Effective Local Management of Water Resources with Reference to the Middle Orange River

Effective Local Management of Water Resources with Reference to the Middle Orange River
Report No 1134/1/04
December 2004

EXECUTIVE SUMMARY

The necessity for South Africa to employ all means to enhance water use efficiency is generally accepted. This is very relevant for the irrigation sector that uses almost 60 per cent of the total available water.
To manage water resources on a local basis and to transfer water within integrated catchments to avail it for different users, an appropriate decision support management system is needed. Capacity sharing, an institutional arrangement and property rights structure for allocating water among multiple users of water resource systems that was developed in Australia, was selected to be investigated for application in South Africa.
In the Orange River basin, one of the most important irrigation areas in South Africa, knowledge is lacking regarding the value of water to irrigation farming and other water use sectors. Given the important role the Orange River plays in the water system of South Africa, carrying more than 20 per cent of the total river flow in the country, providing the life blood for the socio-economic development of the north western part of South Africa, sharing water with neighbouring countries Lesotho and Namibia and playing a major role as net inter basin transfer scheme to the Buffels, Lower Vaal, Riet and Fish Rivers, it is essential that the knowledge vacuum is erased or at least minimised. The relevance of this is emphasised by the forecast that the transfer of water away from the Orange River to other basins will increase considerably in future.
An institution that has considerable potential to improve efficiency and that is acknowledged in the White Paper on a National Water Policy for South Africa, is the water market. For water markets have to work effectively appropriate institutional arrangements must be in place. These markets started to emerge in the Lower Orange River, as well as in other rivers like the Great Fish and Sunday Rivers. Capacity Sharing as developed in Australia and based on clearly defined property rights, is an institutional arrangement that is especially geared to provide information and support for water markets to function optimally. Testing Capacity Sharing in the Middle Orange River area of South Africa was therefore a sensible research project to undertake.

STUDY AREA

Figure 1 provides the orientation map for the study area. The Orange River catchment between Gariep and Vanderkloof Dams was used in the generation of the hydrological data for Vanderkloof Dam, which is the focus of the study. Irrigation farmers involved in this study are located downstream of Vanderkloof Dam along the Ramah Canal. The study is limited to Ramah Canal, as all farmers along the canal extract water from the facility, which was built exclusively to serve irrigation needs.

RESEARCH AIMS

The main aim of this research is to evaluate Capacity Sharing (CS) as an alternative institutional arrangement and determine its applicability to South Africa.
To achieve this aim the following objectives have to be addressed
Objective No. 1: To evaluate institutions and legislation for effective water resource management in South Africa.
Objective No. 2: To evaluate capacity sharing as an alternative institutional arrangement for South Africa.
Objective No. 3: To determine the short-run marginal value of water for farmers served by the Vanderkloof Dam’s Ramah Canal along the Orange River.
Objective No. 4: To determine marginal value products of reservoir water, reservoir inflow and reservoir capacity shares, as well as optimal water-use policies, for farmers along the Ramah Canal using the SIM-DY-SIM water allocation model adopted from Australia.

METHODOLOGY

The following methods were applied regarding the different objectives.

A comprehensive study of the South African water institutions to assess the adequacy of the current institutional arrangement in meeting economic and social objectives was done. The focus was on the classes of institutions that will shape the allocation of water in South Africa in general and which will influence critically the extent of market-type transfers. Institutions considered were water use rights, water markets, pricing and allocation rules and water management authorities. An ideal water institutional framework was formulated and used to evaluate the South African water institutions, focusing on types of decision mechanisms and models involved in

Figure 1: Orientation Map of Study area
Source: Water Resource Planning (WRP), 2001

water distribution, as well as provisions that must be made to accommodate water markets and ownership rights.

Capacity sharing (CS) was studied to determine whether it is a viable option for augmenting the present South Africa water institutional provisions. Efforts were directed at determining whether the institutional form of CS is compatible with the new National Water Act of 1998.

A survey was conducted to gather data from farmers on finances, cropping patterns, land use and any other relevant data required for running a linear programme (LP) model. A LP matrix for representative farmer groups was then developed and seasonal gross margins calculated at various water application levels, from which short term marginal value products (MVPs) were determined.

