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EC 5208: (2) WATER RESOURCE ECONOMICS II SECOND SEMESTER 2006/2007 Post Graduate Institute of Agriculture, Peradeniya,

EC 5208: (2) WATER RESOURCE ECONOMICS II SECOND SEMESTER 2006/2007 Post Graduate Institute of Agriculture, Peradeniya, S.THIRUCHELVAM. EC 5208 Water Resources Economics II (2). Course Outline 1. Water Demand and Supply: Scenarios and Issues

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EC 5208: (2) WATER RESOURCE ECONOMICS II SECOND SEMESTER 2006/2007 Post Graduate Institute of Agriculture, Peradeniya,

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  1. EC 5208: (2) WATER RESOURCE ECONOMICS II SECOND SEMESTER 2006/2007 Post Graduate Institute of Agriculture, Peradeniya, S.THIRUCHELVAM

  2. EC 5208 Water Resources Economics II (2) Course Outline 1. Water Demand and Supply: Scenarios and Issues  2. Public and Private Partnerships in Water Management    3. Economic Tools for Water Resources Management.    4. Managing Water Resources Across Boarders 5. The Concept of Economic Value (Quiz 10%)    6. Environmental Valuation Techniques 7. Valuing Water: Studies 8. Decision Support System for Water Management 9.  Surface & Ground Water Development and Challenges. Mid Term (25%), Term Paper: (15%). End of Course PowerPoint Presentations(20%) End Term (50%)

  3. Guidelines for Term Paper Presentation Group of 4 students presentation on Frontier Research in Water Resource Economics. Fix the schedule before the midterm                   Background and Objective,                   Literature & Conceptual Framework,                   Results and Discussions and                  Conclusions and Policy Implications. Power Point Presentation for 40 + 20 Minutes Readings: Journal articles, Books, New paper articles & Web pages

  4. L.1. PUPLIC PRIVATE PARTNERSHIPS IN WATER MGT. Problems with public Service Delivery Absence of Competitive Discipline Politicization of Management Poacher Gamekeeper Problem Lack of (Investment) Capital Lack of Effective Oversight Soft Budget Constraint Absence of Efficiency Incentives Inadequate (Investment) Capital Poor Accountability Low Efficiency Poor Quality Low Tariffs Inadequate Investment

  5. The starting point of involving the private sector • Markets can fail to be efficient for any one of four • broad types of reasons • Monopoly 2) Externalities 3) Public goods • 4) Asymmetry of information • The water sector responds to all four! Linking PPP to the definition of IWRM IWRM: “A process which promotes the co-ordinate development of water, land and related resources, in order to max. the resultant econ. & social welfare in an equitable manner without comprising the sustainability” How can we find in this definition the link with PPP?

  6. Management Instruments (1) Enabling a successful IWRM needs: • Management skills • Expertise • Finances “Water is not scarce, money is!” The private sector could add in this respect their resources, but there is a trade-off: • There needs to be a profitable opportunity • The public sector needs to be willing and able to truly partner • There needs to be additional control & regulations.

  7. Management instruments (2) Objectives of PPP: • enhance technical and managerial expertise • improve operating performance • increase efficiency of capital investment • bring some competition in a monopoly service • restructure troubled public enterprise • mobilize private financing for investment • reduce or eliminate public subsidies to the sector for recurrent expenditure • get sales/fee/tax revenues for the Treasury

  8. Institutional Roles (1) • The Role of the Public Sector • Three roles for the public sector as a whole,: • Macro-stabilization - the provision of a stable • economic environment for the private sector • 2) Income redistribution - Reduction of poverty • 3) Resource allocation - influencing the allocation of • resources where markets fail to do so efficiently “For successful IWRM, the public sector should do what it is good at: making policy and regulating, and the private sector should do what it is good at: managing the processes in an efficient manner.”

  9. Basic modes of water sector organizations Direct Private Management Public Water PLC private mixed Delegated Pvt. Management Utility Management Increased PSP Corporative Utility Municipal Supramunicipal public public mixed private Ownership of Utility Assets

  10. Choosing the right PPP option • It is not the option chosen but the process by which e objectives of reform process are achieved, that matters • The sustainability of reform and the long-term future of water utilities will depend on the success in extending services to low-income communities. • Selecting a PPP option • Key steps: • Identify the problem • Set objectives for private involvement • Assess govt./stakeholders willingness to accept • The roles, duties and risks of various PPP options • Choose the PPP option which best fits the above

  11. What can the Government end up with? • The preferred option of the government may not be the preferred option of the private sector • Options that yield higher benefits for consumers also tend to demand a higher level of government commitment, and a better prepared institutional framework • Deficiencies in the institutional environment from which a private participation starts will increase the level of risk perceived by the private sector, and raise the price of their involvement • However, if realistic objectives are set up based on a careful analysis of trade-offs, there is a broad range of PSP options which can improve performance

  12. Critical success factors for introducing PPP • High-level, sustained commitment in central and local government • Clear, realistic expectations and goals • Stakeholders informed and involved • Build upon local assets: population, small enterprise, CBOs/NGOs • Risks assessed and assigned to most capable parties • Time and capacities to prepare • Near-cost tariff prior to a concession • Transparent bidding and award process • Build regulatory capacity early

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