From Value to Finance: Making IWRM Work

Abstract

The discussion on Integrated Water Resource Management (IWRM) has been very rich on institutional change (basin organizations, apex water bodies, legal reform) and on process management (multi-stakeholder processes, consultation and participation), but attention to the financial dimension of IWRM has been less developed. The gist of IWRM is that in water management there are many different functions to be managed simultaneously. Through investment and management interventions, values are created (or destroyed) in connection to these functions: productivity values, amenity values, property values, environmental conservation values, and more. The challenge in IWRM is to, at a minimum, balance these different functions and values, yet preferably to optimize them. This paper further argues that these different values need to be captured and, when possible, help finance the management of water resource systems in an integrated way. We present this as an improvement of the principle of “water as an economic good.” The economic good argument has, in our view, often led to reductionist strategies, focusing on recovering the financial cost of water only and not maximizing and recovering the values associated with the many functions of water. This paper first clarifies some definitions and then discusses how to capture values and turn them into financial contributions to IWRM using illustrations from several parts of the world. The paper then comments on the principle of water as an economic good, long considered as the financial underpinning of IWRM. We look particularly at water pricing for demand management, closely associated with the theory of water as an economic good. It argues that a broader financial strategy, based on balancing, improving, and capitalizing on increased values related to water management, is more promising in funding IWRM and making it work. Finally, some institutional aspects of this approach are explored.