China’s new water megaproject

Huw Pohlner on what the South-North Water Transfer means for China’s existing institutions of water governance.

In December 2014, 62 years after Chairman Mao famously pointed out the imbalance in water supply between China’s northern and southern river basins, freshwater finally started flowing down the Middle Route of the South-North Water Transfer (SNWT-MR).

The SNWT-MR is one of three projects – the Eastern Route is also finished but the Western Route is still in planning – designed to link the Yangtze and its tributaries with the three major river basins of the North China Plain: the Yellow, Huai, and Hai. Engineered to initially deliver an average of 9.5 billion cubic metres of water per annum to Henan, Hebei, Tianjin and Beijing for use by up to 50 million people, the SNWT-MR is a megaproject intended to change the reality of serious water stress in China’s north.

By physically altering the hydrology of a large swath of the country, enlarging the scale at which water can be managed, and transgressing basin borders, the SNWT-MR creates a new regime for water governance. This megaproject response to water stress affects the very way that Chinese institutions of water governance function.

Let us take the example of water pricing.

Water prices in China are set by provincial and municipal governments in accordance with the principle of cost recovery as outlined in the 2002 Water Law, and vary by region and water use category. But the price of water delivered by the SNWT-MR to the cities of the North China Plain is set by the central government’s National Development and Reform Commission (NDRC) in line with the 2014 Management Regulations for the Use of Water from the SNWT Project. In Hebei, for example, this means that a sixth or more of all water used in the province in a given year could be subject to direct price manipulation by central government.

Water pricing institutions have been transformed by the SNWT-MR in one other important way. The NDRC has introduced a two-part tariff for provinces and municipalities purchasing water from the scheme (again, laid out in the 2014 Management Regulations and confirmed in the 2015 SNWT-MR tariff legislation): a fixed fee is charged on all water allocated to each outlet along the canal and a volumetric fee is then calculated based on actual withdrawals.

To take the example of Hebei again, the provincial government will be charged over USD $250 million a year for its allocation of 3.47 billion cubic metres even if it uses none of that allocated water. The intended effect is to financially incentivise use of SNWT-MR water over competing sources and to guarantee minimal recovery of project construction and maintenance costs.

Both of these transformations in water pricing institutions are innovations, in the Chinese context, and are products of the enormous costs of building and maintaining the megaproject and uncertainties in future demand.

But although these institutional reforms are likely to change water management practices in China, there are still obstacles that stand in their way.

Bureaucratic fragmentation between and among central government ministries and provincial governments has long been an object of intrigue for scholars and policymakers. Institutional reforms in the wake of the SNWT-MR’s completion are particularly exposed to the effects of this fragmentation given the rescaling of governance that the SNWT-MR implies.

Numerous central and local political entities with overlapping jurisdictions and competing interests were and are involved in the planning, construction and operation of the SNWT-MR. Key players at the national level include the Ministry of Water Resources (MWR), the NDRC and the Ministry of Finance. Owing to its broad geographic reach, six provincial and municipal governments are directly implicated in the megaproject as suppliers or users of water, and several more are affected downstream of the abstraction point on the Han river.

Recognising the need for cooperation and holistic management of the SNWT-MR (and the Eastern and Western Routes too), the State Council created the ministry-level Office of the Construction Committee for the South-North Water Transfer Project in 2003. Primarily responsible for overseeing project construction and the relocation of affected communities, the mandate of the Office and its relationship with the MWR are less clear in the operations phase of the SNWT-MR. With water pricing under the control of the NDRC, opportunities for fragmentation and conflict remain.

China has announced several major national water policies in recent years – the ‘three red lines’ in 2011 and the Water Pollution Prevention and Control Action Plan in 2015, for example, established instruments and targets for water quantity and quality control – and it is still unclear precisely how the SNWT-MR will interact with these.

What is clear is that existing institutions of water governance will continue to be challenged by the SNWT-MR in operation, and further institutional change is required if the long-term benefits of the project are to be fairly distributed and its negative social, economic and environmental effects mitigated and appropriately compensated.