Water institutional reforms in Sri Lanka

Water Policy 7 (2005) 125–140

Water institutional reforms in Sri Lanka Madar Samad International Water Management Institute, Colombo, Sri Lanka. Fax: 94-11 2786854. E-mail: [email protected] Received 22 June 2004; accepted in revised form 6 October 2004

Abstract This paper reviews water institutional reforms in Sri Lanka by contrasting those observed during the 1980s with those proposed during the 1990s. While the earlier reforms focused on the irrigation sector that yielded quicker benefits and low political risks, recent reforms have covered macro institutions and the whole water sector where the benefits are gradual and less visible but with high political risks. As the earlier reforms were packaged as part of larger investment programs, they had in-built incentives and strong proponents. But recent reforms not only lacked such conditions but also faced an ideologically charged hostile environment. Despite the current failure of the reforms, their future prospect is not that bleak in view of the emerging consensus on most issues and the continuing government commitment to reform. The Sri Lankan case also provides evidence for the effects of transaction cost and political economy factors, the tactical benefits of reform packaging, sequencing and timing, and the role of stakeholders’ perception, learning and information in articulating the demand for change. Keywords: Institutional reforms; Political economy; Sri Lanka; Transaction cost; Water institutions; Water policy; Water sector reforms

1. Introduction Investment in water resources development, especially in irrigation, has been a major development strategy of successive governments of Sri Lanka since independence. Not only was the government involved in the construction of hydraulic works but also in the setting up of institutional arrangements that enabled it to fulfill a variety of important water management functions (Siriweera, 1991). In the colonial era ancient irrigation institutions and customary water practices formed the basis for the formal institutional arrangements as codified by the British administration through a series of irrigation ordinances (Weerawardena, 1986). After # IWA Publishing 2005

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independence, water institutions have undergone gradual changes, essentially reflecting the changing socio-economic conditions of the country. In general terms, these changes can be seen much more in the policy and organizational spheres rather than in the legal arrangements. This paper reviews recent water policy reforms and institutional changes in Sri Lanka. It attempts to explain the nature, direction and depth of water sector reforms in Sri Lanka on the basis of recent theories of institutional change in general and water institutional reforms in particular (e.g. North, 1990; Saleth & Dinar, 2004). The paper examines whether the reform process in Sri Lanka (a) is consistent with theories on institutional transaction cost and political economy of reforms and (b) provides evidence of institutional design and implementation principles, such as institutional sequencing and packaging and the timing and the scale of the reform. The paper is organized as follows. First, key features of the water sector are presented. The next section provides an overview of the current institutional arrangements in the water sector in Sri Lanka, especially the policy, legal and organizational features. The section that follows examines the water institutional reforms. The subsequent section reflects on the reform process in relation to recent theories of institutional change. The final section draws conclusions and discusses the implications of the study.

2. Key features of the water sector 2.1 Water resources In terms of aggregate statistics, Sri Lanka is relatively well endowed with water resources. The annual per capita water supply, estimated at 2,329 cubic metres (cum) in 1998, is above the threshold of 1,700 cum suggested by Falkenmark et al. (1989). Annual freshwater withdrawal is only about 15% of the total resources, which is far below the 40% level adopted by the UN to mark water scarcity (Raskin et al., 1997). Estimates for Sri Lanka show that, in aggregate terms, water demand in 2025 will be less than half of the available water resources and will require an increase of less than 50% of the water actually withdrawn in 1991. Thus, in overall terms, Sri Lanka will face little or no scarcity, either physical or economic, even by 2025.1 But aggregate statistics mask the very pronounced temporal and spatial aspects of water scarcity in the country, largely owing to the bimodal pattern of rainfall.2 For instance, the total utilizable water resources per unit area calculated across districts range from 0.03 to 1.43 metres (m) during the maha (wet) season and from 0.02 to 1.7 m during the yala (dry) season (Amarasinghe et al., 1999). It is estimated that by 2025, most of the districts in the dry zone will face severe seasonal or year-round absolute water 1 Physical scarcity, when there is no additional water in a river basin to develop for further use. In these cases, it is likely that increasingly less water will be available for agriculture. To sustain production, increases in water productivity are necessary. Economic scarcity describes a situation where, in a country, there is water remaining in nature to be tapped for productive uses, but it will have to increase water supplies through additional storage, conveyance and regulation systems by 25% or more over 1995 levels to meet the need in 2025, and will be unable to do so due to financial, development capacity difficulties (Seckler et al., 1998; Amarasinghe et al., 1999). 2 The rainfall demarcates the agricultural year into two seasons: maha (major or wet) season coinciding with the northeast monsoon from October to March and the yala (minor or dry) season from May to September, the period of the southwest monsoon where the rainfall is concentrated in the wet zone (see footnote 3).


