Publication Code: N34
Diverting Water from the Mae Klong Basin: Whose Rights and at What Price?
by Adis Israngkura
Water scarcity in Thailand has led to the thought of improving the social benefit of water utilisation by diverting water from lower to higher value activities. If water is to be diverted from the Mae Klong basin to Bangkok there needs to be a management tool to accomplish the job. Two options are available for the Thai Government: the command and control method together with full-cost water pricing and the market mechanism known as tradable water rights.
Under the command and control method, the Government decides when and how much water will be diverted from the Mae Klong basin. This method needs not suggest economic inefficiency nor biased against the people of Mae Klong who may consequently have to forego their second crop. The command and control method can be made efficient and help increase social welfare if water is transferred from lower value to higher value activities. To achieve this economic efficiency, the Government must have information on the marginal value of water for agriculture in the Mae Klong basin and the marginal value of water in the Chao Praya basin. Equally important, a payment equal to the value of water must be compensated when water is transferred out of the Mae Klong basin. This will ensure that water transfer is unbiased. This report suggests that full-cost water pricing be used to finance this water transfer.
Tradable water rights on the other hand attempts to grant water rights to water users in the Mae Klong basin and to allow these rights to be traded in the market. It is believed that water will be traded away from low value activities to higher value activities and hence result in a social welfare improvement. Those who sell or lease their water rights will be directly compensated by the amount equal to the market value of water or the market price of water. Thus, tradable water rights is a method which ensures economic efficiency as well as fairness in water transfer. Tradable water rights has been practiced in many countries such as Chile, Mexico or the State of California, USA. In addition to water trade, water pollution, too, can be managed through market mechanism commonly known as "Tradable Pollution Permits".
With tradable water rights the role of the water agencies, such as, the Royal Irrigation Department will shift gears from farm level monitoring to regional or national level water resource issues. Its responsibility will include forecasting annual water availability, large scale investment in water storage and distribution, exploring relationship of inter-basin water transfer, monitoring water transactions, supervision of possible negative effects of water trade (environmental impact or negative effect to other economic activities), law enforcement or waterway navigation. In order to implement tradable water rights some preparations are required. Water laws must be revised to permit secure water ownership to water users. Water distribution, channeling and appropriate, yet simple, metering system are required.
This report concludes that diverting water from Mae Klong to Chao Praya river can be made efficient if the command and control method is implemented together with full-cost water pricing. Tradable water rights is another option and will also ensure efficiency in water allocation.
August 1995