THE saga of water mismanagement in Cyprus, EU’s most water-scarce member state, has now reached absurd new heights of inefficiency.
Apparently, the Hypocratian oath of “not doing harm” or making bad things worse, does not apply to water-policy makers. In their wisdom they have decided that the dams were built for the farmers and in the future will be dedicated to their exclusive use and benefit. One hundred per cent of the water needs of the urban and coastal rural areas, meanwhile, will be covered by pricy desalinated water produced at the rate – all year round — of the maximum summer demand. Most months this will lead to surplus production, which will be stored in the dams — for agriculture!
This policy guideline was given to the study group that prepared the water pricing study in implementation of article 9 of the EU Directive 2000/60/ER, to be presented in a public consultation tomorrow, Monday, March 22. This single guideline is the most significant determinant of the recommended water price structure, that devalues natural water and hands the farmer a large subsidy and all other water users, (and taxpayers) higher water rates and higher taxes. Don’t expect docile water users to protest too loudly. Yet, the country will be poorer as a result by hundreds of millions of euros, if anyone cares.
The old policy, still in use, allocates water in dams, between potable water use and irrigation use and supplements any shortfall in potable water from desalination, in what is known as conjunctive water use. The three water sources are interconnected through the two water uses. Irrigation water can be obtained both from the dams and from recycled water, while potable water can be obtained both from the dams and desalination. Thus, the dams, in addition to providing storage from winter to summer and from a wet year to a dry year, are pivotal as they can supply water for both uses.
This is not a bad policy, except for the inefficiency of producing potable water from desalination at €1.0 per cubic metre when it can be produced at less than 40 cents, if more raw water was obtained from dams at 17 cents per cubic metre which is its subsidised price to farmers, and hence its marginal value in agriculture.
As the marginal cost of water is that of desalinated water (€1.0 per m3) which is more than twice as high as that of the dams one would expect that a reasonable policy would be to produce enough desalinated water to safeguard potable use, which is augmented with water from dams, while irrigation is augmented from recycled water. This would imply that the long-term value of the water from the dams nears that of desalination water (i.e. €0.90 per m3 after deducting treatment costs of about €0.10). Recycled water also has a higher value under the old policy of integrated water use as it can “release” dam water for potable uses (of course its value is somewhat lower, around €0.80 because of restrictions in the type of crops it can irrigate).
One would expect that a sound water management policy would be one that would keep the production of desalinated water to a minimum as it is very costly and reserve water for the most profitable agricultural crops. It would also imply that the state had a programme of when to start operating desalination plants according to the amount of water in the dam, and the season, and when to stop. Such a programme should be based on a comprehensive techno-economic study involving safety of water supply, costs and agricultural yields, and of course on sound water pricing to reduce consumption. Such a policy would maximise the value of water that does not come from desalination as such, that the reduction in the yield of the water from the dams due to climate change would be offset by the increase in the value of the water.
Instead of correcting the inefficiency in the allocation of the country’s most scarce resource, the government decided to go the other way and increase it.
The new policy reserves 100 per cent of the water in dams for the farmer while 100 per cent of water needs of the urban and most coastal rural areas will be covered by desalinated water producd at the rate of maximum summer demand! To implement this policy contracts have been signed to build three additional desalination plants: two for the Southern conveyor system bringing the capacity to 87 mcm/year as compared to needs of 65m cm/year; and one for Paphos with capacity of 14.0 mcm/year as compared to needs of 10 mcm/year.
The excess desalinated water of 26 mcm/year will be stored in the dams for agricultural use.
The new contracts signed provide for the stopping or reducing of desalinated water production whenever the state decides. The contractor is paid for the fixed costs and maintenance during the period on non-production. It is obvious from past experience that it is not in the intention of the government to stop production unless the dams are overflowing (even then during 2004 when dams were overflowing desalination plants were happily producing water). The continuous full production of the plants will make dam overflow very frequent.
The above changes of policy are not backed by any techno-economic study, only by decisions of the Council of Ministers. However, the implications for efficiency and rational water management are profound.
First, with the long-term average water yield of dams approaching 100 mcm/year, with recycled water increasing to over 10 mcm/year and surplus desalination of 25 mcm/year the new policy reserves about 135 mcm/year for agriculture. This is conservatively more than three times the quantity allocated to irrigation in recent years (38 mcm/year), resulting in wasteful use of water on marginal crops and necessitating the opening of new areas for farming, compounding water and agricultural subsidies and environmental problems.