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scarcity at the current level of irrigation efficiency.3 These are districts that currently account for over 75% of the irrigation withdrawals and have the highest increase in water withdrawals projected for the future. The water sector of Sri Lanka is dominated by surface water sources.4 Groundwater use is largely limited to domestic water supply and small-scale irrigation. However, there is a growing demand for groundwater that is facilitated by low-cost drilling and pumping technologies, and a government subsidy for groundwater development for small-scale agriculture that was introduced in the early 1990s. Its spread has been very rapid and pervasive in minor irrigation schemes situated in the north-western part of the dry zone. In addition, industrial zones and development of tourist hotels are collectively leading to unprecedented groundwater extraction. It is estimated that the total number of agro-wells in the irrigation schemes in the dry zone is 50,000, of which 33,000 (65%) are lined dug-wells, 8,000 (15%) are unlined and 10,000 (20%) are tube wells. About 80% of these agro-wells are found in the northwest and 20% in the rest of the dry zone. Despite the recent proliferation of groundwater development, surface water continues to be the dominant component of the Sri Lankan water sector. 2.2 Sectoral pattern of water use As in most Asian countries, irrigation is the largest water user in Sri Lanka accounting for about 90% of the total water use. The total irrigated area in the country is about 0.6 million hectares. The irrigation sector consists of major surface irrigation schemes with command areas over 400 hectares, medium schemes with command areas of 80–400 hectares and minor schemes with command areas less than 80 hectares. The larger schemes are administered by the Irrigation Department and the Mahaweli Authority. The medium schemes are administered by the provincial councils and the minor schemes are supposed to be maintained by farmers with technical guidance of the Provincial Irrigation Departments (PIDs). Rice is the main crop cultivated in surface irrigation schemes. Nearly two-thirds of the national rice output comes from the surface irrigated areas. Groundwater is used primarily for domestic purpose and to irrigate other food crops. Although irrigation dominates total water use, there is a growing demand for water for domestic and industrial uses. The provision of drinking water and sanitation facilities has been a continuing policy ever since independence. At the national level, 82% of the population has access to safe drinking water. But there are also districts where over half the population does not have access to safe drinking water (GOSL, 2003). Similarly, the proportion of the population having piped water supply is only 30% and the proportion with a 24-hour supply is just 20%. Industrial water demand is largely confined to urban and peri-urban areas where the units are concentrated and catered for by urban and municipal water supply systems managed by local and municipal authorities.5 Water demand for power generation is also very important, as hydropower is a major source of Sri 3

Based on the rainfall pattern, the country is geographically divided into the wet and dry zones. The wet zone, comprising about one-third of the land area of the country receives an average of 2,350 millimetres (mm) of annual rainfall distributed over the two seasons. In the dry zone, the average annual rainfall is only 1,450 mm. Of this, two-thirds is received during October–December. 4 The exception is the northern Jaffna peninsula where the principal source of water is groundwater. 5 Some 80% of the industrial units in the country are located in and around the city of Colombo.

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Lanka’s energy supply.6 Despite its non-consumptive nature, hydropower generation does affect the temporal pattern of water release and downstream allocation. In recent years, Sri Lanka has faced shortfalls in power generation owing to water constraints.

3. The institutional setting The institutional setting of the water sector in Sri Lanka covers both the general “institutional environment” as defined by the constitutional, political and economic arrangements and the specific “institutional structure” as defined by water-related laws, policies and organizations. While the institutional environment influences the evolution of the institutional structure, the latter governs the operation and performance of the water sector (North, 1990; Saleth & Dinar, 2004). This section provides an overview of the water institutional structure of Sri Lanka, focusing especially on the legal, policy and organizational features. 3.1 Water law Water allocation and rights to access water are addressed in a number of legislative enactments that have been developed over many years in response to a variety of water allocation issues. There are over 50 laws relating to such diverse aspects as irrigation, land, agriculture and drinking water supply. The more important of this legislation and its key provisions can be summarized to give a sense of the situation relating to the legal dimension of water institutions in the country. The Irrigation Ordinance (No. 32) was first enacted in 1856 by the British colonial administration to both legalize customary irrigation practices and to prescribe the conditions for water extraction, particularly for paddy cultivation. This ordinance has been amended from time to time to keep pace with the changing socio-economic conditions and requirements. The State Lands Ordinance (No. 8, Part IX) of 1947 defines public and private water and specifies the water uses for which no permit is required. It provides for the regulation and control of public water and streams through a system of permits and establishes the formal rights of the state to use, manage and control public water. Notably, this ordinance does not mandate a planning system nor does it address important issues such as inter-sectoral allocation including that during droughts and for environment. Another important legislation affecting water management in Sri Lanka relates to the Mahaweli Authority of Sri Lanka Act (No. 23) of 1979. This act empowers the Mahaweli Authority of Sri Lanka (MASL) to use and develop the water resources of the Mahaweli river or any major river considered to be a special area in relation to which MASL exercises its authority. MASL is empowered to plan and implement all development activities under the Mahaweli Development Project that include irrigation, hydropower generation and land settlement. Moreover, MASL is also vested with the responsibility of implementing 22 various other pieces of legislations. The Agrarian Services Act of 1979 and subsequent amendments relate to regulations governing the land tenure systems of paddy lands and the management of minor irrigation schemes. The latter function was transferred subsequently to provincial councils. At present, the act provides legal 6

In recent years, there has been a reduction in the dependence on hydropower.


