Cost Recovery and Water Pricing for Irrigation and Drainage Projects

The objective of this paper is to develop guidelines for improving cost recovery and reducing water use per unit of output. The guidelines were developed from a review of studies of irrigation reforms and interviews of 20 World Bank staff members with responsibility for irrigation sector reforms in countries from Asia to Latin America (names listed in Appendix 1). From these studies and interviews, we distilled specific reforms that are important in improving cost recovery or reducing water use, or both. Reforms needed by individual countries or projects will depend on their institutional arrangements as well as the type of irrigation and its physical condition. The second section of the paper begins by listing some reasons for low collections and provides an overview of some of the reforms that have raised collection rates. In the next section, the authors review cost-recovery principles and provide some examples of what different countries have done to recover project costs and collect water charges from users. The focus in the fourth section is on designing water charges or water markets that will give farmers an incentive to make better use of their water by reducing the amount of water used per unit of output. In the fifth section, case studies are used to determine what reforms can help improve cost recovery and increase collection rates. In addition, water pricing reforms are identified that will encourage farmers to reduce their water use per unit of output. The final section provides a summary of the reforms that are important for increasing cost recovery and encouraging farmers to improve their use of water