CIAO DATE: 2/99

What Money Can Buy: Conceptualizing a Palestinian-Israeli Water Market

Michelle Sachs

International Studies Association
40th Annual Convention
Washington, D.C.
February 16–20, 1999

I believe the progress of freedom depends more upon the maintenance of peace, the spread of commerce, and the diffusion of education, than upon the labours of Cabinets or Foreign-offices.

—Richard Cobden 1870, p. 227

1. Introduction: The benefits of water markets in Israel and the Palestinian territories

Water is “the element that brings life” (Boon, Tobias and Droney). ₁ Billions of years ago prehistoric living organisms were able to emerge and prosper in Earth’s oceans thanks to the unique characteristics of the water molecule, and long after humans are extinct the oceans will see to it that life continues in their depths. ₂ Despite the fact that three-quarters of Earth are submerged in this extraordinary compound, water scarcity is among the dangers contemporary world-watchers accuse of threatening the survival and development of several of today’s human communities. This is because human life requires a special kind of water — fresh water — that is relatively rare. Only 2.5 percent of the water on Earth is fresh, and approximately two-thirds of that is frozen in Antarctica and Greenland (Economist, 1998). The world’s human population, now approaching six billion, must survive on the same fixed total amount of fresh water each year regardless of how many of us roam Earth’s surface.

Limited freshwater resources, like all scarce goods, encourage competition for their use and this competition can take place in a variety of ways. At one end of the spectrum, it can take the form of cooperative market-type interactions, between willing buyers and willing sellers. At the other end are political transations between politicians and bureaucrats who determine where water should be allocated based on their perceptions of national goals. In the extreme the potential conflict inherent in state controlled allocation can result in domestic insecurity and violence (Gleick 1993; Starr 1991; Job 1991). When the members of one party in a two-party conflict experience the health risks and economic setbacks that result from inequitable water distribution, pre-existing tensions between the two communities are fueled and frustrated individuals engage in violence against those they perceive to be their enemies.

This essay analyzes the water-related difficulties facing Israelis and Palestinians, specifically the problems of poor water quality, decreasing water supply per capita and the dispute between the Israeli and Palestinian governments over water rights ownership. The two parties are currently engaged in violent conflict, and water is one key issue over which they disagree. I am interested in determining whether Israelis and Palestinians can push toward the non-violent end of the water allocation spectrum (in which they participate in market-type transactions) and away from state-controlled water distribution, and what benefits, if any, would result from such a shift. This paper argues that individual Israelis and Palestinians can — and do indeed — compete for resources in this fashion, non-violently and to the benefit of both parties. However there are severe political constrains that prohibit the two economies from engaging in a common free water market, and this paper examines these constraints as well.

2. Looking at water through new goggles

Anyone who has followed the Israeli-Palestinian peace talks over the last decade has had occasion to question whether the conflict between these two peoples can ever be resolved. Some may have accepted that the problems of the Middle East are fundamentally intractable and can at best be managed, but never resolved short of another war. Should this realization be disappointing to students of political theory? After all, only in the last century have national leaders claimed any kind of moral obligation to prevent or settle violent conflicts in foreign lands. ₃ Prior to World War I the world’s governments understood war to be a tool of statecraft necessary for national survival (see Machiavelli, Hobbes, Sun Tzu). What is more, Western international political theory today has all but forsaken ‘idealism,’ the Wilsonian theoretical approach based on the concept of nations that treat each other as equals in a society. It is now widely understood that states operate in anarchy, each seeking to maximize its own security and welfare relative to the others. Using the neorealist vocabulary that has dominated international politics for the last half-century, it would not be difficult to make an unpopular but convincing argument that the peace process is a futile endeavor and the Middle East should be left to fight its own battles, may the strongest survive.

Yet it is not clear that such a cynical conclusion is warranted. If, as neorealists would have us think, the relationship between Israel and the Palestinians is a zero-sum game (the Palestinians’ gain is Israel’s loss), clearly no diplomatic efforts can help decrease both sides’ insecurity vis-a-vis one another. If, however, the relationship is evaluated in terms of economic interactions rather than in terms of power distribution, the game can be positive sum even when the trading parties share an uneven power distribution ₄ (Samuelson and Nordhaus 1997). By looking at the Israeli-Palestinian conflict as a complex economic puzzle rather than a struggle for domination, it may be possible to see plausible solutions to the various components thereof.

In this paper I have selected one component of the Israeli-Palestinian conflict — the water dispute — to provide an example of how one might employ an economic approach to international conflict analysis. The dispute can crudely be described as a disagreement about whether Israel ought to hand over some portion of water rights to the Palestinians. The Israeli government is reluctant to do so on several grounds. For example, Israel has committed much capital and many manhours to the development of its water system infrastructure and is concerned that Palestinian lack of technical skill combined with a general dearth of sewage systems and a tendency to use heavy fertilizers will destroy the resources Israel has worked hard to manage and protect. Meanwhile, Palestinians hold that seizure of the land upon which they lived prior to 1948, as well as the water existing below it, was never acceptable by international law and that their water rights are essentially owed them (Elmusa 1993, 1996; Gleick 1994; Kally 1991).

Water is clearly only one of the many issues that contribute to hostilities between Palestinians and Israelis. Therefore, this essay can at best only serve as an indication of what can be accomplished when alternative analytical approaches are taken to long-debated problems. To be sure, much of the conflict is rooted in fears and prejudices about the “other,” most of which are passed on through generations and usually cannot be un-taught. However, this essay suggests that well-chosen policies can encourage cooperation and economic growth in both communities and thus lead to the erosion of said fears and prejudices over time.

3.Finding the right tools to mend the leak: the super market

Water scarcity and poor water quality cause disease, malnutrition and economic stagnation in the West Bank and the Gaza Strip (Bellisari, 1994). As Israeli and Palestinian populations grow, they pump more water from their aquifers and river systems than the sources are able to renew. The waters become increasingly saline and polluted and eventually smaller amounts of each resource are fit for drinking. Numerous proposals have been advanced for water importation (e.g., from Turkey or Egypt) to alleviate the strain of water shortage, but political instability, massive budgets, risk of environmental damage and lengthy implementation timetables make such schemes unlikely solutions to the problem. Desalinization, the process of removing salt from ocean water, is currently prohibitively expensive as the marginal return on agricultural use of water is significantly less that the cost of producing that water. Therefore, it has become necessary to search for creative ways of stretching the local water supply to accommodate the population without further harming existing surface- and groundwater sources.

Private water markets have the potential to improve water quality and allocative efficiency in Israel and the Palestinian territories ₅ as well as help resolve the dispute over water rights between the two parties. Like other property-rights based frameworks for voluntary exchange, water markets have the power to channel water to those who value it most in a society and discourage wasteful water use. They also encourage good stewardship of resources, increase economic productivity and promote technological innovation.

Well-functioning markets depend on the existence of property rights, and it may at first be difficult to understand how a mobile resource like water or oil could be owned. One can delineate rights to an acre of land by erecting a fence and asserting ownership over the area it surrounds. When the owner sees trespassers on her land, she can enforce her property rights by physically driving them away. Water, on the other hand, cannot be fenced. Nor is it as easy to spot trespassers. For example, if a person who owns a right to pump water from a given aquifer finds that her water supply is dwindling, she will know that someone has pumped too much from the same aquifer, but she will not see him doing it.

However, the fugitive nature of water does not mean that it cannot be marketed. Dean Lueck discusses the difference between stock and flow resources and describes the ways property rights can be defined for the two in his piece “First Posession” (Lueck, 1998). Rights to pump certain quantities of water can be defined, and those quantities can be metered by the state. Owners can also observe their neighbors’ irrigation patterns and notice when they might be pumping above their allotment. Throughout the United States water rights enforcement is successfully carried out through a complaint-driven system in which state officials (watermasters) check wells and water diversion systems and respond to complaints from individual water users in order to find the source of unlawful water use.

Critics argue that water should not be treated as a tradable commodity because it is a necessity for life. The implication of this argument is that the demand for water is perfectly inelastic and that a decrease in supply will be harmful to any given consumer (Miller, Benjamin and North 1996). This is, however, not true. Available data show that above a certain minimal requirement, water consumption is quite price responsive in almost all of its uses (Anderson and Snyder 1992). In fact, it is the perception that water is a public good, and therefore somehow free, that repeatedly leads to unwise consumption and management in many of the Palestinian and Israeli communities to be discussed in this paper. Individuals do not recognize how precious is the water they use because it is priced significantly lower than its market value and, in many cases, lower than the cost of its production (Jerusalem Water Undertaking 1997 Report). Putting a price on water encourages people to use it only when they value it more than other goods on which they spend their limited incomes (Anderson and Leal, 1991). In other words, market pricing encourages allocative efficiency, and allocative efficiency, in turn, leads to gains from trade.

Water markets also have the potential to improve water quality because they rely on property rights. Clearly defined, enforced and tradable property rights represent an investment on the part of the person who holds them and thus provide a strong incentive for her to maintain their long-term value (i.e., prevent increased salinity and pollution levels). In other words, if the owner of a water resource makes her living based on the quality and quantity of the water it produces, she is likely to be more interested in the proper maintenance of that resource than a government worker who has been hired to care for a state-owned water resource (Anderson & Snyder, 1997).

Further, water markets promise increased innovation. Because markets are competitive, producers are constantly challenged to develop more creative ways of meeting the needs of consumers at lower cost (Gwartney & Stroup 1993). Israel currently leads the world in irrigation technology, but there is clearly more research to be done. Innovations in irrigation, transportation and desalinization could be enormously helpful in relieving the health problems and economic stagnation many Palestinians and some Israelis currently face.

Markets also serve to promote communication and cooperation between trading parties. Water markets in Israel and the Palestinian territories could help resolve a significant portion of the larger conflict by not only facilitating constructive social interaction between Israelis and Palestinians but also by eroding the conviction that “their gain is our loss.” With water, this is the pervasive attitude among both nations ₆ because they are all aware that their populations are outgrowing their present consumption patterns (Frey and Naff, 1985). If water markets can succeed in showing Israelis and Palestinians that coexistence is mutually beneficial, they may lead to increased willingness to cooperate on other matters.

This paper speculates about the potential improvements water markets could bring about in the water systems of Israel and the Palestinian territories. It also explores the sources of political resistance that might oppose such a change. The next section of this paper, Part II, provides historical and contextual background on water rights in Israel and the Palestinian territories, which should give some idea as to why free water markets are not currently used. Part III elaborates on the peace-related benefit of a common Israeli-Palestinian water market and discusses the necessary changes that would have to take place in order for water markets to emerge. Essentially, there would have to be a system of clearly defined and enforced water rights and there would need to be a substantial decrease in governmental restrictions on water pricing and sales. As it stands, both the Israeli and the Palestinian government seem to appreciate the power of pricing to curb demand for water, but neither is interested in trusting the market to determine prices or trade flow because they fear such measures will interfere with more important national goals. ₇ The character and legitimacy of these fears will be evaluated in Part IV. Due to the specific nature of the governments involved as well as the institutional dynamics of governmental bureaucracies in general, it is not likely that political officials will deliberately cede control of water systems regardless of how rational such a move may be. Therefore, Part V discusses a possible alternative path to private water markets which could stem from a proposal currently under consideration by the Israeli and Palestinian negotiators in the Middle East Peace Process. Should this proposal prove to be a failure, other potential routes to water markets are given cursory consideration in the concluding section of the paper.

