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Development of an innovative financial approach to improve water user associations’ financial sustainability

Author(s): The case of maintenance and asset renewal in Lot irrigation schemes (France)
Congress: 2008
Sébastien LOUBIER Tel +33 4 67 04 63 68 - Fax +33 4 67 63 57 95 Cemagref, 361 rue Jean-François Breton – BP 5095 – 34196 Montpellier cedex 5 - France

Keyword(s): Irrigation, France, Microeconomics, water user associations, Maintenance, Asset renewal, financing strategy
AbstractFor more than a century, the creation of collective irrigation networks has been a way for the French government to reach its objectives regarding agricultural policy as well as land management. Today, one type of collective network, the French Water Users Association (ASA), has made it possible to irrigate nearly one-fourth of France’s irrigable area. The government financed a large part of the initial investments for these networks, as well as second-generation investments. However, the present situation seems to provide the basis for hypothesizing that, in the future, the government will distance itself from financing in this area. This situation, together with the fact that some ASAs have been finding it increasingly difficult to finance their maintenance and renewal operations, leads us to question the sustainability of these irrigation networks. This paper addresses ASAs financial sustainability and solutions to improve it. An ASA will be considered sustainable if it is capable of developing maintenance and renewal financing strategies that can be reproduced over time. In other words, it must develop strategies that make it possible to respect the financial constraints of future members and the government’s desire to become less involved. In a first chapter, using an analysis grid of ASAs management styles, we underscore the predominance of short or medium-term strategies. Managers systematically resort to borrowing in order to finance renewals, and sometimes neglect the maintenance of their assets, even though it means having to replace them sooner. The fact that they are heavily subsidized only serves to increase this tendency. A second chapter is dedicated to identifying several factors explaining these strategies that can be qualified as short or medium-term strategies. These factors are legal, historical and political, technical, sociological, psychological, economic and management in nature. It has been shown that, by successively integrating some of them into microeconomics models, we bring to the forefront the fact that the ASAs strategies choices are completely optimal from their point of view, but that their sustainability is fully dependant on the degree of public financing, challenging donors wishes to reduce their involvement in this sector. In a third chapter we identify various systems able to improve maintenance strategies and / or financing strategies. Among these systems, only the mutual insurance system of ASAs asset renewal, coupled with a motivating mechanism, makes it possible to avoid weak maintenance strategies and at the same time anticipate financing costs of future asset renewal. Several economics theories (insurance, agency, incentives…) are then mobilized to characterize the necessary conditions for an effective system. A fourth chapter is dedicated to the assessment of the feasibility of such a “mutual insurance company” in the Lot administrative unit (it exists about 100 such units in France). We then highlight that for most of the scenarios tested, the system is feasible, and its efficiency increases as the level of government withdrawal from financing increases. We then conclude in providing recommendations for the WUAs managers and the decision makers and recall how such an analysis framework can be used to identify factors influencing WUAs financial (and then operational) sustainability and to identify win-win solutions.
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