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recognition to farmer organizations (FOs), stipulates the responsibilities of the FOs including the levying of water fees and confers the authority on the Department of Agrarian Services to support the activities of FOs. The National Water Supply and Drainage Board (NWSDB) Act (No. 2) of 1974 and its various amendments describe the statutory functions of the NWSDB to provide water supply for public, domestic and industrial purposes and to operate a coordinated sewerage system. NWSDB is an “autonomous body” in law but is controlled by the government in practice. The Water Resources Board Act (No. 29) of 1964 provides for the establishment of the Water Resources Board to advise the minister on various facets of water resources management and also to coordinate the activities of other departments related to the water sector. Despites its broader mandate, the board confines itself mainly to groundwater development. The Electricity Act (No. 19) of 1950 and its amendments provide for the licensing of installations for electricity generation. These licenses confer all rights necessary for electricity generation, including the right to use water. The fragmented nature of these multiple laws obviously creates problems for regulations as they lack external coordination and internal consistency. The legal status of water resources and the rights of access to water are not well articulated or properly defined. Water allocation and rights to access water are addressed by a number of legislative enactments that have been developed over many years in response to a variety of water allocation issues. The result is a disorganized and ad hoc situation where water users are able to take water even where this creates major costs for other water users and for the environment (Birch & Muthukude, 2000). As a result, conflicts are inevitable, especially in the absence of an overall mechanism for regulating and managing water allocation. The draft Water Resources Bill of 1980 proposed the setting up of an inter-ministerial Water Resources Council as a coordinating body and water courts for conflict resolution. As this bill was not adopted, such a coordination mechanism was not achieved. Under the 13th Amendment to the Constitution effected in 1987 a number of water-related functions were devolved to the provincial councils. But to date there are no provincial legislations related to water. It is clear that existing legislation is inadequate to address Sri Lanka’s current and anticipated water resources management needs. Among the major shortcomings are that current laws do not provide an adequate basis for inter-sectoral water allocation. Water allocation procedures are not flexible enough to enable new users to obtain water from the voluntary transfers of existing users. There are neither any provisions to safeguard social and environmental water needs nor any legislation to control groundwater over-extraction. 3.2 Water policy Sri Lanka does not have an exclusive and formally approved water policy. Policy statements are often made in official documents such as the public investment programs, the annual budget speech and the President’s address to parliament. But attempts to develop a national water policy and related institutional reforms in Sri Lanka go as far back as the 1950s when it was proposed to set up an agency to undertake water resources management. It was only a decade later that a Water Resources Board was established to advise the then Minister vested with the portfolio of irrigation and land development on aspects such as the formulation of national water policies, integrated water resources planning, river basin and trans-basin development, project coordination and pollution control. Despite the board having the authority to develop water resources policy, it has

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not been able to fulfil its legislated mandate; instead it was reduced to focusing on technical aspects such as hydrogeological investigations and groundwater development. As we will see later, a comprehensive proposal for national water policy was, however, prepared during the 1990s with financial and technical support from the Asian Development Bank (ADB), United States Agency for International Development (USAID) and the Food and Agriculture Organization. This policy proposal is very comprehensive and forward looking. But it could not be formally declared, as it was not approved by the parliament owing to the difficulty of achieving consensus within the political circles. But this does not mean that there are no consensual water policy elements being pursued in the country. There are expressed policy commitments for cost recovery, water conservation, irrigation management transfer, basin development and an integrated water management approach (as implied in the MASL Act of 1979). National agreement is lacking only in a few sensitive policy areas, such as privatization of water (in contrast to private sector participation in water management). 3.3 Water organizations Over the years, a number of state organizations have been established and vested with the responsibility of managing water resources. At the national level, there are some 25 government agencies that have some involvement in the water sector. There are many other entities involved with water at the provincial, district, divisional and local levels. Altogether, there are some 40 government agencies that yield varying degrees of influence over the Sri Lankan water sector. Of the various organizations seven are most important as they form the core of water administration at the national level (see Nanni, 1996). The Ministry of Irrigation and the Ministry of Mahaweli Development (currently renamed as the Ministry of River Basin Development) are the key organizations responsible for irrigation development policy.7 The Irrigation Department and the MASL are the major organizations vested with the responsibility of policy implementation. The Irrigation Department is in charge of all major and medium irrigation schemes. Minor schemes come under the PIDs. But, owing to the inadequate technical capacity in most PIDs, the Agrarian Development Department continues to manage the minor schemes. In 1998, the government started transforming MASL into a river basin management agency. This was the first major effort in the country to promote integrated water resources management (IWRM) in a river basin context and was consistent with the emerging national water policy. This initiative, which was supported by the World Bank under the Mahaweli Restructuring and Rehabilitation Project, remains incomplete owing to the political, bureaucratic, policy and legal constraints that have delayed the progress of the program. The NWSDB and the Urban Development Authority are responsible for domestic and industrial water supply.8 There is no single agency responsible for groundwater development and use. At present, there is no 7