 

4. Background information

5. Historical information about the development of Israeli and Palestinian water rights

To discuss property rights over water in Israel and the Palestinian territories, one must understand how the current water system developed during the last century. In 1947, Britain resolved to relinquish its mandate over Palestine and, eager to leave what had become a hotbed of hostility, handed the problem of an Arab-Jewish peace agreement over to the United Nations. Influenced heavily by the United States and the Soviet Union, the United Nations recommended that Palestine be partitioned into two economically unified states, with Jerusalem declared an ‘international city’, under no single state’s sovereignty. Arab resistance to this plan, combined with the plan’s poor implementation, resulted in a civil war between Zionist ₈ and Arab military groups. Despite the efforts of the United States and the United Nations to fashion a truce, this war continued virtually uninterrupted until January of 1949, by which time the Zionists had captured 79 percent of Palestine. When the fighting finally did cease, mediators from the United Nations failed to secure a peace treaty between the fighting parties because the Arab countries insisted that Palestinian refugees be given the option of returning to their homes or being compensated for their property — an option Israel would not grant (Mansfield, 1991).

Because of the violence that surrounded the establishment of the state of Israel and the methods by which it had acquired much of its territory, ₉ the Israeli government was concerned that Arab countries and/or Palestinian Arabs would attempt to seize control of the land once again. Israel saw the need to support its verbal and legal claims to statehood with physical proof that its borders were not disputed and this proof came in the form of planned communities spread over all of Israel. When, in the war of 1967, Israel managed to occupy the remaining 21 percent of mandatory Palestine (the West Bank and Gaza) as well as the Golan Heights and the entire Sinai peninsula (which went back to Egypt in 1978), it was again faced with the task of establishing Jewish communities in all of these areas. Moshe Dayan, the Israeli defense minister, adopted a policy of “consolidating Israel’s economic and political hold over [the occupied territories] while awaiting a time when the Arabs would be ready to make peace on Israel’s terms” (Mansfield, 1991). This policy involved the establishment of numerous military settlements that were usually handed over to civilian settlers within a few years.

Mekorot Water Company, the Israeli national water company, is a product of these early strategies to expand and maintain territorial control in various portions of mandatory Palestine. In order to sustain settlements in remote parts of the Negev desert and the mountainous regions of the West Bank, Israel had to develop a way to supply them with water at a price settlers would be willing to pay. In 1959 it passed the Water Law, declaring that all water resources within Israel and the territories were public property and that no person could drill a well or otherwise acquire water from sources that were not on her property prior to 1959. By 1967 the Israeli government owned and controlled the greater portion of the Jordan headwaters (located in the Golan Heights), the aquifers beneath the West Bank, ₁₀ and virtually all of the water already within Israel proper. To lower the price of water for settlers in peripheral towns, the government averaged the total operation and maintenance costs of pumping and allocating water in the various municipalities throughout Israel and the occupied territories and set the price of water at that average. The Israel Water Commission (IWC) was charged with management of all water resources and projects, including the building of the National Water Carrier, which pumps water from the north of Israel (Galilee and the headwaters of the Jordan) to Gaza and the Negev in the south. Mekorot, which was already a private water company and had been supplying water to various Jewish towns since 1937, was given responsibility for water sales to all of the municipalities throughout Israel and the Palestinian territories. ₁₁

The Israeli government developed strict regulations and pumping quotas in order to prevent users from over-exploiting national resources. Anyone, Palestinian or Jewish, who had a well on her property prior to the law’s conception could continue to pump from that well at the same rate she had previously pumped. After the law, however, if a community wished to dig a new well or increase the quota of water allowed from an existing well it had to get approval from the Israeli government.

6. Background on water resources in Israel and the Palestinian territories, and the potential for water markets

The majority of Israel’s water supply is located in the northern half of the country. Map 1 shows the direction of flow in the various aquifers shared by Israelis and Palestinians, as well as the location of the Israeli National Water Carrier. The carrier begins at the Sea of Galilee and transports water throughout Israel proper. Smaller piping systems distribute water from the carrier to individual municipalities and from the municipalities to individual farms, businesses and homes. The entire physical water distribution infrastructure from the National Water Carrier to the municipalities is maintained by Mekorot. From the municipalities to the individual consumers, the piping is under the management of the local water departments.

The total amount consumed is approximately 1950 million cubic meters (mcm) per year, including reclaimed wastewater and desalinized brackish water, of which Israelis use about 1700 mcm and Palestinians use about 225 mcm (Israel 1996 State Statistical Abstract; Isaac, 1994). According to 1997 population statistics, this translates to per capita consumption of 193 cubic meters per Palestinian and 362 cubic meters per Israeli (Israel 1997 State Statistical Abstract). The reader’s attention is immediately drawn to the disparity between the per capita figures, which clearly show that Israelis consume nearly twice the amount of water that Palestinians consume. For domestic consumption, the gap between the two communities is even wider, with Israelis using more that three times the water Palestinians use (Wolf 1994; Kliot 1994). However, what is more alarming is how meager these numbers are in general when they are compared to the water consumption by people in other parts of the world. The World Resources Report on Water and Fisheries defines a “water stress index” as the amount of annual renewable freshwater resources that are needed per capita to meet a nation’s agricultural, domestic and industrial needs. The 1997 report explains that “on the basis of the past experiences of moderately developed countries in arid zones, renewable freshwater resources of 1000 cubic meters per capita per year have been proposed as an approximate benchmark below which most countries are likely to experience chronic water scarcity on a scale sufficient to impede development and harm human health” (World Resources, 1997, pp. 301-302). Obviously, both Israeli and Palestinian annual water consumption is far below 1000 cubic meters per capita. ₁₂

While Mekorot has been extraordinarily successful in achieving the aims of the Israeli government, including supplying Jewish settlers with cheap water and making great advances in irrigation technology, it has not been able to forsee or prevent over-pumping and inefficient use. Especially in the area of the Gaza Strip, where the water table is high, it has been easy for farmers to drill wells without permits. Gaza is now under Palestinian autonomous control, but the coastal aquifer has been pumped in excess of its annual recharge for decades by Israeli water departments as well as by Palestinians. Overpumping leads to the intrusion of saltwater and the contamination of otherwise potable freshwater. Also, farmers in Israel and the Palestinian territories tend to use heavy fertilizers and other agricultural chemicals that seep into the rivers and aquifers and pollute water for downstream users (Gleick, 1994). This is particularly problematic because sandy soils like those of Israel and the Palestinian territories are notoriously prone to leak nitrates. Pollution and salinity combine to produce health risks. In Gaza, heightened prevalence of communicable disease, kidney dysfunction, ulcers, skeletal and dental fluorosis, edema, high blood pressure and even brain damage are only a few of the health problems suffered by Palestinians due to poor water quality and general dehydration (Bellisari, 1994).

Mekorot has made progress in replenishing over-pumped aquifers by harnessing flood waters and channeling them to those areas with the highest nitrate concentrations, but this can only be a short-term solution to the underlying problem. As populations grow and demand more water for domestic, industrial and agricultural use, the Israeli government will have to expend more resources responding to increasing infractions of pumping restrictions. The majority of these apprehensions are carried out by the Israeli military, and with the majority of the infractions being committed by Palestinians, continued government management of this scarce resource is likely to increase violent tension between the two parties.

In addition to posing difficult enforcement problems, the current system of government-owned water rights supports inefficient water allocation. Water has to be transported long distances and used for irrigation according to national policies that favor agriculture and the development of settler communities over economic growth (a point that will be discussed shortly). Thus, the Israeli policies are not only costly in the short-run, but because they promote allocative inefficiency, they stifle economic growth in the long-run as well.

The market alternative to this scenario is one in which markets do much of the allocative and enforcement work currently burdening the Israeli government. Property law enforcement is still the role of the state, but responsible, far-sighted resource stewardship is encouraged by private management. In other words, because a water right holder sees her right as a long-term investment, she will not need the military to tell her to practice good stewardship. Likewise, market determined prices hold far more information about how water should be allocated efficiently than a government can ever acquire (Hayek, 1945). By using free water markets rather than a system of subsidized planned water allocation, the Israeli government may be able to spend less on the water system and obtain greater economic returns.

7. Current Israeli and Palestinian water systems

The question is whether the necessary conditions for water markets can be brought about in Israel and the Palestinian territories. But before any discussion of the potential for a common market it is necessary to understand the way the two parties’ respective water systems currently function.

The growth of the Israeli public water system followed a pattern of bureaucratic growth common for nations in crisis. Rober Higgs describes this pattern in detail in his Crisis and Leviathan (Higgs, 1987). In it he explains that crisis, such as war or business depression, dramatically increases people’s trust in their governments to guide them to safety. They are willing to forego otherwise cherished liberties, such as private property rights, in order that the government may do what is necessary to respond to emergency. Once the emergency has subsided, however, there is an enormous bureaucracy left holding control of whatever functions it has overtaken. That bureaucracy normally shrinks somewhat post-crisis, but not nearly to the point at which it began its expansion. This is because the bureaucrats whose jobs were created during expansion have no incentive to relinquish their positions. ₁₃ Also, the useful work that has been accomplished thanks to government control has blindsided the population such that they no longer perceive that in non-crisis the private sector can also perform the functions society requires, and in many cases better than the government can.

In Israel it was the intense conflict surrounding the state’s birth that caused the freedom of markets in general — not just water markets — to be subordinated to military needs (Lees, 1998). By 1953 — only five years after independence — nearly 700,000 Jews had immigrated to Israel under the Law of Return. ₁₄ Israel needed to absorb these immigrants and the government was determined to achieve full employment, a high level of social services, and a Western standard of living. Meanwhile, the fledgling economy was experiencing a series of wars and a total economic boycott imposed by all of its Arab neighbors. While trying to feed its population the government was ever having to channel resources toward making sure its military capabilities exceeded those of all Arab countries combined. The financial and entrepreneurial skills of the population combined with enormous financial aid from world Jewry, Western Germany and the United States sustained the Israeli economy under these conditions (Mansfield, 1991).

As part of Israel’s strategy to maintain food self-sufficiency and to encourage new Israelis to develop a long-term attachment to the land they would need to defend thereafter, the government adopted a policy of heavily subsidizing agricultural water and (intentionally or not) adopted the Zionist ideal of the Jew in Israel “making the desert bloom.” The subsidy was intended to encourage people to farm the hostile dry territories. The ideal helped keep them there. It was rooted in the very real experiences of the Jews who came to Israel during the first and second aliyot (ascendance to the Holy Land) in the late 1800s and early 1900s. Many of these people made their aliyot with the knowledge that they would die of disease and/or hunger within a decade but continued to drain marshes and irrigate deserts in order to build a homeland for their progeny. As the population grew, however, so did Israeli participation in industry. The number of people employed in agriculture decreased, as did the percentage of gross domestic product (GDP) contributed by agriculture. ₁₅ Today, although the sector employs only 3.5 percent of the population and contributes only three percent of the GDP, Israelis continue to have a strong ideological commitment to agriculture.

Due to the growing population and corresponding increase in demand for domestic water, the Israeli government has recently decided that its subsidies on agricultural water are economically undesirable. In 1994 Israel began a program designed to divert water from agriculture to the domestic and industrial sectors and determined that market devices would be the ideal mechanisms to achieve that end. The government began by reducing subsidies in all three sectors and has gradually achieved a complete removal of subsidies from the industrial and domestic sectors. It has also reduced the agricultural subsidy from 56 percent of Mekorot operation and maintenance costs in 1993 to 20 percent in 1998. Table 1 shows the trend in irrigation tariffs, as recorded by Mekorot annual financial statements.

Table 1 . Water cost and water tariffs for irrigation supplied by Mekorot

Year	Average Cost (US$ per cubic meter)	Selling Price / Tariff (US$ per cubic meter)	Selling Price as% of Cost
1993	0.36	0.16	44
1994	0.34	0.17	50
1995	0.33	0.19	58
1996	0.31	0.21	69
1997	0.28	0.23	82

Source: Mekorot Water Company Financial Statements, various years; taken from Shevach, 1997

The purpose of this reduction in subsidies is not only to shift water away from agriculture, but a move in the direction of semi-privatization for Mekorot water company. One report from the Ministry of Finance states that “[t]he Government is to further reduce direct involvement in water supply by privatization of the national water company and the creation of regional water systems which will operate as private corporations under government control.” The report characterizes subsidy reductions as a way of “positioning agriculture in the proper place vis-a-vis national water allocation and use” (Shevach, 1997). In other words, the private sector is being trained to take on the burden of covering costs in order that the government may eventually relinquish some control of Mekorot to market forces.

