Water resources Sector Strategy: strategic directions for World Bank engagement
EXECUTIVE SUMMARY
Many developing countries face daunting water resources challenges as the needs for water supply, irrigation and hydroelectricity grow; as water becomes more scarce, quality declines and environmental and social concerns increase; and as the threats posed by floods and droughts are exacerbated by climate change. As a consequence, there is a high and increasing demand for World Bank engagement. Lending for water resources development and water-related services accounted for about 16 percent of all World Bank lending over the past decade.
Progress in ideas and practice
In 1993 the Board of the World Bank endorsed a Water Resources Management Policy Paper (WRMPP). In that paper, and in this Strategy, water resources management comprises the institutional framework (legal, regulatory and organizational roles), management instruments (regulatory and financial), and the development, maintenance and operation of infrastructure (including water storage structures and conveyance, wastewater treatment, and watershed protection). The 1993 Policy Paper reflected the broad global consensus that was forged during the Rio Earth Summit process. This consensus stated that modern water resources management should be based on three fundamental principles (known as “the Dublin Principles”). First there is the ecological principle, which argues that independent management of water by different water-using sectors is not appropriate, that the river basin must become the unit of analysis, that land and water need to be managed together, and that much greater attention needs to be paid to the environment. Second is the institutional principle, which argues that water resources management is best done when all stakeholders participate, including the state, the private sector and civil society; that women need to be included; and that resource management should respect the principle of subsidiarity, with actions taken at the lowest appropriate level. Third is the instrument principle, which argues that water is a scarce resource, and that greater use needs to be made of incentives and economic principles in improving allocation and enhancing quality.
A decade later, evidence is accumulating on experience with implementing the “Dublin Principles.” First, experience shows that the Dublin Principles have provided inspiration and direction for many water reform processes, and that the Principles remain powerful, appropriate and relevant. Second, a major review of industrialized countries (by the OECD) has concluded that progress in implementation has been difficult, slow and uneven and that even the most advanced countries are very far from full compliance with the Dublin Principles. Third, another review (by the OED) of the experience of the World Bank concluded that, while the 1993 Policy Paper remained relevant and appropriate, the major challenge was developing context-specific, prioritized, sequenced, realistic and “patient” approaches to implementation.
Scope and methodology of this Strategy
Managing water resources involves a dialectic between integration (Dublin Principle #1) and subsidiarity (Dublin Principle #2). Within the World Bank, business strategies for specific water-using sectors (such as water and sanitation, irrigation and drainage and hydropower) are, in accordance with the subsidiarity principle, determined primarily as part of the strategies for these respective sectors. This Strategy focuses on how to improve the development and management of water resources, while providing the principles that link resource management to the specific water-using sectors. Since the focus of the Strategy is on implementation, the preparation process relied heavily on reviews of on-the-ground experience in implementing World Bank projects. Both the brainstorming and review stages involved much work in the field, and extensive consultations (fourteen in all) in developing countries. These investigations and consultations identified areas where World Bank assistance was going well, and others that were less successful, and then honed in on practices that the Bank needs to change to become a better development partner. The country consultations were supplemented with a number of consultations on the draft Strategy with specific stakeholder groups. There were also extensive and intensive consultations with Bank staff, management and the Board.
In these consultations, two distinct classes of challenges emerged that need to be faced if the World Bank is to be an effective partner. The first set of challenges relates to the (many) areas of water resources management where there is broad consensus, where Bank practices have changed for the better and where the need is for “more of the same.” They include more attention to water quality, conservation, groundwater management, watershed management and institutional reform. The World Bank has increased it activities in these vital areas over the past decade, and will continue to increase such lending. Precisely because there is momentum and no particular barriers to Bank engagement with these issues, there are no major changes of course required, and there is no need for Bank management and the Board to focus specifically on them. These issues—which are very important and constitute the majority of activities with which the Bank is involved—are thus treated briefly in this Strategy Paper.
The second set of challenges relates to a few fundamental areas where there is no global consensus, where the Bank has not charted a consistent set of rules of engagement and where, as a result, the Bank has not performed as a predictable, timely and effective partner. This Strategy paper focuses primarily on these difficult and contentious issues where World Bank practice needs to improve.