With the change in government in April this year, there are some ministerial changes. Irrigation is now under the Ministry of Agriculture, Lands, Irrigation and Livestock Development, while the Mahaweli Development Ministry has renamed the Ministry of River Basin Development. The Ministry of Mahaweli Development (currently the River Basin Development) deals with the Mahaweli Project and all other irrigation schemes outside this project come under the Ministry of Irrigation. 8 Responsibility for the NWDB is currently vested in the Ministry of Urban Development.


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legislation or administrative procedures in place to regulate groundwater use. The Central Environment Authority is responsible for all ecological aspects of water development including water quality. The proliferation of institutions and the fragmentation of responsibilities are an outcome of an ad hoc evolution of institutions in response to sectoral needs at various levels and times. Water policies and legislation enacted over time are oriented to specific water use sectors such as irrigation and water supply. As a result, there were hardly any efforts to establish effective mechanisms to coordinate the functions spread across various organizational entities. There are inter-ministerial bodies (e.g. the Central Coordination Committee on Irrigation Management and the Steering Committee on Water Supply and Sanitation) to facilitate coordination in specific segments of the water sector. However, they are neither effective in ensuring administrative cohesion nor mandated for sector-wide coordination, allocation and management of water resources. Within such an organizational setting, visible symptoms of a managerial vacuum are already emerging with serious consequences for sectoral functioning and performance.

4. Water policy and institutional reforms: nature and extent 4.1 Early reforms In 1980, a Water Resources Bill was drafted by then Ministry of Irrigation, Power and Mahaweli Development. The bill had several of the key provisions of a modern water law: provision for bulk water allocation to various sectoral agencies; full cost pricing; setting up an inter-ministerial Water Resources Council (WRC) as a coordination mechanism and water courts for conflict resolution (World Bank, 1992). The bill was not submitted to parliament as it failed to muster the support of the cabinet of ministers as there was no consensus on the various provisions of the bill. There was a significant development when the government instituted an irrigation fee in 1984 with the aim of recovering the cost of operation and maintenance (O&M) of the irrigation facilities from the farmers. The program was confined to major irrigation systems owned and operated by the government. The fee payable was based on the irrigated area cultivated by each farmer in the scheme. The introduction of water fees marked a significant change in government policy where hitherto irrigation water was provided free to all farmers. To make this change palatable to farmers, the government promised that irrigation service would improve and that the funds collected within a scheme would be spent in that scheme. The effort was successful in the first year of implementation with a cost recovery rate of around 90%. However, the irrigation service did not significantly improve for most farmers. Nor were the fees spent primarily within the scheme they were collected from. For these reasons and because of civil disturbances between 1987 and 1989, the irrigation fee collection rate declined from above 60% for 1984 to less than 10% for 1988. At the same time, an intense and a hostile campaign against the policy was carried out by opposition political parties that were opposed to levying fees from farmers who formed a large vote bank. In the face of mounting opposition the government was compelled to abandon the program. In view of the difficulties in fee collection and successes of a decade of experiments in farmer participation in irrigation management, in December 1988, the government formally adopted the Participatory Irrigation Management (PIM) Policy for all major schemes. Under this

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policy, farmers would be exempted from the obligation to pay the irrigation fee if they organized themselves and took over full responsibility for O&M of distribution and field channels (secondary and tertiary systems). In addition to the aim of the government to divest itself of the responsibility to finance routine the costs of O&M of irrigation systems, a number of other factors prompted the government to institute irrigation management reforms. Amongst these was the perception that major problems in canal irrigation management are located at the field level, owing to the lack of well-developed institutions and the failure of state-sponsored field-level institutions such as Vel Vidane (Tank Manager), cultivation committees, agricultural productivity committees) to discharge their responsibilities effectively (Abeywickrema, 1986). It was also believed that if farmers had a vested interest involving them in irrigation management it would enhance the performance of irrigation schemes. More importantly, there has been a strong perception among policymakers and farmers that the limited O&M funds are not effectively and diligently managed by the irrigation agencies. Thus, the accountability of the irrigation agency staff and transparency and effectiveness of the utilization and disbursement O&M funds can be improved by formalizing farmer involvement in decision making and system management. Under the PIM policy, farmers in the small or minor irrigation schemes were given full responsibility for O&M. Medium and major irrigation works were brought under joint management with FOs in charge of O&M of irrigation facilities below the distribution canal head, and the irrigation agency managing the headworks and the main canal system. This program was implemented in a number of major and medium schemes under three government-sponsored programs: the Integrated Management of Irrigation Schemes (INMAS), the Management of Irrigation Systems (MANIS) program and in the systems under the Mahaweli Development Project.9 Management reforms in the minor irrigation systems were implemented by the Department Agrarian Development (formerly Department of Agrarian Services). To facilitate the implementation of this policy, an Irrigation Management Policy Support Activity (IMPSA) was also launched on the initiative of the International Irrigation Management Institute (IIMI, now IWMI) with government and USAID support. Although the IMPSA was a highly participatory process and provided one of the most comprehensive reviews of water management issues in Sri Lanka, its recommendations have failed to get Cabinet approval.10 At present, some of 3,000 Distributary Canal Organizations or Water User Associations (WUA) and about 15,000 Field Channel Groups (FCG) have been established and vested with the responsibility for O&M of the canal systems. WUAs (commonly referred to as farmer organizations) are in charge of managing all minor irrigation systems. The Agrarian Services Act (Amendment) of 1991 and the 1994 Amendment to the Irrigation Ordinance give substantial authority to WUAs over irrigation, which was previously held by public officials. These include

