FACILITATING THE REFORM OF ECONOMIC INSTRUMENTS FOR WATER MANAGEMENT IN GEORGIA REVISED FINAL REPORT Page 1 of 80 TABLE OF CONTENTS ACKNOWLEDGEMENTS EXECUTIVE SUMMARY PART I: SETTING THE SCENE .......................................................................................................................... 16 CHAPTER 1. THE EU WATER FRAMEWORK DIRECTIVE .................................................................................. 16 CHAPTER 2. GEORGIA’S WATER PROBLEMS AND PRIORITIES ....................................................................... 19 CHAPTER 3: MANAGEMENT OF WATER RESOURCES IN GEORGIA. .............................................................. 22 3.1. Policy framework ................................................................................................................................ 22 3.2. Legal framework ................................................................................................................................. 23 3.3. Institutional Framework ..................................................................................................................... 25 3.3.1 Ministry of Environment and Natural Resources Protection (MENRP)......................................... 25 3.3.2 Other Institutions .......................................................................................................................... 26 3.3.3. Estimation of cost of water resources management (WRM) in Georgia ..................................... 28 3.4. International reference points ........................................................................................................ 28 PART II: ECONOMIC INSTRUMENTS (EIS) FOR WATER MANAGEMENT ........................................................ 29 CHAPTER 4. INTRODUCTION TO EIS: WHAT THEY ARE, AND WHAT THEY CAN DO ...................................... 29 CHAPTER 5. CURRENT STATUS OF EIS IN GEORGIA ....................................................................................... 32 5.1 Fees for abstractive and non-consumptive use of water resources .................................................... 32 5.2 User charges for water supply and sanitation ..................................................................................... 33 5.3 Irrigation water supply tariffs .............................................................................................................. 36 5. 4 Fines for non-compliance and the environmental liability payment system ..................................... 39 CHAPTER 6. OPTIONS FOR REFORM OF EXISTING & INTRODUCTION OF NEW EIS....................................... 42 6.1. User Pays ............................................................................................................................................. 42 6.1.1. User charges for water & sanitation services: ............................................................................. 42 6.1.2. Irrigation water supply charges .................................................................................................... 43 6.1.3. Abstraction charge: ...................................................................................................................... 44 6.1.4. Charges for the non-consumptive use of water ........................................................................... 47 6.2. Polluter Pays ....................................................................................................................................... 48 6.2.1. Pollution tax on discharges into public water bodies .................................................................. 48 6.2.2. Product tax levied on agricultural chemicals & lubricants causing non-point source pollution .. 49 6.2.3. Creation of tradeable pollution permits ...................................................................................... 50 6.2.4. Larger fines & more stringent enforcement ................................................................................ 51 6.3. Beneficiary Pays .................................................................................................................................. 53 6.3.1. Surcharge tax on hotel bills & other tourism facilities& charges for entry into national parks .. 53 6.3.2. Payments for Ecosystem Services (PES) ....................................................................................... 53 Page 2 of 80 6.3.3. Transboundary Cost- & Benefit-Sharing Projects ......................................................................... 56 6.4. Pro-environmental incentives ............................................................................................................. 58 6.4.1. Environmental Funds for subsidising water resource management and water-friendly investment ................................................................................................................................................................ 58 6.4.2. Tax concessions on water-saving & recycling technologies ......................................................... 60 CHAPTER 7. EVALUATION & RANKING OF OPTIONS ..................................................................................... 61 7.1 Criteria to be applied ........................................................................................................................... 61 7.2 Evaluation & ranking of options........................................................................................................... 61 PART III: CONCLUSIONS & IMPLEMENTATION .............................................................................................. 66 CHAPTER 8 CONCLUSIONS............................................................................................................................. 66 Annex 1. Bibliography ................................................................................................................................ 71 Annex 2. Costs of water resource management in Armenia and South Africa Annex 3. International practice & experience in the use of Water Abstraction and Pollution Charges. Page 3 of 80 Acronyms & abbreviations used DES Department of Environmental Supervision EF Environmental Fund EI economic instrument EIA Environmental Impact Assessment EIP Environmental Impact Permit GAC Georgian Amelioration Company GEC Georgian Amelioration Company GNERC Georgian National Energy and Water Supply Regulatory Commission GWP Georgian Power & Water Co. IFAD International Fund for Agricultural Development IWRM Integrated Water Resources Management MENRP Ministry of Environment and Natural Resources Protection NEA National Environmental Agency NGO Non-Governmental Organisation OECD Organisation for Economic Cooperation and Development PES Payment for Ecosystem [or Ecological] Services RBM(P) River Basin Management (Plan) UASCG United Water Supply Company of Georgia UNECE United Nations Economic Commission for Europe USAID United States Agency for International Development UWSCG United Water Supply Company of Georgia WFD Water Framework Directive (of the EU) WRM water resources management WSS water supply & sanitation WWTP wastewater treatment plant Exchange rates (01 July, 2016) Georgian Lari 1.0 = Euro 0.39; = US$ 0.43 Page 4 of 80 ACKNOWLEDGEMENTS The project was implemented as part of the National Policy Dialogue (NPD) on water policy in Georgia conducted in co-operation by the OECD and supported by the EU-funded project “Environmental Protection of International River Basins (EPIRB)” under the pilot projects measures for Georgia. The OECD and the EPIRB project commissioned a group of Georgian and international experts, which included Mr Jim Winpenny and Mr Malkhaz Adeishvili, for the analytical work. They are authors of this report. The authors gratefully acknowledge the contribution of participants of the EUWI National Policy Dialogue to the project and to this report, and would like to thank the Ministry of Environment and Natural Resources Protection of Georgia for their very productive co-operation. This publication has been produced with the financial assistance of the European Union. This support is gratefully acknowledged. The views expressed herein are those of the authors and can in no way be taken to reflect the official opinion of the European Union, the government of Georgia, or the Organisation for Economic Co-operation and Development and its member countries. Page 5 of 80 EXECUTIVE SUMMARY Objective of report This report aims to contribute to a national policy dialogue, supported by OECD and UNECE, against the background of Georgia’s signature in 2014 of an Association Agreement with the EU and a commitment to implement the EU’s Water Framework Directive. Amongst other measures aimed at achieving “good water status” in all water bodies, the WFD (in Article 9) includes the systematic use of economic instruments, including water pricing, to recover the cost of water services provided to households, industry, and farmers. The Terms of Reference of this report include the following: “The objective of this project is to support the Government of Georgia in strengthening the economic and financial dimension of water resources management. This will ensure that available financial resources are used in the most effective way. Information will be produced on the status of economic instruments (e.g. abstraction charges, pollution charges, water tariffs), their practical implementation at river basin level, and the conditions of the deployment.