Unclassified ENV/EPOC/EAP(2012)10 Organisation de Coopération et de Développement Économiques Organisation for Economic Co-operation and Development 11-Sep-2012 ___________________________________________________________________________________________ _____________ English - Or. English ENVIRONMENT DIRECTORATE ENVIRONMENT POLICY COMMITTEE Unclassified ENV/EPOC/EAP(2012)10 TASK FORCE FOR THE IMPLEMENTATION OF THE ENVIRONMENTAL ACTION PROGRAMME FOR CENTRAL AND EASTERN EUROPE, CAUCASUS AND CENTRAL ASIA STRENGTHENING THE ECONOMIC AND FINANCIAL DIMENSION OF INTEGRATED WATER RESOURCES MANAGEMENT IN ARMENIA, AZERBAIJAN AND GEORGIA Case study on the Kura river basin Annual EAP Task Force meeting, 24-25 September 2012, Oslo, Norway Agenda item: 5 ACTION REQUIRED: For information Please contact Ms. Tatiana Efimova by e-mail [email protected] or phone +33 1 45 24 14 34 for any additional information. English JT03326071 Complete document available on OLIS in its original format - This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of Or. English international frontiers and boundaries and to the name of any territory, city or area. ENV/EPOC/EAP(2012)10 2 ENV/EPOC/EAP(2012)10 TABLE OF CONTENTS 1. INTRODUCTION ....................................................................................................................................... 5 1.1. Description of framework conditions in the region and demands for project activities ....................... 5 1.2. Project goals .......................................................................................................................................... 6 2. METHODOLOGY ...................................................................................................................................... 7 2.1. Conceptual framework adopted by the project ..................................................................................... 7 2.2. Key project actions ............................................................................................................................... 9 2.3. Data sources ........................................................................................................................................ 10 3. EXISTING ECONOMIC INSTRUMENTS IN ARMENIA, GEORGIA AND AZERBAIJAN.............. 11 3.1. Overview of the existing economic instruments in the three countries .............................................. 11 3.2. Comparative performance assessment of existing instruments .......................................................... 13 4. WATER MANAGEMENT ISSUES NOT ADDRESSED BY EXISTING ECONOMIC INSTRUMENTS: A COMPARATIVE ANALYSIS .................................................................................... 18 4.1. Water management issues at the national level: commonalities and discrepancies ............................ 18 4.2. The trans-boundary dimension of water management issues in the Kura river basin ......................... 19 5. POTENTIAL NEW (INNOVATIVE) ECONOMIC INSTRUMENTS FOR THE KURA RIVER BASIN21 5.1. Review of the potential new instruments proposed for the three countries ........................................ 21 5.2. Pre-feasibility assessment of the proposed instruments ...................................................................... 23 5.3. Implementation of new (innovative) economic instruments: overall considerations for the Kura river basin ........................................................................................................................................................... 26 5.4. The benefits of the implementation of new economic instruments for an improved water management ............................................................................................................................................... 27 6. THE POTENTIAL FOR A COMMON APPROACH TO WATER MANAGEMENT IN THE KURA RIVER BASIN .............................................................................................................................................. 29 6.1. A coordinated approach to economic instruments for water management: opportunities and constraints .................................................................................................................................................. 29 6.2.The way forward: suggestions on further steps for continuing the regional dialogue on innovative economic instruments at the river basin level ............................................................................................ 30 7. CONCLUSIONS ....................................................................................................................................... 33 ANNEX I. INFORMATION SOURCES FOR THE THREE COUNTRIES ............................................... 36 ANNEX II. OVERVIEW OF THE EXISTING ECONOMIC INSTRUMENTS IN ARMENIA, GEORGIA AND AZERBAIJAN ..................................................................................................................................... 39 ANNEX III. WATER MANAGEMENT ISSUES IN THE KURA RIVER BASIN ACCORDING TO THE DPSIR FRAMEWORK ................................................................................................................................. 44 3 ENV/EPOC/EAP(2012)10 Tables Table 1. Comparative performance assessment of existing economic instruments in the three countries ……………………………………………………………………………………………15 Table 2. Water management issues not addressed by the existing economic instruments at the national level .............................................................................................................................................. 18 Table 3. Potential new (innovative) economic instruments proposed for the three countries ............. 21 Table 4. Pre-feasibility assessment of the proposed new (innovative) economic instruments ............ 24 Table 5. Overview of expected benefits at the national level .............................................................. 28 Table 6. List of experts and stakeholders contacted in Armenia ......................................................... 36 Table 7. Data and information sources mobilized for the Armenia Country review ........................... 36 Table 8. Comparative summary of tariffs for drinking water and wastewater treatment in Armenia, Georgia and Azerbaijan ............................................................................................................................. 39 Table 9. Comparative summary of irrigation water tariffs in Armenia, Georgia and Azerbaijan ....... 40 Table 10. Comparative summary of pollution fees in Armenia, Georgia and Azerbaijan .................... 40 Table 11. Comparative summary of abstraction fees applied in Armenia, Georgia and Azerbaijan ..... 41 Table 12. Comparative summary of fines and penalties applied in Armenia, Georgia and Azerbaijan 42 Figures Figure 1. Conceptual framework adopted by the project ........................................................................ 8 Figure 2. Proposed approach to continuing a regional dialogue on economic instruments for water management ............................................................................................................................................... 31 4 ENV/EPOC/EAP(2012)10 1. INTRODUCTION The project “Strengthening the financial dimension of integrated water resource management in Georgia, Armenia and Azerbaijan – Case study on the Kura river basin” was launched by the Organisation for Economic Cooperation and Development (OECD) in the context of the EU Water Initiative National Policy Dialogue on IWRM. It aims at providing support to the Governments of the three countries as part of the implementation of the “Advisory Assistance Programme for Environmental Protection” that is financed by the German Federal Ministry of the Environment. The overall goal of the project is to assess the economic and financial dimension of water management in Armenia, Georgia and Azerbaijan and to build the basis for a more coordinated approach to economic instruments for water management at the river basin level. When referring to “a more coordinated approach to economic instruments for water management”, two distinct dimensions are considered in the context of this initiative: The trans-boundary dimension of water management; and, The potential for a coordinated application of economic instruments for water management at the river basin scale so economic instruments applied at the national level address effectively trans- boundary water management issues The present report addresses both dimensions, with the purpose of providing an overall perspective of the economic and financial dimension of IWRM at the river basin scale. It builds on the insights on economic instruments for water management in each country gained through three Country reviews carried out by national experts in the first phases of this project1. The following two sections will provide more details about the context and the specific objectives of the project. 1.1. Description of framework conditions in the region and demands for project activities In 2006, Armenia, Azerbaijan and Georgia signed the European Neighbourhood Policy Action Plans with the European Union (EU). Under these plans, each country is committed ”to identify possibilities with neighbouring countries for enhanced regional co-operation, in particular with regard to water issues”. The