There is, however, an important part of Mekorot that will not become private: pricing. Yehuda Shevach, an engineer at Tahal (the engineering branch of the Israel Water Commission), explains in another report that the new system will be made up of private regional production facilities that are allowed to exploit the resources within their respective jurisdictions. They may sell that water, as well as water purchased from the separate authority that will be in control of the National Water Carrier, but they must still do so at a price determined by the government (Shevach, 1998). Thus, though the water distribution system may become more technically efficient, water allocation throughtout consumer populations will not. More information on the transition is inaccessible, as Mekorot has kept it confidential for business reasons.

Until the recent establishment of the Palestinian Autonomous Areas (PAA), Palestinian municipalities in principle supplied water the same way Israeli municipalities did: they purchased some drinking water from Mekorot and pumped additional quantities from wells that existed prior to the Water Law. Today, although the PAA has its own water authority, most Palestinian water departments still function this way, as the majority of the West Bank is not autonomous. In contrast to Israeli municipalities, however, only a small percentage of water consumed by Palestinians is purchased from Mekorot. The bulk of Palestinian water supply is allocated toward irrigation, and most of this water is pumped by individuals who use well water from their own property (JWU 1996 Report). Although Palestinian well water is significantly inferior in quality to Mekorot water, the physical infrastructure in Palestinian towns leaks so much that the final cost of supplying one cubic meter of water to Palestinians can be prohibitive.

As a result of Israeli occupation of the West Bank and the Gaza Strip, neither competitive water markets nor water management regulations developed within the Palestinian private sector over the last half-century. ₁₆ About 50 percent of the Palestinian population in the West Bank has running water. The rest are mainly dependent on collected rain water stored in cisterns, or on springs, which dry up in drought months (JWU 1997 Report, p. 4.34). ₁₇ The Israel Water Commission set pumping quotas and standards for well drilling in order to ensure that aquifers were not over-exploited. For several reasons, these regulations tended to favor Israelis and aggravate Palestinian farmers. ₁₈ Needless to say, Palestinians resented the Israeli regulations. More importantly for the economy, however, the existence of these restrictions left Palestinians with no incentive to develop their own methods of curbing water use in order to maintain high water quality. Likewise, because all water belonged to the Israeli government except for the privately owned, Israeli regulated wells, there was virtually no opportunity for a water market to emerge.

In the new PAA the Israel Water Commission has no authority, and many Palestinians practice poor water management, much to the dismay of the fledgling PWA. The “tragedy of the commons” is evident in these areas, with each user rushing to claim water before his neighbors can, diminishing the quality of the water for all (Hardin, 1968). The Jerusalem Water Undertaking (JWU) is a Palestinian regional water department outside of Ramallah that has cooperated with the Federal Republic of Germany’s Ministry for Economic Cooperation and Development since 1995 on a study of water extraction, distribution and consumption within the OPT and the PAA. According to JWU reports, Palestinians within the PAA are happy to be rid of Israeli restrictions and dig new wells or pump water from existing wells without regard for the damage over-pumping may do. “Bad practices such as overuse and primitive irrigation methods are encouraged” (JWU 1997 Report).

Furthermore, due to the social pressure associated with a society enduring violent conflict, Palestinian water departments sell water to their consumers at subsidized prices. In an effort to keep tensions at a minimum in the already aggravated and poor Palestinian community, water departments charge only enough to cover the costs of maintenance and operation of their water systems, leaving them without capital to invest in improving efficiency. As a result, the physical infrastructure of Palestinian municipal water distributors is poor, and large quantities of water are regularly lost in transmission (JWU 1997 Report). The value of the water lost in transmission may exceed the cost of building new infrastructure, but for political reasons, neither Israelis nor Palestinians have made the necessary investment.

Table 2 gives the results of one study undertaken by the JWU showing that the various village water councils and municipal water departments in Gaza and the West Bank “have an overall inefficient management, . . . suffer from high unaccounted-for water and do not have any sound financial records that one can rely on and use in deciding the present or actual costs for extracting and distributing water” (JWU 1995 Report). This loss is apparent in the difference between the numbers provided for “cost per m ³of supplies” and “net price of water sold per m ³.” The Jerusalem Water Undertaking pays US $0.91 for one cubic meter of water at its source, but because so much of that cubic meter is lost in transmission, the initial US $0.91 only buys three-fourths of a cubic meter at the tap. A full cubic meter costs $1.14.

Table 2 ₁₉ Water Costs at JWU, Nablus, Betunia and Al-Fara, (all monetary quantities in US $) 1995

Details	Jerusalem Water Undertaking	Nablus Municipality	Betunia Municipality	Al-Fara Project
Net Total Costs	6,909,000	2,735,000	285,000	204,000
Total Supplies of Water (m3)	7,556,000	2,900,000	245,000	8,158,000
Cost per m3 of Supplies	0.91	0.94	1.16	.033
% Unaccounted-for Water	25%	51%	32%	* 20
Net Price of Water Sold per m3	1.14	1.42	1.53	*

From JWU Middle East Study on Water Supply and Demand Development, 1995

The PWA is aware of these issues and, in contrast to the approach being taken by the Israeli government, has determined that the problems of inefficient water use and poor water quality can be best addressed if the government owns and manages all water sources within the PAA. ₂₁ In 1996 the PWA produced a list of principles, titled Elements of a Palestinian Water Policy , upon which all future water policy would be based. As stated in this document, “In a situation of acute shortage of available water resources, a just, equitable and sustainable allocation among all legitimate users will be best ensured by the state. To this end, all well drilling, water production and supply should be allowed only by permit or license” (PWA, 1996, principle #1). The list of principles further explains that central planning is the best method of assuring that poor people receive affordable water, that groundwater levels are maintained in the long-term, that pollution is prevented, and that upstream use does not negatively impact downstream users. “The water resources of the Palestinian territory is of such overriding importance for human welfare and the national economy that water matters should be dealt with at the highest level within the government, for effective coordination of sectorized interests” (PWA 1996, principle #7).

Despite the PWA’s apparent distrust of the private sector’s ability to manage water resources, there are some important elements of Palestinian plans that do reflect an appreciation for market forces. The aforementioned JWU, which is the largest Palestinian water project in terms of territory covered and population served, devoted much of its 1997 report to Palestinian water system reform. JWU findings are important because, relative to the work of other Palestinian water departments, the depth and quality of JWU research is excellent, thus making it valuable to the PWA. The JWU 1997 report advocates some policies that bare a striking resemblance to those Israel has recently implemented. These include progressive tariffs for water consumers and the “appropriate pricing” of water in the Palestinian territories, based on the real market value of water. “Otherwise, if such financial . . . measures are not implemented, the public will never become aware of the water value, will not have any incentives to conserve water, and cannot be expected to take responsibility for protection and conservation of water resources” (JWU 1997 Report, p. 4-18). The JWU understands that without free water markets, appropriate prices will be hard to determine: “the value can only be defined if the trade of water is guaranteed. In Palestine, there are no water trade markets to facilitate this process” (JWU 1997 Report, p. 4-18). Therefore, the JWU has devised several proxies for market value estimation, including willingness-to-pay surveys and periodic monitoring of trade contracts among farmers. The PWA also appears to see the importance of such measures in achieving the goals laid out by the state, as principle number eleven makes specific mention of appropriate pricing as a water demand management tool (see Appendix A).

 

8. Milking water for all it’s worth: The social and economic benefits of water trade between Israeli and Palestinian societies

Before debating the likelihood of the Israeli and Palestinian governments ceding control of their respective water systems, consider the potential gains from trade if there were private water markets. It was mentioned in Part I that private management and trade of water resources can encourage good stewardship, allocative efficiency and innovation. The result of such a situation would be a boost to the participating economies. There are also social gains to be made in the form of easing tensions in the greater Israeli-Palestinian conflict. Depending on whether the two governments value that as a goal, these gains may serve as particularly persuasive arguments for common free water markets.

9. Economic gains from trade

There are not enough data to predict just how much free water trade would benefit the Israeli and Palestinian economies in monetary terms, but the Harvard Middle East Water Project is developing a complex model to give such estimates. Led by Dr. Frank Fisher, the Harvard Project looks at the potential for inter-governmental trade of water rights, rather than private sector trade, an approach that will be analyzed in more detail later in this paper. The relevance of the project to this point is that it has predicted gains from trade of about US $65 million per year, based on the quantities of water laid out in Oslo II.

Of that, Israel gets about $15 million (over and above the amount necessary to compensate its consumers for higher-priced water) and Palestine gets the rest (generally in terms of being able to buy cheaper and more water). With infrastructure built to facilitate trade, the gains are higher (roughly double). ...These numbers depend on the ownership assumptions from which one starts, although $65 million seems generally to hold up with different distributions (Fisher 1998, personal correspondence).

Dr. Fisher stresses that these results are preliminary, are not based on current work with good data and do not represent the work currently going on at the Harvard Project. Nonetheless, the model is (to my knowledge) the most sophisticated of its kind and offers a number to support its more general claim that Israeli-Palestinian water trade would be good for both economies.

A more specific indicator that there are gains to be made from free water trade between Israelis and Palestinians is that of the current sale of Mekorot water in Gaza. The pipeline connecting Mekorot to the Gaza strip is of very little volume and is consistently in use, though the water is very expensive. According to Dr. Fisher, there is an artificial cap on the water sold to Gazans and this cap is set by the Water Commissioner. This would indicate that there is a demand for more high-quality water in Gaza, but that for whatever reason, the Israeli government does not wish to sell its water there (Fisher 1998, personal correspondance).

10. Social gains from trade

There is an additional benefit to Israelis and Palestinians from trading water in a common market: peace. Voluntary exchange builds trust between trading partners and encourages both communication and cooperation between them.

Economist Kenneth Arrow has argued repeatedly that “[t]here is an element of trust in every [market] transaction” (Arrow, 1973). On the scale of individual transactions, he explains that one party generally has to give up her good before receiving compensation offered by her trading partner. She has to trust that she will indeed be given compensation each time she trades. The threat of police action is not enough to explain why traders honor their commitments in exchanges because these enforcement mechanisms are themselves services that must be bought and sold on the basis of the same trust. On a larger scale, when parties trade voluntarily and repeatedly, as in a market, they both benefit from building reputations for trustworthiness with one another (North, 1990). For example, a buyer does not need to do research to find a good trading partner if he knows from experience that a particular seller is trustworthy. Likewise, the seller is assured a customer as long as her good reputation persists. Both parties have an economic incentive to maintain each other’s trust in all business transactions.

Trust can go a long way in facilitating other kinds of confidence-building interactions, especially communication. Parties who otherwise treat each other with contempt due to socially reenforced stereotypes of the “other” as inferior, immoral or hateful are forced to communicate with one another when they trade. Fear and hostility borne of ignorance can be eroded through these repeated personal interactions. Furthermore, since voluntary exchange tends to leave both parties better off economically than they were before they traded, a positive experience is associated with these personal interactions in the minds of the traders, and they are encouraged to repeat the activity in the future.

Another confidence-building interaction triggered by the market is that of cooperation. As long as there are economic gains to be made from trade between two parties, there will be entrepreneurs eager to act as brokers to facilitate trade, and investors interested in building physical and institutional infrastructure to support what they perceive to be an expanding market. ₂₂ For example, if Israeli water rights holders have water to sell at a market determined price, they will likely invest in building pipelines to Palestinian towns where the demand for water is high. Such projects require cooperation on the part of Israelis and Palestinians and, just as the individual transactions mentioned above, they leave both parties better off and more likely to engage in cooperative behavior thereafter.

