Managing Water Resources in China: ADB's Water Policy
Keynote Address by
M. E. Tusneem
Director General
East and Central Asia Department
Asian Development Bank
3rd World Water Forum
Asia and Pacific Day
18 March 2003
Distinguished participants, Ladies and Gentlemen:
1. It is a privilege to address you on at this session on the People's Republic of China (PRC).
2. The papers presented at this Forum underscore the need for sustainable use of water resources. The first step in meeting that objective is policy reform. Much of ADB's work in the PRC since the late 1990s has focused on reform. We have helped to institute policy reforms relating to flood damage, water scarcity, water use, water and soil erosion, and ecosystem degradation. Our assistance has supported water tariff reforms, and helped to raise the productivity of land and water resources.
The Government's Tenth Five-Year Plan
3. The PRC's water resources management presents special challenges, including: a large aggregate water supply, but low per capita availability; floods, droughts, and high seasonal variations; and big differences in regional water availability. Added to this, of course, is the need to keep pace with the demands of 1.3 billion people and the social changes brought about by rapid economic development. The need is to achieve balance between sustainable supply and human and environmental aspirations.
4. The Government's Tenth Five Year Plan aims to manage water resources based on river basin capacity and environmental protection; and balanced socioeconomic development. It plans to increase wastewater treatment and the use of recycled water by industries. To complement investment in urban water facilities, it plans to increase water tariffs, charge wastewater treatment fees, and improve the financial management of water and wastewater.
Highlights of ADB's Water Policy
5. These objectives are consistent with ADB's Water Policy, "Water for All," adopted in 2001. Its principal elements are sector reforms; integrated management of resources in river basins; improved delivery of services; and conservation.
Partnership to Address Major Challenges
6. Droughts and floods of epic scale have long been a fact of life in China.
7. The traditional engineering approach has been higher and higher embankments , but this imposes higher risks of failure, higher costs of construction and maintenance and higher environmental costs. ADB supports an integrated approach in the Songhua River basin and the Yellow River basin that includes nonstructural measures, such as early warning systems, modeling, zoning and capacity development for floodplain management, as well as rehabilitation of essential structures.
8. In recent times, over-extraction of groundwater and falling water tables have become big problems. Over-extraction is a consequence of water shortages particularly in the north; rising urban demand and unfulfilled rural demand for drinking water and sewerage systems; inefficient water use in industry and agriculture; low wastewater use; and water pollution. Improving the supply of clean drinking water is a must for the Government.
9. ADB experience shows that appropriate tariffs are critical to the success of projects. Under the wastewater treatment component of the Anhui Environmental Improvement Project, concern about cost recovery was mitigated through dialogue on tariff increases and the introduction of commercial management principles. Further, willingness-to-pay analysis shows consumers will pay more for water, and to a degree will pay for wastewater treatment.
10. More than 40% of the water in 7 major river basins does not meet the Grade III national quality standard. Major lakes have serious eutrophication problems. China needs to address pollution of lakes and rivers by strengthening laws, regulations and institutions to address transjurisdiction pollution, by adopting river basin management approaches; and by addressing non-point pollution.
11. Water pollution will continue to be a critical issue. Resources may deteriorate in many areas, particularly in the north. The challenge is to maintain the momentum of industrial pollution control to cover municipal wastewater discharges and non-point sources. One problem is that wastewater charges are lower than the marginal cost of pollution treatment so there is little incentive to invest in wastewater treatment. Laws governing instream flows in key basins, especially in dry areas, would help reduce pollution.
Looking Ahead - How Is ADB Helping?
12. In the PRC, ADB focuses on the efficiency of water supply and distribution systems, corporate governance and commercial management to encourage more private sector involvement, cost recovery by strengthening tariff systems, water resources management and environmental protection, and integrating water resources management and development. The latter includes basin management institutions and provincial and local governments, transjurisdiction issues and water user/supplier organizations, efficiency of use and conservation of water, water quality control, and standards for pollution.
2. National Water Policy/Sector Reforms
13. Our TA projects have helped the Government reform policies and strategies. Let me cite some examples.
'Strategic Options for the Water Sector' identified a conceptual basis for a modern policy frameworkin four areas: allocation, rights, and permits; resource management systems; efficient use of water; and water quality. An amended Water Law became effective last October 2002. It provides the basis for integrated water management and implementation mechanisms for pricing and cost recovery.
'Preparing National Strategies for Soil and Water Conservation' provided a strategy for soil and water conservation. More TA will be provided this year.
'Transjurisdiction Environment Management' for the Yellow River basin identified measures to implement the Water Pollution and Prevention and Control Law.
'PRC-GEF Partnership on Land Degradation In Dryland Ecosystems', involving 8 national agencies and 6 provinces in western PRC, provides $150 million of grant funds for GEF-eligible projects over the next decade.
3. Integrated Water Resources Management Including Flood Management
14. ADB is helping reduce the incidence of floods and limit the damage they cause in the lower reaches of the Yellow River. This includes a flood forecasting and early warning system. ADB is also supporting more integrated management. For the Songliao River, ADB is financing an integrated approach to flood management, including strengthening of the Songliao Water Resources Commission and agencies of three provinces - Inner Mongolia, Heilongjiang and Jilin.
4. Improving and Expanding Water Service Delivery
15. ADB has supported the Government's economic and enterprise reforms to makel water supply and wastewater projects financially viable. The ability to attract private sector partners depends on prospects for cost recovery, and a reasonable return on capital investment. Two tariff studies have contributed to reforms. Also, ADB's Chengdu Water Supply project, the first internationally-bid BOT water supply project in China, has contributed to reform.
16. Water conservation has been addressed by ADB projects through the adoption of adequate pricing and promotion of commercial operations, which is being used in the Tenth Plan to help allocate resources between competing uses.
17. Non-point sources of nutrients are significant sources of pollution. Policy dialogue focuses on integrated management of wastewater including on-site treatment and industrial pretreatment and public sewer connections. The Government is cleaning up the most polluted river basins, using an integrated basin-wide approach, including resource development, and quality and pollution control management.
6. Public-Private Partnerships
18. ADB has played a role in promoting private sector involvement., including TA to help the Government prepare the first BOT water project awarded on the basis of transparent international competitive bidding. The Chengdu No. 6 Water Supply Plant was the result, ADB providing a $26.5 million loan. The plant started operations a year ago.. The project uses state-of-the-art technology and has received international awards for excellence.
7. Investments in the Water Sector
19. ADB will continue to help China address soil and water management problems. TA will be provided to help draft policies and build capacity. During 2003-2005, 8 projects will receive loans amounting to about $750 million. ADB will also provide $8 million in support of 15 TA projects. A private sector project was approved recently and another, the Beijing No. 10 BOT Water Treatment Plant, is being considered. ADB would also support further reforms in integrated basin management and flood insurance.
20. ADB's loans only account for a small part of investment in the sector. So, to be a strategic partner of the PRC, we pay great attention to our TA work. This has resulted in the formulation of a national strategy for soil and water conservation, introduction of the cost-recovery principle as the basis for determining tariffs in cities, introduction of wastewater tariffs, implementation of commercial principles, improved environmental management, formulation of effluent standards, and private sector investment. ADB is also helping China to design and implement market-based instruments for water quality management monitoring.
21. Mr. Chairman, the Forum as an important milestone in efforts to attain water security. Concern for sustainable use dominates our agenda. The PRC's size and growth demands commitment and leadership in water management . ADB's experience in the country provides hope for the future and lessons the Bank will share with all.
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