Water Demand and Financing in Rwanda: An Empirical Analysis

Abstract

Thesis Summary

Although water is a renewable resource, the growing water scarcity and water stress relative to human demands is now evident in many parts of the world, particularly in developing countries (Postel 1993; Postel 2000). In these countries, clean water and sanitation services are still severely lacking and this results in a multitude of people suffering from preventable illnesses from which many die each year (Montgomery and Elimelech 2007). In fact, many millions of people in developing countries use an unreliable water supply of poor quality, given that the majority lack piped connections to their premises (Howard and Bartram 2005). The problem is that current policies exclude many from the supply network and the unconnected tend to be the poorest. In addition to the high costs per unit to purchase non-piped water, households without a connection to the piped network spend an undue amount of time walking to the nearest source of water such as a private or public tap, wells, or water vended from trucks (Van den Berg and Nauges 2012). Furthermore, even though households who are connected to the piped network are assumed to have access to an improved water supply system, the fact is that water quality is still a general problem for all, given that many existing systems only operate intermittently. This results in service interruptions, which in turn lead to water stagnancy and the growth of microorganisms (Lee and Schwab 2005). During such interruptions, it is understandable that households connected to the piped network also rely on water from alternative, non-tap sources. The main cause of service discontinuities by utilities in developing countries is the lack of a water tariff scheme that enables the cost of supply to be recovered. Full-cost-recovery pricing for all water would exclude the poorest, however; for this reason, many utilities subsidise at least part of their water delivery through low tariffs. Nonetheless, these low tariffs usually lead to losses to the utility and are often poorly targeted. These implicit subsidies, which frequently operate through so-called Increasing Block Tariff schemes, have also been judged to be regressive and badly targeted in the sense that they are not good redistribution tools, they do not reach the poorest households, and they cannot reach households that are not connected to the piped network (UN 2007). Since the implicit subsidies reduce the revenue for utilities, they also mean that, without government subsidies, the utilities frequently lack the funds to maintain the piped networks – let alone expand them. Thus, there are issues with managing supply, i.e. how to set tariffs so that utilities can afford to maintain and invest in infrastructure; but there are also the questions of how to manage demand, and how to allocate water among different, competing uses. In fact, competition for limited water resources is increasing among a variety of stakeholders. Generally, agriculture, as a sector, consumed the most water (80% or more of total withdrawals in developing countries). Therefore, the issues revolve around the value generated by water in this sector, and whether such water could be put to better use elsewhere (Falkenmark 1990). In developing countries, the agricultural sector accounts for large fractions of employment and constitutes the primary source of livelihoods, but it is also characterised by low-value subsistence production. In addition, due to the low productivity registered in this sector, irrigation has been seen as a way to enable smallholders to adopt more diversified cropping patterns and to switch to high-value marketoriented production (Intizar and Munir 2004). Thus, given that irrigation accounts for around 70% of water withdrawals worldwide and over 80% in low-income developing countries, better water access is likely to result in improved outcomes for farmers (Meinzen et al. 2001). However, given that overall water availability is constrained, allocating even more water to agriculture is not necessarily the best choice. Both the water itself and the infrastructure needed to supply it has potential alternative uses, such as improved access to water for households, industrial uses or environmental uses, and the benefits generated in agriculture need to be compared with the benefits that the water could have generated elsewhere. Given the current water scarcity and competition between uses and users, any successful policy for improved water management is likely to be context-dependent. In fact, water resource management takes place in a complex socio-economic context; thus, the successful implementation of water reform requires all stakeholders – and especially end-users – to participate as fully as possible in development planning and management in the decision-making process (UNDP 2008). In fact, it has been observed that when local communities, which are better placed to manage their environment and resources, are given the responsibility of water resource management, it tends to be more effective (Oosterveer and Van Vliet 2010). However, how well this works will depend not only on the local community spirit, but also on whether or not there are clearly defined groups of water users managing the water. The present study aims to contribute to the analysis of water scarcity and management in developing countries, with Rwanda as a case study. The thesis consists of five papers related to each other. The first paper, entitled “Water demand by unconnected households in urban districts of Rwanda”, analyses the demand by households in urban districts of Rwanda who lack piped connections to their premises and who rely on existing non-tap sources. It is shown that non-tap water not only occasions extra costs compared with tap water, but also exposes users to the higher risk of water-borne diseases. In the analysis, we consider that the household’s decision to purchase water from a chosen source might depend on the price of that source as well as on the attributes of the other existing sources – whether chosen or not. Furthermore, we considered the fact that the time spent by households collecting water has an opportunity cost since that time could be used to generate income if the household was connected to tap water. Thus, the household’s full income (i.e. the full value of the household’s time) and the full cost of different water sources (i.e. the cost including the value of the time used to fetch the water) were important points in the analysis. The findings suggest that income elasticities are higher when the household’s full income is considered rather than only its monetary