9

The INMAS program was initiated in 1984. There were 35 schemes under this program, which include most of the large irrigation schemes in the country. The MANIS program served the medium-sized schemes while the Mahaweli Economic Agency began creating FOs in four major schemes. The INMAS, MANIS and Mahaweli programs covered 199 of the 270 major schemes in the country (IIMI/HKARTI, 1997). 10 The objections came primarily from the Ministry of Agriculture, which took up the position that certain provisions in the IMPSA proposals, if implemented, would be to the disadvantage of the farming community. Nonetheless, IMPSA provided the groundwork for subsequent institutional reforms in the water sector and over the last few years, 13 of the 17 recommendations were implemented by the various sectoral agencies.


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obtaining bank loans, delivery of water to farmers and engaging in supplying farm inputs and marketing farm produce. The impacts of participatory management to date are mixed (see Brewer et al., 1996; Samad & Vermillion, 1999). Although farmers were expected to finance O&M, owing to legal and political problems, the cost recovery program was abandoned and the government continues to finance O&M. Nonetheless, the reforms cannot be considered entirely ineffective or ephemeral in view of some notable effects from the perspective of the long-term path of institutional change. At present, there is concern over the future of PIM. Some farmers complain that they are taking on new expenses and responsibilities and not getting much in return. Many government officers and farmers argue vehemently for continuation of government support to WUAs. Such subsidies serve the interests of both; farmers get additional resources from the government and the officers retain an important role among the farmers as dispensers of government resources. Adding to the confusion is the fact that the agencies have not yet redefined the jobs of their field officers to reflect their changed powers and responsibilities under PIM. Thus, many field officers retain their attitudes and try to claim the same decision-making powers.

4.2 Recent reforms In 1993, the Government of Sri Lanka initiated an action plan for water policy and institutional reforms in Sri Lanka under a technical assistance activity of the ADB in association with the ISPAN/USAID (Mohideen, 1996). Five critical factors in water resources development and management prompted the urgency for a comprehensive water policy: (a) inadequate attention to watershed management, (b) deterioration in water quality, (c) uncontrolled groundwater abstraction, (d) deterioration in irrigation facilities owing to inadequate O&M and (e) lack of intersector coordination and mechanisms for managing multiple uses of water (see Arriens et al., 1996). In 1996, the Water Resources Secretariat (WRS) was set up to implement the project and it was vested with the task of formulating the national water policy. The WRS functioned under the guidance and direction a Water Resources Council (WRC), which consisted of secretaries of the ministries representing the water sector, academics, the private sector, NGOs representing various interest groups including women’s organizations and farmer representatives. The WRC and WRS functioned under the Ministry of Finance, who at the time was the President of Sri Lanka. The fact that the decision vests the two organizations under the Finance Ministry and not under a Ministry dealing with water resources is significant.11 First, it confers some neutrality to the WRS and is less subject to catering to the biases, prejudices and self-interest of a particular ministry or agency dealing with water. The fact that the organizations function under the President of the country signals the highest level of political commitment to the water policy reforms. The disadvantage here is that it prevented the key stakeholder agencies from identifying with or claiming ownership of the proposed policy. A key strategy adopted by the WRS in the policy development process was stakeholder consultation. According to the WRS, some 115 stakeholder consultation meetings were held in 11

With the change in government in 2001, the WRC and WRS were brought under the purview of the Ministry of Irrigation and Water Resources Management.

