Theory, the Market and the State: Agricultural Reforms in Post Socialist Uzbekistan Between Economic Incentives and Institutional Obstacles

Bernd Hansjürgens

Abstract Water pricing is seen as an important element in efficient water resource management. By providing information about water resource scarcity, water prices can make explicit the value of water and can set adequate incentives for water users to use water more sustainably. However, designing efficient water resource pricing schemes is dependent on many prerequisites that are hard to fulfil. In this chapter, we contrast the prerequisites of water pricing with real-world contexts in the Fergana Valley. We show that many prerequisites for water pricing are not met in this area, so that water pricing reforms are unable to perform the functions usually associated with water prices. Nevertheless, it is possible to articulate a number of steps toward a reform of the agricultural sector which may at least point the way towards a more sustainable use of water resources.

Keywords Water scarcity • Fergana Valley • Water resources • Efficient water pricing • Water services • Interdependence of orders • Design elements • Institutional obstacles • Agricultural sector • Paths for reform • Water rights • Water users associations

Introduction: The Need to Price Water Resources in the Fergana Valley

Water scarcity refers to a situation in which water demand exceeds water supply. While many people assume that water scarcity is a problem of absolute scarcity (i.e. water not being available at all), the economic approach addresses water scarcity as a relative problem, meaning that the needs of those who wish to use water for certain purposes (irrigation, drinking water, industrial production, ecological functions and services, etc.) cannot be met with available water resources. As with most resources on Earth, water scarcity is a far-reaching and ubiquitous problem.

The Fergana Valley in Uzbekistan is characterised by severe water scarcity. Although the annual amount of water in the region is regarded as sufficient – due to high precipitation rates in the upstream river areas – there are seasonal fluctuations: There is too much water available in the wintertime, leading to flooding in the Valley, whereas particularly during the summer months, the needs of water users often cannot be met. As a consequence, water resources have to be managed, through allocation to users according to certain decision-making rules or specific allocation mechanisms (e.g. quotas).

In the literature, several factors are mentioned as being the cause of water scarcity in the Fergana Valley (Giese and Sehring 2007; Dukhovny and de Schutter 2011). While these causes are diverse in nature, they can nevertheless be grouped into two major categories:

• One set of sources refers to the transboundary character of water resources in Central Asia (e.g. Libert et al. 2008; Dukhovny and de Schutter 2011, p. 280; Eschment 2011; Wegerich et al. 2012). After the breakdown of the Soviet Union, the then-Soviet provinces became independent states. During the Soviet era, the interests of upstream users and downstream users were (more or less) balanced via state planning: The downstream water users Uzbekistan, Turkmenistan and Kazakhstan had to deliver energy in the winter to the upstream users Kyrgyzstan and Tajikistan, while the upstream users had to provide sufficient water to the downstream users in the summertime. This situation changed completely in the early 1990s. The upstream users increasingly used the water resources for hydropower production in winter to safeguard their energy. The result was (and still is) that too much water was delivered to downstream users in winter, while water for downstream users (mainly for the irrigation of cotton plants) was insufficient in the summer. Thus, the Central Asia water crisis is generally regarded as being the result of a lack of (international) cooperation and coordination (Dukhovny and de Schutter 2011, p. 281).

• A second group of authors refers to the inefficiency of water resource management in the Fergana Valley (e.g. Abdullaev et al. 2007; Schlüter et al. 2010,

p. 621; Abdullaev and Atabaeva 2012; Kenjabaev and Frede 2015, in this volume). These authors focus on the argument that despite the existence of large infrastructure facilities for water irrigation in the Fergana Valley (i.e. the Fergana Canal and a comprehensive canal system with far-reaching grids), there are high water losses due to the outmoded infrastructure of the canal system and an inefficient use of water (Abdullaev et al. 2007; Libert et al. 2008, p. 18; Dukhovny et al. 2009). Water losses in the Fergana Valley are estimated to be in the order of nearly 50 % of total water availability (Giese and Sehring 2007, p. 12). A decline in financial resources is seen as a key reason for this. While in the past the water sector was among the strongest sectors in Uzbekistan in terms of financial state flows (Abdullaev and Atabaeva 2012, p. 106), the amount of money devoted to sustaining the technical systems and the management of the irrigation system has decreased in both absolute and relative terms (ibid, p. 10). Today there are clear signs of problems in sustaining the infrastructure all over Uzbekistan.

Although the problems of water management are multicausal and mutually interconnected, in this contribution, we focus on the second line of argument, namely, the situation within the Fergana Valley. We want to focus on those factors of water management that can be influenced independently by the Uzbekistan government. Many proposals have been put forward with the aim of improving the water management system in the Fergana Valley. The most important policy recommendations and measures include, inter alia, the following elements (Dukhovny and de Schutter 2011, p. 319):

• Management information systems

• A training and qualification programme


• Development of a monitoring system

• Evaluating water demand and adjusting irrigation

• Introduction of water prices

Although there is no doubt that the decline of the water sector in the Fergana Valley can only be overcome by a comprehensive approach covering (at least) several of the above-mentioned elements, in the following we refer to just one aspect that is part of nearly every proposal: the role of water resources pricing. We want to shed some light on the potential of pricing mechanisms and on how these mechanisms can serve as incentives for more efficient resource use in the agricultural sector. At the same time, we want to address the institutional prerequisites for introducing water prices and to highlight the obstacles that prevent water prices from performing their functions. By explicitly focusing on the design elements and prerequisites of water pricing mechanisms on the one hand and on the institutional obstacles involved in the case of the Fergana Valley on the other, we want to illustrate how difficult it is to apply theory-based recommendations to the specific context-dependent situations found in real-world societies, with their historical path dependencies and institutional restrictions. By focusing on these aspects, we see our contribution as taking a similar line of reasoning as other chapters in this volume that point to the need to combine technical, economic and societal perspectives in order to develop well-functioning major water engineering projects (MWEPs).

The following section will outline some “economics of water pricing”. In elaborating the preconditions for introducing an effective and efficient water pricing scheme, we want to elucidate the notion that any successful instrument has to be based on “good” design. We also want to raise awareness that designing such instruments is an “art” that can rarely be achieved in real-world policy processes, even in Western countries with their – compared to Central Asian states – much more effective institutions and governance structures. In the following section, we will focus on the institutional settings that shape the conditions in the agricultural sector in Uzbekistan. Our use of the term “institutional settings” refers to the formal and informal rules, norms, customs and habits in Uzbekistan's agricultural sector that shape farmers' behaviour. We will show that efficient pricing (in the sense that economic incentives are set for water users) cannot easily be achieved under such conditions. This leads to the conclusion that proposals for institutional reforms in relation to major water infrastructure projects cannot be based on a “nirvana approach” but have instead to be examined carefully with respect to the specific political, administrative and cultural conditions at hand. Nevertheless, in the final section we point out some possible pathways for step-by-step reforms that at least point in the direction of water-related reforms.

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