Trade can help build society in ways the governments cannot. Matt Ridley argues this convincingly in The Origins of Virtue. The Yir Yoront Aboriginals in Australia, for example, lived peacefully without government but with a very advanced system of trade until very recently. Northern Italians, too, have their heritage of strong merchant communities to thank for their relative success, as compared to southern Italy whose culture is based on powerful monarchies and “godfathers” (Ridley, 1997). “Trust and distrust feed upon each other,” he writes, citing Robert Putnam. “Northern Americans developed a successful civic-minded society because they inherited a horizontally bonded version from the particular Britons who founded their cities, while South Americans, stuck with the nepotism, authoritarianism and clientelism of medieval Spain, fell behind.” ₂₃ Neither Israelis nor Palestinians have a history of strong hierarchies or authoritarian rule. Both are strong merchant peoples. If the issue of water — as highly contentious and politicized as it is — could be turned into an opportunity for confidence building, it could be a first step toward Israeli-Palestinian social cohesion.

 

11. What would be necessary for water markets to emerge, and what stands in their way?

Three things stand in the way of an Israeli-Palestinian water market. The first is that there is no appropriate system of private property rights for water, without which a water market cannot exist. The second is that Israeli and Palestinian governments believe that only public control of water can ensure that their respective communities’ needs are met. The third is that one or both of the governments could have a particular distaste for any measures that encourage social cohesion between the two communities. These obstacles may ultimately prevent water markets from emerging, but then again, they may not.

12. Property rights — who needs ‘em?

Clearly defined, well-enforced, transferable water rights are the key to successful water markets in Israel and the Palestinian territories. If a water user has a right to her water, and can sell it if she wishes she will have an incentive to use it efficiently so that she can sell her unused portion for its cash value. She will also be innovative in her efforts to increase efficiency and will take pains to protect her resource from pollution or over-pumping because she knows that demand is higher for good quality water than for brackish or polluted water. If her property rights are for some reason not well-enforced, she will have less incentive to invest time and energy into keeping the resource clean because she knows that unauthorized users may take or pollute her water and gains from trade will be much harder for her to capture. Similarly, if her property rights are not tradable, there is no reason for her to use her water efficiently because she cannot gain anything by not using it.

If any of these three attributes of property rights is lacking (i.e., they are well-defined, enforceable and transferable), the related market will not allocate resources efficiently nor will it encourage good stewardship. In Israel and the occupied territories there are very clearly defined and well-enforced property rights over water resources, but they are not transferable because the national government owns virtually all of them and prohibits sales of those it does not own. In the PAA water rights exist, and they are to a small extent transferable, but they are poorly enforced because the PNA has not yet developed to the point where it can sufficiently catch and punish violators.

In both communities, the governments could conceivably alter the nature of their involvement to the benefit of their respective economies if they were ready to relinquish control over water resources and revenues and focus instead on enforcing the water rights of private suppliers and consumers. How would a state go about doing such a thing? Any number of ways would be possible. The government could auction off its water rights to private buyers, accepting the highest bids, or it could give them away according to some politically popular system of prioritizing. The details of this are negotiable, as long as the property rights get into private hands and are tradable once they get there. The government’s role is then to monitor use though metering or whatever means are most suitable to ensure that users do not pump more than that amount to which they own property rights. The government must then also be responsible for punishing violators.

What of drought years? Again, this could be handled a number of ways, but one example would be if rights were allotted according to a seniority system like that of the American west (Anderson and Snyder 1997). In this framework, a user has access to water provided the people with prior rights have pumped their water and a sufficient quantity remains to be taken. Prior rights holders would act as an enforcement mechanism, keeping close watch on the quality of the water they pump so as to be sure that the aquifer was not being over-exploited. After all, a decline in water quality would bring down the value of their water. Obviously, water rights that were senior would be worth more, and users who had a need for consistent water supply would be willing to buy those rights from owners at very high prices. Less predictable water supply would be less valuable, but there would most definitely be some entrepreneur capable of making a profit from rights to that supply. No matter how the water rights are initially divided up, the point is that in private hands they will eventually get distributed to those who value them most.

13. Government concerns

Property rights are not a new concept to Israelis or Palestinians. Both communities are highly market-oriented, they are simply reluctant to treat water like any other tradable good. Before a strong system of private water rights can be established in Israel and Palestine, both governments have to be willing to give up ownership of water resources. They have to be convinced that their concerns about private water markets are unfounded, or at least that the benefits thereof would outweigh the risks of privatization.

One of the Israeli government’s concerns about a private water market is that it will not be able to maintain the same mobility of resources that the government currently achieves. The latest report from the Israeli Ministry of Finance on restructuring the water system explains:

Management of the Israel water economy is based on the assumption that it is possible to manoeuvre between the different sources in the north and south . . . and to recharge the aquifers artificially by transferring water from basin to basin as required by the hydrological situation. The national network links most of all of the various sources, directly or indirectly. It follows that the quota available for use in any particular year defines the water quantity [that can be used for recharging aquifers] which frequently is not linked to any specific source . . . The Commission therefore stresses the importance of water as a public asset, as a condition of the law, and need[s] to solve the problem on this basis (Arlosoroff 1997, p. 6).

Private water markets, it is implied, would not be sufficiently coordinated to meet the needs of the entire country’s population nor would they be likely to take on the responsibility of recharging over-pumped aquifers.

It would seem, however, that the government underestimates the power of prices. Market determined prices can act as a coordinating force even more effective and precise than the government. This is because prices transmit information about virtually every detail of the economy — details economic planners cannot possibly have the energy or resources to explore (Hayek 1945). Thus water that exists in relative surplus will be cheap and will therefore be sold to the places where water is relatively scarce. No planner is needed to determine localities where water is scarce because demand will show itself in the form of willingness to pay high prices.

Nor does lack of government economic planning mean that aquifer recharging projects need be abandoned. Water rights that impose restrictions on access to water resources, such as strictly metered rights to limited quantities of water, ought to prevent aquifers from depleting below their natural recharge. But in the interim period, before a system of water rights enforcement becomes well developed, the Israeli government can still arrange to replenish depleted aquifers. Consider that the Israeli government buys water from a private supplier and pays to have it sent to an aquifer that has been overpumped. The termination of heavy water subsidies should leave the government with water to spend on this. Naturally, it will buy water from the source that offers the lowest combined price of water and delivery. ₂₄ In years of drought, the price of water will be much higher, both for the government’s aquifer recharging program and also for private consumers. The higher prices will discourage consumers from using more than they need. Thus, while the higher prices will also keep the government from purchasing as much water as it usually does to recharge aquifers, further overpumping will not go on because demand will have been curbed. In fact, prices will tell the government exactly how scarce water is in any given year, and help it to determine how much water to use toward its projects. All the while, water will be at least as mobile as it it currently, and probably even more so, since private companies will have an interest in finding ways to deliver water more efficiently to potential buyers.

Another Israeli concern is that the Jewish settlers in the Galilee mountains, the West Bank and the Negev desert will not have cheap water available to them. It is important to the government that the settlers continue to live and prosper in the more remote regions of Israel because they serve as a defense against the growing population of Palestinians who encroach on Israel proper (Shevach, 1998). With water being sold at prices determined by the market, settlers in these remote areas will find it too expensive to use water at current rates and will leave their settlements.

There are ways to handle this situation, however, without retaining government ownership and management of water. The government can, for example, give settlers tradable vouchers with which to buy their water. A tax on some appropriate activity or commodity could be imposed for the sole purpose of paying for these vouchers, so individual settler households would not feel the drain of high water prices on their incomes. ₂₅ Settlers could sell the the vouchers to each other or to other Israelis (or even back to the government), and would therefore be encouraged to only use the optimal amount of water to meet their needs. The settlers would not be encouraged to leave their settlements, and careless water use would decline. Even if the vouchers were not tradable, a system of targeted subsidies, rather than government-set prices, would allow the market to determine prices and would therefore increase allocative efficiency and improve resource management.

A third concern of the Israeli government is that natural local monopolies will form if water departments are privatized, and that as such, they will be able to charge unreasonable prices. “[I]t must be kept in mind that the water suppliers substantially operate as monopolies in their respective districts” (Arlosoroff 1997, p. 6). With government control, departments are required to set their prices at rates determined by the state, which protects consumers from being victimized by water companies.

However, if the National Water Carrier were still accessible to all water departments according to an open access scheme, ₂₆ local suppliers would have competition from more distant ones. Even in the highly unlikely event that the Carrier were privately owned and free from any sort of regulation, an attempt to charge “unfair” prices would prompt suppliers to find alternative means of conveyance. It is not inconceivable that suppliers would actually lay another pipeline to compete with the National Water Carrier. Although it is true that the Israeli government built the Carrier over a period of ten years in the 1950s and ‘60s, a project of the same magnitude today, funded and carried out privately, could certainly be done in a fraction of that time.

The PNA is even more committed to the idea of government control of water than the Israeli government. Having only recently been granted rights to most of the Gaza strip and the water underneath it, the PNA has little experience with water management but believes that national planning will serve the Palestinian public best. The Oslo II agreements promised the PNA rights to the Jordan River, though an actual quantity will not be determined until a final peace agreement is drafted (see Appendix B). In the meantime, the PNA and the PWA have developed principles and policies in anticipation of a public water system that includes Gaza and the West Bank. The Palestinian government’s concerns are similar to those of the Israeli government (monopolies, allocation in drought, etc.), but the former’s youth and lack of experience makes the case for private sector management even stronger for them than for the Israelis.

As was mentioned earlier, the PWA holds that allocation can only be “just, equitable and sustainable” if the state owns all water (PWA principle #1). It is believes that only the “highest level within the government” is qualified to coordinate water consumption across sectors and “develop the water resources of the Palestinian territory” (PWA principles #6&7). The assumption is that higher levels of government involve more omnicient planners and/or more benign decision makers than the market can provide. If water allocation is left to the private sector, there will be poor communities who receive no water in times of drought and the government has a responsibility to protect those people.

While concern for the well-being of poorer Palestinians is understandable, there is little reason to believe that markets will not be able to take care of them. In fact, there is strong evidence to the contrary. Approximately 50 percent of Palestinian households in the West Bank have running water and the rest are dependent on rain water they collect in cisterns and springs on their property. ₂₇ In drought seasons, when these sources dry up, villagers buy water from mobile water tanks at the high price of US $7.00 per cubic meter (JWU 1997 Report; Haas, 1998). In other words, where the Israeli and Palestinian governments are unable to meet the needs of the people, those communities search for alternative solutions and find water markets.

Clearly, then, the worry that water will not be distributed equitably is unfounded. While the poorest segment of the population is willing to spend US $7.00 per cubic meter on water to fulfill its basic needs, wealthier people already have their basic needs met. If all Israeli and Palestinian water were privately owned, there would be competition for those high-priced mobile trucks, and poorer Palestinians would have access to water year-round. That is because wealthier people would benefit more from selling their excess water to those who will give them money for it than they would by keeping the water to use in their gardens. Will they charge unfair prices? Not if there are other relatively wealthy people also willing to sell their water. The implications for Israeli-Palestinian trade are great. Israelis who see that Palestinians really want water are going to find a way to sell their water and transport it to the West Bank or Gaza. They may build pipelines and sewage facilities. All sorts of market expansion may occur. The point is that buyers and sellers will find each other, and those who need water will get it. And if the PWA is still concerned about particular groups who are not receiving as much water as the government would like, they can pursuade the government to use targeted subsidies or some other such method, just as was suggested for the Israelis.