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various parts of the country, except in the conflict areas of the north and east. Stakeholders consisted of government agencies at the national and provincial levels, policymakers, water managers, the private sector, professional bodies, NGOs and all major water users. Working groups were set up involving NGOs to discuss and identify the major problems, suggest policy prescriptions and propose appropriate institutional arrangements to implement the policy. By early 2000, a draft policy document titled National Water Resources Policy and Institutional Arrangements had been prepared. The proposed policy was supposedly approved by the Cabinet of Ministers of the Government of Sri Lanka on 28 March 2000. The conceptual basis for these reforms can be found in the IMPSA policy papers (IIMI, 1992) and detailed reports prepared under the technical assistance facility of the ADB (see Mosley, 1994; Berkoff, 1997). In addition, the principles agreed at the landmark International Conference on Water and Environment held in Dublin, Ireland and other international venues had an importance influence in developing the reform program. The proposed policy was based on nine principles: (a) water as a basic need for all living beings; (b) water resources as public property owned by people but managed by the government as a trustee; (c) water as a scarce good with economic, social and environmental values; (d) water management under a decentralized and participatory decision framework; (e) agreed basis for costsharing among stakeholders; (f) high priority for water supply and sanitation; (g) river basins as a basis for planning, managing and implementation; (h) recognition of water rights as the basis for water allocations and transfers within national priorities; and (i) integrated treatment of surface water and groundwater. A key feature of the policy is its emphasis on the sensitive issue of water entitlements and their transfers as an institutional mechanism for water allocation. These water entitlements will be issued on the basis of priorities and according to river basin plans, though small schemes and users supplied through group schemes are exempted from the requirement to hold an entitlement (GOSL, 2003). The reform program has also proposed a new organizational setup that will fill some major gaps in the existing arrangements for water management. This involved the creation of three agencies, the National Water Resources Authority (NWRA), WRC and a Water Resources Tribunal (WRT). The three entities are conceived as parallel bodies reporting to the minister responsible for water resources. The NWRA, as the apex body in the water sector, will be responsible for the coordinating, planning, regulating and monitoring of water resources in the country. Its functions include the formulation of policy proposals, river basin planning, catchment management, issuing of bulk water entitlements and monitoring and enforcement. The WRC, as described earlier, will be the permanent high-level coordinating and advisory body. The WRT will be an independent appeal tribunal for parties affected by water entitlements administered by the NWRA. In addition, the river basin committees will be established in selected river basins by the NWRA for the allocation of entitlements. The proposed National Water Act will legally formalize these water entitlements as well as recognize and protect the customary rights of water users. There are several unique aspects in the proposed organizational arrangement. For the first time, an organization such as the NWRA with a mandate for inter-agency coordination and regulation has been proposed in the country. If created, such an organization can bring much-needed cohesion in the administrative and regulatory spheres as well as facilitate the operational translation of the concept of IWRM. The proposal for the creation of WRT is also unique as there will be an independent institution for arbitration and resolving water conflicts at both the local and


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sectoral levels. In the aftermath of the establishment of the water entitlement systems and in a situation where there is growing inter-sectoral competition between irrigation and domestic water supply,12 there is a critical need for mechanisms for conflict resolution. This would be a tremendous improvement over the current where water disputes are resolved through administrative practice and procedures through courts of law. Another notable feature of the proposed institutional arrangements is that it is decentralized on the basis of river basins. The process through which the reform program was formulated came under much public criticism. It was alleged that, contrary to official claims, public consulation about the water policy was grossly inadequate. Sections of the press, non-governmental groups, religious bodies and some farmer organizations argued that the process was top-down and the government was somewhat secretive about the proposed changes (Gunatilake & Gopalakrishnan, 2002). Other criticisms include the failure to draft the policy document in the local language, insensitivity to the cultural aspects of water and that the whole exercise was to satisfy donor interest rather than cater to national needs. Such perceptions were given much prominence revealed in newspaper articles, television discussions and political platforms. In the wake of intense agitation by the public and the media against the proposed national water policy, the government first distanced itself and then withdrew the proposals. With the change of government in 2003, action was taken to reformulate the national water resources policy. The WRC and WRS which functioned under the National Planning Department of the Ministry of Finance and Planning was relocated to the Ministry of Irrigation and Water Resources Management. In April 2004, there was another change in government and work on the national water policy was suspended pending guidance and direction from the new government. The WRC and WRS were moved to another water-related new Ministry of River Basin Development by a Presidential decree.

5. Reflections on the reform process From an overall perspective, the institutional impact of the water sector reforms that has been ongoing since the 1980s is only marginal. Except for some notable changes in irrigation institutions, especially the creation of user organizations at the grassroots level and some minor changes at the national level, such as the creation of WRC and WRS, water institutions in Sri Lanka remain, more or less, static. Even in the case of user organizations, the effects are only partial. There is now a greater farmer participation in irrigation management. But the government continues to fund the operation and maintenance of irrigation facilities. But from the long-term process of institutional evolution and change, there some are positive developments. Although the policy proposals could not be implemented immediately for political reasons, the reform agenda, especially the issue of water entitlements, has already entered the political dialogue and public 12 For instance, farmers’ water rights in the irrigation systems of Kadupity oya (river) in Madampe, Chilaw about 60 kilometres to the north of Colombo are currently in danger as the same water is planned to be diverted for urban supply by the NWSDB under the 3rd Water Supply and Sanitation project funded by the ADB. This is only one of several such disputes that are created by water transfer for domestic use. There is a similar dispute in the Thuruwila tank in the north-central province. These water transfer projects ignore the original water user’s rights.