income, and the full cost associated with alternative water sources is an important determinant of the choice of source. Furthermore, although unconnected households combine different sources of water, the majority uses only one source – the public tap. Extending the existing tap connection should be advantageous to these unconnected households. However, if one considers the current lower income registered by that group, an appropriate solution in the short run could be to improve the non-tap distribution systems in a way that the majority could still afford. The second paper, “Individual status quo modelling for a rural water service in Rwanda: Application of a choice experiment”, addresses the supply of water for domestic and irrigation purposes in rural areas of Rwanda. For domestic purposes, many rural households collect water from unsafe sources; this often exposes them to worms, dysentery, cholera, etc. However, referring to the existing individual levels of some attributes of existing non-tap sources, such as the unit price of water, the distance to the nearest water point, and the frequency of contracting a water-borne disease, there is evidence of a wide variation in baseline status. The same situation applies to the uneven distribution of irrigation water through different parts of the country, and can be observed through the amount of irrigation water available during the dry season, the frequency of irrigation events, the price paid by farmers for such water, and the degree of famers’ current involvement in irrigation water management. In respect of both types of supply, i.e. domestic and irrigation, we considered that these heterogeneous baseline conditions might lead to variations in individuals’ preference for an improved service. The results from our experiment show that using existing information on individuals helped to improve the model fit, and led to higher estimates of the overall willingness to pay for improved services. However, it also allowed us to identify who actually wanted changes in the supply service and why. From a policy perspective, therefore, not accounting for the individual’s existing situation could be misleading: one might end up either with projects that are implemented but do not respond to real individual needs, or with policies that generate an overall improvement, but which worsen conditions for those with a favourable status quo. The third paper, titled “Social cohesion in Rwanda: Results from a public good experiment”, records our study of how differences in prosocial behaviour can affect the provision of local public amenities, such as water, in Rwanda. Given Rwanda’s turbulent history, culminating in the 1994 genocide and the remaining tensions, the quality and extent of cooperation among members of local communities in practice could potentially have implications for the success of Rwanda’s public service. With a traditional public good experiment, the results showed clear variation in the level of contribution to the public good when it came to respondents from different backgrounds. The research evidence may have implications for Rwanda’s current decentralisation policies. In fact, the success of these policies will mainly depend on whether and to what extent local communities feel a sense of responsibility for maintaining the public amenities that have been decentralised to them. However, people might not act for the well-being of the group, given their personal histories. In such a case, the government should consider promoting their decentralisation policies along with initiatives to improve social cohesion among the various groups in Rwanda. The fourth paper, namely “The value of access to water: Livestock farming in the Nyagatare District, Rwanda” (resubmitted to Regional Environmental Change), deals with the effect of access to an improved water supply on the revenue generated in livestock farming. Such effect is determined by assessing the current priorities in water policies in Rwanda, specifically in the Nyagatare District. We found that reducing the walking distance for cattle to the nearest water point – i.e. one of the channels through which productivity might improve – did not in fact ensure an overall positive impact. Thus, if one considers that existing funds are targeted more towards improving water infrastructure for livestock, it is worth examining the extent to which improved access to water actually contributes positively to the livestock industry. The existing situation shows that many households in the district still lack access to safe water, and rely on non-tap water. This scarcity in domestic water use is mainly caused by the existing, generally poor state of water supply infrastructure in the entire country, and by the fact that some of the water supply points used to water livestock could also be used as sources of drinking water. In view of our findings not showing clear evidence on the net benefit for all farmers due to an increased number of water points, the high priority given to extending the water network for the purposes of increasing livestock productivity should be revisited. The fifth paper, “Water management and pricing in the urban areas of Rwanda: The case of Kigali city”, published in Water Utility Management International 7(3):13–17, concerns water management and pricing in the urban areas of Rwanda, using the capital city, Kigali, as a case study. In the capital, where the majority of the country’s urban residents live, access to municipal water constitutes a critical issue. Even for the low proportion of households currently connected to the piped network, water provision is uncertain due to regular interruptions. The residents who are not connected to the piped network at all face higher average costs for their water and are generally even poorer than connected residents. In fact, these issues are likely to be related to the imperfections in the pricing mechanism in water supply. The problems are twofold: on the one hand, the current Increasing Block Tariff structure signifies that connected consumers pay low marginal tariffs that cannot generate revenues to cover both operating and long-term investments costs; and on the other, the poorest cannot afford the high one-off fee to be connected to the network, and prefer, due to liquidity constraints, to deflect their consumption to the alternative water sources – although these are much more expensive in the long run. Thus, to deal with this problem, better pricing instruments need to be settled so that the utility can finance capital costs for infrastructure and allow the poorest, who currently pay more on unsafe non-tap water, to connect to the water network in the first place.