Second, the water from the dams loses its pivotal role and its value as a supplier of potable water instead of costly desalinated water. Instead of raising the value of natural water to its long-term supply cost, which is the cost of desalination, as good economics would dictate, the new policy reduces the marginal value of desalinated water to that of water in the dams used for agriculture. Thus, while it costs at least € 1.0 per m3 to produced it will be mixed and used with dam water that costs about € 0.45 per m3 to produce and has a marginal value of €0.17 per m3 (or €0.24 if the recommended new price is adopted) since it will be supplied at this price to the farmers.
Third, not only is desalinated water more expensive to produce. It is also at a disadvantage compared to water from the dams when it comes to delivery and distribution as it is at sea level and needs more pumping compared to dams which are at 200m or 300m above sea level.
Fourth, the new policy compounds agriculture’s direct water subsidy (which is only marginally reduced by the increase in price) with a huge indirect water subsidy by earmarking all the natural water for farming. It would be shocking if the EU finds such a policy acceptable. If it does, it should adopt it throughout the union!
Fifth, the new policy violates the principle of equity among citizens. Over 90 per cent of the population will be deprived of their right to the natural water resources of the island which will be allocated exclusively to the farmers who account for eight per cent of employment and three per cent of Gross Domestic Product. The vast infrastructure of the dams and associated conveyors paid by the taxpayers will be transferred to a minority of the population – the largest transfer of value since the collapse of the Cyprus stock exchange in 2000 amounting to billions of euros in today’s prices. Surely, the farmers deserve our support but not by devaluing and wasting our most scarce and valuable natural resource, and burdening other water users – even poor households – with water rates that are six times those paid by farmers to grow bananas in arid lands. We do no favour to farmers by subsidising them to keep producing low-value water-intensive crops, instead of helping them to switch to high value crops from which they can derive much higher income and afford to pay for the true scarcity price of water.
Sixth, the new policy violates “the user pays” and the “polluter pays” principles, which are the cornerstones of the Water Directive in addition to being a serious violation of the principle of fairness. Desalination plants are heavy consumers of electricity and the Electricity Authority is charging users higher electricity rates to buy greenhouse gas emission rights. This means that electricity users, even those who do not use desalination water, will bear part of the cost of desalination.
It does not take a great thinker to conclude that the above policy is economically inefficient, socially unfair, and environmentally unsustainable. Just to produce 100 mcm of desalinated water a year will cost about €100 million per year. This does not include extra pumping costs and greenhouse gas emission charges. A study could probably show that less than half of this quantity is probably sufficient to ensure potable water safety under sound water management, saving €50 million.
It is obvious that the new water policy is greatly devaluing the water resources of the island, contributing to greenhouse gas emissions and promoting production of agricultural products that on their own are un-economic, requiring subsidies from the EU and the state. The new policy and new desalination projects must be included in the management plan that will be submitted shortly to the EU according to the Water Framework Directive. It is very likely the EU directorates of Environment, Energy and Agriculture will not find it amusing as it is the epitome of un-sustainability. What will the government do then, since it has already signed contracts for the new desalination plants?
What is needed, and the EU may well demand it, is a plan devised to offer proper operation studies on a probabilistic basis that will lay strict guidelines as to the conditions of operating the desalination plants with regard to the water in the dams and the season of the year. The study should also evaluate how much water should be given to agriculture and which crops are to be produced, again depending on water availability and crop prices. These studies could be revised every few years. The basic question to be answered is how much irrigated agriculture can the country sustain. To this effect the recycled water can play a significant role if integrated in the water balance equation. Integrated water use policy and proper pricing of the resource are of course are in-dispensable conditions for economic viability, sustainability and social justice.
If the above are not introduced, it will be a policy of sheer insanity as Cyprus will be the only country in the world which devotes its most important natural resource, water, for the production of uneconomic commodities such as citrus, potatoes, peanuts and bananas and denies it to its inhabitants for drinking.
- Theodore Panayotou is Director of the Cyprus International Institute of Management (CIIM) and Professor of Environmental Economics and Management at CIIM and Harvard University. . Dr Panayotou has written over 100 books, monographs and papers published internationally