The main messages of this Strategy
Message #1: Water resources management and development is central to sustainable growth and poverty reduction and therefore of central importance to the mission of the World Bank. Effective water resources development and management play a fundamental role in sustainable growth and poverty reduction, through four different mechanisms. First, broad-based water resources interventions, usually including major infrastructure such as dams and inter-basin transfers, provide national, regional, and local benefits from which all people, including the poor, can gain. Second, because it is usually the poor who inhabit degraded landscapes, poverty-targeted water resources interventions designed to improve catchment quality and provide livelihoods for the poor are of major importance. Third, broad-based water service interventions (aimed at improving the performance of utilities, user associations and irrigation departments) benefit everyone, including the poor. And fourth, poverty-targeted water service interventions (such as water and sanitation and irrigation services for the unserved poor) play a major role in reaching some of the Millennium Development Goals. In most developing countries growth-oriented, poverty-reducing water resources strategies will involve action in all four of these areas. The corollary is that the World Bank should be available as a “full service partner” to assist development of integrated, prioritized and consistent action in all four arenas.
Message #2: Most developing countries need to be active both in management AND development of water resources infrastructure. For the World Bank to be an effective partner, it must approach water resources challenges without preconceptions. The Bank must not fall into the trap of thinking that all problems can be solved with infrastructure, or the equally-dangerous trap of assuming that, in environments with minimal infrastructure, all problems can be addressed through better management.
Message #3: The main management challenge is not a vision of integrated water resources management but a “pragmatic but principled” approach that respects principles of efficiency, equity and sustainability, but recognizes that water resources management is intensely political, and that reform requires the articulation of prioritized, sequenced, practical and patient interventions. To be a more effective partner, the Bank must be prepared to back reformers, and to pay more explicit attention in design and implementation to the political economy of reform. Inter alia this will mean recognizing that solutions have to be tailored to specific, widely-varying, circumstances, and that the art of reform is in picking the low-hanging fruit first, not making the best the enemy of the good, recognizing broader reforms outside of the water sector (often relating to overall economic liberalization, fiscal and political reform), providing the pre-conditions for improving resource and service management, and recognizing that those who are willing to change must design reform programs and must be supported.
Message #4: Providing security against climatic variability is one of the main reasons why industrialized countries have invested in major hydraulic infrastructure such as dams, canals, dykes and inter-basin transfer schemes. Many developing countries have as little as 1/100th as much hydraulic infrastructure as do developed countries with comparable climatic variability. While industrialized countries use most available hydroelectric potential as a source of renewable energy, most developing countries harness only a small fraction of available hydropower potential. Because most developing countries have inadequate stocks of hydraulic infrastructure, the World Bank needs to assist countries in developing and maintaining appropriate stocks of well-performing hydraulic infrastructure and in mobilizing public and private financing, while meeting environmental and social standards.
Message #5: There is a large and increasing demand from the World Bank’s borrowers for lending and non-lending services related to water resources development and management. The ability of the Bank to respond has been mixed. On the one hand, on the very important “soft” side Bank engagement is growing, rapidly and effectively. On the other hand, for the many countries that need to make major infrastructure investments to complement management reforms, the Bank often become a reluctant, unpredictable and expensive partner. To be a more effective partner, the World Bank will re-engage with high-reward/high-risk hydraulic infrastructure, using a more effective business model. This “new business model,” which will be followed by both the Bank and IFC, puts development impact first; assesses the development impact of both engagement and non-engagement by the Bank; considers the rights and risks of those directly and indirectly affected by such projects; meets social and environmental standards; treats those projects supported by the Bank as Corporate projects from the start; rewards and supports staff who manage such projects; and aims at transparent, crisp, time-bound and predictable decisions.
Message #6: The Bank is perceived by many to have a major comparative advantage in the water sectors, and there is, accordingly, a strong demand for Bank services, and a strong demand that the Bank engage. There are two dimensions to the Bank’s comparative advantage. On the one hand, as water challenges grow in scale and complexity, the Bank is perceived as one of the few institutions that can provide integrated support on the macro-economic, financial, technical, social and environmental dimensions. On the other hand, borrowers find that the Bank is unique in terms of performance and knowledge, convening power, relations with almost all riparian countries, a combination of knowledge and financial resources, engagement at all scales (local watershed, city, irrigation district, river basin and aquifer, country, regional), and ability to integrate across these. And the Bank, IFC and MIGA play an indispensable role in attracting much-needed investment by the private sector. There is simultaneously growing concern that, by disengaging from difficult, complex issues, the Bank is losing its credibility as a full-service investment and knowledge partner. In particular, the Bank must be engaged in a full range of water infrastructure and management activities in countries which have investment choices if the Bank is to remain a credible knowledge institution, since it is often experience in these countries that is relevant to poorer countries.