The PWA also believes that only the government can muster the capital and necessary knowledge to engage in high-tech water and sewage projects (PWA principles #10&15). The assumption is that the private sector, if given control of water resources, would have as few financial resources as it currently has, and would therefore not be able to buy high-quality materials or employ qualified people for large-scale water projects.

It could be argued, however, that free water markets would be far better capable of funding and overseeing new water projects than the Palestinian government, simply due to the bureaucratic mediocrity of the PWA and the Palestinian government in general. The PNA and President Yassir Arafat, in particular, has developed a reputation for using foreign aid and tax revenue on luxury items for friends and family rather than on social programs aimed at improving Palestinian life (MED 6/24/98). According to the Norwegian Water Resources and Energy Administration (NVE), the underfunded PWA cannot recruit the most competent professionals because organizations such as the World Bank and USAid pay much higher salaries and hire the most qualified individuals (Gimming, 1998). Furthermore, in the Oslo II agreement (see Appendix B) Tahal was charged with helping to train the PWA, but all planned cooperative efforts have come to a complete halt due to internal discord. Yet international actors must go through the PWA in order to sponsor projects. Proposals lose their momentum once the PWA is involved, and water projects that receive outside funding develop at an aggravatingly slow pace.

If water management were in the hands of the private sector it would be possible for outside sponsors to bypass a significant portion of government involvement. Foreign companies who wish to invest in Palestinian water projects could cooperate with Palestinian companies, and the money invested would go directly into the economy rather than get stuck in government bureaucracy.

In addition to the reservations that each of the two governments has about private water markets’ ability to serve serve their national needs, one or both may be opposed to the idea out of contempt for the idea of the two communities in close contact with one another. For example, if Israel supports settlements in the occupied territories in order to keep Palestinians from moving closer to Jewish neighborhoods, it might perceive a thriving Israeli-Palestinian market to be counter-productive to that goal. After all, if the Palestinian economy benefits from water markets and the two communities cooperate regularly on water projects in the private sector anyway, what is to keep Palestinians from moving closer to the relatively wealthier Jewish towns?

The strongest arguement that comes to mind when seeking a way to assuage this fear is that of nationalist affinity to living among ones own people, on ones own land, under the rule of ones own. All over the world communities of the same nationality tend to live among one another, as is clear even in Israel proper where Palestinians stay in their own villages even if they are very close to Jewish towns. True, Palestinians come to work in Israel proper because the Israeli economy is much better than the Palestinian one. But by the same token, an improved Palestinian economy would, if anything, influence Palestinians to move out of Israel and into the PAA, not the reverse. The Palestinians have demanded, fought and worked to acquire autonomous territory for so long that it would be puzzling if they were not now ready to put great effort into building a state. A boost to the Palestinian economy would likely fuel that effort. ₂₈

 

14. A not-so-private affair: trade between governments as a stepping-stone to markets

Supposing that governments are not immediately willing to relinquish ownership of water resources, there may be a less drastic way to introduce water trade to the Israeli and Palestinian communities than abrupt privatization. The two governments might decide to trade with one another and enjoy gains from that sort of trade. Once their constituencies experience these gains (in the form of economic growth) they may pressure their governments to allow more trade and eventually develop a free common water market. The first step might resemble the following:

15. Fisher’s model

The Harvard Middle East Water Project has worked since 1993 to devise a system for water trading between the Israeli government and the PNA, as a way of resolving the existing Israeli-Palestinian water dispute. The project focuses on water conflict management as part of the larger Middle East peace process, and the unitary actors involved are states (or one state and one “entity”) ₂₉ rather than private consumers.

Led by Dr. Frank Fisher, the Harvard Project has worked for the last decade on building an economic framework with which policy makers and analysts may see the Israeli-Palestinian water dispute as a conflict over costs and not over life and death. Fisher argues, quite rightly, that the right of water ownership is a property right entitling the owner to the value of the water, regardless of who uses the water. Therefore, whether a given party sells or purchases water, it gains only that which it values most — money or water. A good example Fisher uses is that of Gazan consumers. The PNA will find it expensive to supply Gazans with water, even if there is a substantial amount of fresh water within Gaza. This is because by using the water, Gazans are effectively spending money they would otherwise have earned by selling the highly demanded water to someone else. By the same logic, any state with a seacoast can theoretically be self-sufficient in its food supply if it chooses to spend the money to engage in desalinization. The question is whether being self-sufficient is more valuable than the money a given country would save by importing food. The elegance of this analytical framework is that it allows conflicting parties to negotiate over money, and money can be measured more easily than victimization or justice (Fisher, 1997).

The values generated by the Harvard model are based on the sum of the real private and social values of water. Fisher asserts that the two are not the same when it comes to water and offers the example of water subsidies in Israel. He argues that Israeli society values agriculture for reasons other than its private productive worth; agricultural production contributes to both Israeli national identity and also Israeli security strategies, as discussed earlier in this paper. This social value of agriculture is greater than the private value, Fisher says, and is represented monetarily in the amount of the subsidies the government puts on agricultural water. Therefore, once a private value for a cubic meter of water is determined, the amount of the subsidy (say, US $0.10 per cubic meter) can be added on to the demand curve, shifting it up by that amount.

By presenting the Israeli-Palestinian water dispute as an economic puzzle, Fisher hopes to show that a win-win solution is more likely than politicians often imply. The cost of desalinization provides an upper limit to the economic value of water in Fisher’s framework. Including estimated social value, the total value of the disputed water rights is therefore small enough — at most $110 million, he says (Fisher 1995, p. 12) — that a peace agreement should be able to settle the water rights conflict with monetary compensation paid to the nation that foregoes ownership rights. In other words, if all of the disputed water rights went to the PNA, then Israel might be paid the total $110 million by some interested third party (e.g., the United States). Thereafter, if Israel wanted more water than it could produce, it would pay the Palestinians for that water. Similarly, if Israel retained all of its current water rights, Palestinians would be able to pay for water at a price determined by the model, which would supposedly represent the real value of that water. Either way, the rights-holding party recognizes that by not selling the water, it forfeits revenues that it could spend on something else.

Once the distribution of water rights has been decided and the appropriate nation compensated as discussed above, an agreement to trade in temporary water use permits would be feasible (Fisher, 1997). Ownership, and hence symbolic control, would not be traded. Water use permit sales, typically for a duration of one year each, would instead benefit both buyer and seller by reducing the anxiety associated with “giving up” water rights to the “enemy” and allowing for the capture of some of the gains from water trade (Fisher 1995).

Fisher’s conclusion, based on the information generated from his model, is that “the [total potential] gains from trade [of water use permits] are so large as to dwarf the value of ownership transfer of reasonable amounts of water. Instead of squabbling endlessly about water quantities, [Israel] and [the PNA] would do far better by agreeing to cooperate in the manner described” (Fisher 1997).

16. Problems with Fisher’s model

In one paper Fisher writes, “The [Harvard Middle East Water] Project has aroused considerable (if often carefully unofficial) interest among the parties in the region, as well as among analysts and policy makers outside of it. We have been given substantial reason to believe that it has already indirectly facilitated the peace negotiations” (Fisher, 1995). This statement suggests that Fisher’s model may actually be implimented and perhaps even serve as a first step toward private Israeli-Palestinian water markets. Yet, as might be expected, there are some problematic elements of the model that deserve deliberation.

First, as long as the Israeli government is primarily motivated by a desire for more efficient water use, better resource stewardship and improved water quality, it may be unwilling to accept the PNA as a bargaining partner. President Arafat’s support of corrupt government gives little reason to believe that the gains from water trade will manifest themselves in the Palestinian economy as long as the PNA is responsible for the transactions. Without private sector involvement, Israel cannot be confident that appropriate sewage systems and effluent treatment facilities will be built, and they will be unwilling to risk further deterioration of shared aquifers.

Similarly, the Israeli government may not be a welcome client for the PNA since the latter sees the former as having repeatedly implemented discriminatory policies toward Palestinians in the West Bank and the Gaza Strip and as having avoided compliance with a number of “pro-Palestinian” UN resolutions. ₃₀ More recently, when Benjamin Netanyahu was elected Prime Minister in 1996, his government stalled the Hebron withdrawal which was supposed to take place that year and announced its desire to reconsider the wisdom of the Oslo accords altogether (Becker, 1997). As a result, Palestinians have little faith in the Israeli government’s intentions to honor contracts. There is clearly a level of trust that is lacking between Israel and the Palestinians and that will increase the transaction costs between them.

These transaction costs may be raised further by the very fact that the bargaining partners are governments and are therefore susceptible to political forces. In an essay on international marketing within North America, Anthony Scott explains how politicians are often prevented by lobbyists from considering export of public water because it is considered “ours”, and should not be “given” to “them” (Scott 1994. Pp. 175-176). The resistance is augmented, says Scott, in cases when a particular government has lost the trust of the voters in other land-related matters. In Israel this has been the case since the beginning of the peace process. Some Israelis insist that the government has no right to “give” land to the Palestinians, while others are outraged at the government’s refusal to fulfill its land-for-peace obligations as of the Oslo Accords.

Private ownership, on the other hand, suffers from far fewer of these barriers to trade. While governments are influenced by special interest groups who perceive that the government is giving water to their enemies, private companies or individuals have a much harder time resisting trade in a competitive market. A merchant will see that water trade involves no giving at all and will be pressured to accept monetary compensation offered by a potential buyer if it is equal to the value the company places on that water. ₃₁ Indeed, even an untrusting private company will eventually either trade or suffer for its discriminatory trading practices in a free market because its competitors will reach customers it does not (Becker, 1957).

In addition to facilitating trade, private ownership and trade of water rights would ensure that the gains to be made go to the Palestinian community rather than to the PNA. Likewise, private water markets would decrease the likelihood of Israel reneging on a commitment to the Palestinians, as the government would not itself be committed. Because merchants lose business by failing to uphold contractual obligations, they have a strong incentive to avoid doing so.

Another problem with Fisher’s model is the use of short-term water use permits. The reason he introduces this concept, rather than promoting trade in actual water rights, is that nations are often reluctant to put their water up for sale. The prospect of “giving” water away, especially to a country with whom one has been engaged in violent conflict for decades, offends voters’ sensibilities, and politicians are therefore discouraged from entertaining such ideas. Especially in the case of Israel and the Palestinian territories, water trade is perceived to be a zero-sum game, and citizens of both nations are too busy fearing and despising each other to be persuaded otherwise (Frey and Naff, 1985). The fact that trade involves compensation tends to escape the understanding of the public, some of whom fear that any additional water to the opposing party means an increase in the threat they pose. Fisher’s permits would typically last for one year, and would help the public overcome some of its apprehensions about trading with the ‘enemy’. However, short-term water use permits may only address a portion of the real problem.

The conditions of the permits will determine their value, but Fisher does not describe them in detail. Will the government sell them? Will they be tradable? Will renewal to permit holders be guaranteed, provided they exercise responsible use? Or will permits be assigned each year at random? If the permits are not tradable, holders will have no incentive to use water efficiently. If they are tradable, but they last only one year without automatic renewal, users will have no reason to practice good resource management.

A person who relies on a water resource for her livelihood and continues to do so over a period of years is likely to recognize that long-term benefits are worth short-term sacrifices. She will be willing to forego the revenues she would have gained by pumping more water than her resource recharges yearly if she is confident that it will continue to recharge the same amount of high quality water for years to come and that that water will be hers to sell or use as she sees fit. In contrast, someone who has a one-year permit to use water from a source owned by the government is not sure that she will have long-term access to the water resources she currently uses. She is therefore less interested in its long-term sustenance and will have less incentive to practice good stewardship. She will pump as much as she can as quickly as possible before she loses her right to pump and before others pump so much from adjacent sources that the quality of her source deteriorates (Anderson and Snyder, 1997). Therefore, although short-term permits may increase the chances of allocative efficiency if they are tradable, they will not encourage good stewardship if they are not automatically renewed.