Seasonal hydrological inflows into Vanderkloof Dam were compiled and used with the gross margins derived from the LP output to run a pre-dynamic programming simulation. A dynamic programme and finally a post-dynamic programming simulation were conducted.

RESULTS
The evaluation of institutional arrangements for water management in South Africa revealed that a great deal of progress has been made towards effective, efficient and sustainable water management. The new National Water Act (NWA) of South Africa drew international attention on its position regarding identifying and making efforts to address issues like:

guaranteeing access to sufficient water for basic needs of all people;
ensuring that the requirements of the environment are met relative to other uses;
sustainability and renewability of water resources;
provisions for the transfer of water between catchments;
honouring obligations to its neighbours; and
fulfilment of commitment as custodian of the nation’s water resources.

To steer water management thinking more along current international trends minor adjustments of the NWA may be necessary for more efficient water resource management with regard to

excessive central government control of water management institutions;
bureaucratic consented water re-allocations;
administratively set pricing mechanisms;
lack of appropriate arrangements to facilitate tradable entitlements (e.g. defining exclusive rights to entitlements);
discouraging and unclear water transfer arrangements; and
lack of definitive institutional provisions for integrated demand and supply management.

Evaluating CS within the framework of the NWA showed that CS can serve the needs of South Africa well because of its improvements to the functioning of water markets. It does so by strengthening security of tenure, predictability, flexibility, opportunity cost pricing and efficiency of water use.

However, the status in the NWA with regard to attenuation of water rights, restrictions on certain forms of water trading, bureaucratic control over water trading and water pricing as well as general administrative interference in water management issues do not make the prospects attractive for the adoption of CS in South Africa.

On the other hand the provisions in the NWA for the establishment of CMAs and WUAs and the progress made thus far in this regard opens the door for a more relaxed water management environment where CS is most likely to be considered. CMAs (or through delegation, WUAs) for instance will progressively monitor and measure stream inflows, storage levels of the reservoir and record all losses due to evaporation, seepage and reservoir spills. These records, together with ordered releases by each of the bulk users, will assist CMAs to update capacity shareholdings of users. Computer printouts of these records (water accounts) reflecting user’s reservoir capacity will be sent to holders of bulk shares periodically. WUAs, will operate at retail level with responsibilities similar to those of CMAs, who oversee bulk shares, but in this case a large number of smaller shareholders will exist. Essentially WUAs will:

administer capacity share accounts;
electronically distribute account printouts and any relevant information to groups, individuals or group representatives;
play a vital role when a combination of retail/bulk shares are required to address the needs of the emerging or small scale farmers;
be responsible for training water users, as this will empower them to operate their shares effectively and efficiently.

To determine the short-run marginal value products of water for farmers served by Vanderkloof Dam, two crop mix cases were investigated with a linear programming model, namely, lucern, maize/wheat (LMW) and potato, maize/wheat (PMW). For the crop mixes investigated, the MVPs differ significantly for the two seasons. For LMW MVPs range between R0,09 and R 0,39 per m³ and for PMW between R0,09 and R 3,64 per m³ This implies that farmers cultivating LMW and PMW will be able to pay as much as R 0,39 per m³ and R 3,64 per m³ respectively for water delivered onto the farm for immediate use.

Inter-seasonal MVPs of water located in the reservoir, as well as optimal water use policies for farmers along the Ramah Canal, at Vanderkloof Dam using the SIM-DY-SIM simulation model were determined. Results show that inter-seasonal MVPs of water for LMW and PMW cover a wide range form R0,09 to R 3,64 per m³ depending on crop mix, farmer’s planning horizon and water availability (i.e. inflow shares and capacity share content scenarios).

In the comparison of using of water under Stochastic Dynamic Programming (SDP) derived rules (i.e. based on optimal policies generated from SDP) as against no rules (i.e. using water as it becomes available in the capacity share), contents of reservoir capacity shares and CS inflows were calculated at the beginning of each season. It was noted that both reservoir capacity and inflow shares were better managed using SDP derived rules than using no rules.

