River basin management and fiscal decentralisation: mutually supportive or counterproductive? A case study of Mongolia

Abstract

The concept of “river basin management” calls for managing water resources at the river basin level in order to promote the sustainable use of water resources. Often the concept of river basin management is associated with the introduction of “river basin organisations” (RBOs) as special purpose organisations. However, in many developing countries, RBOs remain underfunded. Fiscal decentralisation involves shifting certain responsibilities for expenditures or revenues to lower levels of government. It usually involves a reallocation of functions and revenues so that functions are adequately funded. Fiscal decentralisation is supported by the principles of subsidiarity, disentanglement, cooperation, accountability and fiscal equivalence, with the latter asking for a congruence of those who pay for, who decide upon and who benefit from public goods. On the one hand, fiscal decentralisation can support RBOs if sufficient financial resources are allocated to them to fulfil their tasks. However, if RBOs are excluded from resources at the sub-national level, it can also be counterproductive and lead to increased competition with general-purpose jurisdictions at the sub-national level. This discussion paper, therefore, asks the question of whether fiscal decentralisation supports or counteracts the funding of river basin management in the case of Mongolia, which has undergone parallel processes of institutionalising RBOs and of fiscal decentralisation in the last decade. In order to answer the overriding question, the paper analyses i) how competencies for various water governance functions between RBOs and other bodies at the sub-national level are formally allocated; ii) the funding arrangements in place for water-related functions of RBOs and other sub-national bodies; and iii) how RBOs and other sub-national authorities coordinate or compete for water governance funding, and what this implies for sustainable water resource use. The paper compares the responsibilities of national and various sub-national entities and assesses the extent to which the principles of disentanglement, cooperation, subsidiarity and accountability are applied in Mongolian water governance. It also analyses the formal and de facto funding sources and budgeting systems of the sub-national entities responsible for water management, in order to assess to what extent the principle of fiscal equivalence is realised. The discussion paper finds that there is still considerable room for improving the realisation of the principles of disentanglement, cooperation, subsidiarity and accountability in the allocation of competencies in Mongolian water governance. At the sub-national level, a high number of actors are involved in water governance, and the allocation of various water governance functions between river basin authorities (RBAs), river basin councils (RBCs), Aimag environmental agencies (AEAs), and governors and assemblies at the levels of provinces (Aimags), districts (Soums) and communities (Bahgs) remains complex and convoluted. Despite a broad division of labour, a high level of overlap exists in terms of data management; monitoring water resources, water uses and law implementation; law enforcement; and to a certain degree the implementation of measures among these actors. The principle of fiscal equivalence is also not fully realised in Mongolian water resources management. In terms of financing water governance, RBAs are primarily financed through the national budget and AEAs through sub-national province budgets. However, uncertainties exist regarding the allocation of water-use fees due to inconsistent legal provisions. In practice, available funds to RBAs only cover fixed costs. Thus, RBAs are largely assigned unfunded mandates for planning, monitoring and implementing water protection. This considerably limits the effectiveness of the river basin management approach. Overall, AEAs have somewhat higher budgets for environmental protection than RBAs. However, the case study shows, for example, that AEAs sometimes do not allocate any funds for water-related projects at all and do not necessarily earmark 35 per cent of water-use fees for environmental protection. Furthermore, problems of underfinancing exacerbate problems of overlapping responsibilities. The inconsistent legal provisions on water-use fees have led to competition between AEAs and RBAs, which undermines trust between the different agencies and makes it more difficult to perform the tasks that they share as well as to coordinate on those tasks where their responsibilities overlap. Still, in the case analysed, recent first attempts have been undertaken to clarify responsibilities in Memorandums of Understanding. While the effectiveness of these Memorandums of Understanding should be subject to future research, they alone will hardly solve the problem of underfinancing. Therefore, the paper concludes that in Mongolia, fiscal decentralisation and the institutionalisation of river basin management are, so far, hardly mutually supportive, but rather competitive processes. It recommends a number of legal adjustments as well as the financial empowerment of RBAs and RBCs in order to support the sustainable use of water resources.