Here lies the crux of the environmental argument of this paper: The strain that is felt from what we call “water shortage” is not caused by insufficient water supply but by water institutions that promote inefficient allocation and poor water quality. If consumers pump more water than aquifers are able to replenish, they will increase the salinity of their water. They will experience an increase in health problems due to the consumption of poor quality water and they will believe that they need additional fresh water. Likewise, if people continue to use water for purposes that are less valuable to society than other purposes, they will perceive a need for additional water to allocate toward those activities that are being neglected. In fact, if they use water efficiently they will see that there is no shortage at all. (Anderson and Leal 1997; Anderson and Snyder 1997).

Short-term permits are also undesirable because they will not promote innovation in water management techniques (Rosegrant 1995). Let us return to the scenario of the person relying on her water rights as a source of income. It is easy to see that just as she is encouraged to practice good stewardship of her resources, she also has an incentive to develop better ways of turning a profit with those resources. ₃₂ She faces competitors every day in the marketplace (whether she sells her water or farms with it), and she is willing to invest time, energy and money into the innovative process in order to get an edge over that competition. If, on the other hand, she has to apply for a water use permit every year, she cannot be not sure that she will have access to the fruits of her innovative labor. Therefore, there is no reason for her to experiment with new technologies or develop her own.

There is a third essential flaw in Fisher’s model, though it is less relevant to this particular discussion. The flaw is that he uses subsidies as a proxy for social value in his estimation of the value of water. Public choice theory, however, rejects this association strongly and holds that the nature of bureaucratic institutions is such that it is impossible for governments to assess social values — only markets can do that. Fisher’s example illustrates the point. The government places a subsidy on water because it sees a value in doing so, beyond the promotion of private farming. In this scenario, the government is assumed to act in the interests of the society, hence the relationship between its actions and social value. However, public choice theory argues that governments are not capable of understanding social value, and that they act according to a set of institutional norms just as any other bureaucracy. The only institution capable of recognizing and labeling social value, or any kind of value, is the market, and the label is the price tag (Buchanan ‘80, p. 4). In other words, the Israeli water subsidy is at best only the government’s perception of the social value of farming and may have little relation to the actual value. At worst, the subsidy is a product of perverse bureaucratic incentives that encourage waste in favor of “budget maximization and overly expensive high-tech solutions” to less complex problems (Young, 1986).

Fisher’s response to this criticism is that the Harvard model “is intended for use by government decision makers. Whatever the ‘true’ social value of water in a particular use is, what matters for that use is what the decision makers think it is and that is expressed by the subsidy (or price policy) they are prepared to use. As the work has developed, we make it easy for model-users to specify their own social values” (Fisher 1998, personal correspondence). It is difficult evaluate just how well the logic of the model is conceived because details about the project itself are not publicly available. However, it seems clear that if free water markets were left to their own devices, the social value of water would most accurately be reflected in the prices individuals and companies payed for water-related goods and services.

17. Fisher in the water market

If the Israeli and Palestinian governments actually do trade water with each other as a condition of the final peace agreement between them, and if the water use permits involved are long-term, the project may yet be a step in the right direction. If inter-governmental water trade does generate anything close to the kinds of gains Fisher’s model predicts, such an arrangement would result in consumers’ appreciation for the benefits of trade and may ultimately cause them to press their governments for privatization.

 

18. Conclusion: Conceptualizing a common Israeli-Palestinian water market

This paper makes the argument that market interactions can reduce conflict, strengthen economies and improve natural resource management. It may be easy to dismiss the argument’s validity in the Israeli-Palestinian case by contending that the various elements of this particular conflict are so deeply entrenched as to be beyond resolution. Yet we do see markets evolve to solve problems that centuries-old governments cannot successfully address. In The Other Path , Hernando De Soto describes vividly the way increasing government regulation eventually bankrupted European states in the period from the end of the 1700s to the beginning of 1900s. In addition to causing violent unrest, these heavy regulations effectively induced the development of a strong “informal” sector ultimately responsible for the growth and prosperity of the various nations’ economies (De Soto 1990). This “informal” sector is apparent in the aforementioned water trade that West Bank Palestinians rely on during drought season. The existence of this informal water market does not itself constitute the beginning of the end for publicly own water, but is shows that trade has spontaneously developed to provide for people where their governments’ regulations failed to do so.

What factors would lead to the collapse of government ownership and management of water? The push toward privatization could come from the governments saddled with a losing project. Without a dramatic innovation in desalinization technology, the current system will eventually become too expensive for the governments to sustain. As the Israeli and Palestinian populations grow, the governments will encounter larger and larger problems in meeting the needs of their constituencies. The changes they will need to make in water infrastructure in order to account for these problems will be significantly more expensive when attempted through the state bureaucracies than they would be if done privately. Eventually, the government may simply give up and auction the water system off to the private sector for lack of any better solution. British Prime Minister Margaret Thatcher’s decision to privatize public housing projects in the 1980s provides an excellent example of a government abandoning its public program and leaving the private sector to rescue it and improve its value manifold.

Alternatively, the public may be the ones to demand an end to public water. As the example of West Bankers trading water during drought clearly shows, scarcity dramatizes the gains from trade. Increased populations, equivalent to increased scarcity, might make markets (even black ones) more appealing to Israelis and Palestinians than regulations. Governments would then be forced to make a decision between “enacting even more laws against lawbreaking, thereby further hampering society with their regulations” (De Soto 1990, p. 212), or fundamentally changing the way the way wealth is distributed throughout the population.

Most likely, there will be pressure for change from both above and below as the inefficiencies of the current system become so obvious as to cause great unrest among the populations affected. Precisely when — and after how much violence — those pressures will culminate in the institutional framework of free water markets is difficult to predict. The the signs of change De Soto offers us are clearly there, however, and for Israeli and Palestinian consumers it may only be a matter of time.

 

Afterword

Problems, additions and the future of this research:

• Power dynamics are virtually absent from this paper. Depending on the private sector to make changes rather than the governments involved does not eliminate the power differential between the diverse communities that coexist in Israel and the territories, unless one believes that consumers are equal because they are all “rational self-interested unitary actors.” While the paper is written from a clearly libertarian perspective, I am far from convinced that free markets solve all problems. I would like to use the framework presented in this paper as a starting point for a series of investigations into the water bureaucracies of- and trade dynamics between Israeli and Palestinian communities. With field work I hope to prove or disprove that various components of this model could be applied successfully to the water dispute at hand.
• Classical economic theory is a product of Euro-American culture and is therefore not local to the Middle East. I hope that field work will either verify its usefulness or provide me with alternative economic models more relevant to local economic dynamics.
• I would like to include at least one case study in which the approach I am proposing here has been successful. Several such cases exist and have been documented for water disputes between North American Indians and the US government, in which the establishment of private water rights have provided a long-lasting solution. A comparison between one such case and the case I have presented might be useful.

 

Appendix A
Elements Of A Palestinian Water Policy

The Palestinian water policy, as set out in the following principles, will be the basis for decisions on the structure and tasks of water sector institutions, and the water sector legislation.

1 . All sources of water should be the property of the state.

In a situation of acute shortage of available water resources, a just, equitable and sustainable allocation among all legitimate users be best ensured by the state. To this end, all well drilling, water production and supply should be allowed only by permit or a license.

2 . Water has a unique value for human survival and health, and all citizens have a right to water of good quality for personal consumption at costs they can afford.

The right to water survival is seen as a universal human right. However, Individual water rights; do not necessarily imply free access to water supply or disposal services. Standards for assuring a safe quality of drinking water, and for water supply, derive from policy (2). Such standards must comply with resource assessment based on scientific methods.

3 . Domestic, industrial and agricultural development and investments must be compatible with water resource quantity available.

An important means to meet this goal, is consisting between national economic planning and the national water policy. Economic development should not imply, even inadvertently unsustainable water use, or irreversible environmental damage. The regard for resources and environment should lay the premises for the economic solutions. The role of agriculture is particularly important in the economy of the Palestinian territory, and the major share of the water resources are being used for agriculture purposes. Water consumption in the agricultural sector will have to adjust on a cost-efficiency basis, to issues such as choice of cultivars, use of marginal-quality water, and improved irrigation technology. Domestic uses occupy the first propriety in the allocation of potable water resource.

4 . Water indeed is an economic good, therefore the damage resulting from destruction of its usefulness (pollution) should be paid by the party causing the damage.

As recognized for instance by the UNCED conference, sustainable management of water as a scarce is only possible when its full cost is acknowledged during the planning and the development of water projects. Pricing policy may, however, have to be formed so as to provide drinking water to poor parts of the population at an affordable price.

5 . Water supply must be based on a sustainable development of all available water resources.

In this context, available resources include: sharing of regional water resources, recycling, reuse, use of marginal-quality water, and unconventional sources such as desalination. Sustainability in the context of Palestinian water resources means, in particulars, long-term maintenance of groundwater levels, and water pollution prevention.

6 . The development of the water resources of the Palestinian territory must coordinated on the national level, and carried out on the appropriate local level.

The scare and limited resources of catchments and aquifers must be managed in their entirety, preventing upstream overuse to the determent for downstream users. This is best achieved through overall central coordination, complemented by local implementation, together with proper measurements, monitoring and recording of all water production and use.

7 . The national water sector management should be carried out by one responsible body; with the separation of institutional responsibility for policy and regulatory functions from the service delivery functions.

The water resources of the Palestinian territory is of such overriding importance for human welfare and national economy, that water matters should be dealt with at the highest level within the government, for effective coordination of sectorized interests. The Palestinian water authority should carry out its activities in close collaboration with relevant sectorial authorities.

8 . Public participation in water sector management should be ensured.

Local participation in planning, operation, and management is one key to ensuring proper management of water demand. Public awareness of the role of water in both the public and private domain, and its social environmental end economic value, is important for informed decision making.

9 . Water management at all levels should integrate water quality and quantity.

Usable water is always a function of both quality and quantity, and the tow are strongly interconnected. Disregard of this fact is disastrous, and has led to e.g. saltwater should include monitoring and other data collection.

10 . Water supply and wastewater management should be integrated at all administration levels.

Water consumption will inevitably lead or sewage. The economic and technology for managing both supply and sewage can be optimized by an integrated approach. Moreover, in some circumstances waste water as well as storm water drainage are potential resources for raw water supply. The integrated approach inherent in principles 9 and 10 will be facilities by the creation of one national water authority (principle 7).

11 . The optional development of water supply must be complemented by a consistent water demand management.

Use of appropriate technology should be encouraged in water saving practices, both in households, industry, and above in agriculture. Pricing policies are important tools for managing water demand, and must be a part of the overall water policy. In this context, it is also essential to modernize surface and ground water monitoring system.

12 . Protection and pollution control of water resource should be ensured.

In this context, all preventive measures against pollution should be ensured and legal actions against fenders should taken. For example, industrial waste should be treated on-site and taken discharged to the waste network. Areas of good water quality, should be protected and safeguarded against pollution and major development projects.

13 . Conservation and optimum utilization of water resources should be prompted and enhanced.

Water resources should be developed and managed to optimize the efficiency of their utilization, recognizing their scarcity, the need for their conservation, and the importance of pricing to promote economic efficiency.

14 . The Palestinian will pursue their interests in connection with obtaining the right of water resources by other countries.

The above means: The Palestinian are committed Article 40, agreed upon with the Israelis. The Palestinian will negotiate with the Israelis, in the final stage, to reach a final agreement. Accordingly, the Palestinian will seek other agreements with other countries.

15 . The government will cooperate with regional and extra regional parties to promote the optimum utilization of water resources, to identify and develop new additional supplies, and to collect and share relevant information and data.

Regional cooperation will include sharing of information and data on water resource and promotion of regional initiative to identify likely source of new and additional supplies and agree on the development of such resources.

