DEVELOPING A WATER STRATEGY 27 7. THE CHANGE DRIVERS FOR A WATER STRATEGY 28 7.1 Demographics, Regional Integration and Economic Growth 28 7.2 Urbanization 28 7.3 Environment and Climate Change 28 7.4 Changing Responsibilities in Water Administration and Governance 28 8. THE KEY CHALLENGES AND OPPORTUNITIES 29 8.1 Trans-boundary Rivers – Related Water Quality and Quantity Issues 29 8.2 Managing Increasing Demand for Water 31 8.3 Agriculture – Irrigation, Drainage and Low Productivity 31 8.4 Managing Water Related Hazards – Floods and Droughts 33 8.5 Water Governance for Improved Water Management 34 9. POLICY ENVIRONMENT 35 9.1 Current Initiatives 35 9.2 Potential Future Initiatives 35 10. STRATEGY FORMULATION 36 10.1 Envisioning the Future 36 10.2 Setting the Goal and Objectives 37 10.3 Strategy Framework 37 11. POTENTIAL INTERVENTIONS AND INVESTMENTS 40 11.1 Investing in Institutions 40 11.2 Investing in Water Resource Monitoring and Data Management 41 11.3 Investing in Irrigation and Drainage 41 11.4 Investing in Agricultural Extension Education 43 12. STRATEGY IMPLEMENTATION 44 12.1 Deriving Investment Plans for the Strategy 44 12.4 Monitoring and Evaluation (M&E) 45 REFERENCES 46 iii Azerbaijan Developing Water Resources Sector Strategies in Central and WestJune Asia 2015 PREFACE 1. Water is a scarce and valuable resource in the Republic of Azerbaijan, where the average annual rainfall is less than 450 mm. Two large rivers of the South Caucasus region, – the Kura and the Aras – flow through the country, forming a large fertile lowland plain suitable for irrigated agriculture. All sectors; including agriculture, commerce, industry, and urban use water from these rivers, which also provide environmental amenities, both in stream and in the discharge of fresh water to the Caspian Sea. Thus, the whole of the country and its entire population will benefit by implementing policies and supporting investments that regulate and enhance the use of limited water supplies, while addressing the demands of competing sectors. Such policies and investments will form the core of a national water strategy. 2. The agriculture sector requires a substantial portion of the country's fresh water supplies, and that dependence could increase, over time, with climate change. Other sectors will also require more water in the future, in view of both an increasing population and continued growth in the national economy. 3. This report has been prepared by consultants retained by the Asian Development Bank. The team was assisted in country by the ADB Azerbaijan Resident Mission and the Ministry of Emergency Services through its State Agency for Water Resources. Dr. Ramchand Oad, served as the Team Leader and Water Resources Specialist; Ted Patterson as the Irrigation and Drainage Engineer, Steve Parsons as the Hydrologist, and Dennis Wichelns as the Economist. The team was assisted by local consultants Rafig Verdiyev, Niyazi Sulemanov, and Farda Imanov. 4. The consultant team is grateful for the warm reception and technical support provided by many people and organizations in Baku. Mr. Arif Akhundov and other specialists in the State Agency for Water Resources assisted the team in obtaining helpful information from stakeholders. The ADB Country Director, Olly Norojono, and Program Officer, Yagut Ertenliche, and their staff arranged stakeholder workshops and meetings with government agencies. The ADB Project Officer, Akhtar Ali, and his colleague, Mariz Igaya, provided helpful guidance and logistical support. The team appreciates all of the assistance received. Ramchand Oad, Dennis Wichlens, Steve Parson and Ted Patterson: 30 June 2015. iv EXECUTIVE SUMMARY 1. This report presents an assessment of water resources in Azerbaijan Republic with the objective of developing a national water strategy for the country. The report provides an overview of water availability and management, and describes the outlook for water supplies and demands in future. It identifies and analyses water related challenges and opportunities for addressing those challenges. The analysis provides the base for formulation of a water strategy including the country vision and goals, strategy components, and related infrastructure investments and institutional enhancements. 2. The climate of Azerbaijan is continental. Annual rainfall varies from about 300 mm in eastern areas to more than 1,000 mm in the western mountains. The total renewable surface water resources are about 30 billion m3/year. Two major rivers (the Kura and Aras) flow through the country, forming a large basin occupied by good agricultural soils. The country also has groundwater resources, which are located mostly in the foothills of the Greater and Lesser Caucasus and in the alluvial aquifers of the Kura-Aras plain. The average annual rainfall on the Kura-Aras plain is less than 400 mm, which is insufficient for crop production. Irrigation is required to achieve profitable yields in this largely agricultural zone. 3. About two-thirds of Azerbaijan's water resources arise outside the country. Both the Kura and Aras rivers traverse national boundaries. Thus, the volume and quality of water entering Azerbaijan are influenced