Anticipating Water Trade

Mohamad Mova Al Afghanimovanet@gmail.com

IntroductionIntroduction

As we speak, millions of liters of water are being transported through inter-state transmission pipes or through water tankers.

IntroductionIntroduction

Law No. 7 Year 2004 on “Water Resources”

Enacted : March 18, 2004Enforced : At the date of enactmentNumber of Articles: 100Repealed : Law No. 11 Year 1974 on “Irrigation”Judicial Review : 058-059-060-063/PUU-II/2004,

13th of July 2005 (Conditionally Constitutional)

“Water” covers basically all freshwater in any forms including sea water on land.

Thus, the Water Law regulates:1. Groundwater (well, underground rivers)2. Surface Water (rivers, lakes, wetlands)3. Clouds (Article 38) 4. Water supporting areas: catchments, river basins,

beaches

Object of regulationObject of regulation

Water Rights Systems in the World:

Agency Based vs Market Based

Agency based: allocation and reallocation is done through the agency of the state

Market based: allocation and reallocation is done through market mechanism (supply/demand)

Water RightsWater Rights

Water Utilization Rights (Hak Guna Pakai Air): for daily needs and people’s farming.

Water Commercialization Right (Hak Guna Usaha Air): for hydropower, tourism, industry, etc. Valid for 3 years and extendable

Both rights cannot be leased or assigned partially or entirely (Art 7.2 of the Water Law). Hence: agency based

Water RightsWater Rights

Water RightsWater Rights

*More than 2 litres per second/family for people’s farming and more than 100 m3 per family for Groundwater

The current agency-based system will be reformed to allow market mechanism to work in the water sector. Some pilot projects on has been conducted in Brantas river Basin in East Java.

Water MarketWater Market

1. Public good vs private good 2. Mobility3. Variability4. Transport/storage cost5. Not scarcity but physical supply cost6. Essentiality7. Heterogenity, depending on time,

location, quality

Specifities of the water sectorSpecifities of the water sector

1. Social Costs2. Environmental Costs

How can externalities be identified, defined and incorporated into transactions?

Market and externalitiesMarket and externalities

1. Existing laws on international trade may not be adequate in protecting water

2. Institutional setting in national law still problematic (i.e. enforcement cost expensive, rights not clearly defined)

Insufficient legal regimeInsufficient legal regime

Goals:1. Human rights 2. Efficiency3. Environment

Requires interdisciplinary approach

Closing the gapClosing the gap

Thank You