Nabil El Sharif
Chairman
Palestinian Water Authority
Gaza-January 1996

 

Appendix B
(from the Oslo II Interim Agreement, Annex 3; completed in Washington, D.C. September 28, 1995)

ARTICLE 40
Water and Sewage

On the basis of good-will, both sides have reached the following agreement in the sphere of Water and Sewage:

Principles

1. Israel recognizes the Palestinian water rights in the West Bank. These will be negotiated in the permanent status negotiations and settled in the Permanent Status Agreement relating to the various water resources.

2. Both sides recognize the necessity to develop additional water for various uses.

3. While respecting each side's powers and responsibilities in the sphere of water and sewage in their respective areas, both sides agree to coordinate the management of water and sewage resources and systems in the West Bank during the interim period, in accordance with the following principles:

a. Maintaining existing quantities of utilization from the resources, taking into consideration the quantities of additional water for the Palestinians from the Eastern Aquifer and other agreed sources in the West Bank as detailed in this Article.

b. Preventing the deterioration of water quality in water resources.

c. Using the water resources in a manner which will ensure sustainable use in the future, in quantity and quality.

d. Adjusting the utilization of the resources according to variable climatological and hydrological conditions.

e. Taking all necessary measures to prevent any harm to water resources, including those utilized by the other side.

f. Treating, reusing or properly disposing of all domestic, urban, industrial, and agricultural sewage.

g. Existing water and sewage systems shall be operated, maintained and developed in a coordinated manner, as set out in this Article.

h. Each side shall take all necessary measures to prevent any harm to the water and sewage systems in their respective areas.

i. Each side shall ensure that the provisions of this Article are applied to all resources and systems, including those privately owned or operated, in their respective areas.

Transfer of Authority

4. The Israeli side shall transfer to the Palestinian side, and the Palestinian side shall assume, powers and responsibilities in the sphere of water and sewage in the West Bank related solely to Palestinians, that are currently held by the military government and its Civil Administration, except for the issues that will be negotiated in the permanent status negotiations, in accordance with the provisions of this Article.

5. The issue of ownership of water and sewage related infrastructure in the West Bank will be addressed in the permanent status negotiations.

Additional Water

6. Both sides have agreed that the future needs of the Palestinians in the West Bank are estimated to be between 70 - 80 mcm/year.

7. In this framework, and in order to meet the immediate needs of the Palestinians in fresh water for domestic use, both sides recognize the necessity to make available to the Palestinians during the interim period a total quantity of 28.6 mcm/year, as detailed below:

a. Israeli Commitment:

1. Additional supply to Hebron and the Bethlehem area, including the construction of the required pipeline - 1 mcm/year.

2. Additional supply to Ramallah area - 0.5 mcm/year.

3. Additional supply to an agreed take-off point in the Salfit area - 0.6 mcm/year.

4. Additional supply to the Nablus area - 1 mcm/year.

5. The drilling of an additional well in the Jenin area - 1.4 mcm/year.

6. Additional supply to the Gaza Strip - 5 mcm/year.

7. The capital cost of items (1) and (5) above shall be borne by Israel.

b. Palestinian Responsibility:

1. An additional well in the Nablus area - 2.1 mcm/year.

2. Additional supply to the Hebron, Bethlehem and Ramallah areas from the Eastern Aquifer or other agreed sources in the West Bank - 17 mcm/year.

3. A new pipeline to convey the 5 mcm/year from the existing Israeli water system to the Gaza Strip. In the future, this quantity will come from desalination in Israel.

4. The connecting pipeline from the Salfit take-off point to Salfit.

5. The connection of the additional well in the Jenin area to the consumers.

6. The remainder of the estimated quantity of the Palestinian needs mentioned in paragraph 6 above, over the quantities mentioned in this paragraph (41.4 - 51.4 mcm/year), shall be developed by the Palestinians from the Eastern Aquifer and other agreed sources in the West Bank. The Palestinians will have the right to utilize this amount for their needs (domestic and agricultural).

8. The provisions of paragraphs 6-7 above shall not prejudice the provisions of paragraph 1 to this Article.

9. Israel shall assist the Council in the implementation of the provisions of paragraph 7 above, including the following:

a. Making available all relevant data.

b. Determining the appropriate locations for drilling of wells.

10. In order to enable the implementation of paragraph 7 above, both sides shall negotiate and finalize as soon as possible a Protocol concerning the above projects, in accordance with paragraphs 18 - 19 below.

The Joint Water Committee

11. In order to implement their undertakings under this Article, the two sides will establish, upon the signing of this Agreement, a permanent Joint Water Committee (JWC) for the interim period, under the auspices of the CAC.

12. The function of the JWC shall be to deal with all water and sewage related issues in the West Bank including, inter alia:

a. Coordinated management of water resources.

b. Coordinated management of water and sewage systems.

c. Protection of water resources and water and sewage systems.

d. Exchange of information relating to water and sewage laws and regulations.

e. Overseeing the operation of the joint supervision and enforcement mechanism.

f. Resolution of water and sewage related disputes.

g. Cooperation in the field of water and sewage, as detailed in this Article.

h. Arrangements for water supply from one side to the other.

I. Monitoring systems. The existing regulations concerning measurement and monitoring shall remain in force until the JWC decides otherwise.

j. Other issues of mutual interest in the sphere of water and sewage.

13. The JWC shall be comprised of an equal number of representatives from each side.

14. All decisions of the JWC shall be reached by consensus, including the agenda, its procedures and other matters.

15. Detailed responsibilities and obligations of the JWC for the implementation of its functions are set out in Schedule 8.

Supervision and Enforcement Mechanism

16. Both sides recognize the necessity to establish a joint mechanism for supervision over and enforcement of their agreements in the field of water and sewage, in the West Bank.

17. For this purpose, both sides shall establish, upon the signing of this Agreement, Joint Supervision and Enforcement Teams (JSET), whose structure, role, and mode of operation is detailed in Schedule 9.

Water Purchases

18. Both sides have agreed that in the case of purchase of water by one side from the other, the purchaser shall pay the full real cost incurred by the supplier, including the cost of production at the source and the conveyance all the way to the point of delivery. Relevant provisions will be included in the Protocol referred to in paragraph 19 below.

19. The JWC will develop a Protocol relating to all aspects of the supply of water from one side to the other, including, inter alia, reliability of supply, quality of supplied water, schedule of delivery and off-set of debts.

Mutual Cooperation

20. Both sides will cooperate in the field of water and sewage, including, inter alia:

a. Cooperation in the framework of the Israeli-Palestinian Continuing Committee for Economic Cooperation, in accordance with the provisions of Article XI and Annex III of the Declaration of Principles.

b. Cooperation concerning regional development programs, in accordance with the provisions of Article XI and Annex IV of the Declaration of Principles.

c. Cooperation, within the framework of the joint Israeli-Palestinian-American Committee, on water production and development related projects agreed upon by the JWC.

d. Cooperation in the promotion and development of other agreed water-related and sewage-related joint projects, in existing or future multi-lateral forums.

e. Cooperation in water-related technology transfer, research and development, training, and setting of standards.

f. Cooperation in the development of mechanisms for dealing with water-related and sewage related natural and man-made emergencies and extreme conditions.

g. Cooperation in the exchange of available relevant water and sewage data, including:

1. Measurements and maps related to water resources and uses.

2. Reports, plans, studies, researches and project documents related to water and sewage.

3. Data concerning the existing extractions, utilization and estimated potential of the Eastern, North-Eastern and Western Aquifers (attached as Schedule 10).

Protection of Water Resources and Water and Sewage Systems

21. Each side shall take all necessary measures to prevent any harm, pollution, or deterioration of water quality of the water resources.

22. Each side shall take all necessary measures for the physical protection of the water and sewage systems in their respective areas.

23. Each side shall take all necessary measures to prevent any pollution or contamination of the water and sewage systems, including those of the other side.

24. Each side shall reimburse the other for any unauthorized use of or sabotage to water and sewage systems situated in the areas under its responsibility which serve the other side.

The Gaza Strip

25. The existing agreements and arrangements between the sides concerning water resources and water and sewage systems in the Gaza Strip shall remain unchanged, as detailed in Schedule 11.

SCHEDULE 8
Joint Water Committee

Pursuant to Article 40, paragraph 15 of this Appendix, the obligations and responsibilities of the JWC shall include:

1. Coordinated management of the water resources as detailed hereunder, while maintaining the existing utilization from the aquifers as detailed in Schedule 10, and taking into consideration the quantities of additional water for the Palestinians as detailed in Article 40. It is understood that the above-mentioned Schedule 10 contains average annual quantities, which shall constitute the basis and guidelines for the operation and decisions of the JWC:

a. All licensing and drilling of new wells and the increase of extraction from any water source, by either side, shall require the prior approval of the JWC.

b. All development of water resources and systems, by either side, shall require the prior approval of the JWC.

c. Notwithstanding the provisions of a. and b. above, it is understood that the projects for additional water detailed in paragraph 7 of Article 40, are agreed in principle between the two sides. Accordingly, only the geo-hydrological and technical details and specifications of these projects shall be brought before the JWC for approval prior to the commencement of the final design and implementation process.

d. When conditions, such as climatological or hydrological variability, dictate a reduction or enable an increase in the extraction from a resource, the JWC shall determine the changes in the extractions and in the resultant supply. These changes will be allocated between the two sides by the JWC in accordance with methods and procedures determined by it.

e. The JWC shall prepare, within three months of the signing of this Agreement, a Schedule to be attached to this Agreement, of extraction quotas from the water resources, based on the existing licenses and permits. The JWC shall update this Schedule on a yearly basis and as otherwise required.

2. Coordinated management of water and sewage systems in the West Bank, as follows:

a. Existing water and sewage systems, which serve the Palestinian population solely, shall be operated and maintained by the Palestinian side solely, without interference or obstructions, in accordance with the provisions of Article 40.

b. Existing water and sewage systems serving Israelis, shall continue to be operated and maintained by the Israeli side solely, without interference or obstructions, in accordance with the provisions of Article 40.

c. The systems referred to in a and b above shall be defined on Maps to be agreed upon by the JWC within three months from the signing of this Agreement.

d. Plans for construction of new water and sewage systems or modification of existing systems require the prior approval of the JWC.

SCHEDULE 9
Supervision and Enforcement Mechanism

Pursuant to Article 40, Paragraph 17 of this Appendix:

1. Both sides shall establish, upon the signing of this Agreement, no less than five Joint Supervision and Enforcement Teams (JSETs) for the West Bank, under the control and supervision of the JWC, which shall commence operation immediately.

2. Each JSET shall be comprised of no less than two representatives from each side, each side in its own vehicle, unless otherwise agreed. The JWC may agree on changes in the number of JSETs and their structure.

3. Each side will pay its own costs, as required to carry out all tasks detailed in this Schedule. Common costs will be shared equally.

4. The JSETs shall operate, in the field, to monitor, supervise and enforce the implementation of Article 40 and this Schedule, and to rectify the situation whenever an infringement has been detected, concerning the following:

a. Extraction from water resources in accordance with the decisions of the JWC, and the Schedule to be prepared by it in accordance with sub- paragraph 1.e of Schedule 8.

b. Unauthorized connections to the supply systems and unauthorized water uses;

c. Drilling of wells and development of new projects for water supply from all sources;

d. Prevention of contamination and pollution of water resources and systems;

e. Ensuring the execution of the instructions of the JWC on the operation of monitoring and measurement systems;

f. Operation and maintenance of systems for collection, treatment, disposal and reuse, of domestic and industrial sewage, of urban and agricultural runoff, and of urban and agricultural drainage systems;

g. The electric and energy systems which provide power to all the above systems;

h. The Supervisory Control and Data Acquisition (SCADA) systems for all the above systems;

I. Water and sewage quality analyses carried out in approved laboratories, to ascertain that these laboratories operate according to accepted standards and practices, as agreed by the JWC. A list of the approved laboratories will be developed by the JWC;

j. Any other task, as instructed by the JWC.

