Water Markets in Pakistan

In Pakistan, policy and management changes have been proposed and are currently being implemented to reduce the financial deficit of the country's irrigation sector. These changes will grant greater autonomy to irrigation agencies and transfer part of the management responsibilities to water users.

The term water markets covers a broad range of situations, including short-term/long-term transfers of water rights or volumes of water, groundwater or surface water. Although the development of water markets has been described under diverse socio-economic and hydrological conditions in countries such as the United-States, Chile, India, or Australia, little was known regarding the potential feasibility and impact of such markets in Pakistan. A research study is underway as part of the collaboration between the International Water Management Institute (IWMI) and CEMAGREF, the French research institute for agricultural and environmental engineering. The study is addressing the following questions:

Technical and operational feasibility: How to operate the large canal network, with limited control structures and its existing infrastructure, to account for reallocation of surface water through market mechanisms?

Institutional feasibility: Which institutional changes would be required to implement water markets (in terms of the roles of stakeholders in the operation/maintenance of canals, monitoring, enforcement, and development of a platform where potential sellers and purchasers can meet, etc)?

Economic and financial impact: What would be the impact, and for which group(s) of water users, of a transfer of groundwater and/or surface water on cropping pattern, agricultural production, and farm income?

Environmental impact: Water transfers will lead to changes in the quantity and quality of irrigation water. What would be the subsequent changes in the level and spatial distribution of salinity, sodicity and net recharge to the aquifer?

Research activities have concentrated on the Chishtian Sub-division of the Fordwah Branch Irrigation System, in Punjab province. After assessing the existing situation in terms of the allocation and distribution of groundwater and surface water, simulation models have examined the potential for reallocating surface water among tertiary units (watercourses) and secondary units (distributaries).

Existing Water Markets

Active water markets are already functioning within watercourse command areas. Farmers adapt their weekly roster of canal water turns, exchange partial and full turns, and sometimes sell or purchase their turns. They also participate actively in tubewell water transactions. These transactions allow farmers to more closely match the water supply to crop water requirements and to improve water use efficiency.

Under specific conditions of high canal water supply variability, high seepage losses, and poor quality groundwater, farmers participate actively in the sale and purchase of canal water. In some cases, all farmers of a given watercourse command area may sell or purchase canal water turns for a week or a season. Tubewell water markets are also common, except in areas with poor quality groundwater.

Technical Feasibility

To allow for the reallocation of surface water between watercourses would require head-gates, or on-demand changes in watercourse outlet dimensions. The transfer of surface water between watercourses negatively impacts the water supplies of watercourses located between watercourses that are participating in the transactions. Required compensations in supplies may be difficult to implement.

The capacity of primary and secondary canals is not the main constraint for the transfer of surface water between secondary canals. However, the discharge to secondary canals should remain above 70% of their design discharge to limit the complexity of rotations that would be required to share supplies between secondary canals. This limits the potential for any given canal to sell surface water to other canals. Transfers between tertiary units and between secondary canals lead to higher information requirements for managing the irrigation system and monitoring water transfers.

Potential Impacts

With the current physical network, the development of surface water markets between watercourses and between secondary units would yield limited impact in terms of changes in aggregated farm income (only a gain of 2-5%). The main impact would be a change in groundwater use. Farmers with good quality groundwater and cheaper tubewell water would sell their canal water to other farmers while compensating surface water sales by increasing tubewell pumpage. This may increase the demand for high quality groundwater resources. To increase the impact of potential surface water markets, it would be necessary to reduce the spatial dependency between users (i.e. establish control points within the irrigation system) and to reduce the temporal dependency between supplies of different months (i.e. develop storage capacity). Surface water transactions are expected to yield greater benefits in areas with large differences between the gross income obtained from different crops.

Institutional Requirements

The definition of water rights is far from being a simple technical issue and has strong political and institutional components. For example, from which point in the reallocation of water resources should water rights start: the official (equitable) allocation that has little chance to be accepted, or the actual (inequitable) allocation which is more likely to be accepted?

With the present physical infrastructure, water rights could be defined as volumes of water at the main canal, share of the flow at the head of tertiary units, and time duration within the watercourse command area. Other definitions of water rights are likely to require changes in the infrastructure and information for monitoring water supplies and transfers. Water users associations and federations could play an important role in the implementation of water markets. Their involvement would reduce information costs, facilitate the allocation of purchased water between different users/groups of users, and may improve the enforcement of water rights.

Conclusions

There is a need to give official recognition to existing surface water and groundwater markets which so far have operated informally, and often illegally. This recognition may result in a limited increase in the intensity of water transactions, but it would facilitate negotiations and discussions between water users.

To increase the impact of potential water markets, it is essential to increase the number of control points within the irrigation system) and to develop more storage capacity. To provide the incentives for water transactions to develop, participation in water transactions should be included in the mandate of water users associations or WUA federations.

Pierre Strosser
CEMAGREF
Groupement de Montpellier
Division Irrigation
361, Rue J.F. Breton, BP 5095
34033 Montpellier Cedex 1
France