Message #7: The Bank’s water assistance must be tailored to country circumstances and be consistent with the overarching Country Assistance Strategies (CAS) and Poverty Reduction Strategy Papers (PRSPs). The 1993 Policy Paper and this Strategy can necessarily provide only broad principles for World Bank engagement and not inflexible prescriptions. What is appropriate in any particular country (or Region) at any particular time will involve adaptation of these general principles to the specific economic, political, social, cultural and historical circumstances. An important new instrument developed in this Strategy is of “Country Water Resources Assistance Strategies” (CWRASs) which will pull together three different strands. The first strand is the specific water resources challenges and development opportunities in a particular country at a particular point of time. The second strand is the framework which the government and the World Bank have agreed upon for the next three years. The third and final strand contains the broad principles articulated in the World Bank’s 1993 WRMPP, and in this Strategy. The resulting CWRAS will provide an explicit program of Bank lending and non-lending support in water, which will be consistent with the PRSP (and the CAS) and which will govern the Bank-country partnership in water for the next three years.
• Extract on the WCD Report from the World Bank Water Strategy, 2003
The World Bank position on the “Guidelines” of the World Commission on Dams
1. As is evident in many places in this Strategy, the World Commission on Dams Report* (issued in late 2000) is a major reference point in the ongoing debate about dams and their role in development. The main thrust of the WCD Report is advocacy of:
• Five core values-equity, efficiency, participation, sustainability and accountability-for future decision-making on dams;
• Seven strategic priorities-gaining public acceptance, assessing options, addressing existing dams, sustaining rivers and livelihoods, recognizing entitlements and sharing benefits, ensuring compliance, and sharing rivers for peace, development and security; and
• A set of criteria for assessing compliance and twenty-six guidelines for review and approval of projects at five stages of decision-making.
2. Most organizations involved in the debate concur with the five “core values” and seven “strategic priorities” . However, in the two years since the issuing of the WCD Report no consensus has emerged on the applicability of the “26 WCD guidelines”.
3. The World Bank conducted a detailed comparison of the 26 WCD guidelines vis-à-vis the Bank’s safeguard policies**. Although there was much in common, there are several important differences. First, while there is agreement on the importance of the rights of affected and indigenous people, in the judgment of the World Bank adoption of the WCD principle of “prior informed consent” amounts to a veto right that would undermine the fundamental right of the State to make decisions which the State regards as being in the best interest of the community as a whole. Second, while there is agreement on stimulating good-faith negotiations on international rivers, World Bank experience (and its policies) are based on proactive engagement rather than disengagement from countries who are not already engaged in good faith negotiation with their neighbors on international waters (as advocated by the WCD). And, third, while there is agreement on the importance of consultation and public acceptance, experience suggests that the multi-stage, negotiated approach to project preparation recommended by the WCD is not practical and would virtually preclude the construction of any dam.
4. The World Bank is committed to support its borrowers in developing and managing priority hydraulic infrastructure in an environmentally and socially sustainable manner. In doing this the Bank believes that the WCD “core values” and “strategic priorities” are appropriate principles which are consistent with current Bank practice and policies. The Bank will not, however, as advocated by the WCD Report, comply with the twenty six guidelines. Rather, the Bank will continue to work with its borrowers in effective implementation of current World Bank operational policies, which the WCD describes as “…the most sophisticated set of policies, operational procedures and guidelines amongst the international donor community.”
5. Finally, it is pertinent to note that a UNEP-led WCD follow-up process*** (in which the World Bank is participating) is proceeding on a basis quite similar to that articulated by the World Bank: acceptance by all stakeholders of the core values and strategic priorities but recognizing that there is not a consensus among stakeholders on the 26 guidelines.
* This assessment is based in part on the consultations which were held with a variety of stakeholders in Brasilia in February 2000. All of the presentations, panel discussions and reports from that meeting are available on www.worldbank.org/water. This was complemented by a discussion in Fortaleza in March of 2001 with senior political, civil service, professional and civil society leaders on the report of the World Commission on Dams.
** For all other regions, these assessments of what the SSP might mean are based in part on the consultations which were held with all stakeholders in preparation for this Strategy. Due to budge constraints no consultation was held in ECA.
*** This assessment is based in part on the consultations which were held with a variety of stakeholders in New Delhi in May 2000. All of the presentations, panel discussions and reports from that meeting are available on www.worldbank.org/water.
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