The effect of reservoir capacity share and inflows on seasonal as well as annual gross margins were investigated using SDP derived policies and using water just as it becomes available. Results confirmed that the annual gross margins are higher using SDP-derived policies as against using reservoir water as it becomes available.

The use of computer models to determine the long-term MVPs for IS and CS is explained with examples for different situations and scenarios to provide guidelines to potential CS practitioners.

CONCLUSION WITH REGARD TO CAPACITY SHARING

Capacity sharing has considerable potential as one of the appropriate alternative institutional arrangements for South Africa and can be used fully or partly to augment the current arrangements. The concept of CS should not be viewed as a too complex and unworkable water institutional arrangement. Adequate provisions should therefore be made for its implementation at least at the bulk share level, sectorally and at retail level for the agricultural sector in a selected catchment, to test its feasibility.

POLICY RECOMMENDATIONS

Deficiencies in the current NWA may lead to inefficiency in water allocation and use and hence aggravate the water scarcity situation in the long run. The following policy recommendations are therefore worth considering.

The institutional provision for water rights has to be revisited. Water rights need not necessarily be granted in perpetuity, but a considerably long period of time must be guaranteed the user to exercise user rights. In addition, water rights must be more clearly defined, exclusive, transferable and protected by law.
Although the scarcity value of water is increasing, the political-rooted system of public provisions seemingly insulates the water economy from the influence of actual market forces, possibly due to the weakness of water markets regarding equity. As a suggestion, allocations to address social equity in particular have to be safeguarded by the public sector through market means yet supervised or controlled by CMAs and WUAs. A special institutional arrangement like CS which has the potential to achieve this, has to be given serious consideration as a new institutional arrangement to manage water on sustainable and at the same time addressing social equity.
The administrative pricing system that takes precedence over pricing via auctions, or water markets needs further evaluation before it becomes fully institutionalised. Preferably, a market oriented institutional arrangement like CS, which facilitates integrated demand and supply in water management and makes provision for shadow prices (which are good estimates of opportunity cost) to be calculated, has to be thoroughly investigated and streamlined for specific sites before being adopted.
The strong equity concerns about water markets in South Africa cannot be ignored. Water being vital to life as well as to livelihoods, strong social norms will always argue against it being treated as a simple marketable commodity. For South Africa, the possible negative equity effects on water markets can be mitigated through appropriate policies. From a liberal market viewpoint, one alternative is to use market-based allocations, combined with reduction in the massive capital and operating subsidies on irrigation and water supply, which usually favour better-off producers and urban consumers. This would possibly free-up budgetary resources to target water subsidies to the poorest sectors of the population in both rural and urban areas.
Inter-sectoral water allocation mechanisms in South Africa at basin and lower levels need to be well developed. Also regional mechanisms like Catchment Management Agencies and Water User Associations have to be autonomous and non-bureaucratically linked to centralised state apparatus in order to promote true decentralisation.

CAPACITY BUILDING

Capacity was built at least at four levels:

With the study leaders involved, namely Prof. M.F. Viljoen, Dr. L.A. du Plessis and Dr. F.O.C. Nwonwu, who worked closely with Dr. Norman (N.J.) Dudley from Australia.
With two students E.F.Y. Gakpo and J.M. Mahlaha who obtained their M.Sc Agric degrees based on the research. The titles of their master theses were Alternative institutional arrangements towards optimal water allocation and Optimal allocation of water resource in irrigated farming at the Ramah Canal Vanderkloof Dam. Gakpo received his masters degree with distinction and was awarded a prize by the Agricultural Economic Association of South Africa in 2003 for the best Master thesis compiled during 2002 from a South African student.
With officials of DWAF and WUAs who cooperate in this research project.
Irrigation farmers participating in this research project.

Besides technology transfer that happened during discussions with irrigation farmers involved in the project and officials of the Orange Riet Water User Association and the Department of Water Affairs and Forestry, the main fora for technology transfer thus far was with posters and papers at conferences and with accredited publications.