8 June 2010

Namibia: A Case for Rural Water Subsidies

Windhoek — Namibia is reported to be more focused on sustaining the institutional structures and resources to provide rural communities with drinkable water. Now, however, it is considering financial mechanisms - or subsidies - to sustain this supply to those in need.

Over the period 1978 to 2003, the World Bank loaned about US$1.5 billion to Namibia's rural water supply sector.

However, says a Ministry of Agriculture, Water and Forestry report, rural water supply still lags behind urban water supply.

It was established in 2006 that 272 million rural dwellers in sub-Saharan Africa do not have access to drinkable water, as opposed to 54 million in urban settings.

Rural water supply has become costly to governments and are often unaffordable to the rural poor and vulnerable, who are mostly dependent on subsistence farming.

Water reforms come with a cost, as water infrastructure in many African countries is obsolete or non-existent.

"The disturbing truth is that installed rural water supply infrastructure is far harder to keep operational than hoped for, and often fails before its planned design lifetime due to poor maintenance," states the Rural Water Supply Network.

It goes on to say that the supply of infrastructure ends up needing repeated rehabilitation, which is a massive financial undertaking. Regardless, it says, millions of water points in Africa are being put up yearly.

To deal with the problem of water supply, Namibia's Directorate of Rural Water Supply (DRWS) last year requested proposals regarding the possibility of subsidising rural water supply.

Among others, it wanted to establish criteria for the identification of communities deserving of a subsidy; those who may require a subsidy; the duration for allocation of a subsidy; and the possible subsidy options or models.

The Directorate commissioned BC Gildenhuys and Associates to conduct a study on whether Government should introduce water subsidies with a special focus on the poor.

Water in dry Namibia

The National Development Plan 3 (NDP 3) calls for the sustainable and efficient use of water resources through joint management with stakeholders.

BC Gildenhuys and Associates asserted that this means managing and conserving a scarce resource on the one hand, and dealing with it as a prerequisite for development and growth on the other.

Put differently, water is an economic good with a social responsibility.

Hence, said BC Gildenhuys and Associates, it is accepted that the overall sustainability of the sector will depend on its ability to become self-sufficient.

"Without the necessary revenue, the service providers will be unable to continue providing the expected water supply and sanitation services. In all instances, it will be essential to recover the full financial cost or, in low-income rural areas, at least the operational and maintenance costs with support from government subsidies or cross-subsidies amongst consumers." This remains a tricky balance because water is a very scarce and precious resource.

Namibia's climate is considered the driest in sub-Saharan Africa. Three quarters of the country is semi-arid, with no perennial rivers. Rainfall varies greatly across the wide Namibian expanse: the north-east gets an average of about 300 to 900 mm, with the south-east and west getting an average rainfall of 10 to 90 mm.

Namibia shares - to a large and lesser extent - the perennial rivers with its neighbours: the Kunene River in the north-west; the Kavango River in the central north; the Zambezi and Kwando rivers in the north-east; and the Orange River in the south.

About 56 percent of its water comes from dams, rivers and unconventional sources. The remaining 44 percent comes from groundwater resources.

The biggest fresh water demands are the urban areas and agriculture in communal and commercial areas. This constitutes 91 percent of Namibia's water demand.

BC Gildenhuys and Associates said this fragile situation means that more resources will be required.

The DRWS has to supply water to communal areas. It has to supply water points within a maximum walking distance of 2.5 km with a minimum availability of 15 liters of water per person per day. Furthermore, a maximum time of 30 minutes should be spent at a water point for the collection of water.

In 1997, the DRWS started with a community-based management strategy, which is a decentralised participation approach to ensure sustainable and efficient supply of water to communities.

More than 8 000 water points have been established in communal areas, of which 79.9 percent have water point committees.

The prime function of NamWater is to provide bulk water supply. Secondly, it has to render water-related services, facilities and grant rights to customers upon request.

For the provision of rural water, the report suggests a balancing act between the principles of cost recovery and pricing of water supply services, with the ability of beneficiaries to pay for water.