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debate in the country. Both the government and other promoters of policy reforms have realised the need to traverse the pragmatic path of promoting reforms with due consideration to the social and political realities, which can be constraining. Water Policy reforms in Sri Lanka largely conform with some of the recent theories on institutional economics in general and institutional economics of water in particular (e.g. North, 1990; Dinar, 2000; Saleth & Dinar, 2004). Saleth & Dinar (2004) have proposed an institutional transaction cost theory to explain water institutional reforms. According to this theory, various socio-economic, political and resource-related factors are considered to affect the reform decisions either through the opportunity cost (i.e. the social loss from inefficient institutions or the cost of inaction) and the transaction cost (i.e. economic and political cost of creating or changing institutions). These factors can be either endogenous to the water sector (e.g. water scarcity and financial weakness) or exogenous to the water sector (e.g. macro economic crisis, political reforms and donor pressures). The Sri Lankan reform experience indicates the importance of appropriate reform design and implementation principles such as institutional sequencing and packaging proper the timing and of scale reform, as suggested by Dinar (2000) and by Saleth & Dinar (2004). For instance, the relative success of the reform programs of the 1980s can be attributed partly to timeliness provided by the macro economic difficulties and partly to the packaging of the reform within a larger investment program for water and agriculture development. There was a clear perception among the government, donors and technical agencies of the direct benefits of reform and there were no major political risks. But these favorable conditions could not be maintained sufficiently to consolidate and sustain the reforms. There was political pressure on the government to abandon the policy of cost recovery and charging irrigation fees from farmers. Despite such setbacks these problems, the reform did lead both to a greater participation of farmers in the day-to-day irrigation management and a stronger articulation of basin level management. The recent Sri Lankan experience with its water policy reform suggests how some tactical and pragmatic aspects could have avoided the failures. First, the timing of the proposal was not that conducive in view of the changes in the government A better packaging of the reform could have helped in building the reform coalition necessary to improve the political prospects for the reform implementation (see Dinar, 2000). Second, the reform design and implementation principles, such as reform sequencing and phasing suggested by Saleth & Dinar (2004), could have also tailored the reform program to the evolving political economy realities of the country. Third, there was also a public relations failure as the reform proponents, especially the government, could not convincingly convey the real relevance and urgency of the proposed reforms to the public. But reform opponents have used the media well to create an immediate solidification of political opposition to the reform.13 Although opponents of the reform have generally distorted the situation by using sensitive issues such as water rights, water privatization and donor imposition, there were also genuine concerns 13 Content analysis of some 140 articles and news items appearing in the Sri Lankan press between November 2000 and October 2001 shows that the coverage was mostly negative, presenting the water-rights issue as a prelude to water privatization and the whole reform proposal as a plot by foreign multinationals to control the country’s water resources. Notably, such a negative coverage peaked in March 2001 when the parliament was in session (see Samad, 2003).


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about the form and operation of the water rights system.14 Unfortunately, the reform proponents could not clarify the matter with a blueprint of a proposed water rights system or show how this will protect the poor and avoid misuse by economically wealthy groups including the multinational corporations.15 The term “water rights” was also changed to “water entitlements” to make it a socially more acceptable arrangement. Opponents of the proposed reforms interpreted this as a first step towards privatization of water resources. This was a tactical error as such clarifications should have pre-empted the criticisms rather than being prompted by them. The Sri Lankan experience also shows that even a well-formulated reform program can fail to obtain political articulation when not supported by a strong program for public education and political liaison. The case of water institutional reform in Sri Lankan also fits into the theory of a stage-based process of institutional change proposed by Saleth & Dinar (2004). Looking at the theory, the process of institutional change is circular with four distinct stages, each with different dimensions of time and configuration of drivers. These stages are perceptional convergence among stakeholders for change, political articulation by political entrepreneurs, emergence of a reform through political bargaining and implementation within the transaction cost constraints, and the realization of actual benefits. The first two stages are where the demand for institutional change emerges and the third stage is where the supply of institutional changes occurs. As we reflect on the reform experiences of Sri Lanka, clearly, there is a convergence of apinion about the need for change. Factors both internal to the water sector (e.g. water scarcity, financial weakness and performance gaps) as well as those external to the sector (e.g. macro economic requirements, political changes and donor pressures) did play a role in leading to such convergence. The reforms of the 1980s did go to the second and third stages owing to their political neutrality and perceived direct benefits. But in the third stage, the implementation of crucial aspects, such as cost recovery, were jettisoned because of political risks. By all accounts, the reform process of 2000 is still in the first stage because the kind of political opposition indicates that there is a convergence about the need for change but not about the nature and extent of the change. Insufficient ownership in the reform proposal means that the reform agenda has gone into the political process, but it could not be articulated to the extent needed to put it into the actual process of political bargaining. Despite a media campaign and political protests, the genuine political reflection of the actual reform proposal was also sparse as there is not much evidence for an extensive discussion of the proposal at the political level. In fact, according to media reports, most of the elected representatives were unaware of the purpose and content of the proposal for institutional change. The reform proposal has clearly lacked a dexterous articulation. This, together with the failure by the reformers to educate the public, resulted in misconceptions about the proposed reforms. Thus, the economic and political conditions were less propitious for taking the reform process to the higher stages. Although the proposed reforms are critical for sustainable allocation and management of water resources in Sri Lanka, political opinion is that under current conditions, the political cost of articulating such a genuine demand for reform is 14 For instance, the creation of “transferable” water rights is believed to encourage water trading, which could deprive the poor of their water access. Moreover, in a situation where farmers lack the funds to buy the permits, the likelihood of private companies buying the permits and selling the water to the farmers looms large (Nanayakkara, 2003). 15 However, it was later made clear that customary rights and small users will be excluded from the requirement for permits.