5. Activities of the JSETs shall be in accordance with the following:

a. The JSETs shall be entitled, upon coordination with the relevant DCO, to free, unrestricted and secure access to all water and sewage facilities and systems, including those privately owned or operated, as required for the fulfillment of their function.

b. All members of the JSET shall be issued identification cards, in Arabic, Hebrew and English containing their full names and a photograph.

c. Each JSET will operate in accordance with a regular schedule of site visits, to wells, springs and other water sources, water works, and sewage systems, as developed by the JWC.

d. In addition, either side may require that a JSET visit a particular water or sewage facility or system, in order to ensure that no infringements have occurred. When such a requirement has been issued, the JSET shall visit the site in question as soon as possible, and no later than within 24 hours.

e. Upon arrival at a water or sewage facility or system, the JSET shall collect and record all relevant data, including photographs as required, and ascertain whether an infringement has occurred. In such cases, the JSET shall take all necessary measures to rectify it, and reinstate the status quo ante, in accordance with the provisions of this Agreement. If the JSET cannot agree on the actions to be taken, the matter will be referred immediately to the two Chairmen of the JWC for decision.

f. The JSET shall be assisted by the DCOs and other security mechanisms established under this Agreement, to enable the JSET to implement its functions.

g. The JSET shall report its findings and operations to the JWC, using forms which will be developed by the JWC.

SCHEDULE 10
Data Concerning Aquifers

Pursuant to Article 40, paragraph 20 and Schedule 8 paragraph 1 of this Appendix:

The existing extractions, utilization and estimated potential of the Eastern, North-Eastern, and Western Aquifers are as follows:

Eastern Aquifer:

In the Jordan Valley, 40 mcm to Israeli users, from wells;

24 mcm to Palestinians, from wells;

30 mcm to Palestinians, from springs;

78 mcm remaining quantities to be developed from the Eastern Aquifer;

Total = 172 mcm.

North-Eastern Aquifer:

103 mcm to Israeli users, from the Gilboa and Beisan springs, including from wells;

25 mcm to Palestinian users around Jenin;

17 mcm to Palestinian users from East Nablus springs;

Total = 145 mcm.

Western Aquifer:

340 mcm used within Israel;

20 mcm to Palestinians;

2 mcm to Palestinians, from springs near Nablus;

Total = 362 mcm.

All figures are average annual estimates.

The total annual recharge is 679 mcm.

SCHEDULE 11
The Gaza Strip

Pursuant to Article 40, Paragraph 25:

1. All water and sewage (hereinafter referred to as "water") systems and resources in the Gaza Strip shall be operated, managed and developed (including drilling) by the Council, in a manner that shall prevent any harm to the water resources.

2. As an exception to paragraph 1., the existing water systems supplying water to the Settlements and the Military Installation Area, and the water systems and resources inside them shall continue to be operated and managed by Mekoroth Water Co.

3. All pumping from water resources in the Settlements and the Military Installation Area shall be in accordance with existing quantities of drinking water and agricultural water. Without derogating from the powers and responsibilities of the Council, the Council shall not adversely affect these quantities. Israel shall provide the Council with all data concerning the number of wells in the Settlements and the quantities and quality of the water pumped from each well, on a monthly basis.

4. Without derogating from the powers and responsibilities of the Council, the Council shall enable the supply of water to the Gush Katif settlement area and Kfar Darom settlement by Mekoroth, as well as the maintenance by Mekoroth of the water systems supplying these locations.

5. The Council shall pay Mekoroth for the cost of water supplied from Israel and for the real expenses incurred in supplying water to the Council.

6. All relations between the Council and Mekoroth shall be dealt with in a commercial agreement.

7. The Council shall take the necessary measures to ensure the protection of all water systems in the Gaza Strip.

8. The two sides shall establish a subcommittee to deal with all issues of mutual interest including the exchange of all relevant data to the management and operation of the water resources and systems and mutual prevention of harm to water resources.

9. The subcommittee shall agree upon its agenda and upon the procedures and manner of its meetings, and may invite experts or advisers as it sees fit.

 

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Endnotes

Note 1: In Sino-Japanese mythology the universe is made up of five elements: water, wood, fire, metal and earth.  Back.

Note 2: Like several other compounds, water expands in its frozen state. As water molecules freeze they become less dense than their liquid counterparts and are forced upward, which is why ice forms on the surface of water bodies. What is unique about the water molecule is that as it decreases in temperature and approaches its freezing point, it mysteriously becomes denser at four Celsius degrees above its freezing point, and then expands at zero. This means that the water on the ocean floor is always four degrees above freezing and all warmer and cooler water is above that densest layer. This being the case, fish and other sea life can survive on the ocean floor through virtually any global climate change (cite a water physics text).  Back.

Note 3: See Woodrow Wilson, “The Fourteen Points,” Wilson’s Address To Congress, January 8, 1918.  Back.

Note 4: In this case, the term “power distribution” refers to relative economic, military and political capabilities (Waltz, 1959).  Back.

Note 5: “Palestinian territories” refers to the areas most heavily populated by Palestinians. In some cases, these areas are autonomous (most of Gaza and all of Jericho), and in others they are under Israeli control (most of the West Bank). The term “Palestinian territories” does not imply sovereignty, only population distribution.  Back.

Note 6: There is an argument that Palestinians are not a nation based on the notion that Palestinians were essentially “Arabs”, until the 1948 War of Israeli Independence. No nation of people had developed in mandatory Palestine before the 1948 war. There were some 1,269,000 Arabs living in Palestine in 1946 (as compared with only 678,000 Jews), but they had no sense of Palestinian nationality beyond a comprehension of the mandatory boundaries that separated them from the Arabs in Syria. Once they became refugees, the Palestinians had a common identity specific to their geographic origin. In the last two decades, however, they have made impressive strides in organizing themselves as a community and developing the kinds of symbols and institutions that characterize a nation. I refer to them as a nation primarily because they identify themselves as such (Mansfield, 1991; Said, 1992).  Back.

Note 7: One might also make the argument that politicians prefer large water burocracies and prefer to maintain control of water in order to use it as a bargaining chip in political negotiations. In this paper I work from the assumption that the politician who reads this piece is interested in improving the overall welfare of her community.  Back.

Note 8: Zionism is the conviction that Palestine should be turned into a national homeland for world Jewry. Zionists are Jews, and some non-Jews, who promote this ideology.  Back.

Note 9: At the end of 1947 Zionists actually owned just over six and one-half percent of the land in mandatory Palestine (Said, 1992).  Back.

Note 10: These aquifers produce approximately 25 percent of the water Israel consumes today.  Back.

Note 11: Mekorot supplies two thirds of the water consumed in Israel. The other third comes from private local organizations which are obliged to perform according to the same laws, regulations and quotas as Mekorot. These include some municipalities (such as Rehovot and Tel-Aviv) that owned wells privately prior to the Water Law, and can supply some portion of their own needs independently. There are also some regional organizations in water-rich areas (e.g., the Water Association of the Jordan Valley, Ein Herod) which were established during the 1930s, ‘40s and ‘50s and enjoy the same conditions. These tend to be of a cooperative nature, supplying water only to their members and relying on supplemental amounts purchased from Mekorot (Yizraeli 1998).  Back.

Note 12: In contrast, the US water stress index is 10,000 cubic meters per capita, per year.  Back.

Note 13: William Niskanen did a study on bureaucratic growth and endurance and found that bureaucrats tend to get greater rewards the more people on their payrolls. The more employees a bureaucrat supervises, the larger her salary, thus she has an incentive to increase the size of the bureau (Niskanen, 1971).  Back.

Note 14: This law states that any Jew has the right to enter Israel and settle there.  Back.

Note 15: Agriculture accounts for 65 percent of Israeli water consumption. In contrast, industry contributes 97 percent of Israeli GDP and consumes less than seven percent of the national water supply (Shevach, 1997).  Back.

Note 16: This is not entirely true with regards to the development of water markets. Palestinians who do have wells on their property and continue to produce water during droughts are able to sell it from mobile water trucks at high prices (ca. $7.00 / cubic meter) to their Palestinian neighbors who have neither wells nor running water.  Back.

Note 17: However, this is not common and the PWA hopes to minimize this sort of trade through government ownership and management (JWU 1997 Report; PWA principle #2 & #4).  Back.

Note 18: For example, restrictions are such that Palestinian applications for the digging of new or deeper wells are generally rejected, while many Israel applications are accepted. Palestinian wells are usually not deeper than 100 meters, whereas Israeli settlers’ wells are generally 300-500 meters deep. Because Palestinians in the occupied territories are prohibited from augmenting their wells without permits, they are relegated to more saline, less plentiful water supplies. Israeli authorities have also allowed settlers to drill wells close to existing Palestinian wells, decreasing the water that reaches them (Dillman, 1989).  Back.

Note 19: The data that were available to the JWU were on three water facilities: The JWU, servicing approximately ten percent of the West Bank population, the Nablus municipal water department, which is the largest town in the West Bank, and the municipality of Betunia, which is a small town near Ramallah. The first two rely on both their own sources and regular bulk purchases of water from Mekorot, and the last one relies entirely on bulk purchases (second hand) from the JWU. They were also able to get data on irrigation water from one cooperative management water project called Al-Fara, located in the Jordan Valley.  Back.

Note 20: Al-Fara is a cooperative management water project in the Jordan Valley. It is managed by the owners of the water rights involved, so there is no fee collected for use. Therefore there is no net water “price” and there are no estimates of water loss (JWU 1995 Report).  Back.

Note 21: The PWA has authority only within the PAA, which is currently much smaller than the amount of land designated for Palestinian autonomy in the Oslo Accords. Any additional land that becomes Palestinian autonomous will have to cede its water supplies to the PWA.  Back.

Note 22: Consider, for example, the growth of the computer industry and all associated software and hardware, including “shareware.” There is an incentive for interested parties to contribute to the market as a whole, and not only their own portions thereof, because everyone benefits from a growing market.  Back.

Note 23: See Putnam, 1993.  Back.

Note 24: The National Water Carrier could be owned privately but regulated, or it could be owned by the government. Either way, private water suppliers can pay rent, or some other fee for use, in order to sent their water through the Carrier, and water thus remains mobile throughout the country.  Back.

Note 25: The cost of providing water to the most remote areas can be ten times the cost of water in areas where it is plentiful (Shevach, 1998). However, the gains to be made from free water trade should generate more wealth in the economy as a whole, and a well-placed tax in a system of market-determined prices would be more conducive to further economic growth than subsidies resulting from government control of prices.  Back.

Note 26: See Crews Jr., 1998.  Back.

Note 27: Well water is not suitable for drinking.  Back.

Note 28: Also, there is a standard functionalist argument that economic growth could result in a decrease in violence against Israelis. The idea is that a Palestinian teenager with a job will probably be less likely to spend the afternoon throwing rocks at passing Israeli cars than one who is unemployed. CITE SOMEONE  Back.

Note 29: “Entity” is the word commonly used in reference to the Palestinians, rather than “state.” The word is intended to be value-neutral, but it can be interpreted as a deliberate avoidance of the word “nation.”  Back.

Note 30: Most notable of these is the condition upon which Israel was recognized by the UN in 1949: that it would give all Palestinian refugees the right to return to their properties or be compensated for them (Mansfield 1991).  Back.

Note 31: Or, alternatively, a private water department will be pressured to purchase water from a seller whose price is reasonable.  Back.

Note 32: An easy example given by Anderson is: “If irrigators are permitted to sell their water, they would have the incentive to consider more water-efficient irrigation technologies and cropping patterns” (Anderson and Snyder 1997).  Back.