Government's Water Supply and Sanitation Policy (WSSP) acknowledges that rural people are poor and that support mechanisms must be developed to sustain water service delivery.

What subsidies?

The report outlines some subsidy options: direct and indirect subsidies; capital subsidies; or operating subsidies.

A direct subsidy is given to a specific individual. The problem here would be to identify the deserving beneficiary.

An indirect subsidy would cover any form of subsidy that does not involve a direct transfer to a specifically identified beneficiary.

A capital subsidy would subsidise the cost of creating an asset for service delivery. These are usually one-off payments to set up infrastructure.

But, says the study, any system that divorces a capital investment component from the operating and maintenance ones is flawed.

Operating subsidies aim at lowering the cost of a service to the end user, or to meet operating obligations of the service provider.

As far as the economic impact of subsidies are concerned, it suggests that subsidies are generally 'second best', meaning that these are 'inefficient' but 'feasible' options to follow.

"[Economic] analysis may suggest that direct subsidies (cash benefits to end-users in the case of rural water users in Namibia) would be more efficient than indirect subsidies (such as general increases in welfare payments to poor people). However, this does not necessarily imply that direct subsidies are good, but only that they may be more efficient or effective than other mechanisms to achieve the same (or better) results."

Proposals for water subsidies

The study suggests that the availability of water - especially in an arid environment - is essential for local economic development.

But for water subsidies to have the desired impact - that is that water is accessible at an affordable price - other institutional aspects ought to be considered.

The study suggests a few: the measure of household consumption; the promulgation of a Water Act; the promulgation of a national water tariff structure and regional water tariffs; and the creation of a credit control and legal action support system.

"A sound legislative framework is the basis for any water subsidy system," it suggests.

A Water Act, it says, should contain provisions to allow for the development and implementation of a sustainable support system.

And as water demand and consumption differ between user groups, it says it is necessary for use to be metered. If this is not possible, it would exclude subsidy support on any equitable basis.

"To differentiate between households and livestock water consumption, it is necessary to have at least two water meters at water point installations. "

The NamWater pipeline schemes already have two water meters at all pipeline water points. However, it suggests that future caretakers at community level get training in taking readings, calculate household water consumption cost per liter, and compile and distribute monthly invoices to households.

An alternative management of water consumption at borehole water points would be to lock the tap and arrange that one person is responsible to open and close the facility that sells water per capacity.

It further suggests that a fixed rate per livestock unit should apply, with a distinction between large and small livestock.

Alternatively, farmers should register a number of stock units annually, and a monthly levy based on the promulgated rate and stock unit must be paid.

As far as human usage goes, it reiterates that consumption be measured, and that households be billed according to monthly tariffs.

It says households qualifying for subsidies should be registered annually.

Government institutions and all other adhoc water users should be metered and billed according to the monthly tariffs.

The report further suggests that tariffs be promulgated at a set rate per liter. Such a tariff structure must be prescribed by the national tariff policy, while the actual tariff reflects regional differences.

Determining a tariff must make a distinction between areas receiving bulk potable water from NamWater and those dependent on non-reticulated local sources.

Moreover, cost implications should consider technologies like windmills, diesel, solar or electricity pumps or combinations of these technologies, of pipeline supplies from NamWater.

The study proposes three forms of subsidies.

The first is a water point subsidy (implying an indirect subsidy). Here, it suggests that the operating and maintenance cost of water provision is determined in terms of agreed national cost norms and a quarterly subsidy transfer made by Government to identified structures.

Here, the number of poor households contained in national statistics, technologies applied and household incomes should be key considerations for subsidisation.

A second option is to target poor households (implying indirect subsidies to individual households that meet predetermined criteria).

A point of departure here is to define eligibility.

"The focus is not on defining a poor person but to identify households that qualify for water subsidy," it recommends, adding that the best and most objective qualification is the national income and expenditure surveys.

A third option is a uniform subsidy for all users.

This option implies that all households receive a consumption-based subsidy.

The implication of the last option is that 221 061 rural households will be subsidised in one way or another, and hence has the highest economic impact.

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