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higher than the corresponding electoral benefits. Nonetheless the changing economic requirements and resource realities over time are likely to alter the political balance and transaction cost calculus for real and substantive reforms, as predicted by the theory of the stage-based process of institutional change.

6. Conclusions and implications This paper has reviewed the process of water institutional reforms in Sri Lanka by making a clear distinction between those implemented during the 1980s and those proposed since 2000. Such a distinction was essential as the nature, origin and impact of the reform process have been different. While the reforms of the 1980s focused primarily on the irrigation sector with perceivable immediate benefits but low, or no, political risks, the policy reforms initiated since 2000 covered macro institutional arrangements to include the whole water sector with gradual and remote benefits but, with high political risks. As the earlier reforms were packaged as part of larger investment programs, they had in-built incentives and advocates to carry them forward. The recent reforms not only lacked such necessary conditions but were also wedged within a hostile and ideologically charged environment. The public at large remained as passive bystanders and somewhat confused about the real intent of the proposed reforms, especially the issue of creating a system of water entitlements. As a result, the reform proposals could not garner the much-needed public support to counter the ideology and politically based opposition. Although the reform proposal could not be implemented as a whole under the current political conditions, the situation is not that bleak as we consider the long process of institutional evolution and change. The reform agenda has already entered the political process. Although there is opposition on a few contentious aspects, there is a widespread convergence about the need for a comprehensive reform to align the water institutional arrangement with emerging economic and resource realities. User participation, decentralization and basin focus are now firmly rooted in both policies and programs. Comparing the reforms of the 1980s and 2000, there has been a clear shift from a micro and sub-sectoral approach to a macro and integrated approach to institutional reforms. The recent policy document (GOSL, 2003) reiterates the government’s commitment to begin implementing the National Water Policy and to restructure existing institutions and government organizations. Already, the government is working on the redrafting of the water policy document as well as repackaging the entire reform proposal by making the necessary adjustments to suit the requirements of political economy. One has only to hope that this process will not compromise the real institutional needs of the water economy that is already showing strains as scarcity and conflicts have equally serious political consequences. Finally, although the water institutional reforms in Sri Lankan fall into a category of missed opportunities, the review of the reform process does provide an anecdotal context for evaluating some of the results and hypotheses reported by Dinar (2000) and by Saleth & Dinar (2004). For instance, the institutional transaction cost approach provides a useful framework for explaining both the emergence and effectiveness of the reform process in Sri Lanka. Similarly, the Sri Lankan case shows the importance of reform design and implementation principles, such as institutional packaging and sequencing as well as reform timing and scale, in meeting pragmatic and tactical requirements. Thus, better packaging and timing were key factors that explained the relative


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success of the reforms during the 1980s and it is the absence of these factors that explained the general failure of the reform of the 2000s. The critical role of reform coalitions for the adoption and implementation of reforms (see Dinar, 2000) is also supported by the Sri Lankan experience. Earlier reforms that focused on the irrigation sector with more direct benefits also had a strong political coalition, whereas the remote and delayed benefits associated with the recent reforms, which focused on macro institutions, lacked such a coalition. Unlike the irrigation reforms, which focused mainly on farmer participation in irrigation management and cost recovery, the scale of the recent reforms is too large to handle both politically and administratively. The process of both sets of reforms is also consistent with the theory of a stage-based process of institutional change. Although the irrigation management reforms were implemented with considerable political ease, the recent reforms could not even go to the stage of political articulation. However, the lessons learned from initial failures are not lost but could be used to advance the reform process. As recognized by Saleth & Dinar (2004), learning and information are key factors, not only in the formation of demand for change, but also during the process of bargaining and implementation. This suggests the importance of public education and political liaison both before and during the reform process.

Acknowledgements The author is grateful to R. Maria Saleth, Ariel Dinar and Nihal Fernando for their useful comments and suggestions.

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